I. General Considerations 5. Teja v.

IAC, 148 SCRA 347

6. Philippine Rabbit Bus Lines Inc. v. Gabatin, 31 July 1968
A. Public Utilities 7. PILTEL v. NTC, et al, 28 August 2003
1. Article XII, Sec. 11, 17, 18, 19, 1987 Const.
2. CA 146 (Public Service Act), as amended, Sec. 13(b) 6. Private nature; rights and obligations of parties inter se arising from
a) What is a public utility? transactions relating to transportation:
b) What is a public service? a) absent a transportation contract

Cases: Cases:
1. J.G. Summit Holdings, Inc. v. CA, 412 SCRA 10 1. Lara v. Valencia, 104 Phil. 65
2. Bagatsing v. Committee on Privatization, 246 SCRA 334
3. Albano v. Reyes, 175 SCRA 224 b) arising from a transportation contract
4. Tatad v. Garcia, 243 SCRA 436 I. definition
5. PAL v. CAB, 270 SCRA 538 II. elements
III. liability of registered owner
3. Regulation of Public Utilities
Cases:
Cases: 1. PCI Leasing v. UCPB General Insurance, 557 SCRA 141
1. Republic of the Philippines v. Manila Electric Company, 391
SCRA 700
2. Compare with: Freedom from Debt Coalition v. MWSS, 539 SCRA
621
3. Globe Telecom Inc. v. NTC et al, 26 July 2004

B. Transportation
1. Definition
2. Public nature
a) Public Service Act, Secs. 13, 14, 15*, 16, 18, 19 and 20 (a), (b), (e),
(g), (h) and (i).
*Compare to Act No. 3108, as amended by Act No. 3316
(which used public utility instead of public service, cited in
Batangas case)

Cases:
1. Y Transit v. NLRC, 229 SCRA 508

b) The Certificate of Public Convenience (CPC), the Certificate of Public

Convenience and Necessity (CPCN), and the Prior Operator Rule

Cases:
1. Raymundo v. Luneta Motor, 58 Phil. 389
2. Batangas Transportation v. Orlanes, 52 Phil. 455
3. San Pablo v. Pantranco, 153 SCRA 199
4. PAL v. CAB, supra
 1. J.G. Summit v. CA
G.R. No. 124293 January 31, 2005
J.G. SUMMIT HOLDINGS, INC., petitioner,
vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and
Members; ASSET PRIVATIZATION TRUST; and PHILYARDS HOLDINGS,
INC., respondents.
RESOLUTION
PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G.
Summit Holdings, Inc. for reconsideration of our Resolution dated September
24, 2003 and to elevate this case to the Court En Banc. The petitioner
questions the Resolution which reversed our Decision of November 20, 2000,
which in turn reversed and set aside a Decision of the Court of Appeals
promulgated on July 18, 1995.
I. Facts
The undisputed facts of the case, as set forth in our Resolution of September
24, 2003, are as follows:
On January 27, 1997, the National Investment and Development Corporation
(NIDC), a government corporation, entered into a Joint Venture Agreement
(JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for
the construction, operation and management of the Subic National Shipyard,
Inc. (SNS) which subsequently became the Philippine Shipyard and
Engineering Corporation (PHILSECO). Under the JVA, the NIDC and
KAWASAKI will contribute P330 million for the capitalization of PHILSECO in
the proportion of 60%-40% respectively. One of its salient features is the grant
to the parties of the right of first refusal should either of them decide to sell,
assign or transfer its interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in
SNS [PHILSECO] to any third party without giving the other under the same
terms the right of first refusal. This provision shall not apply if the transferee is
a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI
affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest in
PHILSECO to the Philippine National Bank (PNB). Such interests were
subsequently transferred to the National Government pursuant to
Administrative Order No. 14. On December 8, 1986, President Corazon C.
Aquino issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and
possession of, conserve, manage and dispose of non-performing assets of the
National Government. Thereafter, on February 27, 1987, a trust agreement
was entered into between the National Government and the APT wherein the
latter was named the trustee of the National Government's share in
PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to
settle its huge obligations to PNB, the National Government's shareholdings in
PHILSECO increased to 97.41% thereby reducing KAWASAKI's
shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the
APT deemed it best to sell the National Government's share in PHILSECO to
private entities. After a series of negotiations between the APT and
KAWASAKI, they agreed that the latter's right of first refusal under the JVA be
"exchanged" for the right to top by five percent (5%) the highest bid for the said
shares. They further agreed that KAWASAKI would be entitled to name a
company in which it was a stockholder, which could exercise the right to top.
On September 7, 1990, KAWASAKI informed APT that Philyards Holdings,
Inc. (PHI)1 would exercise its right to top.
At the pre-bidding conference held on September 18, 1993, interested bidders
were given copies of the JVA between NIDC and KAWASAKI, and of the Asset
Specific Bidding Rules (ASBR) drafted for the National Government's 87.6%
equity share in PHILSECO. The provisions of the ASBR were explained to the
interested bidders who were notified that the bidding would be held on
December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public
bidding is the National Government's equity in PHILSECO consisting of
896,869,942 shares of stock (representing 87.67% of PHILSECO's
outstanding capital stock), which will be sold as a whole block in accordance
with the rules herein enumerated.
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be subject to the final approval
of both the APT Board of Trustees and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.

3.0 This public bidding shall be on an Indicative Price Bidding basis. The
Indicative price set for the National Government's 87.67% equity in PHILSECO
is PESOS: ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at
its regular meeting following the bidding, for the purpose of determining
whether or not it should be endorsed by the APT Board of Trustees to the
COP, and the latter approves the same. The APT shall advise Kawasaki Heavy
Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc., that the
highest bid is acceptable to the National Government. Kawasaki Heavy
Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of
thirty (30) calendar days from the date of receipt of such advice from APT
within which to exercise their "Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings,
Inc. exercise their "Option to Top the Highest Bid," they shall so notify the APT
about such exercise of their option and deposit with APT the amount
equivalent to ten percent (10%) of the highest bid plus five percent (5%) thereof
within the thirty (30)-day period mentioned in paragraph 6.0 above. APT will
then serve notice upon Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. declaring them as the preferred bidder and they shall have a
period of ninety (90) days from the receipt of the APT's notice within which to
pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings,
Inc. fail to exercise their "Option to Top the Highest Bid" within the thirty (30)-
day period, APT will declare the highest bidder as the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate care
these rules, the official bid forms, including any addenda or amendments
thereto issued during the bidding period. The bidder shall likewise be
responsible for informing itself with respect to any and all conditions
concerning the PHILSECO Shares which may, in any manner, affect the
bidder's proposal. Failure on the part of the bidder to so examine and inform
itself shall be its sole risk and no relief for error or omission will be given by
APT or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.2
submitted a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00)
with an acknowledgment of KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty
(30) days to act on APT's recommendation based on the result of this bidding.
Should the COP approve the highest bid, APT shall advise Kawasaki Heavy
Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc. that the
highest bid is acceptable to the National Government. Kawasaki Heavy
Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of
thirty (30) calendar days from the date of receipt of such advice from APT
within which to exercise their "Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.
As petitioner was declared the highest bidder, the COP approved the sale on
December 3, 1993 "subject to the right of Kawasaki Heavy Industries,
Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as specified in the
bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting the offer
of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium
composed of KAWASAKI, [PHILYARDS], Mitsui, Keppel, SM Group, ICTSI
and Insular Life violated the ASBR because the last four (4) companies were
the losing bidders thereby circumventing the law and prejudicing the weak
winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving
the same option to top to PHI constituted unwarranted benefit to a third party;
(d) no right of first refusal can be exercised in a public bidding or auction sale;
and (e) the JG Summit consortium was not estopped from questioning the
proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance
of the purchase price of the subject bidding. On February 7, 1994, the APT
notified petitioner that PHI had exercised its option to top the highest bid and
that the COP had approved the same on January 6, 1994. On February 24,
1994, the APT and PHI executed a Stock Purchase Agreement. Consequently,
petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057.
On May 11, 1994, said petition was referred to the Court of Appeals. On July
18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that
the petition for mandamus was not the proper remedy to question the
constitutionality or legality of the right of first refusal and the right to top that
was exercised by KAWASAKI/PHI, and that the matter must be brought "by
the proper party in the proper forum at the proper time and threshed out in a
full blown trial." The Court of Appeals further ruled that the right of first refusal
and the right to top are prima facie legal and that the petitioner, "by
participating in the public bidding, with full knowledge of the right to top granted
to KAWASAKI/[PHILYARDS] isestopped from questioning the validity of the
award given to [PHILYARDS] after the latter exercised the right to top and had
paid in full the purchase price of the subject shares, pursuant to the ASBR."
Petitioner filed a Motion for Reconsideration of said Decision which was denied
on March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court
alleging grave abuse of discretion on the part of the appellate court.
On November 20, 2000, this Court rendered x x x [a] Decision ruling among
others that the Court of Appeals erred when it dismissed the petition on the
sole ground of the impropriety of the special civil action of mandamus because
the petition was also one of certiorari. It further ruled that a shipyard like
PHILSECO is a public utility whose capitalization must be sixty percent (60%)
Filipino-owned. Consequently, the right to top granted to KAWASAKI under
the Asset Specific Bidding Rules (ASBR) drafted for the sale of the 87.67%
equity of the National Government in PHILSECO is illegal not only because
it violates the rules on competitive bidding but more so, because it allows
foreign corporations to own more than 40% equity in the shipyard. It also held
that "although the petitioner had the opportunity to examine the ASBR before
it participated in the bidding, it cannot be estopped from questioning the
unconstitutional, illegal and inequitable provisions thereof." Thus, this Court
voided the transfer of the national government's 87.67% share in PHILSECO
to Philyard[s] Holdings, Inc., and upheld the right of JG Summit, as the highest
bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The
assailed Decision and Resolution of the Court of Appeals are REVERSED and
SET ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion
Thirty Million Pesos (P2,030,000,000.00), less its bid deposit plus interests
upon the finality of this Decision. In turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests
from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks
representing 87.6% of PHILSECO's total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred
Thirty-One Million Five Hundred Thousand Pesos (P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three basic
issues for x x x resolution: (1) Whether PHILSECO is a public utility; (2)
Whether under the 1977 JVA, KAWASAKI can exercise its right of first refusal
only up to 40% of the total capitalization of PHILSECO; and (3) Whether the
right to top granted to KAWASAKI violates the principles of competitive
bidding.3 (citations omitted)
In a Resolution dated September 24, 2003, this Court ruled in favor of the
respondents. On the first issue, we held that Philippine Shipyard and
Engineering Corporation (PHILSECO) is not a public utility, as by nature, a
shipyard is not a public utility4 and that no law declares a shipyard to be a
public utility.5 On the second issue, we found nothing in the 1977 Joint Venture
Agreement (JVA) which prevents Kawasaki Heavy Industries, Ltd. of Kobe,
Japan (KAWASAKI) from acquiring more than 40% of PHILSECOs total
capitalization.6 On the final issue, we held that the right to top granted to
KAWASAKI in exchange for its right of first refusal did not violate the principles
of competitive bidding.7
On October 20, 2003, the petitioner filed a Motion for Reconsideration8 and a
Motion to Elevate This Case to the Court En Banc.9 Public respondents
Committee on Privatization (COP) and Asset Privatization Trust (APT), and
private respondent Philyards Holdings, Inc. (PHILYARDS) filed their
Comments on J.G. Summit Holdings, Inc.s (JG Summits) Motion for
Reconsideration and Motion to Elevate This Case to the Court En Banc on
January 29, 2004 and February 3, 2004, respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this litigation are
the following:
1. Whether there are sufficient bases to elevate the case at bar to the Court
en banc.
2. Whether the motion for reconsideration raises any new matter or cogent
reason to warrant a reconsideration of this Courts Resolution of September
24, 2003.
Motion to Elevate this Case to the
Court En Banc
The petitioner prays for the elevation of the case to the Court en banc on the
following grounds:
1. The main issue of the propriety of the bidding process involved in the present
case has been confused with the policy issue of the supposed fate of the
shipping industry which has never been an issue that is determinative of this
case.10
2. The present case may be considered under the Supreme Court Resolution
dated February 23, 1984 which included among en banc cases those involving
a novel question of law and those where a doctrine or principle laid down by
the Court en banc or in division may be modified or reversed.11
3. There was clear executive interference in the judicial functions of the Court
when the Honorable Jose Isidro Camacho, Secretary of Finance, forwarded to
Chief Justice Davide, a memorandum dated November 5, 2001, attaching a
copy of the Foreign Chambers Report dated October 17, 2001, which matter
was placed in the agenda of the Court and noted by it in a formal resolution
dated November 28, 2001.12
Opposing J.G. Summits motion to elevate the case en banc, PHILYARDS
points out the petitioners inconsistency in previously opposing PHILYARDS
Motion to Refer the Case to the Court En Banc. PHILYARDS contends that
J.G. Summit should now be estopped from asking that the case be referred to
the Court en banc. PHILYARDS further contends that the Supreme Court en
banc is not an appellate court to which decisions or resolutions of its divisions
may be appealed citing Supreme Court Circular No. 2-89 dated February 7,
1989.13 PHILYARDS also alleges that there is no novel question of law
involved in the present case as the assailed Resolution was based on well-
settled jurisprudence. Likewise, PHILYARDS stresses that the Resolution was
merely an outcome of the motions for reconsideration filed by it and the COP
and APT and is "consistent with the inherent power of courts to amend and
control its process and orders so as to make them conformable to law and
justice. (Rule 135, sec. 5)"14 Private respondent belittles the petitioners
allegations regarding the change in ponente and the alleged executive
interference as shown by former Secretary of Finance Jose Isidro Camachos
memorandum dated November 5, 2001 arguing that these do not justify a
referral of the present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should
be granted, J.G. Summit further argued that: its Opposition to the Office of the
Solicitor Generals Motion to Refer is different from its own Motion to Elevate;
different grounds are invoked by the two motions; there was unwarranted
"executive interference"; and the change in ponente is merely noted in
asserting that this case should be decided by the Court en banc.15
We find no merit in petitioners contention that the propriety of the bidding
process involved in the present case has been confused with the policy issue
of the fate of the shipping industry which, petitioner maintains, has never been
an issue that is determinative of this case. The Courts Resolution of
September 24, 2003 reveals a clear and definitive ruling on the propriety of the
bidding process. In discussing whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates the principles of competitive
bidding, we made an exhaustive discourse on the rules and principles of public
bidding and whether they were complied with in the case at bar.16 This Court
categorically ruled on the petitioners argument that PHILSECO, as a shipyard,
is a public utility which should maintain a 60%-40% Filipino-foreign equity ratio,
as it was a pivotal issue. In doing so, we recognized the impact of our ruling
on the shipbuilding industry which was beyond avoidance.17
We reject petitioners argument that the present case may be considered
under the Supreme Court Resolution dated February 23, 1984 which included
among en banc cases those involving a novel question of law and those where
a doctrine or principle laid down by the court en banc or in division may be
modified or reversed. The case was resolved based on basic principles of the
right of first refusal in commercial law and estoppel in civil law. Contractual
obligations arising from rights of first refusal are not new in this jurisdiction and
have been recognized in numerous cases.18 Estoppel is too known a civil law
concept to require an elongated discussion. Fundamental principles on public
bidding were likewise used to resolve the issues raised by the petitioner. To
be sure, petitioner leans on the right to top in a public bidding in arguing that
the case at bar involves a novel issue. We are not swayed. The right to top
was merely a condition or a reservation made in the bidding rules which was
fully disclosed to all bidding parties. In Bureau Veritas, represented by Theodor
H. Hunermann v. Office of the President, et al., 19 we dealt with this
conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v.
Aytona, et al., (L-18751, 28 April 1962, 4 SCRA 1245), that in an "invitation to
bid, there is a condition imposed upon the bidders to the effect that the bidding
shall be subject to the right of the government to reject any and all bids subject
to its discretion. In the case at bar, the government has made its choice and
unless an unfairness or injustice is shown, the losing bidders have no cause
to complain nor right to dispute that choice. This is a well-settled doctrine in
this jurisdiction and elsewhere."
The discretion to accept or reject a bid and award contracts is vested in the
Government agencies entrusted with that function. The discretion given to the
authorities on this matter is of such wide latitude that the Courts will not
interfere therewith, unless it is apparent that it is used as a shield to a
fraudulent award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The
exercise of this discretion is a policy decision that necessitates prior inquiry,
investigation, comparison, evaluation, and deliberation. This task can best be
discharged by the Government agencies concerned, not by the Courts. The
role of the Courts is to ascertain whether a branch or instrumentality of the
Government has transgressed its constitutional boundaries. But the Courts will
not interfere with executive or legislative discretion exercised within those
boundaries. Otherwise, it strays into the realm of policy decision-making.
It is only upon a clear showing of grave abuse of discretion that the Courts will
set aside the award of a contract made by a government entity. Grave abuse
of discretion implies a capricious, arbitrary and whimsical exercise of power
(Filinvest Credit Corp. v. Intermediate Appellate Court, No. 65935, 30
September 1988, 166 SCRA 155). The abuse of discretion must be so patent
and gross as to amount to an evasion of positive duty or to a virtual refusal to
perform a duty enjoined by law, as to act at all in contemplation of law, where
the power is exercised in an arbitrary and despotic manner by reason of
passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-40867,
26 July 1988, 163 SCRA 489).
The facts in this case do not indicate any such grave abuse of discretion on
the part of public respondents when they awarded the CISS contract to
Respondent SGS. In the "Invitation to Prequalify and Bid" (Annex "C," supra),
the CISS Committee made an express reservation of the right of the
Government to "reject any or all bids or any part thereof or waive any defects
contained thereon and accept an offer most advantageous to the
Government." It is a well-settled rule that where such reservation is made in
an Invitation to Bid, the highest or lowest bidder, as the case may be, is not
entitled to an award as a matter of right (C & C Commercial Corp. v. Menor, L-
28360, 27 January 1983, 120 SCRA 112). Even the lowest Bid or any Bid may
be rejected or, in the exercise of sound discretion, the award may be made to
another than the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing
43 Am. Jur., 788). (emphases supplied)1awphi1.nt
Like the condition in the Bureau Veritas case, the right to top was a condition
imposed by the government in the bidding rules which was made known to all
parties. It was a condition imposed on all bidders equally, based on the APTs
exercise of its discretion in deciding on how best to privatize the governments
shares in PHILSECO. It was not a whimsical or arbitrary condition plucked
from the ether and inserted in the bidding rules but a condition which the APT
approved as the best way the government could comply with its contractual
obligations to KAWASAKI under the JVA and its mandate of getting the most
advantageous deal for the government. The right to top had its history in the
mutual right of first refusal in the JVA and was reached by agreement of the
government and KAWASAKI.
Further, there is no "executive interference" in the functions of this Court by
the mere filing of a memorandum by Secretary of Finance Jose Isidro
Camacho. The memorandum was merely "noted" to acknowledge its filing. It
had no further legal significance. Notably too, the assailed Resolution dated
September 24, 2003 was decided unanimously by the Special First Division in
favor of the respondents.
Again, we emphasize that a decision or resolution of a Division is that of the
Supreme Court20 and the Court en banc is not an appellate court to which
decisions or resolutions of a Division may be appealed.21
For all the foregoing reasons, we find no basis to elevate this case to the Court
en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioners Motion for
Reconsideration. First, that a fair resolution of the case should be based on
contract law, not on policy considerations; the contracts do not authorize the
right to top to be derived from the right of first refusal.22 Second, that neither
the right of first refusal nor the right to top can be legally exercised by the
consortium which is not the proper party granted such right under either the
JVA or the Asset Specific Bidding Rules (ASBR).23 Third, that the
maintenance of the 60%-40% relationship between the National Investment
and Development Corporation (NIDC) and KAWASAKI arises from contract
and from the Constitution because PHILSECO is a landholding corporation
and need not be a public utility to be bound by the 60%-40% constitutional
limitation.24
On the other hand, private respondent PHILYARDS asserts that J.G. Summit
has not been able to show compelling reasons to warrant a reconsideration of
the Decision of the Court.25 PHILYARDS denies that the Decision is based
mainly on policy considerations and points out that it is premised on principles
governing obligations and contracts and corporate law such as the rule
requiring respect for contractual stipulations, upholding rights of first refusal,
and recognizing the assignable nature of contracts rights.26 Also, the ruling
that shipyards are not public utilities relies on established case law and
fundamental rules of statutory construction. PHILYARDS stresses that
KAWASAKIs right of first refusal or even the right to top is not limited to the
40% equity of the latter.27 On the landholding issue raised by J.G. Summit,
PHILYARDS emphasizes that this is a non-issue and even involves a question
of fact. Even assuming that this Court can take cognizance of such question
of fact even without the benefit of a trial, PHILYARDS opines that landholding
by PHILSECO at the time of the bidding is irrelevant because what is essential
is that ultimately a qualified entity would eventually hold PHILSECOs real
estate properties.28 Further, given the assignable nature of the right of first
refusal, any applicable nationality restrictions, including landholding
limitations, would not affect the right of first refusal itself, but only the manner
of its exercise.29 Also, PHILYARDS argues that if this Court takes cognizance
of J.G. Summits allegations of fact regarding PHILSECOs landholding, it must
also recognize PHILYARDS assertions that PHILSECOs landholdings were
sold to another corporation.30 As regards the right of first refusal, private
respondent explains that KAWASAKIs reduced shareholdings (from 40% to
2.59%) did not translate to a deprivation or loss of its contractually granted
right of first refusal.31 Also, the bidding was valid because PHILYARDS
exercised the right to top and it was of no moment that losing bidders later
joined PHILYARDS in raising the purchase price.32
In cadence with the private respondent PHILYARDS, public respondents COP
and APT contend:
1. The conversion of the right of first refusal into a right to top by 5% does not
violate any provision in the JVA between NIDC and KAWASAKI.
2. PHILSECO is not a public utility and therefore not governed by the
constitutional restriction on foreign ownership.
3. The petitioner is legally estopped from assailing the validity of the
proceedings of the public bidding as it voluntarily submitted itself to the terms
of the ASBR which included the provision on the right to top.
4. The right to top was exercised by PHILYARDS as the nominee of
KAWASAKI and the fact that PHILYARDS formed a consortium to raise the
required amount to exercise the right to top the highest bid by 5% does not
violate the JVA or the ASBR.
5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition
of lands does not apply to PHILSECO because as admitted by petitioner itself,
PHILSECO no longer owns real property.
6. Petitioners motion to elevate the case to the Court en banc is baseless and
would only delay the termination of this case.33
In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the
arguments of the public and private respondents in this wise:
1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with
losing bidders through the exercise of a right to top, which is contrary to law
and the constitution is null and void for being violative of substantive due
process and the abuse of right provision in the Civil Code.
a. The bidders[] right to top was actually exercised by losing bidders.
b. The right to top or the right of first refusal cannot co-exist with a genuine
competitive bidding.
c. The benefits derived from the right to top were unwarranted.
2. The landholding issue has been a legitimate issue since the start of this
case but is shamelessly ignored by the respondents.
a. The landholding issue is not a non-issue.
b. The landholding issue does not pose questions of fact.
c. That PHILSECO owned land at the time that the right of first refusal was
agreed upon and at the time of the bidding are most relevant.
d. Whether a shipyard is a public utility is not the core issue in this case.
3. Fraud and bad faith attend the alleged conversion of an inexistent right of
first refusal to the right to top.
a. The history behind the birth of the right to top shows fraud and bad faith.
b. The right of first refusal was, indeed, "effectively useless."
4. Petitioner is not legally estopped to challenge the right to top in this case.
a. Estoppel is unavailing as it would stamp validity to an act that is prohibited
by law or against public policy.
b. Deception was patent; the right to top was an attractive nuisance.
c. The 10% bid deposit was placed in escrow.
J.G. Summits insistence that the right to top cannot be sourced from the right
of first refusal is not new and we have already ruled on the issue in our
Resolution of September 24, 2003. We upheld the mutual right of first refusal
in the JVA.34 We also ruled that nothing in the JVA prevents KAWASAKI from
acquiring more than 40% of PHILSECOs total capitalization.35 Likewise,
nothing in the JVA or ASBR bars the conversion of the right of first refusal to
the right to top. In sum, nothing new and of significance in the petitioners
pleading warrants a reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of first
refusal nor the right to top can legally be exercised by the consortium which is
not the proper party granted such right under either the JVA or the ASBR.
Thus, we held:
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM
Group, Insular Life Assurance, Mitsui and ICTSI), has joined PHILYARDS in
the latter's effort to raise P2.131 billion necessary in exercising the right to top
is not contrary to law, public policy or public morals. There is nothing in the
ASBR that bars the losing bidders from joining either the winning bidder
(should the right to top is not exercised) or KAWASAKI/PHI (should it exercise
its right to top as it did), to raise the purchase price. The petitioner did not
allege, nor was it shown by competent evidence, that the participation of the
losing bidders in the public bidding was done with fraudulent intent. Absent
any proof of fraud, the formation by [PHILYARDS] of a consortium is legitimate
in a free enterprise system. The appellate court is thus correct in holding the
petitioner estopped from questioning the validity of the transfer of the National
Government's shares in PHILSECO to respondent.36
Further, we see no inherent illegality on PHILYARDS act in seeking funding
from parties who were losing bidders. This is a purely commercial decision
over which the State should not interfere absent any legal infirmity. It is
emphasized that the case at bar involves the disposition of shares in a
corporation which the government sought to privatize. As such, the persons
with whom PHILYARDS desired to enter into business with in order to raise
funds to purchase the shares are basically its business. This is in contrast to a
case involving a contract for the operation of or construction of a government
infrastructure where the identity of the buyer/bidder or financier constitutes an
important consideration. In such cases, the government would have to take
utmost precaution to protect public interest by ensuring that the parties with
which it is contracting have the ability to satisfactorily construct or operate the
infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is a
landholding company, KAWASAKI could exercise its right of first refusal only
up to 40% of the shares of PHILSECO due to the constitutional prohibition on
landholding by corporations with more than 40% foreign-owned equity. It
further argues that since KAWASAKI already held at least 40% equity in
PHILSECO, the right of first refusal was inutile and as such, could not
subsequently be converted into the right to top. 37 Petitioner also asserts that,
at present, PHILSECO continues to violate the constitutional provision on
landholdings as its shares are more than 40% foreign-owned.38 PHILYARDS
admits that it may have previously held land but had already divested such
landholdings.39 It contends, however, that even if PHILSECO owned land, this
would not affect the right of first refusal but only the exercise thereof. If the land
is retained, the right of first refusal, being a property right, could be assigned
to a qualified party. In the alternative, the land could be divested before the
exercise of the right of first refusal. In the case at bar, respondents assert that
since the right of first refusal was validly converted into a right to top, which
was exercised not by KAWASAKI, but by PHILYARDS which is a Filipino
corporation (i.e., 60% of its shares are owned by Filipinos), then there is no
violation of the Constitution.40 At first, it would seem that questions of fact
beyond cognizance by this Court were involved in the issue. However, the
records show that PHILYARDS admits it had owned land up until the time of
the bidding.41 Hence, the only issue is whether KAWASAKI had a valid right
of first refusal over PHILSECO shares under the JVA considering that
PHILSECO owned land until the time of the bidding and KAWASAKI already
held 40% of PHILSECOs equity.
We uphold the validity of the mutual rights of first refusal under the JVA
between KAWASAKI and NIDC. First of all, the right of first refusal is a property
right of PHILSECO shareholders, KAWASAKI and NIDC, under the terms of
their JVA. This right allows them to purchase the shares of their co-shareholder
before they are offered to a third party. The agreement of co-shareholders to
mutually grant this right to each other, by itself, does not constitute a violation
of the provisions of the Constitution limiting land ownership to Filipinos and
Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still owns
land, the right of first refusal can be validly assigned to a qualified Filipino entity
in order to maintain the 60%-40% ratio. This transfer, by itself, does not amount
to a violation of the Anti-Dummy Laws, absent proof of any fraudulent intent.
The transfer could be made either to a nominee or such other party which the
holder of the right of first refusal feels it can comfortably do business with.
Alternatively, PHILSECO may divest of its landholdings, in which case
KAWASAKI, in exercising its right of first refusal, can exceed 40% of
PHILSECOs equity. In fact, it can even be said that if the foreign shareholdings
of a landholding corporation exceeds 40%, it is not the foreign stockholders
ownership of the shares which is adversely affected but the capacity of the
corporation to own land that is, the corporation becomes disqualified to own
land. This finds support under the basic corporate law principle that the
corporation and its stockholders are separate juridical entities. In this vein, the
right of first refusal over shares pertains to the shareholders whereas the
capacity to own land pertains to the corporation. Hence, the fact that
PHILSECO owns land cannot deprive stockholders of their right of first refusal.
No law disqualifies a person from purchasing shares in a landholding
corporation even if the latter will exceed the allowed foreign equity, what the
law disqualifies is the corporation from owning land. This is the clear import of
the following provisions in the Constitution:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State.
With the exception of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production, joint
venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under
such terms and conditions as may be provided by law. In cases of water rights
for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, beneficial use may be the measure and limit of
the grant.
xxx xxx xxx
Section 7. Save in cases of hereditary succession, no private lands shall be
transferred or conveyed except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain.42 (emphases supplied)
The petitioner further argues that "an option to buy land is void in itself
(Philippine Banking Corporation v. Lui She, 21 SCRA 52 [1967]). The right of
first refusal granted to KAWASAKI, a Japanese corporation, is similarly void.
Hence, the right to top, sourced from the right of first refusal, is also void."43
Contrary to the contention of petitioner, the case of Lui She did not that say
"an option to buy land is void in itself," for we ruled as follows:
x x x To be sure, a lease to an alien for a reasonable period is valid. So is an
option giving an alien the right to buy real property on condition that he is
granted Philippine citizenship. As this Court said in Krivenko vs. Register of
Deeds:
[A]liens are not completely excluded by the Constitution from the use of lands
for residential purposes. Since their residence in the Philippines is temporary,
they may be granted temporary rights such as a lease contract which is not
forbidden by the Constitution. Should they desire to remain here forever and
share our fortunes and misfortunes, Filipino citizenship is not impossible to
acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece of
land, by virtue of which the Filipino owner cannot sell or otherwise dispose of
his property, this to last for 50 years, then it becomes clear that the
arrangement is a virtual transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the land (jus possidendi, jus
utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus
disponendi) rights the sum total of which make up ownership. It is just as if
today the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership is made
up are consolidated in an alien. And yet this is just exactly what the parties in
this case did within this pace of one year, with the result that Justina Santos'[s]
ownership of her property was reduced to a hollow concept. If this can be done,
then the Constitutional ban against alien landholding in the Philippines, as
announced in Krivenko vs. Register of Deeds, is indeed in grave peril.44
(emphases supplied; Citations omitted)
In Lui She, the option to buy was invalidated because it amounted to a virtual
transfer of ownership as the owner could not sell or dispose of his properties.
The contract in Lui She prohibited the owner of the land from selling, donating,
mortgaging, or encumbering the property during the 50-year period of the
option to buy. This is not so in the case at bar where the mutual right of first
refusal in favor of NIDC and KAWASAKI does not amount to a virtual transfer
of land to a non-Filipino. In fact, the case at bar involves a right of first refusal
over shares of stock while the Lui She case involves an option to buy the land
itself. As discussed earlier, there is a distinction between the shareholders
ownership of shares and the corporations ownership of land arising from the
separate juridical personalities of the corporation and its shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that
PHILSECO continues to violate the Constitution as its foreign equity is above
40% and yet owns long-term leasehold rights which are real rights.45 It cites
Article 415 of the Civil Code which includes in the definition of immovable
property, "contracts for public works, and servitudes and other real rights over
immovable property."46 Any existing landholding, however, is denied by
PHILYARDS citing its recent financial statements.47 First, these are questions
of fact, the veracity of which would require introduction of evidence. The Court
needs to validate these factual allegations based on competent and reliable
evidence. As such, the Court cannot resolve the questions they pose. Second,
J.G. Summit misreads the provisions of the Constitution cited in its own
pleadings, to wit:

29.2 Petitioner has consistently pointed out in the past that private respondent
is not a 60%-40% corporation, and this violates the Constitution x x x The
violation continues to this day because under the law, it continues to own real
property

xxx xxx xxx

32. To review the constitutional provisions involved, Section 14, Article XIV of
the 1973 Constitution (the JVA was signed in 1977), provided:

"Save in cases of hereditary succession, no private lands shall be transferred

or conveyed except to individuals, corporations, or associations qualified to
acquire or hold lands of the public domain."

32.1 This provision is the same as Section 7, Article XII of the 1987
Constitution.

32.2 Under the Public Land Act, corporations qualified to acquire or hold lands
of the public domain are corporations at least 60% of which is owned by Filipino
citizens (Sec. 22, Commonwealth Act 141, as amended). (emphases supplied)

As correctly observed by the public respondents, the prohibition in the

Constitution applies only to ownership of land.48 It does not extend to
immovable or real property as defined under Article 415 of the Civil Code.
Otherwise, we would have a strange situation where the ownership of
immovable property such as trees, plants and growing fruit attached to the
land49 would be limited to Filipinos and Filipino corporations only.

III.

WHEREFORE, in view of the foregoing, the petitioners Motion for

Reconsideration is DENIED WITH FINALITY and the decision appealed from
is AFFIRMED. The Motion to Elevate This Case to the Court En Banc is
likewise DENIED for lack of merit.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Corona, and Tinga, JJ.,

concur.
 2. Bagatsing v. Committee on Privatization
G.R. No. 112399 July 14, 1995
REPRESENTATIVE AMADO S. BAGATSING, petitioner,
vs.
COMMITTEE ON PRIVATIZATION, PHILIPPINE NATIONAL OIL COMPANY
and THE HONORABLE EXECUTIVE SECRETARY, respondents.
G.R. No. 115994 July 14, 1995
NEPTALI A. GONZALES, ERNESTO A. MACEDA, JOHN H. OSMEA,
WIGBERTO E. TAADA, JOKER O. ARROYO, AMADO D. BAGATSING, and
RENE A.V. SAGUISAG, petitioners,
vs.
DELFIN LAZARO, in his capacity as Chairman of the Philippine National Oil
Company, MONICO JACOB, in his capacity as President of PNOC,
COMMITTEE ON PRIVATIZATION, PHILIPPINE NATIONAL OIL COMPANY,
PETRON CORPORATION, and ARAMCO OVERSEAS COMPANY B.V.,
respondents.
QUIASON, J.:
The petition for prohibition in G.R. No. 112399 sought: (1) to nullify the bidding
conducted for the sale of a block of shares constituting 40% of the capital stock
(40% block) of Petron Corporation (PETRON) and the award made to Aramco
Overseas Company, B.V. (ARAMCO) as the highest bidder in the bidding
conducted on December 15, 1993; and (2) to stop the sale of said block of
shares to ARAMCO. The Supplemental Petition in said case sought to annul
the bidding of the 40% block held on December 15, 1993 and to set aside the
award given to ARAMCO (Rollo, pp. 94-99).
The petition for prohibition and certiorari in G.R. No. 115994 sought to annul
the sale of the same block of Petron shares subject of the petition in G.R. No.
112399.
The petition in G.R. No. 112399 asked for the issuance of a temporary
restraining order to stop respondents from selling the 40% block to a foreign
buyer (Rollo, p. 15). The petition for a temporary restraining order was
reiterated in a motion filed subsequently (Rollo, pp. 107-108).
The petition in G.R. No. 115994 asked for the issuance of a temporary
restraining order and a writ of preliminary injunction to restrain and enjoin
public respondents "from proceeding with the projected initial public offering
on July 18, 1994 of the 20% of Petron" (Rollo, p. 33).
The Urgent Supplemental Petition in said case reiterated the prayer for the
immediate issuance of a preliminary injunction to enjoin the initial public
offering of the Petron shares (Rollo, pp. 223-225).
Actions on the petitions and motions for the issuance of a temporary
restraining order and a writ of preliminary injunction were deferred.
The petition in G.R. No. 112399 was filed by Representative Amado S.
Bagatsing while the petition in G.R. No. 115994 was filed by Senators Neptali
A. Gonzales, Ernesto A. Maceda, John H. Osmea and Wigberto E. Taada,
Representatives Joker Arroyo and Amado D. Bagatsing and former Senator
Rene A.V. Saguisag all in their capacity as members of Congress,
taxpayers and concerned citizens, except in the case of Mr. Saguisag, who
sued as a private law practitioner, member of the Integrated Bar of the
Philippines, taxpayer and concerned citizen.
Respondent Monico V. Jacob was impleaded in G.R. No. 115994 in his
capacity as President of respondent Philippine National Oil Company (PNOC).
At the time of the filing of the petition, he had ceased to be the President of
PNOC and a member of its governing board. However, he is the Chairman of
the Board of Directors and Chief Executive Officer of PETRON, a respondent
in both cases. He asked for the dismissal of the petition on the ground that
having ceased to be PNOC President, petitioners had no more cause of action
against him. We deny the motion in view of the fact that the petition questions
his acts as President of PNOC.
In G.R. No. 115994, ARAMCO entered a limited appearance to question the
jurisdiction over its person, alleging that it is a foreign company organized
under the laws of the Netherlands, that it is not doing nor licensed to do
business in the Philippines, and that it does not maintain an office or a business
address in and has not appointed a resident agent for the Philippines (Rollo,
p. 240).
I
PETRON was originally registered with the Securities and Exchange
Commission (SEC) in 1966 under the corporate name "Esso Philippines, Inc."
(ESSO) as a subsidiary of Esso Eastern, Inc. and Mobil Petroleum Company,
Inc.

In 1973, at the height of the world-wide oil crisis brought about by the Middle
East conflicts, the Philippine government acquired ESSO through the PNOC.
ESSO became a wholly-owned company of the government under the
corporate name PETRON and as a subsidiary of PNOC.
In acquiring PETRON, the government aimed to have a buffer against the
vagaries of oil prices in the international market. It was felt that PETRON can
serve as a counterfoil against price manipulation that might go unchecked if all
the oil companies were foreign-owned. Indeed, PETRON helped alleviate the
energy crises that visited the country from 1973 to 1974, 1979 to 1980, and
1990 to 1991.
PETRON owns the largest, most modern complex refinery in the Philippines
with a nameplate capacity of 155,000 barrels per stream day. It is also the
country's biggest combined retail and wholesale market of refined petroleum
products. In 1992, it garnered a 39.8% share of all domestic products sold, and
at year end its assets totalled P24.4 billion. PETRON's income as of
September 1993 was P2.7 billion. It is listed as the No. 1 corporation in terms
of assets and income in the Philippines.
On December 8, 1986, President Corazon C. Aquino promulgated
Proclamation No. 50 in the exercise of her legislative power under the
Freedom Constitution.
The Proclamation is entitled "Proclaiming and Launching a Program for the
Expeditious Disposition and Privatization of Certain Government Corporations
and/or the Assets thereof, and Creating the Committee on Privatization and
the Asset Privatization Trust."
Implicit in the Proclamation is the need to raise revenue for the Government
and the ideal of leaving business to the private sector. The Government can
then concentrate on the delivery of basic services and the performance of vital
public functions.
On December 2, 1991, President Fidel V. Ramos noted that "[t]he privatization
program has proven successful and beneficial to the economy in terms of
expanding private economic activity, improving investment climate,
broadening ownership base and developing capital markets, and generating
substantial revenues for priority government expenditure," but "[t]here is still
much potential for harnessing private initiative to undertake in behalf of
government certain activities which can be more effectively and efficiently
undertaken by the private sector" (G.R. No. 112399, Rollo, p. 31).
In its meeting held on September 9, 1992, the PNOC Board of Directors
approved Specific Thrust No. 6 and moved "to bring to the attention of the
Administration the need to privatize Petron whether or not there will be
deregulation [of the oil industry]" (G.R. No. 112399, Rollo p. 67).
In a letter dated October 21, 1992, Secretary Ramon R. Del Rosario, as
Chairman of the Committee on Privatization, endorsed to President Ramos the
proposal of PNOC to "privatize 65% of the stock of Petron, open to both foreign
as well as domestic investors." Secretary Del Rosario added: "The entry of
foreign investors in this field is expected to result in improved technology and
know-how and will enable Petron to have access to international information
network as well as access to external markets and refining contracts" (G.R.
No. 112399, Rollo, p. 72).
On January 4, 1993, a follow-up letter was sent by Secretary Del Rosario
informing the President that: "The privatization of Petron, recommended by
both the management of Philippine National Oil Company (PNOC) and the
Committee on Privatization (COP), will send the right signals that may re-ignite
investor interest in the Philippines for 1993" (G.R. No. 112399, Rollo, p. 73).
In a letted dated January 6, 1993, Secretary designate Delfin L. Lazaro of the
Department of Energy, favorably endorsed for approval the plan to sell up to
65% of the capital stock of PETRON. He also noted that the said plan was
"consistent with the Energy Sector Action Plan approved by the President and
the Cabinet on November 27, 1992" (G.R. No. 112399, Rollo, p. 74).
On January 12, 1993, the Cabinet approved the privatization of PETRON as
part of the Energy Sector Action Plan.
On March 25, 1993, the Government Corporate Monitoring and Coordinating
Committee (GCMCC) recommended a 100% privatization of PETRON.
On March 31, 1993, the PNOC Board of Directors passed a resolution
authorizing the company to negotiate and conclude a contract with the
consortium of Salomon Brothers of Hongkong Limited and PCI Capital
Corporation for financial advisory services to be rendered to PETRON.
On April 1, 1993, the GCMCC recommended to COP the privatization of only
65% of the capital stock of PETRON, instead of the 100% privatization
previously recommended.
On June 10, 1993, in a letter addressed to Secretary Ernesto C. Leung, the
COP Chairman, President Ramos approved the privatization of PETRON up
to a maximum of 65% of its capital stock.

The Petron Privatization Working Committee (PWC) was thus formed. It
finalized a privatization strategy with 40% of the shares to be sold to a strategic
partner and 20% to the general public through the initial public offering and
employees stock option plan.
The Commission on Audit (COA) was consulted as to the valuation
methodologies and privatization process. The privatization plan was also
presented to the COP on July 23, 1993, and to the President on July 31, 1993
for their approval.
On August 10, 1993, the President approved the 40% 40% 20%
privatization strategy of PETRON. In the press release on the presidential
approval of the said privatization, the Office of the President commented:
For Petron, gaining a long-term strategic partner that will ensure stable crude
oil supplies and/or advance its technological and financial position will be a
definite advantage. In addition, its partial privatization will provide the flexibility
and level playing field it needs to remain a major, and therefore influential
player in the oil industry. In 1992, Petron dominated the oil industry with a
commanding 40% market share (G.R. No. 112399, Rollo, p. 83).
The invitation to bid was published in several newspapers of general
circulation, both local and foreign. The deadline for the submission of
proposals was set for December 15, 1993 at 5:00 P.M.
PETRON furnished the Office of the Solicitor General (OSG) with copies of the
draft of the stock purchase agreement and shareholders' agreement, with a
request for the review of the same.
In a meeting of the Petron PWC held on December 15, 1993 at 12:00 noon, it
decided that Westmont Holdings (WESTMONT) was disqualified from
participating in the bidding for its alleged failure to comply with the technical
and financial requirements for a strategic partner.
Salomon Brothers valued PETRON at US$600 million and the 40% block at
US$240 million. For the entire Petron shares, respondent Secretary Lazaro
proposed a valuation of US$1.4 billion; Petron management, US$857 million;
and Frances Onate, a member of the Petron PWC, a valuation of US$743
million to US$1 billion.
Finally, the floor price bid for the 40% block was fixed at US$440 million.
The bids of Petroliam Nasional Berhad (PETRONAS), ARAMCO and
WESTMONT were submitted while the floor price was being discussed.
At about 6:15 P.M. and before the bids were opened, WESTMONT through its
representative, Manuel Estrella, submitted additional documents to prove its
financial capability to carry out the purchase of the 40% block. The PNOC
Board of Directors adopted Resolution No. 865, S. 1993, rejecting the bid of
WESTMONT for not having met the pre-qualification criteria of financial
capability, long-term crude supply availability, and technical and management
expertise in the oil business. It was further resolved that the bid submitted by
WESTMONT would be returned unopened.
At 6:30 P.M., the other two bids were opened. The bid of ARAMCO was for
US$502 million while the bid of PETRONAS was for US$421 million. The
PNOC Board of Directors then passed Resolution No. 866, S. 1993, declaring
ARAMCO the winning bidder.
On December 15, 1993, the OSG informed PETRON that the drafts of the
stock purchase agreement and shareholders' agreement contained no legally
objectionable provisions and could be the basis for PETRON's negotiation with
the winning bidder.
On December 16, 1993, respondent Monico Jacob, in his capacity as
President and Chief Executive Officer of PNOC, endorsed to the COP the bid
of ARAMCO for approval. The COP gave its approval on the same day. Also
on the same day, Manuel Estrella filed a complaint in behalf of WESTMONT
with PNOC, questioning the award of the 40% block of Petron shares to
ARAMCO. The COP answered Estrella's letter on January 14, 1994,
explaining why WESTMONT's bid was returned unopened.
On February 3, 1994, PNOC and ARAMCO signed the Stock Purchase
Agreement and on March 4, 1994, the two companies signed the
Shareholders' Agreement.
Public respondents submitted to the Securities and Exchange Commission
(SEC) a proposed price for the initial public offering of the 20% block set for
July 18, 1994, the second phase of PETRON's privatization. PETRON
proposed a price of between P7.00 and P16.00 per share but the SEC
approved a price of P9.00 per share.
II
PETRON questions the locus standi of petitioners to file the action (Rollo, pp.
479-484). Petitioners however, countered that they filed the action in their
capacity as members of Congress.
In Philippine Constitution Association v. Hon. Salvador Enriquez, G.R. No.
113105, August 19, 1994, we held that the members of Congress have the
legal standing to question the validity of acts of the Executive which injures
them in their person or the institution of Congress to which they belong. In the
latter case, the acts cause derivative but nonetheless substantial injury which
can be questioned by members of Congress (Kennedy v. James, 412 F. Supp.
353 [1976]). In the absence of a claim that the contract in question violated the
rights of petitioners or impermissibly intruded into the domain of the
Legislature, petitioners have no legal standing to institute the instant action in
their capacity as members of Congress.
However, petitioners can bring the action in their capacity as taxpayers under
the doctrine laid down in Kilosbayan, Inc. v. Guingona, 232 SCRA 110 (1994).
Under said ruling, taxpayers may question contracts entered into by the
national government or government-owned or controlled corporations alleged
to be in contravention of the law. As long as the ruling in Kilosbayan on locus
standi is not reversed, we have no choice but to follow it and uphold the legal
standing of petitioners as taxpayers to institute the present action.
III
A. Petitioners in G.R. Nos. 112399 and 115994 claim that the inclusion
of PETRON in the privatization program contravened the declared policy of the
State to dispose of only non-performing assets of the government and
government-owned or controlled corporations which have been found
unnecessary or inappropriate for the government sector to maintain. They
contend that PETRON is neither a non-performing asset nor is it unnecessary
or inappropriate for the government to maintain or operate (G.R. No. 112399,
Rollo, pp. 3-4, 8-13; G.R. No. 115994, Rollo, pp. 14-17, 216-217).
To say that only non-performing assets should be the subject of privatization
does not conform with the realities of economic life. In the world of business
and finance, it is difficult to sell a business in dire, financial distress. As
entrepreneur Don Eugenio Lopez used to advert to his younger executives:
"Don't buy headaches. Don't even accept them if they are offered to you on a
silver platter." It is only in a fire sale that the government can expect to get rid
of its non-performing assets, more so if the sequencing pattern insisted by
petitioners (initial public offering of 10% block to small investors) is followed.
While Proclamation No. 50 mandates that non-performing assets should
promptly be sold, it does not prohibit the disposal of the other kinds of assets,
whether performing, necessary or appropriate.
Section 1 of the Proclamation reads:
Statement of Policy. It shall be the policy of the State to promote
privatization through an orderly, coordinated and efficient program for the
prompt disposition of the large number of non-performing assets of the
government financial institutions, and certain government-owned or controlled
corporations which have been found unnecessary or inappropriate for the
government sector to maintain.
The said provision classifies two types of assets: (1) Non-performing assets of
government financial institutions; and (2) Government-owned or controlled
corporations which have been found unnecessary or inappropriate for the
government sector to maintain.
Under the Proclamation, it is the COP which is tasked with the duty of
identifying and arranging the sale of government assets. Section 5(1) of the
Proclamation provides:
Powers and Functions. The Committee shall have the following powers and
functions:
(1) To identify to the President of the Philippines, and arrange for transfer
to the National Government and/or to the Trust and the subsequent divestment
to the private sector of (a) such non-performing assets as may be identified by
the Committee, and approved by the President, for transfer from the
government banks for disposal by the Trust or the government banks, and (b)
such government corporations, whether parent or subsidiary, and/or such of
their assets, as may have been recommended by the Committee for
disposition, and Provided, that no such identification, recommendation or
approval shall be necessary where a parent corporation decides on its own to
divest of, in whole or in part, or liquidate a subsidiary corporation organized
under the Corporation Code; Provided further, that any such independent
disposition shall be undertaken with the prior approval of the Committee and
in accordance with the general disposition guidelines as the Committee may
provide; Provided, finally, that in every case the sale or disposition shall be
approved by the Committee with respect to the buyer and price only;
(Emphasis supplied).
xxx xxx xxx
After a long study by PNOC, PETRON was found to be "inappropriate or
unnecessary" for the government to maintain because refining and marketing
of petroleum is an aspect of the industry which is better left to the private
sector. In making such finding, PNOC was guided by Section 4(a) of
Proclamation No. 50, which provides:
. . . (a) divesting to the private sector in the soonest possible time through the
appropriate disposition entities, those assets with viable productive potential
as going concerns, taking into account where appropriate the implications of
such transfers on sectoral productive capacities and market limitation, . . . .
These objectives are to be pursued within the context of furthering the national
economy through strengthened and revitalized private enterprise system.
The decision of PNOC to privatize PETRON and the approval of the COP of
such privatization, being made in accordance with Proclamation No. 50,
cannot be reviewed by this Court. Such acts are exercises of the executive
function as to which the Court will not pass judgment upon or inquire into their
wisdom (Llamas v. Orbos, 202 SCRA 844 [1991]).
Such identification by the COP of the government corporations to be privatized
was not even necessary in the case of PETRON. Under Section 5(1) of
Proclamation No. 50 ". . . [N]o such identification, recommendation or approval
shall be necessary where a parent corporation decides on its own to divest of,
in whole or in part, or liquidate a subsidiary corporation organized under the
Corporation Code; . . . ."
The only participation of the COP in the sale of the Petron shares by PNOC,
the parent corporation, was the approval of the buyers and price. The last
sentence of paragraph (1) of Section 5 provides:
. . . Provided, finally, that in every case the sale or disposition shall be approved
by the Committee with respect to the buyer and price only.
PNOC, in privatizing PETRON, was simply exercising its corporate power to
dispose of all or a portion of its shares in a subsidiary. PNOC was created
under P.D. No. 334, as amended by P.D. No. 927, which empowers it to
acquire shares of the capital stock of any other corporation and to dispose of
the same shares.
Besides, if only non-performing assets are intended to be sold, it would be
unnecessary to provide in the Proclamation for the rehabilitation of government
corporations to make the same more attractive to investors and potential
buyers.
Section 5 (5) of Proclamation No. 50 provides:
In its discretion, to approve or disapprove, subject to the availability of funds
for such purpose, the rehabilitation of assets pending disposition by the Trust
or any other government agency authorized by the Committee, or the Trust
with the approval of the Committee, Provided that, the budget for each
rehabilitation project shall be likewise subject to prior approval by the
Committee.
Nowhere in the Proclamation can one infer that it prohibits a partial
privatization of vital, appropriate and performing corporations owned by the
government.
Proclamation No. 50 contained an Annex listing the corporations to be
privatized and those to be retained. While PETRON was mentioned among
the corporations to be retained, Section 6 of the Proclamation directed a
continuing study on what corporations should be recommended for
privatization.
It is markworthy that the said Annex did not indicate the percentage of shares
that will be privatized or that will be retained. It can be interpreted to mean that
all the shares of the corporations in the list to be privatized may be sold, while
only some of the shares of the other corporations may be sold. It is also worthy
of note that the list of corporations to be retained added the phrase "As of 31
August 1992," meaning that any of the corporations mentioned therein may be
delisted after that date if a study would justify such action.
The government is not disposing of all of its shares in PETRON but is retaining
a 40% block. Together with the widely-held 20% of the private sector control
of PETRON by the government is assured. With such equity in PETRON, the
government can also maintain a window to the oil industry and at the same
time share in the profits of the company.
The privatization of PETRON could well be undertaken under laws other than
Proclamation No. 50.
Of significance is Section 2(c) of R.A. No. 7181, which provides that:
Privatization of government assets classified as a strategic industry by the
National Economic and Development Authority shall first be approved by the
President of the Philippines (Emphasis supplied).
Section 6, the repealing clause of R.A. No. 7181, expressly repealed Sections
3 and 10 of Proclamation No. 50 and all other laws, orders and rules and
regulations which are inconsistent therewith.
The only requirement under R.A. No. 7181 in order to privatize a strategic
industry like PETRON is the approval of the President. In the case of
PETRON's privatization, the President gave his approval not only once but
twice.
PETRON's privatization is also in line with and is part of the Philippine Energy
Program under R.A. No. 7638. Section 5(b) of the law provides that the
Philippine Energy Program shall include a policy direction towards the
privatization of government agencies related to energy.
Under P.D. No. 334, the law creating PNOC, said corporation is granted the
authority "[t]o establish and maintain offices, branches, agencies, subsidiaries,
correspondents or other units anywhere as may be needed by the Company
and reorganize or abolish the same as it may deem proper."
B. Petitioners next question the regularity and validity of the bidding (G.R.
No. 112399, Rollo, pp. 97-99; G.R. No. 115994, Rollo, pp. 17-24, 221).
Petitioners in G.R. No. 115994 claim that the public bidding was tainted with
haste and arbitrariness and that there was a failed bidding because there was
only one offeror (Rollo, pp. 17-24).
Taking the cudgels for WESTMONT, petitioners urge that said bidder was only
given two days to conduct a review PETRON's vast business operations in
order to comply with the technical and financial requirements for pre-
qualification. Petitioners also complain that the pre-qualification and actual
bidding were conducted on the same day, thus denying a disqualified bidder
an opportunity to protest or to appeal. They question the fixing of the floor price
on the same day as the public bidding and only after the bids had been
submitted. Likewise, they say that the approval of the bid of ARAMCO by the
Assets Privatization Trust on the same day it is submitted is anomalous (G.R.
No. 115994, Rollo, pp. 22-24).
On the claim that there was a failed bidding, petitioners contend that there
were only three bidders. One of them, PETRONAS, submitted a bid lower than
the floor price while a second, failed to pre-qualify. Citing Section V-2-a of COA
Circular No. 89-296 dated January 27, 1989, they argue that where only one
bidder qualifies, there is a failure of public auction (G.R. No. 115994, Rollo, p.
22).
When a failure of bidding takes place is defined in Circular No. 89-296 of the
Commission on Audit, which prescribes the "Audit Guidelines on the
Divestment or Disposal of Property and other Assets of the National
Government Agencies and Instrumentalities, Local Government Units and
Government-Owned or Controlled Corporations and their Subsidiaries."
V. MODES OR DISPOSAL/DIVESTMENT:
xxx xxx xxx
2 Sale Thru Negotiation
For justifiable reasons and as demanded by the exigencies of the service,
disposal thru negotiated sale may be resorted to and undertaken by the proper
committee or body in the agency or entity concerned taking into consideration
the following factors:
a. There was a failure of public auction. As envisioned in this Circular,
there is a failure of public auction in any of the following instances:
1 if there is only one offeror.
In this case, the offer or bid, if sealed, shall not be opened.
2 if all the offers/tenders are non-complying or unacceptable.
A tender is non-complying or unacceptable when it does not comply with the
prescribed legal, technical and financial requirement for pre-qualification.
Under said COA Circular, there is a failure of bidding when: 1) there is only
one offeror; or (2) when all the offers are non-complying or unacceptable.
In the case at bench, there were three offerors: SAUDI ARAMCO, PETRONAS
and WESTMONT.
While two offerors were disqualified, PETRONAS for submitting a bid below
the floor price and WESTMONT for technical reasons, not all the offerors were
disqualified. To constitute a failed bidding under the COA Circular, all the
offerors must be disqualified.
Petitioners urge that in effect there was only one bidder and that it can not be
said that there was a competition on "an equal footing" (G.R. No. 112399,
Rollo, p. 122). But the COA Circular does not speak of accepted bids but of
offerors, without distinction as to whether they were disqualified.

The COA itself, the agency that adopted the rules on bidding procedure to be
followed by government offices and corporations, had upheld the validity and
legality of the questioned bidding. The interpretation of an agency of its own
rules should be given more weight than the interpretation by that agency of the
law it is merely tasked to administer.
The case of Danville Maritime, Inc. v. Commission on Audit, 175 SCRA 701
(1989), relied upon by petitioner, is inappropriate. In said case, there was only
one offeror in the bidding. The Court said: ". . . [I]f there is only one participating
bidder, the bidding is non-competitive and, hence, falls short of the
requirement. There would, in fact, be no bidding at all since, obviously, the
lone participant cannot compete against himself."
C. According to petitioners, the law mandates the offer for sale of 10% of
the Petron shares to small investors before a sale of the 40% block of shares
to ARAMCO can be made.
They theorize that the best way to determine the real market price of Petron
shares was to first have a public offering as required by R.A. No. 7181. The
reverse procedure followed by private respondents, according to petitioners,
gave unwarranted benefits to private respondents because they bought the
Petron shares at only P6.70 per share when the shares fetched as high as
P16.00 per share in the stock market (G.R. No. 115994, Rollo, pp. 24-27).
To bolster their theory, petitioners cite Section 2(d) of R.A. No. 7181, which
provides:
A minimum of ten (10) percent of the sale of assets in corporation form shall
first be offered to small local investors including Filipino Overseas Workers and
where practicable also in the sale of any physical asset.
Petitioners also invoke the Implementing Guidelines promulgated to
implement R.A. No. 7181, which provides:
In the sale of assets in corporate form, at least 10% of the total shares for
privatization shall first be offered to small local investors. Employees Stock
Ownership Plans (ESOPS) and public offerings shall count towards
compliance with these provisions . . . (Sec. 3).
We agree with PETRON that the language of Section 2(d) of R.A. No. 7181
does not mandate any sequencing for the disposition of shares in a
government-owned corporation being privatized.
It is the unfortunate use of the word "first" in Section 2(d) of R.A. No. 7181 that
threw petitioners off track and caused them to misread the provision as one
requiring a mandatory sequencing of the sale. As a wit once said, if a centipede
would be compelled to follow a prescribed sequencing of its steps, it could
never move an inch.
A reasonable reading of the provision is that it merely gives a right of first
refusal by the small investors vis-a-vis the 10% block of shares. As far as the
10% block is concerned, the small investors shall have a first chance to
subscribe thereto whenever it is offered. The offer may be made before, after
or simultaneous with the offer of the shares to strategic partners or major
investors depending on the prevailing condition of the market. Certainly, in an
initial public offering, it is good judgment and business sense that should
prevail, rather than the rigid and inflexible rules of step one, step two, etc.
The Rules and Regulations issued by the COP to implement R.A. No. 7181
set aside 10% of the shares subject of the privatization to be offered first to the
small local investors, and made clear that as far as said 10% block is
concerned, the small investors shall have the first crack to buy the same.
These Rules have been consistently applied in previous privatizations, and
they constitute a contemporaneous construction and interpretation of a law by
the implementing, administrative agency. Such construction is accorded great
respect by the Court (Nestle Philippines, Inc. v. Court of Appeals, 203 SCRA
504 [1991]).
What Congress clearly mandated in R.A. No. 7181 was that at least 10% of
the shares of a privatized corporation must be reserved and offered for sale to
the general public. In the deliberation of the Congressional Committee on
Government-Owned and Controlled Corporations on December 18, 1991, the
Committee spoke of having the 10% set aside without impeding the
privatization process.
Note that when the bidding of the 40% block of Petron shares had been
announced, the 10% block for offering to the small local investors had been
identified, reserved and set aside. This is more than a substantial compliance
with the mandate of law.
There is great risk in first making an initial public offering of the 10% block
before bidding out the 40% block to a strategic partner. It may happen that the
price of the shares offered initially to the public plunges below the offering price
approved by the SEC.
The sensitive market forces involved in initial public offerings render unrealistic
any legislative mandate to follow a sequencing in the sale of government-
owned shares in the market. The legislators, practical men of affairs as they
are, were aware of the vagaries, variables and vicissitudes of the stock market
when they enacted R.A. No. 7181. It is more reasonable to read the said law
as leaving to the COP and the government corporations concerned to
determine the sequencing of the sale to strategic investors and the general
public. To require the offer of 10% to the general public before the sale of a
block to a strategic partner may delay or even impede the entire privatization
program.
The clear policy behind Proclamation No. 50 is to give the COP and APT
maximum flexibility in their operation to ensure the most efficient
implementation of the privatization program.
Under Section 5(3) of the Proclamation, full powers are given the COP to
establish "mandatory as well as indicative guidelines for . . . the disposition
of . . . assets." Under Section 12(2) thereof, the APT is given the "widest
latitude of flexibility . . . particularly in the areas of . . . disposition . . . ."
Petitioners can not rely on Opinion No. 126, Series of 1992 dated September
28, 1992. The query posed to the Secretary of Justice in said opinion was the
legality of the plan of National Development Corporation to pass on to the
prospective buyer of its shares in a local bank the responsibility of complying
with the requirement prescribed in Section 2(d) of R.A. No. 7181 that a
minimum of 10% of the shares of a corporation "shall first be offered to small
local investors . . . ." The Secretary of Justice naturally opined that said
proposal could not legally be done on the principal ground that the "observance
of this legal requirement is incumbent upon the disposition entity, which in this
case is NDC, but as contemplated, the sale to small investors shall be
undertaken by the private buyer of the [local bank's] shares." The query posed
to the Secretary of Justice was not about the sequencing of the sale of the
10% block.
We can not see how the failure to dispose the 10% block to the general public
before the sale of the 40% block to ARAMCO gave the latter unwarranted
benefits.
Actually ARAMCO paid a total of P14,671,985,306.00 for the acquisition of the
Petron shares. This aggregate amount represents in peso terms: (1) the
US$502 million winning bid paid by ARAMCO to PNOC on March 4, 1994; and
(2) the additional amount of US$30,327,987.00 remitted on July 11, 1994,
representing the "purchase price adjustment" stipulated in the Stock Purchase
Agreement. Consequently, ARAMCO's acquisition cost was P7.336 per share.
A fair comparison between the ARAMCO price and the IPO price should take
into consideration the levels of financial, legal and miscellaneous costs directly
related to the ARAMCO purchase, including the consequent opportunity cost
or income to PNOC and the National Government, had the proceeds been
invested in Philippine Treasury Bills from March 4 and July 11, respectively, to
September 7, 1994. On this basis, the effective proceeds on the ARAMCO
purchase amount to P7.8559 per share, and not P6.70 as claimed by
petitioners (G.R. No. 115994, Rollo, pp. 506-507). On the other hand, the
seller's expenses incurred in connection with the IPO, including taxes and
other fees paid to the National Government, reached a total of P833.081
million or P0.833 per share (G.R. No. 115944, Rollo, p. 507).
To make further a fair comparison between the two prices, the proceeds from
the IPO should be net of PNOC's share in PETRON's net income from March
to August 1994, because in effect it was giving up this amount in favor of the
IPO investors. As projected, the total net income of PETRON from March to
August 1994 is P1,870,500.00. Twenty percent of this is P374,100.00 which
translates to a per share reduction of P0.3741 from the IPO proceeds. This
would further erode the effective proceeds from the IPO sale to P7.7929 per
share.
Finally, cash dividends of P2 billion and property dividends of P153 million, or
a total of P2.153 billion was declared and transferred to PNOC before the
ARAMCO purchase was effected. Imputing such dividends would translate the
effective proceeds to PNOC from the ARAMCO sale to P8.2865 per share
(P7.8559 plus P0.4306 [or 40% of P2.153 Billion]). Using this figure, the IPO
proceeds of P7.7929 per share is definitely lower than the ARAMCO proceeds
of P8.2865.
Unlike the ordinary buyers of shares listed in the stock exchange, ARAMCO,
as a strategic investor, had to spend for the due diligence review of the
business and records of PETRON.
Aside from this monetary considerations, PNOC derived the following value-
added benefits:
1) PNOC is assured of an adequate supply of crude oil. The element of
uncertainty on sources of crude oil supply is reduced, if not eliminated,
ARAMCO being the world's largest known producer and exporter of five
different types of crude oil.
2) PNOC's refinery can achieve optimum efficiency because of better
crude slates.
3) ARAMCO has to hold on to the Petron shares for the next five years.
Aside from its stabilizing effect on the market price of Petron shares, this
holding period will prevent ARAMCO from deriving any speculative gains.
Unlike ARAMCO, the buyers of the IPO can sell their shares any time without
constraints.
4) ARAMCO's presence in PETRON has a tremendous, unquantifiable
influence in investor's confidence in PETRON as a publicly-listed company.
This confidence could not be generated if PETRON's partner has a bad track
record.
5) ARAMCO will assist PNOC in raising funds to finance the more than
P12 billion in projected capital expenditures required over the next four years
to make PETRON competitive.
The pricing of shares of stock is a highly specialized field that is better left to
the experts. It involves an inquiry into the earning potential, dividend history,
business risks, capital structure, management, asset values of the company;
the prevailing business climate; the political and economic conditions; and a
myriad of other factors that bear on the valuation of shares (Van Horne,
Financial Management and Policy 652-653 [8th ed.]); Leffler and Farwell, The
Stock Market 573-575 [3rd ed.]).
D. Finally, petitioners contend that PETRON is a public utility, in which
foreign ownership of its equity shall not exceed 40% thereof and the foreign
participation in the governing body shall be limited to their proportionate share
in its capital. According to petitioners, ARAMCO is entitled only to a maximum
of four seats in the ten-man board but was given five seats (G.R. No. 112389,
Rollo, pp. 30-64; G.R. No. 115994, Rollo, pp. 30-31, 202-212).
This issue hinges on whether the business of oil refining is a "public utility"
within the purview of Section 11, Article XII of the 1987 Constitution (adopted
from Sec. 5, Art. XIV of the 1973 Constitution), which provides:
No franchise, certificate, or any other form of authorization for the operation of
a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at
least sixty per centum of whose capital is owned by such citizens, nor shall
such franchise, certificate or authorization be exclusive in character for a
longer period than fifty years. Neither shall any such franchise or right be
granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so requires. The
State shall encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital and
all the executive and managing officers of such corporation or association must
be citizens of the Philippines (Emphasis supplied).
Implementing Section 8 of Article XIV of the 1935 Constitution, the progenitor
of Section 5 of Article XIV of the 1973 Constitution, is Section 13(b) of the
Public Service Act, which provides:
The term "public service" includes every person that now or hereafter may
own, operate, manage, or control in the Philippines, for hire or compensation,
with general or limited clientele, whether permanent, occasional, or accidental
and done for general business purposes, any common carrier, railroad, street
railway, . . . and other similar public services: . . . .
More pertinent is Section 7 of R.A. No. 387, the Petroleum Act of 1949, which
provides:
Petroleum operation a public utility. Everything relating to the exploration
for and exploitation of petroleum which may consist naturally or below the
surface of the earth, and everything relating to the manufacture, refining,
storage, or transportation by special methods of petroleum, as provided for in
this Act, is hereby declared to be of public utility (Rollo, p. 519; Emphasis
supplied).
A "public utility" under the Constitution and the Public Service Law is one
organized "for hire or compensation" to serve the public, which is given the
right to demand its service. PETRON is not engaged in oil refining for hire and
compensation to process the oil of other parties.
Likewise, the activities considered as "public utility" under Section 7 of R.A.
No. 387 refer only to petroleum which is indigenous to the Philippines. Hence,
the refining of petroleum products sourced from abroad as is done by Petron,
is not within the contemplation of the law.
We agree with the opinion of the Secretary of Justice that the refining of
imported crude oil is not regulated by, nor is it within the scope and purview of
the Petroleum Act of 1949. He said:
Examination of our statute books fails to reveal any law or legal provision
which, in explicit terms, either permits or prohibits the establishment and
operation of oil refineries that would refine only imported crude oil (Opinion,
No. 267, S. 1955).
WHEREFORE, the petitions are DISMISSED. SO ORDERED.
 3. Albano v. Reyes
G.R. No. 83551 July 11, 1989
RODOLFO B. ALBANO, petitioner,
vs.
HON. RAINERIO O. REYES, PHILIPPINE PORTS AUTHORITY,
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., E. RAZON,
INC., ANSCOR CONTAINER CORPORATION, and SEALAND SERVICES.
LTD., respondents.
Vicente Abad Santos for petitioner.
Bautista, Picazo, Buyco & Tan for private respondents.
PARAS, J.:
This is a Petition for Prohibition with prayer for Preliminary Injunction or
Restraining Order seeking to restrain the respondents Philippine Ports
Authority (PPA) and the Secretary of the Department of Transportation and
Communications Rainerio O. Reyes from awarding to the International
Container Terminal Services, Inc. (ICTSI) the contract for the development,
management and operation of the Manila International Container Terminal
(MICT).
On April 20, 1987, the PPA Board adopted its Resolution No. 850 directing
PPA management to prepare the Invitation to Bid and all relevant bidding
documents and technical requirements necessary for the public bidding of the
development, management and operation of the MICT at the Port of Manila,
and authorizing the Board Chairman, Secretary Rainerio O. Reyes, to oversee
the preparation of the technical and the documentation requirements for the
MICT leasing as well as to implement this project.
Accordingly, respondent Secretary Reyes, by DOTC Special Order 87-346,
created a seven (7) man "Special MICT Bidding Committee" charged with
evaluating all bid proposals, recommending to the Board the best bid, and
preparing the corresponding contract between the PPA and the winning bidder
or contractor. The Bidding Committee consisted of three (3) PPA
representatives, two (2) Department of Transportation and Communications
(DOTC) representatives, one (1) Department of Trade and Industry (DTI)
representative and one (1) private sector representative. The PPA
management prepared the terms of reference, bid documents and draft
contract which materials were approved by the PPA Board.
The PPA published the Invitation to Bid several times in a newspaper of
general circulation which publication included the reservation by the PPA of
"the right to reject any or all bids and to waive any informality in the bids or to
accept such bids which may be considered most advantageous to the
government."
Seven (7) consortia of companies actually submitted bids, which bids were
opened on July 17, 1987 at the PPA Head Office. After evaluation of the
several bids, the Bidding Committee recommended the award of the contract
to develop, manage and operate the MICT to respondent International
Container Terminal Services, Inc. (ICTSI) as having offered the best Technical
and Financial Proposal. Accordingly, respondent Secretary declared the ICTSI
consortium as the winning bidder.
Before the corresponding MICT contract could be signed, two successive
cases were filed against the respondents which assailed the legality or
regularity of the MICT bidding. The first was Special Civil Action 55489 for
"Prohibition with Preliminary Injunction" filed with the RTC of Pasig by Basilio
H. Alo, an alleged "concerned taxpayer", and, the second was Civil Case 88-
43616 for "Prohibition with Prayer for Temporary Restraining Order (TRO)"
filed with the RTC of Manila by C.F. Sharp Co., Inc., a member of the nine (9)
firm consortium "Manila Container Terminals, Inc." which had actively
participated in the MICT Bidding.
Restraining Orders were issued in Civil Case 88-43616 but these were
subsequently lifted by this Court in Resolutions dated March 17, 1988 (in G.R.
No. 82218 captioned "Hon. Rainerio O. Reyes etc., et al. vs. Hon. Doroteo N.
Caneba, etc., et al.) and April 14, 1988 (in G.R. No. 81947 captioned "Hon.
Rainerio O. Reyes etc., et al. vs. Court of Appeals, et al.")
On May 18, 1988, the President of the Philippines approved the proposed
MICT Contract, with directives that "the responsibility for planning, detailed
engineering, construction, expansion, rehabilitation and capital dredging of the
port, as well as the determination of how the revenues of the port system shall
be allocated for future port works, shall remain with the PPA; and the contractor
shall not collect taxes and duties except that in the case of wharfage or
tonnage dues and harbor and berthing fees, payment to the Government may
be made through the contractor who shall issue provisional receipts and turn
over the payments to the Government which will issue the official receipts."
(Annex "I").
The next day, the PPA and the ICTSI perfected the MICT Contract (Annex "3")
incorporating therein by "clarificatory guidelines" the aforementioned
presidential directives. (Annex "4").
Meanwhile, the petitioner, Rodolfo A. Albano filed the present petition as
citizen and taxpayer and as a member of the House of Representatives,
assailing the award of the MICT contract to the ICTSI by the PPA. The
petitioner claims that since the MICT is a public utility, it needs a legislative
franchise before it can legally operate as a public utility, pursuant to Article 12,
Section 11 of the 1987 Constitution.
The petition is devoid of merit.
A review of the applicable provisions of law indicates that a franchise specially
granted by Congress is not necessary for the operation of the Manila
International Container Port (MICP) by a private entity, a contract entered into
by the PPA and such entity constituting substantial compliance with the law.
1. Executive Order No. 30, dated July 16, 1986, provides:
WHEREFORE, I, CORAZON C. AQUINO, President of the Republic of the
Philippines, by virtue of the powers vested in me by the Constitution and the
law, do hereby order the immediate recall of the franchise granted to the Manila
International Port Terminals, Inc. (MIPTI) and authorize the Philippine Ports
Authority (PPA) to take over, manage and operate the Manila International Port
Complex at North Harbor, Manila and undertake the provision of cargo
handling and port related services thereat, in accordance with P.D. 857 and
other applicable laws and regulations.
Section 6 of Presidential Decree No. 857 (the Revised Charter of the Philippine
Ports Authority) states:
a) The corporate duties of the Authority shall be:
xxx xxx xxx
(ii) To supervise, control, regulate, construct, maintain, operate, and
provide such facilities or services as are necessary in the ports vested in, or
belonging to the Authority.
xxx xxx xxx
(v) To provide services (whether on its own, by contract, or otherwise)
within the Port Districts and the approaches thereof, including but not limited
to
berthing, towing, mooring, moving, slipping, or docking of any vessel;
loading or discharging any vessel;
sorting, weighing, measuring, storing, warehousing, or otherwise handling
goods.
xxx xxx xxx
b) The corporate powers of the Authority shall be as follows:
xxx xxx xxx
(vi) To make or enter into contracts of any kind or nature to enable it to
discharge its functions under this Decree.
xxx xxx xxx
[Emphasis supplied.]
Thus, while the PPA has been tasked, under E.O. No. 30, with the
management and operation of the Manila International Port Complex and to
undertake the providing of cargo handling and port related services thereat,
the law provides that such shall be "in accordance with P.D. 857 and other
applicable laws and regulations." On the other hand, P.D. No. 857 expressly
empowers the PPA to provide services within Port Districts "whether on its
own, by contract, or otherwise" [See. 6(a) (v)]. Therefore, under the terms of
E.O. No. 30 and P.D. No. 857, the PPA may contract with the International
Container Terminal Services, Inc. (ICTSI) for the management, operation and
development of the MICP.
2. Even if the MICP be considered a public utility, 1 or a public service 2
on the theory that it is a "wharf' or a "dock" 3 as contemplated under the Public
Service Act, its operation would not necessarily call for a franchise from the
Legislative Branch. Franchises issued by Congress are not required before
each and every public utility may operate. Thus, the law has granted certain
administrative agencies the power to grant licenses for or to authorize the
operation of certain public utilities. (See E.O. Nos. 172 and 202)
That the Constitution provides in Art. XII, Sec. 11 that the issuance of a
franchise, certificate or other form of authorization for the operation of a public
utility shall be subject to amendment, alteration or repeal by Congress does
not necessarily, imply, as petitioner posits that only Congress has the power
to grant such authorization. Our statute books are replete with laws granting
specified agencies in the Executive Branch the power to issue such
authorization for certain classes of public utilities. 4
As stated earlier, E.O. No. 30 has tasked the PPA with the operation and
management of the MICP, in accordance with P.D. 857 and other applicable
laws and regulations. However, P.D. 857 itself authorizes the PPA to perform
the service by itself, by contracting it out, or through other means. Reading
E.O. No. 30 and P.D. No. 857 together, the inescapable conclusion is that the
lawmaker has empowered the PPA to undertake by itself the operation and
management of the MICP or to authorize its operation and management by
another by contract or other means, at its option. The latter power having been
delegated to the PPA, a franchise from Congress to authorize an entity other
than the PPA to operate and manage the MICP becomes unnecessary.
In the instant case, the PPA, in the exercise of the option granted it by P.D.
No. 857, chose to contract out the operation and management of the MICP to
a private corporation. This is clearly within its power to do. Thus, PPA's acts of
privatizing the MICT and awarding the MICT contract to ICTSI are wholly within
the jurisdiction of the PPA under its Charter which empowers the PPA to
"supervise, control, regulate, construct, maintain, operate and provide such
facilities or services as are necessary in the ports vested in, or belonging to
the PPA." (Section 6(a) ii, P.D. 857)
The contract between the PPA and ICTSI, coupled with the President's written
approval, constitute the necessary authorization for ICTSI's operation and
management of the MICP. The award of the MICT contract approved by no
less than the President of the Philippines herself enjoys the legal presumption
of validity and regularity of official action. In the case at bar, there is no
evidence which clearly shows the constitutional infirmity of the questioned act
of government.
For these reasons the contention that the contract between the PPA and ICTSI
is illegal in the absence of a franchise from Congress appears bereft of any
legal basis.
3. On the peripheral issues raised by the party, the following
observations may be made:
A. That petitioner herein is suing as a citizen and taxpayer and as a
Member of the House of Representatives, sufficiently clothes him with the
standing to institute the instant suit questioning the validity of the assailed
contract. While the expenditure of public funds may not be involved under the
contract, public interest is definitely involved considering the important role of
the MICP in the economic development of the country and the magnitude of
the financial consideration involved. Consequently, the disclosure provision in
the Constitution 5 would constitute sufficient authority for upholding petitioner's
standing. [Cf. Taada v. Tuvera, G.R. No. 63915, April 24, 1985,136 SCRA
27, citing Severino v. Governor General, 16 Phil. 366 (1910), where the Court
considered the petitioners with sufficient standing to institute an action where
a public right is sought to be enforced.]
B. That certain committees in the Senate and the House of
Representatives have, in their respective reports, and the latter in a resolution
as well, declared their opinion that a franchise from Congress is necessary for
the operation of the MICP by a private individual or entity, does not necessarily
create a conflict between the Executive and the Legislative Branches needing
the intervention of the Judicial Branch. The court is not faced with a situation
where the Executive Branch has contravened an enactment of Congress. As
discussed earlier, neither is the Court confronted with a case of one branch
usurping a power pertaining to another.
C. Petitioner's contention that what was bid out, i.e., the development,
management and operation of the MICP, was not what was subsequently
contracted, considering the conditions imposed by the President in her letter
of approval, thus rendering the bids and projections immaterial and the
procedure taken ineffectual, is not supported by the established facts. The
conditions imposed by the President did not materially alter the substance of
the contract, but merely dealt on the details of its implementation.
D. The determination of whether or not the winning bidder is qualified to
undertake the contracted service should be left to the sound judgment of the
PPA. The PPA, having been tasked with the formulation of a plan for the
development of port facilities and its implementation [Sec. 6(a) (i)], is the
agency in the best position to evaluate the feasibility of the projections of the
bidders and to decide which bid is compatible with the development plan.
Neither the Court, nor Congress, has the time and the technical expertise to
look into this matter.
Thus, the Court in Manuel v. Villena (G.R. No. L-28218, February 27, 1971, 37
SCRA 745] stated:
[C]ourts, as a rule, refuse to interfere with proceedings undertaken by
administrative bodies or officials in the exercise of administrative functions.
This is so because such bodies are generally better equipped technically to
decide administrative questions and that non-legal factors, such as
government policy on the matter, are usually involved in the decisions. [at p.
750.]

In conclusion, it is evident that petitioner has failed to show a clear case of

grave abuse of discretion amounting to lack or excess of jurisdiction as to
warrant the issuance of the writ of prohibition.

WHEREFORE, the petition is hereby DISMISSED.

SO ORDERED.
 4. Tatad v. Garcia
G.R. No. 114222 April 6, 1995
FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON,
petitioners,
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the
Department of Transportation and Communications, and EDSA LRT
CORPORATION, LTD., respondents.
QUIASON, J.:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit
respondents from further implementing and enforcing the "Revised and
Restated Agreement to Build, Lease and Transfer a Light Rail Transit System
for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the 22
April 1992 Revised and Restated Agreement To Build, Lease and Transfer a
Light Rail Transit System for EDSA" dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are
members of the Philippine Senate and are suing in their capacities as Senators
and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent Secretary
of the Department of Transportation and Communications (DOTC), while
private respondent EDSA LRT Corporation, Ltd. is a private corporation
organized under the laws of Hongkong.
I Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal
In 1989, DOTC planned to construct a light railway transit line along EDSA, a
major thoroughfare in Metropolitan Manila, which shall traverse the cities of
Pasay, Quezon, Mandaluyong and Makati. The plan, referred to as EDSA Light
Rail Transit III (EDSA LRT III), was intended to provide a mass transit system
along EDSA and alleviate the congestion and growing transportation problem
in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc.,
represented by Elijahu Levin to DOTC Secretary Oscar Orbos, proposing to
construct the EDSA LRT III on a Build-Operate-Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to
discuss the project with DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the
Financing, Construction, Operation and Maintenance of Infrastructure Projects
by the Private Sector, and For Other Purposes," was signed by President
Corazon C. Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it
took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction
and operation of government projects through private initiative and investment:
Build-Operate-Transfer (BOT) or Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT
III project underway, DOTC, on January 22, 1991 and March 14, 1991, issued
Department Orders Nos. 91-494 and 91-496, respectively creating the
Prequalification Bids and Awards Committee (PBAC) and the Technical
Committee.
After its constitution, the PBAC issued guidelines for the prequalification of
contractors for the financing and implementation of the project The notice,
advertising the prequalification of bidders, was published in three newspapers
of general circulation once a week for three consecutive weeks starting
February 21, 1991.
The deadline set for submission of prequalification documents was March 21,
1991, later extended to April 1, 1991. Five groups responded to the invitation
namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel
International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT
Consortium, composed of ten foreign and domestic corporations: namely,
Kaiser Engineers International, Inc., ACER Consultants (Far East) Ltd. and
Republics, TCGI Engineering All Asia Capital and Leasing Corporation, The
Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol
Industrial Construction Group, Inc, and F. F. Cruz & co., Inc.
On the last day for submission of prequalification documents, the
prequalification criteria proposed by the Technical Committee were adopted
by the PBAC. The criteria totalling 100 percent, are as follows: (a) Legal
aspects 10 percent; (b) Management/Organizational capability 30
percent; and (c) Financial capability 30 percent; and (d) Technical capability
30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the
formulation of the Implementation Rules and Regulations thereof, approved
the same.

After evaluating the prequalification, bids, the PBAC issued a Resolution on
May 9, 1991 declaring that of the five applicants, only the EDSA LRT
Consortium "met the requirements of garnering at least 21 points per criteria
[sic], except for Legal Aspects, and obtaining an over-all passing mark of at
least 82 points" (Rollo, p. 146). The Legal Aspects referred to provided that
the BOT/BT contractor-applicant meet the requirements specified in the
Constitution and other pertinent laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the
President of the Philippines and was replaced by Secretary Pete Nicomedes
Prado. The latter sent to President Aquino two letters dated May 31, 1991 and
June 14, 1991, respectively recommending the award of the EDSA LRT III
project to the sole complying bidder, the EDSA LRT Consortium, and
requesting for authority to negotiate with the said firm for the contract pursuant
to paragraph 14(b) of the Implementing Rules and Regulations of the BOT Law
(Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the
President, issued a directive to the DOTC to proceed with the negotiations. On
July 16, 1991, the EDSA LRT Consortium submitted its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and
respondent EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT
Consortium, entered into an "Agreement to Build, Lease and Transfer a Light
Rail Transit System for EDSA" under the terms of the BOT Law (Rollo, pp.
147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who
replaced Executive Secretary Orbos, informed Secretary Prado that the
President could not grant the requested approval for the following reasons: (1)
that DOTC failed to conduct actual public bidding in compliance with Section
5 of the BOT Law; (2) that the law authorized public bidding as the only mode
to award BOT projects, and the prequalification proceedings was not the public
bidding contemplated under the law; (3) that Item 14 of the Implementing Rules
and Regulations of the BOT Law which authorized negotiated award of
contract in addition to public bidding was of doubtful legality; and (4) that
congressional approval of the list of priority projects under the BOT or BT
Scheme provided in the law had not yet been granted at the time the contract
was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private
respondents re-negotiated the agreement. On April 22, 1992, the parties
entered into a "Revised and Restated Agreement to Build, Lease and Transfer
a Light Rail Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the
parties [are] cognizant of the fact the DOTC has full authority to sign the
Agreement without need of approval by the President pursuant to the
provisions of Executive Order No. 380 and that certain events [had]
supervened since November 7, 1991 which necessitate[d] the revision of the
Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary
Jesus Garcia vice Secretary Prado, and private respondent entered into a
"Supplemental Agreement to the 22 April 1992 Revised and Restated
Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA"
so as to "clarify their respective rights and responsibilities" and to submit [the]
Supplemental Agreement to the President, of the Philippines for his approval"
(Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos
for his consideration and approval. In a Memorandum to Secretary Garcia on
May 6, 1993, approved the said Agreements, (Rollo, p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles from
the Czech and Slovak Federal Republics and will have a maximum carrying
capacity of 450,000 passengers a day, or 150 million a year to be achieved-
through 54 such vehicles operating simultaneously. The EDSA LRT III will run
at grade, or street level, on the mid-section of EDSA for a distance of 17.8
kilometers from F.B. Harrison, Pasay City to North Avenue, Quezon City. The
system will have its own power facility (Revised and Restated Agreement, Sec.
2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger stations and one
depot in 16-hectare government property at North Avenue (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92).
Private respondents shall undertake and finance the entire project required for
a complete operational light rail transit system (Revised and Restated
Agreement, Sec. 4.1; Rollo, p. 58). Target completion date is 1,080 days or
approximately three years from the implementation date of the contract
inclusive of mobilization, site works, initial and final testing of the system
(Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion
and viability thereof, private respondent shall deliver the use and possession
of the completed portion to DOTC which shall operate the same (Supplemental
Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-
62, 84). DOTC shall pay private respondent rentals on a monthly basis through
an Irrevocable Letter of Credit. The rentals shall be determined by an
independent and internationally accredited inspection firm to be appointed by
the parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed
upon, private respondent's capital shall be recovered from the rentals to be
paid by the DOTC which, in turn, shall come from the earnings of the EDSA
LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25
years and DOTC shall have completed payment of the rentals, ownership of
the project shall be transferred to the latter for a consideration of only U.S.
$1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of
Republic Act No. 6957, Entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by the
Private Sector, and for Other Purposes" was signed into law by the President.
The law was published in two newspapers of general circulation on May 12,
1994, and took effect 15 days thereafter or on May 28, 1994. The law expressly
recognizes BLT scheme and allows direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:
(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE
SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS
EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE
OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE
CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE
AGREEMENTS IS NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR
ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS
ILLEGAL;
(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS
VIOLATES R; A. NO. 6957 AND, HENCE, IS UNLAWFUL;
(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT
EDSA LRT CORPORATION, LTD. VIOLATES THE REQUIREMENTS
PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS OF THE
BOT LAW AND, HENCE, IS ILLEGAL;
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR
THEIR FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE, ARE
ILLEGAL AND INEFFECTIVE; AND
(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE
GOVERNMENT (Rollo, pp. 15-16).
Secretary Garcia and private respondent filed their comments separately and
claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal
standing to institute the present petition;
(2) The writ of prohibition is not the proper remedy and the petition
requires ascertainment of facts;
(3) The scheme adopted in the Agreements is actually a build-transfer
scheme allowed by the BOT Law;
(4) The nationality requirement for public utilities mandated by the
Constitution does not apply to private respondent;
(5) The Agreements executed by and between respondents have been
approved by President Ramos and are not disadvantageous to the
government;
(6) The award of the contract to private respondent through negotiation
and not public bidding is allowed by the BOT Law; and
(7) Granting that the BOT Law requires public bidding, this has been
amended by R.A No. 7718 passed by the Legislature On May 12, 1994, which
provides for direct negotiation as a mode of award of infrastructure projects.
III
Respondents claimed that petitioners had no legal standing to initiate the
instant action. Petitioners, however, countered that the action was filed by
them in their capacity as Senators and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question
contracts entered into by the national government or government-owned or
controlled corporations allegedly in contravention of the law (Kilosbayan, Inc.
v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only
municipal contracts are involved (Bugnay Construction and Development
Corporation v. Laron, 176 SCRA. 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have
no choice but to follow it and uphold the legal standing of petitioners as
taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of
April 22, 1992 and the Supplemental Agreement of May 6, 1993 are
unconstitutional and invalid for the following reasons:
(1) the EDSA LRT III is a public utility, and the ownership and operation
thereof is limited by the Constitution to Filipino citizens and domestic
corporations, not foreign corporations like private respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is
not the BOT or BT Scheme under the law;
(3) the contract to construct the EDSA LRT III was awarded to private
respondent not through public bidding which is the only mode of awarding
infrastructure projects under the BOT law; and
(4) the agreements are grossly disadvantageous to the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract
to construct the EDSA LRT III was awarded by public respondent, is admittedly
a foreign corporation "duly incorporated and existing under the laws of
Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the EDSA
LRT III is constructed, private respondent, as lessor, will turn it over to DOTC,
as lessee, for the latter to operate the system and pay rentals for said use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA
LRT III; a public utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private
respondent owns are the rail tracks, rolling stocks like the coaches, rail
stations, terminals and the power plant, not a public utility. While a franchise is
needed to operate these facilities to serve the public, they do not by
themselves constitute a public utility. What constitutes a public utility is not
their ownership but their use to serve the public (Iloilo Ice & Cold Storage Co.
v. Public Service Board, 44 Phil. 551, 557 558 [1923]).
The Constitution, in no uncertain terms, requires a franchise for the operation
of a public utility. However, it does not require a franchise before one can own
the facilities needed to operate a public utility so long as it does not operate
them to serve the public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for the operation of
a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at
least sixty per centum of whose capital is owned by such citizens, nor shall
such franchise, certificate or authorization be exclusive character or for a
longer period than fifty years . . . (Emphasis supplied).
In law, there is a clear distinction between the "operation" of a public utility and
the ownership of the facilities and equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining
to one person is completely subjected to his will in everything not prohibited by
law or the concurrence with the rights of another (Tolentino, II Commentaries
and Jurisprudence on the Civil Code of the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law so that
a property cannot be operated and used to serve the public as a public utility
unless the operator has a franchise. The operation of a rail system as a public
utility includes the transportation of passengers from one point to another
point, their loading and unloading at designated places and the movement of
the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A..
Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire
Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d
1065 [1948]).
The right to operate a public utility may exist independently and separately
from the ownership of the facilities thereof. One can own said facilities without
operating them as a public utility, or conversely, one may operate a public
utility without owning the facilities used to serve the public. The devotion of
property to serve the public may be done by the owner or by the person in
control thereof who may not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of
the facilities used to serve the public can be very well appreciated when we
consider the transportation industry. Enfranchised airline and shipping
companies may lease their aircraft and vessels instead of owning them
themselves.
While private respondent is the owner of the facilities necessary to operate the
EDSA. LRT III, it admits that it is not enfranchised to operate a public utility
(Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this
incapacity, private respondent and DOTC agreed that on completion date,
private respondent will immediately deliver possession of the LRT system by
way of lease for 25 years, during which period DOTC shall operate the same
as a common carrier and private respondent shall provide technical
maintenance and repair services to DOTC (Revised and Restated Agreement,
Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance
consists of providing (1) repair and maintenance facilities for the depot and rail
lines, services for routine clearing and security; and (2) producing and
distributing maintenance manuals and drawings for the entire system (Revised
and Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the
operation, use, maintenance and repair of the rolling stock, power plant,
substations, electrical, signaling, communications and all other equipment as
supplied in the agreement (Revised and Restated Agreement, Sec. 10; Rollo,
pp. 66-67). Training consists of theoretical and live training of DOTC
operational personnel which includes actual driving of light rail vehicles under
simulated operating conditions, control of operations, dealing with
emergencies, collection, counting and securing cash from the fare collection
system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel of
DOTC will work under the direction and control of private respondent only
during training (Revised and Restated Agreement, Annex E, Sec. 3.1). The
training objectives, however, shall be such that upon completion of the EDSA
LRT III and upon opening of normal revenue operation, DOTC shall have in
their employ personnel capable of undertaking training of all new and
replacement personnel (Revised and Restated Agreement, Annex E Sec. 5.1).
In other words, by the end of the three-year construction period and upon
commencement of normal revenue operation, DOTC shall be able to operate
the EDSA LRT III on its own and train all new personnel by itself.
Fees for private respondent' s services shall be included in the rent, which
likewise includes the project cost, cost of replacement of plant equipment and
spare parts, investment and financing cost, plus a reasonable rate of return
thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations
and liabilities of a common carrier. For this purpose, DOTC shall indemnify and
hold harmless private respondent from any losses, damages, injuries or death
which may be claimed in the operation or implementation of the system, except
losses, damages, injury or death due to defects in the EDSA LRT III on account
of the defective condition of equipment or facilities or the defective
maintenance of such equipment facilities (Revised and Restated Agreement,
Secs. 12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees
from the riding public. It will have no dealings with the public and the public will
have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor during the
lease period must be distinguished from the role of the Philippine Gaming
Management Corporation (PGMC) in the case of Kilosbayan Inc. v. Guingona,
232 SCRA 110 (1994). Therein, the Contract of Lease between PGMC and
the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration
or joint venture agreement prescribed under the charter of the PCSO. In the
Contract of Lease; PGMC, the lessor obligated itself to build, at its own
expense, all the facilities necessary to operate and maintain a nationwide on-
line lottery system from whom PCSO was to lease the facilities and operate
the same. Upon due examination of the contract, the Court found that PGMC's
participation was not confined to the construction and setting up of the on-line
lottery system. It spilled over to the actual operation thereof, becoming
indispensable to the pursuit, conduct, administration and control of the highly
technical and sophisticated lottery system. In effect, the PCSO leased out its
franchise to PGMC which actually operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not
a public utility (Providence and W.R. Co. v. United States, 46 F. 2d 149, 152
[1930]; Chippewa Power Co. v. Railroad Commission of Wisconsin, 205 N.W.
900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill
35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are owners
of tank, refrigerator, wine, poultry and beer cars who supply cars under
contract to railroad companies considered as public utilities (Crystal Car Line
v. State Tax Commission, 174 p. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto
characterize the corporation as one operating a public utility. The moment for
determining the requisite Filipino nationality is when the entity applies for a
franchise, certificate or any other form of authorization for that purpose (People
v. Quasha, 93 Phil. 333 [1953]).
2. Petitioners further assert that the BLT scheme under the Agreements
in question is not recognized in the BOT Law and its Implementing Rules and
Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
(a) Build-operate-and-transfer scheme A contractual arrangement
whereby the contractor undertakes the construction including financing, of a
given infrastructure facility, and the operation and maintenance thereof. The
contractor operates the facility over a fixed term during which it is allowed to
charge facility users appropriate tolls, fees, rentals and charges sufficient to
enable the contractor to recover its operating and maintenance expenses and
its investment in the project plus a reasonable rate of return thereon. The
contractor transfers the facility to the government agency or local government
unit concerned at the end of the fixed term which shall not exceed fifty (50)
years. For the construction stage, the contractor may obtain financing from
foreign and/or domestic sources and/or engage the services of a foreign and/or
Filipino constructor [sic]: Provided, That the ownership structure of the
contractor of an infrastructure facility whose operation requires a public utility
franchise must be in accordance with the Constitution: Provided, however,
That in the case of corporate investors in the build-operate-and-transfer
corporation, the citizenship of each stockholder in the corporate investors shall
be the basis for the computation of Filipino equity in the said corporation:
Provided, further, That, in the case of foreign constructors [sic], Filipino labor
shall be employed or hired in the different phases of the construction where
Filipino skills are available: Provided, furthermore, that the financing of a
foreign or foreign-controlled contractor from Philippine government financing
institutions shall not exceed twenty percent (20%) of the total cost of the
infrastructure facility or project: Provided, finally, That financing from foreign
sources shall not require a guarantee by the Government or by government-
owned or controlled corporations. The build-operate-and-transfer scheme
shall include a supply-and-operate situation which is a contractual agreement
whereby the supplier of equipment and machinery for a given infrastructure
facility, if the interest of the Government so requires, operates the facility
providing in the process technology transfer and training to Filipino nationals.
(b) Build-and-transfer scheme "A contractual arrangement whereby
the contractor undertakes the construction including financing, of a given
infrastructure facility, and its turnover after completion to the government
agency or local government unit concerned which shall pay the contractor its
total investment expended on the project, plus a reasonable rate of return
thereon. This arrangement may be employed in the construction of any
infrastructure project including critical facilities which for security or strategic
reasons, must be operated directly by the government (Emphasis supplied).
The BOT scheme is expressly defined as one where the contractor undertakes
the construction and financing in infrastructure facility, and operates and
maintains the same. The contractor operates the facility for a fixed period
during which it may recover its expenses and investment in the project plus a
reasonable rate of return thereon. After the expiration of the agreed term, the
contractor transfers the ownership and operation of the project to the
government.
In the BT scheme, the contractor undertakes the construction and financing of
the facility, but after completion, the ownership and operation thereof are
turned over to the government. The government, in turn, shall pay the
contractor its total investment on the project in addition to a reasonable rate of
return. If payment is to be effected through amortization payments by the
government infrastructure agency or local government unit concerned, this
shall be made in accordance with a scheme proposed in the bid and
incorporated in the contract (R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the
infrastructure facility must comply with the citizenship requirement of the
Constitution on the operation of a public utility. No such a requirement is
imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any
other arrangement for the payment by the government of the project cost. The
law must not be read in such a way as to rule out or unduly restrict any variation
within the context of the two schemes. Indeed, no statute can be enacted to
anticipate and provide all the fine points and details for the multifarious and
complex situations that may be encountered in enforcing the law (Director of
Forestry v. Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125
[1957]; United States v. Tupasi Molina, 29 Phil. 119 [1914]).
The BLT scheme in the challenged agreements is but a variation of the BT
scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for
the project is made lighter by allowing it to amortize payments out of the
income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals are to
be paid on a monthly basis according to a schedule of rates through and under
the terms of a confirmed Irrevocable Revolving Letter of Credit (Supplemental
Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and when full payment
shall have been made to and received by private respondent, it shall transfer
to DOTC, free from any lien or encumbrances, all its title to, rights and interest
in, the project for only U.S. $1.00 (Revised and Restated Agreement, Sec.
11.1; Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87).
A lease is a contract where one of the parties binds himself to give to another
the enjoyment or use of a thing for a certain price and for a period which may
be definite or indefinite but not longer than 99 years (Civil Code of the
Philippines, Art. 1643). There is no transfer of ownership at the end of the lease
period. But if the parties stipulate that title to the leased premises shall be
transferred to the lessee at the end of the lease period upon the payment of
an agreed sum, the lease becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States
currency, not Philippine pesos. The EDSA LRT III Project is a high priority
project certified by Congress and the National Economic and Development
Authority as falling under the Investment Priorities Plan of Government (Rollo,
pp. 310-311). It is, therefore, outside the application of the Uniform Currency
Act (R.A. No. 529), which reads as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic
obligation to wit, any obligation contracted in the Philippines which provisions
purports to give the obligee the right to require payment in gold or in a particular
kind of coin or currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, be as it is hereby declared against
public policy, and null, void, and of no effect, and no such provision shall be
contained in, or made with respect to, any obligation hereafter incurred. The
above prohibition shall not apply to (a) . . .; (b) transactions affecting high-
priority economic projects for agricultural, industrial and power development
as may be determined by
the National Economic Council which are financed by or through foreign funds;
....
3. The fact that the contract for the construction of the EDSA LRT III was
awarded through negotiation and before congressional approval on January
22 and 23, 1992 of the List of National Projects to be undertaken by the private
sector pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice to
invalidate the award.
Subsequent congressional approval of the list including "rail-based projects
packaged with commercial development opportunities" (Rollo, p. 310) under
which the EDSA LRT III projects falls, amounts to a ratification of the prior
award of the EDSA LRT III contract under the BOT Law.
Petitioners insist that the prequalifications process which led to the negotiated
award of the contract appears to have been rigged from the very beginning to
do away with the usual open international public bidding where qualified
internationally known applicants could fairly participate.
The records show that only one applicant passed the prequalification process.
Since only one was left, to conduct a public bidding in accordance with Section
5 of the BOT Law for that lone participant will be an absurb and pointless
exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).
Contrary to the comments of the Executive Secretary Drilon, Section 5 of the
BOT Law in relation to Presidential Decree No. 1594 allows the negotiated
award of government infrastructure projects.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and
Regulations for Government Infrastructure Contracts," allows the negotiated
award of government projects in exceptional cases. Sections 4 of the said law
reads as follows:
Bidding. Construction projects shall generally be undertaken by contract
after competitive public bidding. Projects may be undertaken by administration
or force account or by negotiated contract only in exceptional cases where
time is of the essence, or where there is lack of qualified bidders or contractors,
or where there is conclusive evidence that greater economy and efficiency
would be achieved through this arrangement, and in accordance with provision
of laws and acts on the matter, subject to the approval of the Minister of Public
Works and Transportation and Communications, the Minister of Public
Highways, or the Minister of Energy, as the case may be, if the project cost is
less than P1 Million, and the President of the Philippines, upon
recommendation of the Minister, if the project cost is P1 Million or more
(Emphasis supplied).
xxx xxx xxx
Indeed, where there is a lack of qualified bidders or contractors, the award of
government infrastructure contracts may he made by negotiation. Presidential
Decree No. 1594 is the general law on government infrastructure contracts
while the BOT Law governs particular arrangements or schemes aimed at
encouraging private sector participation in government infrastructure projects.
The two laws are not inconsistent with each other but are in pari materia and
should be read together accordingly.
In the instant case, if the prequalification process was actually tainted by foul
play, one wonders why none of the competing firms ever brought the matter
before the PBAC, or intervened in this case before us (cf. Malayan Integrated
Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v.
Office of the President, 205 SCRA 705 [1992]).
The challenged agreements have been approved by President Ramos himself.
Although then Executive Secretary Drilon may have disapproved the
"Agreement to Build, Lease and Transfer a Light Rail Transit System for
EDSA," there is nothing in our laws that prohibits parties to a contract from
renegotiating and modifying in good faith the terms and conditions thereof so
as to meet legal, statutory and constitutional requirements. Under the
circumstances, to require the parties to go back to step one of the
prequalification process would just be an idle ceremony. Useless bureaucratic
"red tape" should be eschewed because it discourages private sector
participation, the "main engine" for national growth and development (R.A. No.
6957, Sec. 1), and renders the BOT Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2
thereof as:
(e) Build-lease-and-transfer A contractual arrangement whereby a
project proponent is authorized to finance and construct an infrastructure or
development facility and upon its completion turns it over to the government
agency or local government unit concerned on a lease arrangement for a fixed
period after which ownership of the facility is automatically transferred to the
government unit concerned.
Section 5-A of the law, which expressly allows direct negotiation of contracts,
provides:
Direct Negotiation of Contracts. Direct negotiation shall be resorted to when
there is only one complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor applies for prequalification
and it meets the prequalification requirements, after which it is required to
submit a bid proposal which is subsequently found by the agency/local
government unit (LGU) to be complying.
(b) If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification requirements, after
which it submits bid/proposal which is found by the agency/local government
unit (LGU) to be complying.
(c) If, after prequalification of more than one contractor only one submits
a bid which is found by the agency/LGU to be complying.
(d) If, after prequalification, more than one contractor submit bids but only
one is found by the agency/LGU to be complying. Provided, That, any of the
disqualified prospective bidder [sic] may appeal the decision of the
implementing agency, agency/LGUs prequalification bids and awards
committee within fifteen (15) working days to the head of the agency, in case
of national projects or to the Department of the Interior and Local Government,
in case of local projects from the date the disqualification was made known to
the disqualified bidder: Provided, furthermore, That the implementing
agency/LGUs concerned should act on the appeal within forty-five (45) working
days from receipt thereof.
Petitioners' claim that the BLT scheme and direct negotiation of contracts are
not contemplated by the BOT Law has now been rendered moot and academic
by R.A. No. 7718. Section 3 of this law authorizes all government infrastructure
agencies, government-owned and controlled corporations and local
government units to enter into contract with any duly prequalified proponent
for the financing, construction, operation and maintenance of any financially
viable infrastructure or development facility through a BOT, BT, BLT, BOO
(Build-own-and-operate), CAO (Contract-add-operate), DOT (Develop-
operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO
(Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).
From the law itself, once and applicant has prequalified, it can enter into any
of the schemes enumerated in Section 2 thereof, including a BLT arrangement,
enumerated and defined therein (Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial
incentives and "a climate of minimum government regulations and procedures
and specific government undertakings in support of the private sector" (Sec.
1). A curative statute makes valid that which before enactment of the statute
was invalid. Thus, whatever doubts and alleged procedural lapses private
respondent and DOTC may have engendered and committed in entering into
the questioned contracts, these have now been cured by R.A. No. 7718 (cf.
Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342
[1980]; Santos V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee,
43 Phil. 43 [1922].
4. Lastly, petitioners claim that the agreements are grossly
disadvantageous to the government because the rental rates are excessive
and private respondent's development rights over the 13 stations and the
depot will rob DOTC of the best terms during the most productive years of the
project.
It must be noted that as part of the EDSA LRT III project, private respondent
has been granted, for a period of 25 years, exclusive rights over the depot and
the air space above the stations for development into commercial premises for
lease, sublease, transfer, or advertising (Supplemental Agreement, Sec. 11;
Rollo, pp. 91-92). For and in consideration of these development rights, private
respondent shall pay DOTC in Philippine currency guaranteed revenues
generated therefrom in the amounts set forth in the Supplemental Agreement
(Sec. 11; Rollo, p. 93). In the event that DOTC shall be unable to collect the
guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the
monthly rent due private respondent for the construction of the EDSA LRT III
(Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles, interests
and income over all contracts on the commercial spaces shall revert to DOTC
upon expiration of the 25-year period. (Supplemental Agreement, Sec. 11;
Rollo, pp. 91-92).

The terms of the agreements were arrived at after a painstaking study by

DOTC. The determination by the proper administrative agencies and officials
who have acquired expertise, specialized skills and knowledge in the
performance of their functions should be accorded respect absent any showing
of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy Executive
Secretary, 190 SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176
SCRA 304 [1989]).

Government officials are presumed to perform their functions with regularity

and strong evidence is necessary to rebut this presumption. Petitioners have
not presented evidence on the reasonable rentals to be paid by the parties to
each other. The matter of valuation is an esoteric field which is better left to
the experts and which this Court is not eager to undertake.

That the grantee of a government contract will profit therefrom and to that
extent the government is deprived of the profits if it engages in the business
itself, is not worthy of being raised as an issue. In all cases where a party
enters into a contract with the government, he does so, not out of charity and
not to lose money, but to gain pecuniarily.

5. Definitely, the agreements in question have been entered into by

DOTC in the exercise of its governmental function. DOTC is the primary policy,
planning, programming, regulating and administrative entity of the Executive
branch of government in the promotion, development and regulation of
dependable and coordinated networks of transportation and communications
systems as well as in the fast, safe, efficient and reliable postal, transportation
and communications services (Administrative Code of 1987, Book IV, Title XV,
Sec. 2). It is the Executive department, DOTC in particular that has the power,
authority and technical expertise determine whether or not a specific
transportation or communication project is necessary, viable and beneficial to
the people. The discretion to award a contract is vested in the government
agencies entrusted with that function (Bureau Veritas v. Office of the President,
205 SCRA 705 [1992]).

WHEREFORE, the petition is DISMISSED.

SO ORDERED
 5. PAL v. CAB
[G.R. No. 119528. March 26, 1997]
PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD
and GRAND INTERNATIONAL AIRWAYS, INC., respondents.
DECISION
TORRES, JR., J.:
This Special Civil Action for Certiorari and Prohibition under Rule 65 of the
Rules of Court seeks to prohibit respondent Civil Aeronautics Board from
exercising jurisdiction over private respondent's Application for the issuance of
a Certificate of Public Convenience and Necessity, and to annul and set aside
a temporary operating permit issued by the Civil Aeronautics Board in favor of
Grand International Airways (GrandAir, for brevity) allowing the same to
engage in scheduled domestic air transportation services, particularly the
Manila-Cebu, Manila-Davao, and converse routes.
The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to
support its petition is the fact that GrandAir does not possess a legislative
franchise authorizing it to engage in air transportation service within the
Philippines or elsewhere. Such franchise is, allegedly, a requisite for the
issuance of a Certificate of Public Convenience or Necessity by the respondent
Board, as mandated under Section 11, Article XII of the Constitution.
Respondent GrandAir, on the other hand, posits that a legislative franchise is
no longer a requirement for the issuance of a Certificate of Public Convenience
and Necessity or a Temporary Operating Permit, following the Court's
pronouncements in the case of Albano vs. Reyes,[1] as restated by the Court
of Appeals in Avia Filipinas International vs. Civil Aeronautics Board[2] and
Silangan Airways, Inc. vs. Grand International Airways, Inc., and the Hon. Civil
Aeronautics Board.[3]
On November 24, 1994, private respondent GrandAir applied for a Certificate
of Public Convenience and Necessity with the Board, which application was
docketed as CAB Case No. EP-12711.[4] Accordingly, the Chief Hearing
Officer of the CAB issued a Notice of Hearing setting the application for initial
hearing on December 16, 1994, and directing GrandAir to serve a copy of the
application and corresponding notice to all scheduled Philippine Domestic
operators. On December 14, 1994, GrandAir filed its Compliance, and
requested for the issuance of a Temporary Operating Permit. Petitioner, itself
the holder of a legislative franchise to operate air transport services, filed an
Opposition to the application for a Certificate of Public Convenience and
Necessity on December 16, 1995 on the following grounds:
"A. The CAB has no jurisdiction to hear the petitioner's application until the
latter has first obtained a franchise to operate from Congress.
B. The petitioner's application is deficient in form and substance in that:
1. The application does not indicate a route structure including a computation
of trunkline, secondary and rural available seat kilometers (ASK) which shall
always be maintained at a monthly level at least 5% and 20% of the ASK
offered into and out of the proposed base of operations for rural and
secondary, respectively.
2. It does not contain a project/feasibility study, projected profit and loss
statements, projected balance sheet, insurance coverage, list of personnel, list
of spare parts inventory, tariff structure, documents supportive of financial
capacity, route flight schedule, contracts on facilities (hangars, maintenance,
lot) etc.
C. Approval of petitioner's application would violate the equal protection clause
of the constitution.
D. There is no urgent need and demand for the services applied for.
E. To grant petitioner's application would only result in ruinous competition
contrary to Section 4(d) of R.A. 776."[5]
At the initial hearing for the application, petitioner raised the issue of lack of
jurisdiction of the Board to hear the application because GrandAir did not
possess a legislative franchise.
On December 20, 1994, the Chief Hearing Officer of CAB issued an Order
denying petitioner's Opposition. Pertinent portions of the Order read:
"PAL alleges that the CAB has no jurisdiction to hear the petitioner's
application until the latter has first obtained a franchise to operate from
Congress.
The Civil Aeronautics Board has jurisdiction to hear and resolve the
application. In Avia Filipina vs. CAB, CA G.R. No. 23365, it has been ruled that
under Section 10 (c) (I) of R.A. 776, the Board possesses this specific power
and duty.
In view thereof, the opposition of PAL on this ground is hereby denied.
SO ORDERED."
Meantime, on December 22, 1994, petitioner this time, opposed private
respondent's application for a temporary permit maintaining that:
"1. The applicant does not possess the required fitness and capability of
operating the services applied for under RA 776; and,
2. Applicant has failed to prove that there is clear and urgent public need for
the services applied for."[6]
On December 23, 1994, the Board promulgated Resolution No. 119(92)
approving the issuance of a Temporary Operating Permit in favor of Grand
Air[7] for a period of three months, i.e., from December 22, 1994 to March 22,
1994. Petitioner moved for the reconsideration of the issuance of the
Temporary Operating Permit on January 11, 1995, but the same was denied
in CAB Resolution No. 02 (95) on February 2, 1995.[8] In the said Resolution,
the Board justified its assumption of jurisdiction over GrandAir's application.
"WHEREAS, the CAB is specifically authorized under Section 10-C (1) of
Republic Act No. 776 as follows:
'(c) The Board shall have the following specific powers and duties:
(1) In accordance with the provision of Chapter IV of this Act, to issue, deny,
amend revise, alter, modify, cancel, suspend or revoke, in whole or in part,
upon petitioner-complaint, or upon its own initiative, any temporary operating
permit or Certificate of Public Convenience and Necessity; Provided, however;
that in the case of foreign air carriers, the permit shall be issued with the
approval of the President of the Republic of the Philippines."
WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992),
wherein the Supreme Court held that the CAB can even on its own initiative,
grant a TOP even before the presentation of evidence;
WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365),
promulgated on October 30, 1991, held that in accordance with its mandate,
the CAB can issue not only a TOP but also a Certificate of Public Convenience
and Necessity (CPCN) to a qualified applicant therefor in the absence of a
legislative franchise, citing therein as basis the decision of Albano vs. Reyes
(175 SCRA 264) which provides (inter alia) that:
a) Franchises by Congress are not required before each and every public utility
may operate when the law has granted certain administrative agencies the
power to grant licenses for or to authorize the operation of certain public
utilities;
b) The Constitutional provision in Article XII, Section 11 that the issuance of a
franchise, certificate or other form of authorization for the operation of a public
utility does not necessarily imply that only Congress has the power to grant
such authorization since our statute books are replete with laws granting
specified agencies in the Executive Branch the power to issue such
authorization for certain classes of public utilities.
WHEREAS, Executive Order No. 219 which took effect on 22 January 1995,
provides in Section 2.1 that a minimum of two (2) operators in each route/link
shall be encouraged and that routes/links presently serviced by only one (1)
operator shall be open for entry to additional operators.
RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by
Philippine Airlines on January 05, 1995 on the Grant by this Board of a
Temporary Operating Permit (TOP) to Grand International Airways, Inc.
alleging among others that the CAB has no such jurisdiction, is hereby
DENIED, as it hereby denied, in view of the foregoing and considering that the
grounds relied upon by the movant are not indubitable."
On March 21, 1995, upon motion by private respondent, the temporary permit
was extended for a period of six (6) months or up to September 22, 1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its powers and
jurisdiction in taking cognizance of GrandAirs application for the issuance of a
Certificate of Public Convenience and Necessity, and in issuing a temporary
operating permit in the meantime, since GrandAir has not been granted and
does not possess a legislative franchise to engage in scheduled domestic air
transportation. A legislative franchise is necessary before anyone may engage
in air transport services, and a franchise may only be granted by Congress.
This is the meaning given by the petitioner upon a reading of Section 11, Article
XII,[9] and Section 1, Article VI,[10] of the Constitution.
To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department
of Justice, which reads:
Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:
This has reference to your request for opinion on the necessity of a legislative
franchise before the Civil Aeronautics Board (CAB) may issue a Certificate of
Public Convenience and Necessity and/or permit to engage in air commerce
or air transportation to an individual or entity.
You state that during the hearing on the application of Cebu Air for a
congressional franchise, the House Committee on Corporations and
Franchises contended that under the present Constitution, the CAB may not
issue the abovestated certificate or permit, unless the individual or entity
concerned possesses a legislative franchise. You believe otherwise, however,
for the reason that under R.A. No. 776, as amended, the CAB is explicitly
empowered to issue operating permits or certificates of public convenience
and necessity and that this statutory provision is not inconsistent with the
current charter.
We concur with the view expressed by the House Committee on Corporations
and Franchises. In an opinion rendered in favor of your predecessor-in-office,
this Department observed that,-
xxx it is useful to note the distinction between the franchise to operate and a
permit to commence operation. The former is sovereign and legislative in
nature; it can be conferred only by the lawmaking authority (17 W and P, pp.
691-697). The latter is administrative and regulatory in character (In re
Application of Fort Crook-Bellevue Boulevard Line, 283 NW 223); it is granted
by an administrative agency, such as the Public Service Commission [now
Board of Transportation], in the case of land transportation, and the Civil
Aeronautics Board, in case of air services. While a legislative franchise is a
pre-requisite to a grant of a certificate of public convenience and necessity to
an airline company, such franchise alone cannot constitute the authority to
commence operations, inasmuch as there are still matters relevant to such
operations which are not determined in the franchise, like rates, schedules and
routes, and which matters are resolved in the process of issuance of permit by
the administrative. (Secretary of Justice opn No. 45, s. 1981)
Indeed, authorities are agreed that a certificate of public convenience and
necessity is an authorization issued by the appropriate governmental agency
for the operation of public services for which a franchise is required by law
(Almario, Transportation and Public Service Law, 1977 Ed., p. 293; Agbayani,
Commercial Law of the Phil., Vol. 4, 1979 Ed., pp. 380-381).
Based on the foregoing, it is clear that a franchise is the legislative
authorization to engage in a business activity or enterprise of a public nature,
whereas a certificate of public convenience and necessity is a regulatory
measure which constitutes the franchises authority to commence operations.
It is thus logical that the grant of the former should precede the latter.
Please be guided accordingly.
(SGD.) SEDFREY A. ORDOEZ
Secretary of Justice"
Respondent GrandAir, on the other hand, relies on its interpretation of the
provisions of Republic Act 776, which follows the pronouncements of the Court
of Appeals in the cases of Avia Filipinas vs. Civil Aeronautics Board, and
Silangan Airways, Inc. vs. Grand International Airways (supra).
In both cases, the issue resolved was whether or not the Civil Aeronautics
Board can issue the Certificate of Public Convenience and Necessity or
Temporary Operating Permit to a prospective domestic air transport operator
who does not possess a legislative franchise to operate as such. Relying on
the Court's pronouncement in Albano vs. Reyes (supra), the Court of Appeals
upheld the authority of the Board to issue such authority, even in the absence
of a legislative franchise, which authority is derived from Section 10 of Republic
Act 776, as amended by P.D. 1462.[11]
The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a
Temporary Operating Permit. This rule has been established in the case of
Philippine Air Lines Inc., vs. Civil Aeronautics Board, promulgated on June 13,
1968.[12] The Board is expressly authorized by Republic Act 776 to issue a
temporary operating permit or Certificate of Public Convenience and
Necessity, and nothing contained in the said law negates the power to issue
said permit before the completion of the applicant's evidence and that of the
oppositor thereto on the main petition. Indeed, the CAB's authority to grant a
temporary permit "upon its own initiative" strongly suggests the power to
exercise said authority, even before the presentation of said evidence has
begun. Assuming arguendo that a legislative franchise is prerequisite to the
issuance of a permit, the absence of the same does not affect the jurisdiction
of the Board to hear the application, but tolls only upon the ultimate issuance
of the requested permit.
The power to authorize and control the operation of a public utility is admittedly
a prerogative of the legislature, since Congress is that branch of government
vested with plenary powers of legislation.
"The franchise is a legislative grant, whether made directly by the legislature
itself, or by any one of its properly constituted instrumentalities. The grant,
when made, binds the public, and is, directly or indirectly, the act of the
state."[13]
The issue in this petition is whether or not Congress, in enacting Republic Act
776, has delegated the authority to authorize the operation of domestic air
transport services to the respondent Board, such that Congressional mandate
for the approval of such authority is no longer necessary.
Congress has granted certain administrative agencies the power to grant
licenses for, or to authorize the operation of certain public utilities. With the
growing complexity of modern life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering the laws,
there is a constantly growing tendency towards the delegation of greater
powers by the legislature, and towards the approval of the practice by the
courts.[14] It is generally recognized that a franchise may be derived indirectly
from the state through a duly designated agency, and to this extent, the power
to grant franchises has frequently been delegated, even to agencies other than
those of a legislative nature.[15] In pursuance of this, it has been held that
privileges conferred by grant by local authorities as agents for the state
constitute as much a legislative franchise as though the grant had been made
by an act of the Legislature.[16]
The trend of modern legislation is to vest the Public Service Commissioner
with the power to regulate and control the operation of public services under
reasonable rules and regulations, and as a general rule, courts will not interfere
with the exercise of that discretion when it is just and reasonable and founded
upon a legal right.[17]
It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a
reading of the pertinent issuances governing the Philippine Ports Authority,[18]
proves that the PPA is empowered to undertake by itself the operation and
management of the Manila International Container Terminal, or to authorize its
operation and management by another by contract or other means, at its
option. The latter power having been delegated to the PPA, a franchise from
Congress to authorize an entity other than the PPA to operate and manage
the MICP becomes unnecessary.
Given the foregoing postulates, we find that the Civil Aeronautics Board has
the authority to issue a Certificate of Public Convenience and Necessity, or
Temporary Operating Permit to a domestic air transport operator, who, though
not possessing a legislative franchise, meets all the other requirements
prescribed by the law. Such requirements were enumerated in Section 21 of
R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that a
legislative franchise is an indispensable requirement for an entity to operate
as a domestic air transport operator. Although Section 11 of Article XII
recognizes Congress' control over any franchise, certificate or authority to
operate a public utility, it does not mean Congress has exclusive authority to
issue the same. Franchises issued by Congress are not required before each
and every public utility may operate.[19] In many instances, Congress has
seen it fit to delegate this function to government agencies, specialized
particularly in their respective areas of public service.
A reading of Section 10 of the same reveals the clear intent of Congress to
delegate the authority to regulate the issuance of a license to operate domestic
air transport services:
SECTION 10. Powers and Duties of the Board. (A) Except as otherwise
provided herein, the Board shall have the power to regulate the economic
aspect of air transportation, and shall have general supervision and regulation
of, the jurisdiction and control over air carriers, general sales agents, cargo
sales agents, and air freight forwarders as well as their property rights,
equipment, facilities and franchise, insofar as may be necessary for the
purpose of carrying out the provision of this Act.
In support of the Board's authority as stated above, it is given the following
specific powers and duties:
(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny,
amend, revise, alter, modify, cancel, suspend or revoke in whole or in part
upon petition or complaint or upon its own initiative any Temporary Operating
Permit or Certificate of Public Convenience and Necessity: Provided however,
That in the case of foreign air carriers, the permit shall be issued with the
approval of the President of the Republic of the Philippines.
Petitioner argues that since R.A. 776 gives the Board the authority to issue
"Certificates of Public Convenience and Necessity", this, according to
petitioner, means that a legislative franchise is an absolute requirement. It cites
a number of authorities supporting the view that a Certificate of Public
Convenience and Necessity is issued to a public service for which a franchise
is required by law, as distinguished from a "Certificate of Public Convenience"
which is an authorization issued for the operation of public services for which
no franchise, either municipal or legislative, is required by law.[20]
This submission relies on the premise that the authority to issue a certificate
of public convenience and necessity is a regulatory measure separate and
distinct from the authority to grant a franchise for the operation of the public
utility subject of this particular case, which is exclusively lodged by petitioner
in Congress.
We do not agree with the petitioner.
Many and varied are the definitions of certificates of public convenience which
courts and legal writers have drafted. Some statutes use the terms
"convenience and necessity" while others use only the words "public
convenience." The terms "convenience and necessity", if used together in a
statute, are usually held not to be separable, but are construed together. Both
words modify each other and must be construed together. The word 'necessity'
is so connected, not as an additional requirement but to modify and qualify
what might otherwise be taken as the strict significance of the word necessity.
Public convenience and necessity exists when the proposed facility will meet
a reasonable want of the public and supply a need which the existing facilities
do not adequately afford. It does not mean or require an actual physical
necessity or an indispensable thing.[21]
"The terms 'convenience' and 'necessity' are to be construed together,
although they are not synonymous, and effect must be given both. The
convenience of the public must not be circumscribed by according to the word
'necessity' its strict meaning or an essential requisites."[22]
The use of the word "necessity", in conjunction with "public convenience" in a
certificate of authorization to a public service entity to operate, does not in any
way modify the nature of such certification, or the requirements for the
issuance of the same. It is the law which determines the requisites for the
issuance of such certification, and not the title indicating the certificate.
Congress, by giving the respondent Board the power to issue permits for the
operation of domestic transport services, has delegated to the said body the
authority to determine the capability and competence of a prospective
domestic air transport operator to engage in such venture. This is not an
instance of transforming the respondent Board into a mini-legislative body, with
unbridled authority to choose who should be given authority to operate
domestic air transport services.
"To be valid, the delegation itself must be circumscribed by legislative
restrictions, not a "roving commission" that will give the delegate unlimited
legislative authority. It must not be a delegation "running riot" and "not
canalized with banks that keep it from overflowing." Otherwise, the delegation
is in legal effect an abdication of legislative authority, a total surrender by the
legislature of its prerogatives in favor of the delegate."[23]
Congress, in this instance, has set specific limitations on how such authority
should be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following
guidelines or policies:
"SECTION 4. Declaration of policies. In the exercise and performance of its
powers and duties under this Act, the Civil Aeronautics Board and the Civil
Aeronautics Administrator shall consider the following, among other things, as
being in the public interest, and in accordance with the public convenience and
necessity:
(a) The development and utilization of the air potential of the Philippines;
(b) The encouragement and development of an air transportation system
properly adapted to the present and future of foreign and domestic commerce
of the Philippines, of the Postal Service and of the National Defense;
(c) The regulation of air transportation in such manner as to recognize and
preserve the inherent advantages of, assure the highest degree of safety in,
and foster sound economic condition in, such transportation, and to improve
the relations between, and coordinate transportation by, air carriers;
(d) The promotion of adequate, economical and efficient service by air carriers
at reasonable charges, without unjust discriminations, undue preferences or
advantages, or unfair or destructive competitive practices;
(e) Competition between air carriers to the extent necessary to assure the
sound development of an air transportation system properly adapted to the
need of the foreign and domestic commerce of the Philippines, of the Postal
Service, and of the National Defense;
(f) To promote safety of flight in air commerce in the Philippines; and,
(g) The encouragement and development of civil aeronautics.
More importantly, the said law has enumerated the requirements to determine
the competency of a prospective operator to engage in the public service of air
transportation.

SECTION 12. Citizenship requirement. Except as otherwise provided in the

Constitution and existing treaty or treaties, a permit authorizing a person to
engage in domestic air commerce and/or air transportation shall be issued only
to citizens of the Philippines.[24]

SECTION 21. Issuance of permit. The Board shall issue a permit authorizing
the whole or any part of the service covered by the application, if it finds: (1)
that the applicant is fit, willing and able to perform such service properly in
conformity with the provisions of this Act and the rules, regulations, and
requirements issued thereunder; and (2) that such service is required by the
public convenience and necessity; otherwise the application shall be denied.

Furthermore, the procedure for the processing of the application of a

Certificate of Public Convenience and Necessity had been established to
ensure the weeding out of those entities that are not deserving of public
service.[25]

In sum, respondent Board should now be allowed to continue hearing the

application of GrandAir for the issuance of a Certificate of Public Convenience
and Necessity, there being no legal obstacle to the exercise of its jurisdiction.

ACCORDINGLY, in view of the foregoing considerations, the Court

RESOLVED to DISMISS the instant petition for lack of merit. The respondent
Civil Aeronautics Board is hereby DIRECTED to CONTINUE hearing the
application of respondent Grand International Airways, Inc. for the issuance of
a Certificate of Public Convenience and Necessity.

SO ORDERED.
 6. Republic v. Manile Electric Company
[G.R. No. 141314. November 15, 2002]
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGY
REGULATORY BOARD petitioner, vs. MANILA ELECTRIC COMPANY,
respondent.
[G.R. No. 141369. November 15, 2002]
LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP) consisting of
CEFERINO PADUA, Chairman, G. FULTON ACOSTA,GALILEO BRION,
ANATALIA BUENAVENTURA, PEDRO CASTILLO, NAPOLEON
CORONADO, ROMEO ECHAUZ, FERNANDO GAITE, ALFREDO DE
GUZMAN, ROGELIO KARAGDAG, JR., MA. LUZ ARZAGA-MENDOZA,
ANSBERTO PAREDES, AQUILINO PIMENTEL III, MARIO REYES,
EMMANUEL SANTOS, RUDEGELIO TACORDA, members, and ROLANDO
ARZAGA, Secretary-General, JUSTICE ABRAHAM SARMIENTO, SENATOR
AQUILINO PIMENTEL, JR. and COMMISSIONER BARTOLOME
FERNANDEZ, JR., Board of Consultants, and Lawyer GENARO LUALHATI,
petitioners, vs. MANILA ELECTRIC COMPANY (MERALCO), respondent.
DECISION
PUNO, J.:
In third world countries like the Philippines, equal justice will have a synthetic
ring unless the economic rights of the people, especially the poor, are
protected with the same resoluteness as their right to liberty. The cases at bar
are of utmost significance for they concern the right of our people to electricity
and to be reasonably charged for their consumption. In configuring the
contours of this economic right to a basic necessity of life, the Court shall
define the limits of the power of respondent MERALCO, a giant public utility
and a monopoly, to charge our people for their electric consumption. The
question is: should public interest prevail over private profits?
The facts are brief and undisputed. On December 23, 1993, MERALCO filed
with the ERB an application for the revision of its rate schedules. The
application reflected an average increase of 21 centavos per kilowatthour
(kwh) in its distribution charge. The application also included a prayer for
provisional approval of the increase pursuant to Section 16(c) of the Public
Service Act and Section 8 of Executive Order No. 172.
On January 28, 1994, the ERB issued an Order granting a provisional increase
of P0.184 per kwh, subject to the following condition:
In the event, however, that the Board finds, after hearing and submission by
the Commission on Audit of an audit report on the books and records of the
applicant that the latter is entitled to a lesser increase in rates, all excess
amounts collected from the applicants customers as a result of this Order shall
either be refunded to them or correspondingly credited in their favor for
application to electric bills covering future consumptions.[1]
In the same Order, the ERB requested the Commission on Audit (COA) to
conduct an audit and examination of the books and other records of account
of the applicant for such period of time, which in no case shall be less than 12
consecutive months, as it may deem appropriate and to submit a copy thereof
to the ERB immediately upon completion.[2]
On February 11, 1997, the COA submitted its Audit Report SAO No. 95-07
(the COA Report) which contained, among others, the recommendation not to
include income taxes paid by MERALCO as part of its operating expenses for
purposes of rate determination and the use of the net average investment
method for the computation of the proportionate value of the properties used
by MERALCO during the test year for the determination of the rate base.[3]
Subsequently, the ERB rendered its decision adopting the above
recommendations and authorized MERALCO to implement a rate adjustment
in the average amount of P0.017 per kwh, effective with respect to MERALCOs
billing cycles beginning February 1994. The ERB further ordered that the
provisional relief in the amount of P0.184 per kilowatthour granted under the
Boards Order dated January 28, 1994 is hereby superseded and modified and
the excess average amount of P0.167 per kilowatthour starting with
[MERALCOs] billing cycles beginning February 1994 until its billing cycles
beginning February 1998, be refunded to [MERALCOs] customers or
correspondingly credited in their favor for future consumption.[4]
The ERB held that income tax should not be treated as operating expense as
this should be borne by the stockholders who are recipients of the income or
profits realized from the operation of their business hence, should not be
passed on to the consumers.[5] Further, in applying the net average
investment method, the ERB adopted the recommendation of COA that in
computing the rate base, only the proportionate value of the property should
be included, determined in accordance with the number of months the same
was actually used in service during the test year.[6]
On appeal, the Court of Appeals set aside the ERB decision insofar as it
directed the reduction of the MERALCO rates by an average of P0.167 per
kwh and the refund of such amount to MERALCOs customers beginning
February 1994 and until its billing cycle beginning February 1998.[7] Separate
Motions for Reconsideration filed by the petitioners were denied by the Court
of Appeals.[8]
Petitioners are now before the Court seeking a reversal of the decision of the
Court of Appeals by arguing primarily that the Court of Appeals erred: a) in
ruling that income tax paid by MERALCO should be treated as part of its
operating expenses and thus considered in determining the amount of
increase in rates imposed by MERALCO and b) in rejecting the net average
investment method used by the COA and the ERB and instead adopted the
average investment method used by MERALCO.
We grant the petition.
The regulation of rates to be charged by public utilities is founded upon the
police powers of the State and statutes prescribing rules for the control and
regulation of public utilities are a valid exercise thereof. When private property
is used for a public purpose and is affected with public interest, it ceases to be
juris privati only and becomes subject to regulation. The regulation is to
promote the common good. Submission to regulation may be withdrawn by the
owner by discontinuing use; but as long as use of the property is continued,
the same is subject to public regulation.[9]
In regulating rates charged by public utilities, the State protects the public
against arbitrary and excessive rates while maintaining the efficiency and
quality of services rendered. However, the power to regulate rates does not
give the State the right to prescribe rates which are so low as to deprive the
public utility of a reasonable return on investment. Thus, the rates prescribed
by the State must be one that yields a fair return on the public utility upon the
value of the property performing the service and one that is reasonable to the
public for the services rendered.[10] The fixing of just and reasonable rates
involves a balancing of the investor and the consumer interests.[11]
In his famous dissenting opinion in the 1923 case of Southwestern Bell Tel.
Co. v. Public Service Commission,[12] Mr. Justice Brandeis wrote:
The thing devoted by the investor to the public use is not specific property,
tangible and intangible, but capital embarked in an enterprise. Upon the capital
so invested, the Federal Constitution guarantees to the utility the opportunity
to earn a fair return The Constitution does not guarantee to the utility the
opportunity to earn a return on the value of all items of property used by the
utility, or of any of them.
. principle of separation of powers dictates that courts should hesitate to review
The investor agrees, by embarking capital in a utility, that its charges to the
public shall be reasonable. His company is the substitute for the State in the
performance of the public service, thus becoming a public servant. The
compensation which the Constitution guarantees an opportunity to earn is the
reasonable cost of conducting the business.
While the power to fix rates is a legislative function, whether exercised by the
legislature itself or delegated through an administrative agency, a
determination of whether the rates so fixed are reasonable and just is a purely
judicial question and is subject to the review of the courts.[13]
The ERB was created under Executive Order No. 172 to regulate, among
others, the distribution of energy resources and to fix rates to be charged by
public utilities involved in the distribution of electricity. In the fixing of rates, the
only standard which the legislature is required to prescribe for the guidance of
the administrative authority is that the rate be reasonable and just. It has been
held that even in the absence of an express requirement as to reasonableness,
this standard may be implied.[14] What is a just and reasonable rate is a
question of fact calling for the exercise of discretion, good sense, and a fair,
enlightened and independent judgment. The requirement of reasonableness
comprehends such rates which must not be so low as to be confiscatory, or
too high as to be oppressive. In determining whether a rate is confiscatory, it
is essential also to consider the given situation, requirements and opportunities
of the utility.[15]
Settled jurisprudence holds that factual findings of administrative bodies on
technical matters within their area of expertise should be accorded not only
respect but even finality if they are supported by substantial evidence even if
not overwhelming or preponderant.[16] In one case, [17] we cautioned that
courts should "refrain from substituting their discretion on the weight of the
evidence for the discretion of the Public Service Commission on questions of
fact and will only reverse or modify such orders of the Public Service
Commission when it really appears that the evidence is insufficient to support
their conclusions."[18]
In the cases at bar, findings and conclusions of the ERB on the rate that can
be charged by MERALCO to the public should be respected.[19] The function
of the court, in exercising its power of judicial review, is to determine whether
under the facts and circumstances, the final order entered by the
administrative agency is unlawful or unreasonable.[20] Thus, to the extent that
the administrative agency has not been arbitrary or capricious in the exercise
of its power, the time-honored principle is that courts should not interfere. The
the acts of administrative officers except in clear cases of grave abuse of
discretion.[21]
In determining the just and reasonable rates to be charged by a public utility,
three major factors are considered by the regulating agency: a) rate of return;
b) rate base and c) the return itself or the computed revenue to be earned by
the public utility based on the rate of return and rate base.[22] The rate of
return is a judgment percentage which, if multiplied with the rate base, provides
a fair return on the public utility for the use of its property for service to the
public.[23] The rate of return of a public utility is not prescribed by statute but
by administrative and judicial pronouncements. This Court has consistently
adopted a 12% rate of return for public utilities.[24] The rate base, on the other
hand, is an evaluation of the property devoted by the utility to the public service
or the value of invested capital or property which the utility is entitled to a
return.[25]
In the cases at bar, the resolution of the issues involved hinges on the
determination of the kind and the amount of operating expenses that should
be allowed to a public utility to generate a fair return and the proper valuation
of the rate base or the value of the property entitled to a return.
I thereof, i.e., whether or not the expense is attributable to the production of
Income Tax as Operating Expense Cannot be Allowed For Rate-Determination
Purposes
In determining whether or not a rate yields a fair return to the utility, the
operating expenses of the utility must be considered. The return allowed to a
public utility in accordance with the prescribed rate must be sufficient to
provide for the payment of such reasonable operating expenses incurred by
the public utility in the provision of its services to the public. Thus, the public
utility is allowed a return on capital over and above operating expenses.
However, only such expenses and in such amounts as are reasonable for the
efficient operation of the utility should be allowed for determination of the rates
to be charged by a public utility.
The ERB correctly ruled that income tax should not be included in the
computation of operating expenses of a public utility. Income tax paid by a
public utility is inconsistent with the nature of operating expenses. In general,
operating expenses are those which are reasonably incurred in connection
with business operations to yield revenue or income. They are items of
expenses which contribute or are attributable to the production of income or
revenue. As correctly put by the ERB, operating expenses should be a
requisite of or necessary in the operation of a utility, recurring, and that it
redounds to the service or benefit of customers.[26]
Income tax, it should be stressed, is imposed on an individual or entity as a
form of excise tax or a tax on the privilege of earning income.[27] In exchange
for the protection extended by the State to the taxpayer, the government
collects taxes as a source of revenue to finance its activities. Clearly, by its
nature, income tax payments of a public utility are not expenses which
contribute to or are incurred in connection with the production of profit of a
public utility. Income tax should be borne by the taxpayer alone as they are
payments made in exchange for benefits received by the taxpayer from the
State. No benefit is derived by the customers of a public utility for the taxes
paid by such entity and no direct contribution is made by the payment of
income tax to the operation of a public utility for purposes of generating
revenue or profit. Accordingly, the burden of paying income tax should be
Meralcos alone and should not be shifted to the consumers by including the
same in the computation of its operating expenses.
The principle behind the inclusion of operating expenses in the determination
of a just and reasonable rate is to allow the public utility to recoup the
reasonable amount of expenses it has incurred in connection with the services
it provides. It does not give the public utility the license to indiscriminately
charge any and all types of expenses incurred without regard to the nature
services by the public utility. To charge consumers for expenses incurred by a
public utility which are not related to the service or benefit derived by the
customers from the public utility is unjustified and inequitable.
While the public utility is entitled to a reasonable return on the fair value of the
property being used for the service of the public, no less than the Federal
Supreme Court of the United States emphasized: [t]he public cannot properly
be subjected to unreasonable rates in order simply that stockholders may earn
dividends If a corporation cannot maintain such a [facility] and earn dividends
for stockholders, it is a misfortune for it and them which the Constitution does
not require to be remedied by imposing unjust burdens on the public.[28]
We are not impressed by the reliance by MERALCO on some American case
law allowing the treatment of income tax paid by a public utility as operating
expense for rate-making purposes. Suffice to state that with regard to rate-
determination, the government is not hidebound to apply any particular method
or formula.[29] The question of what constitutes a reasonable return for the
public utility is necessarily determined and controlled by its peculiar
environmental milieu. Aside from the financial condition of the public utility,
there are other critical factors to consider for purposes of rate regulation.
Among others, they are: particular reasons involved for the request of the rate
increase, the quality of services rendered by the public utility, the existence of
competition, the element of risk or hazard involved in the investment, the
capacity of consumers, etc.[30] Rate regulation is the art of reaching a result
that is good for the public utility and is best for the public.
For these reasons, the Court cannot give in to the importunings of MERALCO
that we blindly apply the rulings of American courts on the treatment of income
tax as operating expenses in rate regulation cases. An approach allowing the
indiscriminate inclusion of income tax payments as operating expenses may
create an undesirable precedent and serve as a blanket authority for public
utilities to charge their income tax payments to operating expenses and
unjustly shift the tax burden to the customer. To be sure, public utility taxation
in the United States is going through the eye of criticism. Some commentators
are of the view that by allowing the public utility to collect its income tax
payment from its customers, a form of sales tax is, in effect, imposed on the
public for consumption of public utility services. By charging their income tax
payments to their customers, public utilities virtually become tax collectors
rather than taxpayers.[31] In the cases at bar, MERALCO has not justified why
its income tax should be treated as an operating expense to enable it to derive
a fair return for its services.
It is also noteworthy that under American laws, public utilities are taxed
differently from other types of corporations and thus carry a heavier tax burden.
Moreover, different types of taxes, charges, tolls or fees are assessed on a
public utility depending on the state or locality where it operates. At a federal
level, public utilities are subject to corporate income taxes and Social Security
taxesin the same manner as other business corporations. At the state and local
levels, public utilities are subject to a wide variety of taxes, not all of which are
imposed on each state. Thus, it is not unusual to find different taxes or
combinations of taxes applicable to respective utility industries within a
particular state.[32] A significant aspect of state and local taxation of public
utilities in the United States is that they have been singled out for special
taxation, i.e., they are required to pay one or more taxes that are not levied
upon other industries. In contrast, in this jurisdiction, public utilities are subject
to the same tax treatment as any other corporation and local taxes paid by it
to various local government units are substantially the same. The reason for
this is that the power to tax resides in our legislature which may prescribe the
limits of both national and local taxation, unlike in the federal system of the
United States where state legislature may prescribe taxes to be levied in their
respective jurisdictions.
MERALCO likewise cites decisions of the ERB[33] allowing the application of
a tax recovery clause for the imposition of an additional charge on consumers
for taxes paid by the public utility. A close look at these decisions will show
they are inappropos. In the said cases, the ERB approved the adoption of a
formula which will allow the public utility to recover from its customers taxes
already paid by it. However, in the cases at bar, the income tax component
added to the operating expenses of a public utility is based on an estimate or
approximate figure of income tax to be paid by the public utility. It is this
estimated amount of income tax to be paid by MERALCO which is included in
the amount of operating expenses and used as basis in determining the
reasonable rate to be charged to the customers. Accordingly, the varying
factual circumstances in the said cases prohibit a square application of the rule
under the previous ERB decisions.
II
Use of Net Average Investment Method is Not Unreasonable
In the determination of the rate base, property used in the operation of the
public utility must be subject to appraisal and evaluation to determine the fair
value thereof entitled to a fair return. With respect to those properties which
have not been used by the public utility for the entire duration of the test year,
i.e., the year subject to audit examination for rate-making purposes, a valuation
method must be adopted to determine the proportionate value of the property.
Petitioners maintain that the net average investment method (also known as
actual number of months use method) recommended by COA and adopted by
the ERB should be used, while MERALCO argues that the average investment
method (also known as the trending method) to determine the proportionate
value of properties should be applied.
Under the net average investment method, properties and equipment used in
the operation of a public utility are entitled to a return only on the actual number
of months they are in service during the period.[34] In contrast, the average
investment method computes the proportionate value of the property by adding
the value of the property at the beginning and at the end of the test year with
the resulting sum divided by two.[35]
The ERB did not abuse its discretion when it applied the net average
investment method. The reasonableness of net average investment method is
borne by the records of the case. In its report, the COA explained that the
computation of the proportionate value of the property and equipment in
accordance with the actual number of months such property or equipment is
in service for purposes of determining the rate base is favored, as against the
trending method employed by MERALCO, to reflect the real status of the
property.[36] By using the net average investment method, the ERB and the
COA considered for determination of the rate base the value of properties and
equipment used by MERALCO in proportion to the period that the same were
actually used during the period in question. This treatment is consistent with
the settled rule in rate regulation that the determination of the rate base of a
public utility entitled to a return must be based on properties and equipment
actually being used or are useful to the operations of the public utility.[37]
MERALCO does not seriously contest this treatment of actual usage of
property but opposes the method of computation or valuation thereof adopted
by the ERB and the COA on the ground that the net average investment
method assumes an ideal situation where a utility, like MERALCO, is able to
record in its books within any given month the value of all the properties
actually placed in service during that month.[38] MERALCO contends that
immediate recordal in its books of the property or equipment is not possible as
MERALCOs franchise covers a wide area and that due to the volume of
properties and equipment put into service and the amount of paper work
required to be accomplished for recording in the books of the company, it takes
three to six months (often longer) before an asset placed in service is recorded
in the books of MERALCO.[39] Hence, MERALCO adopted the average
investment method or the trending method which computes the average value
of the property at the beginning and at the end of the test year to compensate
for the irregular recording in its books.
MERALCOS stance is belied by the COA Report which states that the
verification of the records, as confirmed by the Management Staff, disclosed
that properties are recorded in the books as these are actually placed in
service.[40] Moreover, while the case was pending trial before the ERB, the
ERB conducted an ocular inspection to examine the assets in service, records
and books of accounts of MERALCO to ascertain the physical existence,
ownership, valuation and usefulness of the assets contained in the COA
Report.[41] Thus, MERALCOs contention that the date of recordal in the books
does not reflect the date when the asset is placed in service is baseless.
Further, computing the proportionate value of assets used in service in
accordance with the actual number of months the same is used during the test
year is a more accurate method of determining the value of the properties of a
public utility entitled to a return. If, as determined by COA, the date of recordal
in the books of MERALCO reflects the actual date the equipment or property
is used in service, there is no reason for the ERB to adopt the trending method
applied by MERALCO if a more precise method is available for determining
the proportionate value of the assets placed in service.
If we were to sustain the application of the trending method, the public utility
may easily manipulate the valuation of its property entitled to a return (rate
base) by simply including a highly capitalized asset in the computation of the
rate base even if the same was used for a limited period of time during the test
year. With the inexactness of the trending method and the possibility that the
valuation of certain properties may be subject to the control of and abuse by
the public utility, the Court finds no reasonable basis to overturn the
recommendation of COA and the decision of the ERB.
MERALCO further insists that the Court should sustain the trending method in
view of previous decisions by the Public Service Commission and of this Court
which upheld the use of this method. By refusing to adopt the trending method,
MERALCO argues that the ERB violated the rule on stare decisis.
Again, we are not impressed. It is a settled rule that the goal of rate-making is
to arrive at a just and reasonable rate for both the public utility and the public
which avails of the formers products and services.[42] However, what is a just
and reasonable rate cannot be fixed by any immutable method or formula.
Hence, it has been held that no public utility has a vested right to any particular
method of valuation.[43] Accordingly, with respect to a determination of the
proper method to be used in the valuation of property and equipment used by
a public utility for rate-making purposes, the administrative agency is not
bound to apply any one particular formula or method simply because the same
method has been previously used and applied. In fact, nowhere in the previous
decisions cited by MERALCO which applied the trending method did the Court
rule that the same should be the only method to be applied in all instances.
At any rate, MERALCO has not adequately shown that the rates prescribed by
the ERB are unjust or confiscatory as to deprive its stockholders a reasonable
return on investment. In the early case of Ynchausti S.S. Co. v. Public Utility
Commissioner, this Court held: [t]here is a legal presumption that the rates
fixed by an administrative agency are reasonable, and it must be conceded
that the fixing of rates by the Government, through its authorized agents,
involves the exercise of reasonable discretion and, unless there is an abuse
of that discretion, the courts will not interfere.[44] Thus, the burden is upon the
oppositor, MERALCO, to prove that the rates fixed by the ERB are
unreasonable or otherwise confiscatory as to merit the reversal of the ERB. In
the instant cases, MERALCO was unable to discharge this burden.
WHEREFORE, in view of the foregoing, the instant petitions are GRANTED
and the decision of the Court of Appeals in C.A. G.R. SP No. 46888 is
REVERSED. Respondent MERALCO is authorized to adopt a rate adjustment
in the amount of P0.017 per kilowatthour, effective with respect to MERALCOs
billing cycles beginning February 1994. Further, in accordance with the
decision of the ERB dated February 16, 1998, the excess average amount of
P0.167 per kilwatthour starting with the applicants billing cycles beginning
February 1998 is ordered to be refunded to MERALCOs customers or
correspondingly credited in their favor for future consumption.
SO ORDERED.
 7. Freedom from Debt Coalition v. MWSS
December 10, 2007
EN BANC
x----------------------------------------------------------------------------------------x

FREEDOM FROM DEBT COALITION, AKBAYAN CITIZENS ACTION DECISION

PARTY, ALLIANCE OF PROGRESSIVE LABOR, MARIO JOYO AGUJA, ANA
THERESIA HONTIVEROS-BARAQUEL, RENATO B. MAGTUBO, SANDOVAL-GUTIERREZ, J.:
EMMANUEL JOEL J. VILLANUEVA, EDUARDO C. ZIALCITA, MA. THERESA
DIOKNO-PASCUAL, MARY ANN B. MANAHAN AND PATROCINIO JUDE Before us for resolution is the instant Petition for Certiorari and Prohibition (with
ESGUERRA III, prayer for the issuance of a temporary restraining order and a writ of
Petitioners, preliminary injunction) assailing (a) Resolution No. 2004-
201 of the Metropolitan Waterworks and Sewerage System (MWSS) Board of
Trustees, respondent; and (b) Resolution No. 04-006-CA of the MWSS
- versus - Regulatory Office (MWSS-RO), another respondent, both dated July 30, 2004.

The facts as culled from the petition are:

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM (MWSS) and
the MWSS REGULATORY OFFICE (MWSS-RO), Respondent MWSS is a government corporation created in 1971 under
Respondents. Republic Act No. 6234,[1] as amended, for the purpose of owning and/or
having jurisdiction, supervision and control over all waterworks and sewerage
G.R. No. 173044 systems in Metro Manila and the provinces of Rizal and Cavite.

In 1995, the government embarked upon the privatization of the waterworks

Present: and sewerage system of MWSS. Among the range of privatization options,
MWSS chose to enter into concession arrangement with private entities. The
PUNO, C.J. area of Metro Manila was divided into two (2) concession areas Service Area
*QUISUMBING, East and Service Area West.
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ, After a process of public bidding and selection, the Service Area East was
CARPIO, awarded to Manila Water Company, Inc., while the Service Area West was
AUSTRIA-MARTINEZ, awarded to Maynilad Water Services, Inc.
CORONA,
CARPIO MORALES, On February 21, 1997, respondent MWSS executed separate Concession
AZCUNA, Agreements with the Manila Water Company, Inc. and Maynilad Water
TINGA, Services, Inc. (the concessionaires). Each Concession Agreement is effective
CHICO-NAZARIO, for a 25-year period, or from August 1, 1997 to May 6, 2022, subject to early
VELASCO, JR., termination. Under the Concession Agreements, the concessionaires act as
NACHURA, and contractors to perform certain functions, and as agents to exercise certain
REYES, JJ. rights and powers for the operation of the waterworks and sewerage system.
The concessionaires are required to expand the supply of water coverage and
sewerage services, provide uninterrupted water supply, and increase water
pressure during the concession period. The ownership of the facilities and
Promulgated:
movable properties existing at the beginning of the concession period remain
with respondent MWSS.
As consideration for the performance of their obligations, the concessionaires
are empowered to charge and collect water and sewerage services based on
standard rates. Article 9[2] of the Concession Agreements provides inter alia
that the standard rates may be adjusted from time to time subject to the
limitation that the concessionaires rate of net return shall not exceed twelve
percent (12%) per annum, as required in Section 12[3] of the MWSS Charter
(R.A. No. 6234).
On August 3, 2000, the MWSS Board of Trustees, pursuant to Article 13.2[4]
of the Concession Agreements, passed Resolution No. 277-2000 directing the
Commission on Audit (COA) to conduct a rate audit of the concessionaires
operations for the purpose of ensuring that their rate of return does not exceed
the 12% cap mandated in Section 12 of the MWSS Charter.
On September 15, 2003 and December 2, 2003, the COA submitted to the
MWSS its two audit Reports with a finding that from January 1 to December
31, 1999, the Maynilad Water Services, Inc. had a net Rate of Return (ROR)
of 7.71%, while the Manila Water Company, Inc. had an ROR of 40.92%. The
pertinent portions of the COA Reports state:
Report No. 2000-38 (for Maynilad Water Services, Inc. [MWSI])
Result of the Audit
The audit, after considering the adjustments for rate determination, resulted in
an actual rate of return of 7.71% during the period January 1 to December 31,
1999 on MWSIs invested capital of P3.999 billion inclusive of Concession Fees
of P3.36 billion pertaining to completed projects. The return is 4.29% below
the allowable Rate of Return Base (RORB) of 12%.
xxx
Report No. 2000-39 (for Manila Water Company, Inc. [MWCI])
Result of the Audit
The audit, after considering the adjustments for rate determination, resulted in
an actual rate of return of 40.92% during the period January 1 to December
31, 1999 on MWCIs invested capital of P971.93 million inclusive of Concession
Fees of P556.12 million pertaining to completed projects. The return is 28.92%
above the allowable RORB of 12%.
xxx
According to the COA Reports, in the rate determination, only those properties
acquired, owned, and actually used in the operation of the concessionaires
were included in the computation of the invested capital.
On March 31, 2004, the MWSS Regulatory Office issued a Notice of
Extraordinary Price Adjustment (NEPA) to both concessionaires, stating that
pursuant to Article 9.3.1 of the Concession Agreements, the Regulatory Office
has determined that Grounds for Extraordinary Price Adjustment (GEPA) have
occurred, consisting in a purported change in law, government regulation, rule
or order or interpretation thereof, that affects or is likely to affect the Cash Flow
of the concessionaires. According to the NEPA, the change in law, rule or
interpretation thereof was brought about by the Supreme Court Resolution
dated April 9, 2003 in Republic v. Manila Electric Company (MERALCO)[5]
holding that income tax payments of a utility are not expenses which contribute
to or are incurred in connection with the production of profit of a public utility.
The NEPA further stated that the Regulatory Office shall soon determine the
Extraordinary Price Adjustment which shall be made effective January 1st of
the Charging Year 2005.
The concessionaires opposed the NEPA and requested that it be set aside on
the grounds that (a) they are not public utilities but mere agents and
contractors of MWSS by virtue of the Concession Agreements; (b) their income
tax payments are considered expenditures under the Concession
Agreements; (c) in the case of the Manila Water Company, Inc., the MWSS
Regulatory Office had approved its Business Plan dated September 18, 2002
and granted it a Rate Rebasing; and that the said Plan treats income tax
payments as expenditures; (d) the premise of the GEPA is that the
concessionaires are public utilities; (e) the COA conducted the rate audit on
the premise that the concessionaires are public utilities even if they maintain
they are not of such character; and (f) the MERALCO ruling does not involve
the GEPA contemplated in clause 9.3.1 (ii) of the Concession Agreements.
On June 2, 2004, the MWSS Board of Trustees, pursuant to Article 12.1[6] of
the Concession Agreements, directed its Regulatory Office and the
concessionaires to create a Technical Working Group (TWG) which will
discuss the issues raised by the concessionaires in order to find a mutually
acceptable resolution to avoid arbitration before the Appeals Panel.
Thus, the TWG was created composed of representatives from the MWSS
Regulatory Office, the concessionaires, and the MWSS Corporate Office. On
July 9, 2004, the TWG invited resource persons[7] to shed light on what should
be the status of the MWSS and the concessionaires under the privatization
program, as well as the proper interpretation and application that should be
given to Section 12 of the MWSS Charter and Section 9.1 of the Concession
Agreements insofar as the rate of return set in the Charter and the tariff
adjustments are concerned.
On July 27, 2004, the TWG submitted its Report. Among the findings of the
TWG, with the assistance of the resource persons, are: (1) the intent of the
Concession Agreements is for the MWSS to remain as a public utility providing
waterworks and sewerage services, while the concessionaires are its agents
and contractors, consistent with the framework of the concession
arrangements; (2) it is the MWSS that has the legislative franchise under its
Charter, while the concessionaires do not have a franchise: (3) in its operation,
the MWSS contracted the services of the concessionaires to perform certain
functions and authorized them, by way of agency, to exercise certain rights in
performing their obligations; (4) during the bidding and selection of
concessionaires, the latter had submitted their bids on the basis of MWSS
representation that it would retain its status as a public utility having
jurisdiction, supervision and control over all waterworks and sewerage system
within Metro Manila, Rizal and Cavite; and (5) based on the framework of the
Concession Agreements (specifically on Art. 1 Definitions, Art. 2.1 Grant of
Concession, and Art. 9.4 General Rate Setting Policy/Rate Rebasing
Determination), the MERALCO ruling has no relevance to the concessionaires
situation.
On July 30, 2004, the MWSS Regulatory Office issued the assailed Resolution
No. 04-006-CA[8] approving and adopting the findings and recommendations
of the TWG, thus:
NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved:
1. The RO hereby APPROVES and adopts all the findings, conclusions, and
recommendations of the Joint Technical Working Group as contained in its
memorandum to the MWSS Board of Trustees dated July 29, 2004;
2. The RO shall consider and treat the Concessionaires as mere agents and
contractors of MWSS, which is and still remains to be the public utility. The
Supreme Court Decision in the Meralco case is not applicable to the
Concessionaires, thus the NEPA Notice dated 31 March 2004 has no further
force and effect. The appropriate procedure in the conduct of rate audit of
MWSS has been established by the National Water Resources Board
(NWRB).
3. The RO shall provide COA with a copy of the TWG Report per Assistant
Commissioner Cuencos request, as well as inform the COA of the appropriate
framework for the conduct of the rate audit.
4. The RO shall inform the COA of the appropriate framework for the conduct
of the rate audit of MWSS such that: a) the rate audit of MWSS as public utility
shall observe the procedures/guidelines set out in the MWSS letter to NWRB
dated 21 November 1996 and NWRB letter to MWSS dated 02 December
1996, i.e., The procedure for rate of return (ROR) calculation and, the 12%
ceiling shall be applicable to the entire waterworks system, including both the
income and assets held respectively by the Concessionaires and MWSS, and
the formula that the ROR is equal to income after interest and taxes divided by
the base of Net revalued fixed assets in operation + 2 months operating capital;
and b) MWSS and its Concessionaires shall ensure that actual tariff rates as
adjusted by Article 9.1 of the CA shall not exceed the maximum tariff rates
consisted with the 12% ROR limit, and in case actual rates exceed the tariff
ceiling consistent with 12% ROR limit, RO shall propose a service obligation
deferment to adjust actual rates or compute Expiration Payment due to
Concessionaires.
The following were also identified as continuing guiding principles:
1. Any dispute between MWSS and its Concessionaires on rate audits shall
be resolved through Dispute Resolution procedures (Art. 12) set in the CA.
2. The Concessionaires, as agents and contractors of MWSS are to submit
annual audited Financial Statements (F/S) relating to the Concession. Said
F/S, which will be treated as final inputs, shall be consolidated for purposes of
rate audit determination as per NWRB guidelines.
3. The Concessionaires shall engage an independent Auditor who will be
tasked to prepare the audited F/S. The Concessionaires shall ensure that the
independent Auditor shall have competence and international experience
auditing water projects.
4. Prior to the implementation of any Rate Rebasing tariff adjustment for a Rate
Rebasing Period, the RO shall:
a) Determine the indicative tariff consistent with the 12% return limit for said
RR period;
b) Determine the actual RR tariff adjustment consistent with the
Concessionaires Business Plan and ADR as reviewed and approved by RO;
c) Prepare a trial or test rate audit to indicate level and trend of actual rates
vis--vis the tariff ceiling in each year of the Rate Rebasing.
5. The KPI/BEM mutually agreed between the Concessionaires and
MWSS/RO shall serve as basis for determining the prudent and efficient
expenditures of the Concessionaires. Other mechanism to determine
prudence and efficiency will be explored by the RO with the Concessionaires.
6. The RO shall take the lead role to conduct a revaluation/reappraisal of the
assets of both MWSS and its Concessionaires use for the provision of water
supply and sewerage services. This shall be conducted by reputable appraisal
firms and shall be done at least once a year.
7. The COA (or any Independent Auditor of ROs choice) shall facilitate the
consolidation of audited F/S of both MWSS and Concessionaires.
8. The audit of MWSS as the public utility by COA shall be based on the
framework developed by NWRB. The audit of Concessionaires shall be
conducted by an Independent Auditor in accordance with KPI/BEM framework.
On the same day (July 30, 2004), respondent MWSS Board of Trustees, in its
assailed Resolution No. 2004-201,[9] approved Regulatory Office Resolution
No. 04-006-CA.
On June 29, 2006, the above-named petitioners filed the present petition
alleging that they received copies of the two assailed Resolutions
only on May 25, 2006;[10] that respondents, in issuing the assailed
Resolutions, acted with grave abuse of discretion amounting to lack or in
excess of jurisdiction; that the finding by respondents that the concessionaires
are not public utilities, but mere agents/contractors of the MWSS, has the
effect of excluding the rates set by such concessionaires from the limitation in
Section 12 of R.A. 6234 (MWSS Charter); and that this, in turn, will have the
effect of increasing the rates that can be charged against them and the
subscribers to the water service provided by the concessionaires.[11]
For their part, respondents, in their Comment, pray for the dismissal of the
petition for lack of merit.
The instant petition must fail.
First, petitioners failed to resort to the appropriate remedy. Under Section 12
of the MWSS Charter, it was the defunct Public Service Commission[12] which
had the exclusive original jurisdiction over all cases contesting the rates or fees
of water and sewerage services, thus:
Sec. 12. Review of Rates by the Public Service Commission.- The rates and
fees fixed by the Board of Trustees for the System (MWSS) and by the local
governments for the local systems shall be of such magnitude that the
Systems rate of net return shall not exceed twelve percentum (12%), on a rate
base composed of the sum of its assets in operation as revalued from time to
time plus two months operating capital. Such rates and fees shall be effective
and enforceable fifteen (15) days after publication in a newspaper of general
circulation within the territory defined in Section 2(c) of this Act. The Public
Service Commission shall have exclusive original jurisdiction over all cases
contesting said rates or fees. Any complaint against such rates or fees shall
be filed with the Public Service Commission within thirty (30) days after the
effectivity of such rates, but the filing of such complaint or action shall not stay
the effectivity of said rates or fees. The Public Service Commission shall verify
the rate base, and the rate of return computed therefrom, in accordance with
the standards above outlined. The Public Service Commission shall finish,
within sixty (60) calendar days, any and all proceedings necessary and/or
incidental to the case, and shall render its findings or decisions thereon within
thirty (30) calendar days after said case is submitted for decision.
In cases where the decision is against the fixed rates or fees, excess payments
shall be reimbursed and/or credited to future payments, in the discretion of the
Commission. (Underscoring supplied)
Indeed, petitioners have a plain and speedy remedy in the ordinary course of
law as prescribed in Section 12 above. They cannot avail of certiorari as a
substitute for that plain and speedy recourse. The writ of certiorari and
prohibition may be availed of only when there is no appeal, or any plain,
speedy, and adequate remedy in the ordinary course of law.[13]
Second, even assuming that petitioners may resort to certiorari and prohibition,
their petition, however, suffers from a fatal defect, i.e., it failed to implead the
two concessionaires who are certainly indispensable parties. Indispensable
parties are those which have such interest in the controversy that a final
adjudication of the case would certainly affect their rights, so that the court
cannot proceed without their presence.[14] Thus, their non-inclusion
in the petition for a writ of certiorari would render the said petition defective.[15]
Third, the petition is barred under the doctrine of hierarchy of courts. Such
doctrine is one of the structural aspects intended for the orderly administration
of justice. This Court has concurrent original jurisdiction with the Regional Trial
Court and the Court of Appeals in the issuance of the extraordinary writ of
certiorari and prohibition. However, in availing of such extraordinary writ,
petitioners do not have the complete liberty or discretion to file their petition in
any of these courts. In the absence of special reasons, they cannot disregard
the doctrine of the hierarchy of courts in our judicial system by seeking relief WHEREFORE, we DISMISS the instant petition for lack of merit. No
directly from this Court despite the fact that the same is available in the lower pronouncement as to costs.
tribunals in the exercise of their original concurrent jurisdiction.[16]
SO ORDERED.
Significantly, the petition raises issues of fact which cannot be addressed to
this Court. For instance, in determining whether the concessionaires are public
utilities or mere agents of MWSS, there must be an examination of the intention
of MWSS and the concessionaires at the time of the bidding process,
negotiation, and execution of the Concession Agreements. Certainly, this
matter is a factual issue requiring presentation and evaluation of evidence
such as bidding documents, memoranda, and the testimonies of the
participants of the bidding and contract negotiations. Moreover, petitioners
maintain that the assailed Resolutions could authorize the increase of water
rates beyond the 12% rate of return limit. While such claim is purely speculative
in nature, it would nonetheless require a very complicated and technical
computation of the current rate of return which entails a determination of
income, the valuation of assets, which assets are to be included in the
computation, and other factual factors. Again, these matters are beyond the
Courts function as it is not a trier of facts.

While petitioners claim that the assailed Resolutions are in flagrant violation of
the Constitution and statutory provisions defining public utilities, however, they
failed to cite any Constitutional provision being violated.

In Santiago v. Vasquez, et al.,[17] this Court held:

x x x. We discern in the proceedings in this case a propensity on the part of

petitioner, and, for that matter, the same may be said of a number of litigants
who initiate recourses before us, to disregard the hierarchy of courts in our
judicial system by seeking relief directly from this Court despite the fact that
the same is available in the lower courts in the exercise of their original
concurrent jurisdiction, or is even mandated by law to be sought therein. This
practice must be stopped, not only because of the imposition upon the
precious time of this Court but also because of the inevitable and resultant
delay, intended or otherwise, in the adjudication of the case which often has
to be remanded or referred to the lower court as the proper forum under the
rules of procedure, or as better equipped to resolve the issues since this Court
is not a trier of facts. We, therefore, reiterate the judicial policy that this Court
will not entertain direct resort to it unless the redress desired cannot be
obtained in the appropriate courts or where exceptional and compelling
circumstances justify availment of a remedy within and calling for the exercise
of our primary jurisdiction. (Underscoring supplied)
 8. Globe v, NTC
[G.R. No. 143964. July 26, 2004]
GLOBE TELECOM, INC., petitioner, vs. THE NATIONAL
TELECOMMUNICATIONS COMMISSION, COMMISSIONER JOSEPH A.
SANTIAGO, DEPUTY COMMISSIONERS AURELIO M. UMALI and NESTOR
DACANAY, and SMART COMMUNICATIONS, INC. respondents.
DECISION
TINGA, J.:
Telecommunications services are affected by a high degree of public
interest.[1] Telephone companies have historically been regulated as common
carriers,[2] and indeed, the 1936 Public Service Act has classified wire or
wireless communications systems as a public service, along with other
common carriers.[3]
Yet with the advent of rapid technological changes affecting the
telecommunications industry, there has been a marked reevaluation of the
traditional paradigm governing state regulation over telecommunications. For
example, the United States Federal Communications Commission has chosen
not to impose strict common regulations on incumbent cellular providers,
choosing instead to let go of the reins and rely on market forces to govern
pricing and service terms.[4]
In the Philippines, a similar paradigm shift can be discerned with the passage
of the Public Telecommunications Act of 1995 (PTA). As noted by one of the
laws principal authors, Sen. John Osmea, under prior laws, the government
regulated the entry of pricing and operation of all public telecommunications
entities. The new law proposed to dismantle gradually the barriers to entry,
replace government control on price and income with market instruments, and
shift the focus of governments intervention towards ensuring service standards
and protection of customers.[5] Towards this goal, Article II, Section 8 of the
PTA sets forth the regulatory logic, mandating that a healthy competitive
environment shall be fostered, one in which telecommunications carriers are
free to make business decisions and to interact with one another in providing
telecommunications services, with the end in view of encouraging their
financial viability while maintaining affordable rates.[6] The statute itself
defines the role of the government to promote a fair, efficient and responsive
market to stimulate growth and development of the telecommunications
facilities and services.[7]
The present petition dramatizes to a degree the clash of philosophies between
traditional notions of regulation and the au corant trend to deregulation.
Appropriately, it involves the most ubiquitous feature of the mobile phone,
Short Messaging Service (SMS)[8] or text messaging, which has been
transformed from a mere technological fad into a vital means of
communication. And propitiously, the case allows the Court to evaluate the
role of the National Telecommunications Commission (NTC) in this day and
age.
The NTC is at the forefront of the government response to the avalanche of
inventions and innovations in the dynamic telecommunications field. Every
regulatory action it undertakes is of keen interest not only to industry analysts
and players but to the public at large. The intensive scrutiny is understandable
given the high financial stakes involved and the inexorable impact on
consumers. And its rulings are traditionally accorded respect even by the
courts, owing traditional deference to administrative agencies equipped with
special knowledge, experience and capability to hear and determine promptly
disputes on technical matters.[9]
At the same time, judicial review of actions of administrative agencies is
essential, as a check on the unique powers vested unto these
instrumentalities.[10] Review is available to reverse the findings of the
specialized administrative agency if the record before the Court clearly
precludes the agencys decision from being justified by a fair estimate of the
worth of the testimony of witnesses or its informed judgment on matters within
its special competence, or both.[11] Review may also be warranted to ensure
that the NTC or similarly empowered agencies act within the confines of their
legal mandate and conform to the demands of due process and equal
protection.[12]
Antecedent Facts
Globe and private respondent Smart Communications, Inc. (Smart) are both
grantees of valid and subsisting legislative franchises,[13] authorizing them,
among others, to operate a Cellular Mobile Telephone System (CMTS),
utilizing the Global System for Mobile Communication (GSM) technology.[14]
Among the inherent services supported by the GSM network is the Short
Message Services (SMS),[15] also known colloquially as texting, which has
attained immense popularity in the Philippines as a mode of electronic
communication.
On 4 June 1999, Smart filed a Complaint[16] with public respondent NTC,
praying that NTC order the immediate interconnection of Smarts and Globes
GSM networks, particularly their respective SMS or texting services. The
Complaint arose from the inability of the two leading CMTS providers to effect
interconnection. Smart alleged that Globe, with evident bad faith and malice,
refused to grant Smarts request for the interconnection of SMS.[17]
On 7 June 1999, NTC issued a Show Cause Order, informing Globe of the
Complaint, specifically the allegations therein that, among othersdespite
formal request made by Smart to Globe for the interconnection of their
respective SMS or text messaging services, Globe, with evident bad faith,
malice and to the prejudice of Smart and Globe and the public in general,
refused to grant Smarts request for the interconnection of their respective SMS
or text messaging services, in violation of the mandate of Republic Act 7925,
Executive Order No. 39, and their respective implementing rules and
regulations.[18]
Globe filed its Answer with Motion to Dismiss on 7 June 1999, interposing
grounds that the Complaint was premature, Smarts failure to comply with the
conditions precedent required in Section 6 of NTC Memorandum Circular 9-7-
93,[19] and its omission of the mandatory Certification of Non-Forum
Shopping.[20] Smart responded that it had already submitted the voluminous
documents asked by Globe in connection with other interconnection
agreements between the two carriers, and that with those voluminous
documents the interconnection of the SMS systems could be expedited by
merely amending the parties existing CMTS-to-CMTS interconnection
agreements.[21]
On 19 July 1999, NTC issued the Order now subject of the present petition. In
the Order, after noting that both Smart and Globe were equally blameworthy
for their lack of cooperation in the submission of the documentation required
for interconnection and for having unduly maneuvered the situation into the
present impasse,[22] NTC held that since SMS falls squarely within the
definition of value-added service or enhanced-service given in NTC
Memorandum Circular No. 8-9-95 (MC No. 8-9-95) the implementation of
SMS interconnection is mandatory pursuant to Executive Order (E.O.) No.
59.[23]
The NTC also declared that both Smart and Globe have been providing SMS
without authority from it, in violation of Section 420 (f) of MC No. 8-9-95 which
requires PTEs intending to provide value-added services (VAS) to secure prior
approval from NTC through an administrative process. Yet, in view of what it
noted as the peculiar circumstances of the case, NTC refrained from issuing a
Show Cause Order with a Cease and Desist Order, and instead directed the
parties to secure the requisite authority to provide SMS within thirty (30) days,
subject to the payment of fine in the amount of two hundred pesos (P200.00)
from the date of violation and for every day during which such violation
continues.[24]
Globe filed with the Court of Appeals a Petition for Certiorari and
Prohibition[25] to nullify and set aside the Order and to prohibit NTC from
taking any further action in the case. It reiterated its previous arguments that
the complaint should have been dismissed for failure to comply with conditions
precedent and the non-forum shopping rule. It also claimed that NTC acted
without jurisdiction in declaring that it had no authority to render SMS, pointing
out that the matter was not raised as an issue before it at all. Finally, Globe
alleged that the Order is a patent nullity as it imposed an administrative penalty
for an offense for which neither it nor Smart was sufficiently charged nor heard
on in violation of their right to due process.[26]
The Court of Appeals issued a Temporary Restraining Order on 31 August
1999.
In its Memorandum, Globe also called the attention of the appellate court to
the earlier decision of NTC pertaining to the application of Isla
Communications Co., Inc. (Islacom) to provide SMS, allegedly holding that
SMS is a deregulated special feature of the telephone network and therefore
does not require the prior approval of NTC.[27] Globe alleged that its departure
from its ruling in the Islacom case constitutes a denial of equal protection of
the law.
On 22 November 1999, a Decision[28] was promulgated by the Former Special
Fifth Division of the Court of Appeals[29] affirming in toto the NTC Order.
Interestingly, on the same day Globe and Smart voluntarily agreed to
interconnect their respective SMS systems, and the interconnection was
effected at midnight of that day.[30]
Yet, on 21 December 1999, Globe filed a Motion for Partial
Reconsideration,[31] seeking to reconsider only the portion of the Decision that
upheld NTCs finding that Globe lacked the authority to provide SMS and its
imposition of a fine. Both Smart and NTC filed their respective comments,
stressing therein that Globe indeed lacked the authority to provide SMS.[32]
In reply, Globe asserted that the more salient issue was whether NTC
complied with its own Rules of Practice and Procedure before making the
finding of want of authority and imposing the fine. Globe also reiterated that it
has been legally operating its SMS system since 1994 and that SMS being a
deregulated special feature of the telephone network it may operate SMS
without prior approval of NTC.
After the Court of Appeals denied the Motion for Partial Reconsideration,[33]
Globe elevated the controversy to this Court.
Globe contends that the Court of Appeals erred in holding that the NTC has
the power under Section 17 of the Public Service Law[34] to subject Globe to
an administrative sanction and a fine without prior notice and hearing in
violation of the due process requirements; that specifically due process was
denied Globe because the hearings actually conducted dwelt on different
issues; and, the appellate court erred in holding that any possible violation of
due process committed by NTC was cured by the fact that NTC refrained from
issuing a Show Cause Order with a Cease and Desist Order, directing instead
the parties to secure the requisite authority within thirty days. Globe also
contends that in treating it differently from other carriers providing SMS the
Court of Appeals denied it equal protection of the law.
The case was called for oral argument on 22 March 2004. Significantly, Smart
has deviated from its original position. It no longer prays that the Court affirm
the assailed Decision and Order, and the twin rulings therein that SMS is VAS
and that Globe was required to secure prior authority before offering SMS.
Instead, Smart now argues that SMS is not VAS and that NTC may not legally
require either Smart or Globe to secure prior approval before providing SMS.
Smart has also chosen not to make any submission on Globes claim of due
process violations.[35]
As presented during the oral arguments, the central issues are: (1) whether
NTC may legally require Globe to secure NTC approval before it continues
providing SMS; (2) whether SMS is a VAS under the PTA, or special feature
under NTC MC No. 14-11-97; and (3) whether NTC acted with due process in
levying the fine against Globe.[36] Another issue is also raised whether Globe
should have first filed a motion for reconsideration before the NTC, but this
relatively minor question can be resolved in brief.
Necessity of Filing Motion for Reconsideration
Globe deliberately did not file a motion for reconsideration with the NTC before
elevating the matter to the Court of Appeals via a petition for certiorari.
Generally, a motion for reconsideration is a prerequisite for the filing of a
petition for certiorari.[37] In opting not to file the motion for reconsideration,
Globe asserted before the Court of Appeals that the case fell within the
exceptions to the general rule.[38] The appellate court in the questioned
Decision cited the purported procedural defect,[39] yet chose anyway to rule
on the merits as well.
Globes election to elevate the case directly to the Court of Appeals, skipping
the standard motion for reconsideration, is not a mortal mistake. According to
Globe, the Order is a patent nullity, it being violative of due process; the motion
for reconsideration was a useless or idle ceremony; and, the issue raised
purely one of law.[40] Indeed, the circumstances adverted to are among the
recognized exceptions to the general rule.[41] Besides, the issues presented
are of relative importance and novelty[42] so much so that it is judicious for the
Court to resolve them on the merits instead of hiding behind procedural
fineries.
The Merits
Now, on to the merits of the petition.
Deregulation is the mantra in this age of globalization. Globe invokes it in
support of its claim that it need not secure prior authority from NTC in order to
operate SMS. The claim has to be evaluated carefully. After all, deregulation
is not a magic incantation that wards off the spectre of intrusive government
with the mere invocation of its name. The principles, guidelines, rules and
regulations that govern a deregulated system must be firmly rooted in the law
and regulations that institute or implement the deregulation regime.[43] The
implementation must likewise be fair and evenhanded.
Globe hinges its claim of exemption from obtaining prior approval from the
NTC on NTC Memorandum Circular No. 14-11-97 (MC No. 14-11-97). Globe
notes that in a 7 October 1998 ruling on the application of Islacom for the
operation of SMS, NTC declared that the applicable circular for SMS is MC
No. 14-11-97.[44] Under this ruling, it is alleged, NTC effectively denominated
SMS as a special feature which under MC No. 14-11-97 is a deregulated
service that needs no prior authorization from NTC. Globe further contends
that NTCs requiring it to secure prior authorization violates the due process
and equal protection clauses, since earlier it had exempted the similarly
situated Islacom from securing NTC approval prior to its operation of SMS.[45]
On the other hand, the assailed NTC Decision invokes the NTC Implementing
Rules of the PTA (MC No. 8-9-95) to justify its claim that Globe and Smart
need to secure prior authority from the NTC before offering SMS.
The statutory basis for the NTCs determination must be thoroughly examined.
Our first level of inquiry should be into the PTA. It is the authority behind MC
No. 8-9-95. It is also the law that governs all public telecommunications entities
(PTEs) in the Philippines.[46]
Public Telecommunications Act
The PTA has not strictly adopted laissez-faire as its underlying philosophy to
promote the telecommunications industry. In fact, the law imposes strictures
that restrain within reason how PTEs conduct their business. For example, it
requires that any access charge/revenue sharing arrangements between all
interconnecting carriers that are entered into have to be submitted for approval
to NTC.[47] Each telecommunication category[48] established in the PTA is
governed by detailed regulations. Also, international carriers and operators of
mobile radio services are required to provide local exchange service in
unserved or underserved areas.[49]
At the same time, the general thrust of the PTA is towards modernizing the
legal framework for the telecommunications services sector. The
transmutation has become necessary due to the rapid changes as well within
the telecommunications industry. As noted by Senator Osmea in his
sponsorship speech:
[D]ramatic developments during the last 15 years in the field of semiconductors
have drastically changed the telecommunications sector worldwide as well as
in the Philippines. New technologies have fundamentally altered the structure,
the economics and the nature of competition in the telecommunications
business. Voice telephony is perhaps the most popular face of
telecommunications, but it is no longer the only one. There are other faces
such as data communications, electronic mail, voice mail, facsimile
transmission, video conferencing, mobile radio services like trunked radio,
cellular radio, and personal communications services, radio paging, and so on.
Because of the mind-boggling developments in semiconductors, the traditional
boundaries between computers, telecommunications, and broadcasting are
increasingly becoming blurred.[50]
One of the novel introductions of the PTA is the concept of a value-added
service (VAS). Section 11 of the PTA governs the operations of a value-added
service provider, which the law defines as an entity which relying on the
transmission, switching and local distribution facilities of the local exchange
and inter-exchange operators, and overseas carriers, offers enhanced
services beyond those ordinarily provided for by such carriers.[51] Section 11
recognizes that VAS providers need not secure a franchise, provided that they
do not put up their own network.[52] However, a different rule is laid down for
telecommunications entities such as Globe and PLDT. The section
unequivocally requires NTC approval for the operation of a value-added
service. It reads, viz:
Telecommunications entities may provide VAS, subject to the additional
requirements that:
a) prior approval of the Commission is secured to ensure that such VAS
offerings are not cross-subsidized from the proceeds of their utility operations;
b) other providers of VAS are not discriminated against in rates nor denied
equitable access to their facilities; and
c) separate books of accounts are maintained for the VAS. (Emphasis
supplied)[53]
Oddly enough, neither the NTC nor the Court of Appeals cited the above-
quoted provision in their respective decisions, which after all, is the statutory
premise for the assailed regulatory action. This failure is but a mere indicia of
the pattern of ignorance or incompetence that sadly attends the actions
assailed in this petition.
It is clear that the PTA has left open-ended what services are classified as
value-added, prescribing instead a general standard, set forth as a matter of
principle and fundamental policy by the legislature.[54] The validity of this
standard set by Section 11 is not put into question by the present petition, and
there is no need to inquire into its propriety.[55] The power to enforce the
provisions of the PTA, including the implementation of the standards set
therein, is clearly reposed with the NTC.[56]
It can also be gleaned from Section 11 that the requirement that PTEs secure
prior approval before offering VAS is tied to a definite purpose, i.e., to ensure
that such VAS offerings are not cross-subsidized from the proceeds of their
utility operations. The reason is related to the fact that PTEs are considered
as public services,[57] and mandated to perform certain public service
functions. Section 11 should be seen in relation to E.O. 109, which mandates
that international gateway operators shall be required to provide local
exchange service,[58] for the purpose of ensuring availability of reliable and
affordable telecommunications service in both urban and rural areas of the
country.[59] Under E.O. No. 109, local exchange services are to be cross-
subsidized by other telecommunications services within the same company
until universal access is achieved.[60] Section 10 of the PTA specifically
affirms the requirements set by E.O. No. 109. The relevance to VAS is clear:
public policy maintains that the offer of VAS by PTEs cannot interfere with the
fundamental provision by PTEs of their other public service requirements.
More pertinently to the case at bar, the qualification highlights the fact that the
legal rationale for regulation of VAS is severely limited. There is an implicit
recognition that VAS is not strictly a public service offering in the way that
voice-to-voice lines are, for example, but merely supplementary to the basic
service. Ultimately, the regulatory attitude of the State towards VAS offerings
by PTEs is to treat its provisioning as a business decision subject to the
discretion of the offeror, so long as such services do not interfere with
mandatory public service requirements imposed on PTEs such as those under
E.O. No. 109. Thus, non-PTEs are not similarly required to secure prior
approval before offering VAS, as they are not burdened by the public service
requirements prescribed on PTEs.[61] Due regard must be accorded to this
attitude, which is in consonance with the general philosophy of deregulation
expressed in the PTA.
The Pertinent NTC Memorandum Circulars
Next, we examine the regulatory framework devised by NTC in dealing with
VAS.
NTC relied on Section 420(f) of the Implementing Rules of the PTA
(Implementing Rules) as basis for its claim that prior approval must be secured
from it before Globe can operate SMS. Section 420 of the Implementing Rules,
contained in MC No. 8-9-95, states in full:
VALUE ADDED SERVICES (VAS)
(a) A non-PTE VAS provider shall not be required to secure a franchise from
Congress.
(b) A non-PTE VAS provider can utilize its own equipment capable only of
routing, storing and forwarding messages in whatever format for the purpose
of providing enhanced or augmented telecommunications services. It shall not
put up its own network. It shall use the transmission network, toll or local
distribution, of the authorized PTES.
(c) The provision of VAS shall not in any way affect the cross subsidy to the
local exchange network by the international and national toll services and
CMTS service.
(d) Entities intending to provide value added services only shall submit to the
commission application for registration for approval. The application form shall
include documents showing, among others, system configuration, mode of
operation, method of charging rates, lease agreement with the PTE, etc.
(e) The application for registration shall be acted upon by the Commission
through an administrative process within thirty (30) days from date of
application.
(f) PTEs intending to provide value added services are required to secure
prior approval by the Commission through an administrative process.
(g) VAS providers shall comply strictly with the service performance and other
standards prescribed commission. (Emphasis supplied.)
Instead of expressly defining what VAS is, the Implementing Rules defines
what enhanced services are, namely: a service which adds a feature or value
not ordinarily provided by a public telecommunications entity such as format,
media conversion, encryption, enhanced security features, computer
processing, and the like.[62] Given that the PTA defines VAS as enhanced
services, the definition provided in the Implementing Rules may likewise be
applied to VAS. Still, the language of the Implementing Rules is unnecessarily
confusing. Much trouble would have been spared had the NTC consistently
used the term VAS as it is used in the PTA.
The definition of enhanced services in the Implementing Rules, while more
distinct than that under the PTA, is still too sweeping. Rather than enumerating
what possible features could be classified as VAS or enhanced services, the
Implementing Rules instead focuses on the characteristics of these features.
The use of the phrase the like,[63] and its implications of analogy, presumes
that a whole myriad of technologies can eventually be subsumed under the
definition of enhanced services. The NTC should not be necessarily faulted for
such indistinct formulation since it could not have known in 1995[64] what
possible VAS would be available in the future. The definition laid down in the
Implementing Rules may validly serve as a guide for the NTC to determine
what emergent offerings would fall under VAS.
Still, owing to the general nature of the definition laid down in the Implementing
Rules, the expectation arises that the NTC would promulgate further issuances
defining whether or not a specific feature newly available in the market is a
VAS. Such expectation is especially demanded if the NTC is to penalize PTEs
who fail to obtain prior approval in accordance with Section 11 of the PTA. To
our knowledge, the NTC has yet to come out with an administrative rule or
regulation listing which of the offerings in the market today fall under VAS or
enhanced services.
Still, there is MC No. 14-11-97, entitled Deregulating the Provision of Special
Features in the Telephone Network. Globe invokes this circular as it had been
previously cited by the NTC as applicable to SMS.
On 2 October 1998, Islacom wrote a letter to the NTC, informing the agency
that it will be offering the special feature of SMS for its CMTS, and citing therein
that the notice was being given pursuant to NTC Memorandum Circular No.
14-11-97.[65] In response, the NTC acknowledged receipt of the letter
informing it of Islacoms offering the special feature of SMS for its CMTS, and
instructed Islacom to adhere to the provisions of MC No. 14-11-97.[66] The
clear implication of the letter is that NTC considers the Circular as applicable
to SMS.
An examination of MC No. 14-11-97 further highlights the state of regulatory
confusion befalling the NTC. The relevant portions thereof are reproduced
below:
SUBJECT: DEREGULATING THE PROVISION OF SPECIAL FEATURES
IN THE TELEPHONE NETWORK.
For the purpose of exempting specific telecommunications service from rate
or tariff regulations if the service has sufficient competition to ensure fair and
reasonable rates or tariffs, the Commission hereby deregulates the provision
of special features inherent to the Telephone Network.
Section 1. For the purpose of this Circular, Special Feature shall refer to a
feature inherent to the telephone network which may not be ordinarily provided
by a Telephone Service Provider such as call waiting, call forwarding,
conference calling, speed dialing, caller ID, malicious call ID, call transfer,
charging information, call pick-up, call barring, recorded announcement, no
double connect, warm line, wake-up call, hotline, voicemail, and special
features offered to customers with PABXs such as direct inward dialing and
number hunting, and the like; provided that in the provision of the feature, no
law, rule, regulation or international convention on telecommunications is
circumvented or violated. The Commission shall periodically update the list of
special features in the Telephone Network which, including the charging of
rates therefor, shall be deregulated.
Section 2. A duly authorized Telephone Service Provider shall inform the
Commission in writing of the special features it can offer and the
corresponding rates thirty (30) days prior to launch date.
xxx
Section 4. Authorized Telephone Service Providers shall continue to charge
their duly approved rates for special services for 3 months from the effectivity
of this circular, after which they may set their own rates.
xxx (Emphasis supplied)
Just like VAS as defined under the PTA, special features are also not ordinarily
provided by the telephone company. Considering that MC No. 14-11-97 was
promulgated after the passage of the PTA, it can be assumed that the authors
of the Circular were well aware of the regulatory scheme formed under the
PTA. Moreover, MC No. 14-11-97 repeatedly invokes the word deregulation,
and it cannot be denied that the liberalization ethos was introduced by the PTA.
Yet, the net effect of MC No. 14-11-97 is to add to the haze beclouding the
NTCs rationale for regulation. The introduction of a new concept, special
feature, which is not provided for in the PTA just adds to the confusion,
especially in light of the similarities between special features and VAS.
Moreover, there is no requirement that a PTE seeking to offer special features
must secure prior approval from the NTC.
Is SMS a VAS, enhanced service, or a special feature? Apparently, even the
NTC is unsure. It had told Islacom that SMS was a special feature, then
subsequently held that it was a VAS. However, the pertinent laws and
regulations had not changed from the time of the Islacom letter up to the day
the Order was issued. Only the thinking of NTC did.
More significantly, NTC never required ISLACOM to apply for prior approval in
order to provide SMS, even after the Order to that effect was promulgated
against Globe and Smart. This fact was admitted by NTC during oral
arguments.[67] NTCs treatment of Islacom, apart from being obviously
discriminatory, puts into question whether or not NTC truly believes that SMS
is VAS. NTC is unable to point out any subsequent rule or regulation, enacted
after it promulgated the adverse order against Globe and Smart, affirming the
newly-arrived determination that SMS is VAS.
In fact, as Smart admitted during the oral arguments, while it did comply with
the NTC Order requiring it to secure prior approval, it was never informed by
the NTC of any action on its request.[68] While NTC counters that it did issue
a Certificate of Registration to Smart, authorizing the latter as a provider of
SMS, such Certificate of Registration was issued only on 13 March 2003, or
nearly four (4) years after Smart had made its request.[69] This inaction
indicates a lack of seriousness on the part of the NTC to implement its own
rulings. Also, it tends to indicate the lack of belief or confusion on NTCs part
as to how SMS should be treated. Given the abstract set of rules the NTC has
chosen to implement, this should come as no surprise. Yet no matter how
content the NTC may be with its attitude of sloth towards regulation, the effect
may prove ruinous to the sector it regulates.
Every party subject to administrative regulation deserves an opportunity to
know, through reasonable regulations promulgated by the agency, of the
objective standards that have to be met. Such rule is integral to due process,
as it protects substantive rights. Such rule also promotes harmony within the
service or industry subject to regulation. It provides indubitable opportunities
to weed out the most frivolous conflicts with minimum hassle, and certain
footing in deciding more substantive claims. If this results in a tenfold in
administrative rules and regulations, such price is worth paying if it also results
in clarity and consistency in the operative rules of the game. The administrative
process will best be vindicated by clarity in its exercise.[70]
In short, the legal basis invoked by NTC in claiming that SMS is VAS has not
been duly established. The fault falls squarely on NTC. With the dual
classification of SMS as a special feature and a VAS and the varying rules
pertinent to each classification, NTC has unnecessarily complicated the
regulatory framework to the detriment of the industry and the consumers. But
does that translate to a finding that the NTC Order subjecting Globe to prior
approval is void? There is a fine line between professional mediocrity and
illegality. NTCs byzantine approach to SMS regulation is certainly inefficient.
Unfortunately for NTC, its actions have also transgressed due process in many
ways, as shown in the ensuing elucidation.
Penalized Via a Quasi-Judicial Process,
Globe and Smart are Entitled to
Corresponding Protections
It is essential to understand that the assailed Order was promulgated by NTC
in the exercise of its quasi-judicial functions. The case arose when Smart had
filed the initial complaint against Globe before NTC for interconnection of
SMS.[71] NTC issued a Show Cause Order requiring Globe to answer Smarts
charges. Hearings were conducted, and a decision made on the merits, signed
by the three Commissioners of the NTC, sitting as a collegial body.[72]
The initial controversy may have involved a different subject matter,
interconnection, which is no longer contested. It cannot be denied though that
the findings and penalty now assailed before us was premised on the same
exercise of jurisdiction. Thus, it is not relevant to this case that the process for
obtaining prior approval under the PTA and its Implementing Rules is
administrative in nature. While this may be so, the assailed NTCs
determination and corresponding penalty were rendered in the exercise of
quasi-judicial functions. Therefore, all the requirements of due process
attendant to the exercise of quasi-judicial power apply to the present case.
Among them are the seven cardinal primary rights in justiciable cases before
administrative tribunals, as enumerated in Ang Tibay v. CIR.[73] They are
synthesized in a subsequent case, as follows:
There are cardinal primary rights which must be respected even in
proceedings of this character. The first of these rights is the right to a hearing,
which includes the right of the party interested or affected to present his own
case and submit evidence in support thereof. Not only must the party be given
an opportunity to present his case and to adduce evidence tending to establish
the rights which he asserts but the tribunal must consider the evidence
presented. While the duty to deliberate does not impose the obligation to
decide right, it does imply a necessity which cannot be disregarded, namely,
that of having something to support its decision. Not only must there be some
evidence to support a finding or conclusion, but the evidence must be
substantial. The decision must be rendered on the evidence presented at the
hearing, or at least contained in the record and disclosed to the parties
affected.[74]
NTC violated several of these cardinal rights due Globe in the promulgation of
the assailed Order.
First. The NTC Order is not supported by substantial evidence. Neither does it
sufficiently explain the reasons for the decision rendered.
Our earlier discussion pertained to the lack of clear legal basis for classifying
SMS as VAS, owing to the failure of the NTC to adopt clear rules and
regulations to that effect. Muddled as the legal milieu governing SMS already
is, NTCs attempt to apply its confusing standards in the case of Globe and
Smart is even more disconcerting. The very rationale adopted by the NTC in
its Order holding that SMS is VAS is short and shoddy. Astoundingly, the Court
of Appeals affirmed the rationale bereft of intelligent inquiry, much less
comment. Stated in full, the relevant portion of the NTC Order reads:
xxx Getting down [to] the nitty-gritty, Globes SMS involves the transmission of
data over its CMTS which is Globes basic service. SMS is not ordinarily
provided by a CMTS operator like Globe, and since SMS enhances Globes
CMTS, SMS fits in to a nicety [sic] with the definition of value-added-service
or enhanced-service under NTC Memorandum Circular [8]-9-95 (Rule 001,
Item [15]).[75]
The Court usually accords great respect to the technical findings of
administrative agencies in the fields of their expertise, even if they are
infelicitously worded. However, the above-quoted finding is nothing more than
bare assertions, unsupported by substantial evidence.[76] The Order reveals
that no deep inquiry was made as to the nature of SMS or what its provisioning
entails. In fact, the Court is unable to find how exactly does SMS fits into a
nicety with NTC M.C. No. 8-9-95, which defines enhanced services as
analogous to format, media conversion, encryption, enhanced security
features, computer processing, and the like.[77] The NTC merely notes that
SMS involves the transmission of data over [the] CMTS, a phraseology that
evinces no causal relation to the definition in M.C. No. 8-9-95. Neither did the
NTC endeavor to explain why the transmission of data necessarily classifies
SMS as a VAS.

In fact, if the transmission of data over [the] CMTS is to be reckoned as the
determinative characteristic of SMS, it would seem that this is already
sufficiently covered by Globe and Smarts respective legislative franchises.[78]
Smart is authorized under its legislative franchise to establish and operate
integrated telecommunications/computer/ electronic services for public
domestic and international communications,[79] while Globe is empowered to
establish and operate domestic telecommunications, and stations for
transmission and reception of messages by means of electricity,
electromagnetic waves or any kind of energy, force, variations or impulses,
whether conveyed by wires, radiated through space or transmitted through
other media and for the handling of any and all types of telecommunications
services.[80]
The question of the proper legal classification of VAS is uniquely technical, tied
as at is to the scientific and technological application of the service or feature.
Owing to the dearth of substantive technical findings and data from the NTC
on which a judicial review may reasonably be premised, it is not opportunely
proper for the Court to make its own technical evaluation of VAS, especially in
relation to SMS. Judicial fact-finding of the de novo kind is generally abhorred
and the shift of decisional responsibility to the judiciary is not favored as
against the substantiated and specialized determination of administrative
agencies. [81] With greater reason should this be the standard for the exercise
of judicial review when the administrative agency concerned has not in the first
place come out with a technical finding based on evidence, as in this case.
Yet at the same time, this absence of substantial evidence in support of the
finding that SMS is VAS already renders reversible that portion of the NTC
Order.
Moreover, the Order does not explain why the NTC was according the VAS
offerings of Globe and Smart a different regulatory treatment from that of
Islacom. Indeed, to this day, NTC has not offered any sensible explanation
why Islacom was accorded to a less onerous regulatory requirement, nor have
they compelled Islacom to suffer the same burdens as Globe and Smart.
While stability in the law, particularly in the business field, is desirable, there
is no demand that the NTC slavishly follow precedent.[82] However, we think
it essential, for the sake of clarity and intellectual honesty, that if an
administrative agency decides inconsistently with previous action, that it
explain thoroughly why a different result is warranted, or if need be, why the
previous standards should no longer apply or should be overturned.[83] Such
explanation is warranted in order to sufficiently establish a decision as having
rational basis.[84] Any inconsistent decision lacking thorough, ratiocination in
support may be struck down as being arbitrary. And any decision with
absolutely nothing to support it is a nullity.[85]
Second. Globe and Smart were denied opportunity to present evidence on the
issues relating to the nature of VAS and the prior approval.
Another disturbing circumstance attending this petition is that until the
promulgation of the assailed Order Globe and Smart were never informed of
the fact that their operation of SMS without prior authority was at all an issue
for consideration. As a result, neither Globe or Smart was afforded an
opportunity to present evidence in their behalf on that point.
NTC asserts that since Globe and Smart were required to submit their
respective Certificates of Public Convenience and Necessity and franchises,
the parties were sufficiently notified that the authority to operate such service
was a matter which NTC could look into. This is wrong-headed considering the
governing law and regulations. It is clear that before NTC could penalize Globe
and Smart for unauthorized provision of SMS, it must first establish that SMS
is VAS. Since there was no express rule or regulation on that question, Globe
and Smart would be well within reason if they submitted evidence to establish
that SMS was not VAS. Unfortunately, no such opportunity arose and no such
arguments were raised simply because Globe and Smart were not aware that
the question of their authority to provide SMS was an issue at all. Neither could
it be said that the requisite of prior authority was indubitable under the existing
rules and regulations. Considering the prior treatment towards Islacom, Globe
(and Smart, had it chosen to do so) had every right to rely on NTCs disposal
of Islacoms initiative and to believe that prior approval was not necessary.
Neither was the matter ever raised during the hearings conducted by NTC on
Smarts petition. This claim has been repeatedly invoked by Globe. It is borne
out by the records or the absence thereof. NTC could have easily rebuffed
this claim by pointing to a definitive record. Yet strikingly, NTC has not asserted
that the matter of Globes authority was raised in any pleading or proceeding.
In fact, Globe in its Consolidated Reply before this Court challenged NTC to
produce the transcripts of the hearings it conducted to prove that the issue of
Globes authority to provide SMS was put in issue. The Court similarly ordered
the NTC to produce such transcripts.[86] NTC failed to produce any.[87]
The opportunity to adduce evidence is essential in the administrative process,
as decisions must be rendered on the evidence presented, either in the
hearing, or at least contained in the record and disclosed to the parties
affected.[88] The requirement that agencies hold hearings in which parties
affected by the agencys action can be represented by counsel may be viewed
as an effort to regularize this struggle for advantage within a legislative
adversary framework.[89] It necessarily follows that if no evidence is procured
pertinent to a particular issue, any eventual resolution of that issue on
substantive grounds despite the absence of evidence is flawed. Moreover, if
the parties did have evidence to counter the ruling but were wrongfully denied
the opportunity to offer the evidence, the result would be embarrassing on the
adjudicator.
Thus, the comical, though expected, result of a definitive order which is totally
unsupported by evidence. To this blatant violation of due process, this Court
stands athwart.
Third. The imposition of fine is void for violation of due process
The matter of whether NTC could have imposed the fine on Globe in the
assailed Order is necessarily related to due process considerations. Since this
question would also call to fore the relevant provisions of the Public Service
Act, it deserves its own extensive discussion.
Globe claims that the issue of its authority to operate SMS services was never
raised as an issue in the Complaint filed against it by Smart. Nor did NTC ever
require Globe to justify its authority to operate SMS services before the
issuance of the Order imposing the fine.
The Court of Appeals, in its assailed decision, upheld the power of NTC to
impose a fine and to make a pronouncement on Globes alleged lack of
operational authority without need of hearing, simply by citing the provision of
the Public Service Act[90] which enumerates the instances when NTC may act
motu proprio. That is Section 17, paragraph (a), which reads thus:
Sec. 17. Proceedings of [the National Telecommunications Commission]
without previous hearing. The Commission shall have power, without previous
hearing, subject to established limitations and exceptions and saving
provisions to the contrary:
(a) To investigate, upon its own initiative, or upon complaint in writing, any
matter concerning any public service as regards matters under its jurisdiction;
to require any public service to furnish safe, adequate, and proper service as
the public interest may require and warrant; to enforce compliance with any
standard, rule, regulation, order or other requirement of this Act or of the
Commission, and to prohibit or prevent any public service as herein defined
from operating without having first secured a certificate of public convenience
or public necessity and convenience, as the case may be, and require existing
public services to pay the fees provided for in this Act for the issuance of the
proper certificate of public convenience or certificate of public necessity and
convenience, as the case may be, under the penalty, in the discretion of the
Commission, of the revocation and cancellation of any acquired rights.
On the other hand, NTC itself, in the Order, cites Section 21 as the basis for
its imposition of fine on Globe. The provision states:
Sec. 21. Every public service violating or failing to comply with the terms and
conditions of any certificate or any orders, decisions or regulations of the
Commission shall be subject to a fine of not exceeding two hundred pesos per
day for every day during which such default or violation continues; and the
Commission is hereby authorized and empowered to impose such fine, after
due notice and hearing. [Emphasis supplied.]
Sections 17 and 21 of the Public Service Act confer two distinct powers on
NTC. Under Section 17, NTC has the power to investigate a PTE compliance
with a standard, rule, regulation, order, or other requirement imposed by law
or the regulations promulgated by NTC, as well as require compliance if
necessary. By the explicit language of the provision, NTC may exercise the
power without need of prior hearing. However, Section 17 does not include
the power to impose fine in its enumeration. It is Section 21 which adverts to
the power to impose fine and in the same breath requires that the power may
be exercised only after notice and hearing.
Section 21 requires notice and hearing because fine is a sanction, regulatory
and even punitive in character. Indeed, the requirement is the essence of due
process. Notice and hearing are the bulwark of administrative due process,
the right to which is among the primary rights that must be respected even in
administrative proceedings.[91] The right is guaranteed by the Constitution
itself and does not need legislative enactment. The statutory affirmation of the
requirement serves merely to enhance the fundamental precept. The right to
notice and hearing is essential to due process and its non-observance will, as
a rule, invalidate the administrative proceedings.[92]
In citing Section 21 as the basis of the fine, NTC effectively concedes the
necessity of prior notice and hearing. Yet the agency contends that the
sanction was justified by arguing that when it took cognizance of Smarts
complaint for interconnection, it may very well look into the issue of whether
the parties had the requisite authority to operate such services.[93] As a result,
both parties were sufficiently notified that this was a matter that NTC could look
into in the course of the proceedings. The parties subsequently attended at
least five hearings presided by NTC.[94]
That particular argument of the NTC has been previously disposed of. But it is
essential to emphasize the need for a hearing before a fine may be imposed,
as it is clearly a punitive measure undertaken by an administrative agency in
the exercise of its quasi-judicial functions. Inherently, notice and hearing are
indispensable for the valid exercise by an administrative agency of its quasi-
judicial functions. As the Court held in Central Bank of the Phil. v. Hon.
Cloribel:[95]
[T]he necessity of notice and hearing in an administrative proceeding depends
on the character of the proceeding and the circumstances involved. In so far
as generalization is possible in view of the great variety of administrative
proceedings, it may be stated as a general rule that notice and hearing are not
essential to the validity of administrative action where the administrative body
acts in the exercise of executive, administrative, or legislative functions; but
where a public administrative body acts in a judicial or quasi-judicial matter,
and its acts are particular and immediate rather than general and prospective,
the person whose rights or property may be affected by the action is entitled
to notice and hearing.[96]
The requirement of notice and hearing becomes even more imperative if the
statute itself demands it, as in the case of Section 21 of the Public Service Act.
As earlier stated, the Court is convinced that prior to the promulgation of the
assailed Order Globe was never notified that its authority to operate SMS was
put in issue. There is an established procedure within NTC that provides for
the steps that should be undertaken before an entity such as Globe could be
subjected to a disciplinary measure. Section 1, Rule 10 of the NTC Rules of
Procedure provides that any action, the object of which is to subject a holder
of a certificate of public convenience or authorization, or any person operating
without authority from NTC, to any penalty or a disciplinary or other measure
shall be commenced by the filing of a complaint. Further, the complaint should
state, whenever practicable, the provisions of law or regulation violated, and
the acts or omissions complained of as constituting the offense.[97] While a
complaint was indeed filed against Globe by Smart, the lack of Globes
authority to operate SMS was not raised in the Complaint, solely predicated as
it was on Globes refusal to interconnect with Smart.[98]
Under the NTC Rules of Procedure, NTC is to serve a Show Cause Order on
the respondent to the complaint, containing therein a statement of the
particulars and matters concerning which the Commission is inquiring and the
reasons for such actions.[99] The Show Cause Order served on Globe in this
case gave notice of Smarts charge that Globe, acting in bad faith and
contrary to law, refused to allow the interconnection of their respective SMS
systems.[100] Again, the lack of authority to operate SMS was not adverted to
in NTCs Show Cause Order.
The records also indicate that the issue of Globes authority was never raised
in the subsequent hearings on Smarts complaint. Quite noticeably, the
respondents themselves have never asserted that the matter of Globes
authority was raised in any pleading or proceeding. In fact, Globe in its
Consolidated Reply before this Court challenged NTC to produce the
transcripts of the hearings it conducted to prove that the issue of Globes
authority to provide SMS was put in issue. It did not produce any transcript.
Being an agency of the government, NTC should, at all times, maintain a due
regard for the constitutional rights of party litigants.[101] In this case, NTC
blindsided Globe with a punitive measure for a reason Globe was not made
aware of, and in a manner that contravened express provisions of law.
Consequently, the fine imposed by NTC on Globe is also invalid. Otherwise
put, since the very basis for the fine was invalidly laid, the fine is necessarily
void.
Conclusion
In summary: (i) there is no legal basis under the PTA or the memorandum
circulars promulgated by the NTC to denominate SMS as VAS, and any
subsequent determination by the NTC on whether SMS is VAS should be
made with proper regard for due process and in conformity with the PTA; (ii)
the assailed Order violates due process for failure to sufficiently explain the
reason for the decision rendered, for being unsupported by substantial
evidence, and for imputing violation to, and issuing a corresponding fine on,
Globe despite the absence of due notice and hearing which would have
afforded Globe the right to present evidence on its behalf.
Thus, the Order effectively discriminatory and arbitrary as it is, was issued with
grave abuse of discretion and it must be set aside. NTC may not legally require
Globe to secure its approval for Globe to continue providing SMS. This does
not imply though that NTC lacks authority to regulate SMS or to classify it as
VAS. However, the move should be implemented properly, through
unequivocal regulations applicable to all entities that are similarly situated, and
in an even-handed manner.
Concurrently, the Court realizes that the PTA is not intended to constrain the
industry within a cumbersome regulatory regime.[102] The policy as pre-
ordained by legislative fiat renders the traditionally regimented business in an
elementary free state to make business decisions, avowing that it is under this
atmosphere that the industry would prosper.[103] It is disappointing at least if
the deregulation thrust of the law is skirted deliberately. But it is ignominious
if the spirit is defeated through a crazy quilt of vague, overlapping rules that
are implemented haphazardly.
By no means should this Decision be interpreted as removing SMS from the
ambit of jurisdiction and review by the NTC. The issue before the Court is only
the prior approval requirement as imposed on Globe and Smart. The NTC will
continue to exercise, by way of its broad grant, jurisdiction over Globe and
Smarts SMS offerings, including questions of rates and customer complaints.
Yet caution must be had. Much complication could have been avoided had the
NTC adopted a proactive position, promulgating the necessary rules and
regulations to cope up with the advent of the technologies it superintends. With
the persistent advent of new offerings in the telecommunications industry, the
NTCs role will become more crucial than at any time before. If NTCs behavior
in the present case is but indicative of a malaise pervading this crucial
regulatory arm of the State, the Court fears the resultant confusion within the
industry and the consuming public. The credibility of an administrative agency
entrusted with specialized fields subsists not on judicial doctrine alone, but
more so on its intellectual strength, adherence to law, and basic fairness.

WHEREFORE, the petition is GRANTED. The Decision of the Court of

Appeals dated 22 November 1999, as well as its Resolution dated 29 July
2000, and the assailed Order of the NTC dated 19 July 1999 are hereby SET
ASIDE. No cost.

SO ORDERED.
 9. Y Transit v. NLRC
G.R. No. 88195-96 January 27, 1994
"Y" TRANSIT CO, INC., petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION AND YUJUICO
TRANSIT EMPLOYEES UNION (ASSOCIATED LABOR UNION), MANUEL
VILLARTA, respondents.
Cruz, Durian, Agabin, Atienza, Alday & Tuason for petitioner.
Evaristo S. Orosa for private respondents.
ROMERO, J.:
This is a special civil action for certiorari filed by "Y" Transit Co., Inc. for the
annulment of the decision of the National labor Relations Commission, the
dispositive portion of which reads as follows:
WHEREFORE, the appealed Order should be as it is hereby REVERSED
reinstating the levy made by the Sheriff on July 13 and 16, 1982. Accordingly,
the sale of the levied properties may proceed pursuant to existing laws.
SO ORDERED. 1
The antecedent facts of the case are as follows:
In March 1960 and sometime thereafter, Yujuico Transit Co., Inc., mortgaged
ten (10) of its buses to the Development Bank of the Philippines (DBP) to
secure a loan in the amount of P2,795,129.36. Thereafter, the Board of
Directors of Yujuico Transit Co., Inc. passed a resolution authorizing its
President, Jesus Yujuico to enter into a dacion en pago arrangement with the
DBP, whereby Jesus Yujuico would transfer to the DBP the Saint Martin
Technical Institute in consideration of the full settlement of the obligations of
three companies, one of which was Yujuico Transit Co, Inc. Accordingly, on or
about October 24, 1978, the transfer of the property was made and DBP
released the mortgages constituted on the buses of Yujuico Transit Co., Inc.
Consequently, the company transferred the ownership of its mortgaged
properties, including the buses, to Jesus Yujuico.
Meanwhile, sometime in June and July 1979, the Yujuico Transit Employees
Union (Associated labor Union) filed two (2) consolidated complaints against
Yujuico Transit Co., Inc. for Unfair Labor Practice and violations of Presidential
Decrees Nos. 525, 1123, 1614 and 851 (non-payment of living allowances).
On May 21, 1980, Jesus Yujuico sold the subject buses to herein petitioner "Y"
Transit Co., Inc. for P3,485,400.00.
On July 23, 1981, the Labor Arbiter rendered a decision dismissing the
complaint for unfair labor practice but holding Yujuico Transit Co., Inc. liable
under the aforementioned Presidential Decrees in the amount of P142,790.49.
On February 9, 1982, a writ of execution for the said amount was issued by
the Labor Arbiter. On June 14, 1982, an alias writ of execution was issued and
levy was made upon the ten (10) buses. Thereafter, "Y" Transit Co., Inc. filed
Affidavits of Third Party Claim.
Private respondents herein opposed the Third party claim on the ground that
the transactions leading to the transfer of the buses to "Y" Transit Co., Inc.
were void because they lacked the approval of the BOT as required by the
Public Service Act. They also argued that the buses were still registered in the
name of Yujuico Transit Co. which was, therefore, still the lawful owner thereof.
The Labor Arbiter found that "Y" Transit Co., Inc. had valid title to the buses
and that the BOT, by its subsequent acts had approved the transfer. The
decision stated further, thus:
The fact that the registration certificates of most of the vehicles in question are
still in the name of Yujuico Transit Co., Inc. at the time of the levy on execution
does not militate against the claimant. Registration of a motor vehicle is not
the operative act that transfers ownership, unlike in land registration cases.
Furthermore, the evidence shows that the claimant cannot be faulted for its
failure to have the certificates of registration transferred in its own name. Prior
to the levy, claimant had already paid for the transfer fee, the fee for the
cancellation of mortgage and other fees required by the BLT. Moreover, the
registration fees of the vehicles whose last digit of their plate numbers made
the vehicles due for registration were already paid for by the claimant (Exhibits
"N" to "N-7"). Therefore, there was already a constructive registration made by
the claimant (Mariano B. Arroyo vs. Maria Corazon Yu de Sane, et al., 54 Phil.
511, 518), sufficient notice to affect the rights of third-parties. It is now
ministerial on the part of the BLT to issue the Registration Certificates in the
name of the claimant, but the same was held in abeyance pending the
computerization of the records of BOT on public utility vehicles. On all fours is
the ruling of the Supreme Court in Mariano B. Arroyo vs. Ma. Corazon Yu de
Sane, 54 Phil. 511, which upheld the right of PNB as mortgagee over
motorized water vessels as superior over the rights of a judgment creditor who
had already secured a writ of attachment and execution over the vessels, it
appearing that the delay was caused by the Collector of Custom's uncertainty
as to the necessity of the registration of the vessels. 2
Accordingly, the Third-Party Claim was granted and the release of all the
buses levied for execution was ordered.
On appeal, the NLRC reversed the labor arbiter's decision on the ground that
the transfer of the buses lacked the BOT approval. It ordered the reinstatement
of the levy and the auction of properties.
"Y" Transit Co., Inc. thereafter filed this special civil action for certiorari under
Rule 65 of the Rules of Court praying for the issuance of a Restraining Order
and/or a Writ of Preliminary Injunction and for the annulment of the NLRC
decision as it was issued with grave abuse of discretion amounting to lack of
jurisdiction.
In this petition, "Y" Transit Co., Inc. raised the following issue, to writ:
I interest. Such being the reason and philosophy behind this requirement, it
The public respondent NLRC committed palpable legal error and grave abuse
of discretion amounting to lack of jurisdiction when it held that there was no
valid transfer of ownership in favor of the petitioner, completely disregarding
the preponderance of evidence and existing jurisprudence which support the
validity of the transfer of ownership to the petitioner. 3
On July 6, 1989, petitioner filed a motion to cite Labor Arbiter Benigno C.
Villarente, Jr. for contempt of court and for the issuance of an order for the
immediate release of the property. Petitioner argues that the Labor Arbiter
refused to release the vehicles levied on June 5, 1989 despite notice that a
TRO has been issued by the Supreme Court; that there was no reason to hold
on to the levy as petitioner had already posted a bond to answer for the
damages and award in the above-entitled case; that the labor arbiter wrongly
required the payment of storage charges and sheriff's fees before releasing
the levied buses.
Did public respondent commit grave abuse of discretion in reinstating the levy
on the buses which have been allegedly transferred to a third party, herein
petitioner "Y" Transit Co., Inc.?
We rule in the negative.
The following facts have been established before the NLRC: that the transfer
of ownership from Yujuico Transit Co., Inc. to Jesus Yujuico, and from Jesus
Yujuico to "Y" Transit Co., Inc. lacked the prior approval of the BOT as required
by Section 20 of the Public Service Act; 4 that the buses were transferred to
"Y" Transit Co., Inc. during the pendency of the action; and that until the time
of the execution, the buses were still registered in the name of Yujuico Transit
Co., Inc.
In Montoya v. Ignacio, 5 we held:
. . . The law really requires the approval of the Public Service Commission in
order that a franchise, or any privilege pertaining thereto, may be sold or
leased without infringing the certificate issued to the grantee. The reason is
obvious. Since a franchise is personal in nature any transfer or lease thereof
should be notified to the Public Service Commission so that the latter may take
proper safeguards to protect the interest of the public. In fact, the law requires
that, before approval is granted, there should be a public hearing with notice
to all interested parties in order that the commission may determine if there
are good and reasonable grounds justifying the transfer or lease of the
property covered by the franchise, or if the sale or lease is detrimental to public
follows that if the property covered by the franchise is transferred, or leased to
another without obtaining the requisite approval, the transfer is not binding
against Public Service Commission and in contemplation of law, the grantee
continues to be responsible under the franchise in relation to the Commission
and to the public. . . .
It may be argued that Section 16, paragraph (h) provides in its last part that
"nothing herein contained shall be construed to prevent the sale, alienation, or
lease by any public utility of any of its property in the ordinary course of
business," which gives the impression that the approval of Public Service
Commission is but a mere formality which does not affect the effectivity of the
transfer or lease of the property belonging to a public utility. But such provision
only means that even if the approval has not been obtained the transfer or
lease is valid and binding between the parties although not effective against
the public and the Public Service Commission. The approval is only necessary
to protect public interest. (Emphasis ours)
There being no prior BOT approval in the transfer of property from Yujuico
Transit Co., Inc. to Jesus Yujuico, it only follows that as far as the BOT and
third parties are concerned, Yujuico Transit Co., Inc. still owned the properties.
and Yujuico, and later, "Y" Transit Co., Inc. only held the same as agents of
the former. In Tamayo v. Aquino, 6 the Supreme Court stated, thus:
. . . In operating the truck without transfer thereof having been approved by the parties with a copy of the inventory. The storage fees shall be shouldered by
Public Service Commission, the transferee acted merely as agent of the the losing party.
registered owner and should be responsible to him
(the registered owner) for any damages that he may cause the latter by his WHEREFORE, in view of the foregoing, this petition is hereby DISMISSED.
negligence.
The Motion to Cite Labor Arbiter Benigno Villarente, Jr. is DENIED and
Conversely, where the registered owner is liable for obligations to third parties petitioner is ordered to PAY storage costs and sheriff's fees.
and vehicles registered under his name are levied upon to satisfy his
obligations, the transferee of such vehicles cannot prevent the levy by This decision is immediately executory.
asserting his ownership because as far as the law is concerned, the one in
whose name the vehicle is registered remains to be the owner and the SO ORDERED.
transferee merely holds the vehicles for the registered owner. Thus, "Y" Transit
Co., Inc. cannot now argue that the buses could not be levied upon to satisfy
the money judgment in favor of herein respondents. However, this does not
deprive the transferee of the right to recover from the registered owner any
damages which may have been incurred by the former since the . . . transfer
or lease is valid and binding between the parties. . . . 7 Thus, had there been
any real contract between "Y" Transit Co., Inc. and Yujuico Transit Co., Inc. of
"Y" Transit Co., Inc. and Jesus Yujuico regarding the sale or transfer of the
buses, the former may avail of its remedies to recover damages.

Regarding the Motion for Contempt filed by petitioner, we are constrained to

deny the same since the Order to levy upon petitioner's alleged properties was
issued even before the issuance by the Court of a temporary restraining order.
From the records, it appeared that Labor Arbiter Villarente ordered the public
auction of the subject properties on May 12, 1989. The sheriff levied on the
properties on June 5, 1989. The Supreme Court issued the Temporary
Restraining Order on June 19, 1989 and this was received by the Labor Arbiter
on June 22, 1989. On June 28, 1989, the Labor Arbiter directed the sheriff to
release the two buses already levied upon by him.

Likewise, we find no error in requiring petitioner to pay the storage fees prior
to the release of the properties. Storage costs are imposed in accordance with
the provisions of Rule IX of the NLRC Manuel of Instructions for Sheriffs, to
wit:

Sec. 3. Storing of Levied Property. To avoid pilferage of or damage to

levied property, the same shall be inventoried and stored in a bonded
warehouse, wherever available, or in a secured place as may be determined
by the sheriff with notice to and conformity of the losing party or third party
claimant. In case of disagreement, the same shall be referred to the Labor
Arbiter or proper officer who issued the writ of execution for proper disposition.
For this purpose, sheriffs should inform the Labor Arbiter or proper officer
issuing the writ of corresponding storage fees, furnishing him as well as the
 10. Raymundo v. Luneta Motor
G.R. Nos. L-39902, L-39903 November 29, 1933
DOMINADOR RAYMUNDO, petitioner-appellant,
vs.
LUNETA MOTOR CO., ET AL., respondents-appellees.
A.M. Zarate for appellant.
Jose Agbulos for appellee Luneta Motor Co.
No appearance for the other appellee.
MALCOLM, J.:
The question squarely raised in these concerns the forced sales of certificates
of public convinced held by public service operators and the liability to
execution of such certificates.
Breaking into the narration of the facts at the proper point, we find Nicanor de
Guzman, signing as Guzco Transit, purchasing trucks from the Luneta Motor
Co. and to pay for them executing a series of promissory notes guaranteed by
a chattel mortgage on several trucks. On failure of De Guzman or Guzco
Transit to pay the promissory notes, suit was brought in the Court of First
Instance of Manila for the collection of the amount outstanding and unpaid.
When the complaint was presented, a writ of attachment was obtained against
the properties of the Guzco Transit, and as a consequence garnishment was
served on the Secretary of the Public Service Commission attacking the right,
title, and participation of the Guzco Transit in the certificates of public
convenience issued in cases Nos. 25635, 23914 and 24255 covering the bus
transportation lines between Manila and Cardona, Rizal, and between Manila
and Pililla, Rizal. These certificates were ordered sold by the Court of First
Instance of Manila, and in fact the certificates of public convenience Nos.
25635 and 23914 were sold to the Luneta Motor Co. as the highest bidder.
The approval of the sheriff's sale was prayed for before the Public Service
Commission, and is one of the cases under review.
Going back a moment, it is necessary to insert in the statement of facts that
on July 16, 1932, or nine days after the certificates were attached by the
Luneta Motor Co., the same certificates, together with certificate No. 25951
and several trucks, were sold by De Guzman for the Guzco Transit to
Dominador Raymundo. The approval of this sale was sought from the Public
Service commission, and is the other case now under review. On the two cases
being heard together, the commission in its decision approved the sale at
public auction in favor of the Luneta Motor Co., and disapproved the sale made
to Dominador Raymundo, reserving to Raymundo the right to present another
petition for the approval of the sale of certificate of public convenience No.
25951 which was not included in the sale in favor of the Luneta Motor Co.
Sweeping incidental matters to one side, the prime question need not be
complicated by determining if a sale of a certificate of public convenience
without any equipment may be the object of execution and garnishment sale,
for this is matter of policy to be determined by the Public Service Commission,
and it appears that sale of certificates of public convenience without equipment
have been approved by the commission. Also it is evident that the articles of
incorporation of the Luneta Motor Co. are broad enough in scope to authorize
the company, if it so desires, to engage in the autotruck business, and if not,
there would be nothing to preclude the company from transferring the
certificates to a third party with the approval of the Public Service Commission.
Further, the nature of the partnership which may have been entered into by
Nicanor de Guzman and Agapito C. Correa cannot now be discussed,
considering that the promissory notes were signed Guzco Transit, by Nicanor
de Guzman, and considering that the judgment against Guzco Transit in the
Court of First Instance of Manila has become final. Finally, the dismissal in
case No. 33033 pertaining to certificate No. 25951 was without prejudice, and
the appellees disclaim any interest in this certificate. Therefore, the question
to be decided on this appeal is, which of the two sales, the one at public auction
by virtue of an attachment, or two voluntary sale made after the property had
been levied upon, should prevail, and a decision on this question is dependent
on a decision relative to the liability to execution of certificates of public
convenience.
The Public Service Law, Act No. 3108, as amended, authorizes certificates of
public convenience to be secured by public service operators from the Public
Service Commission. (Sec. 15 [i].) A certificate of public convenience granted
to the owner or operator of public service motor vehicles, it has been held,
grants a right in the nature of a limited franchise. (Public Utilities Commission
vs. Garviloch [191], 54 Utah, 406.)
The Code of Civil Procedure establishes the general rule that "property, both
real and personal, or any interest therein of the judgment debtor, not exempt
by law, and all property and rights of property seized and held under
attachment in the action, shall be liable to execution." (Sec. 450.) The statutory
exemptions do not include franchises or certificates of public convenience.
(Sec. 452.) The word "property" as used in section 450 of the Code of Civil
Procedure comprehends every species of title, inchoate or complete, legal or
equitable. The test by which to determine whether or not property can be
attached and sold upon execution is whether the judgment debtor has such a
beneficial interest therein that he can sell or otherwise dispose of it for value.
(Reyes vs. Grey [1911], 21 Phil., 73.)
It will be noted that the Public Service Law and the Code of Civil Procedure
are silent on the question at issue, that is, silent in the sense of not containing
specific provisions on the right to attach certificates of public convenience. The
same attitude was not assumed in the enactment of Act No. 667, section 10,
as amended, which gave authority for the mortgage and sale under foreclosure
proceedings of franchises granted by Provincial and municipal governments.
A similar tendency was evident in the Corporation Law, for in section 56 and
following thereof express provisions were made for the sale on execution used
in connection with them. Should the legislative intention thus evidenced be
taken as meaning that the generality of the language used by the Code of Civil
Procedure was too vague to permit of forced sales of franchises and
certificates of public convenience, or notwithstanding the provisions to be
found in these special laws, is the language of the code of Civil Procedure
broad enough to include certificates of public convenience? We lean to the
latter proposition, and will now proceed to elucidate our viewpoint.
The test to be applied was announced by our Supreme Court in Reyes vs.
Grey, supra, and there is nothing in Tufexis vs. Olaguera and Municipal
Council of Guinobatan ( [1915], 32 Phil., 654), cited by appellant, which
sanctions a contrary test. That rule it will be recalled tested the liability of
property to execution by determining if the interest of the judgment debtor in
the case can be sold or conveyed to another in any way. Now the Public
Service Law permits the Public Service Commission to approved the sale,
alienation, mortgaging, encumbering, or leasing of property, franchises,
privileges, or rights or any part thereof (sec. 16 [h]), and in practice the
purchase and sale of certificates of public convenience has been permitted by
the Public Service Commission. If the holder of a certificate of public
convenience can sell it voluntarily, there is no valid reason why the same
certificate cannot be taken and sold involuntarily pursuant to process.
If this was all that there was to the case, we might hesitate to approve
attachments of certificates of public convenience. But there is more.
Certificates of public convenience have come to have considerable material
value. They are valuable assets. In many cases the certificates are the
cornerstones on which are builded the business of bus transportation. The
United States Supreme Court considers a franchise granted in consideration
of the performance of public service as constituting property within the
protection of the Fourteenth Amendment to the United States Constitution.
(Frost vs. Corporation Commission of Oklahoma [1929], 278 U.S., 515.) If the
holder of the certificate of public convenience can thus be protected in his
constitutional rights, we see no reason why the certificate of public
convenience should not assume corresponding responsibilities and be
susceptible as property or an interest therein of being liable to execution. In at
least one State, the certificate of the railroad commission permitting the
operation of a bus line has been held to be included in the term "property" in
the broad sense of the term. If thus is true, the certificate under our law,
considered as a species of property, would be liable to execution. (Willis vs.
Buck [1928], 81 Mont., 472.)
As has been intimated herein before, a practice has grown up in the Public
Service Commission of permitting the alienation of certificates of public
convenience and in so doing approval has been given to the sale through
foreclosure proceedings of the certificates of public convenience to third
parties. The very decision in the two cases before us is an illustration of this
practice. The same tendency is to be noted in the lower courts. As an example
in the instant record, there is a previous foreclosure of a mortgage apparently
uncontested, Not only this, but tacit approval to the attachment of certificates
of public convenience either through chattel mortgages or court writs has been
given by this court. (Orlanes & Banaag Transportation Co. vs. Public Service
Commission [1932], 57 Phil., 634; Manila Electric Company vs. Orlanes &
Banaag Transportation Co. [1933], 57 Phil., 805; Nos. 39525 and 39531, Red
Line Transportation Co. vs. Rural Transit Co. and Bachrach Motor Co.,
November 17, 1933. 1)
When the motion of the plaintiff praying that the certificates of public
convenience granted by the Public Service Commission which were attached
be sold at public auction and the answer opposing the granting of the motion
on the ground that franchises can not be the subject of attachment and sale
by garnishment came before the Court of First Instance of Manila, the
presiding Judge Anacleto Diaz, promulgated an order which sustained the right
of the plaintiff to attachment and garnishment. That order gains particular force
because a later judgment by consent was taken and no appeal was attempted
to this court. It is true that the sale further required the approval of the Public
Service Commission, but the Public Service Commission respected the
decision of the court and so we have the concurrence of the court and the
commission on this question. In the order in first instance appears the following
well considered language:
It remains to be determined whether, under the law, certificates of public
convenience are liable to attachment and seizure by legal process. The law is
silent as to this matter. It can not be denied that such franchises are valuable.
They are subject to being sold for a consideration as much as any other
property. They are even more valuable than ordinary properties, taking into
consideration than that they are not granted to every one who applies for them
but only to those who undertake to furnish satisfactory and convenient service
to the public. It may also be said that dealers in motor vehicles even extend
credit to owners of such certificates or franchises. The law permits the seizure
by means of a writ of attachment not only of chattels but also for shares and
credits. While these franchises may be said to be intangible character, they
are however of value and are considered properties which can be seized
through legal process.

For all the foregoing, the court is of the opinion that the plaintiff is entitled to
the remedy it prays for in its motion which is hereby granted.lawphil.net

The ruling of the Supreme Court on the question raised by the record and the
assignments of error is this: Certificates of public convenience secured by
public service operators are liable to execution, and the Public Service
Commission is authorized to approve the transfer of the certificates of public
convenience to the execution creditor. As a consequence, the decision brought
on review will be affirmed, with costs against the appellant.

Avancea, C.J., Villa-Real, Hull, and Imperial, JJ., concur.

 11. Batangas Transport v. Orlanes
G.R. No. L-28865 December 19, 1928
BATANGAS TRANSPORTATION CO., petitioner-appellant,
vs.
CAYETANO ORLANES, respondent-appellee.
L. D. Lockwood and C. de G. Alvear for appellant.
Paredes, Buencamino and Yulo and Menandro Quiogue for appellee.
STATEMENT
In his application for a permit, the appellee Orlanes alleges that he is the holder
of a certificate of public convenience issued by the Public Service Commission
in case No. 7306, to operate an autobus line from Taal to Lucena, passing
through Batangas, Bolbok and Bantilan, in the Province of Batangas, and
Candelaria and Sariaya, in the Province of Tayabas, without any fixed
schedule; that by reason of the requirements of public convenience, he has
applied for a fixed schedule from Bantilan to Lucena and return; that in case
No. 7306, he cannot accept passengers or cargo from Taal to any point before
Balbok, and vice versa; that the public convenience requires that he be
converted into what is known as a regular operator on a fixed schedule
between Taal and Bantilan and intermediate points, and for that purpose, he
has submitted to the Commission proposed schedule for a license to make
trips between those and intermediate points. He then alleges that by reason of
increase of traffic, the public convenience also requires that he be permitted
to accept passengers and cargo at points between Taal and Bantilan, and he
asked for authority to establish that schedule, and to accept passengers at all
points between Taal and Bantilan.
To this petition the Batangas Transportation Company appeared and filed an
application for a permit, in which it alleged that it is operating a regular service
of auto trucks between the principal municipalities of the Province of Batangas
and some of those of the Province of Tayabas; that since 1918, it has been
operating a regular service between Taal and Rosario, and that in 1920, its
service was extended to the municipality of San Juan de Bolbok, with a
certificate of public convenience issued by the Public Servise Commission;
that in the year 1925 Orlanes obtained from the Commission a certificate of
public convenience to operate an irregular service of auto trucks between Taal,
Province of Batangas, and Lucena, Province of Tayabas, passing through the
municipalities of Bauan, Batangas, Ibaan, Rosario, and San Juan de Bolbok,
with the express limitation that he could not accept passengers from
intermediate points between Taal and Bolbok, except those which were going
to points beyond San Juan de Bolbok or to the Province of Tayabas; that he
inaugurated this irregular in March, 1926, but maintained it on that part of the
line between Taal and Bantilan only for about three months, when he
abandoned that portion of it in the month of June and did not renew it until five
days before the hearing of case No. 10301, which was set for November 24,
1926, in which hearing the Batangas Transportation Company asked for
additional hours for its line between Batangas and Bantilan; that in June, 1926,
Orlanes sought to obtain a license as a regular operator on that portion of the
line between Bantilan and Lucena without having asked for a permit for tat
portion of the line between Bantilan and Taal; that from June, 1926, Orlanes
and the Batangas Transportation Company were jointly operating a regular
service between Bantilan and Lucena, with trips every half an hour, and
Orlanes not having asked for a regular service between Bantilan and Taal, the
Batangas Transportation Company remedied this lack of service under the
authority of the Commission, and increased its trips between Bantilan and
Tayabas to make due and timely connections in Bantilan on a half-hour service
between Bantilan and Batangas with connections there for Taal and all other
points in the Province of Batangas. It is then alleged that the service
maintained by the company is sufficient to satisafy the convenience of the
public, and that the public convenience does not require the granting of the
permit for the service which Orlanes petitions, and that to do so would result
in ruinous competition and to the grave prejudice of the company and without
any benefit to the public, and it prayed that the petition of Orlanes to operate
a regular service be denied.
After the evidence was taken upon such issues, the Public Service
Commission granted the petition of Orlanes, as prayed for, and the company
then filed a motion for a rehearing, which was denied, and the case is now
before this court, in which the appellant assigns the following errors:
The Commission erred in ordering that a certificate of public convenience be
issued in favor of Cayetano Orlanes to operate the proposed service without
finding and declaring that the public interest will be prompted in a proper and
suitable by the operation of such service, or when the evidence does not show
that the public interests will be so prompted.
That the Commission erred in denying the motion for a rehearing.
JOHNS, J.:
The questions presented involve a legal construction of the powers and duties
of the Public Service Commission, and the purpose and intent for which it was
created, and the legal rights and privileges of a public utility operating under a
prior license.
It must be conceded that an autobus line is a public utility, and that in all things
and respects, it is what is legally known as a common carrier, and that it is an
important factor in the business conditions of the Islands, which is daily
branching out and growing very fast.
Before such a business can be operated, it must apply for, and obtain, a
license or permit from the Public Service Commission, and comply with certain
defined terms and conditions, and when license is once, granted, the operator
must conform to, and comply with all, reasonable rules and regulations of the
Public Service Commission. The object and purpose of such a commission,
among other things, is to look out for, and protect, the interests of the public,
and, in the instant case, to provide it with safe and suitable means of travel
over the highways in question, in like manner that a railroad would be operated
under like terms and conditions. To all intents and purposes, the operation of
an autobus line is very similar to that of a railroad, and a license for its
operation should be granted or refused on like terms and conditions. For many
and different reasons, it has never been the policy of a public service
commission to grant a license for the operation of a new line of railroad which
parallels and covers the same field and territory of another old established line,
for the simple reason that it would result in ruinous competition between the
two lines, and would not be of any benefit or convenience to the public.
The Public Service Commission has ample power and authority to make any
and all reasonable rules and regulations for the operation of any public utility
and to enforce complience with them, and for failure of such utility to comply
with, or conform to, such reasonable rules and regulations, the Commission
has power to revoke the license for its operation. It also has ample power to
specify and define what is a reasonable compensation for the services
rendered to the traveling public.
That is to say, the Public Service Commission, as such has the power to
specify and define the terms and conditions upon which the public utility shall
be operated, and to make reasonable rules and regulations for its operation
and the compensation which the utility shall receive for its services to the
public, and for any failure to comply with such rules and regulations or the
violation of any of the terms and conditions for which the license was granted
the Commission has ample power to enforce the provisions of the license or
even to revoke it, for any failure or neglect to comply with any of its terms and
provisions.
Hence, and for such reasons, the fact that the Commission has previously
granted a license to any person to operate a bus line over a given highway
and refuses to grant a similar license to another person over the same
highway, does not in the least create a monopoly in the person of the licensee,
for the reason that at all times the Public Service Commission has the power
to say what is a reasonable compensation to the utility, and to make
reasonable rules and regulations for the convenience of the traveling public
and to enforce them.
In the instant case, Orlanes seek to have a certificate of public convenience to
operate a line of auto trucks with fixed times of departure between Taal and
Bantilan, in the municipality of Bolbok, Province of Batangas, with the right to
receive passengers and freight from intermediate points. The evidence is
conclusive that at the time of his application, Orlanes was what is known as an
irregular operator between Bantilan and Taal, and that the Batangas operator
between Batangas and Rosario. Orlanes now seeks to have his irregular
changed into a regular one, fixed hours of departure and arrival between
Bantilan and Taal, and to set aside and nullify the prohibition against him in his
certificate of public convenience, in substance and to the effect that he shall
not have or receive any passengers or freight at any of the points served by
the Batangas Transportation Company for which that company holds a prior
license from the Commission. His petition to become such a regular operator
over such conflicting routes is largely based upon the fact that, to comply with
the growing demands of the public, the Batangas Transportation Company, in
case No. 10301, applied to the Commission for a permit to increase the
number of trip hours at and between the same places from Batangas to
Rosario, and or for an order that all irregular operators be prohibited from
operating their respective licenses, unless they should observe the interval of
two hours before, or one hour after, the regular hours of the Batangas
Transportation Company.
In his petition Orlanes sought to be releived from his prohibition to become a
regular operator, and for a license to become a regular operator with a
permission to make three trips daily between Bantilan and Taal, the granting
of which make him a regular operator between those points and bring him in
direct conflict and competition over the same points with the Batangas
Transportation Company under its prior license, and in legal effect that was
the order which the Commission made, of which the Batangas Transportation
Company now complains.
The appellant squarely plants its case on the proposition:
Is a certificate of public convenience going to be issued to a second operator
to operate a public utility in a field where, and in competition with, a first
operator who is already operating, adequate and satisfactory service?
There is no claim or pretense that the Batangas Transportation Company has
violated any of the terms and conditions of its license. Neiher does the Public
Service Commission find as a fact that the grantring of a license to Orlanes as
a regular operator between the points in question is required or necessary for
the convenience of the traveling public, or that there is any complaint or
criticism by the public of the services rendered by the Batangas Transportation
Company over the route in question.
The law creating the Public service Commission of the Philippine Islands is
known as Act No. 3108, as amended by Act No. 3316, and under it the
supervision and control of public utilities is very broad and comprehensive.
Section 15 of Act No. 3108 provides that the Commission shall have power,
after hearing, upon notice, by order in writing to require every public utility:
(a) To comply with the laws of the Philippine Islands;
(b) To furnish safe, adequate, and proper service as regards the manner
of furnishing the same as well as the maintenance of the necessary material
equipment, etc;
(c) To establish, construct, maintain, and operate any reasonable
extention of its existing facilities, where such extension is reasonable and
practicable and will furnish sufficient business to justify the construction and
maintenance of the same;
(d) To keep a uniform system of books, records and accounts;
(e) To make specific answer with regard to any point on which the
Commission requires information, and to furnish annual reports of finance and
operations;
(f) To carry, whenever the Commission may require, a proper and
adequate depreciation account;
(g) To notify the Commission of all accidents;
(h) That when any public utility purposes to increase or reduce any
existing individual rates, it shall give the Commission written notice thirty days
prior to the proposed change; and
(i) "No public utility as herein defind shall operate in the Philippine Islands
without having first secured from the Commission a certificate, which shall be
known as Certificate of Public Convenience, to the effect that the operation of
said public utility and the authorization to do busibness wikll promote the public
interest in a proper and suitable maner."
Section 16 specially prohibits any discrimination in the handling of freight
charges.
In construing a similar law of the State of Kansas, the United States Supreme
Court, in an opinion written by Chief Justice Taft, in Wichita Railroad and Light
Co. vs. Public Utilities Commission of Kansas (260 U. S. 48; 67 Law. ed., 124),
said:
The proceeding we are considering is governed by section 13. That is the
general section of the act comprehensively describing the duty of the
Commission, vesting it with power to fix and order substituted new rates for
existing rates. The power is expressly made to depend on the condition that,
after full hearing and investigation, the Commission shall find existing rates to
be unjust, unreasonable, unjustly discriminatory, or unduly preferential. We
conclude that a valid order of the Commission under the act must contain a
finding of fact after hearing and investigation, upon which the order is founded,
and that, for lack of such a finding, the order in this case was void.
This conclusion accords with the construction put upon similar statutes in other
states. (State Public Utilities Commission ex rel. Springfield vs. Springfield Gas
and E. Co., 291 Ill., 209; P. U. R., 1920C, 640; 125 N. E. 891; State Public
Utilities Co. vs. Baltimore and O. S. W. R. Co., 281 Ill; 405; P. U. R., 1918B,
655; 118 N. E., 81.) Moreover, it accords with general principles of
constitutional government. The maxim that a legislature may not delegate
legislative power has some qualifications, as in the creation of municipalities,
and also in the creation of administrative boards to apply to the myriad details
of rate schedule the regulatory police power of the state. The latter qualification
is made necessary in order that the legislative power may be effectively
exercised. In creating such an administrative agency, the legislature, to
prevent its being a pure delegation of legislative power, must enjoin upon a
certain course of procedure and certain rules of decision in the perfomance of
its function. It is a wholesome and necessary principle that such an agency
must pursue the procedure and rules enjoined, and show a substantial
compliance therewith, to give validity to its action. When, therefore, such an
administrative agency is required, as a condition precedent to an order, to
make a finding of facts, the validity of the order rest upon the needed finding.
It is lacking, the order is ineffective.

It is pressed on us that the lack of an express finding may be supplied by
implication and by reference to the averments of the petition invoking the
action of the Commission. We cannot agree to this point. It is doubtful whether
the facts averred in the petition were sufficient to justify a finding that the
contract rates were unreasonably low; but we do not find it necessay to answer
this question. We rest our decision on the principle that an express finding of
unreasonableness by the Commission was indispensable under the statutes
of the state.
That is to say, in legal effect, that the power of the Commission to issue a
certificate of public convenience depends on the condition precedent that, after
a full hearing and investigation, the Commission shall have found as a fact that
the operation of the proposed public service and its authority to do business
must be based upon the finding that it is for the convenience of the public.
In the Philippine Islands the cetificate of public convenience is as folows:
CERTIFICATE OF PUBLIC CONVENIENCE
To whom it may concern:
THIS IS TO CERTIFY, That in pursuance of the power and authority conferred
upon it by subsection (i) of section 15 of Act No. 3108 of the Philippine
Legislature,
THE PUBLIC SERVICE COMMISSION OF THE PHILIPPINE ISLANDS, after
having duly considered the application of ................. for a certificate of public
convenience the operation of ........................ in connection with the evidence
submitted in support thereof, has rendered its decision on................, 192...., in
case No. ............, declaring that the operation by the applicant ......................
of the business above described will promote the public interests in a proper
and suitable manner, and granting................. to this effect the corresponding
authority, subject to the conditions prescribed in said decision.
Given at Manila Philippine Islands, this ......... day of ....................., 192 .....
PUBLIC SERVICE COMMISSION OF THE PHILIPPINE ISLANDS
By..................................
Commissioner
Attested:
.....................................
Secretary
That is to say, that the certificate of public convenince granted to Orlanes in
the instant case expressly recites that it "will promote the public interests in a
proper and suitable manner." Yet no such finding of fact was made by the
Commission.
In the instant case, the evidence is conclusive that the Batangas
Transportation Company operated its line five years before Orlanes ever
turned a wheel, yet the legal effect of the decision of the Public Service
Commission is to give an irregular operator, who was the last in the field, a
preferential right over a regular operator, who was the first in the field. That is
not the law, and there is no legal principle upon which it can be sustained.
So long as the first licensee keeps and performs the terms and conditions of
its license and complies with the reasonable rules and regulations of the
Commission and meets the reasonable demands of the public, it should have
more or less of a vested and preferential right over a person who seeks to
acquire another and a later license over the same route. Otherwise, the first
license would not have protection on his investment, and would be subject to
ruinous competition and thus defeat the very purpose and intent for which the
Public Service Commission was created.
It does not appear that the public has ever made any complaint the Batangas
Transportation Company, yet on its own volition and to meet the increase of
its business, it has applied to the Public Service Commission for authority to
increase the number of daily trips to nineteen, thus showing a spirit that ought
to be commended.
Such is the rule laid down in the case of Re B. F. Davis Motor Lines, cited by
the Public Service Commission of Indiana (P. U. R., 1927-B, page 729), in
which it was held:
A motor vehicle operator having received a certificate with a voluntary
stipulation not to make stops (that is not to carry passengers) on a part of a
route served by other carriers, and having contracted with such carries not to
make the stops, will not subsequently are able to carry all passengers who
present theselves for transportation within the restricted district.
And in Re Mount Baker Development Co., the Public Service Commission of
Washington (P. U. R., 1925D, 705), held:
A cerificate authorizing through motor carrier service should not authorize local
service between points served by the holders of a certificate, without first giving
the certificate holders an opportunity to render additional service desired.
In the National Coal Company case (47 Phil., 356), this court said:
When there is no monopoly. There is no such thing as a monopoly where a
property is operated as a public utility under the rules and regulations of the
Public Utility Commission and the terms and provision of the Public Utility Act.
Section 775 of Pond on Public Utilities, which is recognized as a standard
authority, states the rule thus:
The policy of regulation, upon which our present public utility commission plan
is based and which tends to do away with competition among public utilities as
they are natural monopolies, is at once reason and the justification for the
holding of our courts that the regulation of an existing system of transportation,
which is properly serving a given field, or may be required to do so, is to be
preferred to competition among several independent systems. While requiring
a proper service from, a single system for a city or territory in consideration for
protecting it as a monopoly for all service required and in conserving its
resources, no economic waste results and service may be furnished at the
minimum cost. The prime object and real purpose of commission control is to
secure adequate sustained service for the public at the least possible cost, and
to protect and conserve investments already made for this purpose.
Experience has demonstrated beyond any question that competition among
natural monopolies is wasteful economically and results finally in insufficient
and unsatisfactory service and extravagant rates.
The rule has been laid down, without dissent in numerous decisions, that
where an operator is rendering good, sufficient and adequate service to the
public, that the convenince does not require and the public interests will not be
promoted in a proper and suitable manner by giving another operator a
certificate of public convenience to operate a competing line over the same
ruote.
In Re Haydis (Cal.), P. U. R., 1920A, 923:
A certificate of convenience and necessity for the operation of an auto truck
line in occupied territory will not be granted, where there is no complaint as to
existing rates and the present company is rendering adequate service.
In Re Chester Auto Bus Line (Pa.), P. U. R., 1923E, 384:
A Commission should not approve an additional charter and grant an
additional certificate to a second bus company to operate in territory covered
by a certificate granted to another bus company as a subsidiary of a railway
company for operation in conjunction with the trolley system where one bus
service would be ample for all requirements.
In Re Branham (Ariz.), P. U. R., 1924C, 500:
A showing must be clear and affirmative that an existing is unable or has
refused to maintain adequate and satisfactory service, before a certificate of
convenience and necessity will be granted for the operation of an additional
service.
In Re Lambert (N. H.), P. U. R., 1923D, 572:
Authority to operate a jitney bus should be refused when permision has been
given to other parties to operate and, from the evidence, they are equipped
adequately to accommodate the public in this respect, no complaints having
been received in regard to service rendered.
In Re White (Md.), P. U. R., 1924E, 316:
A motor vehicle operator who has built up a business between specified points
after years of effort should not be deprived of the fruits of his labor and of the
capital he has invested in his operation by a larger concern desiring to operate
between the same points.
In Re Kocin (Mont.), P. U. R., 1924C, 214:
A certificate authorizing the operation of passenger motor service should be
denied where the record shows that the admission of another operator into the
territory served by present licensees is not necessary and would render their
licensee oppressive and confiscatory because of further division and depletion
of revenues and would defeat the purpose of the statue and disorganize the
public service.
In Re Nevada California Stage Co., P. U. R., 1924A, 460:
The Nevada Commission denied an application for a certificate of convenience
and necessity for the operation of an automobile passenger service in view of
the fact that the service within the territory proposed to be served appeared to
be adequate and it was the policy of the Commission to protect the established
line in the enjoyment of business which it had built, and in view of the further
fact that it was very uncertain whether the applicant could secure sufficient
business to enable him to operate profitably.
In Re Idaho Light & P. Co. (Idaho), P. U. R., 1915A, 2:
Unless it is shown that the utility desiring to enter a competitive field can give
such service as will be a positive advantage to the public, a certificate of
convenience will be denied by the Idaho Commission, provided that the
existing utility furnishing adequate service at reasonable rates at the time of
the threatened competition.
In Scott, vs. Latham (N. Y. 2d Dist), P. U. R., 1921C, 714:
Competition between bus lines should be prohibited the same as competition
between common carriers.
In Re Portland Taxicab Co. (Me.), P. U. R., 1923E, 772:
Certificates permitting the operation of motor vehicles for carrying passengers
for hire over regular routes between points served by steam and electric
railways should not be granted when the existing service is reasonable, safe,
and adequate as required by statue.
In Re Murphy (Minnesota), P.U.R., 1927C, 807:
Authority to operate an auto transportation service over a route which is served
by another auto transportation company should be denied if no necessity is
shown for additional service.
In Re Hall, editorial notes, P. U. R., 1927E:
A certificate of convenience and necessity for the operation of a motor carrier
service has been denied by the Colorado Commission where the only ground
adduced for the certificate was that competition thereby afforded to an existing
utility would benefit the public by lowering rates. The Commission said: "Up to
the present time the Commission has never issued a certificate authorizing a
duplication of motor vehicle operation over a given route unless it appeared
that the service already rendered was not adequate, that there was no ruinous
competition or that the second applicant could, while operating on a sound
businesslike basis, afford transportation at cheaper rates than those already
in effect. There has been no complaint to date as to the rates now being
charged on the routes over which the applicant desires to serve. Moreover, the
Commission stand ready, at any time the unreasonable of the rates of any
carrier are questioned, to determine their reasonableness and to order them
reduced if they are shown to be unreasonable." In this case the Commission
also expressed its disappoval of the practice of an applicant securing a
certificate for the sole purpose of transferring it to another.
In Re Sumner (Utah), P. U. R., 1927D, 734:
The operation of an automobile stage line will not be authorized over a route
adequately served by a railroad and other bus line, although the proposed
service would be an added convenience to the territory.
In Bartonville Bus Line vs. Eagle Motor Coach Line (Ill. Sup. Court), 157 N. E.,
175; P. U. R., 1927E, 333:
The policy of the state is to compel an established public utility occupying a
given filed to provide adequate service and at the same time protect it from
ruinous competition, and to allow it an apportunity to provide additional service
when required instead of permitting such service by a newly established
competitor.
Upon the question of "Reason and Rule for Regulation," in section 775, Pond
says:
The policy of regulation, upon which our present public utility commission plan
is based and which tends to do away with competition among public utilities as
they are natural monopolies, is at once the reason and the justification for the
holding of our courts that the regulation of an existing system of transportation,
which is properly serving a given field or may be required to do so, is to be
preferred to competition among several independent systems. While requiring
a proper service from a single system for a city or territory in consideration for
protecting it as a monopoly for all the service required and in conserving its
resources, no economic waste results and service may be furnished at the
minimum cost. The prime object and real purpose of commission control is to
secure adequate sustained service for the public at the least possible cost, and
to protect and conserve investments already made for this purpose.
Experience has demostrated beyond any question that competition among
natural monopolies is wasteful economically and results finally in insufficient
and unsatisfactory service and extravagant rates. Neither the number of the
individuals demanding other service nor the question of the fares constitutes
the entire question, but rather what the proper agency should be to furnish the
best service to the public generally and continuously at the least cost. Anything
which tends to cripple seriously or destroy an established system of
transportation that is necessary to a community is not a convenience and
necessity for the public and its introduction would be a handicap rather than a
help ultimately in such a field.
That is the legal construction which should be placed on paragraph (e) of
section 14, and paragraph (b) and (c) of section 15 of the Public Service Law.

We are clearly of the opinion that the order of the Commission granting the
petition of Orlanes in question, for the reason therein stated, is null and void,
and that it is in direct conflict with the underlying and fundamental priciples for
which the Commission was created.1awphi1.net

The question presented is very important and far-reaching and one of first
impression in this court, and for such reasons we have given this case the
careful consideration which its importance deserves. The Government having
taken over the control and supervision of all public utilities, so long as an
operator under a prior license complies with the terms and conditions of his
license and reasonable rules and regulation for its operation and meets the
reasonable demands of the public, it is the duty of the Commission to protect
rather than to destroy his investment by the granting of a subsequent license
to another for the same thing over the same route of travel. The granting of
such a license does not serve its convenience or promote the interests of the
public.

The decision of the Public Service Commission, granting to Orlanes the license
in question, is revoked and set aside, and the case is remanded to the
Commission for such other and further proceedings as are not inconsistent
with this opinion. Neither party to recover costs on this appeal. So ordered.

Johnson, Street, Malcolm and Ostrand, JJ., concur.

 12. San Pablo v. Pantranco
G.R. No. L-61461 August 21, 1987
EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners,
vs.
PANTRANCO SOUTH EXPRESS, INC., respondent.
CARDINAL SHIPPING CORPORATION, petitioner,
vs.
HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH
EXPRESS, INC., respondents.
GANCAYCO, J.:
The question that is posed in these petitions for review is whether the sea can
be considered as a continuation of the highway. The corollary issue is whether
a land transportation company can be authorized to operate a ferry service or
coastwise or interisland shipping service along its authorized route as an
incident to its franchise without the need of filing a separate application for the
same.
The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO
is a domestic corporation engaged in the land transportation business with
PUB service for passengers and freight and various certificates for public
conveniences CPC to operate passenger buses from Metro Manila to Bicol
Region and Eastern Samar. On March 27,1980 PANTRANCO through its
counsel wrote to Maritime Industry Authority (MARINA) requesting authority to
lease/purchase a vessel named M/V "Black Double" "to be used for its project
to operate a ferryboat service from Matnog, Sorsogon and Allen, Samar that
will provide service to company buses and freight trucks that have to cross
San Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed
by MARINA that it cannot give due course to the request on the basis of the
following observations:
1. The Matnog-Allen run is adequately serviced by Cardinal Shipping
Corp. and Epitacio San Pablo; MARINA policies on interisland shipping restrict
the entry of new operators to Liner trade routes where these are adequately
serviced by existing/authorized operators.
2. Market conditions in the proposed route cannot support the entry of
additional tonnage; vessel acquisitions intended for operations therein are
necessarily limited to those intended for replacement purposes only. 2
PANTRANCO nevertheless acquired the vessel MV "Black Double" on May
27, 1981 for P3 Million pesos. It wrote the Chairman of the Board of
Transportation (BOT) through its counsel, that it proposes to operate a ferry
service to carry its passenger buses and freight trucks between Allen and
Matnog in connection with its trips to Tacloban City invoking the case of
Javellana vs. Public Service Commission. 3 PANTRANCO claims that it can
operate a ferry service in connection with its franchise for bus operation in the
highway from Pasay City to Tacloban City "for the purpose of continuing the
highway, which is interrupted by a small body of water, the said proposed ferry
operation is merely a necessary and incidental service to its main service and
obligation of transporting its passengers from Pasay City to Tacloban City.
Such being the case ... there is no need ... to obtain a separate certificate for
public convenience to operate a ferry service between Allen and Matnog to
cater exclusively to its passenger buses and freight trucks. 4
Without awaiting action on its request PANTRANCO started to operate said
ferry service. Acting Chairman Jose C. Campos, Jr. of BOT ordered
PANTRANCO not to operate its vessel until the application for hearing on Oct.
1, 1981 at 10:00 A.M. 5 In another order BOT enjoined PANTRANCO from
operating the MV "Black Double" otherwise it will be cited to show cause why
its CPC should not be suspended or the pending application denied. 6
Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping
Corporation who are franchise holders of the ferry service in this area
interposed their opposition. They claim they adequately service the
PANTRANCO by ferrying its buses, trucks and passengers. BOT then asked
the legal opinion from the Minister of Justice whether or not a bus company
with an existing CPC between Pasay City and Tacloban City may still be
required to secure another certificate in order to operate a ferry service
between two terminals of a small body of water. On October 20, 1981 then
Minister of Justice Ricardo Puno rendered an opinion to the effect that there is
no need for bus operators to secure a separate CPC to operate a ferryboat
service holding as follows:
Further, a common carrier which has been granted a certificate of public
convenience is expected to provide efficient, convenient and adequate service
to the riding public. (Hocking Valley Railroad Co. vs. Public Utilities
Commission, 1 10 NE 521; Louiseville and NR Co. vs. Railroad
Commissioners, 58 SO 543) It is the right of the public which has accepted the
service of a public utility operator to demand that the service should be
conducted with reasonable efficiency. (Almario, supra, citing 73 C.J.S. 990-
991) Thus, when the bus company in the case at bar proposes to add a ferry
service to its Pasay Tacloban route, it merely does so in the discharge of its
duty under its current certificate of public convenience to provide adequate and
convenient service to its riders. Requiring said bus company to obtain another
certificate to operate such ferry service when it merely forms a part and
constitutes an improvement of its existing transportation service would
simply be duplicitous and superfluous. 7
Thus on October 23, 1981 the BOT rendered its decision holding that the ferry
boat service is part of its CPC to operate from Pasay to Samar/Leyte by
amending PANTRANCO's CPC so as to reflect the same in this wise:
Let the original Certificate of public convenience granted to Pantranco South
Express Co., Inc. be amended to embody the grant of authority to operate a
private ferry boat service as one of the conditions for the grant of the certificate
subject to the condition that the ferryboat shall be for the exclusive use of
Pantranco buses, its passengers and freight trucks, and should it offer itself to
the public for hire other than its own passengers, it must apply for a separate
certificate of public convenience as a public ferry boat service, separate and
distinct from its land transport systems. 8
Cardinal Shipping Corporation and the heirs of San Pablo filed separate
motions for reconsideration of said decision and San Pablo filed a
supplemental motion for reconsideration that were denied by the BOT on July
21, 1981. 9
Hence, San Pablo filed the herein petition for review on certiorari with prayer
for preliminary injunction 10 seeking the revocation of said decision, and
pending consideration of the petition, the issuance of a restraining order or
preliminary injunction against the operation by PANTRANCO of said ferry
service. San Pablo raised the following issues:
A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT
TO DUE PROCESS, THE RULES OF PROCEDURE AND SECTION 16 (m)
OF THE PUBLIC SERVICE ACT, WHEN IT ISSUED IN A COMPLAINT CASE
THE DECISION DATED OCTOBER 23, 1981 WHICH MOTU PROPIO
AMENDED RESPONDENT PANTRANCO'S PUB CERTIFICATE TO
INCLUDE AND AUTHORIZE OPERATION OF A SHIPPING SERVICE ON
THE ROUTE MATNOG, SORSOGON ALLEN, SAMAR EVEN AS
THERE MUST BE A FORMAL APPLICATION FOR AMENDMENT AND
SEPARATE PROCEEDINGS HELD THEREFORE, ASSUMING
AMENDMENT IS PROPER?
B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS
DECISION OF OCTOBER 23, 1981, THAT THE SEA FROM THE PORT OF
MATNOG, SORSOGON, LUZON ISLAND TO THE PORT OF ALLEN,
SAMAR ISLAND, OR FROM LUZON ISLAND TO SAMAR ISLAND IS A
MERE FERRY OR CONTINUATION OF THE HIGHWAY IT BEING 23
KILOMETERS OF ROUGH AND OPEN SEA AND ABOUT 2 HOURS TRAVEL
TIME REQUIRING BIG INTER-ISLAND VESSELS, NOT MERE BARGES,
RAFTS OR SMALL BOATS UTILIZED IN FERRY SERVICE?
C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT
RESPONDENT PANTRANCO'S VESSEL M/V BLACK DOUBLE IS MERELY
A PRIVATE CARRIER, NOT A PUBLIC FERRY OPERATING FOR PUBLIC
SERVICE (ASSUMING THAT THE MATNOG-ALLEN SEA ROUTE IS A
MERE FERRY OR CONTINUATION OF HIGHWAY) EVEN IF SAID VESSEL
IS FOR HIRE AND COLLECTS SEPARATE FARES AND CATERS TO THE
PUBLIC EVEN FOR A LIMITED CLIENTELE?
D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED
RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING
SERVICE IN THE FACE OF THE LATTER'S CONTENTION AS AN AFTER
THOUGH THAT IT NEED NOT APPLY THEREFOR, AND IN SPITE OF ITS
FAILURE TO SECURE THE PRE-REQUISITE MARITIME INDUSTRY
AUTHORITY (MARINA) APPROVAL TO ACQUIRE A VESSEL UNDER ITS
MEMORANDUM CIRCULAR NO. 8-A AS WELL AS ITS PRIOR FAVORABLE
ENDORSEMENT BEFORE ANY SHIPPING AUTHORIZATION MAY BE
GRANTED UNDER BOT MARINA AGREEMENT OF AUGUST 10, 1976
AND FEBRUARY 26, 1982?
E. DID RESPONDENT BOARD ERR WHEN IT GRANTED
RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING
SERVICE ON A ROUTE ADEQUATELY SERVICED IF NOT ALREADY
"SATURATED" WITH THE SERVICES OF TWO 12) EXISTING OPERATORS
PETITIONERS AND CARDINAL SHIPPING CORP.) IN VIOLATION OF THE
PRINCIPLE OF PRIOR OPERATOR RULE'? 11
By the same token Cardinal Shipping Corporation filed a separate petition
raising similar issues, namely:
a. the decision did not conform to the procedures laid down by law for an
amendment of the original certificate of public convenience, and the authority
to operate a private ferry boat service to PANTRANCO was issued without
ascertaining the established essential requisites for such grant, hence,
violative of due process requirements;
b. the grant to PANTRANCO of authority to operate a ferryboat service
as a private carrier on said route contravenes existing government policies
relative to the rationalization of operations of all water transport utilities;
c. it contravenes the memorandum of agreement between MARINA and
the Board of Transportation; d. the grant of authority to operate a ferry service
as a private carrier is not feasible; it lessens PANTRANCO's liability to
passengers and cargo to a degree less than extraordinary diligence?
e. PANTRANCO is not a private carrier when it operates its ferry service;
f. it runs counter to the "old operator" doctrine; and
g. the operation by PANTRANCO of the ferry service c nstitutes undue
competition.
The foregoing considerations constitutes the substantial errors committed by
the respondent Board which would more than amply justify review of the
questioned decision by this Honorable Court.12
Both cases were consolidated and are now admitted for decision.
The resolution of all said issues raised revolves on the validity of the
questioned BOT decision.
The BOT resolved the issue of whether a ferry service is an extension of the
highway and thus is a part of the authority originally granted PANTRANCO in
the following manner:
A ferry service, in law, is treated as a continuation of the highway from one
side of the water over which passes to the other side for transportation of
passengers or of travellers with their teams vehicles and such other property
as, they may carry or have with them. (U.S. vs. Pudget Sound Nev. Co. DC
Washington, 24 F. Supp. 431). It maybe said to be a necessary service of a
specially constructed boat to carry passengers and property across rivers or
bodies of water from a place in one shore to a point conveniently opposite on
the other shore and continuation of the highway making a connection with the
thoroughfare at each terminal (U.S. vs. Canadian Pac. N.Y. Co. 4 P. Supp,
85). It comprises not merely the privilege of transportation but also the use for
that purpose of the respective landings with outlets therefrom. (Nole vs.
Record, 74 OKL. 77; 176 Pac. 756). A ferry service maybe a public ferry or a
private ferry. A public ferry service is one which all the public have the right to
resort to and for which a regular fare is established and the ferryman is a
common carrier be inbound to take an who apply and bound to keep his ferry
in operation and good repair. (Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A
ferry (private) service is mainly for the use of the owner and though he may
take pay for ferriage, he does not follow it as a business. His ferry is not open
to the public at its demand and he may or may not keep it in operation
(Hudspeth vs. Hall, supra, St. Paul Fire and Marine Ins. 696), Harrison, 140
Ark 158; 215 S.W. 698).
The ferry boat service of Pantranco is a continuation of the highway traversed
by its buses from Pasay City to Samar, Leyte passing through Matnog
(Sorsogon) through San Bernardino Strait to Alien (Samar). It is a private
carrier because it will be used exclusively to transport its own buses,
passengers and freight trucks traversing the said route. It will cater exclusively
to the needs of its own clientele (passengers on board- Pantranco buses) and
will not offer itself indiscriminately for hire or for compensation to the general
public. Legally therefore, Pantranco has the right to operate the ferry boat M/V
BLACK DOUBLE, along the route from Matnog (Sorsogon) to Allen (Samar)
and vice versa for the exclusive use of its own buses, passengers and freight
trucks without the need of applying for a separate certificate of public
convenience or provisional authority. Since its operation is an integral part of
its land transport system, its original certificate of public convenience should
be amended to include the operation of such ferryboat for its own exclusive
use
In Javellana 14 this Court recited the following definition of ferry :
The term "ferry" implied the continuation by means of boats, barges, or rafts,
of a highway or the connection of highways located on the opposite banks of
a stream or other body of water. The term necessarily implies transportation
for a short distance, almost invariably between two points, which is unrelated
to other transportation .(Emphasis supplied)
The term "ferry" is often employed to denote the right or franchise granted by
the state or its authorized mandatories to continue by means of boats, an
interrupted land highway over the interrupting waters and to charge toll for the
use thereof by the public. In this sense it has also been defined as a privilege,
a liberty, to take tolls for transporting passengers and goods across a lake or
stream or some other body of water, with no essential difference from a bridge
franchise except as to the mode of transportation, 22 Am. Jur. 553.
A "ferry" has been defined by many courts as "a public highway or
thoroughfare across a stream of water or river by boat instead of a bridge." (St.
Clare Country v. Interstate Car and Sand Transfer Co., 192 U.S. 454, 48 L. ed.
518; etc.)
The term ferry is often employed to denote the right or franchise granted by
the state or its authorized mandatories to continue by means of boats, an
interrupted land highway over the interrupting waters and to charge toll for the
use thereof by the public. (Vallejo Ferry Co. vs. Solano Aquatic Club, 165 Cal.
255, 131 P. 864, Ann. Cas. 1914C 1179; etc.) (Emphasis supplied)
"Ferry" is service necessity for common good to reach point across a stream
lagoon, lake, or bay. (U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp.
851,853)'
"Ferry" properly means a place of transit across a river or arm of the sea, but
in law it is treated as a franchise, and defined as the exclusive right to carry
passengers across a river, or arm of the sea, from one vill to another, or to
connect a continuous line of road leading from township or vill to another.
(Canadian Pac. Ry. Co. vs. C.C. A. Wash. 73 F. 2d. 831, 832)'
Includes various waters: (1) But an arm of the sea may include various
subordinate descriptions of waters, where the tide ebbs and flows. It may be a
river, harbor, creek, basin, or bay; and it is sometimes used to designate very
extensive reaches of waters within the projecting capes or points or a country.
(See Rex vs. Bruce, Deach C.C. 1093). (2) In an early case the court said:
"The distinction between rivers navigable and not navigable, that is, where the
sea does, or does not, ebb and flow, is very ancient. Rex vs. Smith, 2 Dougl.
441, 99 Reprint 283. The former are called arms of the sea, while the latter
pass under the denomination of private or inland rivers" Adams vs. Pease 2
Conn. 481, 484. (Emphasis supplied)
In the cases of Cababa vs. Public Service Commission, 16 Cababa vs.
Remigio & Carillo and Municipality of Gattaran vs. Elizaga 17 this Court
considered as ferry service such water service that crosses rivers.
However, in Javellana We made clear distinction between a ferry service and
coastwise or interisland service by holding that:
We are not unmindful of the reasons adduced by the Commission in
considering the motorboat service between Calapan and Batangas as ferry;
but from our consideration of the law as it stands, particularly Commonwealth
Act No. 146, known as the Public Service Act and the provisions of the Revised
Administrative Code regarding municipal ferries and those regarding the
jurisdiction of the Bureau of Customs over documentation, registration,
licensing, inspection, etc. of steamboats, motorboats or motor vessels, and the
definition of ferry as above quoted we have the impression and we are inclined
to believe that the Legislature intended ferry to mean the service either by
barges or rafts, even by motor or steam vessels, between the banks of a river
or stream to continue the highway which is interrupted by the body of water, or
in some cases to connect two points on opposite shores of an arm of the sea
such as bay or lake which does not involve too great a distance or too long a
time to navigate But where the line or service involves crossing the open sea
like the body of water between the province of Batangas and the island of
Mindoro which the oppositors describe thus "the intervening waters between
Calapan and Batangas are wide and dangerous with big waves where small
boat barge, or raft are not adapted to the service," then it is more reasonable
to regard said line or service as more properly belonging to interisland or
coastwise trade. According to the finding of the Commission itself the distance
between Calapan is about 24 nautical miles or about 44.5 kilometers. We do
not believe that this is the short distance contemplated by the Legislature in
referring to ferries whether within the jurisdiction of a single municipality or
ferries between two municipalities or provinces. If we are to grant that water
transportation between Calapan and Batangas is ferry service, then there
would be no reason for not considering the same service between the different
islands of the Philippines, such as Boac Marinduque and Batangas; Roxas
City of Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar
and Surigao, Surigao; and Dumaguete, Negros Oriental and Oroquieta or
Cagayan de Oro.
The Commission makes the distinction between ferry service and motorship in
the coastwise trade, thus:
A ferry service is distinguished from a motorship or motorboat service engaged
in the coastwise trade in that the latter is intended for the transportation of
passengers and/or freight for hire or compensation between ports or places in
the Philippines without definite routes or lines of service.
We cannot agree. The definiteness of the route of a boat is not the deciding
factor. A boat of say the William Lines, Inc. goes from Manila to Davao City via
Cebu, Tagbilaran, Dumaguete, Zamboanga, every week. It has a definite
route, and yet it may not for that reason be regarded as engaged in ferry
service. Again, a vessel of the Compania Maritima makes the trip from Manila
to Tacloban and back, twice a week. Certainly, it has a definite route. But that
service is not ferry service, but rather interisland or coastwise trade.
We believe that it will be more in consonance with the spirit of the law to
consider steamboat or motorboat service between the different islands,
involving more or less great distance and over more or less turbulent and
dangerous waters of the open sea, to be coastwise or inter-island service.
Anyway, whether said service between the different islands is regarded as
ferry service or coastwise trade service, as long as the water craft used are
steamboats, motorboats or motor vessels, the result will be the same as far as
the Commission is concerned. " 18 (Emphasis supplied)
This Court takes judicial notice of the fact, and as shown by an examination of
the map of the Philippines, that Matnog which is on the southern tip of the
island of Luzon and within the province of Sorsogon and Allen which is on the
northeastern tip of the island of Samar, is traversed by the San Bernardino
Strait which leads towards the Pacific Ocean. The parties admit that the
distance between Matnog and Allen is about 23 kilometers which maybe
negotiated by motorboat or vessel in about 1-1/2 hours as claimed by
respondent PANTRANCO to 2 hours according to petitioners. As the San
Bernardino Strait which separates Matnog and Allen leads to the ocean it must
at times be choppy and rough so that it will not be safe to navigate the same
by small boats or barges but only by such steamboats or vessels as the MV
"Black Double. 19
Considering the environmental circumstances of the case, the conveyance of
passengers, trucks and cargo from Matnog to Allen is certainly not a ferry boat
service but a coastwise or interisland shipping service. Under no circumstance
can the sea between Matnog and Allen be considered a continuation of the
highway. While a ferry boat service has been considered as a continuation of
the highway when crossing rivers or even lakes, which are small body of
waters - separating the land, however, when as in this case the two terminals,
Matnog and Allen are separated by an open sea it can not be considered as a
continuation of the highway. Respondent PANTRANCO should secure a
separate CPC for the operation of an interisland or coastwise shipping service
in accordance with the provisions of law. Its CPC as a bus transportation
cannot be merely amended to include this water service under the guise that
it is a mere private ferry service.
The contention of private respondent PANTRANCO that its ferry service
operation is as a private carrier, not as a common carrier for its exclusive use
in the ferrying of its passenger buses and cargo trucks is absurd.
PANTRANCO does not deny that it charges its passengers separately from
the charges for the bus trips and issues separate tickets whenever they board
the MV "Black Double" that crosses Matnog to Allen, 20 PANTRANCO cannot
pretend that in issuing tickets to its passengers it did so as a private carrier
and not as a common carrier. The Court does not see any reason why inspite
of its amended franchise to operate a private ferry boat service it cannot accept
walk-in passengers just for the purpose of crossing the sea between Matnog
and Allen. Indeed evidence to this effect has been submitted. 21 What is even
more difficult to comprehend is that while in one breath respondent
PANTRANCO claims that it is a private carrier insofar as the ferryboat service
is concerned, in another breath it states that it does not thereby abdicate from
its obligation as a common carrier to observe extraordinary diligence and
vigilance in the transportation of its passengers and goods. Nevertheless,
considering that the authority granted to PANTRANCO is to operate a private
ferry, it can still assert that it cannot be held to account as a common carrier
towards its passengers and cargo. Such an anomalous situation that will
jeopardize the safety and interests of its passengers and the cargo owners
cannot be allowed.
What appears clear from the record is that at the beginning PANTRANCO
planned to operate such ferry boat service between Matnog and Alien as a
common carrier so it requested authority from MARINA to purchase the vessel
M/V "Black Double 22 in accordance with the procedure provided for by law
for such application for a certificate of public convenience. 23 However when
its request was denied as the said routes "are adequately serviced by
existing/authorized operators, 24 it nevertheless purchased the vessel and
started operating the same. Obviously to go about this obstacle to its
operation, it then contrived a novel theory that what it proposes to operate is a
private ferryboat service across a small body of water for the exclusive use of
its buses, trucks and passengers as an incident to its franchise to convey
passengers and cargo on land from Pasay City to Tacloban so that it believes
it need not secure a separate certificate of public convenience. 25 Based on
this representation, no less than the Secretary of Justice was led to render an
affirmative opinion on October 20, 1981, 26 followed a few days later by the
questioned decision of public respondent of October 23, 1981. 27 Certainly the
Court cannot give its imprimatur to such a situation.
Thus the Court holds that the water transport service between Matnog and
Allen is not a ferry boat service but a coastwise or interisland shipping service.
Before private respondent may be issued a franchise or CPC for the operation
of the said service as a common carrier, it must comply with the usual
requirements of filing an application, payment of the fees, publication,
adducing evidence at a hearing and affording the oppositors the opportunity to
be heard, among others, as provided by law. 28
WHEREFORE, the petitions are hereby GRANTED and the Decision of the
respondent Board of Transportation (BOT) of October 23, 1981 in BOT Case
No. 81-348-C and its Order of July 21, 1982 in the same case denying the
motions for reconsideration filed by petitioners are hereby Reversed and set
aside and declared null and void. Respondent PANTRANCO is hereby
permanently enjoined from operating the ferryboat service and/or
coastwise/interisland services between Matnog and Allen until it shall have
secured the appropriate Certificate of Public Convenience (CPC) in
accordance with the requirements of the law, with costs against respondent
PANTRANCO. SO ORDERED.
 13. PAL v. CAB
14. Teja v. IAC
G.R. No. L-65510 March 9, 1987
TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N.
NALE, respondents.
Cirilo A. Diaz, Jr. for petitioner.
Henry V. Briguera for private respondent.
PARAS, J.:
"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the
time-honored maxim that must be applied to the parties in the case at bar.
Having entered into an illegal contract, neither can seek relief from the courts,
and each must bear the consequences of his acts." (Lita Enterprises vs. IAC,
129 SCRA 81.)
The factual background of this case is undisputed. The same is narrated by
the respondent court in its now assailed decision, as follows:
On May 9, 1975, the defendant bought from the plaintiff a motorcycle with
complete accessories and a sidecar in the total consideration of P8,000.00 as
shown by Invoice No. 144 (Exh. "A"). Out of the total purchase price the
defendant gave a downpayment of P1,700.00 with a promise that he would
pay plaintiff the balance within sixty days. The defendant, however, failed to
comply with his promise and so upon his own request, the period of paying the
balance was extended to one year in monthly installments until January 1976
when he stopped paying anymore. The plaintiff made demands but just the
same the defendant failed to comply with the same thus forcing the plaintiff to
consult a lawyer and file this action for his damage in the amount of P546.21
for attorney's fees and P100.00 for expenses of litigation. The plaintiff also
claims that as of February 20, 1978, the total account of the defendant was
already P2,731.06 as shown in a statement of account (Exhibit. "B"). This
amount includes not only the balance of P1,700.00 but an additional 12%
interest per annum on the said balance from January 26, 1976 to February 27,
1978; a 2% service charge; and P 546.21 representing attorney's fees.
In this particular transaction a chattel mortgage (Exhibit 1) was constituted as
a security for the payment of the balance of the purchase price. It has been
the practice of financing firms that whenever there is a balance of the purchase
price the registration papers of the motor vehicle subject of the sale are not
given to the buyer. The records of the LTC show that the motorcycle sold to
the defendant was first mortgaged to the Teja Marketing by Angel Jaucian
though the Teja Marketing and Angel Jaucian are one and the same, because
it was made to appear that way only as the defendant had no franchise of his
own and he attached the unit to the plaintiff's MCH Line. The agreement also
of the parties here was for the plaintiff to undertake the yearly registration of
the motorcycle with the Land Transportation Commission. Pursuant to this
agreement the defendant on February 22, 1976 gave the plaintiff P90.00, the
P8.00 would be for the mortgage fee and the P82.00 for the registration fee of
the motorcycle. The plaintiff, however failed to register the motorcycle on that
year on the ground that the defendant failed to comply with some requirements
such as the payment of the insurance premiums and the bringing of the
motorcycle to the LTC for stenciling, the plaintiff saying that the defendant was
hiding the motorcycle from him. Lastly, the plaintiff explained also that though
the ownership of the motorcycle was already transferred to the defendant the
vehicle was still mortgaged with the consent of the defendant to the Rural Bank
of Camaligan for the reason that all motorcycle purchased from the plaintiff on
credit was rediscounted with the bank.
On his part the defendant did not dispute the sale and the outstanding balance
of P1,700. 00 still payable to the plaintiff. The defendant was persuaded to buy
from the plaintiff the motorcycle with the side car because of the condition that
the plaintiff would be the one to register every year the motorcycle with the
Land Transportation Commission. In 1976, however, the plaintfff failed to
register both the chattel mortgage and the motorcycle with the LTC
notwithstanding the fact that the defendant gave him P90.00 for mortgage fee
and registration fee and had the motorcycle insured with La Perla Compana
de Seguros (Exhibit "6") as shown also by the Certificate of cover (Exhibit "3").
Because of this failure of the plaintiff to comply with his obligation to register
the motorcycle the defendant suffered damages when he failed to claim any
insurance indemnity which would amount to no less than P15,000.00 for the
more than two times that the motorcycle figured in accidents aside from the
loss of the daily income of P15.00 as boundary fee beginning October 1976
when the motorcycle was impounded by the LTC for not being registered.
The defendant disputed the claim of the plaintiff that he was hiding from the
plaintiff the motorcycle resulting in its not being registered. The truth being that
the motorcycle was being used for transporting passengers and it kept on
travelling from one place to another. The motor vehicle sold to him was
mortgaged by the plaintiff with the Rural Bank of Camaligan without his
consent and knowledge and the defendant was not even given a copy of the
mortgage deed. The defendant claims that it is not true that the motorcycle
was mortgaged because of re-discounting for rediscounting is only true with
Rural Banks and the Central Bank. The defendant puts the blame on the
plaintiff for not registering the motorcycle with the LTC and for not giving him
the registration papers inspite of demands made. Finally, the evidence of the
defendant shows that because of the filing of this case he was forced to retain
the services of a lawyer for a fee on not less than P1,000.00.
xxx xxx xxx
... it also appears and the Court so finds that defendant purchased the
motorcycle in question, particularly for the purpose of engaging and using the
same in the transportation business and for this purpose said trimobile unit
was attached to the plaintiffs transportation line who had the franchise, so
much so that in the registration certificate, the plaintiff appears to be the owner
of the unit. Furthermore, it appears to have been agreed, further between the
plaintiff and the defendant, that plaintiff would undertake the yearly registration
of the unit in question with the LTC. Thus, for the registration of the unit for the
year 1976, per agreement, the defendant gave to the plaintiff the amount of
P82.00 for its registration, as well as the insurance coverage of the unit.
Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for
"Sum of Money with Damages" against private respondent Pedro N. Nale in
the City Court of Naga City. The City Court rendered judgment in favor of
petitioner, the dispositive portion of which reads:
WHEREFORE, decision is hereby rendered dismissing the counterclaim and
ordering the defendant to pay plaintiff the sum of P1,700.00 representing the
unpaid balance of the purchase price with legal rate of interest from the date
of the filing of the complaint until the same is fully paid; to pay plaintiff the sum
of P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as expenses
of litigation; and to pay the costs.
SO ORDERED.
On appeal to the Court of First Instance of Camarines Sur, the decision was
affirmed in toto. Private respondent filed a petition for review with the
Intermediate Appellate Court and on July 18, 1983 the said Court promulgated
its decision, the pertinent portion of which reads
However, as the purchase of the motorcycle for operation as a trimobile under
the franchise of the private respondent Jaucian, pursuant to what is commonly
known as the "kabit system", without the prior approval of the Board of
Transportation (formerly the Public Service Commission) was an illegal
transaction involving the fictitious registration of the motor vehicle in the name
of the private respondent so that he may traffic with the privileges of his
franchise, or certificate of public convenience, to operate a tricycle service, the
parties being in pari delicto, neither of them may bring an action against the
other to enforce their illegal contract [Art. 1412 (a), Civil Code].
xxx xxx xxx
WHEREFORE, the decision under review is hereby set aside. The complaint
of respondent Teja Marketing and/or Angel Jaucian, as well as the
counterclaim of petitioner Pedro Nale in Civil Case No. 1153 of the Court of
First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City Court
of Naga City) are dismissed. No pronouncement as to costs.
SO ORDERED.
The decision is now before Us on a petition for review, petitioner Teja
Marketing and/or Angel Jaucian presenting a lone assignment of error
whether or not respondent court erred in applying the doctrine of "pari delicto."
We find the petition devoid of merit.
Unquestionably, the parties herein operated under an arrangement, commonly
known as the "kabit system" whereby a person who has been granted a
certificate of public convenience allows another person who owns motor
vehicles to operate under such franchise for a fee. A certificate of public
convenience is a special privilege conferred by the government. Abuse of this
privilege by the grantees thereof cannot be countenanced. The "kabit system"
has been Identified as one of the root causes of the prevalence of graft and
corruption in the government transportation offices.
Although not outrightly penalized as a criminal offense, the kabit system is
invariably recognized as being contrary to public policy and, therefore, void
and in existent under Article 1409 of the Civil Code. It is a fundamental principle
that the court will not aid either party to enforce an illegal contract, but will leave
both where it finds then. Upon this premise it would be error to accord the
parties relief from their predicament. Article 1412 of the Civil Code denies them
such aid. It provides:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may
recover that he has given by virtue of the contract, or demand, the performance
of the other's undertaking.

The defect of in existence of a contract is permanent and cannot be cured by

ratification or by prescription. The mere lapse of time cannot give efficacy to
contracts that are null and void.

WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed
decision of the Intermediate Appellate Court (now the Court of Appeals) is
AFFIRMED. No costs.

SO ORDERED.
 15. Philippine Rabbit v. Gabatin
G.R. No. L-24472 July 31, 1968
PHILIPPINE RABBIT BUS LINES, INC., petitioner,
vs.
PROSPERO GABATIN, and PUBLIC SERVICE COMMISSION, respondents.
Graciano C. Regala and Associates for petitioner.
Ernesto A. Alcala for respondents.
FERNANDO, J.:
What has to be passed upon in this petition for review is the correctness of a
decision of respondent Public Service Commission of March 8, 1965, granting
an application of respondent Prospero Gabatin for a certificate of public
convenience to operate an auto-truck service on the line Caoayan (Ilocos Sur)-
Grace Park (Caloocan City) with the use of six (6) units. Petitioner Philippine
Rabbit Bus Lines, Inc. was one of the oppositors.
According to the relevant facts, respondent Gabatin, as the applicant,
presented himself together with two witnesses and testified to the effect that
public convenience would be served by transportation facilities provided for
passengers from Caoayan to Manila and back as students, employees,
merchants and professionals among others had to ride in calesas or jeeps up
to Vigan from whence they could take the buses of petitioner Philippine Rabbit
Bus Lines, Inc., which, however, were usually fully loaded. One of his
witnesses, the then Municipal Mayor of Caoayan, asserted that its inhabitants
engaged in weaving, farming and fishing had to take their products to Manila,
Dagupan, San Fernando, La Union and other towns in the southern part of
Ilocos Sur and that it was his personal experience that after taking a jeep from
Caoayan to Vigan to be able to utilize the services of petitioner transportation
line, he noted that their buses were quite full, a condition that similarly existed
on his return trip from Manila. He likewise added that there was a resolution of
the Municipal Council of Caoayan endorsing the application for a certificate of
public convenience of respondent Gabatin.
It was the contention of the oppositors on the other hand that there was no
such "need for the proposed service; that on the line Vigan to Manila, there are
sufficient buses of the Philippine Rabbit and other PUB operators who can take
care of the need of the riding public; and that applicant is not financially capable
to operate the proposed service. The other operators merely adopted the
evidence presented by the Philippine Rabbit Bus Lines, Inc."1
Then, the decision sought to be reviewed, continued: "After weighing the
evidence of both the applicant and the oppositors, the Commission found out
that there is no PUB operator operating a direct service from Caoayan, Ilocos
Sur to Manila; that by allowing applicant to operate a direct service from
Caoayan, Ilocos Sur to Manila it would ease the transportation problem of the
people of Caoayan, Ilocos Sur. Although, there are trips of the Philippine
Rabbit Bus Lines, Inc. going to Manila, but most of these trips start from Laoag,
Ilocos Norte, so that passengers from Caoayan, Ilocos Sur, have lesser or no
chance at all to get accommodation on these buses. There are other PUB
auto-truck operators whose trips pass Vigan coming from farther north as
claimed by the oppositors, but these buses do not enter Vigan and usually
these buses are also full with passengers coming from the north. After going
over the entire evidence of record, the Commission believes that public
convenience and interests will be best served if applicant would be allowed to
operate SIX (6) units only instead of the twelve (12) units applied for."2
Respondent Public Service Commission, in its decision, further found "that
applicant is a Filipino citizen, legally and financially capable to operate and
maintain the proposed service, the Commission believes that the oppositions
filed in this case may be, as they are hereby [overruled] and the certificate of
public convenience applied for may be as it is hereby [granted] to the applicant,
... "3 The usual conditions were attached, which, for the purposes of this
opinion, need not be touched upon. The last portion of the decision was that it
could take effect immediately, to become final thirty (30) days upon notice to
the parties.4
In assailing the above decision, petitioner contends that respondent Public
Service Commission erred in issuing the above certificate of public
convenience as the evidence presented by respondent Gabatin was
"insubstantial, inadequate and spurious"; that moreover again on the records
and evidence of the case, respondent Gabatin "is unquestionably financially
incapable of operating the proposed service"; that his "irresponsibility" and his
"incompetence to operate a safe, efficient and adequate bus service" is evident
on the records of respondent Commission; and that it was denied the
"protection of the prior operator rule."5 As will be evident, the above errors
cannot be deemed persuasive, and the decision must be sustained.
It is to be noted that the jurisdiction of this Court to set aside any order, ruling
or decision of the respondent Commission is predicated on it clearly appearing
that there was no evidence before it to support reasonably such order, ruling
or decision or that the same is contrary to law or outside its jurisdiction.6
From the assignment of errors, the statutory ground relied upon is the alleged
absence of evidence. What is the interpretation accorded to such a provision
by this Court? From Philippine Shipowners' Association v. Public Utility
Commissioner,7 and Ynchausti Steamship Co. v. Public Utility
Commissioner,8 to Robles v. Blaylock,9 a period of more than forty-five years,
this Tribunal has invariably affixed the impress of finality on the findings of fact
under the circumstances herein disclosed. For petitioner to allege the absence
of evidence is to ignore what was testified to before the Public Utility
Commission.
As set forth in a unanimous decision in one of the later cases, Pangasinan
Transportation Co. v. Feliciano,10 in an opinion by Justice Padilla: "It is a
settled rule that the findings and conclusions of fact by the Public Service
Commission after weighing the conflicting evidence adduced by the parties in
public service cases are binding on the Supreme Court and will not be
disturbed unless they appear not to be reasonably supported by evidence."
In the Philippine Shipowners' Association opinion, this Court expressly
affirmed the validity of that principle even if "it might be true that, under the
facts presented, this court would reach another and different conclusion....11
In the Ynchausti decision, rendered the next year, this Court could speak of
"the whole tenor and trend of modern legislation" as vesting the Public Utility
Commission "with power to regulate and control the operation of public utilities"
and conferring on such a body "a large, discretionary, administrative power",
the exercise of which would not be interfered with by this Tribunal.
Subsequently, in a 1926 decision, Philippine Shipowners' Association v. The
Public Utility Commission,12 this Court reaffirmed the principle that only where
the record did not show the decision by the then Public Utility Commission as
not sufficiently supported by the evidence could it alter, modify, or even annul
the same.
Then in San Miguel Brewery v. Lapid, 13 this Court held that it was not justified
in substituting its judgment for that of the Public Service Commission, its power
"being limited to reviewing its order and to see whether or not there is evidence
in the case which reasonably supports the issuance of said order."
Subsequently, in Calabia v. Orlanes,14 a 1931 adjudication, this Court made
it a condition sine qua non that an abuse of power be shown before the
decision of the Public Service Commission could be reversed and modified.
1wph1.t
In Manila Electric Co. v. Balagtas, 15 it was the view of Justice Malcolm,
speaking for the Court, that there must be a showing that "there was no
evidence before the Public Service Commission to support reasonably its
orders" before it could be reversed.
The next year, this Court, in Ampil v. Public Service Commission,16 restated
the broad scope of the Commission's authority as to factual matters by holding
that where in a given set of facts it is authorized to grant a certificate of public
convenience, certain limitations imposed by it based on experience and not
merely arbitrary, would not be interfered with by this Court, such exercise of
discretion being respected.
The same year, in Panay Autobus Co. v. Iloilo Transportation Co.,17 this
Court, again through the then Justice Hull, sustained an order of the Public
Service Commission even if it entertained "fears that the commission has
acted too leniently" inasmuch as "there is evidence in the record" upon which
it could "arrive at the conclusion it did, ... " Again the rule was non-interference.
At the start of the Commonwealth period, therefore, when the present
Constitution became effective, the principle adopted was still such well-nigh
conclusiveness of the findings of facts of the Public Service Commission. In
two 1936 decisions, Aleosan Transportation Co., Inc. v. Public Service
Commission, 18 and Javellana v. La Paz Ice Plant, 19 the above doctrine was
reaffirmed by this Court. Thus in the Aleosan Transportation Co. case, it
refused to modify the conclusion reached by the Public Service Commission
as to what public necessity and convenience required. In the Javellana
decision, this Court announced that it is not permitted "to substitute its own
decision" for that of the Public Service Commission and "is, constrained by law
to sustain the latter."
In Gilles v. Halili,20 this Court was quite explicit in holding that it "is certainly
not the duty of this court to sift the evidence anew to find out for itself whether
or not the preponderance of said evidence is such as will justify the order
issued by the Public Service Commission."
In Cebu Autobus Co. v. Bisaya Land Transportation,21 after stating that in the
final analysis the determination of the question as to the sufficiency of the
evidence turned on the credibility of the witnesses testifying before it, there
was an affirmance of the finding as this Court was unable to conclude that the
decision should be set aside. Then in Manila Electric Co. v. De Vera,22 this
Court, through the late Justice Laurel, referring to a report, which was part of
the record elevated to it, with implication of serious character but not referred
to by the Commission in its decision, spoke of "prudence on [its] part and
fairness to all concerned" as demanding that it should "make no other
pronouncement at this time than to affirm" as it did affirm the decision of the
Commission.
In Sambrano v. Red Line Transportation,23 this Court stated that the
Commission having held "that the public convenience demanded the
establishment of said line" its order "appears to be justified," and concluded
that it is not authorized to substitute its judgment for that of the Commission,
by determining on its "own account, whether or not the public convenience
demanded the establishment of said line or whether or not the same should
be placed in the hands of the respondent Northern Luzon Transportation Co.,
Inc."
The same pattern of undeviating adherence to the doctrine of conclusiveness
and finality of the findings of the Public Service Commission is discernible from
the cases decided after independence, starting in 1947 from Halili v. Ice & Cold
Storage Industries of the Phil., Inc.,24 to the 1968 decision, Robles v. Blaylock,
previously cited.
In Ice & Cold Storage Industries of the Phil., Inc. v. Valera,25 this Court,
through the then Justice Ozaeta stated categorically: "The Commission's
findings of fact are conclusive upon this Court." In Espiritu v. Los Baos,26 the
same rule is expressed thus: "These findings of fact are conclusive upon this
Court which cannot weigh the conflicting evidence and substitute its own
conclusions in lieu of those made by the Commission." In Lopez v. Batangas
Transportation Co.,27 there is a restatement of the above well-settled rule "that
the Commission's findings as to facts are binding and conclusive upon us as
long as they are reasonably supported by substantial evidence, ... "
The doctrine could be negatively phrased, as was done by former Chief Justice
Bengzon with his preference for such phraseology as that the Commission's
"stamp of approval is not without foundation"28 or "is not unsupported by the
evidence."29 1wph1.t
To the same effect is the following brief summary of some of the implications
of this doctrine of finality. Where the petition for review disputes merely the
sufficiency of the evidence, the finding cannot be disturbed.30 It is not for this
Court to determine credibility and preponderance of proof nor to examine the
proof de novo and determine for itself whether or not the preponderance of
evidence really justifies the decision.31 It is not to substitute its discretion for
that of the Public Service Commission on questions of fact.32 The lack of
wisdom of the conclusion reached by the Public Service Commission affects
neither its authority to decide nor the validity of its decision.33
The undeniable force of the above doctrine so consistently followed suffices to
dispose of the first assigned error, namely, the alleged insubstantial,
inadequate and spurious character of the evidence of respondent Gabatin. For
a mere assertion is not the equivalent of proof. Neither is the second error,
dealing with the alleged financial incapability of respondent Gabatin to operate
the proposed service, meritorious. As was held by this Court in Sorita v. Public
Service Commission,34 the opinion being penned by Justice Regala: "The
attack on the respondent-applicant's financial capacity cannot be seriously
entertained in this appeal. The finding of the Public Service Commission
thereon is essentially a factual determination which, in a host of cases, this
Court said it will not interfere unless patently unsupported by evidence. A
review of the records of this case does not warrant such an interference." The
third error imputed to respondent Commission to the effect that it ignored its
own records, which, according to petitioner, "are replete with evidence of the
applicant's irresponsibility and incompetence to operate a safe, efficient and
adequate bus service," is not any more persuasive as essentially it is likewise
grounded on factual considerations. Evidently respondent Commission which
could not have been unaware of what its records contained reached a
conclusion opposed to that of petitioner. Such a finding is binding upon us.
That leaves the fourth assigned error, petitioner complaining that respondent
Public Service Commission denied to it the protection of the prior operator rule.
In support of the above alleged grievance, petitioner cited extensively from the
opinion in the 1928 decision of Batangas Transportation Co. v. Orlanes, 35
decided on December 19, 1928. In addition, reference was made to Mejica v.
Public Service Commission,36 where parenthetically, it may be observed
Justice Malcolm cautioned against this Court interfering in the exercise of the
power conferred on the Commission which "should not be hampered by
technical obstruction." Even then as already noted, the principle was for this
Court not substituting its judgment for that of this administrative agency "if
there be evidence before it supporting its order." The other case cited is Bohol
Land Transportation v. Jureidini.37
It is to be admitted that the Batangas Transportation Co. decision was rather
generous in its appraisal of the preferential right of the first operator and the
need "to protect and preserve investments" already made for that purpose.
However, desirable such an approach might have been 40 years ago in the
light of the then environmental circumstances, petitioner should be aware that
time and the changes brought by it have eroded the force of the above dictum.
It would be too far-fetched to assert now that in each and every case the prior
operator rule as thus understood automatically calls for application, the public
interest as determined by the Public Service Commission to the contrary
notwithstanding. Only recently, in Teresa Electric Power Co. v. Public Service
Commission, 38 Justice Dizon succinctly restated the doctrine thus: "While it
is true that operators of public convenience and service deserve some
protection from unnecessary or unlawful competition, yet the rule is that
nobody has any exclusive right to secure a franchise or a certificate of public
convenience. Above any or all considerations, the grant of franchises and
certificates of public convenience and service should be guided by public
service and interest; the latter are the primordial considerations to be taken
into account." clearly then, this last error assigned cannot be deemed
meritorious. The correctness of the decision under review has not been
successfully impugned.

WHEREFORE, the decision of the Public Service Commission of March 8,

1965, granting respondent Prospero Gabatin a certificate of public
convenience for the operation of six (6) auto-trucks on the line Caoayan (Ilocos
Sur)-Grace Park (Caloocan City) via Vigan subject to the conditions imposed
therein, is affirmed. With costs against petitioner Philippine Rabbit Bus Lines,
Inc.
 16. PILTEL v. NTC
[G.R. No. 138295. August 28, 2003]
PILIPINO TELEPHONE CORPORATION, petitioner, vs. NATIONAL
TELECOMMUNICATIONS COMMISSION and INTERNATIONAL
COMMUNICATIONS CORPORATION, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review on certiorari[1] seeks to reverse the Joint Decision[2]
of the Court of Appeals in CA-G.R. SP No. 47752[3] and CA-G.R. SP No.
47972[4] dated 15 April 1999 denying due course to the petition for certiorari[5]
filed by Pilipino Telephone Corporation (PILTEL) and dismissing the same.
The Facts
On 20 March 1995, the National Telecommunications Commission (NTC)
issued PILTEL a Provisional Authority (PA) to install, operate and maintain
telephone exchanges and public calling offices. The areas covered by
PILTELs PA included Sulu, Zamboanga del Norte, Zamboanga del Sur, Tawi-
Tawi, Misamis Occidental, Davao del Sur, South Cotabato, Saranggani and
Davao City.
On 21 June 1996, while PILTELs PA was still valid and subsisting, the
International Communications Corporation (ICC) applied with the NTC for a
PA to construct, operate and maintain local exchange services in some of the
areas covered by PILTELs PA. Among the areas included in ICCs application
were Misamis Occidental, Zamboanga del Sur, Davao del Sur, South Cotabato
and Saranggani.
On 11 November 1996, PILTEL filed its Opposition to ICCs PA application.
On 9 March 1998, the NTC issued an Order (NTC Order) granting ICC a PA
to establish local exchange services in areas that included Misamis
Occidental, Zamboanga del Sur, Davao del Sur, South Cotabato and
Saranggani.
PILTEL filed a petition for certiorari with prayer for the issuance of a temporary
restraining order or writ of preliminary injunction with the Court of Appeals on
5 June 1998 to nullify the NTC Order. On 28 July 1998, ICC filed its Comment
to PILTELs Petition, while PILTEL filed its Reply on 28 August 1998.
On 21 September 1998, PILTEL filed an Urgent Motion to Resolve its
application for the issuance of a temporary restraining order. PILTEL alleged,
among others, that it had yet to receive ICCs Comment despite the lapse of a
considerable time from the Court of Appeals Resolution requiring ICC to file its
Comment.
On 15 April 1999, the Court of Appeals issued a Joint Decision, the dispositive
portion of which reads:
WHEREFORE, for finding no grave abuse of discretion, tantamount to lack xxx
or excess of jurisdiction, on the part of the National Telecommunications
Commission in issuing its challenged Order dated March 9, 1998 in NTC Case
No. 96-194 which granted a provisional authority to International
Communications Corporation, the two (2) consolidated cases of CA-G.R. SP
No. 47752 and CA-G.R. SP No. 47972 are both hereby DENIED DUE
COURSE and accordingly DISMISSED.
Costs against the petitioners.
SO ORDERED.[6]
Hence, this petition.
The Ruling of the Court of Appeals
In its petition for certiorari, PILTEL claimed that the NTC acted with grave
abuse of discretion amounting to lack of jurisdiction in granting ICC a PA to
operate local exchange service in areas previously assigned to PILTEL.
PILTEL alleged that the NTC Order violates Department of Transportation and
Communications Circular No. 91-260, Executive Order No. 109 and NTC
Memorandum Circular No. 11-9-93. PILTEL also claimed that the NTC Order
is tantamount to an unwarranted taking of property without due process of law
and violates the equal protection clause of the Constitution. Lastly, PILTEL
alleged that the implementation of the NTC Order would foster ruinous
competition.
In denying due course to the petition for certiorari, the Court of Appeals gave
the following reasons:
First. Petitioner has not sufficiently shown us that other than this special civil
action under Rule 65, they have no plain, speedy, and adequate remedy in the
ordinary course of law against their perceived grievance. xxx
Second. Assuming arguendo that the propriety of the present recourse is not
infirm, it is settled, however, that before certiorari may be availed of, petitioner
must have filed a motion for reconsideration of the order or act complained of
to enable the tribunal, board or office concerned to pass upon and correct its
mistakes without the intervention of the higher courts. xxx
Third. Further assuming arguendo that certiorari [was] the proper remedy,
petitioner still failed to show that the order complained of was tainted with grave
abuse of discretion, so much so that after a careful deliberation of the
arguments and grounds in support thereof, it undoubtedly appears that the
disputed order was issued based on meritorious grounds.[7]
The Issues
In assailing the decision of the Court of Appeals, PILTEL contends that:
A. THE PETITIONER PROPERLY AVAILED OF THE REMEDY OF
CERTIORARI UNDER RULE 65 OF THE 1997 RULES OF CIVIL
PROCEDURE CONSIDERING THAT:
1. THERE IS NO APPEAL OR ANY PLAIN, SPEEDY AND ADEQUATE
REMEDY IN THE ORDINARY COURSE OF LAW AVAILABLE TO
PETITIONER.
2. THE ISSUES RAISED BY PETITIONER ARE PURELY OF LAW, HENCE,
THE FILING OF A MOTION FOR RECONSIDERATION OF THE
QUESTIONED ORDER IS NOT A CONDITION SINE QUA NON.
B. THE NATIONAL TELECOMMUNICATIONS COMMISSION ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION CONSIDERING THAT:
1. THE GRANT OF THE PROVISIONAL AUTHORITY TO ICC TO OPERATE
LOCAL EXCHANGE SERVICE IN AREAS PREVIOUSLY ASSIGNED TO
PILTEL UNDER ITS OWN PROVISIONAL AUTHORITY IS VIOLATIVE OF
NTC MEMORANDUM CIRCULAR NO. 11-9-93.
2. THE GRANT OF THE PROVISIONAL AUTHORITY TO ICC TO OPERATE
LOCAL EXCHANGE SERVICE IN AREAS PREVIOUSLY ASSIGNED TO
PILTEL IS TANTAMOUNT TO CONFISCATION OF PROPERTY WITHOUT
DUE PROCESS OF LAW.
3. THE GRANT OF THE PROVISIONAL AUTHORITY TO ICC TO OPERATE
LOCAL EXCHANGE SERVICE IN AREAS PREVIOUSLY ASSIGNED TO
PILTEL WOULD VIOLATE THE LATTERS RIGHTS AS A PRIOR OPERATOR
AND ITS RIGHT TO BE PROTECTED IN ITS INVESTMENT.[8]
The Courts Ruling
The petition lacks merit.
Whether PILTEL properly availed of
the remedy of certiorari
PILTEL insists that the NTC Order is not a proper subject of an appeal since it
is interlocutory which did not resolve ICCs pending application for a Certificate
of Public Convenience and Necessity. Even assuming that appeal is an
available remedy, PILTEL contends that it is not adequate to relieve promptly
PILTEL from the injurious effects[9] of the NTC Order which was immediately
executory under the NTC Rules of Practice and Procedure.[10] PILTEL also
insists that a motion for reconsideration is dispensable since the issues raised
in the NTC were the same issues presented in the Court of Appeals and these
are purely questions of law. Thus, PILTEL argues, a motion for reconsideration
before the NTC would have served no purpose.[11]
The settled rule is a motion for reconsideration is a prerequisite for the filing of
a petition for certiorari.[12] A petitioner must exhaust all other available
remedies before resorting to certiorari. An exception to this rule arises if the
petitioner raises purely legal issues. However, contrary to PILTELs view, the
issues raised in its petition for certiorari before the Court of Appeals were
mainly factual in nature. Since PILTEL disputes NTCs factual findings and
seeks a re-evaluation of the facts and evidence on record, the issues PILTEL
raised are not proper subjects for certiorari. Evidentiary matters or matters of
fact raised in the NTC are not proper grounds in the proceedings for certiorari
before the Court of Appeals.[13] The sole office of a writ of certiorari is the
correction of errors of jurisdiction and does not include a review of the NTCs
evaluation of the evidence and factual findings.[14]
Even if the NTC Order was immediately executory, it did not excuse PILTEL
from filing a motion for reconsideration. Contrary to PILTELs view, a motion for
reconsideration is the plain, speedy and adequate remedy to the adverse NTC
Order.[15] Had PILTEL filed a motion for reconsideration of the NTC Order,
the NTC would have had the opportunity to correct the alleged errors.[16] In
addition, PILTELs failure to file a motion for reconsideration rendered its
petition for certiorari dismissible because of failure to exhaust administrative
remedies.
In Republic v. Express Telecommunication Co., Inc.,[17] the Court ruled that
Extelcom failed to exhaust available administrative remedies when it filed with
the Court of Appeals a petition for certiorari and prohibition without a motion
for reconsideration, thus:
Clearly, Extelcom violated the rule on exhaustion of administrative remedies
when it went directly to the Court of Appeals on a petition for certiorari and
prohibition from the Order of the NTC dated May 3, 2000, without first filing a
motion for reconsideration. It is well-settled that the filing of a motion for
reconsideration is a prerequisite to the filing of a special civil action for
certiorari.
xxx
This case does not fall under any of the recognized exceptions to this rule.
Although the Order of the NTC dated May 3, 2000 granting provisional
authority to Bayantel was immediately executory, it did not preclude the filing
of a motion for reconsideration. Under the NTC Rules, a party adversely
affected by a decision, order, ruling or resolution may within fifteen (15) days
file a motion for reconsideration. That the Order of the NTC became
immediately executory does not mean that the remedy of filing a motion for
reconsideration is foreclosed to the petitioner. (Emphasis supplied)
In fine, the Court of Appeals correctly dismissed PILTELs petition for certiorari
for PILTELs failure to file a motion for reconsideration of the NTC Order.
Whether NTC committed grave abuse of discretion
In Benito v. Commission on Elections,[18] the Court defined grave abuse of
discretion as follows:
Grave abuse of discretion means such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction, or, in other words where the
power is exercised in an arbitrary or despotic manner by reason of passion or
personal hostility, and it must be so patent and gross as to amount to an
evasion of positive duty or to a virtual refusal to perform the duty enjoined or
to act at all in contemplation of law. It is not sufficient that a tribunal, in the
exercise of its power, abused its discretion, such abuse must be grave.
(Emphasis supplied)
Assuming that PILTELs petition for certiorari was proper, PILTEL nevertheless
miserably failed to show that the NTC gravely abused its discretion amounting
to lack or excess of jurisdiction in issuing the NTC Order. The NTC is the
regulatory agency of the national government with jurisdiction over all
telecommunications entities. [19] The law expressly vests in the NTC the
power and discretion to grant a provisional permit or authority.[20] In this case,
the NTC did not commit grave abuse of discretion when it issued the
questioned Order. The NTC Order explicitly provides for the basis of the
issuance of the PA, as follows:
The technical feasibility study submitted and offered in evidence by the
applicant contains technical designs which consist of two main components,
to wit:
(a) The rural network component consisting of a number of dispersed switching
centers throughout Regions 6, 7, 9, 10, 11 and 12 interconnected by a digital
microwave transmission system.
(b) The transit (Inter-exchange carrier) network consisting of transit switching
centers of Manila and Cebu for the interconnection of the ICC LEC Networks
with the network of other LEC operators, IGF operators (as well as ICC IGF),
CMTS operators and operators of PCO Networks.
Its network design is based on conservative projections and value based
engineering assumptions to ensure than an effective and efficient network is
provided.
The structure of ICCs LEC has two (2) layer hierarchical network: the transit
layer which provides the classic trunk (tool) switching and inter-carrier
interconnect functions; and the local exchange carrier.
Applicant will be using Northern Telecom DMS 100/200 and DMS 300 (Toll
Exchange) digital switching equipment for its LEC Network/Service in the
twenty-two (22) provinces in Visayas and Mindanao areas.
Applicants proposed LEC project in the Visayas and Mindanao areas will be
implemented within [a] three (3) year period with a total number of 250,000
lines as mentioned in the submitted Feasibility Study. The distribution of ICCs
committed lines for its proposed LEC project in the cities and municipalities of
the twenty-two (22) provinces in the Visayas and Mindanao areas are
enumerated in Annex B of the amended application.
xxx
As regards the capital costs for the present proposed project, applicants
financial documents show the following figures:
Year 1 P1.796 Billion
Year 2 1.434 Billion
Year 3 2.319 Billion The Commission has noted that the present application received favorable
endorsements/resolutions from twenty-three (23) Local Government Units
TOTAL P5.549 Billion (LGU) and non-Government Organizations (NGOs) in the Visayas and
Mindanao Regions manifesting support for the applicants proposed projects.
Applicants projected revenues and expenses (in thousand pesos) are as
follows: In determining the service areas to be assigned to herein applicant with a view
to rationalizing the distribution thereof to qualified applicants, the Commission
Year Net Income/Loss took into consideration the other pending applications for LEC services, the
existing number of authorized LEC applicants, the need to provide LEC service
1 (549,178.00) to all areas of the country the soonest time possible, as well as the fact that
2 (489,243.00) earlier on, this Commission had occasion to commend in another case herein
3 (425,208.00) applicant ICC for being the first to have completed, nay exceeded, its
4 6,796.00 compliance with its commitments under Executive Order 109 and NTC
5 276,434.00 Memorandum Circular No. 11-9-93.
6 456,457.00
7 649,782.00 WHEREFORE, it appearing that a prima facie evidence exists that applicant is
8 910,524.00 financially and technically capable of undertaking the proposed project, and in
9 1,226,510.00 order to fast-track the development of telecommunication services through the
10 1,563,005.00 provisioning of telephone services to all areas of the country, and to foster as
well healthy competition among authorized service providers, the Commission
Applicant submitted its amended Articles of Incorporation approved by the hereby grants applicant International Communications Corporation a
Securities and Exchange Commission on July 31, 1996 as shown by the Provisional Authority (P.A.), predicated upon its legislative franchise, R.A. No.
attached Certificate of Increase of Capital Stock wherein applicants Authorized 3259, as amended by R.A. No. 4905, and R.A. No. 7633, to install, operate
Capital Stock was increased from P1,500,000, xxx (illegible) Million shares and maintain local telephone exchanges in the following provinces, xxx[21]
with par value of P100 each. (Emphasis supplied)

Of the increase of P3,500,000,000.00 in the authorized capital stock, the
amount of P2,185,000,000.00 has been subscribed and fully paid by Bayan
Telecommunications Holdings Corporation.
Per 1996 Annual Report submitted by the applicant, the following figures
reflected their financial position:
Total assets = P11,369,996,565
Total liabilities = 6,779,971,249
Total stockholders equity = 4,590,025,316
with a debt-to-equity ratio of 60% to 40%.
Applicant has an outstanding balance for permit fee amounting to
P88,988,089.00 for the following xxx (illegible) previously authorized, to wit:
We will not disturb the factual findings of the NTC on the technical and financial
capability of the ICC to undertake the proposed project. We generally accord
great weight and even finality to factual findings of administrative bodies such
as the NTC, if substantial evidence supports the findings as in this case.[22]
The exception to this rule is when the administrative agency arbitrarily
disregarded evidence before it or misapprehended evidence to such an extent
as to compel a contrary conclusion had it properly appreciated the
evidence.[23] PILTEL gravely failed to show that this exception applies to the
instant case. Moreover, the exercise of administrative discretion, such as the
issuance of a PA, is a policy decision and a matter that the NTC can best
discharge, not the courts.[24]
PILTEL contends that the NTC violated Section 23 of NTC Memorandum
Circular No. 11-9-93, otherwise known as the Implementing Guidelines on the
Provisions of EO 109, which states:

xxx
Section 23. No other company or entity shall be authorized to provide local
exchange service in areas where the LECs comply with the relevant provisions
of NTC MC No. 10-17-90 and NTC MC No. 10-16-90 and that the local
exchange service area is not underserved. (Emphasis supplied)
Section 23 of EO 109 does not categorically state that the issuance of a PA is
exclusive to any telecommunications company. Neither Congress nor the NTC
can grant an exclusive franchise, certificate, of any other form of authorization
to operate a public utility. In Republic v. Express Telecommunications Co.,[25]
the Court held that the Constitution is quite emphatic that the operation of a
public utility shall not be exclusive.[26] Section 11, Article XII of the
Constitution provides:
Sec. 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at
least sixty per centum of whose capital is owned by such citizens, nor shall
such franchise, certificate or authorization be exclusive in character or for a
longer period than fifty years. Neither shall any such franchise or right be
granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so requires.
xxx[27] (Emphasis supplied)
Thus, in Radio Communications of the Philippines, Inc. v. National
Telecommunications Commission,[28] the Court ruled that the Constitution
mandates that a franchise cannot be exclusive in nature.
Even PILTELs franchise, Republic Act No. 6030 (RA 6030), expressly declares
that PILTELs right to provide telecommunications services is not exclusive.
Section 13 of RA 6030 states:
SECTION 13. The rights herein granted shall not be exclusive, and the right
and power to grant to any corporation, association or person other than the
grantee franchise for the telephone or electrical transmission of messages and
signals shall not be impaired or affected by the granting of this franchise: xxx.
(Emphasis supplied)
Moreover, Section 1 of RA 6030[29] expressly states that the grant of a
franchise to PITEL is [s]ubject to the conditions established xxx in the
Constitution. Consequently, PILTEL does not enjoy any exclusive right to
operate telecommunications services in the areas covered by its PA.
Among the declared national policies in Republic Act No. 7925, otherwise
known as the Public Telecommunications Policy Act of the Philippines, is the
healthy competition among telecommunications carriers, to wit:[30]
A healthy competitive environment shall be fostered, one in which
telecommunications carriers are free to make business decisions and to
interact with one another in providing telecommunications services, with the
end in view of encouraging their financial viability while maintaining affordable
rates.
Obviously, the need for a healthy competitive environment in
telecommunications is sufficient impetus for the NTC to consider all those
applicants, who are willing to offer competition, develop the market and provide
the environment necessary for greater public service.[31]
Furthermore, free competition in the industry may also provide the answer to
a much-desired improvement in the quality and delivery of this type of public
utility, to improved technology, fast and handy mobil[e] service, and reduced
user dissatisfaction.[32]
PILTELs contention that the NTC Order amounts to a confiscation of property
without due process of law is untenable. Confiscation means the seizure of
private property by the government without compensation to the owner.[33] A
franchise to operate a public utility is not an exclusive private property of the
franchisee. Under the Constitution, no franchisee can demand or acquire
exclusivity in the operation of a public utility. Thus, a franchisee of a public
utility cannot complain of seizure or taking of property because of the issuance
of another franchise to a competitor. Every franchise, certificate or authority to
operate a public utility is, by constitutional mandate, non-exclusive. PILTEL
cannot complain of a taking of an exclusive right that it does not own and which
no franchisee can ever own.
Likewise, PILTELs argument that the NTC Order violates PILTELs rights as a
prior operator has no merit. The Court resolved a similar question in Republic
v. Republic Telephone Company, Inc.[34] In striking down Retelcos claim that
it had a right to be protected in its investment as a franchise-holder and prior
operator of a telephone service in Malolos, Bulacan, the Court held:
RETELCOs foremost argument is that such operations and maintenance of
the telephone system and solicitation of subscribers by [petitioners] constituted
an unfair and ruinous competition to the detriment of [RETELCO which] is a
grantee of both municipal and legislative franchises for the purpose. In effect,
RETELCO pleads for protection from the courts on the assumption that its
franchises vested in it an exclusive right as prior operator. There is no clear
showing by RETELCO, however, that its franchises are of an exclusive
character. xxx At any rate, it may very well be pointed out as well that neither
did the franchise of PLDT at the time of the controversy confer exclusive rights
upon PLDT in the operation of a telephone system. In fact, we have made it a
matter of judicial notice that all legislative franchises for the operation of a
telephone system contain the following provision:

It is expressly provided that in the event the Philippine Government should

desire to maintain and operate for itself the system and enterprise herein
authorized, the grantee shall surrender his franchise and will turn over to the
Government said system and all serviceable equipment therein, at cost, less
reasonable depreciation.

In sum, the Court of Appeals correctly dismissed PILTELs petition for certiorari
not only because PILTEL failed to exhaust the available administrative
remedies but also because NTC acted within its jurisdiction in issuing the NTC
Order.

WHEREFORE, we DENY the petition. The Decision of the Court of Appeals

dated 15 April 1999 in CA-G.R. SP No. 47752 and CA-G.R. SP No. 47972 is
AFFIRMED. Costs against petitioner.

SO ORDERED.
 17. Lara v. Valencia
G.R. No. L-9907 June 30, 1958
LOURDES J. LARA, ET AL., plaintiffs-appellants,
vs.
BRIGIDO R. VALENCIA, defendant-appellant.
Castillo, Cervantes, Occea, Lozano, Montana, Cunanan, Sison and Castillo
and Eligio G. Lagman for defendant-appellant.
Donato C. Endriga and Emigdio Dakanay for plaintiffs-appellants.
BAUTISTA ANGELO, J.:
This is an action for damages brought by plaintiffs against defendant in the
Court of First Instance of Davao for the death of one Demetrio Lara, Sr.
allegedly caused by the negligent act of defendant. Defendant denied the
charge of negligence and set up certain affirmative defenses and a
counterclaim.
The court after hearing rendered judgment ordering defendant to pay the
plaintiffs the following amount: (a) P10,000 as moral damages; (b) P3,000 as
exemplary damages; and (c) P1,000 as attorney's fees, in addition to the costs
of action. Both parties appealed to this Court because the damages claimed
in the complaint exceed the sum of P50,000.
In their appeal, plaintiffs claim that the court a quo erred in disregarding their
claim of P41,400 as actual or compensatory damages and in awarding as
attorneys' fees only the sum of P1,000 instead of P3,000 as agreed upon
between plaintiffs and their counsel. Defendant, on the other hand, disputes
the finding of the court a quo that the oath of Demetrio Lara, Sr. was due to
the negligence of defendant and the portion of the judgment which orders
dependant to pay to plaintiffs moral and exemplary damages as well as
attorneys' fees, said defendant contending that the court should have declared
that the death of Lara was due to unavoidable accident.
The deceased was an inspector of the Bureau of Forestry stationed in Davao
with an annual salary of P1,800. The defendant is engaged in the business of
exporting logs from his lumber concession in Cotabato. Lara went to said
concession upon instructions of his chief to classify the logs of defendant which
were about to be loaded on a ship anchored in the port of Parang. The work
Lara of lasted for six days during which he contracted malaria fever. In the
morning of January 9, 1954, Lara who then in a hurry to return to Davao asked
defendant if he could take him in his pick-up as there was then no other means
of transportation, to which defendant agreed, and in that same morning the
pick-up left Parang bound for Davao taking along six passengers, including
Lara.
The pick-up has a front seat where the driver and two passengers can be
accommodated and the back has a steel flooring enclosed with a steel walling
of 16 to 17 inches tall on the sides and with a 19 inches tall walling at the back.
Before leaving Parang, the sitting arrangement was as follows: defendant was
at the wheel and seated with him in the front seat were Mrs. Valencia and
Nicanor Quinain; on the back of the pick-up were two improvised benches
placed on each side, and seated on the right bench were Ricardo Alojipan and
Antonio Lagahit, and on the left one Bernardo and Pastor Geronimo. A person
by the name of Leoning was seated on a box located on the left side while in
the middle Lara sat on a bag. Before leaving Parang, defendant invited Lara
to sit with him on the front seat but Lara declined. It was their understanding
that upon reaching barrio Samoay, Cotabato, the passengers were to alight
and take a bus bound for Davao, but when they arrived at that place, only
Bernardo alighted and the other passengers requested defendant to allow
them to ride with him up to Davao because there was then no available bus
that they could take in going to that place. Defendant again accommodated
the passengers.
When they continued their trip, the sitting arrangement of the passengers
remained the same, Lara being seated on a bag in the middle with his arms
on a suitcase and his head cove red by a jacket. Upon reaching Km. 96, barrio
Catidtuan, Lara accidentally fell from the pick-up and as a result he suffered
serious injuries. Valencia stopped the pick-up to see what happened to Lara.
He sought the help of the residents of that place and applied water to Lara but
to no avail. They brought Lara to the nearest place where they could find a
doctor and not having found any they took him to St. Joseph's Clinic of
Kidapawan. But when Lara arrived he was already dead. From there they
proceeded to Davao City and immediately notified the local authorities. An
investigation was made regarding the circumstances surrounding the death of
Lara but no criminal action was taken against defendant.
It should be noted that the deceased went to the lumber concession of
defendant in Parang, Cotabato upon instructions of his chief in order to classify
the logs of defendant which were then ready to be exported and to be loaded
on a ship anchored in the port of Parang. It took Lara six days to do his work
during which he contracted malaria fever and for that reason he evinced a
desire to return immediately to Davao. At that time, there was no available bus
that could take him back to Davao and so he requested the defendant if he
could take him in his own pick-up. Defendant agreed and, together with Lara,
other passengers tagged along, most of them were employees of the
Government. Defendant merely accommodated them and did not charge them
any fee for the service. It was also their understanding that upon reaching
barrio Samoay, the passengers would alight and transfer to a bus that regularly
makes the trip to Davao but unfortunately there was none available at the time
and so the same passengers, including Lara, again requested the defendant
to drive them to Davao. Defendant again accommodated them and upon
reaching Km. 96, Lara accidentally fell suffering fatal injuries.
It therefore appears that the deceased, as well his companions who rode in
the pick-up of defendant, were merely accommodation passengers who paid
nothing for the service and so they can be considered as invited guests within
the meaning of the law. As accommodation passengers or invited guests,
defendant as owner and driver of the pick-up owes to them merely the duty to
exercise reasonable care so that they may be transported safely to their
destination. Thus, "The rule is established by the weight of authority that the
owner or operator of an automobile owes the duty to an invited guest to
exercise reasonable care in its operation, and not unreasonably to expose him
to danger and injury by increasing the hazard of travel. This rule, as frequently
stated by the courts, is that an owner of an automobile owes a guest the duty
to exercise ordinary or reasonable care to avoid injuring him. Since one riding
in an automobile is no less a guest because he asked for the privilege of doing
so, the same obligation of care is imposed upon the driver as in the case of
one expressly invited to ride" (5 Am. Jur., 626-627). Defendant, therefore, is
only required to observe ordinary care, and is not in duty bound to exercise
extraordinary diligence as required of a common carrier by our law (Articles
1755 and 1756, new Civil Code).
The question that now arises is: Is there enough evidence to show that
defendant failed to observe ordinary care or diligence in transporting the
deceased from Parang to Davao on the date in question?
The trial court answered the question in the affirmative but in so doing it took
into account only the following facts:
No debe perderse de vista el hecho, que los negocios de exportacion de trozos
del demandado tiene un volumen de P1,200. Lara era empleado de la Oficina
de Montes, asalariado por el gobierno, no pagado por el demandado para
classificar los trozos exportados; debido a los trabajos de classificacion que
duro 6 dias, en su ultimo dia Lara no durmio toda la noche, al dia siguiente,
Lara fue atacado de malaria, tenia inflamada la cara y cuerpo, sufria dolores
de cabeza con erupciones en la cara y cuerpo; que en la manana, del dia 2
de enero de 1954, fecha en que Lara salio de Davao para Parang, en
aeroplano para clasificar los trozos del demandado, el automobil de este
condujo a aquel al aerodromo de Davao.
xxx xxx xxx
El viaje de Cotabato a Davao no es menos de 8 horas, su carretera esta en
malas condiciones, desnivelada, con piedras salientes y baches, que hacen
del vehiculo no estable en su marcha. Lara estaba enfermo de cierta
gravedad, tenia el cuerpo y cara inflamados, atacado de malaria, con dolores
de cabeza y con erupciones en la cara y cuerpo.
A la vista de estos hechos, el demandado debia de saber que era sumamente
peligroso llevar 5 pasajeros en la parte trasera del pick-up; particularmente,
para la salud de Lara; el permitirlo, el demandado no ha tomado las
precausiones, para evitar un posible accidente fatal. La negative de Lara de
ocupar el asiento delantero del pick-up no constituye a juicio del Juzgado una
defensa, pues el demendado conociendo el estado delicado de salud de Lara,
no debio de haber permitido que aquel regrese a Davao en su pick-up; si
querria prestar a aquel un favor, debio de haver provisto a Lara de un
automobil para su regrese a Davao, ya que el demendado es un millionario; si
no podia prestar a aquel este favor, debio de haver dejado a Lara en Samuay
para coger aquel un camion de pasajero de Cotabato a Davao.
Even if we admit as true the facts found by the trial court, still we find that the
same are not sufficient to show that defendant has failed to take the precaution
necessary to conduct his passengers safely to their place of destination for
there is nothing there to indicate that defendant has acted with negligence or
without taking the precaution that an ordinary prudent man would have taken
under similar circumstances. It should be noted that Lara went to the lumber
concession of defendant in answer to a call of duty which he was bound to
perform because of the requirement of his office and he contracted the malaria
fever in the course of the performance of that duty. It should also be noted that
defendant was not in duty bound to take the deceased in his own pick-up to
Davao because from Parang to Cotabato there was a line of transportation that
regularly makes trips for the public, and if defendant agreed to take the
deceased in his own car, it was only to accommodate him considering his
feverish condition and his request that he be so accommodated. It should also
be noted that the passengers who rode in the pick-up of defendant took their
respective seats therein at their own choice and not upon indication of
defendant with the particularity that defendant invited the deceased to sit with
him in the front seat but which invitation the deceased declined. The reason
for this can only be attributed to his desire to be at the back so that he could
sit on a bag and travel in a reclining position because such was more
convenient for him due to his feverish condition. All the circumstances
therefore clearly indicate that defendant had done what a reasonable prudent
man would have done under the circumstances.
There is every reason to believe that the unfortunate happening was only due
to an unforeseen accident accused by the fact that at the time the deceased
was half asleep and must have fallen from the pick-up when it ran into some
stones causing it to jerk considering that the road was then bumpy, rough and
full of stones.

The finding of the trial court that the pick-up was running at more than 40
kilometers per hour is not supported by the evidence. This is a mere surmise
made by the trial court considering the time the pick-up left barrio Samoay and
the time the accident occured in relation to the distance covered by the pick-
up. And even if this is correct, still we say that such speed is not unreasonable
considering that they were traveling on a national road and the traffic then was
not heavy. We may rather attribute the incident to lack of care on the part of
the deceased considering that the pick-up was open and he was then in a
crouching position. Indeed, the law provides that "A passenger must observe
the diligence of a good father of a family to avoid injury to himself" (Article
1761, new Civil Code), which means that if the injury to the passenger has
been proximately caused by his own negligence, the carrier cannot be held
liable.

All things considered, we are persuaded to conclude that the accident occurred
not due to the negligence of defendant but to circumstances beyond his control
and so he should be exempt from liability.

Wherefore, the decision appealed from is reversed, without pronouncement as

to costs.

Paras, C. J., Bengzon, Reyes, A., Concepcion, Reyes, J. B. L., Endencia and
Felix, JJ., concur.
 18. PCI Leasing v. UCPB
G.R. No. 162267 July 4, 2008
PCI LEASING AND FINANCE, INC., petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC., respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court, seeking a reversal of the Decision1 of the Court of Appeals
(CA) dated December 12, 2003 affirming with modification the Decision of the
Regional Trial Court (RTC) of Makati City which ordered petitioner and Renato
Gonzaga (Gonzaga) to pay, jointly and severally, respondent the amount of
P244,500.00 plus interest; and the CA Resolution2 dated February 18, 2004
denying petitioner's Motion for Reconsideration.
The facts, as found by the CA, are undisputed:
On October 19, 1990 at about 10:30 p.m., a Mitsubishi Lancer car with Plate
Number PHD-206 owned by United Coconut Planters Bank was traversing the
Laurel Highway, Barangay Balintawak, Lipa City. The car was insured with
plantiff-appellee [UCPB General Insurance Inc.], then driven by Flaviano Isaac
with Conrado Geronimo, the Asst. Manager of said bank, was hit and bumped
by an 18-wheeler Fuso Tanker Truck with Plate No. PJE-737 and Trailer Plate
No. NVM-133, owned by defendants-appellants PCI Leasing & Finance, Inc.
allegedly leased to and operated by defendant-appellant Superior Gas &
Equitable Co., Inc. (SUGECO) and driven by its employee, defendant
appellant Renato Gonzaga.
The impact caused heavy damage to the Mitsubishi Lancer car resulting in an
explosion of the rear part of the car. The driver and passenger suffered
physical injuries. However, the driver defendant-appellant Gonzaga continued
on its [sic] way to its [sic] destination and did not bother to bring his victims to
the hospital.
Plaintiff-appellee paid the assured UCPB the amount of P244,500.00
representing the insurance coverage of the damaged car.
As the 18-wheeler truck is registered under the name of PCI Leasing, repeated
demands were made by plaintiff-appellee for the payment of the aforesaid
amounts. However, no payment was made. Thus, plaintiff-appellee filed the
instant case on March 13, 1991.3
PCI Leasing and Finance, Inc., (petitioner) interposed the defense that it could
not be held liable for the collision, since the driver of the truck, Gonzaga, was
not its employee, but that of its co-defendant Superior Gas & Equitable Co.,
Inc. (SUGECO).4 In fact, it was SUGECO, and not petitioner, that was the
actual operator of the truck, pursuant to a Contract of Lease signed by
petitioner and SUGECO.5 Petitioner, however, admitted that it was the owner
of the truck in question.6
After trial, the RTC rendered its Decision dated April 15, 1999,7 the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
plaintiff UCPB General Insurance [respondent], ordering the defendants PCI
Leasing and Finance, Inc., [petitioner] and Renato Gonzaga, to pay jointly and
severally the former the following amounts: the principal amount of
P244,500.00 with 12% interest as of the filing of this complaint until the same
is paid; P50,000.00 as attorney's fees; and P20,000.00 as costs of suit.
SO ORDERED.8
Aggrieved by the decision of the trial court, petitioner appealed to the CA.
In its Decision dated December 12, 2003, the CA affirmed the RTC's decision,
with certain modifications, as follows:
WHEREFORE, the appealed decision dated April 15, 1999 is hereby
AFFIRMED with modification that the award of attorney's fees is hereby
deleted and the rate of interest shall be six percent (6%) per annum computed
from the time of the filing of the complaint in the trial court until the finality of
the judgment. If the adjudged principal and the interest remain unpaid
thereafter, the interest rate shall be twelve percent (12%) per annum computed
from the time the judgment becomes final and executory until it is fully satisfied.
SO ORDERED.9
Petitioner filed a Motion for Reconsideration which the CA denied in its
Resolution dated February 18, 2004.
Hence, herein Petition for Review.
The issues raised by petitioner are purely legal:

Whether petitioner, as registered owner of a motor vehicle that figured in a
quasi-delict may be held liable, jointly and severally, with the driver thereof, for
the damages caused to third parties.
Whether petitioner, as a financing company, is absolved from liability by the
enactment of Republic Act (R.A.) No. 8556, or the Financing Company Act of
1998.
Anent the first issue, the CA found petitioner liable for the damage caused by
the collision since under the Public Service Act, if the property covered by a
franchise is transferred or leased to another without obtaining the requisite
approval, the transfer is not binding on the Public Service Commission and, in
contemplation of law, the grantee continues to be responsible under the
franchise in relation to the operation of the vehicle, such as damage or injury
to third parties due to collisions.10
Petitioner claims that the CA's reliance on the Public Service Act is misplaced,
since the said law applies only to cases involving common carriers, or those
which have franchises to operate as public utilities. In contrast, the case before
this Court involves a private commercial vehicle for business use, which is not
offered for service to the general public.11
Petitioner's contention has partial merit, as indeed, the vehicles involved in the
case at bar are not common carriers, which makes the Public Service Act
inapplicable.
However, the registered owner of the vehicle driven by a negligent driver may
still be held liable under applicable jurisprudence involving laws on compulsory
motor vehicle registration and the liabilities of employers for quasi-delicts
under the Civil Code.
The principle of holding the registered owner of a vehicle liable for quasi-delicts
resulting from its use is well-established in jurisprudence. Erezo v. Jepte,12
with Justice Labrador as ponente, wisely explained the reason behind this
principle, thus:
Registration is required not to make said registration the operative act by which
ownership in vehicles is transferred, as in land registration cases, because the
administrative proceeding of registration does not bear any essential relation
to the contract of sale between the parties (Chinchilla vs. Rafael and
Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle
upon any public highway (section 5 [a], Act No. 3992, as amended.) The main
aim of motor vehicle registration is to identify the owner so that if any accident
happens, or that any damage or injury is caused by the vehicle on the public
highways, responsibility therefor can be fixed on a definite individual, the
registered owner. Instances are numerous where vehicles running on public
highways caused accidents or injuries to pedestrians or other vehicles without
positive identification of the owner or drivers, or with very scant means of
identification. It is to forestall these circumstances, so inconvenient or
prejudicial to the public, that the motor vehicle registration is primarily
ordained, in the interest of the determination of persons responsible for
damages or injuries caused on public highways.
"'One of the principal purposes of motor vehicles legislation is identification of
the vehicle and of the operator, in case of accident; and another is that the
knowledge that means of detection are always available may act as a deterrent
from lax observance of the law and of the rules of conservative and safe
operation. Whatever purpose there may be in these statutes, it is subordinate
at the last to the primary purpose of rendering it certain that the violator of the
law or of the rules of safety shall not escape because of lack of means to
discover him.' The purpose of the statute is thwarted, and the displayed
number becomes a 'snare and delusion,' if courts would entertain such
defenses as that put forward by appellee in this case. No responsible person
or corporation could be held liable for the most outrageous acts of negligence,
if they should be allowed to place a 'middleman' between them and the public,
and escape liability by the manner in which they recompense their servants."
(King vs. Brenham Automobile Co., 145 S.W. 278, 279.)
With the above policy in mind, the question that defendant-appellant poses is:
should not the registered owner be allowed at the trial to prove who the actual
and real owner is, and in accordance with such proof escape or evade
responsibility and lay the same on the person actually owning the vehicle? We
hold with the trial court that the law does not allow him to do so; the law, with
its aim and policy in mind, does not relieve him directly of the responsibility that
the law fixes and places upon him as an incident or consequence of
registration. Were a registered owner allowed to evade responsibility by
proving who the supposed transferee or owner is, it would be easy for him, by
collusion with others or otherwise, to escape said responsibility and transfer
the same to an indefinite person, or to one who possesses no property with
which to respond financially for the damage or injury done. A victim of
recklessness on the public highways is usually without means to discover or
identify the person actually causing the injury or damage. He has no means
other than by a recourse to the registration in the Motor Vehicles Office to
determine who is the owner. The protection that the law aims to extend to him
would become illusory were the registered owner given the opportunity to
escape liability by disproving his ownership. If the policy of the law is to be
enforced and carried out, the registered owner should not be allowed to prove
the contrary to the prejudice of the person injured, that is, to prove that a third
person or another has become the owner, so that he may thereby be relieved
of the responsibility to the injured person.
The above policy and application of the law may appear quite harsh and would
seem to conflict with truth and justice. We do not think it is so. A registered
owner who has already sold or transferred a vehicle has the recourse to a
third-party complaint, in the same action brought against him to recover for the
damage or injury done, against the vendee or transferee of the vehicle. The
inconvenience of the suit is no justification for relieving him of liability; said
inconvenience is the price he pays for failure to comply with the registration
that the law demands and requires.
In synthesis, we hold that the registered owner, the defendant-appellant
herein, is primarily responsible for the damage caused to the vehicle of the
plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by
the real or actual owner of the amount that he may be required to pay as
damage for the injury caused to the plaintiff-appellant.13
The case is still good law and has been consistently cited in subsequent
cases.14 Thus, there is no good reason to depart from its tenets.
For damage or injuries arising out of negligence in the operation of a motor
vehicle, the registered owner may be held civilly liable with the negligent driver
either 1) subsidiarily, if the aggrieved party seeks relief based on a delict or
crime under Articles 100 and 103 of the Revised Penal Code; or 2) solidarily,
if the complainant seeks relief based on a quasi-delict under Articles 2176 and
2180 of the Civil Code. It is the option of the plaintiff whether to waive
completely the filing of the civil action, or institute it with the criminal action, or
file it separately or independently of a criminal action;15 his only limitation is
that he cannot recover damages twice for the same act or omission of the
defendant.16
In case a separate civil action is filed, the long-standing principle is that the
registered owner of a motor vehicle is primarily and directly responsible for the
consequences of its operation, including the negligence of the driver, with
respect to the public and all third persons.17 In contemplation of law, the
registered owner of a motor vehicle is the employer of its driver, with the actual
operator and employer, such as a lessee, being considered as merely the
owner's agent.18 This being the case, even if a sale has been executed before
a tortious incident, the sale, if unregistered, has no effect as to the right of the
public and third persons to recover from the registered owner.19 The public
has the right to conclusively presume that the registered owner is the real
owner, and may sue accordingly.20
In the case now before the Court, there is not even a sale of the vehicle
involved, but a mere lease, which remained unregistered up to the time of the
occurrence of the quasi-delict that gave rise to the case. Since a lease, unlike
a sale, does not even involve a transfer of title or ownership, but the mere use
or enjoyment of property, there is more reason, therefore, in this instance to
uphold the policy behind the law, which is to protect the unwitting public and
provide it with a definite person to make accountable for losses or injuries
suffered in vehicular accidents.21 This is and has always been the rationale
behind compulsory motor vehicle registration under the Land Transportation
and Traffic Code and similar laws, which, as early as Erezo, has been guiding
the courts in their disposition of cases involving motor vehicular incidents. It is
also important to emphasize that such principles apply to all vehicles in
general, not just those offered for public service or utility.22
The Court recognizes that the business of financing companies has a
legitimate and commendable purpose.23 In earlier cases, it considered a
financial lease or financing lease a legal contract,24 though subject to the
restrictions of the so-called Recto Law or Articles 1484 and 1485 of the Civil
Code.25 In previous cases, the Court adopted the statutory definition of a
financial lease or financing lease, as:
[A] mode of extending credit through a non-cancelable lease contract under
which the lessor purchases or acquires, at the instance of the lessee,
machinery, equipment, motor vehicles, appliances, business and office
machines, and other movable or immovable property in consideration of the
periodic payment by the lessee of a fixed amount of money sufficient to
amortize at least seventy (70%) of the purchase price or acquisition cost,
including any incidental expenses and a margin of profit over an obligatory
period of not less than two (2) years during which the lessee has the right to
hold and use the leased property, x x x but with no obligation or option on his
part to purchase the leased property from the owner-lessor at the end of the
lease contract. 26
Petitioner presented a lengthy discussion of the purported trend in other
jurisdictions, which apparently tends to favor absolving financing companies
from liability for the consequences of quasi-delictual acts or omissions
involving financially leased property.27 The petition adds that these
developments have been legislated in our jurisdiction in Republic Act (R.A.)
No. 8556,28 which provides:
Section 12. Liability of lessors. - Financing companies shall not be liable for
loss, damage or injury caused by a motor vehicle, aircraft, vessel, equipment,
machinery or other property leased to a third person or entity except when the
motor vehicle, aircraft, vessel, equipment or other property is operated by the
financing company, its employees or agents at the time of the loss, damage or
injury.1avvphi1
Petitioner's argument that the enactment of R.A. No. 8556, especially its
addition of the new Sec. 12 to the old law, is deemed to have absolved
petitioner from liability, fails to convince the Court.
These developments, indeed, point to a seeming emancipation of financing
companies from the obligation to compensate claimants for losses suffered
from the operation of vehicles covered by their lease. Such, however, are not
applicable to petitioner and do not exonerate it from liability in the present case.
The new law, R.A. No. 8556, notwithstanding developments in foreign
jurisdictions, do not supersede or repeal the law on compulsory motor vehicle
registration. No part of the law expressly repeals Section 5(a) and (e) of R.A.
No. 4136, as amended, otherwise known as the Land Transportation and
Traffic Code, to wit:
Sec. 5. Compulsory registration of motor vehicles. - (a) All motor vehicles and
trailer of any type used or operated on or upon any highway of the Philippines
must be registered with the Bureau of Land Transportation (now the Land
Transportation Office, per Executive Order No. 125, January 30, 1987, and
Executive Order No. 125-A, April 13, 1987) for the current year in accordance
with the provisions of this Act.
xxxx
(e) Encumbrances of motor vehicles. - Mortgages, attachments, and other
encumbrances of motor vehicles, in order to be valid against third parties must
be recorded in the Bureau (now the Land Transportation Office). Voluntary
transactions or voluntary encumbrances shall likewise be properly recorded
on the face of all outstanding copies of the certificates of registration of the
vehicle concerned.
Cancellation or foreclosure of such mortgages, attachments, and other
encumbrances shall likewise be recorded, and in the absence of such
cancellation, no certificate of registration shall be issued without the
corresponding notation of mortgage, attachment and/or other encumbrances.
x x x x (Emphasis supplied)
Neither is there an implied repeal of R.A. No. 4136. As a rule, repeal by
implication is frowned upon, unless there is clear showing that the later statute
is so irreconcilably inconsistent and repugnant to the existing law that they
cannot be reconciled and made to stand together.29 There is nothing in R.A.
No. 4136 that is inconsistent and incapable of reconciliation.
Thus, the rule remains the same: a sale, lease, or financial lease, for that
matter, that is not registered with the Land Transportation Office, still does not
bind third persons who are aggrieved in tortious incidents, for the latter need
only to rely on the public registration of a motor vehicle as conclusive evidence
of ownership.30 A lease such as the one involved in the instant case is an
encumbrance in contemplation of law, which needs to be registered in order
for it to bind third parties.31 Under this policy, the evil sought to be avoided is
the exacerbation of the suffering of victims of tragic vehicular accidents in not
being able to identify a guilty party. A contrary ruling will not serve the ends of
justice. The failure to register a lease, sale, transfer or encumbrance, should
not benefit the parties responsible, to the prejudice of innocent victims.
The non-registration of the lease contract between petitioner and its lessee
precludes the former from enjoying the benefits under Section 12 of R.A. No.
8556.
This ruling may appear too severe and unpalatable to leasing and financing
companies, but the Court believes that petitioner and other companies so
situated are not entirely left without recourse. They may resort to third-party
complaints against their lessees or whoever are the actual operators of their
vehicles. In the case at bar, there is, in fact, a provision in the lease contract
between petitioner and SUGECO to the effect that the latter shall indemnify
and hold the former free and harmless from any "liabilities, damages, suits,
claims or judgments" arising from the latter's use of the motor vehicle.32
Whether petitioner would act against SUGECO based on this provision is its
own option.
The burden of registration of the lease contract is minuscule compared to the
chaos that may result if registered owners or operators of vehicles are freed
from such responsibility. Petitioner pays the price for its failure to obey the law
on compulsory registration of motor vehicles for registration is a pre-requisite
for any person to even enjoy the privilege of putting a vehicle on public roads.
WHEREFORE, the petition is DENIED. The Decision dated December 12,
2003 and Resolution dated February 18, 2004 of the Court of Appeals are
AFFIRMED.
Costs against petitioner.
SO ORDERED.