Constitutional limitations on operation of public utilities

PANGASINAN TRANSPORTATION CO., INC., petitioner,

vs.
THE PUBLIC SERVICE COMMISSION, respondent.

C. de G. Alvear for petitioner.

Evaristo R. Sandoval for respondent.

LAUREL, J.:

The petitioner has been engaged for the past twenty years in the business of transporting passengers in
the Province of Pangasinan and Tarlac and, to a certain extent, in the Province of Nueva Ecija and
Zambales, by means of motor vehicles commonly known as TPU buses, in accordance with the terms
and conditions of the certificates of public convenience issued in its favor by the former Public Utility
Commission in cases Nos. 24948, 30973, 36830, 32014 and 53090. On August 26, 1939, the petitioner
filed with the Public Service Commission an application for authorization to operate ten additional new
Brockway trucks (case No. 56641), on the ground that they were needed to comply with the terms and
conditions of its existing certificates and as a result of the application of the Eight Hour Labor Law. In the
decision of September 26, 1939, granting the petitioner's application for increase of equipment, the Public
Service Commission ordered:

Y de acuerdo con que se provee por el articulo 15 de la ley No. 146 del Commonwealth, tal como
ha sido enmendada por el articulo 1 de la Ley No. 454, por la presente se enmienda las
condiciones de los certificados de convenciencia publica expedidos en los expedientes Nos.
24948, 30973, 36831, 32014 y la authorizacion el el expediente No. 53090, asi que se
consideran incorporadas en los mismos las dos siguientes condiciones:

Que los certificados de conveniencia publica y authorizacion arriba mencionados seran validos y
subsistentes solamente durante de veinticinco (25) anos, contados desde la fecha de la
promulgacion de esta decision.

Que la empresa de la solicitante porda ser adquirida por el Commonwealth de Filipinas o por
alguna dependencia del mismo en cualquier tiempo que lo deseare previo pago del precio d
costo de su equipo util, menos una depreciacion razonable que se ha fijar por la Comision al
tiempo de su adquisicion.

Not being agreeable to the two new conditions thus incorporated in its existing certificates, the petitioner
filed on October 9, 1939 a motion for reconsideration which was denied by the Public Service
Commission on November 14, 1939. Whereupon, on November 20, 1939, the present petition for a writ of
certiorari was instituted in this court praying that an order be issued directing the secretary of the Public
Service Commission to certify forthwith to this court the records of all proceedings in case No. 56641; that
this court, after hearing, render a decision declaring section 1 of Commonwealth Act No. 454
unconstitutional and void; that, if this court should be of the opinion that section 1 of Commonwealth Act
No. 454 is constitutional, a decision be rendered declaring that the provisions thereof are not applicable to
valid and subsisting certificates issued prior to June 8, 1939. Stated in the language of the petitioner, it is
contended:

1. That the legislative powers granted to the Public Service Commission by section 1 of
Commonwealth Act No. 454, without limitation, guide or rule except the unfettered discretion and
judgment of the Commission, constitute a complete and total abdication by the Legislature of its
functions in the premises, and for that reason, the Act, in so far as those powers are concerned,
is unconstitutional and void.
 2. That even if it be assumed that section 1 of Commonwealth Act No. 454, is valid delegation of
legislative powers, the Public Service Commission has exceeded its authority because: (a) The
Act applies only to future certificates and not to valid and subsisting certificates issued prior to
June 8, 1939, when said Act took effect, and (b) the Act, as applied by the Commission, violates
constitutional guarantees.

Section 15 of Commonwealth Act No. 146, as amended by section 1 of Commonwealth Act No. 454,
invoked by the respondent Public Service Commission in the decision complained of in the present
proceedings, reads as follows:

With the exception to those enumerated in the preceding section, no public service shall operate
in the Philippines without possessing a valid and subsisting certificate from the Public Service
Commission, known as "certificate of public convenience," or "certificate of convenience and
public necessity," as the case may be, to the effect that the operation of said service and the
authorization to do business will promote the public interests in a proper and suitable manner.

The Commission may prescribed as a condition for the issuance of the certificate provided in the
preceding paragraph that the service can be acquired by the Commonwealth of the Philippines or
by any instrumentality thereof upon payment of the cost price of its useful equipment, less
reasonable depreciation; and likewise, that the certificate shall valid only for a definite period of
time; and that the violation of any of these conditions shall produce the immediate cancellation of
the certificate without the necessity of any express action on the part of the Commission.

In estimating the depreciation, the effect of the use of the equipment, its actual condition, the age
of the model, or other circumstances affecting its value in the market shall be taken into
consideration.

The foregoing is likewise applicable to any extension or amendment of certificates actually force
and to those which may hereafter be issued, to permits to modify itineraries and time schedules
of public services and to authorization to renew and increase equipment and properties.

Under the first paragraph of the aforequoted section 15 of Act No. 146, as amended, no public service
can operate without a certificate of public convenience or certificate of convenience and public necessity
to the effect that the operation of said service and the authorization to do business will "public interests in
a proper and suitable manner." Under the second paragraph, one of the conditions which the Public
Service Commission may prescribed the issuance of the certificate provided for in the first paragraph is
that "the service can be acquired by the Commonwealth of the Philippines or by any instrumental thereof
upon payment of the cost price of its useful equipment, less reasonable depreciation," a condition which
is virtually a restatement of the principle already embodied in the Constitution, section 6 of Article XII,
which provides that "the State may, in the interest of national welfare and defense, establish and operate
industries and means of transportation and communication, and, upon payment of just compensation,
transfer to public ownership utilities and other private enterprises to be operated by the Government.
"Another condition which the Commission may prescribed, and which is assailed by the petitioner, is that
the certificate "shall be valid only for a definite period of time." As there is a relation between the first and
second paragraphs of said section 15, the two provisions must be read and interpreted together. That is
to say, in issuing a certificate, the Commission must necessarily be satisfied that the operation of the
service under said certificate during a definite period fixed therein "will promote the public interests in a
proper and suitable manner." Under section 16 (a) of Commonwealth Act. No. 146 which is a complement
of section 15, the Commission is empowered to issue certificates of public convenience whenever it "finds
that the operation of the public service proposed and the authorization to do business will promote the
public interests in a proper and suitable manner." Inasmuch as the period to be fixed by the Commission
under section 15 is inseparable from the certificate itself, said period cannot be disregarded by the
Commission in determining the question whether the issuance of the certificate will promote the public
interests in a proper and suitable manner. Conversely, in determining "a definite period of time," the
Commission will be guided by "public interests," the only limitation to its power being that said period shall
not exceed fifty years (sec. 16 (a), Commonwealth Act No. 146; Constitution, Art. XIII, sec. 8.) We have
already ruled that "public interest" furnishes a sufficient standard. (People vs. Fernandez and Trinidad, G.
R. No. 45655, promulgated June 15, 1938; People vs. Rosenthal and Osmeña, G. R. Nos. 46076 and
46077, promulgated June 12, 1939, citing New York Central Securities Corporation vs. U.S.A., 287 U.S.
12, 24, 25, 77 Law. ed. 138, 145, 146; Schenchter Poultry Corporation vs. I.S., 295, 540, 79 Law. ed.
1570, 1585; Ferrazzini vs. Gsell, 34 Phil., 697, 711-712.)

Section 8 of Article XIII of the Constitution provides, among other things, that no franchise, certificate, or
any other form of authorization for the operation of a public utility shall be "for a longer period than fifty
years," and when it was ordained, in section 15 of Commonwealth Act No. 146, as amended by
Commonwealth Act No. 454, that the Public Service Commission may prescribed as a condition for the
issuance of a certificate that it "shall be valid only for a definite period of time" and, in section 16 (a) that
"no such certificates shall be issued for a period of more than fifty years," the National Assembly meant to
give effect to the aforesaid constitutional mandate. More than this, it has thereby also declared its will that
the period to be fixed by the Public Service Commission shall not be longer than fifty years. All that has
been delegated to the Commission, therefore, is the administrative function, involving the use discretion,
to carry out the will of the National Assembly having in view, in addition, the promotion of "public interests
in a proper and suitable manner." The fact that the National Assembly may itself exercise the function and
authority thus conferred upon the Public Service Commission does not make the provision in question
constitutionally objectionable.

The theory of the separation of powers is designed by its originators to secure action and at the same
time to forestall overaction which necessarily results from undue concentration of powers, and thereby
obtain efficiency and prevent deposition. Thereby, the "rule of law" was established which narrows the
range of governmental action and makes it subject to control by certain devices. As a corollary, we find
the rule prohibiting delegation of legislative authority, and from the earliest time American legal authorities
have proceeded on the theory that legislative power must be exercised by the legislature alone. It is
frankness, however, to confess that as one delves into the mass of judicial pronouncement, he finds a
great deal of confusion. One thing, however, is apparent in the development of the principle of separation
of powers and that is that the maxim of delegatus non potest delegari or delegata potestas non potest
delegari, attributed to Bracton (De Legius et Consuetedinious Angliae, edited by G. E. Woodbine, Yale
University Press, 1922, vol. 2, p. 167) but which is also recognized in principle in the Roman Law (D.
17.18.3), has been made to adapt itself to the complexities of modern governments, giving rise to the
adoption, within certain limits, of the principle of "subordinate legislation," not only in the United States
and England but in practically all modern governments. (People vs. Rosenthal and Osmeña, G. R. Nos.
46076 and 46077, promulgated June 12, 1939.) Accordingly, 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 toward the delegation of greater powers by the
legislature, and toward the approval of the practice by the court. (Dillon Catfish Drainage Dist, v. Bank of
Dillon, 141 S. E. 274, 275, 143 S. Ct. 178; State vs. Knox County, 54 S. W. 2d. 973, 976, 165 Tenn. 319.)
In harmony with such growing tendency, this Court, since the decision in the case of Compañia General
de Tabacos de Filipinas vs. Board of Public Utility Commissioner (34 Phil., 136), relied upon by the
petitioner, has, in instances, extended its seal of approval to the "delegation of greater powers by the
legislature." (Inchausti Steamship Co. vs. Public Utility Commissioner, 44 Phil., Autobus Co. vs. De
Jesus, 56 Phil., 446; People vs. Fernandez & Trinidad, G. R. No. 45655, promulgated June 15, 1938;
People vs. Rosenthal & Osmeña, G. R. Nos. 46076, 46077, promulgated June 12, 1939; and Robb and
Hilscher vs. People, G. R. No. 45866, promulgated June 12, 1939.).

Under the fourth paragraph of section 15 of Commonwealth Act No. 146, as amended by Commonwealth
Act No. 454, the power of the Public Service Commission to prescribed the conditions "that the service
can be acquired by the Commonwealth of the Philippines or by any instrumentality thereof upon payment
of the cost price of its useful equipment, less reasonable," and "that the certificate shall be valid only for a
definite period of time" is expressly made applicable "to any extension or amendment of certificates
actually in force" and "to authorizations to renew and increase equipment and properties." We have
examined the legislative proceedings on the subject and have found that these conditions were purposely
made applicable to existing certificates of public convenience. The history of Commonwealth Act No. 454
reveals that there was an attempt to suppress, by way of amendment, the sentence "and likewise, that
the certificate shall be valid only for a definite period of time," but the attempt failed:

xxx xxx xxx

Sr. CUENCO. Señor Presidente, para otra enmienda. En la misma pagina, lineas 23 y 24, pido
que se supriman las palabras 'and likewise, that the certificate shall be valid only for a definite
period time.' Esta disposicion del proyecto autoriza a la Comision de Servicios Publicos a fijar un
plazo de vigencia certificado de conveniencia publica. Todo el mundo sabe que bo se puede
determinar cuando los intereses del servicio publico requiren la explotacion de un servicio publico
y ha de saber la Comision de Servisios, si en un tiempo determinado, la explotacion de algunos
buses en cierta ruta ya no tiene de ser, sobre todo, si tiene en cuenta; que la explotacion de los
servicios publicos depende de condiciones flutuantes, asi como del volumen como trafico y de
otras condiciones. Ademas, el servicio publico se concede por la Comision de Servicios Publicos
el interes publico asi lo exige. El interes publico no tiene duracion fija, no es permanente; es un
proceso mas o menos indefinido en cuanto al tiempo. Se ha acordado eso en el caucus de
anoche.

EL PRESIDENTE PRO TEMPORE. ¿Que dice el Comite?

Sr. ALANO. El Comite siente tener que rechazar esa enmienda, en vista de que esto certificados
de conveniencia publica es igual que la franquicia: sepuede extender. Si los servicios
presentados por la compañia durante el tiempo de su certificado lo require, puede pedir la
extension y se le extendera; pero no creo conveniente el que nosotros demos un certificado de
conveniencia publica de una manera que podria pasar de cincuenta anos, porque seria
anticonstitucional.

xxx xxx xxx

By a majority vote the proposed amendment was defeated. (Sesion de 17 de mayo de 1939, Asamblea
Nacional.)

The petitioner is mistaken in the suggestion that, simply because its existing certificates had been granted
before June 8, 1939, the date when Commonwealth Act No. 454, amendatory of section 15 of
Commonwealth Act No. 146, was approved, it must be deemed to have the right of holding them in
perpetuity. Section 74 of the Philippine Bill provided that "no franchise, privilege, or concession shall be
granted to any corporation except under the conditions that it shall be subject to amendment, alteration,
or repeal by the Congress of the United States." The Jones Law, incorporating a similar mandate,
provided, in section 28, that "no franchise or right shall be granted to any individual, firm, or corporation
except under the conditions that it shall be subject to amendment, alteration, or repeal by the Congress of
the United States." Lastly, the Constitution of the Philippines provided, in section 8 of Article XIII, that "no
franchise or right shall be granted to any individual, firm, or corporation, except under the condition that it
shall be subject to amendment, alteration, or repeal by the National Assembly when the public interest so
requires." The National Assembly, by virtue of the Constitution, logically succeeded to the Congress of
the United States in the power to amend, alter or repeal any franchise or right granted prior to or after the
approval of the Constitution; and when Commonwealth Acts Nos. 146 and 454 were enacted, the
National Assembly, to the extent therein provided, has declared its will and purpose to amend or alter
existing certificates of public convenience.

Upon the other hand, statutes enacted for the regulation of public utilities, being a proper exercise by the
state of its police power, are applicable not only to those public utilities coming into existence after its
passage, but likewise to those already established and in operation.
 Nor is there any merit in petitioner's contention, that, because of the establishment of petitioner's
operations prior to May 1, 1917, they are not subject to the regulations of the Commission.
Statutes for the regulation of public utilities are a proper exercise by the state of its police power.
As soon as the power is exercised, all phases of operation of established utilities, become at
once subject to the police power thus called into operation. Procedures' Transportation Co. v.
Railroad Commission, 251 U. S. 228, 40 Sup. Ct. 131, 64 Law. ed. 239, Law v. Railroad
Commission, 184 Cal. 737, 195 Pac. 423, 14 A. L. R. 249. The statute is applicable not only to
those public utilities coming into existence after its passage, but likewise to those already
established and in operation. The 'Auto Stage and Truck Transportation Act' (Stats. 1917, c. 213)
is a statute passed in pursuance of the police power. The only distinction recognized in the
statute between those established before and those established after the passage of the act is in
the method of the creation of their operative rights. A certificate of public convenience and
necessity it required for any new operation, but no such certificate is required of any
transportation company for the operation which was actually carried on in good faith on May 1,
1917, This distinction in the creation of their operative rights in no way affects the power of the
Commission to supervise and regulate them. Obviously the power of the Commission to hear and
dispose of complaints is as effective against companies securing their operative rights prior to
May 1, 1917, as against those subsequently securing such right under a certificate of public
convenience and necessity. (Motor Transit Co. et al. v. Railroad Commission of California et al.,
209 Pac. 586.)

Moreover, Commonwealth Acts Nos. 146 and 454 are not only the organic acts of the Public Service
Commission but are "a part of the charter of every utility company operating or seeking to operate a
franchise" in the Philippines. (Streator Aqueduct Co. v. et al., 295 Fed. 385.) The business of a common
carrier holds such a peculiar relation to the public interest that there is superinduced upon it the right of
public regulation. When private property is "affected with a public interest it ceased to be juris privati only."
When, therefore, one devotes his property to a use in which the public has an interest, he, in effect,
grants to the public an interest in that use, and must submit to be controlled by the public for the common
good, to the extent of the interest he has thus created. He may withdraw his grant by discounting the use,
but so long as he maintains the use he must submit to control. Indeed, this right of regulation is so far
beyond question that it is well settled that the power of the state to exercise legislative control over public
utilities may be exercised through boards of commissioners. (Fisher vs. Yangco Steamship Company, 31
Phil., 1, citing Munn vs. Illinois, 94 U.S. 113; Georgia R. & Bkg. Co. vs. Smith, 128 U.S. 174; Budd vs.
New York, 143 U.S. 517; New York etc. R. Co. vs. Bristol 151 U.S. 556, 571; Connecticut etc. R. Co. vs.
Woodruff, 153 U.S. 689; Louisville etc. Ry Co. vs. Kentucky, 161 U.S. 677, 695.) This right of the state to
regulate public utilities is founded upon the police power, and statutes for the control and regulation of
utilities are a legitimate exercise thereof, for the protection of the public as well as of the utilities
themselves. Such statutes are, therefore, not unconstitutional, either impairing the obligation of contracts,
taking property without due process, or denying the equal protection of the laws, especially inasmuch as
the question whether or not private property shall be devoted to a public and the consequent burdens
assumed is ordinarily for the owner to decide; and if he voluntarily places his property in public service he
cannot complain that it becomes subject to the regulatory powers of the state. (51 C. J., sec. 21, pp. 9-
10.) in the light of authorities which hold that a certificate of public convenience constitutes neither a
franchise nor contract, confers no property right, and is mere license or privilege. (Burgess vs. Mayor &
Alderman of Brockton, 235 Mass. 95, 100, 126 N. E. 456; Roberto vs. Commisioners of Department of
Public Utilities, 262 Mass. 583, 160 N. E. 321; Scheible vs. Hogan, 113 Ohio St. 83, 148 N. E. 581; Martz
vs. Curtis [J. L.] Cartage Co. [1937], 132 Ohio St. 271, 7 N. E. [d] 220; Manila Yellow Taxicab Co. vs.
Sabellano, 59 Phil., 773.)

Whilst the challenged provisions of Commonwealth Act No. 454 are valid and constitutional, we are,
however, of the opinion that the decision of the Public Service Commission should be reversed and the
case remanded thereto for further proceedings for the reason now to be stated. The Public Service
Commission has power, upon proper notice and hearing, "to amend, modify or revoke at any time any
certificate issued under the provisions of this Act, whenever the facts and circumstances on the strength
of which said certificate was issued have been misrepresented or materially changed." (Section 16, par.
[m], Commonwealth Act No. 146.) The petitioner's application here was for an increase of its equipment
to enable it to comply with the conditions of its certificates of public convenience. On the matter of
limitation to twenty five (25) years of the life of its certificates of public convenience, there had been
neither notice nor opportunity given the petitioner to be heard or present evidence. The Commission
appears to have taken advantage of the petitioner to augment petitioner's equipment in imposing the
limitation of twenty-five (25) years which might as well be twenty or fifteen or any number of years. This is,
to say the least, irregular and should not be sanctioned. 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. In the language of Chief Justice Hughes, in Morgan v. U.S., (304 U.S. 1, 58 S. Ct. 773,
999, 82 Law. ed. 1129), "the liberty and property of the citizen shall be protected by the rudimentary
requirements of fair play." 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. (Chief Justice Hughes in Morgan vs. U.S., 298 U.S. 468, 56 S. Ct. 906, 80 :Law. ed.
1288.) In the language of this Court in Edwards vs. McCoy (22 Phil., 598), "the right to adduce evidence,
without the corresponding duty on the part of the board to consider it, is vain. Such right is conspicuously
futile if the person or persons to whom the evidence is presented can thrust it aside without or
consideration." 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. A
decision with absolutely nothing to support it is a nullity, at least when directly attacked. (Edwards vs.
McCoy, supra.) This principle emanates from the more fundamental principle that the genius of
constitutional government is contrary to the vesting of unlimited power anywhere. Law is both a grant and
a limitation upon power.

The decision appealed from is hereby reversed and the case remanded to the Public Service
Commission for further proceedings in accordance with law and this decision, without any pronouncement
regarding costs. So ordered.

Concept of franchise and certificate of public convenience

G.R. No. L-49407 August 19, 1988

NATIONAL DEVELOPMENT COMPANY, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION,
respondents-appellees.

No. L-49469 August 19, 1988

MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant,

vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION,
respondents- appellees.

Balgos & Perez Law Office for private respondent in both cases.

PARAS, J.:

These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R
entitled "Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the
Philippines and National Development Company defendant-appellants," affirming in toto the decision ** in
Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth Judicial District, the dispositive
portion of which reads:

WHEREFORE, judgment is hereby rendered ordering the defendants National

Development Company and Maritime Company of the Philippines, to pay jointly and
severally, to the plaintiff Development Insurance and Surety Corp., the sum of THREE
HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND
EIGHTY SIX CENTAVOS (364,915.86) with the legal interest thereon from the filing of
plaintiffs complaint on April 22, 1965 until fully paid, plus TEN THOUSAND PESOS
(Pl0,000.00) by way of damages as and for attorney's fee.

On defendant Maritime Company of the Philippines' cross-claim against the defendant

National Development Company, judgment is hereby rendered, ordering the National
Development Company to pay the cross-claimant Maritime Company of the Philippines
the total amount that the Maritime Company of the Philippines may voluntarily or by
compliance to a writ of execution pay to the plaintiff pursuant to the judgment rendered in
this case.

With costs against the defendant Maritime Company of the Philippines.

(pp. 34-35, Rollo, GR No. L-49469)

The facts of these cases as found by the Court of Appeals, are as follows:

The evidence before us shows that in accordance with a memorandum agreement

entered into between defendants NDC and MCP on September 13, 1962, defendant
NDC as the first preferred mortgagee of three ocean going vessels including one with the
name 'Dona Nati' appointed defendant MCP as its agent to manage and operate said
vessel for and in its behalf and account (Exh. A). Thus, on February 28, 1964 the E.
Philipp Corporation of New York loaded on board the vessel "Dona Nati" at San
Francisco, California, a total of 1,200 bales of American raw cotton consigned to the
order of Manila Banking Corporation, Manila and the People's Bank and Trust Company
acting for and in behalf of the Pan Asiatic Commercial Company, Inc., who represents
Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A). Also loaded on the same
vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the
order of Manila Banking Corporation consisting of 200 cartons of sodium lauryl sulfate
and 10 cases of aluminum foil (Exhs. M & M-1). En route to Manila the vessel Dofia Nati
figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese
vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid cargo of
American raw cotton were lost and/or destroyed, of which 535 bales as damaged were
landed and sold on the authority of the General Average Surveyor for Yen 6,045,-500
and 15 bales were not landed and deemed lost (Exh. G). The damaged and lost cargoes
was worth P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills
Corporation as holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A,
K-2-A, K-3-A, K-4-A, K-5-A, A- 2, N-3 and R-3}. Also considered totally lost were the
aforesaid shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the order of Manila
Banking Corporation, Manila, acting for Guilcon, Manila, The total loss was P19,938.00
which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading
(Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the total amount of
P364,915.86 to the consignees or their successors-in-interest, for the said lost or
damaged cargoes. Hence, plaintiff filed this complaint to recover said amount from the
defendants-NDC and MCP as owner and ship agent respectively, of the said 'Dofia Nati'
vessel. (Rollo, L-49469, p.38)
On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First
Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of
P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).

Interposing the defense that the complaint states no cause of action and even if it does, the action has
prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC filed an
Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-24).
On June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after the trial on the
merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with counterclaim and cross-
claim against NDC.

NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It
also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on
October 16, 1965, NDC's answer to DISC's complaint was stricken off from the record for its failure to
answer DISC's written interrogatories and to comply with the trial court's order dated August 14, 1965
allowing the inspection or photographing of the memorandum of agreement it executed with MCP. Said
order of October 16, 1965 likewise declared NDC in default (Record on Appeal, p. 44). On August 31,
1966, NDC filed a motion to set aside the order of October 16, 1965, but the trial court denied it in its
order dated September 21, 1966.

On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered
a decision ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the sum of
P364,915.86 plus the legal rate of interest to be computed from the filing of the complaint on April 22,
1965, until fully paid and attorney's fees of P10,000.00. Likewise, in said decision, the trial court granted
MCP's crossclaim against NDC.

MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after
its motion to set aside the decision was denied by the trial court in its order dated February 13,1970.

On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision of the
trial court.

Hence these appeals by certiorari.

NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On
July 25,1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27,1979,
these consolidated cases were given due course (Rollo, p. 108) and submitted for decision on February
29, 1980 (Rollo, p. 136).

In its brief, NDC cited the following assignments of error:

THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND
NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE
OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING
FROM THE COLLISION OF ITS VESSEL "DONA NATI" WITH THE YASUSHIMA MARU"OCCURRED
AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL JURISDICTION OF THE PHILIPPINES.

II

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT
FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER,
HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development
Company; p. 96, Rollo).

On its part, MCP assigned the following alleged errors:

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT

DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS
AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING THE
COMPLAINT.

II

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION
OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS
AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE
STATUTE OF LIMITATION AND HAS ALREADY PRESCRIBED.

III

THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE

RESPONDENTS EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF
THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS
INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND
LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA MARU WITHOUT THE FAULT OR
NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATI

IV

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF
COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP
AGENT OR NAVIERO OF SS DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL
DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE
WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE
COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES
TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE
AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN
THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH 1O OF THE BILLS OF LADING
HAS NO APPLICATION IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK
OF.

VI

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL

DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND
SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY
CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE
COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES INSTEAD OF
SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM
IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for
the Maritime Company of the Philippines; p. 121, Rollo)

The pivotal issue in these consolidated cases is the determination of which laws govern loss or
destruction of goods due to collision of vessels outside Philippine waters, and the extent of liability as well
as the rules of prescription provided thereunder.

The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to
the case at bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the
carrier is not responsible for the loss or damage resulting from the "act, neglect or default of the master,
mariner, pilot or the servants of the carrier in the navigation or in the management of the ship." Thus,
NDC insists that based on the findings of the trial court which were adopted by the Court of Appeals, both
pilots of the colliding vessels were at fault and negligent, NDC would have been relieved of liability under
the Carriage of Goods by Sea Act. Instead, Article 287 of the Code of Commerce was applied and both
NDC and MCP were ordered to reimburse the insurance company for the amount the latter paid to the
consignee as earlier stated.

This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA
469-470 [1987]) where it was held under similar circumstance "that the law of the country to which the
goods are to be transported governs the liability of the common carrier in case of their loss, destruction or
deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes
transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code
and in all matters not regulated by said Code, the rights and obligations of common carrier shall be
governed by the Code of commerce and by laws (Article 1766, Civil Code). Hence, the Carriage of Goods
by Sea Act, a special law, is merely suppletory to the provision of the Civil Code.

In the case at bar, it has been established that the goods in question are transported from San Francisco,
California and Tokyo, Japan to the Philippines and that they were lost or due to a collision which was
found to have been caused by the negligence or fault of both captains of the colliding vessels. Under the
above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the collision
actually occurred in foreign waters, such as Ise Bay, Japan.

Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons
of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them according to all circumstances of each case. Accordingly,
under Article 1735 of the same Code, in all other than those mentioned is Article 1734 thereof, the
common carrier shall be presumed to have been at fault or to have acted negigently, unless it proves that
it has observed the extraordinary diligence required by law.

It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that
no reversible error can be found in respondent courses application to the case at bar of Articles 826 to
839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.

More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the
personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred
after an expert appraisal. But more in point to the instant case is Article 827 of the same Code, which
provides that if the collision is imputable to both vessels, each one shall suffer its own damages and both
shall be solidarily responsible for the losses and damages suffered by their cargoes.

Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the
shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or
negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of the
universally accepted doctrine that the shipmaster or captain is merely the representative of the owner
who has the actual or constructive control over the conduct of the voyage (Y'eung Sheng Exchange and
Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).

There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to
domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com.
Act No. 65) does not specifically provide for the subject of collision, said Act in no uncertain terms,
restricts its application "to all contracts for the carriage of goods by sea to and from Philippine ports in
foreign trade." Under Section I thereof, it is explicitly provided that "nothing in this Act shall be construed
as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its
application." By such incorporation, it is obvious that said law not only recognizes the existence of the
Code of Commerce, but more importantly does not repeal nor limit its application.

On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety
Corporation, has no cause of action against it because the latter did not prove that its alleged subrogers
have either the ownership or special property right or beneficial interest in the cargo in question; neither
was it proved that the bills of lading were transferred or assigned to the alleged subrogers; thus, they
could not possibly have transferred any right of action to said plaintiff- appellee in this case. (Brief for the
Maritime Company of the Philippines, p. 16).

The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly
endorsed bills of lading covering the shipments in question and an examination of the invoices in
particular, shows that the actual consignees of the said goods are the aforementioned companies.
Moreover, no less than MCP itself issued a certification attesting to this fact. Accordingly, as it is
undisputed that the insurer, plaintiff appellee paid the total amount of P364,915.86 to said consignees for
the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a cause of action to
recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo,
p. 43).

MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and
operator of the vessel Dona Nati not a ship agent. As the general managing agent, according to MCP, it
can only be liable if it acted in excess of its authority.

As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13,
1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the
concept of Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of
the vessel, including the power to contract in the name of the NDC (Decision, CA G.R. No. 46513, p. 12;
Rollo, p. 40). Consequently, under the circumstances, MCP cannot escape liability.

It is well settled that both the owner and agent of the offending vessel are liable for the damage done
where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of
collision, both the owner and the agent are civilly responsible for the acts of the captain (Yueng Sheng
Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of Commerce; Standard
Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the liability of the
naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the Code of
Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil Code but
more specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the
Court held that both the owner and agent (Naviero) should be declared jointly and severally liable, since
the obligation which is the subject of the action had its origin in a tortious act and did not arise from
contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, even
though he may not be the owner of the vessel, is liable to the shippers and owners of the cargo
transported by it, for losses and damages occasioned to such cargo, without prejudice, however, to his
rights against the owner of the ship, to the extent of the value of the vessel, its equipment, and the freight
(Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]).
As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or
per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law
on averages should be applied in determining their liability.

MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and
corroborated no less by invoices offered as evidence ' during the trial. Besides, common carriers, in the
language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot limit its
liability for injury to a loss of goods where such injury or loss was caused by its own negligence."
Negligence of the captains of the colliding vessel being the cause of the collision, and the cargoes not
being jettisoned to save some of the cargoes and the vessel, the trial court and the Court of Appeals
acted correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce).

MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima
Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati need not be discussed
lengthily as said claim is not only at variance with NDC's posture, but also contrary to the factual findings
of the trial court affirmed no less by the Court of Appeals, that both pilots were at fault for not changing
their excessive speed despite the thick fog obstructing their visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-
shipment of the cargo, which simply means that the date of arrival of the ship Dona Nati on April 18,1964
was merely tentative to give allowances for such contingencies that said vessel might not arrive on
schedule at Manila and therefore, would necessitate the trans-shipment of cargo, resulting in consequent
delay of their arrival. In fact, because of the collision, the cargo which was supposed to arrive in Manila on
April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes
in question been saved, they could have arrived in Manila on the above-mentioned dates. Accordingly,
the complaint in the instant case was filed on April 22, 1965, that is, long before the lapse of one (1) year
from the date the lost or damaged cargo "should have been delivered" in the light of Section 3, sub-
paragraph (6) of the Carriage of Goods by Sea Act.

PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision
of the respondent Appellate Court is AFFIRMED.

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

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 Freeman Fox, Tradeinvest/CKD Tatra of the Czech and
Slovak Federal 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.

G.R. No. L-68729 May 29, 1987

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC., petitioner,
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION and KAYUMANGGI RADIO NETWORK
INCORPORATED, respondents.

GUTIERREZ, JR, J.:

This petition seeks the reversal of the decision of the National Telecommunications Commission (NTC)
which ordered petitioner Radio Communications of the Philippines, Incorporated (RCPI) to desist from
operating its radio telephone services in Catarman, Northern Samar; San Jose, Occidental Mindoro; and
Sorsogon, Sorsogon.

Petitioner has been operating a radio communications system since 1957 under its legislative franchise
granted by Republic Act No. 2036 which was enacted on June 23, 1957.

In 1968, the petitioner established a radio telegraph service in Sorsogon, Sorsogon. In 1971, another
radio telegraph service was put up in San Jose, Mindoro followed by another in Catarman, Samar in
1976. The installation of radio telephone services started in 1971 in San Jose, Mindoro; then in Sorsogon,
Sorsogon and Catarman, Samar in 1983.

In a decision dated June 24, 1980 in NTC Case No. 80-08, private respondent Kayumanggi Radio
Network Incorporated was authorized by the public respondent to operate radio communications systems
in Catarman, Samar and in San Jose, Mindoro.

On December 14, 1983, the private respondent filed a complaint with the NTC alleging that the petitioner
was operating in Catarman, Samar and in San Jose, Mindoro without a certificate of public covenience
and necessity. The petitioner, on the other hand, counter-alleged that its telephone services in the places
subject of the complaint are covered by the legislative franchise recognized by both the public respondent
and its predecessor, the Public Service Commission. In its supplemental reply, the petitioner further
stated that it has been in operation in the questioned places long before private respondent Kayumanggi
filed its application to operate in the same places.

After conducting a hearing, NTC, in its decision dated August 22, 1984 ordered petitioner RCPI to
immediately cease or desist from the operation of its radio telephone services in Catarman Northern
Samar; San Jose, Occidental Mindoro; and Sorsogon, Sorsogon stating that under Executive Order No.
546, a certificate of public convenience and necessity is mandatory for the operation of communication
utilities and services including radio communications.

On September 4, 1984, the petitioner filed a motion for reconsideration which was denied in an order
dated September 12, 1984.

On October 1, 1984, the present petition was filed raising the issue of whether or not petitioner RCPI, a
grantee of a legislative franchise to operate a radio company, is required to secure a certificate of public
convenience and necessity before it can validly operate its radio stations including radio telephone
services in Catarman, Northern Samar; San Jose, Occidental Mindoro; and Sorsogon, Sorsogon.

The petitioner's main argument states that the abolition of the Public Service Commission under
Presidential Decree No. 1 and the creation of the National Telecommunications Commission under
Executive Order No. 546 to replace the defunct Public Service Commission did not affect sections 14 and
15 of the Public Service Law (Commonwealth Act. No. 146, as amended).
The provisions of the Public Service Law pertinent to the petitioner's allegation are as follows:

Section 13. (a) the Commission shall have jurisdiction, supervision, and control over all
public services and their franchises, equipment and other properties, and in the exercise
of its authority, it shall have the necessary powers and the aid of public force: ...

Section 14. The following are exempted from the provisions of the preceding section:

xxx xxx xxx

(d) Radio companies except with respect to the fixing of rates;

xxx xxx xxx

Section 15. With the exception of those enumerated in the preceding section, no public
service shall operate in the Philippines without possessing a valid and subsisting
certificate from the Public Service Commission, known as "certificate of public
convenience," or "certificate of convenience and public necessity," as the case may be, to
the effect that the operation of said service and the authorization to do business will
promote the public interests in a proper and suitable manner. ...

We find no merit in the petitioner's contention.

Pursuant to Presidential Decree No. 1 dated September 23,1972, reorganizing the executive branch of
the National Government, the Public Service Commission was abolished and its functions were
transferred to three specialized regulatory boards, as follows: the Board of Transportation, the Board of
Communications and the Board of Power and Waterworks. The functions so transferred were still subject
to the limitations provided in sections 14 and 15 of the Public Service Law, as amended. With the
enactment of Executive Order No. 546 on July 23, 1979 implementing P.D. No.1, the Board of
Communications and the Telecommunications Control Bureau were abolished and their functions were
transferred to the National Telecommunications Commission (Sec. 19(d), Executive Order No. 546).
Section 15 of said Executive Order spells out the functions of the National Telecommunications
Commission as follows:

Sec. 15. Functions of the Commission.-The Commission shall exercise the following
functions:

a. Issue Certificate of Public Convenience for the operation of communications utilities

and services, radio communications petitions systems, wire or wireless telephone or
telegraph system, radio and television broadcasting system and other similar public
utilities;

b. Establish, prescribe and regulate areas of operation of particular operators of public

service communications; and determine and prescribe charges or rates pertinent to the
operation of such public utility facilities and services except in cases where charges or
rates are established by international bodies or associations of which the Philippines is a
participating member or by bodies recognized by the Philippine Government as the
proper arbiter of such charges or rates;

c. Grant permits for the use of radio frequencies for wireless telephone and telegraph
systems and radio communication systems including amateur radio stations and radio
and television broadcasting systems;
 d. Sub-allocate series of frequencies of bands allocated by the International
Telecommunications Union to the specific services;

e. Establish and prescribe rules, regulations, standards, specifications in all cases related
to the issued Certificate of Public Convenience and administer and enforce the same;

f. Coordinate and cooperate with government agencies and other entities concerned with
any aspect involving communications with a view to continuously improve the
communications service in the country;

g. Promulgate such rules and regulations, as public safety and interest may require, to
encourage a larger and more effective use of communications, radio and television
broadcasting facilities, and to maintain effective competition among private entities in
these activities whenever the Commission finds it reasonably feasible;

h. Supervise and inspect the operation of radio stations and telecommunications facilities;

i. Undertake the examination and licensing of radio operators;

j. Undertake, whenever necessary, the registration of radio transmitters and transceivers;

and

k. Perform such other functions as may be prescribed by law.

It is clear from the aforequoted provision that the exemption enjoyed by radio companies from the
jurisdiction of the Public Service Commission and the Board of Communications no longer exists because
of the changes effected by the Reorganization Law and implementing executive orders. The petitioner's
claim that its franchise cannot be affected by Executive Order No. 546 on the ground that it has long been
in operation since 1957 cannot be sustained.

A franchise started out as a "royal privilege or (a) branch of the King's prerogative, subsisting in the hands
of a subject." This definition was given by Finch, adopted by Blackstone, and accepted by every authority
since (State v. Twin Village Water Co., 98 Me 214, 56 A 763 (1903)). Today, a franchise, being merely a
privilege emanating from the sovereign power of the state and owing its existence to a grant, is subject to
regulation by the state itself by virtue of its police power through its administrative agencies. We ruled in
Pangasinan transportation Co., Inc. v. Public Service Commission (70 Phil. 221) that:

... statutes enacted for the regulation of public utilities, being a proper exercise by the
State of its police power, are applicable not only to those public utilities coming into
existence after its passage, but likewise to those already established and in operation ...

Executive Order No. 546, being an implementing measure of P.D. No. I insofar as it amends the Public
Service Law (CA No. 146, as amended) is applicable to the petitioner who must be bound by its
provisions. The petitioner cannot install and operate radio telephone services on the basis of its legislative
franchise alone.

The position of the petitioner that by the mere grant of its franchise under RA No. 2036 it can operate a
radio communications system anywhere within the Philippines is erroneous. Section 1 of said statute
reads:

Section 1. Subject to the provisions of the Constitution, and to the provisions, not
inconsistent herewith, of Act Numbered Three thousand eight hundred and forty-six,
entitled.' An Act providing for the regulation of radio stations and radio communications in
 the Philippine Islands, and for other purposes;' Commonwealth Act Numbered One
hundred forty-six, known as the Public Service Act, and their amendments, and other
applicable laws, there is hereby granted to the Radio Communications of the Philippines,
its successors or assigns, the right and privilege of constructing, installing, establishing
and operating in the Philippines, at such places as the said corporation may select and
the Secretary of Public Works and Communications may approve, radio stations for the
reception and transmission of wireless messages on radiotelegraphy and/or
radiotelephone, including both coastal and marine telecommunications, each station to
consist of two radio apparatus comprising of a receiving and sending radio apparatus.
(Emphasis supplied).

Section 4(a) of the same Act further provides that:

Sec. 4(a). This franchise shall not take effect nor shall any powers thereunder be
exercised by the grantee until the Secretary of Public works and Communications shall
have allotted to the grantee the frequencies and wave lengths to be used, and issued to
the grantee a license for such case. (Emphasis supplied)

Thus, in the words of R.A. No. 2036 itself, approval of the then Secretary of Public Works and
Communications was a precondition before the petitioner could put up radio stations in areas where it
desires to operate. It has been repeated time and again that where the statutory norm speaks
unequivocally, there is nothing for the courts to do except to apply it. The law, leaving no doubt as to the
scope of its operation, must be obeyed. (Gonzaga v. Court of Appeals, 51 SCRA 381).

The records of the case do not show any grant of authority from the then Secretary of Public Works and
Communications before the petitioner installed the questioned radio telephone services in San Jose,
Mindoro in 1971. The same is true as regards the radio telephone services opened in Sorsogon,
Sorsogon and Catarman, Samar in 1983. No certificate of public convenience and necessity appears to
have been secured by the petitioner from the public respondent when such certificate,was required by the
applicable public utility regulations (See executive Order No. 546, sec. 15, supra.; Philippine Long
Distance Telephone Co. v. City of Davao, 15 SCRA 75; Olongapo Electric Light and Power Corp. v.
National Power Corporation, et al., G.R. No. L-24912, promulgated April 9, 1987.)

It was well within the powers of the public respondent to authorize the installation by the private
respondent network of radio communications systems in Catarman, Samar and San Jose, Mindoro.
Under the circumstances of this case, the mere fact that the petitioner possesses a franchise to put up
and operate a radio communications system in certain areas is not an insuperable obstacle to the public
respondent's issuing the proper certificate to an applicant desiring to extend the same services to those
areas. The Constitution mandates that a franchise cannot be exclusive in nature nor can a franchise be
granted except that it must be subject to amendment, alteration, or even repeal by the legislature when
the common good so requires. (Art. XII, sec. 11 of the 1986 Constitution). There is an express provision
in the petitioner's franchise which provides compliance with the above mandate R.A. 2036, sec. 15).

In view of the foregoing, we find no reason to disturb the public respondent's findings of fact, and
conclusions of law insofar as the private respondent was authorized to operate in Catarman, Samar and
San Jose, Mindoro. As a rule, the Commission's findings of fact, if supported by substantial evidence, are
conclusive upon this Court. We may modify or ignore them only when it clearly appears that there is no
evidence to support reasonably such a conclusion. (Halili v. Daplas, 14 SCRA 14). The petitioner has not
shown why the private respondent should be denied the authority to operate its services in Samar and
Mindoro. It has not overcome the presumption that when the public respondent disturbed the petitioner's
monopoly in certain areas, it was doing so pursuant to public interest and the common good.

WHEREFORE, the challenged order of the public respondent dated August 22, 1984 is hereby
AFFIRMED. The petition is dismissed for lack of merit.
G.R. No. 119528 March 26, 1997

PHILIPPINE AIRLINES, INC., petitioner,

vs.
CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL AIRWAYS, INC., respondents.

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 Board2 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 GrandAir's 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, —

. . . 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
franchise's authority to commence operations. It is thus logical that the grant of the former
should precede the latter.

Please be guided accordingly.

(SGD.)
SEDFR
EY A.
ORDO
 NEZ
Secreta
ry 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 to 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:

Sec. 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:

Sec. 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.

Sec. 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

Sec. 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.