EN BANC

[G.R. No. L-6055. June 12, 1953.]

THE PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. WILLIAM H.

QUASHA, Defendant-Appellant.

Jose P. Laurel for appellant and William H. Quasha in his own behalf.

Solicitor General Juan R. Liwag and Assistant Solicitor General

Francisco Carreon for Appellee.

SYLLABUS

1. CONSTITUTIONAL LAW; CORPORATIONS; PUBLIC UTILITIES; MERE

FORMATION OF PUBLIC UTILITY CORPORATION WITHOUT THE REQUISITE
FILIPINO CAPITAL NOT PROHIBITED. — The Constitution does not prohibit
the mere formation of a public utility corporation without the required
proportion of Filipino capital. What it does prohibit is the granting of a
franchise or other form of authorization for the operation of a public utility to
a corporation already in existence but without the requisite proportion of
Filipino capital (sec. 8, Art. XIV of the Constitution).

2. ID.; ID.; ID.; DUTY OF REVEALING THE OWNERSHIP OF THE CAPITAL OF

A CORPORATION. — If the Constitution does not prohibit the mere formation
of a public utility corporation with alien capital, then how could the accused
be charged with having wrongfully intended to circumvent that fundamental
law by not disclosing in the articles of incorporation that one of the
incorporators, a Filipino, was a mere trustee of his American co-
incorporators and that for that reason the subscribed capital stock of the
corporation was wholly American? For the mere formation of the corporation
such disclosure was not essential, and the Corporation Law does not require
it. The accused was, therefore, under no obligation to make it. In the
absence of such obligation and of the alleged wrongful intent on the part of
the accused, he cannot legally be convicted of the crime of falsification for
having allegedly perverted the truth in a narration of facts.

3. FALSIFICATION; FALSE NARRATION FOR NOT REVEALING A CERTAIN

FACT, NOT PUNISHABLE IF THERE IS NO LEGAL OBLIGATION TO DISCLOSE
THE TRUTH. — It is essential to the commission of this crime that the
perversion of truth in a narration of facts must be made with the wrongful
intent of injuring a third person and even if such wrongful intent is proven,
still the untruthful statement will not constitute criminal falsification if there
is no legal obligation on the part of the narrator to disclose the truth. (U. S.
v. Reyes, 1 Phil., 341; U. S. v. Lopez, 15 Phil., 515.) Wrongful intent to
injure a third person and obligation on the part of the narrator to disclose
the truth are thus essential to a conviction for the crime of falsification under
articles 171(4) and 172(1) of the Revised Penal Code.

DECISION

REYES, J.:

William H. Quasha, a member of the Philippine bar, was charged in the Court
of First Instance of Manila with the crime of falsification of a public and
commercial document in that, having been entrusted with the preparation
and registration of the articles of incorporation of the Pacific Airways
Corporation, a domestic corporation organized for the purpose of engaging
in business as a common carrier, he caused it to appear in said articles of
incorporation that one Arsenio Baylon, a Filipino citizen, had subscribed to
and was the owner of 60.005 per cent of the subscribed capital stock of the
corporation when in reality, as the accused well knew, such was not the
ease, the truth being that the owners of the portion of the capital stock
subscribed to by Baylon and the money paid thereon were American citizens
whose names did not appear in the articles of incorporation, and that the
purpose for making this false statement was to circumvent the constitutional
mandate that no corporation shall be authorized to operate as a public utility
in the Philippines unless 60 per cent of its capital stock is owned by Filipinos.

Found guilty after trial and sentenced to a term of imprisonment and a fine,
the accused has appealed to this Court.

The essential facts are not in dispute. On November 4, 1946, the Pacific
Airways Corporation registered its articles of incorporation with the
Securities and Exchange Commission. The articles were prepared and the
registration was effected by the accused, who was in fact the organizer of
the corporation. The articles stated that the primary purpose of the
corporation was to carry on the business of a common carrier by air, land or
water; that its capital stock was P1,000,000, represented by 9,000 preferred
and 100,000 common shares, each preferred share being of the par value of
P100 and entitled to 1/3 vote and each common share, of the par value of
P1 and entitled to one vote; that the amount of capital stock actually
subscribed was P200,000, and the names of the subscribers were Arsenio
Baylon, Eruin E. Shannahan, Albert W. Onstott, James O’Bannon, Denzel J.
Cavin, and William H. Quasha, the first being a Filipino and the other five all
Americans; that Baylon’s subscription was for 1,145 preferred shares, of the
total value of P114,500, and for 6,500 common shares, of the total par value
of P6,500, while the aggregate subscriptions of the American subscribers
were for 200 preferred shares, of the total par value of P20,000, and 59,000
common shares, of the total par value of P59,000; and that Baylon and the
American subscribers had already paid 25 per cent of their respective
subscriptions. Ostensibly the owner of, or subscriber to, 60.005 per cent of
the subscribed capital stock of the corporation, Baylon nevertheless did not
have the controlling vote because of the difference in voting power between
the preferred shares and the common shares. Still, with the capital structure
as it was, the articles of incorporation were accepted for registration and a
certificate of incorporation was issued by the Securities and Exchange
Commission.

There is no question that Baylon actually subscribed to 60.005 per cent of

the subscribed capital stock of the corporation. But it is admitted that the
money paid on his subscription did not belong to him but to the American
subscribers to the corporate stock. In explanation, the accused testified,
without contradiction, that in the process of organization Baylon was made a
trustee for the American incorporators, and that the reason for making
Baylon such trustee was as follows:jgc:chanrobles.com.ph

"Q. According to this articles of incorporation Arsenio Baylon subscribed to

1,135 preferred shares with a total value of P1,135. Do you know how that
came to be?

"A. Yes.

The people who were desirous of forming the corporation, whose names are
listed on page 7 of this certified copy came to my house, Messrs.
Shannahan, Onstott, O’Bannon, Caven, Perry and Anastasakas one evening.
There was considerable difficulty to get them all together at one time
because they were pilots. They had difficulty in deciding what their
respective share holdings would be. Onstott had invested a certain amount
of money in airplane surplus property and they had obtained a considerable
amount of money on those planes and as I recall they were desirous of
getting a corporation formed right away. And they wanted to have their
respective share holdings resolved at a later date. They stated that they
could get together but they feel that they had no time to settle their
respective share holdings. We discussed the matter and finally it was
decided that the best way to handle the thing was not to put the shares in
the name of anyone of the interested parties and to have someone act as
trustee for their respective share holdings. So we looked around for a
trustee. And he said ’Is there anybody in particular whom you trust?’ And I
said ’There are a lot of people whom I trust.’ He said, ’Is there someone
around whom we could get right away?’ I said, ’There is Arsenio. He was my
boy during the liberation and he cared for me when I was sick and I said I
consider him my friend.’ So they said ’Well make him our trustee.’ ’You can
do that’, I said. They all knew Arsenio. He is a very kind man and that was
what was done. That is how it came about."cralaw virtua1aw library

Defendant is accused under article 172, paragraph 1, in connection with

article 171, paragraph 4, of the Revised Penal Code, which
read:jgc:chanrobles.com.ph

"ART. 171. Falsification by public officer, employee or notary or ecclesiastic

minister. — The penalty of prision mayor and a fine not to exceed 5,000
pesos shall be imposed upon any public officer, employee, or notary who,
taking advantage of his official position, shall falsify a document by
committing any of the following acts:chanrob1es virtual 1aw library

x       x       x

"4. Making untruthful statements in a narration of facts."cralaw virtua1aw

library

"ART. 172. Falsification by private individuals and use of falsified documents.

— The penalty of prision correccional in its medium and maximum periods
and a fine of not more than 5,000 pesos shall be imposed upon:chanrob1es
virtual 1aw library

x       x       x

"1. Any private individual who shall commit any of the falsifications
enumerated in the next preceding article in any public or official document
or letter of exchange or any other kind of commercial document."cralaw
virtua1aw library

Commenting on the above provisions, Justice Albert, in his well- known work
on the Revised Penal Code (new edition, pp. 407-408), observes, on the
authority of U. S. v. Reyes, (1 Phil., 341), that the perversion of truth in the
narration of fact must be made with the wrongful intent of injuring a third
person; and on the authority of U. S. v. Lopez (15 Phil., 515), the same
author further maintains that even if such wrongful intent is proven, still the
untruthful statement will not constitute the crime of falsification if there is no
legal obligation on the part of the narrator to disclose the truth. Wrongful
intent to injure a third person and obligation on the part of the narrator to
disclose the truth are thus essential to a conviction for the crime of
falsification under the above articles of the Revised Penal Code.

Now, as we see it, the falsification imputed to the accused in the present
case consists in not disclosing in the articles of incorporation that Baylon was
a mere trustee (or dummy as the prosecution chooses to call him) of his
American co-incorporators, thus giving the impression that Baylon was the
owner of the shares subscribed to by him which, as above stated, amount to
60.005 per cent of the subscribed capital stock. This, in the opinion of the
trial court, is a malicious perversion of the truth made with the wrongful
intent of circumventing section 8, Article XIV of the Constitution, which
provides that "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 other entities organized under the laws of
the Philippines, sixty per centum of the capital of which is owned by citizens
of the Philippines . . ." Plausible though it may appear at first glance, this
opinion loses validity once it is noted that it is predicated on the erroneous
assumption that the constitutional provision just quoted was meant to
prohibit the mere formation of a public utility corporation without 60 per
cent of its capital being owned by Filipinos, a mistaken belief which has
induced the lower court to conclude that the accused was under obligation to
disclose the whole truth about the nationality of the subscribed capital stock
of the corporation by revealing that Baylon was a mere trustee or dummy of
his American co-incorporators, and that in not making such disclosure
dependant’s intention was to circumvent the Constitution to the detriment of
the public interests. Contrary to the lower court’s assumption, the
Constitution does not prohibit the mere formation of a public utility
corporation without the required proportion of Filipino capital. What it does
prohibit is the granting of a franchise or other form of authorization for the
operation of a public utility to a corporation already in existence but without
the requisite proportion of Filipino capital. This is obvious from the context,
for the constitutional provision in question qualifies the terms "franchise",
"certificate" or "any other form of authorization" with the phrase "for the
operation of a public utility," thereby making it clear that the franchise
meant is not the "primary franchise" that invests a body of men with
corporate existence but the "secondary franchise" or the privilege to operate
as a public utility after the corporation has already come into being.

If the Constitution does not prohibit the mere formation of a public utility
corporation with alien capital, then how could the accused be charged with
having wrongfully intended to circumvent that fundamental law by not
revealing in the articles of incorporation that Baylon was a mere trustee of
his American co-incorporators and that for that reason the subscribed capital
stock of the corporation was wholly American? For the mere formation of the
corporation such revelation was not essential, and the Corporation Law does
not require it. Defendant was, therefore, under no obligation to make it. In
the absence of such obligation and of the alleged wrongful intent, defendant
cannot be legally convicted of the crime with which he is charged.

It is urged, however, that the formation of the corporation with 60 per cent
of its subscribed capital stock appearing in the name of Baylon was an
indispensable preparatory step to the subversion of the constitutional
prohibition and the laws implementing the policy expressed therein. This
view is not correct. For a corporation to be entitled to operate a public utility
it is not necessary that it be organized with 60 per cent of its capital owned
by Filipinos from the start. A corporation formed with capital that is entirely
alien may subsequently change the nationality of its capital through transfer
of shares to Filipino citizens. Conversely, a corporation originally formed with
Filipino capital may subsequently change the national status of said capital
thru transfers of shares to foreigners. What need is there then for a
corporation that intends to operate a public utility to have, at the time of its
formation, 60 per cent of its capital owned by Filipinos alone? That condition
may at any time be attained thru the necessary transfers of stocks. The
moment for determining whether a corporation is entitled to operate as a
public utility is when it applies for a franchise, certificate, or any other form
of authorization for that purpose. And that can only be done after the
corporation has already come into being and not while it is still being
formed. And at that moment, the corporation must show that it has
complied not only with the requirement of the Constitution as to the
nationality of its capital, but also with the requirements of the Civil Aviation
Law if it is a common carrier by air, the Revised Administrative Code if it is a
common carrier by water, and the Public Service Law if it is a common
carrier by land or other kind of public service.

Equally untenable is the suggestion that defendant should at least be held

guilty of an "impossible crime" under article 59 of the Revised Penal Code. It
not being possible to suppose that defendant had intended to commit a
crime for the simple reason that the alleged constitutional prohibition which
he is charged with having tried to circumvent does not exist, conviction
under that article is out of the question.

The foregoing considerations can not but lead to the conclusion that the
defendant can not be held guilty of the crime charged. The majority of the
court, however, are also of the opinion that, even supposing that the act
imputed to the defendant constituted falsification at the time it was
perpetrated, still with the approval of the Parity Amendment to the
Constitution in March, 1947, which placed Americans on the same footing as
Filipino citizens with respect to the right to operate public utilities in the
Philippines, thus doing away with the prohibition in section 8, Article XIV of
the Constitution in so far as American citizens are concerned, the said act
has ceased to be an offense within the meaning of the law, so that
defendant can no longer be held criminally liable therefor.

In view of the foregoing, the judgment appealed from is reversed and the
defendant William H. Quasha acquitted, with costs de oficio.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Jugo, Bautista Angelo and

Labrador, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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.

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.

SO ORDERED

Bellosillo and Kapunan, JJ., concur.

Padilla and Regalado, JJ., concurs in the result.

Romero, J., is on leave.

Separate Opinions

MENDOZA, J.,  concurring:

I concur in all but Part III of the majority opinion. Because I hold that
petitioners do not have standing to sue, I join to dismiss the petition in this
case. I write only to set forth what I understand the grounds for our
decisions on the doctrine of standing are and, why in accordance with these
decisions, petitioners do not have the rights to sue, whether as legislators,
taxpayers or citizens. As members of Congress, because they allege no
infringement of prerogative as legislators.1 As taxpayers because petitioners
allege neither an unconstitutional exercise of the taxing or spending powers
of Congress (Art VI, §§24-25 and 29)2 nor an illegal disbursement of public
money.3 As this Court pointed out in Bugnay Const. and
Dev. Corp. v. Laron,4 a party suing as taxpayer "must specifically prove that
he has sufficient interest in preventing the illegal expenditure of money
raised by taxation and that he will sustain a direct injury as a result of the
enforcement of the questioned statute or contract. It is not sufficient that he
has merely a general interest common to all members of the public." In that
case, it was held that a contract, whereby a local government leased
property to a private party with the understanding that the latter would build
a market building and at the end of the lease would transfer the building of
the lessor, did not involve a disbursement of public funds so as to give
taxpayer standing to question the legality of the contract. I see no
substantial difference, as far as the standing is of taxpayers to question
public contracts is concerned, between the contract there and the build-
lease-transfer (BLT) contract being questioned by petitioners in this case.

Nor do petitioners have standing to bring this suit as citizens. In the

cases5 in which citizens were authorized to sue, this Court found standing
because it thought the constitutional claims pressed for decision to be of
"transcendental importance," as in fact it subsequently granted relief to
petitioners by invalidating the challenged statutes or governmental actions.
Thus in the Lotto case6 relied upon by the majority for upholding petitioners
standing, this Court took into account the "paramount public interest"
involved which "immeasurably affect[ed] the social, economic, and moral
well-being of the people . . . and the counter-productive and retrogressive
effects of the envisioned on-line lottery system:" 7 Accordingly, the Court
invalidated the contract for the operation of lottery.

But in the case at bar, the Court precisely finds the opposite by finding
petitioners' substantive contentions to be without merit To the extent
therefore that a party's standing is affected by a determination of the
substantive merit of the case or a preliminary estimate thereof, petitioners
in the case at bar must be held to be without standing. This is in line with
our ruling in Lawyers League for a Better Philippines v. Aquino8 and In
re Bermudez  9 where we dismissed citizens' actions on the ground that
petitioners had no personality to sue and their petitions did not state a cause
of action. The holding that petitioners did not have standing followed from
the finding that they did not have a cause of action.

In order that citizens' actions may be allowed a party must show that he
personally has suffered some actual or threatened injury as a result of the
allegedly illegal conduct of the government; the injury is fairly traceable to
the challenged action; and the injury is likely to be redressed by a favorable
action. 10 As the U.S. Supreme Court has held:

Typically, . . . the standing inquiry requires careful judicial

examination of a complaint's allegation to ascertain whether the
particular plaintiff is entitled to an adjudication of the particular
claims asserted. Is the injury too abstract, or otherwise not
appropriate, to be considered judicially cognizable? Is the line of
causation between the illegal conduct and injury too attenuated?
Is the prospect of obtaining relief from the injury as a result of a
 favorable ruling too speculative? These questions and any others
relevant to the standing inquiry must be answered by reference
to the Art III notion that federal courts may exercise power only
"in the last resort, and as a necessity, Chicago & Grand Trunk R.
Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400
(1892), and only when adjudication is "consistent with a system
of separated powers and [the dispute is one] traditionally
thought to be capable of resolution through the judicial process,"
Flast v Cohen, 392 US 83, 97, 20 L Ed 2d 947, 88 S Ct 1942
(1968). See Valley Forge, 454 US, at 472-473, 70 L Ed 2d 700,
102 S Ct 752.11

Today's holding that a citizen, qua citizen, has standing to question a

government contract unduly expands the scope of public actions and sweeps
away the case and controversy requirement so carefully embodied in Art.
VIII, §5 in defining the jurisdiction of this Court. The result is to convert the
Court into an office of ombudsman for the ventilation of generalized
grievances. Consistent with the view that this case has no merit I submit
with respect that petitioners, as representatives of the public interest, have
no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.

DAVIDE, JR., J.,  dissenting:

After wading through the record of the vicissitudes of the challenged

contract and evaluating the issues raised and the arguments adduced by the
parties, I find myself unable to joint majority in the well-written ponencia of
Mr. Justice Camilo P. Quiason.

I most respectfully submit that the challenged contract is void for at least
two reasons: (a) it is an-ultra-vires act of the Department of Transportation
and Communications (DOTC) since under R.A. 6957 the DOTC has no
authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b)
even assuming arguendo that it has, the contract was entered into without
complying with the mandatory requirement of public bidding.

Respondents admit that the assailed contract was entered into under R.A.
6957. This law, fittingly entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by the
Private Sector, and For Other Purposes," recognizes only two (2) kinds of
contractual arrangements between the private sector and government
infrastructure agencies: (a) the Build-Operate-and-Transfer (BOT) scheme
and (b) the Build-and-Transfer (BT) scheme. This conclusion finds support in
Section 2 thereof which defines only the BOT and BT schemes, in Section 3
which explicitly provides for said schemes thus:

Sec. 3 Private Initiative in Infrastructure. — All government

infrastructure agencies, including government-owned and
controlled corporations and local government units, are hereby
authorized to enter into contract with any duly prequalified
private contractor for the financing, construction, operation and
maintenance of any financially viable infrastructure
facilities through the build-operate-and transfer or build-and-
transfer scheme, subject to the terms and conditions hereinafter
set forth; (Emphasis supplied).

and in Section 5 which requires public bidding of projects under both

schemes.

All prior acts and negotiations leading to the perfection of the challenged
contract were clearly intended and pursued for such schemes.

A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said

law, and none of the aforesaid prior acts and negotiations were designed for
such unauthorized scheme. Hence, the DOTC is without any power or
authority to enter into the BLT contract in question.

The majority opinion maintains, however, that since "[t]here is no mention

in the BOT Law that the BOT and the BT schemes bar any other
arrangement for the payment by the government of the project cost," then
"[t]he law must not be read in such a way as to rule outer unduly restrict
any variation within the context of the two schemes." This interpretation
would be correct if the law itself provides a room for flexibility. We find no
such provisions in R.A. No. 6957 if it intended to include a BLT scheme, then
it should have so stated, for contracts of lease are not unknown in our
jurisdiction, and Congress has enacted several laws relating to leases. That
the BLT scheme was never intended as a permissible variation "within the
context" of the BOT and BT schemes is conclusively established by the
passage of R.A. No. 7718 which amends:

a. Section 2 by adding to the original BOT and BT schemes the

following schemes:

(1) Build-own-and-operate (BOO)

(2) Build-Lease-and-transfer (BLT)
 (3) Build-transfer-and-operate (BTO)
(4) Contract-add-and-operate (CAO)
(5) Develop-operate-and-transfer (DOT)
(6) Rehabilitate-operate-and-transfer (ROT)
(7) Rehabilitate-own-and-operate (ROO).

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase

"through the build-operate-and-transfer or build-and-transfer
scheme."

II

Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as

follows:

Sec. 5 Public Bidding of Projects. — Upon approval of the

projects mentioned in Section 4 of this Act, the concerned head
of the infrastructure agency or local government unit shall
forthwith cause to be published, once every week for three (3)
consecutive weeks, in at least two (2) newspapers of general
circulation and in at least one (1) local newspaper which is
circulated in the region, province, city or municipality in which
the project is to be constructed a notice inviting all duly
prequalified infrastructure contractors to participate in the public
bidding for the projects so approved. In the case of a build-
operate-and-transfer arrangement, the contract shall be
awarded to the lowest complying bidder based on the present
value of its proposed tolls, fees, rentals, and charges over a
fixed term for the facility to be constructed, operated, and
maintained according to the prescribed minimum design and
performance standards plans, and specifications. For this
purpose, the winning contractor shall be automatically granted
by the infrastructure agency or local government unit the
franchise to operate and maintain the facility, including the
collection of tolls, fees, rentals; and charges in accordance with
Section 6 hereof.

In the case of a build-and-transfer arrangement, the contract

shall be awarded to the lowest complying bidder based on the
present value of its proposed, schedule of amortization
payments for the facility to be constructed according to the
prescribed minimum design and performance standards, plans
and specifications: Provided, however, That a Filipino constructor
 who submits an equally advantageous bid shall be given
preference.

A copy of each build-operate-and-transfer or build-and-transfer

contract shall forthwith be submitted to Congress for its
information.

The requirement of public bidding is not an idle ceremony. It has been aptly
said that in our jurisdiction "public bidding is the policy and medium adhered
to in Government procurement and construction contracts under existing
laws and regulations. It is the accepted method for arriving at a fair and
reasonable price and ensures that overpricing, favoritism, and other
anomalous practices are eliminated or minimized. And any Government
contract entered into without the required bidding is null and void and
cannot adversely affect the rights of third parties." (Bartolome C. Fernandez,
Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25
[rev. ed. 1991], citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).

The Office of the President, through then Executive Secretary Franklin Drilon
Correctly disapproved the contract because no public bidding is strict
compliance with Section 5 of R.A. No. 6957 was conducted. Secretary Drilon
Further bluntly stated that the provision of the Implementing Rules of said
law authorizing negotiated contracts was of doubtful legality. Indeed, it is
null and void because the law itself does not recognize or allow negotiated
contracts.

However the majority opinion posits the view that since only private
respondent EDSA LRT was prequalified, then a public bidding would be "an
absurd and pointless exercise." I submit that the mandatory requirement of
public bidding cannot be legally dispensed with simply because only one was
qualified to bid during the prequalification proceedings. Section 5 mandates
that the BOT or BT contract should be awarded "to the lowest complying
bidder," which logically means that there must at least be two (2) bidders. If
this minimum requirement is not met, then the proposed bidding should be
deferred and a new prequalification proceeding be scheduled. Even those
who were earlier disqualified may by then have qualified because they may
have, in the meantime, exerted efforts to meet all the qualifications.

This view of the majority would open the floodgates to the rigging of
prequalification proceedings or to unholy conspiracies among prospective
bidders, which would even include dishonest government officials. They
could just agree, for a certain consideration, that only one of them qualify in
order that the latter would automatically corner the contract and obtain the
award.
That section 5 admits of no exception and that no bidding could be validly
had with only one bidder is likewise conclusively shown by the amendments
introduced by R.A. No. 7718 Per section 7 thereof, a new section
denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct
negotiation contracts. This new section reads:

Sec. 5-A. 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 requirements, after which
it is required to submit a bid/proposal which
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, only one submit bids but only one is
found by the agency/LGU to be complying: Provided,
That, any of the disqualified prospective bidder may
appeal the decision contractor of the implementing
agency/LGUs prequalification bids an award
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, That the implementing
agency/LGUs concerned should act on the appeal
within forty-five (45) working days from receipt
thereof.

Can this amendment be given retroactive effect to the challenged contract

so that it may now be considered a permissible negotiated contract? I
submit that it cannot be R.A. No. 7718 does not provide that it should be
given retroactive effect to pre-existing contracts. Section 18 thereof says
that it "shall take effect fifteen (15) days after its publication in at least two
(2) newspapers of general circulation." If it were the intention of Congress to
give said act retroactive effect then it would have so expressly provided.
Article 4 of the Civil Code provides that "[l]aws shall have no retroactive
effect, unless the contrary is provided."

The presumption is that all laws operate prospectively, unless the contrary
clearly appears or is clearly, plainly, and unequivocally expressed or
necessarily implied. In every case of doubt, the doubt will be resolved
against the retroactive application of laws. (Ruben E Agpalo, STATUTORY
CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which
change an existing statute, Sutherland states:

In accordance with the rule applicable to original acts, it is

presumed that provisions added by the amendment affecting
substantive rights are intended to operate prospectively.
Provisions added by the amendment that affect substantive
rights will not be construed to apply to transactions and events
completed prior to its enactment unless the legislature has
expressed its intent to that effect or such intent is clearly implied
by the language of the amendment or by the circumstances
surrounding its enactment. (1 Frank E. Horack, Jr.,
SUTHERLAND'S STATUTES AND STATUTORY CONSTRUCTION
434-436 [1943 ed.]).

I vote then to grant the instant petition and to declare void the challenged
contract and its supplement.

FELICIANO, J.,  dissenting:

After considerable study and effort, and with much reluctance, I find I must
dissent in the instant case. I agree with many of the things set out in the
majority opinion written by my distinguished brother in the Court Quiason, J.
At the end of the day, however, I find myself unable to join in the
result reached by the majority.

I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is
appropriately drawn on fairly narrow grounds. At the same time; I wish to
address briefly one of the points made by Justice Quiason in the majority
opinion in his effort to meet the difficulties posed by Davide Jr., J.
I refer to the invocation of the provisions of presidential Decree No. 1594
dated 11 June 1978 entitled: "Prescribing policies, Guidelines, Rules and
Regulations for Government Infrastructure Contracts·" More specifically, the
majority opinion invokes paragraph 1 of Section 4 of this Degree which
reads as follows:

Sec. 4. 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 a conclusive evidence that greater
economy and efficiency would be achieved through this
arrangement, and in accordance with provisions of laws and acts
on the matter, subject to the approval of the Ministry of public
Works, 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 of the President of
the Philippines, upon the recommendation of the Minister, if the
project cost is P1 Million or more.

xxx xxx xxx

I understand the unspoken theory in the majority opinion to be that above

Section 4 and presumably the rest of Presidential Decree No. 1594 continue
to exist and to run parallel to the provisions of Republic Act No. 6957,
whether in its original form or as amended by Republic Act No. 7718.

A principal difficulty with this approach is that Presidential Decree No. 1594
purports to apply to all "government contracts for infrastructure and
other construction projects." But Republic Act No. 6957 as amended by
Republic Act No. 7718, relates only to "infrastructure projects" which are
financed, constructed, operated and maintained "by the private
sector" "through the build/operate-and-transfer or build-and-transfer
scheme" under Republic Act No. 6597 and under a series of other
comparable schemes under Republic Act No. 7718. In other words, Republic
Act No. 6957 and Republic Act. No. 7718 must be held, in my view, to
be special statutes applicable to a more limited field of "infrastructure
projects" than the wide-ranging scope of application of the general
statute i.e., Presidential Decree No. 1594. Thus, the high relevance of the
point made by Mr. Justice Davide that Republic Act No. 6957 in specific
connection with BCT- and BLT type and BLT type of contracts imposed
an unqualified requirement of public bidding set out in Section 5 thereof.
It should also be pointed out that under Presidential Decree No. 1594,
projects may be undertaken "by administration or force account or by
negotiated contract only"

(1) in exceptional cases where time is of the essence; or

(2) where there is lack of bidders or contractors; or

(3) where there is a conclusive evidence that greater economy

and efficiency would be achieved through these arrangements,
and in accordance with provision[s] of laws and acts on the
matter.

It must, upon the one hand, be noted that the special law Republic Act No.
6957 made absolutely no mention of negotiated contracts being permitted to
displace the requirement of public bidding. Upon the other hand, Section 5-
a, inserted in Republic Act No. 6957 by the amending statute Republic Act
No. 7718, does not purport to authorize direct negotiation of
contracts situations where there is a lack of pre-qualified contractors or,
complying bidders. Thus, even under the amended special statute, entering
into contracts by negotiation is not permissible in the other (2) categories of
cases referred to in Section 4 of Presidential Decree No. 1594, i.e., "in
exceptional cases where time is of the essence" and "when there is
conclusive evidence that greater economy and efficiency would be achieved
through these arrangements, etc."

The result I reach is that insofar as BOT, etc.-types of contracts are

concerned, the applicable public bidding requirement is that set out in
Republic Act No. 6957 and, with respect to such type of contracts opened for
pre-qualification and bidding after the date of effectivity of Republic Act
No. 7718, The provision of Republic Act No. 7718. The assailed contract was
entered into before Republic Act. No. 7718 was enacted.

The difficulties. of applying the provisions of Presidential Degree No. 1594 to

the Edsa LRT-type of contracts are aggravated when one considers the
detailed "Implementing Rules and Regulations as amended April 1988"
issued under that Presidential Decree.1 For instance:

IB [2.5.2] 2.4.2 By Negotiated Contract

xxx xxx xxx

 a. In times of emergencies arising from natural
calamities where immediate action is necessary to
prevent imminent loss of life and/or property.

b. Failure to award the contract after competitive

public bidding for valid cause or causes [such as
where the prices obtained through public bidding are
all above the AAE and the bidders refuse to reduce
their prices to the AAE].

In these cases, bidding may be undertaken through sealed

canvass of at least three (3) qualified contractors. Authority to
negotiate contracts for projects under these exceptional cases
shall be subject to prior approval by heads of agencies within
their limits of approving authority.

c. Where the subject project is adjacent or

contiguous to an on-going project and it could be
economically prosecuted by the same contractor
provided that he has no negative slippage and has
demonstrated a satisfactory performance. (Emphasis
supplied).

Note that there is no reference at all in these Presidential Decree No. 1594
Implementing Rules and Regulations to absence of pre-qualified applicants
and bidders as justifying negotiation of contracts as distinguished from
requiring public bidding or a second public bidding.

Note also the following provision of the same Implementing Rules and
Regulations:

IB 1 Prequalification

The following may be become contractors for government

projects:

1 Filipino

a. Citizens (single proprietorship)

b. Partnership of corporation duly organized under the laws of

the Philippines, and at least seventy five percent (75%) of the
capital stock of which belongs to Filipino citizens.
 2. Contractors forming themselves into a joint venture, i.e., a
group of two or more contractors that intend to be jointly and
severally responsible for a particular contract, shall for purposes
of bidding/tendering comply with LOI 630, and, aside from being
currently and properly accredited by the Philippine Contractors
Accreditation Board, shall comply with the provisions of R.A.
4566, provided that joint ventures in which Filipino ownership is
less than seventy five percent ( 75%) may be prequalified where
the structures to be built require the application of techniques
and/or technologies which are not adequately possessed by a
Filipino entity as defined above.

[The foregoing shall not negate any existing and future

commitments with respect to the bidding and aware of contracts
financed partly or wholly with funds from international lending
institutions like the Asian Development Bank and the Worlds
Bank as well as from bilateral and other similar sources.
(Emphases supplied)

The record of this case is entirely silent on the extent of Philippine equity in
the Edsa LRT Corporation; there is no suggestion that this corporation is
organized under Philippine law and is at least seventy-five (75%) percent
owned by Philippine citizens.

Public bidding is the normal method by which a government keeps

contractors honest and is able to assure itself that it would be getting the
best possible value for its money in any construction or similar project. It is
not for nothing that multilateral financial organizations like the World Bank
and the Asian Development Bank uniformly require projects financed by
them to be implemented and carried out by public bidding. Public bidding is
much too important a requirement casually to loosen by a latitudinarian
exercise in statutory construction.

The instant petition should be granted and the challenged contract and its
supplement should be nullified and set aside. A true public bidding, complete
with a new prequalification proceeding, should be required for the Edsa LRT
Project.

Separate Opinions

MENDOZA, J.,  concurring:
I concur in all but Part III of the majority opinion. Because I hold that
petitioners do not have standing to sue, I join to dismiss the petition in this
case. I write only to set forth what I understand the grounds for our
decisions petitioners do not have the rights to sue, whether as legislators,
taxpayers or citizens. As members of Congress, because they allege no
infringement of prerogative as legislators.1 As taxpayers because petitioners
allege neither an unconstitutional exercise of the taxing or spending powers
of Congress (Art VI, §§24-25 and 29)2 nor an illegal disbursement of public
money.3 As this Court pointed out in Bugnay Const. and
Dev. Corp. v. Laron,4 a party suing as taxpayer "must specifically prove that
he has sufficient interest in preventing the illegal expenditure of money
raised by taxation and that he will sustain a direct injury as a result of the
enforcement of the questioned statute or contract, It is not sufficient that
has merely a general interest common to all members of the public." In that
case, it was held that a contract, whereby a local government leased
property to a private party with the understanding that the latter would build
a market building and at the end of the lease would transfer the building of
the lessor, did not involve a disbursement of public funds so as to give
taxpayer standing to question the legality of the contract contracts I see no
substantial difference, as far as the standing is of taxpayers is concerned,
between the contract there and the build-lease-transfer (BLT) contract being
questioned by petitioners in this case.

Nor do petitioners have standing to bring this suit as citizens. In the

cases5 in which citizens were authorized to sue, this Court found standing
because it thought the constitutional claims pressed for decision to be of
"transcendental importance," as in fact it subsequently granted relief to
petitioners by invalidating the challenged statutes or governmental actions.
Thus in the Lotto case6 relied upon by the majority for upholding petitioners
standing, this Court took into account the "paramount public interest"
involved which "immeasurably affect[ed] the social, economic, and moral
well-being of the people . . . and the counter-productive and retrogressive
effects of the envisioned on-line lottery system:" 7 Accordingly, the Court
invalidated the contract for the operation of lottery.

But in the case at bar, the Court precisely finds the opposite by finding
petitioners' substantive contentions to be without merit To the extent
therefore that a party's standing is affected by a determination of the
substantive merit of the case or a preliminary estimate thereof, petitioners
in the case at bar must be held to be without standing. This is in line with
our ruling in Lawyers League for a Better Philippines v. Aquino 8 and In re
Bermudez9 where we dismissed citizens' actions on the ground that
petitioners had no personality to sue and their petitions did not state a cause
of action. The holding that petitioners did not have standing followed from
the finding that they did not have a cause of action.

In order that citizens' actions may be allowed a party must show that he
personally has suffered some actual or threatened injury as a result of the
allegedly illegal conduct of the government; the injury is fairly traceable to
the challenged action; and the injury is likely to be redressed by a favorable
action. 10 As the U.S. Supreme Court has held:

Typically, . . . the standing inquiry requires careful judicial

examination of a complaint's allegation to ascertain whether the
particular plaintiff is entitled to an adjudication of the particular
claims asserted. Is the injury too abstract, or otherwise not
appropriate, to be considered judicially cognizable? Is the line of
causation between the illegal conduct and injury too attenuated?
Is the prospect of obtaining relief from the injury as a result of a
favorable ruling too speculative? These questions and any others
relevant to the standing inquiry must be answered by reference
to the Art III notion that federal courts may exercise power only
"in the last resort, and as a necessity, Chicago & Grand Trunk R.
Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400
(1892), and only when adjudication is "consistent with a system
of separated powers and [the dispute is one] traditionally
thought to be capable of resolution through the judicial process,"
Flast v Cohen, 392 US 83, 97, 20 L Ed 2d 947, .88 S Ct 1942
(1968). See Valley Forge, 454 US, at 472-473, 70 L Ed 2d 700,
102 S Ct 752.11

Today's holding that a citizen, qua citizen, has standing to question a

government contract unduly expands the scope of public actions and sweeps
away the case and controversy requirement so carefully embodied in Art.
VIII, §5 in defining the jurisdiction of this Court. The result is to convert the
Court into an office of ombudsman for the ventilation of generalized
grievances. Consistent with the view that this case has no merit I submit
with respect that petitioners, as representatives of the public interest, have
no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.

DAVIDE, JR., J.,  dissenting:

After wading through the record of the vicissitudes of the challenged

contract and evaluating the issues raised and the arguments adduced by the
parties, I find myself unable to joint majority in the well-written ponencia of
Mr. Justice Camilo P. Quiason.

I most respectfully submit that the challenged contract is void for at least
two reasons: (a) it is an-ultra-vires act of the Department of Transportation
and Communications (DOTC) since under R.A. 6957 the DOTC has no
authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b)
even assuming arguendo that it has, the contract was entered into without
complying with the mandatory requirement of public bidding.

Respondents admit that the assailed contract was entered into under R.A.
6957. This law, fittingly entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by the
Private Sector, and For Other Purposes," recognizes only two (2) kinds of
contractual arrangements between the private sector and government
infrastructure agencies: (a) the Build-Operate-and-Transfer (BOT) scheme
and (b) the Build-and-Transfer (BT) scheme. This conclusion finds support in
Section 2 thereof which defines only the BOT and BT schemes, in Section 3
which explicitly provides for said schemes thus:

Sec. 3 Private Initiative in Infrastructure. — All government

infrastructure agencies, including government-owned and
controlled corporations and local government units, are hereby
authorized to enter into contract with any duly prequalified
private contractor for the financing, construction, operation and
maintenance of any financially viable infrastructure
facilities through the build-operate-and transfer or build-and-
transfer scheme, subject to the terms and conditions hereinafter
set forth; (Emphasis supplied).

and in Section 5 which requires public bidding of projects under both

schemes.

All prior acts and negotiations leading to the perfection of the challenged
contract were clearly intended and pursued for such schemes.

A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said

law, and none of the aforesaid prior acts and negotiations were designed for
such unauthorized scheme. Hence, the DOTC is without any power or
authority to enter into the BLT contract in question.
The majority opinion maintains, however, that since "[t]here is no mention
in the BOT Law that the BOT and the BT schemes bar any other
arrangement for the payment by the government of the project cost," then
"[t]he law must not be read in such a way as to rule outer unduly restrict
any variation within the context of the two schemes." This interpretation
would be correct if the law itself provides a room for flexibility. We find no
such provisions in R.A. No. 6957 if it intended to include a BLT scheme, then
it should have so stated, for contracts of lease are not unknown in our
jurisdiction, and Congress has enacted several laws relating to leases. That
the BLT scheme was never intended as a permissible variation "within the
context" of the BOT and BT schemes is conclusively established by the
passage of R.A. No. 7718 which amends:

a. Section. 2 by adding to the original BOT and BT schemes the

following schemes:

1) Build-own-and-operate (BOO)
2) Build-Lease-and-transfer (BLT)
3) Build-transfer-and-operate (BTO)
4) Contract-add-and-operate (CAO)
5) Develop-operate-and-transfer (DOT)
6) Rehabilitate-operate-and-transfer (ROT)
7) Rehabilitate-own-and-operate (ROO).

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase

"through the build-operate-and-transfer or build-and-transfer
scheme.

II

Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as

follows:

Sec. 5 Public Bidding of Projects. — Upon approval of the

projects mentioned in Section 4 of this Act, the concerned head
of the infrastructure agency or local government unit shall
forthwith cause to be published, once every week for three (3)
consecutive weeks, in at least two (2) newspapers of general
circulation and in at least one (1) local newspaper which is
circulated in the region, province, city or municipality in which
the project is to be constructed a notice inviting all duly
prequalified infrastructure contractors to participate in the public
bidding for the projects so approved. In the case of a build-
 operate-and-transfer arrangement, the contract shall be
awarded to the lowest complying bidder based on the present
value of its proposed tolls, fees, rentals, and charges over a
fixed term for the facility to be constructed, operated, and
maintained according to the prescribed minimum design and
performance standards plans, and specifications. For this
purpose, the winning contractor shall be automatically granted
by the infrastructure agency or local government unit the
franchise to operate and maintain the facility, including the
collection of tolls, fees, rentals; and charges in accordance with
Section 6 hereof.

In the case of a build-and-transfer arrangement, the contract

shall be awarded to the lowest complying bidder based on the
present value of its proposed, schedule of amortization
payments for the facility to be constructed according to the
prescribed minimum design and performance standards, plans
and specifications: Provided, however, That a Filipino constructor
who submits an equally advantageous bid shall be given
preference.

A copy of each build-operate-and-transfer or build-and-transfer

contract shall forthwith be submitted to Congress for its
information.

The requirement of public bidding is not an idle ceremony. It has been aptly
said that in our jurisdiction "public bidding is the policy and medium adhered
to in Government procurement and construction contracts under existing
laws and regulations. It is the accepted method for arriving at a fair and
reasonable price and ensures that overpricing, favoritism, and other
anomalous practices are eliminated or minimized. And any Government
contract entered into without the required bidding is null and void and
cannot adversely affect the rights of third parties." (Bartolome C. Fernandez,
Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25
[rev. ed. 1991], citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).

The Office of the president secretary through then Executive Secretary

Franklin Drilon Correctly disapproved the contract because no public bidding
is strict compliance with Section 5 of R.A. No. 6957 was conducted.
Secretary Drilon Further bluntly stated that the provision of the
Implementing Rules of said law authorizing negotiated contracts was of
doubtful legality. Indeed, it is null and void because the law itself does not
recognize or allow negotiated contracts.
However the majority opinion posits the view that since only private
respondent EDSA LRT was prequalified, then a public bidding would be "an
absurd and pointless exercise." I submit that the mandatory requirement of
public bidding cannot be legally dispensed with simply because only one was
qualified to bid during the prequalification proceedings. Section 5 mandates
that the BOT or BT contract should be awarded "to the lowest complying
bidder," which logically means that there must at least be two (2) bidders. If
this minimum requirement is not met, then the proposed bidding should be
deferred and a new prequalification proceeding be scheduled. Even those
who were earlier disqualified may by then have qualified because they may
have, in the meantime, exerted efforts to meet all the qualifications.

This view of the majority would open the floodgates to the rigging of
prequalification proceedings or to unholy conspiracies among prospective
bidders, which would even include dishonest government officials. They
could just agree, for a certain consideration, that only one of them qualify in
order that the latter would automatically corner the contract and obtain the
award.

That section 5 admits of no exception and that no bidding could be validly

had with only one bidder is likewise conclusively shown by the amendments
introduced by R.A. No. 7718 Per section 7 thereof, a new section
denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct
negotiation contracts. This new section reads:

Sec. 5-A. 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 requirements submit a
bid/proposal which 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, only one submit bids but only one is
found by the agency/LGU to be complying: Provided,
That, any of the disqualified prospective bidder may
appeal the decision contractor of the implementing
agency/LGUs prequalification bids an award
committee within fifteen (15) working days to the
head of the agency 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, That the implementing
agency/LGUs concerned should act on the appeal
within forty-five (45) working days from receipt
thereof.

Can this amendment be given retroactive effect to the challenged contract

so that it may now be considered a permissible negotiated contract? I
submit that it cannot be R.A. No. 7718 does not provide that it should be
given retroactive effect to pre-existing contracts. Section 18 thereof says
that it "shall take effect fifteen (15) after its publication in at least two (2)
newspapers of general circulation." If it were the intention of Congress to
give said act retroactive effect then it would have so expressly provided.
Article 4 of the Civil Code provides that "[l]aws shall have no retroactive
effect, unless the contrary is provided."

The presumption is that all laws operate prospectively, unless the contrary
clearly appears or is clearly, plainly, and unequivocally expressed or
necessarily implied. In every case of doubt, the doubt will be resolved
against the retroactive application of laws. (Ruben E Agpalo, STATUTORY
CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which
change an existing statute, Sutherland states:

In accordance with the rule applicable to original acts, it is

presumed that provisions added by the amendment affecting
substantive rights are intended to operate prospectively.
Provisions added by the amendment that affect substantive
rights will not be construed to apply to transactions and events
completed prior to its enactment unless the legislature has
expressed its intent to that effect or such intent is clearly implied
by the language of the amendment or by the circumstances
surrounding its enactment. (1 Frank E. Horack, Jr.,
SUTHERLAND'S STATUTES AND STATUTORY CONSTRUCTION
434-436 [1943 ed.]).
I vote then to grant the instant petition and to declare void the challenged
contract and its supplement.

FELICIANO, J.,  dissenting:

After considerable study and effort, and with much reluctance, I find I must
dissent in the instant case. I agree with many of the things set out in the
majority opinion written by my distinguished brother in the Court Quiason, J.
At the end of the day, however, I find myself unable to join in the
result reached by the majority.

I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is
appropriately drawn on fairly narrow grounds. At the same time; I wish to
address briefly one of Justice Quiason in the majority opinion in his effort to
meet the difficulties posed by Davide Jr., J.

I refer to the invocation of the provisions of presidential Decree No. 1594

dated 11 June 1978 entitled: "Prescribing policies, Guidelines, Rules and
Regulations for Government Infrastructure Contracts·" More specifically, the
majority opinion invokes paragraph 1 of Section 4 of this Degree which
reads as follows:

Sec. 4. 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 a conclusive evidence that greater
economy and efficiency would be achieved through this
arrangement, and in accordance with provisions of laws and acts
on the matter, subject to the approval of the Ministry of public
Works, 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 of the president of
the Philippines, upon the recommendation of the Minister, if the
project cost is P1 Million or more.

xxx xxx xxx

I understand the unspoken theory in the majority opinion utility and the
ownership of the facilities used to serve the public can be very w1594
continue to exist and to run parallel to the provisions of Republic Act No.
6957, whether in its original form or as amended by Republic Act No. 7718.
A principal difficulty with this approach is that Presidential Decree No. 1594
purports to apply to all "government contracts for infrastructure and
other construction projects" But Republic Act No. 6957 as amended by
Republic Act No. 7718, relates on to "infrastructure projects" which are
financed, constructed, operated and maintained "by the private sector"
"through the build/operate-and-transfer or build-and-transfer scheme" under
Republic Act No. 6597 and under a series of other comparable
schemes under Republic Act No. 7718. In other words, Republic Act No.
6957 and Republic Act. No: 7718 must be held, in my view, to be special
statutes applicable to a more limited field of "infrastructure projects" than
the wide-ranging scope of application of the general statute i.e., Presidential
Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice
Davide that Republic Act No. 6957 in specific connection with BCT- and BLT
type and BLT type of contracts imposed an unqualified requirement of public
bidding set out in Section 5 thereof.

It should also be pointed out that under Presidential Decree No. 1594,
projects may be undertaken "by administration or force account or by
negotiated contract only "

(1) in exceptional cases where time is of the essence; or

(2) where there is lack of bidders or contractors; or

(3) where there is a conclusive evidence that greater economy

and efficiency would be achieved through these arrangements,
and in accordance with provision[s] of laws and acts on the
matter.

It must, upon the one hand, be noted that the special law Republic Act- No.
6957 made absolutely no mention of negotiated contracts being permitted to
displace the requirement of public bidding. Upon the other hand, Section 5-
a, inserted in Republic Act No. 6957 by the amending statute Republic Act
No. 7718, does not purport to authorize direct negotiation of
contracts situations where there is a lack of pre-qualified contractors or,
complying bidders. Thus, even under the amended special statute, entering
into contracts by negotiation is not permissible in the other (2) categories of
cases referred to in Section 4 of Presidential Decree No. 1594, i.e., "in
exceptional cases where time is of the essence" and "when there is
conclusive evidence that greater economy and efficiency would be achieved
through these arrangements, etc."

The result I reach is that insofar as BOT, etc.-types of contracts are

concerned, the applicable public bidding requirement is that set out in
Republic Act No. 6957 and, with respect to such type of contracts opened for
pre-qualification and bidding after the date of effectivity of Republic Act
No. 7718. The provision of Republic Act No. 7718. The assailed contract was
entered into before Republic Act. No. 7718 was enacted.

The difficulties. of applying the provisions of presidential Degree No. 1594 to

the Edsa LRT-type of contracts are aggravated when one considers the
detailed" Implementing Rules and Regulations as amended April 1988"
issued under that Presidential Decree.1 For instance:

IB [2.5.2] 2.4.2 By Negotiated Contract

xxx xxx xxx

a. In times of emergencies arising from natural

calamities where immediate action is necessary to
prevent imminent loss of life and/or property.

b. Failure to award the contract after competitive

public bidding for valid cause or causes [such as
where the prices obtained through public bidding are
all above the AAE and the bidders refuse to reduce
their prices to the AAE].

In these cases, bidding may be undertaken through sealed

canvass of at least three (3) qualified contractors. Authority to
negotiate contracts for projects under these exceptional cases
shall be subject to prior approval by heads of agencies within
their limits of approving authority.

c. Where the subject project is adjacent or

contiguous to an on-going project and it could be
economically prosecuted by the same contractor
provided that he has no negative slippage and has
demonstrated a satisfactory performance. (Emphasis
supplied).

Note that there is no reference at all in these presidential Decree No. 1594
Implementing Rules and Regulations to absence of pre-qualified applicants
and bidders as justifying negotiation of contracts as distinguished from
requiring public bidding or a second public bidding.

Note also the following provision of the same Implementing Rules and
Regulations:
 IB 1 Prequalification

The following may be become contractors for government

projects:

1 Filipino

a. Citizens (single proprietorship)

b. Partnership of corporation duly organized under the laws of

the Philippines, and at least seventy five percent (75%) of the
capital stock of which belongs to Filipino citizens.

2. Contractors forming themselves into a joint venture, i.e., a

group of two or more contractors that intend to be jointly and
severally responsible for a particular contract, shall for purposes
of bidding/tendering comply with LOI 630, and, aside from being
currently and properly accredited by the Philippine Contractors
Accreditation Board, shall comply with the provisions of R.A.
4566, provided that joint ventures in which Filipino ownership is
less than seventy five percent ( 75%) may be prequalified where
the structures to be built require the application of techniques
and/or technologies which are not adequately possessed by a
Filipino entity as defined above.

[The foregoing shall not negate any existing and future

commitments with respect to the bidding and aware of contracts
financed partly or wholly with funds from international lending
institutions like the Asian Development Bank and the Worlds
Bank as well as from bilateral and other similar sources.
(Emphases supplied)

The record of this case is entirely silent on the extent of Philippine equity in
the Edsa LRT Corporation; there is no suggestion that this corporation is
organized under Philippine law and is at least seventy-five (75%) percent
owned by Philippine citizens.

Public bidding is the normal method by which a government keeps

contractors honest and is able to assure itself that it would be getting the
best possible value for its money in any construction or similar project. It is
not for nothing that multilateral financial organizations like the World Bank
and the Asian Development Bank uniformly require projects financed by
them to be implemented and carried out by public bidding. Public bidding is
much too important a requirement casually to loosen by a latitudinarian
exercise in statutory construction.

The instant petition should be granted and the challenged contract and its
supplement should be nullified and set aside. A true public bidding, complete
with a new prequalification proceeding, should be required for the Edsa LRT
Project.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 166471               March 22, 2011

TAWANG MULTI-PURPOSE COOPERATIVE Petitioner,

vs.
LA TRINIDAD WATER DISTRICT, Respondent.

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari under Rule 45 of the Rules of Court.
The petition1 challenges the 1 October 2004 Judgment2 and 6 November
2004 Order3 of the Regional Trial Court (RTC), Judicial Region 1, Branch 62,
La Trinidad, Benguet, in Civil Case No. 03-CV-1878.

The Facts

Tawang Multi-Purpose Cooperative (TMPC) is a cooperative, registered with

the Cooperative Development Authority, and organized to provide domestic
water services in Barangay Tawang, La Trinidad, Benguet.

La Trinidad Water District (LTWD) is a local water utility created under

Presidential Decree (PD) No. 198, as amended. It is authorized to supply
water for domestic, industrial and commercial purposes within the
municipality of La Trinidad, Benguet.
On 9 October 2000, TMPC filed with the National Water Resources Board
(NWRB) an application for a certificate of public convenience (CPC) to
operate and maintain a waterworks system in Barangay Tawang. LTWD
opposed TMPC’s application. LTWD claimed that, under Section 47 of PD No.
198, as amended, its franchise is exclusive. Section 47 states that:

Sec. 47. Exclusive Franchise. No franchise shall be granted to any other

person or agency for domestic, industrial or commercial water service within
the district or any portion thereof unless and except to the extent that the
board of directors of said district consents thereto by resolution duly
adopted, such resolution, however, shall be subject to review by the
Administration.

In its Resolution No. 04-0702 dated 23 July 2002, the NWRB approved
TMPC’s application for a CPC. In its 15 August 2002 Decision, 4 the NWRB
held that LTWD’s franchise cannot be exclusive since exclusive franchises are
unconstitutional and found that TMPC is legally and financially qualified to
operate and maintain a waterworks system. NWRB stated that:

With respect to LTWD’s opposition, this Board observes that:

1. It is a substantial reproduction of its opposition to the application for

water permits previously filed by this same CPC applicant, under WUC No.
98-17 and 98-62 which was decided upon by this Board on April 27, 2000.
The issues being raised by Oppositor had been already resolved when this
Board said in pertinent portions of its decision:

"The authority granted to LTWD by virtue of P.D. 198 is not Exclusive. While
Barangay Tawang is within their territorial jurisdiction, this does not mean
that all others are excluded in engaging in such service, especially, if the
district is not capable of supplying water within the area. This Board has
time and again ruled that the "Exclusive Franchise" provision under P.D. 198
has misled most water districts to believe that it likewise extends to be [sic]
the waters within their territorial boundaries. Such ideological adherence
collides head on with the constitutional provision that "ALL WATERS AND
NATURAL RESOURCES BELONG TO THE STATE". (Sec. 2, Art. XII) and that
"No franchise, certificate or authorization for the operation of public [sic]
shall be exclusive in character".

xxxx

All the foregoing premises all considered, and finding that Applicant is legally
and financially qualified to operate and maintain a waterworks system; that
the said operation shall redound to the benefit of the homeowners/residents
of the subdivision, thereby, promoting public service in a proper and suitable
manner, the instant application for a Certificate of Public Convenience is,
hereby, GRANTED.5

LTWD filed a motion for reconsideration. In its 18 November 2002

Resolution,6 the NWRB denied the motion.

LTWD appealed to the RTC.

The RTC’s Ruling

In its 1 October 2004 Judgment, the RTC set aside the NWRB’s 23 July 2002
Resolution and 15 August 2002 Decision and cancelled TMPC’s CPC. The RTC
held that Section 47 is valid. The RTC stated that:

The Constitution uses the term "exclusive in character". To give effect to this
provision, a reasonable, practical and logical interpretation should be
adopted without disregard to the ultimate purpose of the Constitution. What
is this ultimate purpose? It is for the state, through its authorized agencies
or instrumentalities, to be able to keep and maintain ultimate control and
supervision over the operation of public utilities. Essential part of this control
and supervision is the authority to grant a franchise for the operation of a
public utility to any person or entity, and to amend or repeal an existing
franchise to serve the requirements of public interest. Thus, what is
repugnant to the Constitution is a grant of franchise "exclusive in character"
so as to preclude the State itself from granting a franchise to any other
person or entity than the present grantee when public interest so requires.
In other words, no franchise of whatever nature can preclude the State,
through its duly authorized agencies or instrumentalities, from granting
franchise to any person or entity, or to repeal or amend a franchise already
granted. Consequently, the Constitution does not necessarily prohibit a
franchise that is exclusive on its face, meaning, that the grantee shall be
allowed to exercise this present right or privilege to the exclusion of all
others. Nonetheless, the grantee cannot set up its exclusive franchise
against the ultimate authority of the State. 7

TMPC filed a motion for reconsideration. In its 6 November 2004 Order, the
RTC denied the motion. Hence, the present petition.

Issue

TMPC raises as issue that the RTC erred in holding that Section 47 of PD No.
198, as amended, is valid.
 The Court’s Ruling

The petition is meritorious.

What cannot be legally done directly cannot be done indirectly. This rule is
basic and, to a reasonable mind, does not need explanation. Indeed, if acts
that cannot be legally done directly can be done indirectly, then all laws
would be illusory.

In Alvarez v. PICOP Resources, Inc.,8 the Court held that, "What one cannot
do directly, he cannot do indirectly."9 In Akbayan Citizens Action Party v.
Aquino,10 quoting Agan, Jr. v. Philippine International Air Terminals Co.,
Inc.,11 the Court held that, "This Court has long and consistently adhered to
the legal maxim that those that cannot be done directly cannot be done
indirectly."12 In Central Bank Employees Association, Inc. v. Bangko Sentral
ng Pilipinas,13 the Court held that, "No one is allowed to do indirectly what he
is prohibited to do directly."14

The President, Congress and the Court cannot create directly franchises for
the operation of a public utility that are exclusive in character. The 1935,
1973 and 1987 Constitutions expressly and clearly prohibit the creation of
franchises that are exclusive in character. Section 8, Article XIII of the 1935
Constitution states that:

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 other entities organized under the laws of the Philippines,
sixty per centum of the capital of which is owned by citizens of the
Philippines, nor shall such franchise, certificate or authorization be
exclusive in character or for a longer period than fifty years. (Empahsis
supplied)

Section 5, Article XIV of the 1973 Constitution states that:

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 the capital of which is owned by such citizens, nor
shall such franchise, certificate or authorization be exclusive in
character or for a longer period than fifty years. (Emphasis supplied)

Section 11, Article XII of the 1987 Constitution states that:

No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned by such citizens, nor shall
such franchise, certificate or authorization be exclusive in character or
for a longer period than fifty years. (Emphasis supplied)

Plain words do not require explanation. The 1935, 1973 and 1987
Constitutions are clear — franchises for the operation of a public utility
cannot be exclusive in character. The 1935, 1973 and 1987 Constitutions
expressly and clearly state that, "nor shall such franchise x x x be
exclusive in character." There is no exception.

When the law is clear, there is nothing for the courts to do but to apply it.
The duty of the Court is to apply the law the way it is worded. In Security
Bank and Trust Company v. Regional Trial Court of Makati, Branch 61,15 the
Court held that:

Basic is the rule of statutory construction that when the law is clear and
unambiguous, the court is left with no alternative but to apply the
same according to its clear language. As we have held in the case
of Quijano v. Development Bank of the Philippines:

"x x x We cannot see any room for interpretation or construction in the clear
and unambiguous language of the above-quoted provision of law. This
Court had steadfastly adhered to the doctrine that its first and
fundamental duty is the application of the law according to its
express terms, interpretation being called for only when such literal
application is impossible. No process of interpretation or construction need
be resorted to where a provision of law peremptorily calls for
application. Where a requirement or condition is made in explicit and
unambiguous terms, no discretion is left to the judiciary. It must see
to it that its mandate is obeyed."16 (Emphasis supplied)

In Republic of the Philippines v. Express Telecommunications Co., Inc.,17 the

Court held that, "The Constitution is quite emphatic that the operation of a
public utility shall not be exclusive."18 In Pilipino Telephone Corporation v.
National Telecommunications Commission,19 the Court held that, "Neither
Congress nor the NTC can grant an exclusive ‘franchise, certificate, or any
other form of authorization’ to operate a public utility." 20 In National Power
Corp. v. Court of Appeals,21 the Court held that, "Exclusivity of any public
franchise has not been favored by this Court such that in most, if not all,
grants by the government to private corporations, the interpretation of
rights, privileges or franchises is taken against the grantee." 22 In Radio
Communications of the Philippines, Inc. v. National Telecommunications
Commission,23 the Court held that, "The Constitution mandates that a
franchise cannot be exclusive in nature." 24

Indeed, the President, Congress and the Court cannot create directly
franchises that are exclusive in character. What the President, Congress and
the Court cannot legally do directly they cannot do indirectly. Thus, the
President, Congress and the Court cannot create indirectly franchises that
are exclusive in character by allowing the Board of Directors (BOD) of a
water district and the Local Water Utilities Administration (LWUA) to create
franchises that are exclusive in character.

In PD No. 198, as amended, former President Ferdinand E. Marcos

(President Marcos) created indirectly franchises that are exclusive in
character by allowing the BOD of LTWD and the LWUA to create directly
franchises that are exclusive in character. Section 47 of PD No. 198, as
amended, allows the BOD and the LWUA to create directly franchises that
are exclusive in character. Section 47 states:

Sec. 47. Exclusive Franchise. No franchise shall be granted to any other

person or agency for domestic, industrial or commercial water service
within the district or any portion thereof unless and except to the extent
that the board of directors of said district consents thereto by
resolution duly adopted, such resolution, however, shall be subject
to review by the Administration. (Emphasis supplied)

In case of conflict between the Constitution and a statute, the Constitution

always prevails because the Constitution is the basic law to which all other
laws must conform to. The duty of the Court is to uphold the Constitution
and to declare void all laws that do not conform to it.

In Social Justice Society v. Dangerous Drugs Board,25 the Court held that, "It
is basic that if a law or an administrative rule violates any norm of the
Constitution, that issuance is null and void and has no effect. The
Constitution is the basic law to which all laws must conform; no act shall be
valid if it conflicts with the Constitution."26 In Sabio v. Gordon,27 the Court
held that, "the Constitution is the highest law of the land. It is the ‘basic and
paramount law to which all other laws must conform.’"28 In Atty. Macalintal
v. Commission on Elections,29 the Court held that, "The Constitution is the
fundamental and paramount law of the nation to which all other laws must
conform and in accordance with which all private rights must be determined
and all public authority administered. Laws that do not conform to the
Constitution shall be stricken down for being unconstitutional." 30 In Manila
Prince Hotel v. Government Service Insurance System,31 the Court held that:
Under the doctrine of constitutional supremacy, if a law or
contract violates any norm of the constitution that law or
contract whether promulgated by the legislative or by the executive
branch or entered into by private persons for private purposes is null and
void and without any force and effect. Thus, since the Constitution is
the fundamental, paramount and supreme law of the nation, it is
deemed written in every statute and contract."32 (Emphasis supplied)

To reiterate, the 1935, 1973 and 1987 Constitutions expressly prohibit the
creation of franchises that are exclusive in character. They uniformly
command that "nor shall such franchise x x x be exclusive in
character." This constitutional prohibition is absolute and accepts no
exception. On the other hand, PD No. 198, as amended, allows the BOD of
LTWD and LWUA to create franchises that are exclusive in character. Section
47 states that, "No franchise shall be granted to any other person or agency
x x x unless and except to the extent that the board of directors
consents thereto x x x subject to review by the Administration."
Section 47 creates a glaring exception to the absolute prohibition in the
Constitution. Clearly, it is patently unconstitutional.

Section 47 gives the BOD and the LWUA the authority to make an exception
to the absolute prohibition in the Constitution. In short, the BOD and the
LWUA are given the discretion to create franchises that are exclusive in
character. The BOD and the LWUA are not even legislative bodies. The BOD
is not a regulatory body but simply a management board of a water district.
Indeed, neither the BOD nor the LWUA can be granted the power to create
any exception to the absolute prohibition in the Constitution, a power that
Congress itself cannot exercise.

In Metropolitan Cebu Water District v. Adala,33 the Court categorically

declared Section 47 void. The Court held that:

Nonetheless, while the prohibition in Section 47 of P.D. 198 applies to the

issuance of CPCs for the reasons discussed above, the same provision must
be deemed void ab initio for being irreconcilable with Article XIV,
Section 5 of the 1973 Constitution which was ratified on January 17,
1973 — the constitution in force when P.D. 198 was issued on May 25, 1973.
Thus, Section 5 of Art. XIV of the 1973 Constitution reads:

"SECTION 5. 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 the capital of which is owned by such
citizens, nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither shall
any such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by the Batasang
Pambansa when the public interest so requires. The State shall encourage
equity participation in public utiltities by the general public. The participation
of foreign investors in the governing body of any public utility enterprise
shall be limited to their proportionate share in the capital thereof."

This provision has been substantially reproduced in Article XII Section 11 of

the 1987 Constitution, including the prohibition against exclusive franchises.

xxxx

Since Section 47 of P.D. 198, which vests an "exclusive franchise"

upon public utilities, is clearly repugnant to Article XIV, Section 5 of
the 1973 Constitution, it is unconstitutional and may not, therefore, be
relied upon by petitioner in support of its opposition against respondent’s
application for CPC and the subsequent grant thereof by the NWRB.

WHEREFORE, Section 47 of P.D. 198 is unconstitutional.34 (Emphasis

supplied)

The dissenting opinion declares Section 47 valid and constitutional. In effect,

the dissenting opinion holds that (1) President Marcos can create indirectly
franchises that are exclusive in character; (2) the BOD can create directly
franchises that are exclusive in character; (3) the LWUA can create directly
franchises that are exclusive in character; and (4) the Court should allow the
creation of franchises that are exclusive in character.

Stated differently, the dissenting opinion holds that (1) President Marcos can
violate indirectly the Constitution; (2) the BOD can violate directly the
Constitution; (3) the LWUA can violate directly the Constitution; and (4) the
Court should allow the violation of the Constitution.

The dissenting opinion states that the BOD and the LWUA can create
franchises that are exclusive in character "based on reasonable and
legitimate grounds," and such creation "should not be construed as a
violation of the constitutional mandate on the non-exclusivity of a franchise"
because it "merely refers to regulation" which is part of "the government’s
inherent right to exercise police power in regulating public utilities" and that
their violation of the Constitution "would carry with it the legal presumption
that public officers regularly perform their official functions." The dissenting
opinion states that:
To begin with, a government agency’s refusal to grant a franchise to another
entity, based on reasonable and legitimate grounds, should not be construed
as a violation of the constitutional mandate on the non-exclusivity of a
franchise; this merely refers to regulation, which the Constitution does not
prohibit. To say that a legal provision is unconstitutional simply because it
enables a government instrumentality to determine the propriety of granting
a franchise is contrary to the government’s inherent right to exercise police
power in regulating public utilities for the protection of the public and the
utilities themselves. The refusal of the local water district or the LWUA to
consent to the grant of other franchises would carry with it the legal
presumption that public officers regularly perform their official functions.

The dissenting opinion states two "reasonable and legitimate grounds" for
the creation of exclusive franchise: (1) protection of "the government’s
investment,"35 and (2) avoidance of "a situation where ruinous competition
could compromise the supply of public utilities in poor and remote areas." 36

There is no "reasonable and legitimate" ground to violate the Constitution.

The Constitution should never be violated by anyone. Right or wrong, the
President, Congress, the Court, the BOD and the LWUA have no choice but
to follow the Constitution. Any act, however noble its intentions, is void if it
violates the Constitution. This rule is basic.

In Social Justice Society,37 the Court held that, "In the discharge of their
defined functions, the three departments of government have no
choice but to yield obedience to the commands of the Constitution.
Whatever limits it imposes must be observed."38 In Sabio,39 the Court
held that, "the Constitution is the highest law of the land. It is ‘the basic
and paramount law to which x x x all persons, including the highest
officials of the land, must defer. No act shall be valid, however noble
its intentions, if it conflicts with the Constitution.’"40 In Bengzon v.
Drilon,41 the Court held that, "the three branches of government must
discharge their respective functions within the limits of authority conferred
by the Constitution."42 In Mutuc v. Commission on Elections,43 the Court held
that, "The three departments of government in the discharge of the
functions with which it is [sic] entrusted have no choice but to yield
obedience to [the Constitution’s] commands. Whatever limits it
imposes must be observed."44

Police power does not include the power to violate the Constitution. Police
power is the plenary power vested in Congress to make
laws not repugnant to the Constitution. This rule is basic.
In Metropolitan Manila Development Authority v. Viron Transportation Co.,
Inc.,45 the Court held that, "Police power is the plenary power vested in the
legislature to make, ordain, and establish wholesome and reasonable laws,
statutes and ordinances, not repugnant to the Constitution."46 In Carlos
Superdrug Corp. v. Department of Social Welfare and Development,47 the
Court held that, police power "is ‘the power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome and
reasonable laws, statutes, and ordinances x x x not repugnant to the
constitution.’"48 In Metropolitan Manila Development Authority v.
Garin,49 the Court held that, "police power, as an inherent attribute of
sovereignty, is the power vested by the Constitution in the legislature to
make, ordain, and establish all manner of wholesome and reasonable laws,
statutes and ordinances x x x not repugnant to the Constitution."50

There is no question that the effect of Section 47 is the creation of franchises

that are exclusive in character. Section 47 expressly allows the BOD and the
LWUA to create franchises that are exclusive in character.

The dissenting opinion explains why the BOD and the LWUA should be
allowed to create franchises that are exclusive in character — to protect "the
government’s investment" and to avoid "a situation where ruinous
competition could compromise the supply of public utilities in poor and
remote areas." The dissenting opinion declares that these are "reasonable
and legitimate grounds." The dissenting opinion also states that, "The refusal
of the local water district or the LWUA to consent to the grant of other
franchises would carry with it the legal presumption that public officers
regularly perform their official functions."

When the effect of a law is unconstitutional, it is void. In Sabio,51 the Court

held that, "A statute may be declared unconstitutional because it is not
within the legislative power to enact; or it creates or establishes methods or
forms that infringe constitutional principles; or its purpose or effect
violates the Constitution or its basic principles."52 The effect of Section 47
violates the Constitution, thus, it is void.

In Strategic Alliance Development Corporation v. Radstock Securities

Limited,53 the Court held that, "This Court must perform its duty to defend
and uphold the Constitution."54 In Bengzon,55 the Court held that, "The
Constitution expressly confers on the judiciary the power to maintain
inviolate what it decrees."56 In Mutuc,57 the Court held that:

The concept of the Constitution as the fundamental law, setting forth the
criterion for the validity of any public act whether proceeding from the
highest official or the lowest functionary, is a postulate of our system of
government. That is to manifest fealty to the rule of law, with priority
accorded to that which occupies the topmost rung in the legal hierarchy. The
three departments of government in the discharge of the functions with
which it is [sic] entrusted have no choice but to yield obedience to its
commands. Whatever limits it imposes must be observed. Congress in the
enactment of statutes must ever be on guard lest the restrictions on its
authority, whether substantive or formal, be transcended. The Presidency in
the execution of the laws cannot ignore or disregard what it ordains. In its
task of applying the law to the facts as found in deciding cases, the judiciary
is called upon to maintain inviolate what is decreed by the fundamental law.
Even its power of judicial review to pass upon the validity of the acts of the
coordinate branches in the course of adjudication is a logical corollary of this
basic principle that the Constitution is paramount. It overrides any
governmental measure that fails to live up to its mandates. Thereby there is
a recognition of its being the supreme law.58

Sustaining the RTC’s ruling would make a dangerous precedent. It will allow
Congress to do indirectly what it cannot do directly. In order to circumvent
the constitutional prohibition on franchises that are exclusive in character, all
Congress has to do is to create a law allowing the BOD and the LWUA to
create franchises that are exclusive in character, as in the present case.

WHEREFORE, we GRANT the petition. We DECLARE Section 47 of

Presidential Decree No. 198 UNCONSTITUTIONAL. We SET ASIDE the 1
October 2004 Judgment and 6 November 2004 Order of the Regional Trial
Court, Judicial Region 1, Branch 62, La Trinidad, Benguet, in Civil Case No.
03-CV-1878 and REINSTATE the 23 July 2002 Resolution and 15 August
2002 Decision of the National Water Resources Board.

SO ORDERED.