G.R. No.
115381 December 23, 1994
KILUSANG MAYO UNO LABOR CENTER, petitioner,  fare declared by LTFRB on many provincial routes. It is in this
vs.
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION
FRANCHISING AND REGULATORY BOARD, and the
PROVINCIAL BUS OPERATORS ASSOCIATION OF THE
PHILIPPINES, respondents.
KAPUNAN, J.:
Public utilities are privately owned and operated businesses whose
service are essential to the general public. They are enterprises which
specially cater to the needs of the public and conduce to their comfort and
convenience. As such, public utility services are impressed with public
interest and concern. The same is true with respect to the business of
common carrier which holds such a peculiar relation to the public interest
that there is superinduced upon it the right of public regulation when
private properties are affected with public interest, hence, they cease to
be juris privati  only. When, therefore, one devotes his property to a use
in which the public has an interest, he, in effect grants to the public an
interest in that use, and must submit to the control by the public for the
common good, to the extent of the interest he has thus created.1
An abdication of the licensing and regulatory government agencies of
their functions as the instant petition seeks to show, is indeed lamentable.
Not only is it an unsound administrative policy but it is inimical to public
trust and public interest as well.
The instant petition for certiorari assails the constitutionality and validity
of certain memoranda, circulars and/or orders of the Department of
Transportation and Communications (DOTC) and the Land
Transportation Franchising and Regulatory Board LTFRB)2 which,
among others, (a) authorize provincial bus and jeepney operators to
increase or decrease the prescribed transportation fares without
application therefor with the LTFRB and without hearing and approval
thereof by said agency in violation of Sec. 16(c) of Commonwealth Act
No. 146, as amended, otherwise known as the Public Service Act, and in
derogation of LTFRB's duty to fix and determine just and reasonable
fares by delegating that function to bus operators, and (b) establish a
presumption of public need in favor of applicants for certificates of public
convenience (CPC) and place on the oppositor the burden of proving that
there is no need for the proposed service, in patent violation not only of
Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act
mandating that fares should be "just and reasonable." It is, likewise,
violative of the Rules of Court which places upon each party the burden
to prove his own affirmative allegations.3 The offending provisions
contained in the questioned issuances pointed out by petitioner, have
resulted in the introduction into our highways and thoroughfares
thousands of old and smoke-belching buses, many of which are right-
hand driven, and have exposed our consumers to the burden of spiraling
costs of public transportation without hearing and due process.
The following memoranda, circulars and/or orders are sought to be
nullified by the instant petition, viz: (a) DOTC Memorandum Order 90-
395, dated June 26, 1990 relative to the implementation of a fare range
scheme for provincial bus services in the country; (b) DOTC Department
Order No.
92-587, dated March 30, 1992, defining the policy framework on the
regulation of transport services; (c) DOTC Memorandum dated October
8, 1992, laying down rules and procedures to implement Department
Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009,
providing implementing guidelines on the DOTC Department Order No.
92-587; and (e) LTFRB Order dated March 24, 1994 in Case No. 94-
3112.
The relevant antecedents are as follows:
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued
Memorandum Circular No. 90-395 to then LTFRB Chairman, Remedios
A.S. Fernando allowing provincial bus operators to charge passengers
rates within a range of 15% above and 15% below the LTFRB official
rate for a period of one (1) year. The text of the memorandum order reads
in full:
One of the policy reforms and measures that is in line with the
thrusts and the priorities set out in the Medium-Term Philippine
Development Plan (MTPDP) 1987 — 1992) is the liberalization
of regulations in the transport sector. Along this line, the
Government intends to move away gradually from regulatory
policies and make progress towards greater reliance on free
market forces.
Based on several surveys and observations, bus companies are
already charging passenger rates above and below the official
context that some form of liberalization on public transport fares
is to be tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately
publicize a fare range scheme for all provincial bus routes in
country (except those operating within Metro Manila). Transport
Operators shall be allowed to charge passengers within a range
of fifteen percent (15%) above and fifteen percent (15%) below
the LTFRB official rate for a period of one year.
Guidelines and procedures for the said scheme shall be prepared
by LTFRB in coordination with the DOTC Planning Service.
The implementation of the said fare range scheme shall start on 6
August 1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally
feasible," Remedios A.S. Fernando submitted the following
memorandum to Oscar M. Orbos on July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated
26 June 1990 which the LTFRB received on 19 July 1990,
directing the Board "to immediately publicize a fare range
scheme for all provincial bus routes in the country (except those
operating within Metro Manila)" that will allow operators "to
charge passengers within a range of fifteen percent (15%) above
and fifteen percent (15%) below the LTFRB official rate for a
period of one year" the undersigned is respectfully adverting the
Secretary's attention to the following for his consideration:
1. Section 16(c) of the Public Service Act prescribes the
following for the fixing and determination of rates — (a) the
rates to be approved should be proposed by public service
operators; (b) there should be a publication and notice to
concerned or affected parties in the territory affected; (c) a
public hearing should be held for the fixing of the rates;
hence, implementation of the proposed fare range scheme on
August 6 without complying with the requirements of the
Public Service Act may not be legally feasible.
2. To allow bus operators in the country to charge fares
fifteen (15%) above the present LTFRB fares in the wake of
the devastation, death and suffering caused by the July 16
earthquake will not be socially warranted and will be
politically unsound; most likely public criticism against the
DOTC and the LTFRB will be triggered by the
untimely motu propioimplementation of the proposal by the
mere expedient of publicizing the fare range scheme without
calling a public hearing, which scheme many as early as
during the Secretary's predecessor know through newspaper
reports and columnists' comments to be Asian Development
Bank and World Bank inspired.
3. More than inducing a reduction in bus fares by fifteen
percent (15%) the implementation of the proposal will
instead trigger an upward adjustment in bus fares by fifteen
percent (15%) at a time when hundreds of thousands of
people in Central and Northern Luzon, particularly in Central
Pangasinan, La Union, Baguio City, Nueva Ecija, and the
Cagayan Valley are suffering from the devastation and havoc
caused by the recent earthquake.
4. In lieu of the said proposal, the DOTC with its agencies
involved in public transportation can consider measures and
reforms in the industry that will be socially uplifting,
especially for the people in the areas devastated by the recent
earthquake.
In view of the foregoing considerations, the undersigned
respectfully suggests that the implementation of the proposed
fare range scheme this year be further studied and evaluated.
On December 5, 1990, private respondent Provincial Bus Operators
Association of the Philippines, Inc. (PBOAP) filed an application for fare
rate increase. An across-the-board increase of eight and a half centavos
(P0.085) per kilometer for all types of provincial buses with a minimum-
maximum fare range of fifteen (15%) percent over and below the
1
proposed basic per kilometer fare rate, with the said minimum-maximum In determining public need, the presumption of need for a service
fare range applying only to ordinary, first class and premium class buses shall be deemed in favor of the applicant. The burden of proving
and a fifty-centavo (P0.50) minimum per kilometer fare for aircon buses, that there is no need for a proposed service shall be with the
was sought. oppositor(s).

On December 6, 1990, private respondent PBOAP reduced its applied
proposed fare to an across-the-board increase of six and a half (P0.065)
centavos per kilometer for ordinary buses. The decrease was due to the
drop in the expected price of diesel.
The application was opposed by the Philippine Consumers Foundation,
Inc. and Perla C. Bautista alleging that the proposed rates were exorbitant
and unreasonable and that the application contained no allegation on the
rate of return of the proposed increase in rates.
On December 14, 1990, public respondent LTFRB rendered a decision
granting the fare rate increase in accordance with the following schedule
of fares on a straight computation method, viz:
AUTHORIZED FARES
In the interest of providing efficient public transport services, the
use of the "prior operator" and the "priority of filing" rules shall
be discontinued. The route measured capacity test or other
similar tests of demand for vehicle/vessel fleet on any route shall
be used only as a guide in weighing the merits of each franchise
application and not as a limit to the services offered.
Where there are limitations in facilities, such as congested road
space in urban areas, or at airports and ports, the use of demand
management measures in conformity with market principles may
be considered.
The right of an operator to leave the industry is recognized as a
business decision, subject only to the filing of appropriate notice
and following a phase-out period, to inform the public and to
minimize disruption of services.

LUZON
MIN. OF 5 KMS. SUCCEEDING KM. 2. Rate and Fare Setting. Freight rates shall be freed gradually
from government controls. Passenger fares shall also be
deregulated, except for the lowest class of passenger service
REGULAR P1.50 P0.37 (normally third class passenger transport) for which the
STUDENT P1.15 P0.28 government will fix indicative or reference fares. Operators of
particular services may fix their own fares within a range 15%
VISAYAS/MINDANAO above and below the indicative or reference rate.

REGULAR P1.60 P0.375 Where there is lack of effective competition for services, or on
STUDENT P1.20 P0.285 specific routes, or for the transport of particular commodities,
FIRST CLASS (PER KM.) maximum mandatory freight rates or passenger fares shall be set
LUZON P0.385 temporarily by the government pending actions to increase the
VISAYAS/ level of competition.
MINDANAO P0.395
PREMIERE CLASS (PER KM.) For unserved or single operator routes, the government shall
LUZON P0.395 contract such services in the most advantageous terms to the
VISAYAS/ public and the government, following public bids for the
MINDANAO P0.405 services. The advisability of bidding out the services or using
other kinds of incentives on such routes shall be studied by the
AIRCON (PER KM.) P0.415.4 government.

On March 30, 1992, then Secretary of the Department of Transportation
and Communications Pete Nicomedes Prado issued Department Order
No.
92-587 defining the policy framework on the regulation of transport
services. The full text of the said order is reproduced below in view of the
importance of the provisions contained therein:
3. Special Incentives and Financing for Fleet Acquisition. As a
matter of policy, the government shall not engage in special
financing and incentive programs, including direct subsidies for
fleet acquisition and expansion. Only when the market situation
warrants government intervention shall programs of this type be
considered. Existing programs shall be phased out gradually.

WHEREAS, Executive Order No. 125 as amended, designates
the Department of Transportation and Communications (DOTC)
as the primary policy, planning, regulating and implementing
agency on transportation;
WHEREAS, to achieve the objective of a viable, efficient, and
dependable transportation system, the transportation regulatory
agencies under or attached to the DOTC have to harmonize their
decisions and adopt a common philosophy and direction;
WHEREAS, the government proposes to build on the successful
liberalization measures pursued over the last five years and bring
the transport sector nearer to a balanced longer term regulatory
framework;
NOW, THEREFORE, pursuant to the powers granted by laws to
the DOTC, the following policies and principles in the economic
regulation of land, air, and water transportation services are
hereby adopted:
1. Entry into and exit out of the industry. Following the
Constitutional dictum against monopoly, no franchise holder
shall be permitted to maintain a monopoly on any route. A
minimum of two franchise holders shall be permitted to operate
on any route.
The requirements to grant a certificate to operate, or certificate of
public convenience, shall be: proof of Filipino citizenship,
financial capability, public need, and sufficient insurance cover
to protect the riding public.
The Land Transportation Franchising and Regulatory Board, the
Civil Aeronautics Board, the Maritime Industry Authority are
hereby directed to submit to the Office of the Secretary, within
forty-five (45) days of this Order, the detailed rules and
procedures for the Implementation of the policies herein set
forth. In the formulation of such rules, the concerned agencies
shall be guided by the most recent studies on the subjects, such as
the Provincial Road Passenger Transport Study, the Civil
Aviation Master Plan, the Presidential Task Force on the Inter-
island Shipping Industry, and the Inter-island Liner Shipping
Rate Rationalization Study.
For the compliance of all concerned. (Emphasis ours)
On October 8, 1992, public respondent Secretary of the Department of
Transportation and Communications Jesus B. Garcia, Jr. issued a
memorandum to the Acting Chairman of the LTFRB suggesting swift
action on the adoption of rules and procedures to implement above-
quoted Department Order No. 92-587 that laid down deregulation and
other liberalization policies for the transport sector. Attached to the said
memorandum was a revised draft of the required rules and procedures
covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare
Setting, with comments and suggestions from the World Bank
incorporated therein. Likewise, resplendent from the said memorandum is
the statement of the DOTC Secretary that the adoption of the rules and
procedures is a pre-requisite to the approval of the Economic Integration
Loan from the World Bank.5
On February 17, 1993, the LTFRB issued Memorandum Circular
No. 92-009 promulgating the guidelines for the implementation of DOTC
Department Order No. 92-587. The Circular provides, among others, the
following challenged portions:

2
 xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public
Convenience.
The issuance of a Certificate of Public Convenience is
determined by public need. The presumption of public need for a
service shall be deemed in favor of the applicant, while burden of
proving that there is no need for the proposed service shall be
the oppositor'(s).
xxx xxx xxx
V. Rate and Fare Setting
The control in pricing shall be liberalized to introduce price
competition complementary with the quality of service, subject to
prior notice and public hearing. Fares shall not be provisionally
authorized without public hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus 15
per cent for provincial buses and jeepneys shall be widened to
20% and -25% limit in 1994 with the authorized fare to be
replaced by an indicative or reference rate as the basis for the
expanded fare range.
2. Fare systems for aircon buses are liberalized to cover first
class and premier services.
xxx xxx xxx
(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing itself of
the deregulation policy of the DOTC allowing provincial bus operators to
collect plus 20% and minus 25% of the prescribed fare without first
having filed a petition for the purpose and without the benefit of a public
hearing, announced a fare increase of twenty (20%) percent of the
existing fares. Said increased fares were to be made effective on March
16, 1994.
On March 16, 1994, petitioner KMU filed a petition before the LTFRB
opposing the upward adjustment of bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders
dismissing the petition for lack of merit. The dispositive portion reads:
PREMISES CONSIDERED, this Board after considering the
arguments of the parties, hereby DISMISSES FOR LACK OF
MERIT the petition filed in the above-entitled case. This petition
in this case was resolved with dispatch at the request of petitioner
to enable it to immediately avail of the legal remedies or options
it is entitled under existing laws.
SO ORDERED.6
Hence, the instant petition for certiorari with an urgent prayer for
issuance of a temporary restraining order.
The Court, on June 20, 1994, issued a temporary restraining order
enjoining, prohibiting and preventing respondents from implementing the
bus fare rate increase as well as the questioned orders and memorandum
circulars. This meant that provincial bus fares were rolled back to the
levels duly authorized by the LTFRB prior to March 16, 1994. A
moratorium was likewise enforced on the issuance of franchises for the
operation of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the authority
given by respondent LTFRB to provincial bus operators to set a fare
range of plus or minus fifteen (15%) percent, later increased to plus
twenty (20%) and minus twenty-five (-25%) percent, over and above the
existing authorized fare without having to file a petition for the purpose,
is unconstitutional, invalid and illegal. Second, the establishment of a
presumption of public need in favor of an applicant for a proposed
transport service without having to prove public necessity, is illegal for
being violative of the Public Service Act and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching
upon the issues raised by the petitioner, questions the wisdom and the
manner by which the instant petition was filed. It asserts that the
petitioner has no legal standing to sue or has no real interest in the case at
bench and in obtaining the reliefs prayed for.
In their Comment filed by the Office of the Solicitor General, public
respondents DOTC Secretary Jesus B. Garcia, Jr. and the LTFRB
asseverate that the petitioner does not have the standing to maintain the
instant suit. They further claim that it is within DOTC and LTFRB's
authority to set a fare range scheme and establish a presumption of public
need in applications for certificates of public convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be struck.
Petitioner KMU has the standing to sue.
The requirement of locus standi inheres from the definition of judicial
power. Section 1 of Article VIII of the Constitution provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality
of the Government.
In Lamb v. Phipps,7 we ruled that judicial power is the power to hear and
decide causes pending between parties who have the right to sue in the
courts of law and equity. Corollary to this provision is the principle
of locus standi of a party litigant. One who is directly affected by and
whose interest is immediate and substantial in the controversy has the
standing to sue. The rule therefore requires that a party must show a
personal stake in the outcome of the case or an injury to himself that can
be redressed by a favorable decision so as to warrant an invocation of the
court's jurisdiction and to justify the exercise of the court's remedial
powers in his behalf.8
In the case at bench, petitioner, whose members had suffered and
continue to suffer grave and irreparable injury and damage from the
implementation of the questioned memoranda, circulars and/or orders,
has shown that it has a clear legal right that was violated and continues to
be violated with the enforcement of the challenged memoranda, circulars
and/or orders. KMU members, who avail of the use of buses, trains and
jeepneys everyday, are directly affected by the burdensome cost of
arbitrary increase in passenger fares. They are part of the millions of
commuters who comprise the riding public. Certainly, their rights must
be protected, not neglected nor ignored.
Assuming arguendo that petitioner is not possessed of the standing to
sue, this court is ready to brush aside this barren procedural infirmity and
recognize the legal standing of the petitioner in view of the transcendental
importance of the issues raised. And this act of liberality is not without
judicial precedent. As early as the  Emergency Powers Cases, this Court
had exercised its discretion and waived the requirement of proper party.
In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et
al.,9 we ruled in the same lines and enumerated some of the cases where
the same policy was adopted, viz:
. . . A party's standing before this Court is a procedural
technicality which it may, in the exercise of its discretion, set
aside in view of the importance of the issues raised. In the
landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta
v. Dinglasan); G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de
Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of
Customs); and G.R. No. L-3056 (Barredo v. Commission on
Elections), 84 Phil. 368 (1949)], this Court brushed aside this
technicality because "the transcendental importance to the public
of these cases demands that they be settled promptly and
definitely, brushing aside, if we must, technicalities of procedure.
(Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as taxpayers'
suits are concerned, this Court had declared that it "is not devoid
of discretion as to whether or not it should be entertained," (Tan
v. Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an
open discretion to entertain the same or not." [Sanidad v.
COMELEC, 73 SCRA 333 (1976)].
xxx xxx xxx
3
 In line with the liberal policy of this Court on locus standi,
ordinary taxpayers, members of Congress, and even association
of planters, and
non-profit civic organizations were allowed to initiate and
prosecute actions before this court to question the
constitutionality or validity of laws, acts, decisions, rulings, or
orders of various government agencies or instrumentalities.
Among such cases were those assailing the constitutionality of
(a) R.A. No. 3836 insofar as it allows retirement gratuity and
commutation of vacation and sick leave to Senators and
Representatives and to elective officials of both Houses of
Congress (Philippine Constitution Association, Inc. v. Gimenez,
15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by
President Corazon C. Aquino on 25 July 1987, which allowed
members of the cabinet, their undersecretaries, and assistant
secretaries to hold other government offices or positions (Civil
Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]);
(c) the automatic appropriation for debt service in the General
Appropriations Act (Guingona v. Carague, 196 SCRA 221
[1991]; (d) R.A. No. 7056 on the holding of desynchronized
elections (Osmeña v. Commission on Elections, 199 SCRA 750
[1991]); (e) P.D. No. 1869 (the charter of the Philippine
Amusement and Gaming Corporation) on the ground that it is
contrary to morals, public policy, and order (Basco v. Philippine
Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f)
R.A. No. 6975, establishing the Philippine National Police.
(Carpio v. Executive Secretary, 206 SCRA 290 [1992]).
Other cases where we have followed a liberal policy
regarding locus standi include those attacking the validity or
legality of (a) an order allowing the importation of rice in the
light of the prohibition imposed by R.A. No. 3452 (Iloilo Palay
and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377
[1965]; (b) P.D. Nos. 991 and 1033 insofar as they proposed
amendments to the Constitution and P.D. No. 1031 insofar as it
directed the COMELEC to supervise, control, hold, and conduct
the referendum-plebiscite on 16 October 1976 (Sanidad v.
Commission on Elections, supra); (c) the bidding for the sale of
the 3,179 square meters of land at Roppongi, Minato-ku, Tokyo,
Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the approval
without hearing by the Board of Investments of the amended
application of the Bataan Petrochemical Corporation to transfer
the site of its plant from Bataan to Batangas and the validity of
such transfer and the shift of feedstock from naphtha only to
naphtha and/or liquefied petroleum gas (Garcia v. Board of
Investments, 177 SCRA 374 [1989]; Garcia v. Board of
Investments, 191 SCRA 288 [1990]); (e) the decisions, orders,
rulings, and resolutions of the Executive Secretary, Secretary of
Finance, Commissioner of Internal Revenue, Commissioner of
Customs, and the Fiscal Incentives Review Board exempting the
National Power Corporation from indirect tax and duties
(Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of
the Energy Regulatory Board of 5 and 6 December 1990 on the
ground that the hearings conducted on the second provisional
increase in oil prices did not allow the petitioner substantial
cross-examination; (Maceda v. Energy Regulatory Board, 199
SCRA 454 [1991]); (g) Executive Order No. 478 which levied a
special duty of P0.95 per liter of imported oil products (Garcia v.
Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of
the Commission on Elections concerning the apportionment, by
district, of the number of elective members of Sanggunians (De
Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and
(i) memorandum orders issued by a Mayor affecting the Chief of
Police of Pasay City (Pasay Law and Conscience Union, Inc. v.
Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections  (62
SCRA 275 [1975]), this Court, despite its unequivocal ruling that
the petitioners therein had no personality to file the petition,
resolved nevertheless to pass upon the issues raised because of
the far-reaching implications of the petition. We did no less
in De Guia v. COMELEC (Supra) where, although we declared
that De Guia "does not appear to have locus standi, a standing in
law, a personal or substantial interest," we brushed aside the
procedural infirmity "considering the importance of the issue
involved, concerning as it does the political exercise of qualified
voters affected by the apportionment, and petitioner alleging
abuse of discretion and violation of the Constitution by
respondent."
Now on the merits of the case.
On the fare range scheme.
Section 16(c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and
hearing. — The Commission shall have power, upon proper
notice and hearing in accordance with the rules and provisions
of this Act, subject to the limitations and exceptions mentioned
and saving provisions to the contrary:
xxx xxx xxx
(c) To fix and determine individual or joint rates, tolls, charges,
classifications, or schedules thereof, as well as commutation,
mileage kilometrage, and other special rates which shall be
imposed, observed, and followed thereafter by any public
service: Provided, That the Commission may, in its discretion,
approve rates proposed by public services provisionally and
without necessity of any hearing; but it shall call a hearing
thereon within thirty days thereafter, upon publication and notice
to the concerns operating in the territory affected: Provided,
further, That in case the public service equipment of an operator
is used principally or secondarily for the promotion of a private
business, the net profits of said private business shall be
considered in relation with the public service of such operator for
the purpose of fixing the rates. (Emphasis ours).
xxx xxx xxx
Under the foregoing provision, the Legislature delegated to the
defunct Public Service Commission the power of fixing the rates of
public services. Respondent LTFRB, the existing regulatory body
today, is likewise vested with the same under Executive Order No.
202 dated June 19, 1987. Section 5(c) of the said executive order
authorizes LTFRB "to determine, prescribe, approve and periodically
review and adjust, reasonable fares, rates and other related charges,
relative to the operation of public land transportation services
provided by motorized vehicles."
Such delegation of legislative power to an administrative agency is
permitted in order to adapt to the increasing complexity of modern life.
As subjects for governmental regulation multiply, so does the difficulty
of administering the laws. Hence, specialization even in legislation has
become necessary. Given the task of determining sensitive and delicate
matters as
route-fixing and rate-making for the transport sector, the responsible
regulatory body is entrusted with the power of subordinate legislation.
With this authority, an administrative body and in this case, the LTFRB,
may implement broad policies laid down in a statute by "filling in" the
details which the Legislature may neither have time or competence to
provide. However, nowhere under the aforesaid provisions of law are the
regulatory bodies, the PSC and LTFRB alike, authorized to delegate that
power to a common carrier, a transport operator, or other public service.
In the case at bench, the authority given by the LTFRB to the provincial
bus operators to set a fare range over and above the authorized existing
fare, is illegal and invalid as it is tantamount to an undue delegation of
legislative authority.  Potestas delegata non delegari potest. What has
been delegated cannot be delegated. This doctrine is based on the ethical
principle that such a delegated power constitutes not only a right but a
duty to be performed by the delegate through the instrumentality of his
own judgment and not through the intervening mind of another.10 A
further delegation of such power would indeed constitute a negation of
the duty in violation of the trust reposed in the delegate mandated to
discharge it directly.11 The policy of allowing the provincial bus operators
to change and increase their fares at will would result not only to a
chaotic situation but to an anarchic state of affairs. This would leave the
riding public at the mercy of transport operators who may increase fares
every hour, every day, every month or every year, whenever it pleases
them or whenever they deem it "necessary" to do so. In  Panay Autobus
Co. v. Philippine Railway Co.,12 where respondent Philippine Railway
Co. was granted by the Public Service Commission the authority to
change its freight rates at will, this Court categorically declared that:
In our opinion, the Public Service Commission was not
authorized by law to delegate to the Philippine Railway Co. the
power of altering its freight rates whenever it should find it
necessary to do so in order to meet the competition of road
trucks and autobuses, or to change its freight rates at will, or to
regard its present rates as maximum rates, and to fix lower rates
whenever in the opinion of the Philippine Railway Co. it would
be to its advantage to do so.
The mere recital of the language of the application of the
Philippine Railway Co. is enough to show that it is
untenable. The Legislature has delegated to the Public Service
Commission the power of fixing the rates of public services, but
it has not authorized the Public Service Commission to delegate
4
 that power to a common carrier or other public service. The
rates of public services like the Philippine Railway Co. have been
approved or fixed by the Public Service Commission, and any
change in such rates must be authorized or approved by the
Public Service Commission after they have been shown to be just
and reasonable. The public service may, of course, propose new
rates, as the Philippine Railway Co. did in case No. 31827, but it
cannot lawfully make said new rates effective without the
approval of the Public Service Commission, and the Public
Service Commission itself cannot authorize a public service to
enforce new rates without the prior approval of said rates by the
commission. The commission must approve new rates when they
are submitted to it, if the evidence shows them to be just and
reasonable, otherwise it must disapprove them. Clearly, the
commission cannot determine in advance whether or not the new
rates of the Philippine Railway Co. will be just and reasonable,
because it does not know what those rates will be.
In the present case the Philippine Railway Co. in effect asked for
permission to change its freight rates at will. It may change them
every day or every hour, whenever it deems it necessary to do so
in order to meet competition or whenever in its opinion it would
be to its advantage. Such a procedure would create a most
unsatisfactory state of affairs and largely defeat the purposes of
the public service law.13(Emphasis ours).
One veritable consequence of the deregulation of transport fares is
a compounded fare. If transport operators will be authorized to impose
and collect an additional amount equivalent to 20% over and above the
authorized fare over a period of time, this will unduly prejudice a
commuter who will be made to pay a fare that has been computed in a
manner similar to those of compounded bank interest rates.
Picture this situation. On December 14, 1990, the LTFRB authorized
provincial bus operators to collect a thirty-seven (P0.37) centavo per
kilometer fare for ordinary buses. At the same time, they were allowed to
impose and collect a fare range of plus or minus 15% over the authorized
rate. Thus P0.37 centavo per kilometer authorized fare plus P0.05
centavos (which is 15% of P0.37 centavos) is equivalent to P0.42
centavos, the allowed rate in 1990. Supposing the LTFRB grants another
five (P0.05) centavo increase per kilometer in 1994, then, the base or
reference for computation would have to be P0.47 centavos (which is
P0.42 + P0.05 centavos). If bus operators will exercise their authority to
impose an additional 20% over and above the authorized fare, then the
fare to be collected shall amount to P0.56 (that is, P0.47 authorized
LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will
be continuously subjected, not only to a double fare adjustment but to a
compounding fare as well. On their part, transport operators shall enjoy a
bigger chunk of the pie. Aside from fare increase applied for, they can
still collect an additional amount by virtue of the authorized fare range.
Mathematically, the situation translates into the following:
Year** LTFRB authorized Fare Range Fare to be
rate*** collected per
kilometer
1990 P0.37 15% (P0.05) P0.42
1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94
Moreover, rate making or rate fixing is not an easy task. It is a delicate
and sensitive government function that requires dexterity of judgment and
sound discretion with the settled goal of arriving at a just and reasonable
rate acceptable to both the public utility and the public. Several factors, in
fact, have to be taken into consideration before a balance could be
achieved. A rate should not be confiscatory as would place an operator in
a situation where he will continue to operate at a loss. Hence, the rate
should enable public utilities to generate revenues sufficient to cover
operational costs and provide reasonable return on the investments. On
the other hand, a rate which is too high becomes discriminatory. It is
contrary to public interest. A rate, therefore, must be reasonable and fair
and must be affordable to the end user who will utilize the services.
Given the complexity of the nature of the function of rate-fixing and its
far-reaching effects on millions of commuters, government must not
relinquish this important function in favor of those who would benefit
and profit from the industry. Neither should the requisite notice and
hearing be done away with. The people, represented by reputable
oppositors, deserve to be given full opportunity to be heard in their
opposition to any fare increase.
The present administrative procedure, 14 to our mind, already mirrors an
orderly and satisfactory arrangement for all parties involved. To do away
with such a procedure and allow just one party, an interested party at that,
to determine what the rate should be, will undermine the right of the other
parties to due process. The purpose of a hearing is precisely to determine
what a just and reasonable rate is.15 Discarding such procedural and
constitutional right is certainly inimical to our fundamental law and to
public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization granted by
the LTFRB for the operation of land transportation services for public use
as required by law. Pursuant to Section 16(a) of the Public Service Act, as
amended, the following requirements must be met before a CPC may be
granted, to wit: (i) the applicant must be a citizen of the Philippines, or a
corporation or co-partnership, association or joint-stock company
constituted and organized under the laws of the Philippines, at least
60  per centum  of its stock or paid-up capital must belong entirely to
citizens of the Philippines; (ii) the applicant must be financially capable
of undertaking the proposed service and meeting the responsibilities
incident to its operation; and (iii) the applicant must prove that the
operation of the public service proposed and the authorization to do
business will promote the public interest in a proper and suitable
manner. It is understood that there must be proper notice and hearing
before the PSC can exercise its power to issue a CPC.
While adopting in toto the foregoing requisites for the issuance of a CPC,
LTFRB Memorandum Circular No. 92-009, Part IV, provides for yet
incongruous and contradictory policy guideline on the issuance of a CPC.
The guidelines states:
The issuance of a Certificate of Public Convenience is
determined by public need. The presumption of public need for a
service shall be deemed in favor of the applicant, while the
burden of proving that there is no need for the proposed service
shall be the oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent
with Section 16(c)(iii) of the Public Service Act which requires that
before a CPC will be issued, the applicant must prove by proper notice
and hearing that the operation of the public service proposed will promote
public interest in a proper and suitable manner. On the contrary, the
policy guideline states that the presumption of public need for a public
service shall be deemed in favor of the applicant. In case of conflict
between a statute and an administrative order, the former must prevail.
By its terms, public convenience or necessity generally means something
fitting or suited to the public need.16 As one of the basic requirements for
the grant of a CPC, public convenience and necessity exists when the
proposed facility or service meets a reasonable want of the public and
supply a need which the existing facilities do not adequately supply. The
existence or
non-existence of public convenience and necessity is therefore a question
of fact that must be established by evidence, real and/or testimonial;
empirical data; statistics and such other means necessary, in a public
hearing conducted for that purpose. The object and purpose of such
procedure, among other things, is to look out for, and protect, the
interests of both the public and the existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the
condition that after full-dress hearing and investigation, it shall find, as a
fact, that the proposed operation is for the convenience of the
public.17 Basic convenience is the primary consideration for which a CPC
is issued, and that fact alone must be consistently borne in mind. Also,
existing operators in subject routes must be given an opportunity to offer
proof and oppose the application. Therefore, an applicant must, at all
times, be required to prove his capacity and capability to furnish the
service which he has undertaken to
render. 18 And all this will be possible only if a public hearing were
conducted for that purpose.
Otherwise stated, the establishment of public need in favor of an
applicant reverses well-settled and institutionalized judicial, quasi-
judicial and administrative procedures. It allows the party who initiates
the proceedings to prove, by mere application, his affirmative allegations.
Moreover, the offending provisions of the LTFRB memorandum circular
in question would in effect amend the Rules of Court by adding another
disputable presumption in the enumeration of 37 presumptions under
Rule 131, Section 5 of the Rules of Court. Such usurpation of this Court's
authority cannot be countenanced as only this Court is mandated by law
to promulgate rules concerning pleading, practice and procedure. 19
Deregulation, while it may be ideal in certain situations, may not be ideal
at all in our country given the present circumstances. Advocacy of
5
liberalized franchising and regulatory process is tantamount to an
abdication by the government of its inherent right to exercise police
power, that is, the right of government to regulate public utilities for
protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB to issue
administrative orders to regulate the transport sector, we find that they
committed grave abuse of discretion in issuing DOTC Department Order
No. 92-587 defining the policy framework on the regulation of transport
services and LTFRB Memorandum Circular No. 92-009 promulgating the
implementing guidelines on DOTC Department Order No. 92-587, the
said administrative issuances being amendatory and violative of the
Public Service Act and the Rules of Court. Consequently, we rule that the
twenty (20%) per centum fare increase imposed by respondent PBOAP
on March 16, 1994 without the benefit of a petition and a public hearing
is null and void and of no force and effect. No grave abuse of discretion
however was committed in the issuance of DOTC Memorandum Order
No. 90-395 and DOTC Memorandum dated October 8, 1992, the same
being merely internal communications between administrative officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby
GRANTED and the challenged administrative issuances and orders,
namely: DOTC Department Order No. 92-587, LTFRB Memorandum
Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent
LTFRB are hereby DECLARED contrary to law and invalid insofar as
they affect provisions therein (a) delegating to provincial bus and jeepney
operators the authority to increase or decrease the duly prescribed
transportation fares; and (b) creating a presumption of public need for a
service in favor of the applicant for a certificate of public convenience
and placing the burden of proving that there is no need for the proposed
service to the oppositor.
The Temporary Restraining Order issued on June 20, 1994 is hereby
MADE PERMANENT insofar as it enjoined the bus fare rate increase
granted under the provisions of the aforementioned administrative
circulars, memoranda and/or orders declared invalid.
No pronouncement as to costs.
SO ORDERED.
_____________________________________
FOOTNOTE #2
The 20th century ushered in the birth and growth of public utility
regulation in the country. After the Americans introduced public utility
regulation at the turn of the century, various regulatory bodies were
created. They were the Coastwise Rate Commission under Act No. 520
passed by the Philippine Commission on November 17, 1902; the Board
of Rate Regulation under Act No. 1779 dated October 12, 1907; the
Board of Public Utility Commission under Act No. 2307 dated December
19, 1913; and the Public Utility Commission under Act No. 3108 dated
March 19, 1923.
During the Commonwealth period, the National Assembly passed a more
comprehensive public utility law. This was Commonwealth Act No. 146,
as amended or the Public Service Act, as amended. Said law created a
regulatory and franchising body known as the Public Service
Commission (PSC). The Commission (PSC) existed for thirty-six (36)
years from 1936 up to 1972.
On September 24, 1972, Presidential Decree No. 1 was issued and
declared "part of the law of the land." The same effected a major revamp
of the executive department. Under Article III, Part X of P.D. No. 1, the
Public Service Commission (PSC) was abolished and replaced by three
(3) specialized regulatory boards. These were the Board of
Transportation, the Board of Communications, and the Board of Power
and Waterworks.
The Board of Transportation (BOT) lasted for thirteen (13) years. On
March 20, 1985, Executive Order No. 1011 was issued abolishing the
Board of Transportation and the Bureau of Land Transportation. Their
powers and functions were merged into the Land Transportation
Commission (LTC).
Two (2) years later, LTC was abolished by Executive Order Nos. 125
dated January 30, 1987 and 125-A dated April 13, 1987 which
reorganized the Department of Transportation and Communications. On
June 19, 1987, the Land Transportation Franchising and Regulatory
Board (LTFRB) was created by Executive Order No. 202. The LTFRB,
successor of LTC, is the existing franchising and regulatory body for
overland transportation today.
G.R. No. 114222 April 6, 1995
FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G.
BIAZON, petitioners, 
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the
Department of Transportation and Communications, and EDSA
LRT CORPORATION, LTD., respondents.
QUIASON, J.:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit
respondents from further implementing and enforcing the "Revised and
Restated Agreement to Build, Lease and Transfer a Light Rail Transit
System for EDSA" dated April 22, 1992, and the "Supplemental
Agreement to the 22 April 1992 Revised and Restated Agreement To
Build, Lease and Transfer a Light Rail Transit System for EDSA" dated
May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon
are members of the Philippine Senate and are suing in their capacities as
Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the
incumbent Secretary of the Department of Transportation and
Communications (DOTC), while private respondent EDSA LRT
Corporation, Ltd. is a private corporation organized under the laws of
Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along
EDSA, a major thoroughfare in Metropolitan Manila, which shall traverse
the cities of Pasay, Quezon, Mandaluyong and Makati. The plan, referred
to as EDSA Light Rail Transit III (EDSA LRT III), was intended to
provide a mass transit system along EDSA and alleviate the congestion
and growing transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises,
Inc., represented by Elijahu Levin to DOTC Secretary Oscar Orbos,
proposing to construct the EDSA LRT III on a Build-Operate-Transfer
(BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical
team to discuss the project with DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the
Financing, Construction, Operation and Maintenance of Infrastructure
Projects by the Private Sector, and For Other Purposes," was signed by
President Corazon C. Aquino. Referred to as the Build-Operate-Transfer
(BOT) Law, it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing,
construction and operation of government projects through private
initiative and investment: Build-Operate-Transfer (BOT) or Build-
Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA
LRT III project underway, DOTC, on January 22, 1991 and March 14,
1991, issued Department Orders Nos. 91-494 and 91-496, respectively
creating the Prequalification Bids and Awards Committee (PBAC) and
the Technical Committee.
After its constitution, the PBAC issued guidelines for the prequalification
of contractors for the financing and implementation of the project The
notice, advertising the prequalification of bidders, was published in three
newspapers of general circulation once a week for three consecutive
weeks starting February 21, 1991.
The deadline set for submission of prequalification documents was March
21, 1991, later extended to April 1, 1991. Five groups responded to the
invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of
Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd.
of Japan, and EDSA LRT Consortium, composed of ten foreign and
domestic corporations: namely, Kaiser Engineers International, Inc.,
ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD
Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All
Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L.
6
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;
7
(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).
8
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
9
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
10
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
G.R. No. 124293               September 24, 2003
JG SUMMIT HOLDINGS, INC., Petitioner, 
vs.
COURT OF APPEALS, COMMITTEE ON PRIVATIZATION, its
Chairman and Members; ASSET PRIVATIZATION TRUST and
PHILYARDS HOLDINGS, INC., Respondents.
RESOLUTION
PUNO, J.:
The core issue posed by the Motions for Reconsideration is whether a
shipyard is a public utility whose capitalization must be sixty percent
(60%) owned by Filipinos. Our resolution of this issue will determine the
fate of the shipbuilding and ship repair industry. It can either spell the
industry’s demise or breathe new life to the struggling but potentially
healthy partner in the country’s bid for economic growth. It can either kill
an initiative yet in its infancy, or harness creativity in the productive
disposition of government assets.
The facts are undisputed and can be summarized briefly as follows:
On January 27, 1977, the National Investment and Development
Corporation (NIDC), a government corporation, entered into a Joint
Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of
Kobe, Japan (KAWASAKI) for the construction, operation and
management of the Subic National Shipyard, Inc. (SNS) which
subsequently became the Philippine Shipyard and Engineering
Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI
will contribute ₱330 million for the capitalization of PHILSECO in the
proportion of 60%-40% respectively.1 One of its salient features is the
grant to the parties of the right of first refusal should either of them
decide to sell, assign or transfer its interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest
in SNS [PHILSECO] to any third party without giving the other under the
same terms the right of first refusal. This provision shall not apply if the
transferee is a corporation owned or controlled by the GOVERNMENT
or by a KAWASAKI affiliate.2 
On November 25, 1986, NIDC transferred all its rights, title and interest
in PHILSECO to the Philippine National Bank (PNB). Such interests
were subsequently transferred to the National Government pursuant to
Administrative Order No. 14. On December 8, 1986, President Corazon
C. Aquino issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT) to take title
to, and possession of, conserve, manage and dispose of non-performing
assets of the National Government. Thereafter, on February 27, 1987, a
trust agreement was entered into between the National Government and
the APT wherein the latter was named the trustee of the National
Government’s share in PHILSECO. In 1989, as a result of a quasi-
reorganization of PHILSECO to settle its huge obligations to PNB, the
National Government’s shareholdings in PHILSECO increased to
97.41% thereby reducing KAWASAKI’s shareholdings to 2.59%.3 
In the interest of the national economy and the government, the COP and
the APT deemed it best to sell the National Government’s share in
PHILSECO to private entities. After a series of negotiations between the
APT and KAWASAKI, they agreed that the latter’s right of first refusal
under the JVA be "exchanged" for the right to top by five percent (5%)
the highest bid for the said shares. They further agreed that KAWASAKI
would be entitled to name a company in which it was a stockholder,
which could exercise the right to top. On September 7, 1990,
KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) would
exercise its right to top.4 
At the pre-bidding conference held on September 18, 1993, interested
bidders were given copies of the JVA between NIDC and KAWASAKI,
and of the Asset Specific Bidding Rules (ASBR) drafted for the National
Government’s 87.6% equity share in PHILSECO.5 The provisions of the
ASBR were explained to the interested bidders who were notified that the
bidding would be held on December 2, 1993. A portion of the ASBR
reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through
public bidding is the National Government’s equity in PHILSECO
11
 consisting of 896,869,942 shares of stock (representing 87.67% of
PHILSECO’s outstanding capital stock), which will be sold as a
whole block in accordance with the rules herein enumerated.
...
2.0 The highest bid, as well as the buyer, shall be subject to the final
approval of both the APT Board of Trustees and the Committee on
Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all
bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis.
The Indicative price set for the National Government’s 87.67%
equity in PHILSECO is PESOS: ONE BILLION THREE
HUNDRED MILLION (₱1,300,000,000.00).
...
6.0 The highest qualified bid will be submitted to the APT Board of
Trustees at its regular meeting following the bidding, for the purpose
of determining whether or not it should be endorsed by the APT
Board of Trustees to the COP, and the latter approves the same. The
APT shall advise Kawasaki Heavy Industries, Inc. and/or its
nominee, Philyards Holdings, Inc., that the highest bid is acceptable
to the National Government. Kawasaki Heavy Industries, Inc. and/or
Philyards Holdings, Inc. shall then have a period of thirty (30)
calendar days from the date of receipt of such advice from APT
within which to exercise their "Option to Top the Highest Bid" by
offering a bid equivalent to the highest bid plus five (5%) percent
thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards
Holdings, Inc. exercise their "Option to Top the Highest Bid," they
shall so notify the APT about such exercise of their option and
deposit with APT the amount equivalent to ten percent (10%) of the
highest bid plus five percent (5%) thereof within the thirty (30)-day
period mentioned in paragraph 6.0 above. APT will then serve notice
upon Kawasaki Heavy Industries, Inc. and/or Philyards Holdings,
Inc. declaring them as the preferred bidder and they shall have a
period of ninety (90) days from the receipt of the APT’s notice within
which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards
Holdings, Inc. fail to exercise their "Option to Top the Highest Bid"
within the thirty (30)-day period, APT will declare the highest bidder
as the winning bidder.
...
12.0 The bidder shall be solely responsible for examining with
appropriate care these rules, the official bid forms, including any
addenda or amendments thereto issued during the bidding period.
The bidder shall likewise be responsible for informing itself with
respect to any and all conditions concerning the PHILSECO Shares
which may, in any manner, affect the bidder’s proposal. Failure on
the part of the bidder to so examine and inform itself shall be its sole
risk and no relief for error or omission will be given by APT or COP.
. ..6  interests from petitioner;
At the public bidding on the said date, petitioner J.G. Summit Holdings,
Inc. submitted a bid of Two Billion and Thirty Million Pesos
(₱2,030,000,000.00) with an acknowledgement of
KAWASAKI/Philyards’ right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to
thirty (30) days to act on APT’s recommendation based on the result of
this bidding. Should the COP approve the highest bid, APT shall advise
Kawasaki Heavy Industries, Inc. and/or its nominee, Philyards Holdings,
Inc. that the highest bid is acceptable to the National Government.
Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall
then have a period of thirty (30) calendar days from the date of receipt of
such advice from APT within which to exercise their "Option to Top the
Highest Bid" by offering a bid equivalent to the highest bid plus five
(5%) percent thereof.7 
As petitioner was declared the highest bidder, the COP approved the sale
on December 3, 1993 "subject to the right of Kawasaki Heavy Industries,
Inc./Philyards Holdings, Inc. to top JGSMI’s bid by 5% as specified in
the bidding rules."8  Whether the right to top granted to KAWASAKI violates the principles
On December 29, 1993, petitioner informed APT that it was protesting
the offer of PHI to top its bid on the grounds that: (a) the
KAWASAKI/PHI consortium composed of Kawasaki, Philyards, Mitsui,
Keppel, SM Group, ICTSI and Insular Life violated the ASBR because
the last four (4) companies were the losing bidders thereby circumventing
the law and prejudicing the weak winning bidder; (b) only KAWASAKI
could exercise the right to top; (c) giving the same option to top to PHI
constituted unwarranted benefit to a third party; (d) no right of first
refusal can be exercised in a public bidding or auction sale; and (e) the JG
Summit consortium was not estopped from questioning the proceedings.9 
On February 2, 1994, petitioner was notified that PHI had fully paid the
balance of the purchase price of the subject bidding. On February 7,
1994, the APT notified petitioner that PHI had exercised its option to top
the highest bid and that the COP had approved the same on January 6,
1994. On February 24, 1994, the APT and PHI executed a Stock Purchase
Agreement.10 Consequently, petitioner filed with this Court a Petition for
Mandamus under G.R. No. 114057. On May 11, 1994, said petition was
referred to the Court of Appeals. On July 18, 1995, the Court of Appeals
denied the same for lack of merit. It ruled that the petition for mandamus
was not the proper remedy to question the constitutionality or legality of
the right of first refusal and the right to top that was exercised by
KAWASAKI/PHI, and that the matter must be brought "by the proper
party in the proper forum at the proper time and threshed out in a full
blown trial." The Court of Appeals further ruled that the right of first
refusal and the right to top are prima facie legal and that the petitioner,
"by participating in the public bidding, with full knowledge of the right to
top granted to KASAWASAKI/Philyards is . . .estopped from
questioning the validity of the award given to Philyards after the latter
exercised the right to top and had paid in full the purchase price of the
subject shares, pursuant to the ASBR." Petitioner filed a Motion for
Reconsideration of said Decision which was denied on March 15, 1996.
Petitioner thus filed a Petition for Certiorari with this Court alleging
grave abuse of discretion on the part of the appellate court.11 
On November 20, 2000, this Court rendered the now assailed Decision
ruling among others that the Court of Appeals erred when it dismissed the
petition on the sole ground of the impropriety of the special civil action
of mandamus because the petition was also one of certiorari.12 It further
ruled that a shipyard like PHILSECO is a public utility whose
capitalization must be sixty percent (60%) Filipino-
owned.13 Consequently, the right to top granted to KAWASAKI under the
Asset Specific Bidding Rules (ASBR) drafted for the sale of the 87.67%
equity of the National Government in PHILSECO is illegal---not only
because it violates the rules on competitive bidding--- but more so,
because it allows foreign corporations to own more than 40% equity in
the shipyard.14 It also held that "although the petitioner had the
opportunity to examine the ASBR before it participated in the bidding, it
cannot be estopped from questioning the unconstitutional, illegal and
inequitable provisions thereof."15 Thus, this Court voided the transfer of
the national government’s 87.67% share in PHILSECO to Philyard
Holdings, Inc., and upheld the right of JG Summit, as the highest bidder,
to take title to the said shares, viz:
Wherefore, the instant petition for review on certiorari is GRANTED.
The assailed Decision and Resolution of the Court of Appeals are
REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its bid
price of Two Billion Thirty Million Pesos (₱2,030,000,000.00 ), less its
bid deposit plus interests upon the finality of this Decision. In turn, APT
is ordered to:
(a) accept the said amount of ₱2,030,000,000.00 less bid deposit and
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of
stocks representing 87.6% of PHILSECO’s total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One
Hundred Thirty-One Million Five Hundred Thousand Pesos
(₱2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.16 
In separate Motions for Reconsideration,17 respondents submit three basic
issues for our resolution: (1) Whether PHILSECO is a public utility; (2)
Whether under the 1977 JVA, KAWASAKI can exercise its right of first
refusal only up to 40% of the total capitalization of PHILSECO; and (3)
of competitive bidding.
12
I.
Whether PHILSECO is a Public Utility.
After carefully reviewing the applicable laws and jurisprudence, we hold
that PHILSECO is not a public utility for the following reasons:
First. By nature, a shipyard is not a public utility.
A "public utility" is "a business or service engaged in regularly supplying
the public with some commodity or service of public consequence such
as electricity, gas, water, transportation, telephone or telegraph
service."18 To constitute a public utility, the facility must be necessary for
the maintenance of life and occupation of the residents. However, the fact
that a business offers services or goods that promote public good and
serve the interest of the public does not automatically make it a public
utility. Public use is not synonymous with public interest. As its name
indicates, the term "public utility" implies public use and service to the
public. The principal determinative characteristic of a public utility is that
of service to, or readiness to serve, an indefinite public or portion of the
public as such which has a legal right to demand and receive its services
or commodities. Stated otherwise, the owner or person in control of a
public utility must have devoted it to such use that the public generally or
that part of the public which has been served and has accepted the
service, has the right to demand that use or service so long as it is
continued, with reasonable efficiency and under proper charges. 19 Unlike
a private enterprise which independently determines whom it will serve, a
"public utility holds out generally and may not refuse legitimate demand
for service."20 Thus, in Iloilo Ice and Cold Storage Co. vs. Public Utility
Board,21 this Court defined "public use," viz:
"Public use" means the same as "use by the public." The essential feature
of the public use is that it is not confined to privileged individuals, but is
open to the indefinite public. It is this indefinite or unrestricted quality
that gives it its public character. In determining whether a use is public,
we must look not only to the character of the business to be done, but also
to the proposed mode of doing it. If the use is merely optional with the
owners, or the public benefit is merely incidental, it is not a public use,
authorizing the exercise of jurisdiction of the public utility commission.
There must be, in general, a right which the law compels the owner to
give to the general public. It is not enough that the general prosperity of
the public is promoted. Public use is not synonymous with public interest.
The true criterion by which to judge the character of the use is whether
the public may enjoy it by right or only by permission.22 (emphasis
supplied)
Applying the criterion laid down in Iloilo to the case at bar, it is crystal
clear that a shipyard cannot be considered a public utility.
A "shipyard" is "a place or enclosure where ships are built or
repaired."23 Its nature dictates that it serves but a limited clientele whom it
may choose to serve at its discretion. While it offers its facilities to
whoever may wish to avail of its services, a shipyard is not legally
obliged to render its services indiscriminately to the public. It has no legal
obligation to render the services sought by each and every client. The fact
that it publicly offers its services does not give the public a legal right to
demand that such services be rendered.
There can be no disagreement that the shipbuilding and ship repair
industry is imbued with public interest as it involves the maintenance of
the seaworthiness of vessels dedicated to the transportation of either
persons or goods. Nevertheless, the fact that a business is affected with
public interest does not imply that it is under a duty to serve the public.
While the business may be regulated for public good, the regulation
cannot justify the classification of a purely private enterprise as a public
utility. The legislature cannot, by its mere declaration, make something a
public utility which is not in fact such; and a private business operated
under private contracts with selected customers and not devoted to public
use cannot, by legislative fiat or by order of a public service commission,
be declared a public utility, since that would be taking private property
for public use without just compensation, which cannot be done
consistently with the due process clause.24  separate fund, to be known as "Shipyard Development Fund", by the
It is worthy to note that automobile and aircraft manufacturers, which are
of similar nature to shipyards, are not considered public utilities despite
the fact that their operations greatly impact on land and air transportation.
The reason is simple. Unlike commodities or services traditionally
regarded as public utilities such as electricity, gas, water, transportation,
telephone or telegraph service, automobile and aircraft manufacturing---
and for that matter ship building and ship repair--- serve the public only
incidentally.
Second. There is no law declaring a shipyard as a public utility.
History provides us hindsight and hindsight ought to give us a better view
of the intent of any law. The succession of laws affecting the status of
shipyards ought not to obliterate, but rather, give us full picture of the
intent of the legislature. The totality of the circumstances, including the
contemporaneous interpretation accorded by the administrative bodies
tasked with the enforcement of the law all lead to a singular conclusion:
that shipyards are not public utilities.
Since the enactment of Act No. 2307 which created the Public Utility
Commission (PUC) until its repeal by Commonwealth Act No. 146,
establishing the Public Service Commission (PSC), a shipyard, by
legislative declaration, has been considered a public utility.25 A Certificate
of Public Convenience (CPC) from the PSC to the effect that the
operation of the said service and the authorization to do business will
promote the public interests in a proper and suitable manner is required
before any person or corporation may operate a shipyard.26 In addition,
such persons or corporations should abide by the citizenship requirement
provided in Article XIII, section 8 of the 1935 Constitution,27 viz:
Sec. 8. No franchise, certificate, or any other form or 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. No franchise or right shall be granted to any individual, firm or
corporation, except under the condition that it shall be subject to
amendment, alteration, or repeal by the National Assembly when the
public interest so requires. (emphasis supplied)
To accelerate the development of shipbuilding and ship repair industry,
former President Ferdinand E. Marcos issued P.D. No. 666 granting the
following incentives:
SECTION 1. Shipbuilding and ship repair yards duly registered with the
Maritime Industry Authority shall be entitled to the following incentive
benefits:
(a) Exemption from import duties and taxes.- The importation of
machinery, equipment and materials for shipbuilding, ship repair
and/or alteration, including indirect import, as well as replacement
and spare parts for the repair and overhaul of vessels such as steel
plates, electrical machinery and electronic parts, shall be exempt
from the payment of customs duty and compensating tax: Provided,
however, That the Maritime Industry Authority certifies that the item
or items imported are not produced locally in sufficient quantity and
acceptable quality at reasonable prices, and that the importation is
directly and actually needed and will be used exclusively for the
construction, repair, alteration, or overhaul of merchant vessels, and
other watercrafts; Provided, further, That if the above machinery,
equipment, materials and spare parts are sold to non-tax exempt
persons or entities, the corresponding duties and taxes shall be paid
by the original importer; Provided, finally, That local dealers and/or
agents who sell machinery, equipment, materials and accessories to
shipyards for shipbuilding and ship repair are entitled to tax credits,
subject to approval by the total tariff duties and compensating tax
paid for said machinery, equipment, materials and accessories.
(b) Accelerated depreciation.- Industrial plant and equipment may, at
the option of the shipbuilder and ship repairer, be depreciated for any
number of years between five years and expected economic life.
(c) Exemption from contractor’s percentage tax.- The gross receipts
derived by shipbuilders and ship repairers from shipbuilding and ship
repairing activities shall be exempt from the Contractor’s Tax
provided in Section 91 of the National Internal Revenue Code during
the first ten years from registration with the Maritime Industry
Authority, provided that such registration is effected not later than the
year 1990; Provided, That any and all amounts which would
otherwise have been paid as contractor’s tax shall be set aside as a
contractor for the purpose of expansion, modernization and/or
improvement of the contractor’s own shipbuilding or ship repairing
facilities; Provided, That, for this purpose, the contractor shall submit
an annual statement of its receipts to the Maritime Industry
Authority; and Provided, further, That any disbursement from such
fund for any of the purposes hereinabove stated shall be subject to
approval by the Maritime Industry Authority.
In addition, P.D. No. 666 removed the shipbuilding and ship repair
industry from the list of public utilities, thereby freeing the industry
from the 60% citizenship requirement under the Constitution and
from the need to obtain Certificate of Public Convenience pursuant to
section 15 of C.A No. 146. Section 1 (d) of P.D. 666 reads:
13
 (d) Registration required but not as a Public Utility.- The business of
constructing and repairing vessels or parts thereof shall not be
considered a public utility and no Certificate of Public
Convenience shall be required therefor. However, no shipyard,
graving dock, marine railway or marine repair shop and no person or
enterprise shall engage in construction and/or repair of any vessel, or
any phase or part thereof, without a valid Certificate of Registration
and license for this purpose from the Maritime Industry Authority,
except those owned or operated by the Armed Forces of the
Philippines or by foreign governments pursuant to a treaty or
agreement. (emphasis supplied)
Any law, decree, executive order, or rules and regulations inconsistent
with P.D. No. 666 were repealed or modified
accordingly.28 Consequently, sections 13 (b) and 15 of C.A. No. 146 were
repealed in so far as the former law included shipyards in the list of
public utilities and required the certificate of public convenience for their
operation. Simply stated, the repeal was due to irreconcilable
inconsistency, and by definition, this kind of repeal falls under the
category of an implied repeal.29  Blg. 391 by E.O. No. 226, the revival of sections 13 (b) and 15 of C.A.
On April 28, 1983, Batas Pambansa Blg. 391, also known as the
"Investment Incentive Policy Act of 1983," was enacted. It laid down the
general policy of the government to encourage private domestic and
foreign investments in the various sectors of the economy, to wit:
Sec. 2. Declaration of Investment Policy.- It is the policy of the State to
encourage private domestic and foreign investments in industry,
agriculture, mining and other sectors of the economy which shall: provide
significant employment opportunities relative to the amount of the capital
being invested; increase productivity of the land, minerals, forestry,
aquatic and other resources of the country, and improve utilization of the
products thereof; improve technical skills of the people employed in the
enterprise; provide a foundation for the future development of the
economy; accelerate development of less developed regions of the
country; and result in increased volume and value of exports for the
economy.
It is the policy of the State to extend to projects which will significantly
contribute to the attainment of these objectives, fiscal incentives without
which said projects may not be established in the locales, number and/or
pace required for optimum national economic development. Fiscal
incentive systems shall be devised to compensate for market
imperfections, reward performance of making contributions to economic
development, cost-efficient and be simple to administer.
The fiscal incentives shall be extended to stimulate establishment and
assist initial operations of the enterprise, and shall terminate after a period
of not more than 10 years from registration or start-up of operation unless
a special period is otherwise stated.
The foregoing declaration shall apply to all investment incentive schemes
and in particular will supersede article 2 of Presidential Decree No. 1789.
(emphases supplied)
With the new investment incentive regime, Batas Pambansa Blg. 391
repealed the following laws, viz:
Sec. 20. The following provisions are hereby repealed:
1) Section 53, P.D. 463 (Mineral Resources Development Decree);
2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);
3) Section 6, P.D. 1101 (Radioactive Minerals);
4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and
5) The following articles of Presidential Decree 1789: 2, 18, 19, 22,
28, 30, 39, 49 (d), 62, and 77. Articles 45, 46 and 48 are hereby
amended only with respect to domestic and export producers.
All other laws, decrees, executive orders, administrative orders, rules and
regulations or parts thereof which are inconsistent with the provisions of
this Act are hereby repealed, amended or modified accordingly.
All other incentive systems which are not in any way affected by the
provisions of this Act may be restructured by the President so as to render
them cost-efficient and to make them conform with the other policy
guidelines in the declaration of policy provided in Section 2 of this Act.
(emphasis supplied)
From the language of the afore-quoted provision, the whole of P.D. No.
666, section 1 was expressly and categorically repealed. As a
consequence, the provisions of C.A. No. 146, which were impliedly
repealed by P.D. No. 666, section 1 were revived.30 In other words, with
the enactment of Batas Pambansa Blg. 391, a shipyard reverted back to
its status as a public utility and as such, requires a CPC for its operation.
The crux of the present controversy is the effect of the express repeal of
Batas Pambansa Blg. 391 by Executive Order No. 226 issued by former
President Corazon C. Aquino under her emergency powers.
We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No.
226 did not revive Section 1 of P.D. No. 666. But more importantly, it
also put a period to the existence of sections 13 (b) and 15 of C.A. No.
146. It bears emphasis that sections 13 (b) and 15 of C.A. No. 146, as
originally written, owed their continued existence to Batas Pambansa Blg.
391. Had the latter not repealed P.D. No. 666, the former should have
been modified accordingly and shipyards effectively removed from the
list of public utilities. Ergo, with the express repeal of Batas Pambansa
No. 146 had no more leg to stand on. A law that has been expressly
repealed ceases to exist and becomes inoperative from the moment the
repealing law becomes effective.31 Hence, there is simply no basis in the
conclusion that shipyards remain to be a public utility. A repealed statute
cannot be the basis for classifying shipyards as public utilities.
In view of the foregoing, there can be no other conclusion than to hold
that a shipyard is not a pubic utility. A shipyard has been considered a
public utility merely by legislative declaration. Absent this declaration,
there is no more reason why it should continuously be regarded as such.
The fact that the legislature did not clearly and unambiguously express its
intention to include shipyards in the list of public utilities indicates that
that it did not intend to do so. Thus, a shipyard reverts back to its status as
non-public utility prior to the enactment of the Public Service Law.
This interpretation is in accord with the uniform interpretation placed
upon it by the Board of Investments (BOI), which was entrusted by the
legislature with the preparation of annual Investment Priorities Plan
(IPPs). The BOI has consistently classified shipyards as part of the
manufacturing sector and not of the public utilities sector. The enactment
of Batas Pambansa Blg. 391 did not alter the treatment of the BOI on
shipyards. It has been, as at present, classified as part of the
manufacturing and not of the public utilities sector.32 
Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities
registered with the MARINA,33 none appears to have an existing
franchise. If we continue to hold that a shipyard is a pubic utility, it is a
necessary consequence that all these entities should have obtained a
franchise as was the rule prior to the enactment of P.D. No. 666. But
MARINA remains without authority, pursuant to P.D. No. 474 34 to issue
franchises for the operation of shipyards. Surely, the legislature did not
intend to create a vacuum by continuously treating a shipyard as a public
utility without giving MARINA the power to issue a Certificate of Public
Convenience (CPC) or a Certificate of Public Convenience and Necessity
(CPCN) as required by section 15 of C.A. No. 146.
II.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%
of PHILSECO’s total capitalization.
A careful reading of the 1977 Joint Venture Agreement reveals that there
is nothing that prevents KAWASAKI from acquiring more than 40% of
PHILSECO’s total capitalization. Section 1 of the 1977 JVA states:
1.3 The authorized capital stock of Philseco shall be ₱330 million. The
parties shall thereafter increase their subscription in Philseco as may be
necessary and as called by the Board of Directors, maintaining a
proportion of 60%-40% for NIDC and KAWASAKI respectively, up to a
total subscribed and paid-up capital stock of ₱312 million.
1.4 Neither party shall sell, transfer or assign all or any part of its interest
in SNS [renamed PHILSECO] to any third party without giving the other
under the same terms the right of first refusal. This provision shall not
apply if the transferee is a corporation owned and controlled by the
GOVERMENT [of the Philippines] or by a Kawasaki affiliate.
1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive
rights to unissued shares of SNS [PHILSECO].35 
Under section 1.3, the parties agreed to the amount of ₱330 million as the
total capitalization of their joint venture. There was no mention of the
14
amount of their initial subscription. What is clear is that they are to infuse
the needed capital from time to time until the total subscribed and paid-up
capital reaches ₱312 million. The phrase "maintaining a proportion of
60%-40%" refers to their respective share of the burden each time the
Board of Directors decides to increase the subscription to reach the target
paid-up capital of ₱312 million. It does not bind the parties to maintain
the sharing scheme all throughout the existence of their partnership.
The parties likewise agreed to arm themselves with protective
mechanisms to preserve their respective interests in the partnership in the
event that (a) one party decides to sell its shares to third parties; and (b)
new Philseco shares are issued. Anent the first situation, the non-selling
party is given the right of first refusal under section 1.4 to have a
preferential right to buy or to refuse the selling party’s shares. The right
of first refusal is meant to protect the original or remaining joint
venturer(s) or shareholder(s) from the entry of third persons who are not
acceptable to it as co-venturer(s) or co-shareholder(s). The joint venture
between the Philippine Government and KAWASAKI is in the nature of
a partnership36 which, unlike an ordinary corporation, is based on delectus
personae.37 No one can become a member of the partnership association
without the consent of all the other associates. The right of first refusal
thus ensures that the parties are given control over who may become a
new partner in substitution of or in addition to the original partners.
Should the selling partner decide to dispose all its shares, the non-selling
partner may acquire all these shares and terminate the partnership. No
person or corporation can be compelled to remain or to continue the
partnership. Of course, this presupposes that there are no other
restrictions in the maximum allowable share that the non-selling partner
may acquire such as the constitutional restriction on foreign ownership in
public utility. The theory that KAWASAKI can acquire, as a maximum,
only 40% of PHILSECO’s shares is correct only if a shipyard is a public
utility. In such instance, the non-selling partner who is an alien can
acquire only a maximum of 40% of the total capitalization of a public
utility despite the grant of first refusal. The partners cannot, by mere
agreement, avoid the constitutional proscription. But as afore-discussed,
PHILSECO is not a public utility and no other restriction is present that
would limit the right of KAWASAKI to purchase the Government’s
share to 40% of Philseco’s total capitalization.
Furthermore, the phrase "under the same terms" in section 1.4 cannot be
given an interpretation that would limit the right of KAWASAKI to
purchase PHILSECO shares only to the extent of its original
proportionate contribution of 40% to the total capitalization of the
PHILSECO. Taken together with the whole of section 1.4, the phrase
"under the same terms" means that a partner to the joint venture that
decides to sell its shares to a third party shall make a similar offer to the
non-selling partner. The selling partner cannot make a different or a more
onerous offer to the non-selling partner.
The exercise of first refusal presupposes that the non-selling partner is
aware of the terms of the conditions attendant to the sale for it to have a
guided choice. While the right of first refusal protects the non-selling
partner from the entry of third persons, it cannot also deprive the other
partner the right to sell its shares to third persons if, under the same offer,
it does not buy the shares.
Apart from the right of first refusal, the parties also have preemptive
rights under section 1.5 in the unissued shares of Philseco. Unlike the
former, this situation does not contemplate transfer of a partner’s shares
to third parties but the issuance of new Philseco shares. The grant of
preemptive rights preserves the proportionate shares of the original
partners so as not to dilute their respective interests with the issuance of
the new shares. Unlike the right of first refusal, a preemptive right gives a
partner a preferential right over the newly issued shares only to the extent
that it retains its original proportionate share in the joint venture.
The case at bar does not concern the issuance of new shares but the
transfer of a partner’s share in the joint venture. Verily, the operative
protective mechanism is the right of first refusal which does not impose
any limitation in the maximum shares that the non-selling partner may
acquire.
III.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates
the principles of competitive bidding.
We also hold that the right to top granted to KAWASAKI and exercised
by private respondent did not violate the rules of competitive bidding.
The word "bidding" in its comprehensive sense means making an offer or
an invitation to prospective contractors whereby the government
manifests its intention to make proposals for the purpose of supplies,
materials and equipment for official business or public use, or for public
works or repair.38 The three principles of public bidding are: (1) the offer
to the public; (2) an opportunity for competition; and (3) a basis for
comparison of bids.39 As long as these three principles are complied with,
the public bidding can be considered valid and legal. It is not necessary
that the highest bid be automatically accepted. The bidding rules may
specify other conditions or the bidding process be subjected to certain
reservation or qualification such as when the owner reserves to himself
openly at the time of the sale the right to bid upon the property, or openly
announces a price below which the property will not be sold. Hence,
where the seller reserves the right to refuse to accept any bid made, a
binding sale is not consummated between the seller and the bidder until
the seller accepts the bid. Furthermore, where a right is reserved in the
seller to reject any and all bids received, the owner may exercise the right
even after the auctioneer has accepted a bid, and this applies to the
auction of public as well as private property. 40 Thus:
It is a settled rule that where the invitation to bid contains a reservation
for the Government to reject any or all bids, the lowest or the highest
bidder, as the case may be, is not entitled to an award as a matter of right
for it does not become a ministerial duty of the Government to make such
an award. Thus, it has been held that where the right to reject is so
reserved, the lowest bid or any bid for that matter may be rejected on a
mere technicality, that all bids may be rejected, even if arbitrarily and
unwisely, or under a mistake, and that in the exercise of a sound
discretion, the award may be made to another than the lowest bidder. And
so, where the Government as advertiser, availing itself of that right,
makes its choice in rejecting any or all bids, the losing bidder has no
cause to complain nor right to dispute that choice, unless an unfairness or
injustice is shown. Accordingly, he has no ground of action to compel the
Government to award the contract in his favor, nor compel it to accept his
bid.41 
In the instant case, the sale of the Government shares in PHILSECO was
publicly known. All interested bidders were welcomed. The basis for
comparing the bids were laid down. All bids were accepted sealed and
were opened and read in the presence of the COA’s official representative
and before all interested bidders. The only question that remains is
whether or not the existence of KAWASAKI’s right to top destroys the
essence of competitive bidding so as to say that the bidders did not have
an opportunity for competition. We hold that it does not.
The essence of competition in public bidding is that the bidders are
placed on equal footing. This means that all qualified bidders have an
equal chance of winning the auction through their bids. In the case at bar,
all of the bidders were exposed to the same risk and were subjected to the
same condition, i.e., the existence of KAWASAKI’s right to top. Under
the ASBR, the Government expressly reserved the right to reject any or
all bids, and manifested its intention not to accept the highest bid should
KAWASAKI decide to exercise its right to top under the ABSR. This
reservation or qualification was made known to the bidders in a pre-
bidding conference held on September 28, 1993. They all expressly
accepted this condition in writing without any qualification. Furthermore,
when the Committee on Privatization notified petitioner of the approval
of the sale of the National Government shares of stock in PHILSECO, it
specifically stated that such approval was subject to the right of
KAWASAKI Heavy Industries, Inc./Philyards Holdings, Inc. to top
JGSMI’s bid by 5% as specified in the bidding rules. Clearly, the
approval of the sale was a conditional one. Since Philyards eventually
exercised its right to top petitioner’s bid by 5%, the sale was not
consummated. Parenthetically, it cannot be argued that the existence of
the right to top "set for naught the entire public bidding." Had Philyards
Holdings, Inc. failed or refused to exercise its right to top, the sale
between the petitioner and the National Government would have been
consummated. In like manner, the existence of the right to top cannot be
likened to a second bidding, which is countenanced, except when there is
failure to bid as when there is only one bidder or none at all. A prohibited
second bidding presupposes that based on the terms and conditions of the
sale, there is already a highest bidder with the right to demand that the
seller accept its bid. In the instant case, the highest bidder was well aware
that the acceptance of its bid was conditioned upon the non-exercise of
the right to top.
To be sure, respondents did not circumvent the requirements for bidding
by granting KAWASAKI, a non-bidder, the right to top the highest
bidder. The fact that KAWASAKI’s nominee to exercise the right to top
has among its stockholders some losing bidders cannot also be deemed
"unfair."
It must be emphasized that none of the parties questions the existence of
KAWASAKI’s right of first refusal, which is concededly the basis for the
grant of the right to top. Under KAWASAKI’s right of first refusal, the
National Government is under the obligation to give preferential right to
KAWASAKI in the event it decides to sell its shares in PHILSECO. It
has to offer to KAWASAKI the shares and give it the option to buy or
refuse under the same terms for which it is willing to sell the said shares
15
to third parties. KAWASAKI is not a mere non-bidder. It is a partner in
the joint venture; the incidents of which are governed by the law on
contracts and on partnership.
It is true that properties of the National Government, as a rule, may be
sold only after a public bidding is held. Public bidding is the accepted
method in arriving at a fair and reasonable price and ensures that
overpricing, favoritism and other anomalous practices are eliminated or
minimized.42 But the requirement for public bidding does not negate the
exercise of the right of first refusal. In fact, public bidding is an essential
first step in the exercise of the right of first refusal because it is only after
the public bidding that the terms upon which the Government may be
said to be willing to sell its shares to third parties may be
known.1âwphi1 It is only after the public bidding that the Government
will have a basis with which to offer KAWASAKI the option to buy or
forego the shares.
Assuming that the parties did not swap KAWASAKI’s right of first
refusal with the right to top, KAWASAKI would have been able to buy
the National Government’s shares in PHILSECO under the same terms as
offered by the highest bidder. Stated otherwise, by exercising its right of
first refusal, KAWASAKI could have bought the shares for only ₱2.03
billion and not the higher amount of ₱2.1315 billion. There is, thus, no
basis in the submission that the right to top unfairly favored
KAWASAKI. In fact, with the right to top, KAWASAKI stands to pay
higher than it should had it settled with its right of first refusal. The
obvious beneficiary of the scheme is the National Government.
If at all, the obvious consideration for the exchange of the right of first
refusal with the right to top is that KAWASAKI can name a nominee,
which it is a shareholder, to exercise the right to top. This is a valid
contractual stipulation; the right to top is an assignable right and both
parties are aware of the full legal consequences of its exercise. As
aforesaid, all bidders were aware of the existence of the right to top, and
its possible effects on the result of the public bidding was fully disclosed
to them. The petitioner, thus, cannot feign ignorance nor can it be allowed
to repudiate its acts and question the proceedings it had fully adhered
to.43  several persons, including Roland Gapud and Jose Campos, Jr.
The fact that the losing bidder, Keppel Consortium (composed of Keppel,
SM Group, Insular Life Assurance, Mitsui and ICTSI), has joined
Philyards in the latter’s effort to raise ₱2.131 billion necessary in
exercising the right to top is not contrary to law, public policy or public
morals. There is nothing in the ASBR that bars the losing bidders from
joining either the winning bidder (should the right to top is not exercised)
or KAWASAKI/PHI (should it exercise its right to top as it did), to raise
the purchase price. The petitioner did not allege, nor was it shown by
competent evidence, that the participation of the losing bidders in the
public bidding was done with fraudulent intent. Absent any proof of
fraud, the formation by Philyards of a consortium is legitimate in a free
enterprise system. The appellate court is thus correct in holding the
petitioner estopped from questioning the validity of the transfer of the
National Government’s shares in PHILSECO to respondent.
Finally, no factual basis exists to support the view that the drafting of the
ASBR was illegal because no prior approval was given by the COA for it,
specifically the provision on the right to top the highest bidder and that
the public auction on December 2, 1993 was not witnessed by a COA
representative. No evidence was proffered to prove these allegations and
the Court cannot make legal conclusions out of mere allegations.
Regularity in the performance of official duties is presumed 44 and in the
absence of competent evidence to rebut this presumption, this Court is
duty bound to uphold this presumption.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration is
hereby GRANTED. The impugned Decision and Resolution of the Court
of Appeals are AFFIRMED.
SO ORDERED.
G.R. No. 176579               June 28, 2011
WILSON P. GAMBOA, Petitioner,  81.47 percent. This violates Section 11, Article XII of the 1987
vs.
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE
UNDERSECRETARY JOHN P. SEVILLA, AND COMMISSIONER
RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION
ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS
CHAIR AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF
FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR
OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN
MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS
MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD.,
PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN
OF THE SECURITIES EXCHANGE COMMISSION, and
PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK
EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-
Intervention.
DECISION
CARPIO, J.:
The Case
This is an original petition for prohibition, injunction, declaratory relief
and declaration of nullity of the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government
of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc.
(MPAH), an affiliate of First Pacific Company Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of
Philippine Long Distance Telephone Company (PLDT), are as follows:1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436
which granted PLDT a franchise and the right to engage in
telecommunications business. In 1969, General Telephone and
Electronics Corporation (GTE), an American company and a major
PLDT stockholder, sold 26 percent of the outstanding common shares of
PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by
Subsequently, PHI became the owner of 111,415 shares of stock of PTIC
by virtue of three Deeds of Assignment executed by PTIC stockholders
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of
stock of PTIC held by PHI were sequestered by the Presidential
Commission on Good Government (PCGG). The 111,415 PTIC shares,
which represent about 46.125 percent of the outstanding capital stock of
PTIC, were later declared by this Court to be owned by the Republic of
the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based
investment firm, acquired the remaining 54 percent of the outstanding
capital stock of PTIC. On 20 November 2006, the Inter-Agency
Privatization Council (IPC) of the Philippine Government announced that
it would sell the 111,415 PTIC shares, or 46.125 percent of the
outstanding capital stock of PTIC, through a public bidding to be
conducted on 4 December 2006. Subsequently, the public bidding was
reset to 8 December 2006, and only two bidders, Parallax Venture Fund
XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids.
Parallax won with a bid of ₱25.6 billion or US$510 million.
Thereafter, First Pacific announced that it would exercise its right of first
refusal as a PTIC stockholder and buy the 111,415 PTIC shares by
matching the bid price of Parallax. However, First Pacific failed to do so
by the 1 February 2007 deadline set by IPC and instead, yielded its right
to PTIC itself which was then given by IPC until 2 March 2007 to buy the
PTIC shares. On 14 February 2007, First Pacific, through its subsidiary,
MPAH, entered into a Conditional Sale and Purchase Agreement of the
111,415 PTIC shares, or 46.125 percent of the outstanding capital stock
of PTIC, with the Philippine Government for the price of
₱25,217,556,000 or US$510,580,189. The sale was completed on 28
February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine
Government of 46.125 percent of PTIC shares is actually an indirect sale
of 12 million shares or about 6.3 percent of the outstanding common
shares of PLDT. With the sale, First Pacific’s common shareholdings
in PLDT increased from 30.7 percent to 37 percent, thereby
increasing the common shareholdings of foreigners in PLDT to about
Philippine Constitution which limits foreign ownership of the capital of a
public utility to not more than 40 percent.3
On the other hand, public respondents Finance Secretary Margarito B.
Teves, Undersecretary John P. Sevilla, and PCGG Commissioner Ricardo
Abcede allege the following relevant facts:
16
On 9 November 1967, PTIC was incorporated and had since engaged in
the business of investment holdings. PTIC held 26,034,263 PLDT
common shares, or 13.847 percent of the total PLDT outstanding
common shares. PHI, on the other hand, was incorporated in 1977, and
became the owner of 111,415 PTIC shares or 46.125 percent of the
outstanding capital stock of PTIC by virtue of three Deeds of Assignment
executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the
111,415 PTIC shares held by PHI were sequestered by the PCGG, and
subsequently declared by this Court as part of the ill-gotten wealth of
former President Ferdinand Marcos. The sequestered PTIC shares were
reconveyed to the Republic of the Philippines in accordance with this
Court’s decision4 which became final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares,
which represent 6.4 percent of the outstanding common shares of stock of
PLDT, and designated the Inter-Agency Privatization Council (IPC),
composed of the Department of Finance and the PCGG, as the disposing
entity. An invitation to bid was published in seven different newspapers
from 13 to 24 November 2006. On 20 November 2006, a pre-bid
conference was held, and the original deadline for bidding scheduled on 4
December 2006 was reset to 8 December 2006. The extension was
published in nine different newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP
emerged as the highest bidder with a bid of ₱25,217,556,000. The
government notified First Pacific, the majority owner of PTIC shares, of
the bidding results and gave First Pacific until 1 February 2007 to
exercise its right of first refusal in accordance with PTIC’s Articles of
Incorporation. First Pacific announced its intention to match Parallax’s
bid.
On 31 January 2007, the House of Representatives (HR) Committee on
Good Government conducted a public hearing on the particulars of the
then impending sale of the 111,415 PTIC shares. Respondents Teves and
Sevilla were among those who attended the public hearing. The HR
Committee Report No. 2270 concluded that: (a) the auction of the
government’s 111,415 PTIC shares bore due diligence, transparency and
conformity with existing legal procedures; and (b) First Pacific’s
intended acquisition of the government’s 111,415 PTIC shares
resulting in First Pacific’s 100% ownership of PTIC will not violate
the 40 percent constitutional limit on foreign ownership of a public
utility since PTIC holds only 13.847 percent of the total outstanding
common shares of PLDT.5 On 28 February 2007, First Pacific
completed the acquisition of the 111,415 shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC
conducted a public bidding for the sale of 111,415 PTIC shares or 46
percent of the outstanding capital stock of PTIC (the remaining 54
percent of PTIC shares was already owned by First Pacific and its
affiliates); (b) Parallax offered the highest bid amounting to
₱25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC
and its shareholders granted in PTIC’s Articles of Incorporation, MPAH,
a First Pacific affiliate, exercised its right of first refusal by matching the
highest bid offered for PTIC shares on 13 February 2007; and (d) on 28
February 2007, the sale was consummated when MPAH paid IPC
₱25,217,556,000 and the government delivered the certificates for the
111,415 PTIC shares. Respondent Pangilinan denies the other allegations
of facts of petitioner.
On 28 February 2007, petitioner filed the instant petition for prohibition,
injunction, declaratory relief, and declaration of nullity of sale of the
111,415 PTIC shares. Petitioner claims, among others, that the sale of the
111,415 PTIC shares would result in an increase in First Pacific’s
common shareholdings in PLDT from 30.7 percent to 37 percent, and
this, combined with Japanese NTT DoCoMo’s common shareholdings in
PLDT, would result to a total foreign common shareholdings in PLDT of
51.56 percent which is over the 40 percent constitutional limit. 6 Petitioner
asserts:
If and when the sale is completed, First Pacific’s equity in PLDT will go
up from 30.7 percent to 37.0 percent of its common – or voting-
stockholdings, x x x. Hence, the consummation of the sale will put the
two largest foreign investors in PLDT – First Pacific and Japan’s NTT
DoCoMo, which is the world’s largest wireless telecommunications firm,
owning 51.56 percent of PLDT common equity. x x x With the
completion of the sale, data culled from the official website of the New
York Stock Exchange (www.nyse.com) showed that those foreign
entities, which own at least five percent of common equity, will
collectively own 81.47 percent of PLDT’s common equity. x x x
x x x as the annual disclosure reports, also referred to as Form 20-K
reports x x x which PLDT submitted to the New York Stock Exchange
for the period 2003-2005, revealed that First Pacific and several other
foreign entities breached the constitutional limit of 40 percent ownership
as early as 2003. x x x"7
Petitioner raises the following issues: (1) whether the consummation of
the then impending sale of 111,415 PTIC shares to First Pacific violates
the constitutional limit on foreign ownership of a public utility; (2)
whether public respondents committed grave abuse of discretion in
allowing the sale of the 111,415 PTIC shares to First Pacific; and (3)
whether the sale of common shares to foreigners in excess of 40 percent
of the entire subscribed common capital stock violates the constitutional
limit on foreign ownership of a public utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a
Motion for Leave to Intervene and Admit Attached Petition-in-
Intervention. In the Resolution of 28 August 2007, the Court granted the
motion and noted the Petition-in-Intervention.
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in
seeking, among others, to enjoin and/or nullify the sale by respondents of
the 111,415 PTIC shares to First Pacific or assignee." Petitioners-in-
intervention claim that, as PLDT subscribers, they have a "stake in the
outcome of the controversy x x x where the Philippine Government is
completing the sale of government owned assets in [PLDT],
unquestionably a public utility, in violation of the nationality restrictions
of the Philippine Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those raised by
petitioner,9 which indisputably demand a thorough examination of the
evidence of the parties, are generally beyond this Court’s jurisdiction.
Adhering to this well-settled principle, the Court shall confine the
resolution of the instant controversy solely on the threshold and purely
legal issue of whether the term "capital" in Section 11, Article XII of the
Constitution refers to the total common shares only or to the total
outstanding capital stock (combined total of common and non-voting
preferred shares) of PLDT, a public utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the
remedies petitioner seeks, only the petition for prohibition is within the
original jurisdiction of this court, which however is not exclusive but is
concurrent with the Regional Trial Court and the Court of Appeals. The
actions for declaratory relief,10 injunction, and annulment of sale are not
embraced within the original jurisdiction of the Supreme Court. On this
ground alone, the petition could have been dismissed outright.
While direct resort to this Court may be justified in a petition for
prohibition,11 the Court shall nevertheless refrain from discussing the
grounds in support of the petition for prohibition since on 28 February
2007, the questioned sale was consummated when MPAH paid IPC
₱25,217,556,000 and the government delivered the certificates for the
111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition of
the term "capital" in Section 11, Article XII of the Constitution has far-
reaching implications to the national economy, the Court treats the
petition for declaratory relief as one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the
petition for declaratory relief as one for mandamus considering the grave
injustice that would result in the interpretation of a banking law. In that
case, which involved the crime of rape committed by a foreign tourist
against a Filipino minor and the execution of the final judgment in the
civil case for damages on the tourist’s dollar deposit with a local bank,
the Court declared Section 113 of Central Bank Circular No. 960,
exempting foreign currency deposits from attachment, garnishment or
any other order or process of any court, inapplicable due to the peculiar
circumstances of the case. The Court held that "injustice would result
especially to a citizen aggrieved by a foreign guest like accused x x x"
that would "negate Article 10 of the Civil Code which provides that ‘in
case of doubt in the interpretation or application of laws, it is presumed
that the lawmaking body intended right and justice to prevail.’" The
Court therefore required respondents Central Bank of the Philippines, the
local bank, and the accused to comply with the writ of execution issued in
the civil case for damages and to release the dollar deposit of the accused
to satisfy the judgment.
17
In Alliance of Government Workers v. Minister of Labor,14 the Court
similarly brushed aside the procedural infirmity of the petition for
declaratory relief and treated the same as one for mandamus.
In Alliance, the issue was whether the government unlawfully excluded
petitioners, who were government employees, from the enjoyment of
rights to which they were entitled under the law. Specifically, the
question was: "Are the branches, agencies, subdivisions, and
instrumentalities of the Government, including government owned or
controlled corporations included among the four ‘employers’ under
Presidential Decree No. 851 which are required to pay their employees x
x x a thirteenth (13th) month pay x x x ?" The Constitutional principle
involved therein affected all government employees, clearly justifying a
relaxation of the technical rules of procedure, and certainly requiring the
interpretation of the assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for
declaratory relief as one for mandamus if the issue involved has far-
reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition for
declaratory relief. However, exceptions to this rule have been
recognized. Thus, where the petition has far-reaching implications
and raises questions that should be resolved, it may be treated as one
for mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the
term "capital" in Section 11, Article XII of the Constitution. He prays that
this Court declare that the term "capital" refers to common shares only,
and that such shares constitute "the sole basis in determining foreign
equity in a public utility." Petitioner further asks this Court to declare any
ruling inconsistent with such interpretation unconstitutional.
The interpretation of the term "capital" in Section 11, Article XII of the
Constitution has far-reaching implications to the national economy. In
fact, a resolution of this issue will determine whether Filipinos are
masters, or second class citizens, in their own country. What is at stake
here is whether Filipinos or foreigners will have effective control of the
national economy. Indeed, if ever there is a legal issue that has far-
reaching implications to the entire nation, and to future generations of
Filipinos, it is the threshhold legal issue presented in this case.
The Court first encountered the issue on the definition of the term
"capital" in Section 11, Article XII of the Constitution in the case
of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case
involved the same public utility (PLDT) and substantially the same
private respondents. Despite the importance and novelty of the
constitutional issue raised therein and despite the fact that the petition
involved a purely legal question, the Court declined to resolve the case on
the merits, and instead denied the same for disregarding the hierarchy of
courts.17There, petitioner Fernandez assailed on a pure question of law the
Regional Trial Court’s Decision of 21 February 2003 via a petition for
review under Rule 45. The Court’s Resolution, denying the petition,
became final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity
to finally settle this purely legal issuewhich is of transcendental
importance to the national economy and a fundamental requirement to a
faithful adherence to our Constitution. The Court must forthwith seize
such opportunity, not only for the benefit of the litigants, but more
significantly for the benefit of the entire Filipino people, to ensure, in the
words of the Constitution, "a self-reliant and independent national
economy effectively controlled by Filipinos."18 Besides, in the light of
vague and confusing positions taken by government agencies on this
purely legal issue, present and future foreign investors in this country
deserve, as a matter of basic fairness, a categorical ruling from this Court
on the extent of their participation in the capital of public utilities and
other nationalized businesses.
Despite its far-reaching implications to the national economy, this purely
legal issue has remained unresolved for over 75 years since the 1935
Constitution. There is no reason for this Court to evade this ever recurring
fundamental issue and delay again defining the term "capital," which
appears not only in Section 11, Article XII of the Constitution, but also in
Section 2, Article XII on co-production and joint venture agreements for
the development of our natural resources,19 in Section 7, Article XII on
ownership of private lands,20 in Section 10, Article XII on the reservation
of certain investments to Filipino citizens,21 in Section 4(2), Article XIV
on the ownership of educational institutions,22 and in Section 11(2),
Article XVI on the ownership of advertising companies.23
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of PLDT. As such, he
has the right to question the subject sale, which he claims to violate the
nationality requirement prescribed in Section 11, Article XII of the
Constitution. If the sale indeed violates the Constitution, then there is a
possibility that PLDT’s franchise could be revoked, a dire consequence
directly affecting petitioner’s interest as a stockholder.
More importantly, there is no question that the instant petition raises
matters of transcendental importance to the public. The fundamental and
threshold legal issue in this case, involving the national economy and the
economic welfare of the Filipino people, far outweighs any perceived
impediment in the legal personality of the petitioner to bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a
suit on matters of transcendental importance to the public, thus:
In Tañada v. Tuvera, the Court asserted that when the issue concerns a
public right and the object of mandamus is to obtain the enforcement
of a public duty, the people are regarded as the real parties in
interest; and because it is sufficient that petitioner is a citizen and as
such is interested in the execution of the laws, he need not show that
he has any legal or special interest in the result of the action. In the
aforesaid case, the petitioners sought to enforce their right to be informed
on matters of public concern, a right then recognized in Section 6, Article
IV of the 1973 Constitution, in connection with the rule that laws in order
to be valid and enforceable must be published in the Official Gazette or
otherwise effectively promulgated. In ruling for the petitioners’ legal
standing, the Court declared that the right they sought to be enforced ‘is a
public right recognized by no less than the fundamental law of the land.’
Legaspi v. Civil Service Commission, while reiterating Tañada, further
declared that ‘when a mandamus proceeding involves the assertion of
a public right, the requirement of personal interest is satisfied by the
mere fact that petitioner is a citizen and, therefore, part of the
general ‘public’ which possesses the right.’
Further, in Albano v. Reyes, we said that while expenditure of public
funds may not have been involved under the questioned contract for the
development, management and operation of the Manila International
Container Terminal, ‘public interest [was] definitely involved
considering the important role [of the subject contract] . . . in the
economic development of the country and the magnitude of the
financial consideration involved.’ We concluded that, as a consequence,
the disclosure provision in the Constitution would constitute sufficient
authority for upholding the petitioner’s standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves matters
of transcendental public importance, the petitioner has the requisite locus
standi.
Definition of the Term "Capital" in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987
Constitution mandates the Filipinization of public utilities, to wit:
Section 11. 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. Neither shall any such franchise or right be
granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so requires.
The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their proportionate
share in its capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines. (Emphasis
supplied)
The above provision substantially reiterates Section 5, Article XIV of the
1973 Constitution, thus:
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
18
granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the National Assembly when the public interest so
requires. The State shall encourage equity participation in public utilities
by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their
proportionate share in the capital thereof. (Emphasis supplied)
The foregoing provision in the 1973 Constitution reproduced Section 8,
Article XIV of the 1935 Constitution, viz:
Section 8. 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. No franchise or right shall be granted
to any individual, firm, or corporation, except under the condition that it
shall be subject to amendment, alteration, or repeal by the Congress when
the public interest so requires. (Emphasis supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986
Constitutional Commission, reminds us that the Filipinization provision
in the 1987 Constitution is one of the products of the spirit of nationalism
which gripped the 1935 Constitutional Convention.25 The 1987
Constitution "provides for the Filipinization of public utilities by
requiring that any form of authorization for the operation of public
utilities should be granted only 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.’ The
provision is [an express] recognition of the sensitive and vital position
of public utilities both in the national economy and for national
security."26 The evident purpose of the citizenship requirement is to
prevent aliens from assuming control of public utilities, which may be
inimical to the national interest.27 This specific provision explicitly
reserves to Filipino citizens control of public utilities, pursuant to an
overriding economic goal of the 1987 Constitution: to "conserve and
develop our patrimony"28 and ensure "a self-reliant and independent
national economy effectively controlled by Filipinos."29
Any citizen or juridical entity desiring to operate a public utility must
therefore meet the minimum nationality requirement prescribed in
Section 11, Article XII of the Constitution. Hence, for a corporation to be
granted authority to operate a public utility, at least 60 percent of its
"capital" must be owned by Filipino citizens.
The crux of the controversy is the definition of the term "capital." Does
the term "capital" in Section 11, Article XII of the Constitution refer to
common shares or to the total outstanding capital stock (combined total
of common and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in
domestic public utilities refers only to common shares because such
shares are entitled to vote and it is through voting that control over a
corporation is exercised. Petitioner posits that the term "capital" in
Section 11, Article XII of the Constitution refers to "the ownership of
common capital stock subscribed and outstanding, which class of shares
alone, under the corporate set-up of PLDT, can vote and elect members
of the board of directors." It is undisputed that PLDT’s non-voting
preferred shares are held mostly by Filipino citizens.30 This arose from
Presidential Decree No. 217,31 issued on 16 June 1973 by then President
Ferdinand Marcos, requiring every applicant of a PLDT telephone line to
subscribe to non-voting preferred shares to pay for the investment cost of
installing the telephone line.32
Petitioners-in-intervention basically reiterate petitioner’s arguments and
adopt petitioner’s definition of the term "capital."33 Petitioners-in-
intervention allege that "the approximate foreign ownership of common
capital stock of PLDT x x x already amounts to at least 63.54% of the
total outstanding common stock," which means that foreigners exercise
significant control over PLDT, patently violating the 40 percent foreign
equity limitation in public utilities prescribed by the Constitution.
Respondents, on the other hand, do not offer any definition of the term
"capital" in Section 11, Article XII of the Constitution. More importantly,
private respondents Nazareno and Pangilinan of PLDT do not dispute that
more than 40 percent of the common shares of PLDT are held by
foreigners.
In particular, respondent Nazareno’s Memorandum, consisting of 73
pages, harps mainly on the procedural infirmities of the petition and the
supposed violation of the due process rights of the "affected foreign
common shareholders." Respondent Nazareno does not deny petitioner’s
allegation of foreigners’ dominating the common shareholdings of PLDT.
Nazareno stressed mainly that the petition "seeks to divest foreign
common shareholders purportedly exceeding 40% of the total
common shareholdings in PLDT of their ownership over their
shares." Thus, "the foreign natural and juridical PLDT shareholders must
be impleaded in this suit so that they can be heard."34 Essentially,
Nazareno invokes denial of due process on behalf of the foreign common
shareholders.
While Nazareno does not introduce any definition of the term "capital,"
he states that "among the factual assertions that need to be established
to counter petitioner’s allegations is the uniform interpretation by
government agencies (such as the SEC), institutions and corporations
(such as the Philippine National Oil Company-Energy Development
Corporation or PNOC-EDC) of including both preferred shares and
common shares in "controlling interest" in view of testing
compliance with the 40% constitutional limitation on foreign
ownership in public utilities."35
Similarly, respondent Manuel V. Pangilinan does not define the term
"capital" in Section 11, Article XII of the Constitution. Neither does he
refute petitioner’s claim of foreigners holding more than 40 percent of
PLDT’s common shares. Instead, respondent Pangilinan focuses on the
procedural flaws of the petition and the alleged violation of the due
process rights of foreigners. Respondent Pangilinan emphasizes in his
Memorandum (1) the absence of this Court’s jurisdiction over the
petition; (2) petitioner’s lack of standing; (3) mootness of the petition; (4)
non-availability of declaratory relief; and (5) the denial of due process
rights. Moreover, respondent Pangilinan alleges that the issue should be
whether "owners of shares in PLDT as well as owners of shares in
companies holding shares in PLDT may be required to relinquish their
shares in PLDT and in those companies without any law requiring them
to surrender their shares and also without notice and trial."
Respondent Pangilinan further asserts that "Section 11, [Article XII of
the Constitution] imposes no nationality requirement on the
shareholders of the utility company as a condition for keeping their
shares in the utility company." According to him, "Section 11 does not
authorize taking one person’s property (the shareholder’s stock in the
utility company) on the basis of another party’s alleged failure to satisfy a
requirement that is a condition only for that other party’s retention of
another piece of property (the utility company being at least 60%
Filipino-owned to keep its franchise)."36
The OSG, representing public respondents Secretary Margarito Teves,
Undersecretary John P. Sevilla, Commissioner Ricardo Abcede, and
Chairman Fe Barin, is likewise silent on the definition of the term
"capital." In its Memorandum37 dated 24 September 2007, the OSG also
limits its discussion on the supposed procedural defects of the petition,
i.e. lack of standing, lack of jurisdiction, non-inclusion of interested
parties, and lack of basis for injunction. The OSG does not present any
definition or interpretation of the term "capital" in Section 11, Article XII
of the Constitution. The OSG contends that "the petition actually partakes
of a collateral attack on PLDT’s franchise as a public utility," which in
effect requires a "full-blown trial where all the parties in interest are
given their day in court."38
Respondent Francisco Ed Lim, impleaded as President and Chief
Executive Officer of the Philippine Stock Exchange (PSE), does not also
define the term "capital" and seeks the dismissal of the petition on the
following grounds: (1) failure to state a cause of action against Lim; (2)
the PSE allegedly implemented its rules and required all listed
companies, including PLDT, to make proper and timely disclosures; and
(3) the reliefs prayed for in the petition would adversely impact the stock
market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who
claimed to be a stockholder of record of PLDT, contended that the term
"capital" in the 1987 Constitution refers to shares entitled to vote or the
common shares. Fernandez explained thus:
The forty percent (40%) foreign equity limitation in public utilities
prescribed by the Constitution refers to ownership of shares of stock
entitled to vote, i.e., common shares, considering that it is through voting
that control is being exercised. x x x
Obviously, the intent of the framers of the Constitution in imposing
limitations and restrictions on fully nationalized and partially nationalized
activities is for Filipino nationals to be always in control of the
corporation undertaking said activities. Otherwise, if the Trial Court’s
ruling upholding respondents’ arguments were to be given credence, it
would be possible for the ownership structure of a public utility
corporation to be divided into one percent (1%) common stocks and
ninety-nine percent (99%) preferred stocks. Following the Trial Court’s
19
ruling adopting respondents’ arguments, the common shares can be
owned entirely by foreigners thus creating an absurd situation wherein
foreigners, who are supposed to be minority shareholders, control the
public utility corporation.
xxxx
Thus, the 40% foreign ownership limitation should be interpreted to
apply to both the beneficial ownership and the controlling interest.
xxxx
Clearly, therefore, the forty percent (40%) foreign equity limitation in
public utilities prescribed by the Constitution refers to ownership of
shares of stock entitled to vote, i.e., common shares. Furthermore,
ownership of record of shares will not suffice but it must be shown that
the legal and beneficial ownership rests in the hands of Filipino citizens.
Consequently, in the case of petitioner PLDT, since it is already admitted
that the voting interests of foreigners which would gain entry to petitioner
PLDT by the acquisition of SMART shares through the Questioned
Transactions is equivalent to 82.99%, and the nominee arrangements
between the foreign principals and the Filipino owners is likewise
admitted, there is, therefore, a violation of Section 11, Article XII of the
Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987
cited by the Trial Court to support the proposition that the meaning of the
word "capital" as used in Section 11, Article XII of the Constitution
allegedly refers to the sum total of the shares subscribed and paid-in by
the shareholder and it allegedly is immaterial how the stock is classified,
whether as common or preferred, cannot stand in the face of a clear
legislative policy as stated in the FIA which took effect in 1991 or way
after said opinions were rendered, and as clarified by the above-quoted
Amendments. In this regard, suffice it to state that as between the law and
an opinion rendered by an administrative agency, the law indubitably
prevails. Moreover, said Opinions are merely advisory and cannot prevail
over the clear intent of the framers of the Constitution.
In the same vein, the SEC’s construction of Section 11, Article XII of the
Constitution is at best merely advisory for it is the courts that finally
determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel
V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B. Elma,
Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa,
Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea,
argued that the term "capital" in Section 11, Article XII of the
Constitution includes preferred shares since the Constitution does not
distinguish among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the
corporation’s "capital," without distinction as to classes of shares. x x x
In this connection, the Corporation Code – which was already in force at
the time the present (1987) Constitution was drafted – defined
outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. – The term "outstanding
capital stock", as used in this Code, means the total shares of stock issued
under binding subscription agreements to subscribers or stockholders,
whether or not fully or partially paid, except treasury shares.
Section 137 of the Corporation Code also does not distinguish between
common and preferred shares, nor exclude either class of shares, in
determining the outstanding capital stock (the "capital") of a corporation.
Consequently, petitioner’s suggestion to reckon PLDT’s foreign equity
only on the basis of PLDT’s outstanding common shares is without legal
basis. The language of the Constitution should be understood in the sense
it has in common use.
xxxx
17. But even assuming that resort to the proceedings of the Constitutional
Commission is necessary, there is nothing in the Record of the
Constitutional Commission (Vol. III) – which petitioner misleadingly
cited in the Petition x x x – which supports petitioner’s view that only
common shares should form the basis for computing a public utility’s
foreign equity.
xxxx
18. In addition, the SEC – the government agency primarily responsible
for implementing the Corporation Code, and which also has the
responsibility of ensuring compliance with the Constitution’s foreign
equity restrictions as regards nationalized activities x x x – has
categorically ruled that both common and preferred shares are properly
considered in determining outstanding capital stock and the nationality
composition thereof.40
We agree with petitioner and petitioners-in-intervention. The term
"capital" in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in the
present case only to common shares,41 and not to the total outstanding
capital stock comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or
preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock
corporations may be divided into classes or series of shares, or both, any
of which classes or series of shares may have such rights, privileges or
restrictions as may be stated in the articles of incorporation:
Provided, That no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless
otherwise provided in this Code: Provided, further, That there shall
always be a class or series of shares which have complete voting rights.
Any or all of the shares or series of shares may have a par value or have
no par value as may be provided for in the articles of incorporation:
Provided, however, That banks, trust companies, insurance companies,
public utilities, and building and loan associations shall not be permitted
to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given
preference in the distribution of the assets of the corporation in case of
liquidation and in the distribution of dividends, or such other preferences
as may be stated in the articles of incorporation which are not violative of
the provisions of this Code: Provided, That preferred shares of stock may
be issued only with a stated par value. The Board of Directors, where
authorized in the articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series thereof: Provided,
That such terms and conditions shall be effective upon the filing of a
certificate thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully
paid and non-assessable and the holder of such shares shall not be liable
to the corporation or to its creditors in respect thereto: Provided; That
shares without par value may not be issued for a consideration less than
the value of five (₱5.00) pesos per share: Provided, further, That the
entire consideration received by the corporation for its no-par value
shares shall be treated as capital and shall not be available for distribution
as dividends.
A corporation may, furthermore, classify its shares for the purpose of
insuring compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in
the certificate of stock, each share shall be equal in all respects to every
other share.
Where the articles of incorporation provide for non-voting shares in the
cases allowed by this Code, the holders of such shares shall nevertheless
be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all
or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.
20
Except as provided in the immediately preceding paragraph, the vote
necessary to approve a particular corporate act as provided in this Code
shall be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate
in the control or management of the corporation.43 This is exercised
through his vote in the election of directors because it is the board of
directors that controls or manages the corporation.44 In the absence of
provisions in the articles of incorporation denying voting rights to
preferred shares, preferred shares have the same voting rights as common
shares. However, preferred shareholders are often excluded from any
control, that is, deprived of the right to vote in the election of directors
and on other matters, on the theory that the preferred shareholders are
merely investors in the corporation for income in the same manner as
bondholders.45 In fact, under the Corporation Code only preferred or
redeemable shares can be deprived of the right to vote.46 Common shares
cannot be deprived of the right to vote in any corporate meeting, and any
provision in the articles of incorporation restricting the right of common
shareholders to vote is invalid.47
Considering that common shares have voting rights which translate to
control, as opposed to preferred shares which usually have no voting
rights, the term "capital" in Section 11, Article XII of the Constitution
refers only to common shares. However, if the preferred shares also have
the right to vote in the election of directors, then the term "capital" shall
include such preferred shares because the right to participate in the
control or management of the corporation is exercised through the right to
vote in the election of directors. In short, the term "capital" in Section
11, Article XII of the Constitution refers only to shares of stock that
can vote in the election of directors.
This interpretation is consistent with the intent of the framers of the
Constitution to place in the hands of Filipino citizens the control and
management of public utilities. As revealed in the deliberations of the
Constitutional Commission, "capital" refers to the voting stock
or controlling interest of a corporation, to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local
or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-
40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this
question: "Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation"? Will the Committee please
enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the
members of the team from the UP Law Center who provided us a
draft. The phrase that is contained here which we adopted from
the UP draft is "60 percent of voting stock."
MR. NOLLEDO. That must be based on the subscribed capital stock,
because unless declared delinquent, unpaid capital stock shall be
entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity invests in
another corporation which is permitted by the Corporation Code,
does the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to that portion that was
accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the
deletion of the phrase "voting stock or controlling interest."
MR. AZCUNA. Hence, without the Davide amendment, the
committee report would read: "corporations or associations at least
sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck
with 60 percent of the capital to be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if
they are the minority. Let us say 40 percent of the capital is
owned by them, but it is the voting capital, whereas, the Filipinos
own the nonvoting shares. So we can have a situation where the
corporation is controlled by foreigners despite being the minority
because they have the voting capital. That is the anomaly that
would result here.
MR. BENGZON. No, the reason we eliminated the word "stock"
as stated in the 1973 and 1935 Constitutions is that according to
Commissioner Rodrigo, there are associations that do not have
stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling
interest."
MR. BENGZON. In the case of stock corporations, it is
assumed.49 (Emphasis supplied)
Thus, 60 percent of the "capital" assumes, or should result in,
"controlling interest" in the corporation. Reinforcing this interpretation
of the term "capital," as referring to controlling interest or shares entitled
to vote, is the definition of a "Philippine national" in the Foreign
Investments Act of 1991,50 to wit:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines;
or a domestic partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a corporation organized abroad and registered as doing
business in the Philippines under the Corporation Code of which one
hundred percent (100%) of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos or a trustee of funds for pension or
other employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stocks in a Securities
and Exchange Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stock outstanding and entitled to vote of each
of both corporations must be owned and held by citizens of the
Philippines and at least sixty percent (60%) of the members of the Board
of Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a
"Philippine national." (Emphasis supplied)
In explaining the definition of a "Philippine national," the Implementing
Rules and Regulations of the Foreign Investments Act of 1991 provide:
b. "Philippine national" shall mean a citizen of the Philippines or a
domestic partnership or association wholly owned by the citizens of the
Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent [60%] of the capital stock
outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent [60%] of the fund will accrue to the
benefit of the Philippine nationals; Provided, that where a corporation its
non-Filipino stockholders own stocks in a Securities and Exchange
Commission [SEC] registered enterprise, at least sixty percent [60%] of
the capital stock outstanding and entitled to vote of both corporations
must be owned and held by citizens of the Philippines and at least sixty
percent [60%] of the members of the Board of Directors of each of both
corporation must be citizens of the Philippines, in order that the
corporation shall be considered a Philippine national. The control test
shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporation
shall be determined on the basis of outstanding capital stock whether
fully paid or not, but only such stocks which are generally entitled to
vote are considered.
For stocks to be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights is essential. Thus, stocks, the
voting rights of which have been assigned or transferred to aliens
cannot be considered held by Philippine citizens or Philippine
nationals.
Individuals or juridical entities not meeting the aforementioned
qualifications are considered as non-Philippine nationals. (Emphasis
supplied)
Mere legal title is insufficient to meet the 60 percent Filipino-owned
"capital" required in the Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is required. The legal and beneficial ownership of 60
percent of the outstanding capital stock must rest in the hands of Filipino
nationals in accordance with the constitutional mandate. Otherwise, the
corporation is "considered as non-Philippine national[s]."
Under Section 10, Article XII of the Constitution, Congress may "reserve
to citizens of the Philippines or to corporations or associations at least
sixty per centum of whose capital is owned by such citizens, or such
21
higher percentage as Congress may prescribe, certain areas of
investments." Thus, in numerous laws Congress has reserved certain
areas of investments to Filipino citizens or to corporations at least sixty
percent of the "capital" of which is owned by Filipino citizens. Some of
these laws are: (1) Regulation of Award of Government Contracts or R.A.
No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3)
Magna Carta for Micro, Small and Medium Enterprises or R.A. No.
6977; (4) Philippine Overseas Shipping Development Act or R.A. No.
7471; (5) Domestic Shipping Development Act of 2004 or R.A. No.
9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No.
10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term
"capital" in Section 11, Article XII of the Constitution is also used in the
same context in numerous laws reserving certain areas of investments
to Filipino citizens.
To construe broadly the term "capital" as the total outstanding capital
stock, including both common and non-votingpreferred shares, grossly
contravenes the intent and letter of the Constitution that the "State shall
develop a self-reliant and independent national economy effectively
controlled by Filipinos." A broad definition unjustifiably disregards who
owns the all-important voting stock, which necessarily equates to control
of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the
term "capital." Let us assume that a corporation has 100 common shares
owned by foreigners and 1,000,000 non-voting preferred shares owned by
Filipinos, with both classes of share having a par value of one peso
(₱1.00) per share. Under the broad definition of the term "capital," such
corporation would be considered compliant with the 40 percent
constitutional limit on foreign equity of public utilities since the
overwhelming majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares
have voting rights in the election of directors, even if they hold only 100
shares. The foreigners, with a minuscule equity of less than 0.001
percent, exercise control over the public utility. On the other hand, the
Filipinos, holding more than 99.999 percent of the equity, cannot vote in
the election of directors and hence, have no control over the public utility.
This starkly circumvents the intent of the framers of the Constitution, as
well as the clear language of the Constitution, to place the control of
public utilities in the hands of Filipinos. It also renders illusory the State
policy of an independent national economy effectively controlled by
Filipinos.
The example given is not theoretical but can be found in the real
world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to
vote in the election of directors. PLDT’s Articles of Incorporation
expressly state that "the holders of Serial Preferred Stock shall not be
entitled to vote at any meeting of the stockholders for the election of
directors or for any other purpose or otherwise participate in any
action taken by the corporation or its stockholders, or to receive notice of
any meeting of stockholders."51
On the other hand, holders of common shares are granted the exclusive
right to vote in the election of directors. PLDT’s Articles of
Incorporation52 state that "each holder of Common Capital Stock shall
have one vote in respect of each share of such stock held by him on all
matters voted upon by the stockholders, and the holders of Common
Capital Stock shall have the exclusive right to vote for the election of
directors and for all other purposes."53
In short, only holders of common shares can vote in the election of
directors, meaning only common shareholders exercise control over
PLDT. Conversely, holders of preferred shares, who have no voting
rights in the election of directors, do not have any control over PLDT. In
fact, under PLDT’s Articles of Incorporation, holders of common shares
have voting rights for all purposes, while holders of preferred shares have
no voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners hold
a majority of the common shares of PLDT. In fact, based on PLDT’s
2010 General Information Sheet (GIS),54 which is a document required to
be submitted annually to the Securities and Exchange
Commission,55 foreigners hold 120,046,690 common shares of PLDT
whereas Filipinos hold only 66,750,622 common shares.56 In other words,
foreigners hold 64.27% of the total number of PLDT’s common shares,
while Filipinos hold only 35.73%. Since holding a majority of the
common shares equates to control, it is clear that foreigners exercise
control over PLDT. Such amount of control unmistakably exceeds the
allowable 40 percent limit on foreign ownership of public utilities
expressly mandated in Section 11, Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to
the SEC, shows that per share the SIP58preferred shares earn a pittance in
dividends compared to the common shares. PLDT declared dividends for
the common shares at ₱70.00 per share, while the declared dividends for
the preferred shares amounted to a measly ₱1.00 per share.59 So the
preferred shares not only cannot vote in the election of directors, they
also have very little and obviously negligible dividend earning capacity
compared to common shares.
As shown in PLDT’s 2010 GIS,60 as submitted to the SEC, the par value
of PLDT common shares is ₱5.00 per share, whereas the par value of
preferred shares is ₱10.00 per share. In other words, preferred shares
have twice the par value of common shares but cannot elect directors and
have only 1/70 of the dividends of common shares. Moreover, 99.44% of
the preferred shares are owned by Filipinos while foreigners own only a
minuscule 0.56% of the preferred shares.61 Worse, preferred shares
constitute 77.85% of the authorized capital stock of PLDT while common
shares constitute only 22.15%.62 This undeniably shows that beneficial
interest in PLDT is not with the non-voting preferred shares but with the
common shares, blatantly violating the constitutional requirement of 60
percent Filipino control and Filipino beneficial ownership in a public
utility.
The legal and beneficial ownership of 60 percent of the outstanding
capital stock must rest in the hands of Filipinos in accordance with the
constitutional mandate. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights, is
constitutionally required for the State’s grant of authority to operate a
public utility. The undisputed fact that the PLDT preferred shares,
99.44% owned by Filipinos, are non-voting and earn only 1/70 of the
dividends that PLDT common shares earn, grossly violates the
constitutional requirement of 60 percent Filipino control and Filipino
beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and
earn less than 60 percent of the dividends, of PLDT. This directly
contravenes the express command in Section 11, Article XII of the
Constitution that "[n]o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except
to x x x corporations x x x organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned by such citizens x x
x."
To repeat, (1) foreigners own 64.27% of the common shares of PLDT,
which class of shares exercises the sole right to vote in the election of
directors, and thus exercise control over PLDT; (2) Filipinos own only
35.73% of PLDT’s common shares, constituting a minority of the voting
stock, and thus do not exercise control over PLDT; (3) preferred shares,
99.44% owned by Filipinos, have no voting rights; (4) preferred shares
earn only 1/70 of the dividends that common shares earn;63 (5) preferred
shares have twice the par value of common shares; and (6) preferred
shares constitute 77.85% of the authorized capital stock of PLDT and
common shares only 22.15%. This kind of ownership and control of a
public utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value of ₱5.00
have a current stock market value of ₱2,328.00 per share,64 while PLDT
preferred shares with a par value of ₱10.00 per share have a current stock
market value ranging from only ₱10.92 to ₱11.06 per share,65 is a glaring
confirmation by the market that control and beneficial ownership of
PLDT rest with the common shares, not with the preferred shares.
Indisputably, construing the term "capital" in Section 11, Article XII of
the Constitution to include both voting and non-voting shares will result
in the abject surrender of our telecommunications industry to foreigners,
amounting to a clear abdication of the State’s constitutional duty to limit
control of public utilities to Filipino citizens. Such an interpretation
certainly runs counter to the constitutional provision reserving certain
areas of investment to Filipino citizens, such as the exploitation of natural
resources as well as the ownership of land, educational institutions and
advertising businesses. The Court should never open to foreign control
what the Constitution has expressly reserved to Filipinos for that would
be a betrayal of the Constitution and of the national interest. The Court
must perform its solemn duty to defend and uphold the intent and letter of
the Constitution to ensure, in the words of the Constitution, "a self-reliant
and independent national economy effectively controlled by Filipinos."
Section 11, Article XII of the Constitution, like other provisions of the
Constitution expressly reserving to Filipinos specific areas of investment,
such as the development of natural resources and ownership of land,
educational institutions and advertising business, is self-executing. There
is no need for legislation to implement these self-executing provisions of
the Constitution. The rationale why these constitutional provisions are
self-executing was explained in Manila Prince Hotel v. GSIS,66 thus:
22
x x x Hence, unless it is expressly provided that a legislative act is
necessary to enforce a constitutional mandate, the presumption now is
that all provisions of the constitution are self-executing. If the
constitutional provisions are treated as requiring legislation instead of
self-executing, the legislature would have the power to ignore and
practically nullify the mandate of the fundamental law. This can be
cataclysmic. That is why the prevailing view is, as it has always been,
that —
. . . in case of doubt, the Constitution should be considered self-executing
rather than non-self-executing. . . . Unless the contrary is clearly
intended, the provisions of the Constitution should be considered
self-executing, as a contrary rule would give the legislature discretion
to determine when, or whether, they shall be effective. These
provisions would be subordinated to the will of the lawmaking body,
which could make them entirely meaningless by simply refusing to pass
the needed implementing statute. (Emphasis supplied)
In Manila Prince Hotel, even the Dissenting Opinion of then Associate
Justice Reynato S. Puno, later Chief Justice, agreed that constitutional
provisions are presumed to be self-executing. Justice Puno stated:
Courts as a rule consider the provisions of the Constitution as self-
executing, rather than as requiring future legislation for their
enforcement. The reason is not difficult to discern. For if they are not
treated as self-executing, the mandate of the fundamental law ratified
by the sovereign people can be easily ignored and nullified by
Congress. Suffused with wisdom of the ages is the unyielding rule
that legislative actions may give breath to constitutional rights but
congressional inaction should not suffocate them.
Thus, we have treated as self-executing the provisions in the Bill of
Rights on arrests, searches and seizures, the rights of a person under
custodial investigation, the rights of an accused, and the privilege against
self-incrimination. It is recognized that legislation is unnecessary to
enable courts to effectuate constitutional provisions guaranteeing the
fundamental rights of life, liberty and the protection of property. The
same treatment is accorded to constitutional provisions forbidding the
taking or damaging of property for public use without just compensation.
(Emphasis supplied)
Thus, in numerous cases,67 this Court, even in the absence of
implementing legislation, applied directly the provisions of the 1935,
1973 and 1987 Constitutions limiting land ownership to Filipinos.
In Soriano v. Ong Hoo,68this Court ruled:
x x x As the Constitution is silent as to the effects or consequences of a
sale by a citizen of his land to an alien, and as both the citizen and the
alien have violated the law, none of them should have a recourse against
the other, and it should only be the State that should be allowed to
intervene and determine what is to be done with the property subject of
the violation. We have said that what the State should do or could do in
such matters is a matter of public policy, entirely beyond the scope of
judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No.
L-5996, June 27, 1956.) While the legislature has not definitely
decided what policy should be followed in cases of violations against
the constitutional prohibition, courts of justice cannot go beyond by
declaring the disposition to be null and void as violative of the
Constitution. x x x (Emphasis supplied)
To treat Section 11, Article XII of the Constitution as not self-executing
would mean that since the 1935 Constitution, or over the last 75 years,
not one of the constitutional provisions expressly reserving specific areas
of investments to corporations, at least 60 percent of the "capital" of
which is owned by Filipinos, was enforceable. In short, the framers of the
1935, 1973 and 1987 Constitutions miserably failed to effectively reserve
to Filipinos specific areas of investment, like the operation by
corporations of public utilities, the exploitation by corporations of
mineral resources, the ownership by corporations of real estate, and the
ownership of educational institutions. All the legislatures that convened
since 1935 also miserably failed to enact legislations to implement these
vital constitutional provisions that determine who will effectively control
the national economy, Filipinos or foreigners. This Court cannot allow
such an absurd interpretation of the Constitution.
This Court has held that the SEC "has both regulatory and adjudicative
functions."69 Under its regulatory functions, the SEC can be compelled by
mandamus to perform its statutory duty when it unlawfully neglects to
perform the same. Under its adjudicative or quasi-judicial functions, the
SEC can be also be compelled by mandamus to hear and decide a
possible violation of any law it administers or enforces when it is
mandated by law to investigate such violation.1awphi1
Under Section 17(4)70 of the Corporation Code, the SEC has the
regulatory function to reject or disapprove the Articles of Incorporation
of any corporation where "the required percentage of ownership of the
capital stock to be owned by citizens of the Philippines has not been
complied with as required by existing laws or the
Constitution." Thus, the SEC is the government agency tasked with the
statutory duty to enforce the nationality requirement prescribed in Section
11, Article XII of the Constitution on the ownership of public utilities.
This Court, in a petition for declaratory relief that is treated as a petition
for mandamus as in the present case, can direct the SEC to perform its
statutory duty under the law, a duty that the SEC has apparently
unlawfully neglected to do based on the 2010 GIS that respondent PLDT
submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code,71 the SEC is
vested with the "power and function" to "suspend or revoke, after
proper notice and hearing, the franchise or certificate of registration
of corporations, partnerships or associations, upon any of the
grounds provided by law." The SEC is mandated under Section 5(d) of
the same Code with the "power and function" to "investigate x x x the
activities of persons to ensure compliance" with the laws and
regulations that SEC administers or enforces. The GIS that all
corporations are required to submit to SEC annually should put the SEC
on guard against violations of the nationality requirement prescribed in
the Constitution and existing laws. This Court can compel the SEC, in a
petition for declaratory relief that is treated as a petition for mandamus as
in the present case, to hear and decide a possible violation of Section 11,
Article XII of the Constitution in view of the ownership structure of
PLDT’s voting shares, as admitted by respondents and as stated in
PLDT’s 2010 GIS that PLDT submitted to SEC.
WHEREFORE, we PARTLY GRANT the petition and rule that the
term "capital" in Section 11, Article XII of the 1987 Constitution refers
only to shares of stock entitled to vote in the election of directors, and
thus in the present case only to common shares, and not to the total
outstanding capital stock (common and non-voting preferred shares).
Respondent Chairperson of the Securities and Exchange Commission
is DIRECTED to apply this definition of the term "capital" in
determining the extent of allowable foreign ownership in respondent
Philippine Long Distance Telephone Company, and if there is a violation
of Section 11, Article XII of the Constitution, to impose the appropriate
sanctions under the law.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. NOS. 174457-59
EXPRESS INVESTMENTS III PRIVATE LTD. AND EXPORT
DEVELOPMENT CANADA, Petitioner,
vs.
DAYAN TELECOMMUNICATIONS, INC., THE BANK OF NEW
YORK (AS TRUSTEE FOR THE HOLDERS OF THE
US$200,000,000 13.5% SENIOR NOTES OF DAYAN
TELECOMMUNICATIONS, INC.) AND ATTY. REMIGIO A.
NOVAL (AS THE COURT-APPOINTED REHABILITATION
RECEIVER OF BAYANTEL), Respondents.
x---------------x
G.R. Nos. 175418-20
IN THE MATTER OF:
THE CORPORATE REHABILITATION OF DAYAN
TELECOMMUNICATIONS, INC. PURSUANT TO THE INTERIM
RULES OF PROCEDURE ON CORPORATE REHABILITATION
(A.M. NO. 00-8-10-SC)
THE BANK OF NEW YORK AS TRUSTEE FOR THE HOLDERS
OF THE US$200,000,000 13.5% SENIOR NOTES OF DAYAN
TELECOMMUNICATIONS, INC.
DUE 2006 ACTING ON THE INSTRUCTIONS OF THE
INFORMAL STEERING COMMITTEE: AVENUE ASIA
INVESTMENTS, L.P., AVENUE ASIA INTERNATIONAL, LTD.,
23
AVENUE ASIA SPECIAL SITUATIONS FUND II, L.P. AND
AVENUE ASIA CAPITAL PARTNERS, L.P., Petitioner,
vs.
DAYAN TELECOMMUNICATIONS, INC., Respondents.
x---------------x
IN THE MATTER OF:
THE CORPORATE REHABILITATION OF BAY AN
TELECOMMUNICATIONS, INC. PURSUANT TO THE INTERIM
RULES OF PROCEDURE ON CORPORATE REHABILITATION
(A.M. NO. 00-8-10-SC)
AVENUE ASIA INVESTMENTS, L.P., AVENUE ASIA
INTERNATIONAL, LTD., AVENUE ASIA SPECIAL
SITUATIONS FUND II, L.P., AVENUE ASIA CAPITAL
PARTNERS, L.P. AND AVENUE ASIA SPECIAL SITUATIONS
FUND III, L.P., Petitioner,
vs.
DAYAN TELECOMMUNICATIONS, INC., Respondents.
x---------------x
G.R. No. 177270               December 5, 2012
THE BANK OF NEW YORK AS TRUSTEE FOR THE HOLDERS
OF THE US$200,000,000 13.5% SENIOR NOTES OF BAY AN
TELECOMMUNICATIONS, INC., Petitioner,
vs.
BAY AN TELECOMMUNICATIONS, INC., Respondents.
DECISION
VILLARAMA, JR., J.:
Before us are seven consolidated petitions for review on certiorari filed m
connection with the corporate rehabilitation of Bayan
Telecommunications, Inc. (Bayantel).
The Petition for Partial Review on Certiorari 1 in G.R. Nos. 174457-59
was filed by Express Investments III Private Ltd. and Export
Development Canada to assail the August 18, 2006 Decision2 of the Court
of Appeals in CA-G.R. SP No. 87203.
On the other hand, the Petition for Review on Certiorari 3 in G.R. Nos.
175418-20 was filed by The Bank of New York; Avenue Asia
Investments, L.P.; Avenue Asia International, Ltd.; Avenue Asia Special
Situations Fund II, L.P.; Avenue Asia Capital Partners, L.P. and Avenue
Asia Special Situations Fund III, L.P. Said petition questions as well the
said August 18, 2006 Court of Appeals Decision, and also the November
8, 2006 Resolution 4 of the Court of Appeals in CA-G.R. SP Nos. 87100
and 87111 affirming the June 28, 2004 Decision5 of the Regional Trial
Court (RTC) of Pasig City, Branch 158, in SEC Case No. 03-25.
Meanwhile, the Petition for Review on Certiorari6 in G.R. No. 177270
was filed by The Bank of New York, in its capacity as trustee for the
holders of the US$200 million 13.5% Senior Notes of Bayantel and upon
the instructions of the Informal Steering Committee, to contest the
Decision7 and Resolution8 of the Court of Appeals in CA-G.R. SP No.
89894 which nullified the November 9, 2004 and March 15, 2005 Orders
of the Pasig RTC, Branch 158, in SEC Case No. 03-25 insofar as it
defined the powers and functions of the Monitoring Committee.
The facts, as culled from the records of these cases, follow:
Respondent Bayantel is a duly organized domestic corporation engaged
in the business of providing telecommunication services. It is 98.6%
owned by Bayan Telecommunications Holdings Corporation (BTHC),
which in turn is 85.4% owned by the Lopez Group of Companies and
Benpres Holdings Corporation.
On various dates between the years 1995 and 2001, Bayantel entered into
several credit agreements with Express Investments III Private Ltd. And
Export Development Canada (petitioners in G.R. Nos. 174457-59), Asian
Finance and Investment Corporation, Bayerische Landesbank (Singapore
Branch) and Clearwater Capital Partners Singapore Pte Ltd., as agent for
Credit Industriel et Commercial (Singapore), Deutsche Bank AG,
Equitable PCI Bank, JP Morgan Chase Bank, Metropolitan Bank and
Trust Co., P.T. Bank Negara Indonesia (Persero), TBK, Hong Kong
Branch, Rizal Commercial Banking Corporation and Standard Chartered
Bank. To secure said loans, Bayantel executed an Omnibus Agreement
dated September 19, 1995 and an EVTELCO Mortgage Trust Indenture9
dated December 12, 1997.10
Pursuant to the Omnibus Agreement, Bayantel executed an Assignment
Agreement in favor of the lenders under the Omnibus Agreement
(hereinafter, Omnibus Creditors, Bank Creditors, or secured creditors). In
the Assignment Agreement, Bayantel bound itself to assign, convey and
transfer to the Collateral Agent, the following properties as collateral
security for the prompt and complete payment of its obligations to the
Omnibus Creditors:
(i) all monies payable to Bayantel under the Project Documents
(as the term is defined by the Omnibus Agreement);
(ii) all Project Documents and all Contract Rights arising
thereunder;
(iii) all receivables;
(iv) all general intangibles;
(v) each of the Accounts (as the term is defined by the
Omnibus Agreement);
(vi) all amounts maintained in the Accounts and all monies,
securities and instruments deposited or required to be
deposited in the Accounts;
(vii) all other chattel paper and documents;
(viii) all other property, assets and revenues of Bayantel,
whether tangible or intangible; and
(ix) all proceeds and products of any and all of the foregoing.11
In July 1999, Bayantel issued US$200 million worth of 13.5% Senior
Notes pursuant to an Indenture 12 dated July 22, 1999 that it entered into
with The Bank of New York (petitioner in G.R. Nos. 175418-20) as
trustee for the holders of said notes. Pursuant to the said Indenture, the
notes are due in 2006 and Bayantel shall pay interest on them semi-
annually. Bayantel managed to make two interest payments, on January
15, 2000 and July 15, 2000, before it defaulted on its obligation.
Foreseeing the impossibility of further meeting its obligations, Bayantel
sent, in October 2001, a proposal for the restructuring of its debts to the
Bank Creditors and the Holders of Notes. To facilitate the negotiations
between Bayantel and its creditors, an Informal Steering Committee was
formed composed of Avenue Asia Investments, L.P., Avenue Asia
International, Ltd., Avenue Asia Special Situations Fund II, L.P., Avenue
Asia Capital Partners, L.P. (petitioners in G.R. Nos. 175418-20) and Van
Eck Global Opportunity Masterfund, Ltd. The members of the Informal
Steering Committee are the assignees of the unsecured credits extended
to Bayantel by J.P. Morgan Europe, Ltd., Bayerische Landesbank
Singapore Branch and Deutsche Bank AG, London in the total principal
amount of US$13,637,485.20. They are holders, as well, of the Notes
issued by Bayantel pursuant to the Indenture dated July 22, 1999.
In its initial proposal called the "First Term Sheet," Bayantel suggested a
25% write-off of the principal owing to the Holders of Notes. The
Informal Steering Committee rejected the idea, but accepted Bayantel’s
proposal to pay the restructured debt, pari passu,13 out of its cash
flow. This pari passu or equal treatment of debts, however, was opposed
by the Bank Creditors who invoked their security interest under the
Assignment Agreement.
Bayantel continued to pay reduced interest on its debt to the Bank
Creditors but stopped paying the Holders of Notes starting July 17, 2000.
By May 31, 2003, Bayantel’s total indebtedness had reached US$674
million or P35.928 billion in unpaid principal and interest, based on the
prevailing conversion rate of US$1 = P53.282. Out of its total liabilities,
Bayantel allegedly owes 43.2% or US$291 million (P15.539 billion) to
the Holders of the Notes.
On July 25, 2003, The Bank of New York, as trustee for the Holders of
the Notes, wrote Bayantel an Acceleration Letter declaring immediately
due and payable the principal, premium interest, and other monetary
obligations on all outstanding Notes. Then, on July 30, 2003, The Bank
of New York filed a petition14 for the corporate rehabilitation of Bayantel
upon the instructions of the Informal Steering Committee.
24
On August 8, 2003, the Pasig RTC, Branch 158, issued a Stay
Order15 which directed, among others, the suspension of all claims against
Bayantel and required the latter’s creditors and other interested parties to
file a comment or opposition to the petition. The court appointed Dr.
Conchita L. Manabat to act as rehabilitation receiver but the latter
declined.16 In her stead, the court appointed Atty. Remigio A. Noval
(Atty. Noval) who took his oath and posted a bond on September 26,
2003.17
On November 28, 2003, the Rehabilitation Court gave due course to the
petition and directed the Rehabilitation Receiver to submit his
recommendations to the court within 120 days from the initial
hearing.18 After several extensions, Atty. Noval filed on March 22, 2004 a
Compliance and Submission of the Report as Compelling Evidence that
Bayantel may be Successfully Rehabilitated.19
In his report, Atty. Noval classified Bayantel’s debts into three: (1) those
owed to secured Bank Creditors pursuant to the Omnibus Agreements
(Omnibus Creditors) in the total amount of US$334 million or P17.781
billion; (2) those owed to Holders of the Senior Notes and Bank Creditors
combined (Chattel Creditors), comprising US$625 million, of which
US$473 million (P25.214 billion) is principal and US$152 million
(P8.106 billion) is accrued unpaid interest; and (3) those that Bayantel
owed to persons other than Financial Creditors/unsecured creditors in the
amount of US$49 million or P2.608 billion.
According to The Bank of New York, out of the US$674 million that
respondent owes its creditors under groups 2 and 3 above, the amount
outstanding under the Senior Notes represent 43.2% of its liabilities as of
May 31, 2003. Subsequently, negotiations for the restructuring of
Bayantel’s debt reached an impasse when the Informal Steering
Committee insisted on a pari passu  treatment of the claims of both
secured and unsecured creditors.
Meanwhile, on January 20, 2004, Bayantel filed a "Motion to Include
Radio Communications Philippines, Inc. [RCPI] and Naga Telephone
Company [Nagatel] as Debtor-Corporations for Rehabilitation x x x."20
The Rehabilitation Court denied said motion in an Order21 dated April 19,
2004. The fallo  of said order reads:
WHEREFORE, the Court resolves the pending incidents as follows:
1. The Urgent Motion to Resolve of petitioner is hereby
granted. The creditors of Bayantel, whether secured or
unsecured, should be treated equally and on the same footing
or pari passu  until the rehabilitation proceedings is terminated
in accordance with the Interim Rules;
2. The Motion of Bayantel to Include RCPI and Nagatel in the
present rehabilitation proceedings as debtor-corporations is
denied;
3. The Motion of Bayantel to Exempt from the Stay Order the
payment of the compensation package of its former employees
per Annex "A" attached to said motion is granted, subject to
the verification and confirmation of the items therein by the
Rehabilitation Receiver;
4. The Motion of Petitioner to Strike Out the proposed
rehabilitation plan of Bayantel is denied.
SO ORDERED.22
On June 28, 2004, the Pasig RTC, Branch 158, acting as a Rehabilitation
Court, approved the Report and Recommendations 23 attached by the
Receiver to his "Submission with Prayer for Further Guidance from the
Honorable Court,"24 subject to the following clarifications and/or
amendments:
1. The ruling on the pari passu treatment of all creditors whose
claims are subject to restructuring shall be maintained and shall
extend to all payment terms and treatment of past due interest.
2. Due regard shall be given to the rights of the secured
creditors and no changes in the security positions of the
creditors shall be granted as a result of the rehabilitation plan
as amended and approved herein.
3. The level of sustainable debt of the rehabilitation plan, as
amended, shall be reduced to the amount of [US]$325,000,000
for a period of 19 years.
4. Unsustainable debt shall be converted into an appropriate
instrument that shall not be a financial burden for Bayantel.
5. All provisions relating to equity in the rehabilitation plan, as
approved and amended, must strictly conform to the
requirements of the Constitution limiting foreign ownership to
40%.
6. A Monitoring Committee shall be formed composed of
representatives from all classes of the restructured debt. The
Rehabilitation Receiver’s role shall be limited to the powers of
monitoring and oversight as provided in the Interim Rules.
All powers provided for in the Report and Recommendations, which
exceed the monitoring and oversight functions mandated by the Interim
Rules shall be amended accordingly.
SO ORDERED.25
Dissatisfied, The Bank of New York filed a Notice of Appeal26 on August
6, 2004. So did Avenue Asia Investments, L.P., Avenue Asia
International, Ltd., Avenue Asia Special Situations Fund II, L.P., Avenue
Asia Capital Partners, L.P., and Avenue Asia Special Situations Fund III,
L.P. which filed a Joint Record on Appeal27 on August 9, 2004.
On September 28, 2004, Bayantel submitted an Implementing Term
Sheet to the Rehabilitation Court and the Receiver. Claiming that said
Term Sheet was inadequate to protect the interest of the creditors, The
Bank of New York (petitioner in G.R. No. 177270) filed a
Manifestation28 dated October 15, 2004 praying for the constitution of a
Monitoring Committee and the creation of a convertible debt instrument
to cover the unsustainable portion of the restructured debt.
On November 9, 2004, the Rehabilitation Court issued an
Order29 directing the creation of a Monitoring Committee to be composed
of one member each from the group of Omnibus Creditors and unsecured
creditors, and a third member to be chosen by the unanimous vote of the
first two members. In the same Order, the court defined the scope of the
Monitoring Committee’s authority, as follows:
x x x The Monitoring Committee shall participate with the Receiver in
monitoring and overseeing the actions of the Board of Directors of
Bayantel and may, by majority vote, adopt, modify, revise or substitute,
any of the following items:
(1) any proposed Annual OPEX Budgets;
(2) any proposed Annual CAPEX Budgets;
(3) any proposed Reschedule;
(4) any proposed actions by the Receiver on a payment default;
(5) terms of Management Incentivisation Scheme and
Management Targets;
(6) the EBITDA/Revenue ratios set by the Bayantel Board of
Directors; and
(7) any other proposed actions by the Bayantel Board of
Directors including, without limitation, issuance of new shares,
sale of core and noncore assets, change of business, etc. that
will materially affect the terms and conditions of the
rehabilitation plan and its implementation.
In case of disagreement between the Monitoring Committee and the
Board of Directors of Bayantel on any of the foregoing matters, the same
shall be submitted to the Court for resolution.30
On November 16, 2004, The Bank of New York filed a Petition for
Review31 before the Court of Appeals. The petition was docketed as
CAG. R. SP No. 87100 in the Fifteenth Division of the Court of Appeals.
On even date, Avenue Asia Investments, L.P., Avenue Asia International,
Ltd., Avenue Asia Special Situations Fund II, L.P., Avenue Asia Capital
Partners, L.P., and Avenue Asia Special Situations Fund III, L.P (Avenue
25
Asia Capital Group) filed a similar petition32 which was docketed as CA-
G.R. SP No. 87111 in the Second Division of the Court of Appeals. Both
petitions contest the Rehabilitation Court’s June 28, 2004 Decision for,
among others, fixing the level of Bayantel’s sustainable debt at US$325
million to be paid in 19 years.
Thereafter, on November 30, 2004, petitioners Express Investments III
Private Ltd. and Export Development Canada along with Bayerische
Landesbank (Singapore Branch), Credit Industriel et Commercial,
Deutsche Bank AG, P.T. Bank Negara Indonesia (Persero), TBK, Hong
Kong Branch and Rizal Commercial Banking Corporation filed a Petition
for Review33 which was docketed as CA-G.R. No. 87203 in the Tenth
Division of the Court of Appeals. The secured creditors likewise assailed
the Rehabilitation Court’s June 28, 2004 Decision insofar as it ordered
the pari passu  treatment of all claims against Bayantel. Said petitioners
invoke a lien over the cash flow and receivables of Bayantel by virtue of
the Assignment Agreement.
On December 23, 2004, Bayantel filed an Omnibus Motion 34 for the
consolidation of CA-G.R. SP Nos. 87111 and CA-G.R. SP No. 87203
with CA-G.R. SP No. 87100, the lowest-numbered case.
In a Resolution dated January 20, 2005, the Court of Appeals, Fifteenth
Division, ordered the consolidation of CA-G.R. SP No. 87203 with CA-
G.R. SP No. 87100. This was accepted by the Court of Appeals, Seventh
Division, in a Resolution35 dated March 29, 2005. Then, in the
Resolution36 dated June 10, 2005, the Court of Appeals, First Division,
ordered the consolidation of CA-G.R. SP No. 87111 with 87100 and the
transmittal of the records of the three cases to the Seventh Division.
Meanwhile, on January 10, 2005, Atty. Noval submitted to the
Rehabilitation Court an Implementing Term Sheet 37 to serve as a guide
for Bayantel’s Rehabilitation. The same was approved in an Order38 dated
March 15, 2005. In the same Order, the Rehabilitation Court appointed
Avenue Asia Investments L.P. and Export Development Canada to
represent the unsecured and secured creditors, respectively, in the
Monitoring Committee.
On May 26, 2005, Bayantel filed a petition for certiorari and
Prohibition39 docketed as CA-G.R. SP No. 89894 in the Court of Appeals.
Said petition assailed the Rehabilitation Court’s Orders dated November
9, 2004 and March 15, 2005, for purportedly conferring upon the
Monitoring Committee, powers of management and control over its
operations.
The Court of Appeals Decision in CA-G.R. Nos. 87100, 87111 and
87203
In the assailed August 18, 2006 Decision, the Court of Appeals dismissed
the petitions in CA-G.R. SP Nos. 87100, 87111 and 87203 for lack of
merit. The appellate court upheld the Rehabilitation Court’s
determination of Bayantel’s sustainable debt at US$325 million payable
in 19 years. It rejected the Receiver’s proposal to set the sustainable debt
at US$370 million payable in 15 years, and the proposal of the Avenue
Asia Capital Group to set it at US$471 million payable in 12 years.
The Court of Appeals agreed with the Rehabilitation Court that it is
reasonable to adopt a level of sustainable debt that approximates
respondent Bayantel’s proposal because the latter is in the best position to
determine the level of sustainable debt that it can manage. It found
Bayantel’s proposal more credible considering that it was prepared using
"updated financial information with realistic cash flow figures."[40] The
appellate court noted that Bayantel’s proposal was drafted without regard
for its status as a "niche player" in the telecommunications market and
after factoring the cost of reorganization. In contrast, it expressed concern
that the proposals submitted by Avenue Asia Capital Group and the
Receiver might eventually leave Bayantel with an unworkable financial
debt-to-revenue ratio.
The Court of Appeals also confirmed the Rehabilitation Court’s authority
to approve, reject, substitute, or even change the rehabilitation plans
submitted by the Receiver and the parties. It upheld the trial court in
adopting the Receiver’s recommendation to limit the equity conversion of
Bayantel’s unsustainable debt to 40% of its paid-up capital. This
percentage, the appellate court explains, is consistent with the
constitutional limitation on the allowable foreign equity in Filipino
corporations. It also maintained the write-off of penalties and default
interest and recomputation of Bayantel’s past due interest, as a valid
exercise of discretion by the Rehabilitation Court under the Interim Rules
of Procedure on Corporate Rehabilitation (Interim Rules). The appellate
court negated any violation of the pari passu  principle with the use of
these measures since they shall apply to all classes of creditors.
As to the claim of the secured creditors in CA-G.R. SP No. 87203, the
Court of Appeals ruled that while rehabilitation is ongoing, the sole
control over the security on the receivables and cash flow of Bayantel is
vested in the Rehabilitation Court. To allow otherwise would not only
violate the Stay Order but interfere as well with the duty of the Receiver
to "take possession, control and custody of the debtor’s
assets." 41 Ultimately, the Court of Appeals ruled that preference in
payment cannot be accorded the secured creditors since preference
applies only in liquidation proceedings.
Discontented, The Bank of New York and the Avenue Asia Capital
Group (petitioners in CA-G.R. SP Nos. 87100 and 87111) filed a Motion
for Partial Reconsideration.42 Said motion was, however, denied in the
Resolution dated November 8, 2006.
In the meantime, Express Investments III Private Ltd. and Export
Development Canada had filed before this Court a Petition for Partial
Review on Certiorari of the Court of Appeals Decision docketed as G.R.
Nos. 174457-59. According to petitioners, the other secured creditors
who were also petitioners in CA-G.R. SP No. 87203 had not remained in
contact with them and had not authorized them to file further petitions on
their behalf.
On December 28, 2006, The Bank of New York and the Avenue Asia
Capital Group also filed their own Petition for Review on Certiorari
which was docketed as G.R. Nos. 175418-20.
The Court of Appeals Decision in CA-G.R. SP No. 89894
In CA-G.R. SP No. 89894, the Court of Appeals rendered the assailed
Decision dated October 27, 2006 declaring null and void the November 9,
2004 and March 15, 2005 Orders of the Rehabilitation Court insofar as
they defined the powers and functions of the Monitoring Committee.
The appellate court found grave abuse of discretion on the part of the
Rehabilitation Court for conferring upon the Monitoring Committee the
power to modify, reverse or overrule the proposals of Bayantel’s Board
of Directors relative to operations. It stressed that the Committee’s
functions are confined to monitoring and overseeing the operations of
Bayantel to ensure its compliance with the terms and conditions of the
Rehabilitation Plan. To conform therewith, the appellate court restated
the Committee’s powers as follows:
The Monitoring Committee shall participate with the Receiver in
monitoring and overseeing the operations of Bayantel to ensure
compliance by Bayantel with the terms and conditions of the
Rehabilitation Plan. In the event Bayantel fails to meet any of the
milestones under the Rehabilitation Plan or fails to comply with any
material provision thereunder, the Monitoring Committee may, by
majority vote, recommend modifications, revisions and substitutions of
the following items:
x x x x43 (Emphasis supplied)
The Court of Appeals likewise approved of the Implementing Term
Sheet, clarifying that the same is not intended to address every
contingency that may arise in the implementation of the Plan. It assured
that any doubt in the interpretation of the Term Sheet shall be resolved by
the Rehabilitation Court.
Lastly, the appellate court affirmed the creation of a convertible debt
instrument to cover the unsustainable portion of respondent’s debt. It
perceives such instrument as a tool to generate surplus cash to satisfy
Bayantel’s debt under Tranche B. As well, it serves as a buy-back scheme
for the assignment and transfer of credits by the Financial Creditors in a
manner that will not unduly burden Bayantel.
Issues
On October 19, 2006, Express Investments III Private Ltd. and Export
Development Canada 44 filed a Petition for Partial Review on Certiorari
which was docketed as G.R. Nos. 174457-59. Said petition, which seeks
the reversal of the August 18, 2006 Decision of the Court of Appeals
insofar as it dismissed the petition of the secured creditors in CA-G.R. SP
No. 87203, essentially proffers the following issues for resolution: (1)
whether the claims of secured and unsecured creditors should be
treated pari passu during rehabilitation; (2) whether the pari
passu treatment of creditors during rehabilitation impairs the Assignment
Agreement between respondent and petitioners; (3) whether an
impairment in the security position of petitioners can be justified as a
valid exercise of police power.
26
On the other hand, The Bank of New York and the Avenue Asia Capital
Group filed a Petition for Review on Certiorari docketed as G.R. Nos.
175418-20, to question the appellate court’s August 18, 2006 Decision as
well as its November 8, 2006 Resolution in CA-G.R. SP Nos. 87100 and
87111. This second consolidated petition raises the following issues: (1)
whether the Court of Appeals erred in setting Bayantel’s sustainable debt
at US$325 million, payable in 19 years; (2) whether a debtor may submit
a rehabilitation plan in a creditor-initiated rehabilitation; (3) whether the
conversion of debt to equity in excess of 40% of the outstanding capital
stock in favor of petitioners violates the constitutional limit on foreign
ownership of a public utility; (4) whether the write-off of respondent’s
penalties and default interest and recomputation of its past due interest
violate the pari passu principle; and (5) whether petitioners are entitled to
costs.
On February 22, 2007, respondent Bayantel moved for the consolidation
of G.R. Nos. 174457-59 with G.R. Nos. 175418-20. In a
Resolution45 dated April 23, 2007, we directed the Division Clerk of
Court to study the feasibility of consolidating said cases. In a
Memorandum Report46 dated May 17, 2007, the First Division Clerk of
Court recommended the consolidation of G.R. Nos. 174457-59 with G.R.
Nos. 175418-20.
On May 21, 2007, The Bank of New York, as trustee for the Holders of
the Senior Notes, filed a Petition for Review on Certiorari, docketed as
G.R. No. 177270, to assail the October 27, 2006 Decision and March 23,
2007 Resolution of the Court of Appeals in CA-G.R. SP No. 89894.
Amplified, the petition presents the lone issue of whether the Monitoring
Committee in this case may exercise control over Bayantel’s operations.
In a Resolution47 dated June 6, 2007, we directed the Division Clerk of
Court to study the feasibility of consolidating G.R. No. 177270 with G.R.
Nos. 174457-59 and G.R. Nos. 175418-20. To avoid conflicting decisions
on related cases, the Assistant Clerk of Court recommended the
consolidation of the three cases. By Resolution 48 dated July 11, 2007, the
Court ordered the consolidation of G.R. No. 177270 with G.R. Nos.
174457- 59 and G.R. Nos. 175418-20.
The Parties’ Arguments
In G.R. Nos. 174457-59
The petitioners/secured creditors argue primarily that the pari
passu treatment of creditors during rehabilitation has no basis in law.
According to petitioners, all that Presidential Decree No. 902-A49 (PD
902-A) provides is the suspension of all claims against the debtor
corporation during rehabilitation so that the Receiver can exercise his
powers free from judicial or extrajudicial interference. If the equity policy
is to be considered at all, they believe that the equity policy should be
construed to accord creditors with similar rights or uniform treatment. In
line with this, petitioners assert priority under the Assignment Agreement
to receive from Bayantel’s surplus cash flow and to be paid in full, ahead
of all other creditors.
The petitioners/secured creditors contend that the pari passu treatment of
claims impairs the Omnibus Agreement and the Assignment Agreement.
Such impairment, they posit, cannot be justified as a proper exercise of
police power for three reasons: first, there is no law which authorizes the
equal treatment of claims; second, there is no enabling law; and third, it is
not reasonably necessary for the success of the rehabilitation.
Petitioners point out that the Interim Rules mandates instead that the
rehabilitation plan shall give due regard to the interest of the secured
creditors. For petitioners, the preservation of Bayantel’s chattels alone is
inadequate to meet said requirement since the value thereof depreciates
over time. They go on to invoke international practices on bankruptcy
and rehabilitation which purportedly recognize the distinction between
the rights of secured and unsecured creditors. Petitioners warn of dire
consequences to the international credit standing of the Philippines, the
financial market, and the influx of foreign investments if the pari
passu principle would be upheld. Finally, petitioners maintain that a
"Trigger Event"50 had occurred which rendered respondent’s obligations
due and demandable. Thus, despite their failure to notify respondent of
the alleged Events of Default, petitioners believe that they can rightfully
proceed against the securities.
For its part, respondent Bayantel reasons that enforcing preference in
payment at this stage of the rehabilitation would only disrupt the progress
it has made so far. It assures petitioners that their security rights are
adequately protected in case the collateral assets are disposed.
Respondent adds that no single payment scheme is applicable in all
rehabilitation proceedings and the peculiar circumstances of its case
warrant the pari passu  treatment of its creditors.
In G.R. Nos. 175418-20
Mainly, petitioners Bank of New York and Avenue Asia Capital Group
impute error on the Court of Appeals for affirming the Rehabilitation
Court’s decision which adopted the sustainable debt level Bayantel
proposed. The court a quo fixed respondent’s sustainable debt at US$325
million payable within 19 years against the Receiver’s proposal of
US$370 million payable in 15 years. Petitioners dispute Bayantel’s
financial projections as unreliable and contrived, designed to bear out a
reduced level of sustainable debt and justify a substantial write-off of its
debts. In order to arrive at a reasonable level of sustainable debt, they
believe that the prospective cash flow of Bayantel must be reckoned
against industry standards. Petitioners point out that the Interim Rules
only allows the debtor, in a creditor-initiated petition for corporate
rehabilitation, to file a comment or opposition but not to submit its own
rehabilitation plan. They warn that if the fulfillment of the obligation
would be made to depend on the sole will of Bayantel, the entire
obligation would be void.
Petitioners fault the trial court for basing the sustainable debt on the state
of the telecommunications industry in the country rather than consulting
the financial projections and business models submitted by petitioners
and the Receiver. They stress that the state of the telecommunications
industry is not among those which the court may take judicial notice of
by discretion.
Petitioners maintain that converting the unsustainable debt to 77.7%
equity in Bayantel will not violate the nationality requirement of the 1987
Constitution. They aver that the debts to domestic bank
creditors51 account is US$473 million or 70.18% of Bayantel’s total
liabilities. Considering the substantial write-off of penalties and default
interest in the amount of US$34,044,553.00 and past due interest of
US$25,243,381.07, petitioners believe that it is only fair to accord the
Financial Creditors greater equity in Bayantel to compensate for said
losses.
Moreover, it is the petitioners’ view that the write-off contravenes
the pari passu  principle because they would suffer greater losses than the
Omnibus Creditors. According to petitioners, approximately 82% of the
penalties and interests shall be borne by the unsecured creditors and the
Holders of Notes. In the same vein, petitioners protest the recomputation
of past due interest in accordance with the rate proposed by the Receiver.
They claim that recomputation would result in the condonation of 89% of
the accrued interest owing them. The Receiver’s report shows that as of
the filing of the present petition, the total accrued interest amounts to
US$106,054,197.66, of which, US$91,100,000 are due the Holders of
Notes.
Finally, petitioners reiterate their claim for costs. In its Order dated
March 15, 2005, the Rehabilitation Court awarded costs of suit to
petitioner Bank of New York. In particular, it granted the latter’s prayer
for the payment of filing fees, costs of publication and professional fees.
Even then, petitioner bank claims that a huge amount of its expenses for
the professional fees of counsels and advisers remain unpaid. More
importantly, it asserts precedence in payment over the preferred creditors.
In the alternative, the Bank of New York prays that the costs of suit be
incorporated in the award to the nonfinancial or trade creditors. Similarly,
the Avenue Asia Capital Group seeks reimbursement for the docket fees,
publication expenses and the professional fees it has paid its counsels and
financial adviser. It invokes Article 2208 of the Civil Code and the
provisions of the Indenture as legal bases therefor.
Meanwhile, the secured creditors in G.R. Nos. 174457-59 filed a
Memorandum52 dated April 30, 2009 with a prayer for the dismissal of the
bondholders’ petition in G.R. Nos. 175418-20. For the secured creditors,
the sustainable debt set by the Courts of Appeals is a more manageable
and realistic undertaking compared to herein petitioners’ proposal. They
add that the fact that Bayantel’s actual revenues are lower than its cash
flow projections belies any scheme to avoid paying its debts in full. The
secured creditors agree with the appellate court in limiting the conversion
of the unsustainable debt to a maximum of 40% shares in Bayantel as
more in keeping with the Constitution.
Further, the secured creditors point out that there is nothing in the Interim
Rules which prohibits a debtor company from submitting an alternative
rehabilitation plan in creditor-initiated proceedings. In support of this,
they cite Section 22,53 Rule 4 of said rules which permits the debtor to
modify its proposed plan or submit a revised or substitute plan.
According to them, Bayantel’s suggestion as to the terms of payment
does not constitute a potestative condition that would render the
obligation void.
The secured creditors, however, join petitioners in protesting the
condonation of penalties and default interest. Rather than observing
27
absolute equality, they insist that the pari passu principle should be
applied such that creditors within the same class are treated alike.
In response, respondent Bayantel submitted on May 21, 2009, a
Consolidated Memorandum54 in G.R. Nos. 175418-20 and G.R. No.
177270. It practically echoed the ratio decidendi  of the Court of Appeals
in dismissing both petitions.
In G.R. Nos. 175418-20, Bayantel defends the Rehabilitation Court for
adopting the sustainable debt level it proposed. Such approval by the
court alone, Bayantel reasons, did not make the payment of its debt a
condition whose fulfillment rests on its sole will, as to render the
obligation void under Article 118255 of the Civil Code. Respondent
maintains that among the stakeholders, it is in the best position to
determine the level of debt that it can pay. Moreover, it believes that a
majority of the secured creditors are comfortable with the approved
sustainable debt since only two of them appealed. Respondent insists that
altering the sustainable debt at this point would be counterproductive.
Respondent equally opposes the Bondholders’ proposal to reduce the
company’s capital expenditures to between 9% and 11% to make more
funds available for debt servicing. This approach, according to Bayantel,
ignores its need to make significant investments in new infrastructure in
order to cope with competitors. Respondent disputes the value of
petitioners’ projections which were derived by benchmarking Bayantel’s
income, as a company under rehabilitation, against those of the major
players, PLDT and Digitel.
Furthermore, respondent maintains that its rehabilitation plan was based
on accurate financial data and operation reports. It insists that the Interim
Rules allows a debtor, in creditor-initiated rehabilitation proceedings, to
submit an alternative plan. It agrees with the Rehabilitation Court’s
decision to restrict conversion of the unsustainable debt to 40% of fully
paid-up capital in Bayantel. Respondent believes that the waiver of
penalties and default interest and the recomputation of past due interest
will not violate the pari passu principle because said measures shall
apply equally to all creditors. Lastly, respondent admits limited liability
for costs pursuant to the Assignment Agreement but not for those
incurred by petitioners under "non-consensual scenarios."
In G.R. No. 177270
In this petition for review, the Bank of New York, as trustee for the
holders of the 13.5% Senior Notes of respondent Bayantel, challenges the
Court of Appeals decision nullifying the Monitoring Committee’s power
to modify, reverse or overrule the decision of Bayantel’s Board of
Directors on certain matters. It invokes Section 23,56 Rule 4 of the Interim
Rules as legal basis to justify the Rehabilitation Court’s grant of
extensive powers to the Monitoring Committee. The pertinent portion of
said Rule states:
In approving the rehabilitation plan, the court shall issue the necessary
orders or processes for its immediate and successful implementation. It
may impose such terms, conditions, or restrictions as the effective
implementation and monitoring thereof may reasonably require, or for the
protection and preservation of the interests of the creditors should the
plan fail.
Petitioner contends that the magnitude and complexity of respondent’s
business necessitate close monitoring of its operations to ensure
successful rehabilitation. Specifically, the Bank of New York expresses
concern over Bayantel’s taciturn disposition as regards its budget and
expansion costs. Petitioner believes that such lack of transparency can be
addressed by empowering the Monitoring Committee to approve
measures that will ultimately affect respondent’s ability to settle its debts.
Moreover, petitioner assures that the Implementing Term Sheet provides
safeguards against the improvident disapproval by the Monitoring
Committee of proposed measures. Petitioner is of the view that the
functions of the Monitoring Committee would be rendered illusory if all
disagreements on key areas would have to be heard by the Rehabilitation
Court. Petitioner explains that the Monitoring Committee’s powers do not
in any way supplant those of the Board of Directors. The Bank of New
York claims that it is customary to allow creditors to monitor and
supervise the debtor’s operations as demonstrated by the restructuring
experiences of certain Asian countries.
Petitioner submits that the Rehabilitation Court did not intend to give the
Monitoring Committee powers that are concurrent with those of the
Receiver on account of the differing interests that they represent in
rehabilitation. It argues that if at all, the court a quo committed a mere
error of judgment not correctible by certiorari. Petitioner adds that even if
a petition for certiorari was proper, the 60-day reglementary period
provided by the Rules of Court had already lapsed when Bayantel filed its
petition on May 27, 2005. It contends that Bayantel’s Manifestation and
Motion for Clarification dated December 15, 2004 was in truth a motion
for reconsideration which is a prohibited pleading under Section 1,57 Rule
3 of the Interim Rules. Petitioner concludes that such pleadings did not
toll the period for filing a petition and, therefore, the Rehabilitation
Court’s decision had become final.
In its Consolidated Memorandum dated May 21, 2009, Bayantel counters
that Section 23, Rule 4 of the Interim Rules should be understood as
delineating the purpose of the court’s orders and processes to mere
implementation and monitoring of the plan. Respondent opposes any
interpretation of said provision which authorizes the Committee to
substitute its judgment for those of the Board or vest it with powers
greater than those of the Receiver. It argues that vesting the Committee
with veto power over certain decisions of the Board would effectively
give it control and management over Bayantel’s operations. The
necessary effect, according to Bayantel, is that every disagreement
between the Committee and the Board would have to be settled in court.
Respondent points out that petitioner failed to cite proof of its claim that
it is customary among Asian countries to allow the Monitoring
Committee active participation during rehabilitation.
Bayantel perceive the instant petition as an underhanded attempt by
petitioner to create a Management Committee without satisfying the
requisites therefor. It reiterates that the functions of the Monitoring
Committee are confined to ensuring that Bayantel meets the debt
reduction milestones under the plan. Respondent avers that even without
a Monitoring Committee, it is obliged under the Plan to comply with
certain information covenants and reportorial requirements. It adds that
the Plan provides a mechanism for dispute resolution through which
creditors can enforce compliance.
Penultimately, respondent assails the validity of the Order dated
November 9, 2004 for lack of notice. Allegedly, Bayantel learned of said
Order only after petitioner furnished it a copy of its Compliance to which
the same was made an attachment. Thus, respondent insists that the
reglementary period to file an appeal or a petition for certiorari did not
run against it.
The Court’s Ruling
In G.R. Nos. 174457-59
Rehabilitation is an attempt to conserve and administer the assets of an
insolvent corporation in the hope of its eventual return from financial
stress to solvency.58 It contemplates the continuance of corporate life and
activities in an effort to restore and reinstate the corporation to its former
position of successful operation and liquidity. The purpose of
rehabilitation proceedings is precisely to enable the company to gain a
new lease on life and thereby allow creditors to be paid their claims from
its earnings.59
Rehabilitation shall be undertaken when it is shown that the continued
operation of the corporation is economically feasible and its creditors can
recover, by way of the present value of payments projected in the plan,
more, if the corporation continues as a going concern than if it is
immediately liquidated.60
The law governing rehabilitation and suspension of actions for claims
against corporations is PD 902-A, as amended. On December 15, 2000,
the Court promulgated A.M. No. 00-8-10-SC or the Interim Rules of
Procedure on Corporate Rehabilitation, which applies to petitions for
rehabilitation filed by corporations, partnerships and associations
pursuant to PD 902-A.
In January 2004, Republic Act No. 8799 (RA 8799), otherwise known as
the Securities Regulation Code, amended Section 5 of PD 902-A, and
transferred to the Regional Trial Courts the jurisdiction of the Securities
and Exchange Commission (SEC) over petitions of corporations,
partnerships or associations to be declared in the state of suspension of
payments in cases where the corporation, partnership or association
possesses property to cover all its debts but foresees the impossibility of
meeting them when they respectively fall due or in cases where the
corporation, partnership or association has no sufficient assets to cover its
liabilities, but is under the management of a rehabilitation receiver or a
management committee.
In order to effectively exercise such jurisdiction, Section 6(c), PD 902-A
empowers the Regional Trial Court to appoint one or more receivers of
the property, real and personal, which is the subject of the pending action
before the Commission whenever necessary in order to preserve the
28
rights of the parties-litigants and/or protect the interest of the investing
public and creditors.
Under Section 6, Rule 4 of the Interim Rules, if the court finds the
petition to be sufficient in form and substance, it shall issue, not later than
five (5) days from the filing of the petition, an Order with the following
pertinent effects:
(a) appointing a Rehabilitation Receiver and fixing his bond;
(b) staying enforcement of all claims, whether for money or otherwise
and whether such enforcement is by court action or otherwise,
against the debtor, its guarantors and sureties not solidarily liable
with the debtor;
(c) prohibiting the debtor from selling, encumbering, transferring, or
disposing in any manner any of its properties except in the ordinary
course of business;
(d) prohibiting the debtor from making any payment of its liabilities
outstanding as at the date of filing of the petition; x x x
(Emphasis supplied)
The stay order shall be effective from the date of its issuance until the
dismissal of the petition or the termination of the rehabilitation
proceedings.61 Under the Interim Rules, the petition shall be dismissed if
no rehabilitation plan is approved by the court upon the lapse of 180 days
from the date of the initial hearing. The court may grant an extension
beyond this period only if it appears by convincing and compelling
evidence that the debtor may successfully be rehabilitated. In no instance,
however, shall the period for approving or disapproving a rehabilitation
plan exceed 18 months from the date of filing of the petition.62
On the other hand, Section 27, Rule 4 of the Interim Rules provides when
the rehabilitation proceedings is deemed terminated:
SEC. 27. Termination of Proceedings. – In case of the failure of the
debtor to submit the rehabilitation plan, or the disapproval thereof by the
court, or the failure of the rehabilitation of the debtor because of failure to
achieve the desired targets or goals as set forth therein, or the failure of
the said debtor to perform its obligations under the said plan, or a
determination that the rehabilitation plan may no longer be implemented
in accordance with its terms, conditions, restrictions, or assumptions, the
court shall upon motion, motu proprio, or upon the recommendation of
the Rehabilitation Receiver, terminate the proceedings. The proceedings
shall also terminate upon the successful implementation of the
rehabilitation plan. (Emphasis supplied)
Hence, unless the petition is dismissed for any reason, the stay order shall
be effective until the rehabilitation plan has been successfully
implemented. In the meantime, the debtor is prohibited from paying any
of its outstanding liabilities as of the date of the filing of the petition
except those authorized in the plan under Section 24(c), Rule 4 of the
Interim Rules.
In this case, in an Order dated April 19, 2004, the Rehabilitation Court
held that "[t]he creditors of Bayantel, whether secured or unsecured,
should be treated equally and on the same footing or pari passu  until the
rehabilitation proceedings is terminated in accordance with the Interim
Rules."63 The court reiterated this pronouncement in its Decision dated
June 28, 2004.
Before us, petitioners contend that such pari passu treatment of claims
violates not only the "due regard" provision in the Interim Rules but also
the Contract Clause in the 1987 Constitution. Petitioners assert
precedence in the payment of claims during rehabilitation by virtue of the
Assignment Agreement dated September 19, 1995. Under said
Agreement, Bayantel assigned, charged, conveyed and transferred to a
Collateral Agent, the following properties as collateral for the prompt and
complete payment of its obligations to secured creditors:
(i) All land, buildings, machinery and equipment currently
owned, and to be acquired in the future by Bayantel;
(ii) All monies payable to Bayantel under the Project
Documents (as the term is defined by the Omnibus
Agreement);
(iii) All Project Documents and all Contract Rights arising
thereunder;
(iv) All receivables;
(v) Each of the Accounts (as the term is defined by the
Omnibus Agreement);
(vi) All amounts maintained in the Accounts and all monies,
securities and instruments deposited or required to be
deposited in the Accounts;
(vii) All other Chattel Paper and Documents;
(viii) All other property, assets and revenues of Bayantel,
whether tangible or intangible;
(ix) All General Intangibles; and
(x) All proceeds and products of any and all of the foregoing.64
In particular, petitioners refer to Section 4.02 of the Assignment
Agreement as basis for demanding full payment, ahead of other creditors,
out of respondent’s revenue from operations during rehabilitation. The
relevant provision reads:
Section 4.02. Payments Under Contracts and Receivables.
If during the continuance of a Trigger Event the Company shall receive
directly from any party to any Assigned Agreement or from any account
debtor or other obligor under any Receivable, any payments under such
agreements or the Receivables, the Company shall receive such
payments in a constructive trust for the benefit of the Secured
Parties, shall segregate such payments from its other funds, and shall
forthwith transmit and deliver such payments to the Collateral Agent in
the same form as so received (with any necessary endorsement) along
with a description of the sources of such payments. All amounts received
by the Collateral Agent pursuant to this Section 4.02 shall be applied as
set forth in Part L and in the [Inter-creditor] Agreement.65 (Underscoring
in the original; emphasis supplied)
The resolution of the issue at hand rests on a determination of whether
secured creditors may enforce preference in payment during
rehabilitation by virtue of a contractual agreement.
Section 6(c), PD 902-A provides that upon the appointment of a
management committee, rehabilitation receiver, board or body, all actions
for claims against corporations, partnerships or associations under
management or receivership pending before any court, tribunal, board or
body shall be suspended accordingly.66 The suspension of action for
claims against the corporation under a rehabilitation receiver or
management committee embraces all phases of the suit, be it before the
trial court or any tribunal or before this Court.67
The justification for suspension of actions for claims is to enable the
management committee or rehabilitation receiver to effectively exercise
its/his powers free from any judicial or extrajudicial interference that
might unduly hinder or prevent the "rescue" of the debtor company. 68 It is
intended to give enough breathing space for the management committee
or rehabilitation receiver to make the business viable again without
having to divert attention and resources to litigation in various fora.69
In the 1990 case of Alemar’s Sibal & Sons, Inc. v. Judge Elbinias,70 the
Court first enunciated the prevailing principle which governs the
relationship among creditors during rehabilitation. In said case, G.A.
Yupangco sought the issuance of a writ of execution to implement a final
and executory default judgment in its favor and after Alemar’s Sibal &
Sons, Inc. was placed under rehabilitation. In ordering the stay of
execution, the Court held:
During rehabilitation receivership, the assets are held in trust for the
equal benefit of all creditors to preclude one from obtaining an
advantage or preference over another by the expediency of an
attachment, execution or otherwise. For what would prevent an alert
creditor, upon learning of the receivership, from rushing posthaste to the
courts to secure judgments for the satisfaction of its claims to the
prejudice of the less alert creditors.
As between the creditors, the key phrase is "equality is equity."
When a corporation threatened by bankruptcy is taken over by a
receiver, all the creditors should stand on equal footing. Not anyone
of them should be given any preference by paying one or some of
them ahead of the others. This is precisely the reason for the suspension
of all pending claims against the corporation under receivership. Instead
29
of creditors vexing the courts with suits against the distressed firm, they
are directed to file their claims with the receiver who is a duly appointed
officer of the SEC.71 (Emphasis supplied)
Since then, the principle of equality in equity has been cited as the basis
for placing secured and unsecured creditors in equal footing or in pari
passu with each other during rehabilitation. In legal parlance, pari
passu is used especially of creditors who, in marshaling assets, are
entitled to receive out of the same fund without any precedence over each
other.72
In Rizal Commercial Banking Corporation v. Intermediate Appellate
Court, 73 the Court disallowed the foreclosure of the debtor company’s
property after the latter had filed a Petition for Rehabilitation and
Declaration of Suspension of Payments with the SEC. We ruled that
whenever a distressed corporation asks the SEC for rehabilitation and
suspension of payments, preferred creditors may no longer assert
preference but shall stand on equal footing with other creditors.
Foreclosure shall be disallowed so as not to prejudice other creditors, or
cause discrimination among them. In 1999, the Court qualified this ruling
by stating that preferred creditors of distressed corporations shall stand on
equal footing with all other creditors only after a rehabilitation receiver or
management committee has been appointed. 74 More importantly, the
Court laid the guidelines for the treatment of claims against corporations
undergoing rehabilitation:
1. All claims against corporations, partnerships, or associations
that are pending before any court, tribunal, or board, without
distinction as to whether or not a creditor is secured or
unsecured, shall be suspended effective upon the appointment
of a management committee, rehabilitation receiver, board, or
body in accordance with the provisions of Presidential Decree
No. 902-A.
2. Secured creditors retain their preference over unsecured
creditors, but enforcement of such preference is equally
suspended upon the appointment of a management
committee, rehabilitation receiver, board, or body. In the
event that the assets of the corporation, partnership, or
association are finally liquidated, however, secured and
preferred credits under the applicable provisions of the Civil
Code will definitely have preference over unsecured
ones.75 (Emphasis supplied)
Basically, once a management committee or rehabilitation receiver has
been appointed in accordance with PD 902-A, no action for claims may
be initiated against a distressed corporation and those already pending in
court shall be suspended in whatever stage they may be. Notwithstanding,
secured creditors shall continue to have preferred status but the
enforcement thereof is likewise held in abeyance. However, if the court
later determines that the rehabilitation of the distressed corporation is no
longer feasible and its assets are liquidated, secured claims shall enjoy
priority in payment.
We perceive no good reason to depart from established jurisprudence.
While Section 24(d), Rule 4 of the Interim Rules states that contracts and
other arrangements between the debtor and its creditors shall be
interpreted as continuing to apply, this holds true only to the extent that
they do not conflict with the provisions of the plan.
Here, the stipulation in the Assignment Agreement to the effect that
respondent Bayantel shall pay petitioners in full and ahead of other
creditors out of its cash flow during rehabilitation directly impinges on
the provision of the approved Rehabilitation Plan that "[t]he creditors of
Bayantel, whether secured or unsecured, should be treated equally and on
the same footing or pari passu  until the rehabilitation proceedings is
terminated in accordance with the Interim Rules."
During rehabilitation, the only payments sanctioned by the Interim Rules
are those made to creditors in accordance with the provisions of the plan.
Pertinent to this is Section 5(b), Rule 4 of the Interim Rules which states
that the terms and conditions of the rehabilitation plan shall include the
manner of its implementation, giving due regard to the interests of
secured creditors. This very phrase is what petitioners invoke as basis for
demanding priority in payment out of respondent’s cash flow.
But petitioners’ reliance thereon is misplaced.
By definition, due regard means consideration in a degree appropriate to
the demands of a particular case.76 On the other hand, security interest is a
form of interest in property which provides that the property may be sold
on default in order to satisfy the obligation for which the security interest
is given. Often, the term "lien" is used as a synonym, although lien most
commonly refers only to interests providing security that are created by
operation of law, not through agreement of the debtor and creditor. In
contrast, the term "security interest" means any interest in property
acquired by contract for the purpose of securing payment or performance
of an obligation or indemnifying against loss or liability.77
Under the Interim Rules, the only pertinent reference to creditor security
is found in Section 12, Rule 4 on relief from, modification or termination
of stay order. Said provision states that the creditor is regarded as lacking
adequate protection if it can be shown that: (a) the debtor fails or refuses
to honor a pre-existing agreement with the creditor to keep the property
insured; (b) the debtor fails or refuses to take commercially reasonable
steps to maintain the property; or (c) the property has depreciated to an
extent that the creditor is undersecured.
Upon a showing that the creditor is lacking in protection, the court shall
order the rehabilitation receiver to take steps to ensure that the property is
insured or maintained or to make payment or provide replacement
security such that the obligation is fully secured. If such arrangements are
not feasible, the court may allow the secured creditor to enforce its claim
against the debtor. Nonetheless, the court may deny the creditor the
foregoing remedies if allowing so would prevent the continuation of the
debtor as a going concern or otherwise prevent the approval and
implementation of a rehabilitation plan.78
In the context of the foregoing provisions, "giving due regard to the
interests of secured creditors" primarily entails ensuring that the property
comprising the collateral is insured, maintained or replacement security is
provided such that the obligation is fully secured. The reason for this rule
is simple, in the event that the court terminates the proceedings for
reasons other than the successful implementation of the plan, the secured
creditors may foreclose the securities and the proceeds thereof applied to
the satisfaction of their preferred claims.
When the Rules of Procedure on Corporate Rehabilitation took effect on
January 16, 2009, the "due regard" provision was amended to read:
SEC. 18. Rehabilitation Plan.  – The rehabilitation plan shall include (a)
the desired business targets or goals and the duration and coverage of the
rehabilitation; (b) the terms and conditions of such rehabilitation which
shall include the manner of its implementation, giving due regard to the
interests of secured creditors such as, but not limited, to the non-
impairment of their security liens or interests; x x x. (Emphasis
supplied)
Despite the additional phrase, however, it is our view that the amendment
simply amplifies the meaning of the "due regard provision" in the Interim
Rules. First, the amendment exemplifies what giving "due regard to the
interests of secured creditors" contemplates, mainly, the nonimpairment
of securities. At the same time, the specific reference to "security liens"
and "interests," separated by the disjunctive "or," describes what "the
interests of secured creditors" consist of. Again, lien pertains only to
interests providing security that are created by operation of law while
security interests include those acquired by contract for the purpose of
securing payment or performance of an obligation or indemnifying
against loss or liability. Lastly, the addition of the phrase "but not
limited" in the amendment shuns a rigid application of the provision by
recognizing that "giving due regard to the interest of secured creditors"
may be rendered in other ways than taking care that the security liens and
interests of secured creditors are adequately protected.
In this case, petitioners Express Investments III Private Ltd. And Export
Development Canada are concerned, not so much with the adequacy of
the securities offered by respondent, but with the devaluation of such
securities over time. Petitioners fear that the proceeds of respondent’s
collateral would be insufficient to cover their claims in the event of
liquidation.
On this point, suffice it to state that petitioners are not without any
remedy to address a deficiency in securities, if and when it comes about.
Under Section 12, Rule 4 of the Interim Rules, a secured creditor may file
a motion with the Rehabilitation Court for the modification or
termination of the stay order. If petitioners can show that arrangements to
insure or maintain the property or to make payment or provide additional
security therefor is not feasible, the court shall modify the stay order to
allow petitioners to enforce their claim − that is, to foreclose the
mortgage and apply the proceeds thereof to their claims. Be that as it
may, the court may deny the creditor this remedy if allowing so would
prevent the continuation of the debtor as a going concern or otherwise
prevent the approval and implementation of a rehabilitation plan.
Indeed, neither the "due regard provision" nor contractual arrangements
can shackle the Rehabilitation Court in determining the best means of
30
rehabilitating a distressed corporation. Truth be told, the Rehabilitation
Court may approve a rehabilitation plan even over the opposition of
creditors holding a majority of the total liabilities of the debtor if, in its
judgment, the rehabilitation of the debtor is feasible and the opposition of
the creditors is manifestly unreasonable. In determining whether or not
the opposition of the creditors is manifestly unreasonable, the court shall
consider the following: (a) That the plan would likely provide the
objecting class of creditors with compensation greater than that which
they would have received if the assets of the debtor were sold by a
liquidator within a three-month period; (b) That the shareholders or
owners of the debtor lose at least their controlling interest as a result of
the plan; and (c) The Rehabilitation Receiver has recommended approval
of the plan.79
According to the Liquidation Analysis80 prepared by KPMG at the request
of the Receiver, the Fair Market Value of respondent’s fixed assets is
P18.7 billion while its Forced Liquidation Value is P9.3 billion. Together
with cash and receivables in the amount of P911 million, respondent’s
total liquidation assets are valued at P10.2 billion. From this amount, the
estimated liquidation return to the Omnibus Creditors is P6,102,150,000
or approximately 52.9% of their claims in the amount of
P11,539,776,000. Meanwhile, Chattel Creditors can recoup 61% of its
claims. As regards the Unsecured Creditors, they will share in the pool of
assets that respondents have acquired since 1998, which were not
specifically registered under the Omnibus Agreement Mortgage
Supplements. Said assets are estimated to have a value of P3.5 Billion.
This accounts for 10.7% of the Unsecured Creditors’ claims.
Reckoned from these figures, the Receiver concluded that the
shareholders shall receive nothing on respondent’s liquidation while the
latter’s creditors can expect significantly less than full repayment.
Moreover, regardless of whether the shareholders will lose at least their
controlling interest as a result of the plan, petitioners, in their
Memorandum dated April 30, 2009, have signified their conformity with
the Court of Appeals decision to limit the conversion of the unsustainable
debt to a maximum of 40% of the fully-paid up capital of respondent
corporation. Lastly, the Receiver not only recommended the approval of
the Plan by the Rehabilitation Court, he, himself, prepared it. The
concurrence of these conditions renders the opposition of petitioners
manifestly unreasonable.
As regards the second issue, petitioners submit that the pari
passu treatment of claims offends the Contract Clause under the 1987
Constitution. Article III, Section 10 of the Constitution mandates that no
law impairing the obligation of contracts shall be passed. Any law which
enlarges, abridges, or in any manner changes the intention of the parties,
necessarily impairs the contract itself. And even when the change in the
contract is done by indirection, there is impairment nonetheless.81
At this point, it bears stressing that the non-impairment clause is a
limitation on the exercise of legislative power and not of judicial or
quasijudicial power. In Lim, Sr. v. Secretary of Agriculture & Natural
Resources, et al.,82 we held:
x x x. For it is well-settled that a law within the meaning of this
constitutional provision has reference primarily to statutes and ordinances
of municipal corporations. Executive orders issued by the President
whether derived from his constitutional powers or valid statutes may
likewise be considered as such. It does not cover, therefore, the exercise
of the quasi-judicial power of a department head even if affirmed by the
President. The administrative process in such a case partakes more of an
adjudicatory character. It is bereft of any legislative significance. It falls
outside the scope of the non-impairment clause. x x x.83
The prohibition embraces enactments of a governmental law-making
body pertaining to its legislative functions. Strictly speaking, it does not
cover the exercise by such law-making body of quasi-judicial power.
Verily, the Decision dated June 28, 2004 of the Rehabilitation Court is
not a proper subject of the Non-impairment Clause.
In view of the foregoing, we find no need to discuss the third issue posed
in this petition
In G.R. Nos. 175418-20
Prefatorily, we restate the time honored principle that in a petition for
review on certiorari  under Rule 45 of the Rules of Court, only questions
of law may be raised. Thus, in a petition for review on certiorari, the
scope of the Supreme Court's judicial review is limited to reviewing only
errors of law, not of fact.84 It is not our function to weigh all over again
evidence already considered in the proceedings below, our jurisdiction is
limited to reviewing only errors of law that may have been committed by
the lower court.85
Before us, petitioners Bank of New York and Avenue Asia Capital Group
raise a question of fact which is not proper in a petition for review
on certiorari. A question of law arises when there is doubt as to what the
law is on a certain state of facts, while there is a question of fact when the
doubt arises as to the truth or falsity of the alleged facts. For a question to
be one of law, the same must not involve an examination of the probative
value of the evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law provides on the
given set of circumstances. Once it is clear that the issue invites a review
of the evidence presented, the question posed is one of fact.86
Whether the Court of Appeals erred in affirming the sustainable debt
fixed by the Rehabilitation Court is a question of fact that calls for a
recalibration of the evidence presented by the parties before the trial
court. In order to resolve said issue, petitioners would have this Court
reassess the state of respondent Bayantel’s finances at the onset of
rehabilitation and gauge the practical value of the plans submitted by the
parties vis-à-vis the financial models prepared by the experts engaged by
them. These tasks are certainly not for this Court to accomplish. The
resolution of factual issues is the function of lower courts, whose findings
on these matters are received with respect.87 This is especially true in
rehabilitation proceedings where certain courts are designated to hear the
case on account of their expertise and specialized knowledge on the
subject matter. Though this doctrine admits of several exceptions,88 none
is applicable in the case at bar
Notably, the Interim Rules is silent on the manner by which the
sustainable debt of the debtor shall be determined. Yet, Section 2 of the
Interim Rules prescribe that the Rules shall be liberally construed to carry
out the objectives of Sections 5(d),89 6(c)90 and 6(d)91 of PD 902-A.
Section 5(d), PD 902-A vested jurisdiction upon the SEC over petitions
for rehabilitation. Later, RA 8799 or the Securities Regulation Code,
amended Section 5(d) of PD 902-A by transferring SEC’s jurisdiction
over said petitions to the RTC. Meanwhile, Section 6(c) of PD 902-A
provides for the appointment of a receiver of the subject property
whenever necessary in order to preserve the rights of the parties and to
protect the interest of the investing public and the creditors. Upon the
appointment of such receiver, all actions for claims against the
corporation pending before any court, tribunal, board or body shall be
suspended accordingly. On the other hand, Section 5(d), PD 902-A
expands the power of the Commission to allow the creation and
appointment of a management committee to undertake the management
of the corporation when there is imminent danger of dissipation, loss,
wastage or destruction of assets or other properties or paralyzation of the
business of the corporation which may be prejudicial to the interest of
minority stockholders, parties-litigants or the general public.
The underlying objective behind these provisions is to foster the
rehabilitation of the debtor by insulating it against claims, preserving its
assets and taking steps to ensure that the rights of all parties concerned
are adequately protected.
This Court is convinced that the Court of Appeals ruled in accord with
this policy when it upheld the Rehabilitation Court’s determination of
respondent’s sustainable debt. We find the sustainable debt of US$325
million, spread over 19 years, to be a more realistically achievable
amount considering respondent’s modest revenue projections. Bayantel
projected a constant rise in its revenues at the range of 1.16%-4.91% with
periodic reverses every two years.92 On the other hand, petitioner’s
proposal of a sustainable debt of US$471 million to be paid in 12 years
and the Receiver’s proposal of US$370 million to be paid in 15 years
betray an over optimism that could leave Bayantel with nothing to spend
for its operations.
Next, petitioners contest the admission of respondent’s rehabilitation plan
for being filed in violation of the Interim Rules. It is petitioner’s view that
in a creditor-initiated petition for rehabilitation, the debtor may only
submit either a comment or opposition but not its own rehabilitation plan.
We cannot agree.
Rule 4 of the Interim Rules treats of rehabilitation in general, without
distinction as to who between the debtor and the creditor initiated the
petition. Nowhere in said Rule is there any provision that prohibits the
debtor in a creditor-initiated petition to file its own rehabilitation plan for
consideration by the court. Quite the reverse, one of the functions and
powers of the rehabilitation receiver under Section 14(m) of said Rule is
to study the rehabilitation plan proposed by the debtor  or any
rehabilitation plan submitted during the proceedings, together with any
31
comments made thereon. This provision makes particular reference to a
debtor-initiated proceeding in which the debtor principally files a
rehabilitation plan. In such case, the receiver is tasked, among other
things, to study the rehabilitation plan presented by the debtor along with
any rehabilitation plan submitted during the proceedings. This implies
that the creditors of the distressed corporation, and even the receiver, may
file their respective rehabilitation plans. We perceive no good reason why
the same option should not be available, by analogy, to a debtor in
creditor-initiated proceedings, which is also found in Rule 4 of the
Interim Rules.
Third, petitioners fault the Court of Appeals for ruling that the debt-
toequity conversion rate of 77.7%, as proposed by The Bank of New
York, violates the Filipinization provision of the Constitution. Petitioners
explain that the acquisition of shares by foreign Omnibus and Financial
Creditors shall be done, both directly and indirectly in order to meet the
control test principle under RA 704293 or the Foreign Investments Act of
1991. Under the proposed structure, said creditors shall own 40% of the
outstanding capital stock of the telecommunications company on a direct
basis, while the remaining 40% of shares shall be registered to a holding
company that shall retain, on a direct basis, the other 60% equity reserved
for Filipino citizens.
Moreover, petitioners maintain that it is only fair to impose upon the
Omnibus and Financial Creditors a bigger equity conversion in Bayantel
considering that petitioners will bear the bulk of the accrued interests and
penalties to be written off. Initially, the Rehabilitation Court approved the
Receiver’s recommendation to write-off interests and penalties in the
amount of US$34,044,553.00. The Rehabilitation Court likewise ordered
a re-computation of past due interest in accordance with the rate proposed
by the Receiver. Following this, petitioners estimate the total unpaid
accrued interest of Bayantel as of July 30, 2003 to be at
US$140,098,750.66 while the Rehabilitation Court arrived at the total
amount of past due interest and penalties of US$114,855,369.59 upon
recomputation. This makes for a difference of US$25,243,381.07 which,
petitioners claim, represents an additional write-off to be borne by them
for a total write-off of US$59,287,934.07.
The provision adverted to is Article XII, Section 11 of the 1987
Constitution which states:
SEC. 11. 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. Neither shall
any such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by the Congress when
the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise
shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association must
be citizens of the Philippines.
This provision explicitly reserves to Filipino citizens control over public
utilities, pursuant to an overriding economic goal of the 1987
Constitution: to "conserve and develop our patrimony" and ensure "a
selfreliant and independent national economy effectively controlled by
Filipinos."94
In the recent case of Gamboa v. Teves,95 the Court settled once and for all
the meaning of "capital" in the above-quoted Constitutional provision
limiting foreign ownership in public utilities. In said case, we held that
considering that common shares have voting rights which translate to
control as opposed to preferred shares which usually have no voting
rights, the term "capital" in Section 11, Article XII of the Constitution
refers only to common shares. However, if the preferred shares also have
the right to vote in the election of directors, then the term "capital" shall
include such preferred shares because the right to participate in the
control or management of the corporation is exercised through the right to
vote in the election of directors. In short, the term "capital" in Section 11,
Article XII of the Constitution refers only to shares of stock that can vote
in the election of directors.
Applying this, two steps must be followed in order to determine whether
the conversion of debt to equity in excess of 40% of the outstanding
capital stock violates the constitutional limit on foreign ownership of a
public utility: First, identify into which class of shares the debt shall be
converted, whether common shares, preferred shares that have the right to
vote in the election of directors or non-voting preferred
shares; Second, determine the number of shares with voting right held by
foreign entities prior to conversion. If upon conversion, the total number
of shares held by foreign entities exceeds 40% of the capital stock with
voting rights, the constitutional limit on foreign ownership is violated.
Otherwise, the conversion shall be respected.
In its Rehabilitation Plan,96 among the material financial commitments
made by respondent Bayantel is that its shareholders shall "relinquish the
agreed-upon amount of common stock[s] as payment to Unsecured
Creditors as per the Term Sheet." 97 Evidently, the parties intend to
convert the unsustainable portion of respondent's debt into common
stocks, which have voting rights. If we indulge petitioners on their
proposal, the Omnibus Creditors which are foreign corporations, shall
have control over 77.7% of Bayantel, a public utility company. This is
precisely the scenario proscribed by the Filipinization provision of the
Constitution. Therefore, the Court of Appeals acted correctly in
sustaining the 40% debt-to-equity ceiling on conversion.
As to the fourth issue, petitioners insist that the write-off of the default
interest and penalties along with the re-computation of past due interest
violate the pari passu treatment of creditors.
Petitioner’s argument lacks merit.
Section 5(d), Rule 4 of the Interim Rules provides that the rehabilitation
plan shall include the means for the execution of the rehabilitation plan,
which may include conversion of the debts or any portion thereof to
equity, restructuring of the debts, dacion en pago, or sale of assets or of
the controlling interest.
Debt restructuring may involve conversion of the debt or any portion
thereof to equity, sale of the assets of the distressed company and
application of the proceeds to the obligation, dacion en pago, debt relief
or reduction, modification of the terms of the loan or a combination of
these schemes.
In this case, the approved Rehabilitation Plan provided for a longer
period of payment, the conversion of debt to 40% equity in respondent
company, modification of interest rates on the restructured debt and
accrued interest and a write-off or relief from penalties and default
interest. These recommendations by the Receiver are perfectly within the
powers of the Rehabilitation Court to adopt and approve, as it did adopt
and approve. In so doing, no reversible error can be attributed to the
Rehabilitation Court.
The pertinent portion of the fallo of said court’s Decision dated June 28,
2004 states:
1. The ruling on the pari passu treatment of all creditors whose claims
are subject to restructuring shall be maintained and shall extend to all
payment terms and treatment of past due interest.[98 (Emphasis
supplied)
Thus, the court a quo  provided for a uniform application of the pari
passu principle among creditor claims and the terms by which they shall
be paid, including past due interest. This is consistent with the
interpretation accorded by jurisprudence to the pari passu principle that
during rehabilitation, the assets of the distressed corporation are held in
trust for the equal benefit of all creditors to preclude one from obtaining
an advantage or preference over another. All creditors should stand on
equal footing. Not any one of them should be given preference by paying
one or some of them ahead of the others.99
As applied to this case, the pari passu treatment of claims during
rehabilitation entitles all creditors, whether secured or unsecured, to
receive payment out of Bayantel’s cash flow. Despite their preferred
position, therefore, the secured creditors shall not be paid ahead of the
unsecured creditors but shall receive payment only in the proportion
owing to them.
In any event, the debt restructuring schemes complained of shall be
implemented among all creditors regardless of class. Both secured and
unsecured creditors shall suffer a write-off of penalties and default
interest and the escalating interest rates shall be equally imposed on them.
We repeat, the commitment embodied in the pari passu principle only
goes so far as to ensure that the assets of the distressed corporation are
held in trust for the equal benefit of all creditors. It does not espouse
absolute equality in all aspects of debt restructuring.
As regards petitioners’ claims for costs, petitioner Bank of New York
filed before the Rehabilitation Court a Notice of Claim 100 dated February
19, 2004 for the payment of US$1,255,851.30, representing filing fee,
deposit for expenses and the professional fees of its counsels and
financial advisers. Earlier, said bank had filed a claim for the payment of
32
US$863,829.98 for professional fees of its counsels and professional
advisers and P2,850,305.00 for docket fees and publication expenses. On
its end, the Avenue Asia Capital Group claims a total of US$535,075.64
to defray the professional fees of its financial adviser, Price Waterhouse
& Cooper and the Bondholder Communications Group.
In an Order101 dated March 15, 2005, the Rehabilitation Court approved
the claims for costs of petitioner Bank of New York as follows:
i. filing fees of P2,701,750.00 as evidenced by O.R. Nos.
18463998, 18466286 and 0480246 all dated August 13, 2003
of the Regional Trial Court (of Pasig City);
ii. costs of publication of the Stay Order in the amount of
P47,550.00 as evidenced by O.R. No. 86384 dated August 13,
2003 of the Peoples Independent Media, Inc., the same being
judicial costs authorized under Sec. 1, Rule 142 of the Rules of
Court;
iii. payments of professional fees to its Philippine Counsel,
Belo Gozon Elma Parel Asuncion & Lucila, in the total amount
of US$152,784.32 as evidenced by the Affidavit of Atty.
Roberto Rafael V. Lucila and the Statements of Account
attached thereto;
which the Court considers to be reasonable and finds authorized under
Sec. 6.11 and 6.12 of the Indenture attached as Annex "E" to the Petition;
The Receiver is hereby directed to cause the settlement of payment of the
accounts within a period of sixteen (16) months from receipt of this
Order.102
The trial court made no pronouncement on the claims for cost of
petitioner Avenue Asia Capital Group, either in the same Order or in a
subsequent order.
Before us, petitioners reiterate their claims for costs based on Sections
6.11103 and 6.12104 of the Indenture105 dated July 22, 1999, which was
executed by respondent in their favor.
It bears stressing at this point that the subject of petitioners’ appeal before
the Court of Appeals was the Rehabilitation Court’s Decision dated June
28, 2004. Said Decision, however, bore no discussion on either
petitioners’ claim for costs from which they may appeal. Notably, the
assailed Order of the Rehabilitation Court was promulgated on March 15,
2005 or four (4) months after petitioners had appealed the Decision dated
June 28, 2004 to the Court of Appeals on November 16, 2004. Evidently,
the appellate court could not have acquired jurisdiction to review said
Order.
Nonetheless, we doubt the propriety of the Rehabilitation Court’s award
for costs. A perusal of the Order dated March 15, 2005 reveals that the
award to petitioner Bank of New York was made pursuant to Section 1,
Rule 142 of the Rules of Court, which states:
SECTION 1. Costs ordinarily follow results of suit.- Unless otherwise
provided in these Rules, costs shall be allowed to the prevailing
party as a matter of course, but the court shall have power, for special
reasons, to adjudge that either party shall pay the costs of an action, or
that the same be divided, as may be equitable. No costs shall be allowed
against the Republic of the Philippines unless otherwise provided by law.
(Emphasis supplied)
However, there is no prevailing party in rehabilitation proceedings which
is non-adversarial in nature.106 Unlike in adversarial proceedings, the
court in rehabilitation proceedings appoints a receiver to study the best
means to revive the debtor and to ensure that the value of the debtor’s
property is reasonably maintained pending the determination of whether
or not the debtor should be rehabilitated, as well as implement the
rehabilitation plan after its approval.107 The main thrust of rehabilitation is
not to adjudicate opposing claims but to restore the debtor to a position of
successful operation and solvency. Under the Interim Rules, reasonable
fees and expenses are allowed the Receiver and the persons hired by
him,108 for those expenses incurred in the ordinary course of business of
the debtor after the issuance of the stay order but excluding interest to
creditors.109
Moreover, while it is true that the Indenture between petitioners and
respondent corporation authorizes the Trustee to file proofs of claim for
the payment of reasonable expenses and disbursements of the Trustee, its
agents and counsel, accountants and experts, such remedy is available
only in cases where the Trustee files a collection suit against respondent
company. Indubitably, the rehabilitation proceedings in the case at bar is
not a collection suit, which is adversarial in nature.
In G.R. No. 177270
At issue in this petition for review on certiorari is the extent of power that
the Monitoring Committee can exercise.
The pertinent portion of the fallo  of the Decision dated June 28, 2004
provides:
6. A Monitoring Committee shall be formed composed of representatives
from all classes of the restructured debt. The Rehabilitation Receiver’s
role shall be limited to the powers of monitoring and oversight as
provided in the Interim Rules. All powers provided for in the Report and
Recommendations, which exceed the monitoring and oversight functions
mandated by the Interim Rules shall be amended accordingly.110
On October 15, 2004, petitioner Bank of New York filed a Manifestation
with the Rehabilitation Court for the creation of a monitoring committee
in accordance with the aforequoted pronouncement. Petitioner espouses
the view that it is essential to "provide for a strong and effective
Monitoring Committee x x x which gives the Financial Creditors
meaningful and substantial participation in Bayantel."111 It went on to
propose the powers that the Monitoring Committee should possess,
specifically:
The role of the Monitoring Committee shall be to work with the Receiver
(on precise terms to be agreed as discussed below) to Oversee the actions
of the BTI New Board of Directors, making key Decisions
and approving, amongst other things,
(i) Any proposed Events of Rescheduling;
(ii) Any other proposed actions by the receiver on a payment
default;
(iii) Operating Expenses Budgets;
(iv) Capital Expenditure Budgets;
(v) Asset Sales Programs; and
(vi) Terms of Incentive Scheme for New Management and
Management Targets.112
Subsequently, in an Order113 dated November 9, 2004, the Rehabilitation
Court adopted petitioner’s proposal by constituting a Monitoring
Committee that
shall participate with the Receiver in monitoring and overseeing the
actions of the Board of Directors of Bayantel and may, by majority
vote, adopt, modify, revise or substitute any of the following items:
(1) any proposed Annual OPEX Budgets;
(2) any proposed Annual CAPEX Budgets;
(3) any proposed Reschedule;
(4) any proposed actions by the Receiver on a payment default;
(5) terms of Management Incentivisation Scheme and
Management Targets;
(6) the EBITDA/Revenue ratios set by the Bayantel Board
of Directors; and,
(7) any other proposed actions by the Bayantel Board of
Directors including, without limitation, issuance of new
shares, sale of core and non-core assets, change of business,
etc. that will materially affect the terms and conditions of
the rehabilitation plan and its implementation.114 (Emphasis
supplied)
From said Order, respondent Bayantel filed a Manifestation and Motion
for Clarification while the secured creditors moved for an increase in the
33
membership of the monitoring committee from three to five members.
For his part, the Receiver submitted a Compliance and Manifestation
dated January 10, 2005.
In an Order115 dated March 15, 2005, the Rehabilitation Court affirmed
the creation of a monitoring committee but denied the motion for the
appointment of additional members therein. It also made the following
dispositions relative to the functions of the Monitoring Committee:
(d) to approve the Implementing Term Sheet submitted by the Receiver
subject to the following conditions:
xxxx
ii. the Receiver shall design and formulate with the participation of
the Monitoring Committee and Bayantel the convertible debt
instrument, as directed of him in the earlier Order of November 9, 2004,
for the unsustainable portion of the restructured debt of Bayantel and
submit the same to the Court within thirty (30) days from receipt of this
Order. Costs, expenses and taxes that may be due on the execution of the
convertible debt instrument shall be charged to Bayantel as costs of the
rehabilitation proceedings;
xxxx
iv. the Receiver shall devise a mode or procedure whereby the
Monitoring Committee can have immediate and direct access to any
information that the Receiver has obtained or received from Bayantel or
the Monitoring Accountant in regard to the management and business
operations of Bayantel;
v. the trading of debt mentioned in the Implementing Term Sheet shall be
governed by the pre-petition documents which do not conflict with the
Decision of this Court and provided that no transfer shall be made to the
Bayantel Group Companies, or any controlling shareholders thereof
including Bayan Telecommunications Holdings Corporation ("BTHC");
however, any "buy back" scheme as may be approved by the
Monitoring Committee and Bayantel shall be open to all creditors
whether secured or unsecured;116 (Emphasis supplied)
On appeal, the Court of Appeals nullified the Orders dated November 9,
2004 and March 15, 2005 insofar as they defined the powers and
functions of the Monitoring Committee. The appellate court ruled that the
Rehabilitation Court committed grave abuse of discretion in vesting the
Monitoring Committee with powers beyond monitoring and overseeing
Bayantel’s operations.
Before us, petitioner contends that the Rehabilitation Court intended for
the Monitoring Committee to exercise powers greater than those of the
Receiver.
We find no merit in petitioner’s argument.
In the Decision dated June 28, 2004, the Rehabilitation Court discussed
the circumstances surrounding the creation of the monitoring committee,
thus:
Both Bayantel and the Opposing Creditors contend that the Rehabilitation
Receiver, under his Report and Recommendations, appear to be vested
with too much discretion in the implementation of his proposed
rehabilitation plan. Bayantel and the Opposing Creditors for one, argue
against the power of the Rehabilitation Receiver to be able to further
restructure Restructured Debt as well as the Rehabilitation Receiver's
power relating to matters of Bayantel’s budget.
The [c]ourt wishes to stress that the Interim Rules prohibit the
Rehabilitation Receiver from taking over the management and control of
the company under rehabilitation, and limit his role to merely overseeing
and monitoring the operations of the company (Section 14, Rule 4,
Interim Rules). However, the [c]ourt also appreciates that the
Rehabilitation Receiver must oversee the implementation of the
rehabilitation plan as approved by the [c]ourt. In line with petitioner’s
proposal, the creation of a Monitoring Committee composed of
representatives from all classes of the restructured debt addresses the
concerns raised by the creditors.117 (Emphasis supplied)
It can be gleaned from the foregoing that the Rehabilitation Court’s
decision to form a monitoring committee was borne out of creditors’
concerns over the possession of vast powers by the Receiver. While the
Rehabilitation Court was quick to delineate the Receiver’s authority, it
nevertheless, underscored the value of his role in overseeing the
implementation of the Plan. It was on this premise that the Rehabilitation
Court appointed the Monitoring Committee - to "[address] the concerns
raised by the creditors." Yet, in its Orders dated November 9, 2004 and
March 15, 2005, the Rehabilitation Court equipped the Monitoring
Committee with powers well beyond those of the Receiver’s. Apart from
control over respondent’s budget, the Monitoring Committee may also
adopt, modify, revise or even substitute any other proposed actions by
respondent’s Board of Directors, including, without limitation issuance of
new shares, sale of core and non-core assets, change of business and
others that will materially affect the terms and conditions of the
rehabilitation plan and its implementation. Ironically, the court a
quo diluted the seeming concentration of power in the hands of the
Receiver but appointed a Committee possessed of even wider discretion
over respondent’s operations.
From all indications, however, the tenor of the Rehabilitation Court’s
Decision dated June 28, 2004 does not contemplate the creation of a
Monitoring Committee with broader powers than the Receiver. As the
name of the Monitoring Committee itself suggests, its job is "to watch,
observe or check especially for a special purpose."118 In the context of the
Decision dated June 28, 2004, the fundamental task of the Monitoring
Committee herein is to oversee the implementation of the rehabilitation
plan as approved by the court. This should not be confused with the
functions of the Receiver under the Interim Rules or a management
committee under PD 902-A.
Under Section 14, Rule 4 of the Interim Rules, the Receiver shall not take
over the management and control of the debtor but shall closely oversee
and monitor its operations during the pendency of the rehabilitation
proceeding. The Rehabilitation Receiver shall be considered an officer of
the court and his core duty is to assess how best to rehabilitate the debtor
and to preserve its assets pending the determination of whether or not it
should be rehabilitated and to implement the approved plan.
It is a basic precept in Corporation Law that the corporate powers of all
corporations formed under Batas Pambansa Blg. 68 or the Corporation
Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees.
Nonetheless, PD 902-A presents an exception to this rule.
Section 6(d)119 of PD 902-A empowers the Rehabilitation Court to create
and appoint a management committee to undertake the management of
corporations when there is imminent danger of dissipation, loss, wastage
or destruction of assets or other properties or paralyzation of business
operations of such corporations which may be prejudicial to the interest
of minority stockholders, parties-litigants or the general public. In the
case of corporations supervised or regulated by government agencies,
such as banks and insurance companies, the appointment shall be made
upon the request of the government agency concerned. Otherwise, the
Rehabilitation Court may, upon petition or motu proprio, appoint such
management committee.
The management committee or rehabilitation receiver, board or body
shall have the following powers: (1) to take custody of, and control over,
all the existing assets and property of the distressed corporation; (2) to
evaluate the existing assets and liabilities, earnings and operations of the
corporation; (3) to determine the best way to salvage and protect the
interest of the investors and creditors; (4) to study, review and evaluate
the feasibility of continuing operations and restructure and rehabilitate
such entities if determined to be feasible by the Rehabilitation Court; and
(5) it may overrule or revoke the actions of the previous management and
board of directors of the entity or entities under management
notwithstanding any provision of law, articles of incorporation or by-laws
to the contrary.1âwphi1
In this case, petitioner neither filed a petition for the appointment of a
management committee nor presented evidence to show that there is
imminent danger of dissipation, loss, wastage or destruction of assets or
other properties or paralyzation of business operations of respondent
corporation which may be prejudicial to the interest of the minority
stockholders, the creditors or the public. Unless petitioner satisfies these
requisites, we cannot sanction the exercise by the Monitoring Committee
of powers that will amount to management of respondent’s operations.
WHEREFORE, the Court hereby RESOLVES to dispose of these
consolidated petitions, as follows:
(1) The petition for review on certiorari in G.R. Nos. 174457-
59 is DENIED. The Decision dated August 18, 2006 of the
Court of Appeals in CA-G.R. SP No. 87203 is AFFIRMED;
(2) The petition for review on certiorari in G.R. Nos. 175418-
20 is DENIED. The Decision dated August 18, 2006 and
34
 Resolution dated November 8, 2006 of the Court of Appeals in
CA-G.R. SP Nos. 87100 and 87111 are AFFIRMED; and
(3) The petition for review on certiorari in G.R. No. 177270
is DENIED. The Decision dated October 27, 2006 and
Resolution dated March 23, 2007 of the Court of Appeals in
CA-G.R. SP No. 89894 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 207246
JOSE M. ROY III, Petitioner
vs.
CHAIRPERSON TERESITA HERBOSA, THE SECURITIES AND
EXCHANGE COMMISSION, and PHILIPPINE LONG DISTANCE
TELEPHONE COMP ANY,, Respondents
x-----------------------x
WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN
WARREN P. GABINETE, ANTONIO V. PESINA, JR., MODESTO
MARTINY. MAMON III, and GERARDO C.
EREBAREN, Petitioners-in-Intervention,
x-----------------------x
PHILIPPINE STOCK EXCHANGE, INC. Respondent-in-
Intervention,
x-----------------------x
SHAREHOLDERS' ASSOCIATION OF THE PHILIPPINES,
INC., Respondent-in-Intervention.
RESOLUTION
CAGUIOA, J.:
Before the Court is the Motion for Reconsideration dated January 19,
20171 (the Motion) filed by petitioner Jose M. Roy III (movant) seeking
the reversal and setting aside of the Decision dated November 22,
20162 (the Decision) which denied the movant's petition, and declared
that the Securities and Exchange Commission (SEC) did not commit
grave abuse of discretion in issuing Memorandum Circular No. 8, Series
of 2013 (SEC-MC No. 8) as the same was in compliance with, and in
fealty to, the decision of the Court in Gamboa v. Finance Secretary
Teves,3 (Gamboa  Decision) and the resolution4 denying the Motion for
Reconsideration therein (Gamboa  Resolution).
The Motion presents no compelling and new arguments to justify the
reconsideration of the Decision.
The grounds raised by movant are: (1) He has the requisite standing
because this case is one of transcendental importance; (2) The Court has
the constitutional duty to exercise judicial review over any grave abuse of
discretion by any instrumentality of government; (3) He did not rely on
an obiter dictum; and (4) The Court should have treated the petition as
the appropriate device to explain the Gamboa Decision.
The Decision has already exhaustively discussed and directly passed
upon these grounds. Movant's petition was dismissed based on both
procedural and substantive grounds.
Regarding the procedural grounds, the Court ruled that petitioners
(movant and petitioners-in-intervention) failed to sufficiently allege and
establish the existence of a case or controversy and locus standi on their
part to warrant the Court's exercise of judicial review; the rule on the
hierarchy of courts was violated; and petitioners failed to implead
indispensable parties such as the Philippine Stock Exchange, Inc. and
Shareholders' Association of the Philippines, Inc. 5
In connection with the failure to implead indispensable parties, the
Court's Decision held:
Under Section 3, Rule 7 of the Rules of Court, an indispensable party is a
party-in-interest without whom there can be no final determination of an
action. Indispensable parties are those with such a material and direct
interest in the controversy that a final decree would necessarily affect
their rights, so that the court cannot proceed without their presence. The
interests of such indispensable parties in the subject matter of the suit and
the relief are so bound with those of the other parties that their legal
presence as parties to the proceeding is an absolute necessity and a
complete and efficient determination of the equities and rights of the
parties is not possible if they are not joined.
Other than PLDT, the petitions failed to join or implead other public
utility corporations subject to the same restriction imposed by Section 11,
Article XII of the Constitution. These corporations are in danger of losing
their franchise and property if they are found not compliant with the
restrictive interpretation of the constitutional provision under review
which is being espoused by petitioners. They should be afforded due
notice and opportunity to be heard, lest they be deprived of their property
without due process.
Not only are public utility corporations other than PLDT directly and
materially affected by the outcome of the petitions, their shareholders
also stand to suffer in case they will be forced to divest their
shareholdings to ensure compliance with the said restrictive interpretation
of the term "capital". As explained by SHAREPHIL, in five corporations
alone, more than Php158 Billion worth of shares must be divested by
foreign shareholders and absorbed by Filipino investors if petitioners'
position is upheld.
Petitioners' disregard of the rights of these other corporations and
numerous shareholders constitutes another fatal procedural flaw,
justifying the dismissal of their petitions. Without giving all of them
their day in court, they will definitely be deprived of their property
without due process of law. 6
This is highlighted to clear any misimpression that the Gamboa Decision
and Gamboa Resolution made a categorical ruling on the meaning of the
word "capital" under Section 11, Article XII of the Constitution only in
respect of, or only confined to, respondent Philippine Long Distance
Telephone Company (PLDT). Nothing is further from the truth. Indeed, a
fair reading of the Gamboa  Decision and Gamboa  Resolution shows that
the Court's pronouncements therein would affect all public utilities, and
not just respondent PLDT.
On the substantive grounds, the Court disposed of the issue on whether
the SEC gravely abused its discretion in ruling that respondent PLDT is
compliant with the limitation on foreign ownership under the Constitution
and other relevant laws as without merit. The Court reasoned that "in the
absence of a definitive ruling by the SEC on PLDT's compliance with the
capital requirement pursuant to the Gamboa Decision and Resolution,
any question relative to the inexistent ruling is premature."7
In resolving the other substantive issue raised by petitioners, the Court
held that:
[E]ven if the resolution of the procedural issues were conceded in favor
of petitioners, the petitions, being anchored on Rule 65, must nonetheless
fail because the SEC did not commit grave abuse of discretion amounting
to lack or excess of jurisdiction when it issued SEC-MC No. 8. To the
contrary, the Court finds SEC-MC No. 8 to have been issued in fealty to
the Gamboa Decision and Resolution.8
To belabor the point, movant's petition is not a continuation of
the Gamboa case as the Gamboa  Decision attained finality on October
18, 2012, and thereafter Entry of Judgment was issued on December 11,
2012.9
As regards movant's repeated invocation of the transcendental importance
of the Gamboa case, this does not ipso facto  accord locus standi  to
movant. Being a new petition, movant had the burden to justify his locus
standi  in his own petition. The Court, however, was not persuaded by his
justification.
Pursuant to the Court's constitutional duty to exercise judicial review, the
Court has conclusively found no grave abuse of discretion on the part of
SEC in issuing SEC-MC No. 8.
The Decision has painstakingly explained why it considered as obiter
dictum that pronouncement in the Gamboa Resolution that the
constitutional requirement on Filipino ownership should "apply
uniformly and across the board to all classes of shares, regardless of
35
nomenclature and category, comprising the capital of a corporation."[[9-
a]] The Court stated that:
[T]he fallo or decretal/dispositive portions of both the Gamboa  Decision
and Resolution are definite, clear and unequivocal. While there is a
passage in the body of the Gamboa  Resolution that might have appeared
contrary to the fallo  of the Gamboa  Decision x x x the definiteness and
clarity of the fallo  of the Gamboa  Decision must control over the obiter
dictum in the Gamboa Resolution regarding the application of the 60-40
Filipino-foreign ownership requirement to "each class of shares,
regardless of differences in voting rights, privileges and restrictions." 10
To the Court's mind and, as exhaustively demonstrated in the Decision,
the dispositive portion of the Gamboa  Decision was in no way modified
by the Gamboa Resolution.
The heart of the controversy is the interpretation of Section 11, Article
XII of the Constitution, which provides: "No franchise, certificate, or any
other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per
centum of whose capital is owned by such citizens x x x."
The Gamboa Decision already held, in no uncertain terms, that what the
Constitution requires is "[fJull [and legal] beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the
voting rights x x x must rest in the hands of Filipino nationals x x
x." 11 And, precisely that is what SEC-MC No. 8 provides, viz.:  "x x x
For purposes of determining compliance [with the constitutional or
statutory ownership], the required percentage of Filipino ownership shall
be applied to BOTH (a) the total number of outstanding shares of stock
entitled to vote in the election of directors; AND (b) the total number of
outstanding shares of stock, whether or not entitled to vote x x x." 12
In construing "full beneficial ownership," the Implementing Rules and
Regulations of the Foreign Investments Act of 1991 (FIA-IRR) provides:
For stocks to be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the required
Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of
which have been assigned or transferred to aliens cannot be considered
held by Philippine citizens or Philippine nationals. 13
In turn, "beneficial owner" or "beneficial ownership" is defined in the
Implementing Rules and Regulations of the Securities Regulation Code
(SRC-IRR) as:
[A]ny person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares
voting power (which includes the power to vote or direct the voting of
such security) and/or investment returns or power (which includes the
power to dispose of, or direct the disposition of such security) x x x. 14
Thus, the definition of "beneficial owner or beneficial ownership" in the
SRC-IRR, which is in consonance with the concept of "full beneficial
ownership" in the FIA-IRR, is, as stressed in the Decision, relevant in
resolving only the question of who is the beneficial owner or has
beneficial ownership of each "specific stock" of the public utility
company whose stocks are under review. If the Filipino has the voting
power of the "specific stock", i.e., he can vote the stock or direct another
to vote for him, or the Filipino has the investment power over the
"specific stock", i.e.,  he can dispose of the stock or direct another to
dispose of it for him, or both, i.e.,  he can vote and dispose of that
"specific stock" or direct another to vote or dispose it for him, then such
Filipino is the "beneficial owner" of that "specific stock." Being
considered Filipino, that "specific stock" is then to be counted as part of
the 60% Filipino ownership requirement under the Constitution. The right
to the dividends, jus fruendi - a right emanating from ownership of that
"specific stock" necessarily accrues to its Filipino "beneficial owner."
Once more, this is emphasized anew to disabuse any notion that the
dividends accruing to any particular stock are determinative of that
stock's "beneficial ownership." Dividend declaration is dictated by the
corporation's unrestricted retained earnings. On the other hand, the
corporation's need of capital for expansion programs and special reserve
for probable contingencies may limit retained earnings available for
dividend declaration. 15 It bears repeating here that the Court in
the Gamboa Decision adopted the foregoing definition of the term
"capital" in Section 11, Article XII of the 1987 Constitution in express
recognition of the sensitive and vital position of public utilities both in
the national economy and for national security, so that the evident
purpose of the citizenship requirement is to prevent aliens from assuming
control of public utilities, which may be inimical to the national
interest. 16 This purpose prescinds from the "benefits"/dividends that are
derived from or accorded to the particular stocks held by Filipinos vis-a-
vis the stocks held by aliens. So long as Filipinos have controlling interest
of a public utility corporation, their decision to declare more dividends
for a particular stock over other kinds of stock is their sole prerogative -
an act of ownership that would presumably be for the benefit of the
public utility corporation itself. Thus, as explained in the Decision:
In this regard, it would be apropos  to state that since Filipinos own at
least 60% of the outstanding shares of stock entitled to vote directors,
which is what the Constitution precisely requires, then the Filipino
stockholders control the corporation, i.e., they dictate corporate actions
and decisions, and they have all the rights of ownership including, but not
limited to, offering certain preferred shares that may have greater
economic interest to foreign investors - as the need for capital for
corporate pursuits (such as expansion), may be good for the corporation
that they own. Surely, these "true owners" will not allow any dilution of
their ownership and control if such move will not be beneficial to them. 17
Finally, as to how the SEC will classify or treat certain stocks with voting
rights held by a trust fund that is created by the public entity whose
compliance with the limitation on foreign ownership under the
Constitution is under scrutiny, and how the SEC will determine if such
public utility does, in fact, control how the said stocks will be voted, and
whether, resultantly, the trust fund would be considered as Philippine
national or not - lengthily discussed in the dissenting opinion of Justice
Carpio - is speculative at this juncture. The Court cannot engage in
guesswork. Thus, there is need of an actual case or controversy before the
Court may exercise its power of judicial review. The movant's petition
is not that actual case or controversy.
Thus, the discussion of Justice Carpio' s dissenting opinion as to the
voting preferred shares created by respondent PLDT, their acquisition by
BTF Holdings, Inc., which appears to be a wholly-owned company of the
PLDT Beneficial Trust Fund (BTF), and whether or not it is respondent
PLDT's management that controls BTF and BTF Holdings, Inc. - all these
are factual matters that are outside the ambit of this Court's review which,
as stated in the beginning, is confined to determining whether or not the
SEC committed grave abuse of discretion in issuing SEC-MC No. 8; that
is, whether or not SEC-MC No. 8 violated the ruling of the Court
in Gamboa v. Finance Secretary Teves,  18 and the resolution in Heirs of
Wilson P. Gamboa v. Finance Sec. Teves19denying the Motion for
Reconsideration therein as to the proper understanding of "capital".
To be sure, it would be more prudent and advisable for the Court to await
the SEC's prior determination of the citizenship of specific shares of stock
held in trust - based on proven facts  - before the Court proceeds to pass
upon the legality of such determination.
As to whether respondent PLDT is currently in compliance with the
Constitutional provision regarding public utility entities, the Court must
likewise await the SEC's determination thereof applying SEC-MC No. 8.
After all, as stated in the Decision, it is the SEC which is the government
agency with the competent expertise and the mandate of law to make
such determination.
In conclusion, the basic issues raised in the Motion having been duly
considered and passed upon by the Court in the Decision and no
substantial argument having been adduced to warrant the reconsideration
sought, the Court resolves to DENY the Motion with FINALITY.
WHEREFORE, the subject Motion for Reconsideration is
hereby DENIED WITH FINALITY. No further pleadings or motions
shall be entertained in this case. Let entry of final judgment be issued
immediately.
SO ORDERED.
36
 [G.R. NO. 168914 : July 4, 2007]
METROPOLITAN CEBU WATER DISTRICT
(MCWD), Petitioner, v. MARGARITA A. ADALA, Respondent.
DECISION
CARPIO MORALES, J.:
The Decision of the Regional Trial Court (RTC) of Cebu dated February
10, 2005, which affirmed in toto the Decision of the National Water
Resources Board (NWRB) dated September 22, 2003 in favor of
Margarita A. Adala, respondent, is being challenged in the present
Petition for Review on Certiorari.
Respondent filed on October 24, 2002 an application with the NWRB for
the issuance of a Certificate of Public Convenience (CPC) to operate and
maintain waterworks system in sitios San Vicente, Fatima, and Sambag
in Barangay Bulacao, Cebu City.
At the initial hearing of December 16, 2002 during which respondent
submitted proof of compliance with jurisdictional requirements of notice
and publication, herein petitioner Metropolitan Cebu Water District, a
government-owned and controlled corporation created pursuant to P.D.
1981 which took effect upon its issuance by then President Marcos on
May 25, 1973, as amended, appeared through its lawyers to oppose the
application.
While petitioner filed a formal opposition by mail, a copy thereof had
not, on December 16, 2002, yet been received by the NWRB, the day of
the hearing. Counsel for respondent, who received a copy of petitioner's
Opposition dated December 12, 2002 earlier that morning, volunteered to
give a copy thereof to the hearing officer.2
In its Opposition, petitioner prayed for the denial of respondent's
application on the following grounds: (1) petitioner's Board of Directors
had not consented to the issuance of the franchise applied for, such
consent being a mandatory condition pursuant to P.D. 198, (2) the
proposed waterworks would interfere with petitioner's water supply
which it has the right to protect, and (3) the water needs of the residents
in the subject area was already being well served by petitioner.
After hearing and an ocular inspection of the area, the NWRB, by
Decision dated September 22, 2003, dismissed petitioner's Opposition
"for lack of merit and/or failure to state the cause of action"3 and ruled in
favor of respondent as follows:
PREMISES ALL CONSIDERED, and finding that Applicant is legally
and financially qualified to operate and maintain the subject waterworks
system, and that said operation shall redound to the benefit of the of the
[sic] consumers of Sitio's San Vicente, Fatima and Sambag at Bulacao
Pardo, Cebu City, thereby promoting public service in a proper and
suitable manner, the instant application for a Certificate of Public
Convenience (CPC) is, hereby, GRANTED for a period of five (5) years
with authority to charge the proposed rates herein set effective upon
approval as follows:
Consumption Blocks Proposed Rates
0-10 cu. m. P125.00(min. charge)
11-20 cu. m. 13.50 per cu. m.
21-30 cu. m. 14.50 per cu. m.
31-40 cu. m. 35.00 per cu. m.
41-50 cu. m. 37.00 per cu. m.
51-60 cu. m. 38.00 per cu. m.
61-70 cu. m. 40.00 per cu. m.
71-100 cu. m. 45.00 per cu. m.
Over 100 cu. m. 50.00 per cu. m.
The Rules and Regulations, hereto, attached for the operation of the
waterworks system should be strictly complied with.
Since the average production is below average day demand, it is
recommended to construct another well or increase the well horsepower
from 1.5 - 3.00 Hp to satisfy the water requirement of the consumers.
Moreover, the rates herein approved should be posted by GRANTEE at
conspicuous places within the area serviced by it, within seven (7)
calendar days from notice of this Decision.
SO ORDERED.4
Its motion for reconsideration having been denied by the NWRB by
Resolution of May 17, 2004, petitioner appealed the case to the RTC of
Cebu City. As mentioned early on, the RTC denied the appeal and upheld
the Decision of the NWRB by Decision dated February 10, 2005. And the
RTC denied too petitioner's motion for reconsideration by Order of May
13, 2005.
Hence, the present Petition for Review raising the following questions of
law:
i. WHETHER OR NOT THE CONSENT OF THE BOARD OF
DIRECTORS OF THE WATER DISTRICT IS A CONDITION SINE
QUA NON TO THE GRANT OF CERTIFICATE OF PUBLIC
CONVENIENCE BY THE NATIONAL WATER RESOURCES
BOARD UPON OPERATORS OF WATERWORKS WITHIN THE
SERVICE AREA OF THE WATER DISTRICT?cralaw library
ii. WHETHER THE TERM FRANCHISE AS USED IN SECTION 47
OF PRESIDENTIAL DECREE 198, AS AMENDED MEANS A
FRANCHISE GRANTED BY CONGRESS THROUGH LEGISLATION
ONLY OR DOES IT ALSO INCLUDE IN ITS MEANING A
CERTIFICATE OF PUBLIC CONVENIENCE ISSUED BY THE
NATIONAL WATER RESOURCES BOARD FOR THE
MAINTENANCE OF WATERWORKS SYSTEM OR WATER
SUPPLY SERVICE?5
Before discussing these substantive issues, a resolution of the procedural
grounds raised by respondent for the outright denial of the petition is in
order.
By respondent's claim, petitioner's General Manager, Engineer Armando
H. Paredes, who filed the present petition and signed the accompanying
verification and certification of non-forum shopping, was not specifically
authorized for that purpose. Respondent cites Premium Marble
Resources v. Court of Appeals6 where this Court held that, in the absence
of a board resolution authorizing a person to act for and in behalf of a
corporation, the action filed in its behalf must fail since "the power of the
corporation to sue and be sued in any court is lodged with the board of
directors that exercises its corporate powers."
Respondent likewise cites ABS-CBN Broadcasting Corporation v. Court
of Appeals7 where this Court held that "[f]or such officers to be deemed
fully clothed by the corporation to exercise a power of the Board, the
latter must specially authorize them to do so." (Emphasis supplied by
respondent)
That there is a board resolution authorizing Engineer Paredes
tofile cases in behalf of petitioner is not disputed. Attached to the petition
is petitioner's Board of Director's Resolution No. 015-2004, the relevant
portion of which states:
RESOLVE[D], AS IT IS HEREBY RESOLVED, to authorize the
General Manager, ENGR. ARMANDO H. PAREDES, to file in behalf
of the Metropolitan Cebu Water District expropriation and other
cases and to affirm and confirm above-stated authority with respect to
previous cases filed by MCWD.
x x x x8 (Emphasis and underscoring supplied)cralawlibrary
To respondent, however, the board resolution is invalid and ineffective
for being a roving authority and not a specific resolution pursuant to the
ruling in ABS-CBN.
That the subject board resolution does not authorize Engineer Paredes to
file the instant petition in particular but "expropriation and other cases"
does not, by itself, render the authorization invalid or ineffective.
37
In BA Savings Bank v. Sia,9 the therein board resolution, couched in
words similar to the questioned resolution, authorized persons to
represent the corporation, not for a specific case, but for a general class of
cases. Significantly, the Court upheld its validity:
In the present case, the corporation's board of directors issued a
Resolution specifically authorizing its lawyers "to act as their agents
in any action or proceeding before the Supreme Court, the Court of
Appeals, or any other tribunal or agency[;] and to sign, execute and
deliver in connection therewith the necessary pleadings, motions,
verification, affidavit of merit, certificate of non-forum shopping and
other instruments necessary for such action and proceeding." The
Resolution was sufficient to vest such persons with the authority to
bind the corporation and was specific enough as to the acts they were
empowered to do. (Emphasis and underscoring supplied, italics in the
original)
Nonetheless, while the questioned resolution sufficiently identifies the
kind of cases which Engineer Paredes may file in petitioner's behalf, the
same does not authorize him for the specific act of signing verifications
and certifications against forum shopping. For it merely authorizes
Engineer Paredes to file cases in behalf of the corporation. There is no
mention of signing verifications and certifications against forum
shopping, or, for that matter, any document of whatever nature.
A board resolution purporting to authorize a person to sign documents in
behalf of the corporation must explicitly vest such authority. BPI Leasing
Corporation v. Court of Appeals10 so instructs:
Corporations have no powers except those expressly conferred upon them
by the Corporation Code and those that are implied by or are incidental to
its existence. These powers are exercised through their board of
directors and/or duly authorized officers and agents. Hence, physical
acts, like the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate bylaws or by
specific act of the board of directors.
The records are bereft of the authority of BLC's [BPI Leasing
Corporation] counsel to institute the present petition and to sign the
certification of non-forum shopping. While said counsel may be the
counsel of record for BLC, the representation does not vest upon him the
authority to execute the certification on behalf of his client. There must
be a resolution issued by the board of directors
that specifically authorizes him to institute the petition and execute
the certification, for it is only then that his actions can be legally
binding upon BLC. (Emphasis, italics and underscoring supplied)
It bears noting, moreover, that Rule 13 Section 2 of the Rules of Court
merely defines filing  as "the act of presenting the pleading or other paper
to the clerk of court." Since the signing of verifications and certifications
against forum shopping is not integral to the act of filing, this may not be
deemed as necessarily included in an authorization merely to file cases.
Engineer Paredes not having been specifically authorized to sign the
verification and certification against forum shopping in petitioner's
behalf, the instant petition may be dismissed outright.
Technicality aside, the petition just the same merits dismissal.
In support of its contention that the consent of its Board of Directors is a
condition sine qua non for the grant of the CPC applied for by
respondent, petitioner cites Section 47 of P.D. 19811 which 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 and underscoring
supplied)cralawlibrary
There being no such consent on the part of its board of directors,
petitioner concludes that respondent's application for CPC should be
denied.
Both parties' arguments center, in the main, on the scope of the word
"franchise" as used in the above-quoted provision.
Petitioner contends that "franchise" should be broadly interpreted, such
that the prohibition against its grant to other entities without the consent
of the district's board of directors extends to the issuance of CPCs. A
contrary reading, petitioner adds, would result in absurd consequences,
for it would mean that Congress' power to grant franchises for the
operation of waterworks systems cannot be exercised without the consent
of water districts.
Respondent, on the other hand, proffers that the same prohibition only
applies to franchises in the strict sense - those granted by Congress by
means of statute - and does not extend to CPCs granted by agencies such
as the NWRB.
Respondent quotes the NWRB Resolution dated May 17, 2004 which
distinguished a franchise from a CPC, thus:
A CPC is formal written authority issued by quasi-judicial bodies for the
operation and maintenance of a public utility for which a franchise is not
required by law and a CPC issued by this Board is an authority to operate
and maintain a waterworks system or water supply service. On the other
hand, a franchise is privilege or authority to operate appropriate private
property for public use vested by Congress through legislation. Clearly,
therefore, a CPC is different from a franchise and Section 47 of
Presidential Decree 198 refers only to franchise. Accordingly, the
possession of franchise by a water district does not bar the issuance
of a CPC for an area covered by the water district. (Emphasis and
underscoring supplied by respondent)
Petitioner's position that an overly strict construction of the term
"franchise" as used in Section 47 of P.D. 198 would lead to an absurd
result impresses. If franchises, in this context, were strictly understood to
mean an authorization issuing directly from the legislature, it would
follow that, while Congress cannot issue franchises for operating
waterworks systems without the water district's consent, the NWRB may
keep on issuing CPCs authorizing the very same act even without such
consent. In effect, not only would the NWRB be subject to less
constraints than Congress in issuing franchises. The exclusive character
of the franchise provided for by Section 47 would be illusory.
Moreover, this Court, in Philippine Airlines, Inc. v. Civil Aeronautics
Board,12 has construed the term "franchise" broadly so as to include, not
only authorizations issuing directly from Congress in the form of statute,
but also those granted by administrative agencies to which the power to
grant franchises has been delegated by Congress, to wit:
Congress has granted certain administrative agencies the power to
grant licenses for, or to authorize the operation of certain public
utilities. With the growing complexity of modern life, the multiplication
of the subjects of governmental regulation, and the increased difficulty of
administering the laws, there is a constantly growing tendency towards
the delegation of greater powers by the legislature, and towards the
approval of the practice by the courts. It is generally recognized that a
franchise may be derived indirectly from the state through a duly
designated agency, and to this extent, the power to grant franchises
has frequently been delegated, even to agencies other than those of a
legislative nature. In pursuance of this, it has been held that
privileges conferred by grant by local authorities as agents for the
state constitute as much a legislative franchise as though the grant
had been made by an act of the Legislature.13
That the legislative authority - in this instance, then President Marcos14 -
intended to delegate its power to issue franchises in the case of water
districts is clear from the fact that, pursuant to the procedure outlined in
P.D. 198, it no longer plays a direct role in authorizing the formation and
maintenance of water districts, it having vested the same to local
legislative bodies and the Local Water Utilities Administration (LWUA).
Sections 6 and 7 of P.D. 198, as amended, state:
SECTION 6. Formation of District. - This Act is the source
of authorization and power to form and maintain a district. Once
formed, a district is subject to the provisions of this Act and not under the
jurisdiction of any political subdivision. For purposes of this Act, a
district shall be considered as a quasi-public corporation performing
public service and supplying public wants. As such, a district shall
exercise the powers, rights and privileges given to private corporations
under existing laws, in addition to the powers granted in, and subject to
such restrictions imposed, under this Act. To form a district, the
legislative body of any city, municipality or province shall enact a
resolution containing the following:
(a) The name of the local water district, which shall include the name of
the city, municipality, or province, or region thereof, served by said
system, followed by the words "Water District".
38
(b) A description of the boundary of the district. In the case of a city or
municipality, such boundary may include all lands within the city or
municipality. A district may include one or more municipalities, cities or
provinces, or portions thereof: Provided, That such municipalities, cities
or provinces, or portions thereof, cover a contiguous area.
(c) A statement completely transferring any and all waterworks and/or
sewerage facilities managed, operated by or under the control of such
city, municipality or province to such district upon the filing of resolution
forming the district.
(d) A statement identifying the purpose for which the district is formed,
which shall include those purposes outlined in Section 5 above.
(e) The names of the initial directors of the district with the date of
expiration of the term of office for each which shall be on the 31st of
December of first, second, or third even-numbered year after assuming
office, as set forth in Section 11 hereof.
(f) A statement that the district may only be dissolved on the grounds and
under the conditions set forth in Section 45 of this Title.
(g) A statement acknowledging the powers, rights and obligations as set
forth in Section 25 of this Title.
Nothing in the resolution of formation shall state or infer that the local
legislative body has the power to dissolve, alter or affect the district
beyond that specifically provided for in this Act.
If two or more cities, municipalities or provinces, or any combination
thereof, desire to form a single district, a similar resolution shall be
adopted in each city, municipality and province; or the city, municipality
or province in which 75% of the total active service connections are
situated shall pass an initial resolution to be concurred in by the other
cities, municipalities or provinces.
SECTION 7. Filing of Resolution. - A certified copy of the resolution
or resolutions forming a district shall be forwarded to the office of
the Secretary of Administration. If found by the Administration to
conform to the requirements of Section 6 and the policy objectives in
Section 2, the resolution shall be duly filed. The district shall be
deemed duly formed and existing upon the date of such filing. A
certified copy of said resolution showing the stamp of the Administration
shall be maintained in the office of the district. Upon such filing, the local
government or governments concerned shall lose ownership, supervision
and control or any right whatsoever over the district except as provided
herein. (Emphasis and underscoring supplied)cralawlibrary
It bears noting that once a district is "duly formed and existing" after
following the above procedure, it acquires the "exclusive franchise"
referred to in Section 47. Thus, P.D. 198 itself, in harmony
with Philippine Airlines, Inc. v. Civil Aeronautics Board,15 gives the
name "franchise" to an authorization that does not proceed directly from
the legislature.
It would thus be incongruous to adopt in this instance the strict
interpretation proffered by respondent and exclude from the scope of the
term "franchise" the CPCs issued by the NWRB.16
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 utilities by the
general public. The participation of foreign investors in the governing
body of any public utility enterprise shall be limited to their proportionate
share in the capital thereof. (Emphasis and underscoring
supplied)cralawlibrary
This provision has been substantially reproduced in Article XII Section
11 of the 1987 Constitution, including the prohibition against exclusive
franchises.17
In view of the purposes for which they are established,18 water districts
fall under the term "public utility" as defined in the case of National
Power Corporation v. Court of Appeals:19 ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
A "public utility" is a business or service engaged in
regularly supplying the public with some commodity or service of public
consequence such as electricity, gas, water, transportation, telephone or
telegraph service. x x x (Emphasis and underscoring
supplied)cralawlibrary
It bears noting, moreover, that as early as 1933, the Court held that a
particular water district - the Metropolitan Water District - is a public
utility.20
The ruling in National Waterworks and Sewerage Authority v. NWSA
Consolidated Unions21 is also instructive:
We agree with petitioner that the NAWASA is a public utility because its
primary function is to construct, maintain and operate water
reservoirs and waterworks for the purpose of supplying
water to the inhabitants, as well as consolidate and centralize all water
supplies and drainage systems in the Philippines. x x x (Emphasis
supplied)cralawlibrary
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,22 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. The Petition
is thus, in light of the foregoing discussions, DISMISSED.
SO ORDERED.
G.R. No. L-68729 May 29, 1987
RADIO COMMUNICATIONS OF THE PHILIPPINES,
INC., petitioner, 
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION and
KAYUMANGGI RADIO NETWORK
INCORPORATED, respondents. 
GUTIERREZ, JR, J.: 
This petition seeks the reversal of the decision of the National
Telecommunications Commission (NTC) which ordered petitioner Radio
Communications of the Philippines, Incorporated (RCPI) to desist from
operating its radio telephone services in Catarman, Northern Samar; San
Jose, Occidental Mindoro; and Sorsogon, Sorsogon. 
Petitioner has been operating a radio communications system since 1957
under its legislative franchise granted by Republic Act No. 2036 which
was enacted on June 23, 1957. 
In 1968, the petitioner established a radio telegraph service in Sorsogon,
Sorsogon. In 1971, another radio telegraph service was put up in San
Jose, Mindoro followed by another in Catarman, Samar in 1976. The
installation of radio telephone services started in 1971 in San Jose,
Mindoro; then in Sorsogon, Sorsogon and Catarman, Samar in 1983. 
In a decision dated June 24, 1980 in NTC Case No. 80-08, private
respondent Kayumanggi Radio Network Incorporated was authorized by
the public respondent to operate radio communications systems in
Catarman, Samar and in San Jose, Mindoro. 
On December 14, 1983, the private respondent filed a complaint with the
NTC alleging that the petitioner was operating in Catarman, Samar and in
San Jose, Mindoro without a certificate of public covenience and
necessity. The petitioner, on the other hand, counter-alleged that its
39
telephone services in the places subject of the complaint are covered by radio and television broadcasting system and other similar public
the legislative franchise recognized by both the public respondent and its utilities; 
predecessor, the Public Service Commission. In its supplemental reply,
the petitioner further stated that it has been in operation in the questioned
b. Establish, prescribe and regulate areas of operation of particular
places long before private respondent Kayumanggi filed its application to operators of public service communications; and determine and
operate in the same places. 
prescribe charges or rates pertinent to the operation of such public
utility facilities and services except in cases where charges or rates
After conducting a hearing, NTC, in its decision dated August 22, 1984 are established by international bodies or associations of which the
ordered petitioner RCPI to immediately cease or desist from the operation Philippines is a participating member or by bodies recognized by the
of its radio telephone services in Catarman Northern Samar; San Jose, Philippine Government as the proper arbiter of such charges or rates; 
Occidental Mindoro; and Sorsogon, Sorsogon stating that under
Executive Order No. 546, a certificate of public convenience and c. Grant permits for the use of radio frequencies for wireless
necessity is mandatory for the operation of communication utilities and
telephone and telegraph systems and radio communication systems
services including radio communications.  including amateur radio stations and radio and television
broadcasting systems; 
On September 4, 1984, the petitioner filed a motion for reconsideration
which was denied in an order dated September 12, 1984.  d. Sub-allocate series of frequencies of bands allocated by the
International Telecommunications Union to the specific services; 
On October 1, 1984, the present petition was filed raising the issue of
whether or not petitioner RCPI, a grantee of a legislative franchise to e. Establish and prescribe rules, regulations, standards, specifications
operate a radio company, is required to secure a certificate of public
in all cases related to the issued Certificate of Public Convenience
convenience and necessity before it can validly operate its radio stations and administer and enforce the same; 
including radio telephone services in Catarman, Northern Samar; San
Jose, Occidental Mindoro; and Sorsogon, Sorsogon. 
f. Coordinate and cooperate with government agencies and other
entities concerned with any aspect involving communications with a
The petitioner's main argument states that the abolition of the Public
view to continuously improve the communications service in the
Service Commission under Presidential Decree No. 1 and the creation of country; 
the National Telecommunications Commission under Executive Order
No. 546 to replace the defunct Public Service Commission did not affect
sections 14 and 15 of the Public Service Law (Commonwealth Act. No. g. Promulgate such rules and regulations, as public safety and interest
146, as amended).  may require, to encourage a larger and more effective use of
communications, radio and television broadcasting facilities, and to
maintain effective competition among private entities in these
The provisions of the Public Service Law pertinent to the petitioner's
activities whenever the Commission finds it reasonably feasible; 
allegation are as follows: 

h. Supervise and inspect the operation of radio stations and

Section 13. (a) the Commission shall have jurisdiction, supervision,
telecommunications facilities; 
and control over all public services and their franchises, equipment
and other properties, and in the exercise of its authority, it shall have
the necessary powers and the aid of public force: ...  i. Undertake the examination and licensing of radio operators; 

Section 14. The following are exempted from the provisions of the j. Undertake, whenever necessary, the registration of radio
preceding section:  transmitters and transceivers; and 

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

(d) Radio companies except with respect to the fixing of rates;  It is clear from the aforequoted provision that the exemption enjoyed by
xxx xxx xxx
Section 15. With the exception of those enumerated in the preceding
section, no public service shall operate in the Philippines without
possessing a valid and subsisting certificate from the Public Service
Commission, known as "certificate of public convenience," or
"certificate of convenience and public necessity," as the case may be,
to the effect that the operation of said service and the authorization to
do business will promote the public interests in a proper and suitable
manner. ... 
We find no merit in the petitioner's contention.  to regulation by the state itself by virtue of its police power through its
Pursuant to Presidential Decree No. 1 dated September 23,1972,
reorganizing the executive branch of the National Government, the Public
Service Commission was abolished and its functions were transferred to
three specialized regulatory boards, as follows: the Board of
Transportation, the Board of Communications and the Board of Power
and Waterworks. The functions so transferred were still subject to the
limitations provided in sections 14 and 15 of the Public Service Law, as
amended. With the enactment of Executive Order No. 546 on July 23,
1979 implementing P.D. No.1, the Board of Communications and the
Telecommunications Control Bureau were abolished and their functions
were transferred to the National Telecommunications Commission (Sec.
19(d), Executive Order No. 546). Section 15 of said Executive Order
spells out the functions of the National Telecommunications Commission
as follows: 
Sec. 15. Functions of the Commission.-The Commission shall
exercise the following functions: 
radio companies from the jurisdiction of the Public Service Commission
and the Board of Communications no longer exists because of the
changes effected by the Reorganization Law and implementing executive
orders. The petitioner's claim that its franchise cannot be affected by
Executive Order No. 546 on the ground that it has long been in operation
since 1957 cannot be sustained. 
A franchise started out as a "royal privilege or (a) branch of the King's
prerogative, subsisting in the hands of a subject." This definition was
given by Finch, adopted by Blackstone, and accepted by every authority
since (State v. Twin Village Water Co., 98 Me 214, 56 A 763 (1903)).
Today, a franchise, being merely a privilege emanating from the
sovereign power of the state and owing its existence to a grant, is subject
administrative agencies. We ruled in Pangasinan transportation Co., Inc.
v. Public Service Commission (70 Phil. 221) that: 
... statutes enacted for the regulation of public utilities, being a proper
exercise by the State of its police power, are applicable not only to
those public utilities coming into existence after its passage, but
likewise to those already established and in operation ...
Executive Order No. 546, being an implementing measure of P.D. No. I
insofar as it amends the Public Service Law (CA No. 146, as amended) is
applicable to the petitioner who must be bound by its provisions. The
petitioner cannot install and operate radio telephone services on the basis
of its legislative franchise alone. 
The position of the petitioner that by the mere grant of its franchise under
RA No. 2036 it can operate a radio communications system anywhere
within the Philippines is erroneous. Section 1 of said statute reads: 

Section 1. Subject to the provisions of the Constitution, and to the

a. Issue Certificate of Public Convenience for the operation of
communications utilities and services, radio communications
petitions systems, wire or wireless telephone or telegraph system,
provisions, not inconsistent herewith, of Act Numbered Three
thousand eight hundred and forty-six, entitled.' An Act providing for
40
 the regulation of radio stations and radio communications in the
Philippine Islands, and for other purposes;' Commonwealth Act
Numbered One hundred forty-six, known as the Public Service Act,
and their amendments, and other applicable laws, there is hereby
granted to the Radio Communications of the Philippines, its
successors or assigns, the right and privilege of constructing,
installing, establishing and operating in the Philippines, at such
places as the said corporation may select and the Secretary of Public
Works and Communications may approve,  radio stations for the
reception and transmission of wireless messages on radiotelegraphy
and/or radiotelephone, including both coastal and marine
telecommunications, each station to consist of two radio apparatus
comprising of a receiving and sending radio apparatus. (Emphasis
supplied). 
Section 4(a) of the same Act further provides that: 
Sec. 4(a). This franchise shall not take effect nor shall any powers
thereunder be exercised by the grantee until the Secretary of Public
works and Communications shall have allotted to the grantee the
frequencies and wave lengths to be used, and issued to the grantee a
license for such case. (Emphasis supplied) 
Thus, in the words of R.A. No. 2036 itself, approval of the then Secretary
of Public Works and Communications was a precondition before the
petitioner could put up radio stations in areas where it desires to operate.
It has been repeated time and again that where the statutory norm speaks
unequivocally, there is nothing for the courts to do except to apply it. The
law, leaving no doubt as to the scope of its operation, must be obeyed.
(Gonzaga v. Court of Appeals, 51 SCRA 381).  TOLL REGULATORY BOARD, MANILA NORTH TOLLWAYS
The records of the case do not show any grant of authority from the then
Secretary of Public Works and Communications before the petitioner
installed the questioned radio telephone services in San Jose, Mindoro in
1971. The same is true as regards the radio telephone services opened in
Sorsogon, Sorsogon and Catarman, Samar in 1983. No certificate of
public convenience and necessity appears to have been secured by the
petitioner from the public respondent when such certificate,was required
by the applicable public utility regulations (See executive Order No. 546,
sec. 15, supra.; Philippine Long Distance Telephone Co. v. City of
Davao, 15 SCRA 75; Olongapo Electric Light and Power Corp. v.
National Power Corporation, et al., G.R. No. L-24912, promulgated April
9, 1987.)  AMBAYEC],
It was well within the powers of the public respondent to authorize the
installation by the private respondent network of radio communications
systems in Catarman, Samar and San Jose, Mindoro. Under the
circumstances of this case, the mere fact that the petitioner possesses a
franchise to put up and operate a radio communications system in certain
areas is not an insuperable obstacle to the public respondent's issuing the
proper certificate to an applicant desiring to extend the same services to
those areas. The Constitution mandates that a franchise cannot be
exclusive in nature nor can a franchise be granted except that it must be
subject to amendment, alteration, or even repeal by the legislature when
the common good so requires. (Art. XII, sec. 11 of the 1986
Constitution). There is an express provision in the petitioner's franchise
which provides compliance with the above mandate R.A. 2036, sec. 15).  vs.
In view of the foregoing, we find no reason to disturb the public
respondent's findings of fact, and conclusions of law insofar as the private
respondent was authorized to operate in Catarman, Samar and San Jose,
Mindoro. As a rule, the Commission's findings of fact, if supported by
substantial evidence, are conclusive upon this Court. We may modify or
ignore them only when it clearly appears that there is no evidence to
support reasonably such a conclusion. (Halili v. Daplas, 14 SCRA 14).
The petitioner has not shown why the private respondent should be
denied the authority to operate its services in Samar and Mindoro. It has
not overcome the presumption that when the public respondent disturbed
the petitioner's monopoly in certain areas, it was doing so pursuant to
public interest and the common good.  the major tollway systems in Luzon. The petitions likewise seek to
WHEREFORE, the challenged order of the public respondent dated
August 22, 1984 is hereby AFFIRMED. The petition is dismissed for lack
of merit.  45, seeks to annul and set aside the decision dated June 23, 2008 of the
SO ORDERED.  the original toll operating franchisee from collecting toll fees in the
G.R. No. 166910               October 19, 2010
ERNESTO B. FRANCISCO, JR. and JOSE MA. O.
HIZON, Petitioners, 
vs.
TOLL REGULATORY BOARD, PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION, MANILA NORTH
TOLLWAYS CORPORATION, BENPRES HOLDINGS
CORPORATION, FIRST PHILIPPINE INFRASTRUCTURE
DEVELOPMENT CORPORATION, TOLLWAY MANAGEMENT
CORPORATION, PNCC SKYWAY CORPORATION, CITRA
METRO MANILA TOLLWAYS CORPORATION and
HOPEWELL CROWN INFRASTRUCTURE, INC., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 169917
HON. IMEE R. MARCOS, RONALDO B. ZAMORA,
CONSUMERS UNION OF THE PHILIPPINES, INC., QUIRINO A.
MARQUINEZ, HON. LUIS A. ASISTIO, HON. ERICO BASILIO
A. FABIAN, HON. RENATO "KA RENE" B. MAGTUBO, HON.
RODOLFO G. PLAZA, HON. ANTONIO M. SERAPIO, HON.
EMMANUEL JOEL J. VILLANUEVA, HON. ANIBAN NG MGA
MANGGAGAWA SA AGRIKULTURA (AMA), INC., ANIBAN NG
MGA MAGSASAKA, MANGINGISDA AT MANGGAGAWA SA
AGRIKULTURA-KATIPUNAN, INC., KAISAHAN NG MGA
MAGSASAKA SA AGRIKULTURA, INC., KILUSAN NG
MANGAGAWANG MAKABAYAN, Petitioners, 
vs.
The REPUBLIC OF THE PHILIPPINES, acting by and through the
CORPORATION, PHILIPPINE NATIONAL CONSTRUCTION
CORPORATION, and FIRST PHILIPPINE INFRASTRUCTURE
DEVELOPMENT CORP., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 173630
GISING KABATAAN MOVEMENT, INC., BARANGAY
COUNCIL OF SAN ANTONIO, MUNICIPALITY OF SAN
PEDRO, LAGUNA [as Represented by COUNCILOR CARLON G.
and YOUNG PROFESSIONALS AND
ENTREPRENEURS OF SAN PEDRO, LAGUNA Petitioners, 
vs.
THE REPUBLIC OF THE PHILIPPINES, acting through the TOLL
REGULATORY BOARD (TRB), PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION (PNCC), Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 183599
THE REPUBLIC OF THE PHILIPPINES, represented by the TOLL
REGULATORY BOARD, Petitioner, 
YOUNG PROFESSIONALS AND ENTREPRENEURS OF SAN
PEDRO, LAGUNA, Respondent.
DECISION
VELASCO, JR., J.:
Before us are four petitions; the first three are special civil actions under
Rule 65, assailing and seeking to nullify certain statutory provisions,
presidential actions and implementing orders, toll operation-related
contracts and issuances on the construction, maintenance and operation of
restrain and permanently prohibit the implementation of the allegedly
illegal toll fee rate hikes for the use of the North Luzon Expressway
("NLEX"), South Luzon Expressway ("SLEX") and the South Metro
Manila Skyway ("SMMS"). The fourth, a petition for review under Rule
Regional Trial Court ("RTC") of Pasig, in SCA No. 3138-PSG, enjoining
SLEX. 
By Resolution of March 20, 2007, the Court ordered the consolidation of
the first three petitions, docketed as G.R. Nos. 166910,
169917 and 173630, respectively. The fourth petition, G.R. No.
183599, would later be ordered consolidated with the earlier three
petitions. 
41
The Facts
The antecedent facts are as follows—
On March 31, 1977, then President Ferdinand E. Marcos issued
Presidential Decree No. ("P.D.") 1112, authorizing the establishment of
toll facilities on public improvements.1 This issuance, in its preamble,
explicitly acknowledged "the huge financial requirements" and the
necessity of tapping "the resources of the private sector" to implement the
government’s infrastructure programs. In order to attract private sector
involvement, P.D. 1112 allowed "the collection of toll fees for the use of
certain public improvements that would allow a reasonable rate of return
on investments." The same decree created the Toll Regulatory Board
("TRB") and invested it under Section 3 (a) (d) and (e) with the power to
enter, for the Republic, into contracts for the construction, maintenance
and operation of tollways, grant authority to operate a toll facility, issue
therefor the necessary Toll Operation Certificate ("TOC") and fix initial
toll rates, and, from time to time, adjust the same after due notice and
hearing. 
On the same date, P.D. 1113 was issued, granting to the Philippine
National Construction Corporation ("PNCC"), then known as the
Construction and Development Corporation of the Philippines ("CDCP"),
for a period of thirty years from May 1977 – or up to May 2007 – a
franchise to construct, maintain and operate toll facilities in the North
Luzon and South Luzon Expressways, with the right to collect toll fees at
such rates as the TRB may fix and/or authorize. Particularly, Section 1 of
P.D. 1113 delineates the coverage of the expressways from Balintawak,
Caloocan City to Carmen, Rosales, Pangasinan and from Nichols, Pasay
City to Lucena, Quezon. And because the franchise is not self-executing,
as it was in fact made subject, under Section 3 of P.D. 1113, to "such
conditions as may be imposed by the Board in an appropriate contract to
be executed for such purpose," TRB and PNCC signed in October 1977, a
Toll Operation Agreement ("TOA") on the North Luzon and South Luzon
Tollways, providing for the detailed terms and conditions for the
construction, maintenance and operation of the expressway.2
On December 22, 1983, P.D. 1894 was issued therein further granting
PNCC a franchise over the Metro Manila Expressway ("MMEX"), and
the expanded and delineated NLEX and SLEX. Particularly, PNCC was
granted the "right, privilege and authority to construct, maintain and
operate any and all such extensions, linkages or stretches, together with
the toll facilities appurtenant thereto, from any part of the North Luzon
Expressway, South Luzon Expressway and/or Metro Manila Expressway
and/or to divert the original route and change the original end-points of
the North Luzon Expressway and/or South Luzon Expressway as may be
approved by the [TRB]."3 Under Section 2 of P.D. 1894, "the franchise
granted the [MMEX] and all extensions, linkages, stretches and
diversions after the approval of the decree that may be constructed after
the approval of this decree [on December 22, 1983] shall likewise have a
term of thirty (30) years, commencing from the date of completion of the
project."  the requisite technical and financial capabilities.
As expressly set out in P.D. 1113 and reiterated in P.D. 1894, PNCC may
sell or assign its franchise thereunder granted or cede the usufruct4 thereof
upon the President’s approval.5 This same provision on franchise transfer
and cession of usufruct is likewise found in P.D. 1112.6
Then came the 1987 Constitution with its franchise provision.7
In 1993, the Government Corporate Counsel ("GCC"), acting on PNCC’s
request, issued Opinion No. 224, s. 1993,8later affirmed by the Secretary
of Justice,9 holding that PNCC may, subject to certain clearance and
approval requirements, enter into a joint venture ("JV") agreement
("JVA") with private entities without going into public bidding in the
selection of its JV partners. PNCC’s query was evidently prompted by the
need to seek out alternative sources of financing for expanding and
improving existing expressways, and to link them to economic zones in
the north and to the CALABARZON area in the south.  completed phase or until December 31, 2030, whichever is earlier. The
MOU for the construction, rehabilitation 
and expansion of expressways
On February 8, 1994, the Department of Public Works and Highways
("DPWH"), TRB, PNCC, Benpres Holdings Corporation ("Benpres") and
First Philippine Holdings Corporation ("FPHC"), among other private
and government entities/agencies, executed a Memorandum of
Understanding ("MOU") envisaged to open the door for the entry of
private capital in the rehabilitation, expansion (to Subic and Clark) and
extension, as flagship projects, of the expressways north of Manila, over
which PNCC has a franchise. To carry out their undertakings under the
MOU, Benpres and FPHC formed, as their infrastructure holding arm, the
First Philippine Infrastructure and Development Corporation ("FPIDC").  The South Luzon Expressway Project (Nichols to Lucena City)
Consequent to the MOU execution, PNCC entered into financial and/or
technical JVAs with private entities/investors for the toll operation of its
franchised areas following what may be considered as a standard
pattern, viz.: (a) after a JVA is concluded and the usual government
approval of the assignment by PNCC of the usufruct in the franchise
under P.D. 1113, as amended, secured, a new JV company is specifically
formed to undertake a defined toll road project; (b) the Republic of the
Philippines, through the TRB, as grantor, PNCC, as operator, and the new
corporation, as investor/concessionaire, with its lender, as the case may
be, then execute a Supplemental Toll Operation Agreement ("STOA") to
implement the TOA previously issued; and (c) once the requisite STOA
approval is given, project prosecution starts and upon the completion of
the toll road project or of a divisible phase thereof, the TRB fixes or
approves the initial toll rate after which, it passes a board resolution
prescribing the periodic toll rate adjustment.
The STOA defines the scope of the road project coverage, the terminal
date of the concession, and includes provisions on initial toll rate and a
built-in formula for adjustment of toll rates, investment recovery clauses
and contract termination in the event of the concessionaire’s, PNCC’s or
TRB’s default, as the case may be. 
The following events or transactions, involving the personalities as
indicated, transpired with respect to the following projects:
The South Metro Manila Skyway (SMMS)
(Buendia – Bicutan elevated stretch) Project
PNCC entered into a JV partnership arrangement with P.T. Citra, an
Indonesian company, and created, for the SMMS project, the Citra Metro
Manila Tollways Corporation ("CMMTC"). 
On November 27, 1995, TRB, PNCC and CMMTC executed a STOA for
the SMMS project ("CITRA STOA"). And on April 7, 1996, then
President Fidel V. Ramos approved the CITRA STOA. 
Phase I of the SMMS project – the Bicutan to Buendia elevated
expressway stretch – was completed in December 1998, and the
consequent initial toll rates for its use implemented a month after. On
November 26, 2004, the TRB passed Resolution No. 2004-53, approving
the periodic toll rate adjustment for the SMMS.
The NLEX Expansion Project (Rehabilitated and Widened NLEX,
Subic Expressway, Circumferential Road C-5)
In reply to the query of the then TRB Chairman, the Department of
Justice ("DOJ") issued DOJ Opinion No. 79, s. of 1994, echoing an
earlier opinion of the GCC, that the TRB can implement the NLEX
expansion project through a JV scheme with private investors possessing
On May 16, 1995, then President Ramos approved the assignment of
PNCC’s usufructuary rights as franchise holder to a JV company to be
formed by PNCC and FPIDC. PNCC and FPIDC would later ink a JVA
for the rehabilitation and modernization of the NLEX – referred in certain
pleadings as the North Luzon Tollway project.10The Manila North
Tollways Corporation ("MNTC") was formed for the purpose.
On April 30, 1998, the Republic, through the TRB, PNCC and MNTC,
executed a STOA for the North Luzon Tollway project ("MNTC STOA")
in which MNTC was authorized, inter alia, to subcontract the operation
and maintenance of the project, provided that the majority of the
outstanding shares of the contractor shall be owned by MNTC. The
MNTC STOA covers three phases comprising of ten segments, including
the rehabilitated and widened NLEX, the Subic Expressway and the
circumferential Road C-5.11 The STOA is to be effective for thirty years,
reckoned from the issuance of the toll operation permit for the last
Office of the President ("OP") approved the STOA on June 15, 1998.
On August 2, 2000, pursuant to the MNTC STOA, the Tollways
Management Corporation ("TMC")—formerly known as the Manila
North Tollways Operation and Maintenance Corporation—was created to
undertake the operation and maintenance of the NLEX tollway facilities,
interchanges and related works. 
On January 27, 2005, the TRB issued Resolution No. 2005-04 approving
the initial authorized toll rates for the closed and flat toll systems
applicable to the new NLEX. 
42
For the SLEX expansion project, PNCC and Hopewell Holdings Limited
("HHL"), as JV partners, executed a Memorandum of Agreement
("MOA"),12 which eventually led to the formation of a JV company –
Hopewell Crown Infrastructure, Inc. ("HCII"), now MTD Manila
Expressways, Inc., ("MTDME"). And pursuant to the PNCC-MTDME
JVA, the South Luzon Tollway Corporation ("SLTC") and the Manila
Toll Expressway Systems, Inc. ("MATES") were incorporated to
undertake the financing, construction, operation and maintenance of the
resulting Project Toll Roads forming part of the SLEX. The toll road
projects are divisible toll sections or segments, each segment defined as
to its starting and end points and each with the corresponding distance
coverage. The proposed JVA, as later amended, between PNCC and
MTDME was approved by the OP on June 30, 2000.
Eventually, or on February 1, 2006, a STOA13 for the financing, design,
construction, lane expansion and maintenance of the Project Toll Roads
(PTR) of the rehabilitated and improved SLEX was executed by and
among the Republic, PNCC, SLTC, as investor, and MATES, as
operator. To be precise, the PTRs, under the STOA, comprise and
contemplated the full rehabilitation and/or roadway widening of the
following existing toll roads or facilities: PTR 1 – that portion of the
tollway commencing at the end of South MM Skyway to the Filinvest
exit at Alabang (1-242 km); PTR 2 – the tollway from Alabang to
Calamba, Laguna (27.28 km); PTR 3 – the tollway from Calamba to Sto.
Tomas, Batangas (7.6 km) and PTR 4 – the tollway from Sto. Tomas to
Lucena City (54.27 km).14
Under Clause 6.03 of the STOA, the Operator, after substantially
completing a TPR, shall file an application for a Toll Operation Permit
over the relevant completed TPR or segment, which shall include a
request for a review and approval by the TRB of the calculation of the
new current authorized toll rate.
G.R. No. 166910
Petitioners Francisco and Hizon, as taxpayers and expressway users, seek
to nullify the various STOAs adverted to above and the corresponding
TRB resolutions, i.e. Res. Nos. 2004-53 and 2005-04, fixing initial rates
and/or approving periodic toll rate adjustments therefor. To the
petitioners, the STOAs and the toll rate-fixing resolutions violate the
Constitution in that they veritably impose on the public the burden of
financing tollways by way of exorbitant fees and thus depriving the
public of property without due process. These STOAs are also alleged to
be infirm as they effectively awarded purported "build-operate-transfer"
("BOT") projects without public bidding in violation of the BOT Law
(R.A. 6957, as amended by R.A. 7718).
Petitioners likewise assail the constitutionality of Sections 3 (a) and (d) of
P.D. 1112 in relation to Section 8 (b) of P.D. 1894 insofar as they vested
the TRB, on one hand, toll operation awarding power while, on the other
hand, granting it also the power to issue, modify and promulgate toll rate
charges. The TRB, so petitioners bemoan, cannot be an awarding party of
a TOA and, at the same time, be the regulator of the tollway industry and
an adjudicator of rate exactions disputes.  PNCC’s franchise which expired on May 1, 2007.
Additionally, petitioners also seek to nullify certain provisions of P.D.
1113 and P.D. 1894, which uniformly grant the President the power to
approve the transfer or assignment of usufruct or the rights and privileges
thereunder by the tollway operator to third parties, particularly the
transfer effected by PNCC to MNTC. As argued, the authority to approve
partakes of an exercise of legislative power under Article VI, Section 1 of
the Constitution.15
In the meantime, or on April 8, 2010, the TRB issued a Certificate of
Substantial Completion16 with respect to PTR 1 (Alabang-Filinvest
stretch) and PTR 2 (Alabang-Calamba segments) of SLEX, signifying the
completion of the full rehabilitation/expansion of both segments and the
linkages/interchanges in between pursuant to the requirements of the
corresponding STOA. TRB on even date issued a Toll Operation Permit
in favor of MATES over said PTRs 1 and 2.17 Accordingly, upon due
application, the TRB approved the publication of the toll rate matrix for
PTRs 1 and 2, the rate to take effect on June 30, 2010.18 The
implementation of the published rate would, however, be postponed to
August 2010.
On July 5, 2010, petitioner Francisco filed a Supplemental Petition with
prayer for the issuance of a temporary restraining order ("TRO")
and/or status quo order focused on the impending collection of what was
perceived to be toll rate increases in the SLEX. The assailed adjustments
were made public in a TRB notice of toll rate increases for the SLEX
from Alabang to Calamba on June 6, 2010, and were supposed to have
been implemented on June 30, 2010. On August 13, 2010, the Court
granted the desired TRO, enjoining the respondents in the consolidated
cases from implementing the toll rate increases in the SLEX.
In their Consolidated Comment/Opposition to the Supplemental Petition,
respondents SLTC et al., aver that the disputed rates are actually initial
and opening rates, not an increase or adjustment of the prevailing rate, for
the new expanded and rehabilitated SLEX. In fine, the new toll rates are,
per SLTC, for a new and upgraded facility, i.e. the aforementioned
Project Toll Roads 1 and 2 put up pursuant to the 2006 Republic-PNCC-
SLTC-MATES STOA adverted to. 
G.R. No. 169917
While they raise, for the most part, the same issues articulated in G.R.
No. 166910, such as the public bidding requirement, the power of the
President to approve the assignment of PNCC’s usufructuary rights to
cover (as petitioners Imee R. Marcos, et al., would stress) even the
assignment of the expressway from Balintawak to Tabang, the virtual
amendment and extension of a statutory franchise by way of
administrative action (e.g., the execution of a STOA or issuance of a
TOC), petitioners in G.R. No. 169917 – some of them then and still are
members of the House of Representatives – have, as their main focus, the
North Luzon Tollway project and the agreements and devices entered in
relation therewith. 
Petitioners also assail the MNTC STOA on the ground that it granted the
lenders (Asian Development Bank/World Bank) of MNTC, as project
concessionaire, the unrestricted rights to appoint a substitute entity to
replace MNTC in case of an MNTC Default before prepayment of the
loans, while also granting said lenders, in appropriate cases, the option to
extend the "concession or franchise" for a period not exceeding fifty
years coinciding with the full payment of the loans.
G.R. No. 173630
Apart from those taken up in the other petitions for certiorari and
prohibition, petitioners, in G.R. No. 173630, whose members and
constituents allegedly traverse SLEX daily, aver that TRB ought to have
applied the provisions of R.A. 6957 [BOT Law] and R.A. 9184
[Government Procurement Reform Act], which require public bidding for
the prosecution of the SLEX project.
G.R. No. 183599
Civil Case – SCA No. 3138-PSG before the RTC
On September 14, 2007, the Young Professionals and Entrepreneurs of
San Pedro, Laguna ("YPES"), one of the petitioners in G.R. No. 173630,
filed before the RTC, Branch 155, in Pasig City, a special civil action for
certiorari, etc., against the TRB, docketed as SCA No. 3138-PSG,
containing practically identical issues raised in G.R. No. 173630. Like its
petition in G.R. No. 173630, YPES, before the RTC, assailed and sought
to nullify the April 27, 2007 TOC, which TRB issued to PNCC inasmuch
as the TOC worked to extend PNCC’s tollway operation franchise for the
SLEX. As YPES argued, only the Congress can extend the term of
 
Ruling of the RTC in SCA No. 3138-PSG
By Decision19 dated June 23, 2008, the RTC, for the main stated reason
that the authority to grant or renew franchises belongs only to Congress,
granted YPES’ petition, disposing as follows:
ACCORDINGLY, the instant Petition for Certiorari, Prohibition and
Mandamus is hereby GRANTED and the questioned Toll Operation
Certificate (TOC) covering the [SLEX] issued by respondent TRB in
April, 2007, is hereby ordered ANNULLED and SET ASIDE.
FURTHER, respondent PNCC is hereby immediately PROHIBITED
from collecting toll fess along the SLEX facilities as it no longer has the
power and authority to do so.
FINALLY, as mandated under Section 9 of PD No. 1113, respondent
PNCC is hereby COMMANDED to turn over without further delay the
physical assets and facilities of the SLEX including improvements
thereon, together with the equipment and appurtenances directly related
to their operations, without any cost, to the Government through the Toll
Regulatory Board x x x.20
Thus, the instant petition for review on certiorari under Rule 45, filed by
the TRB on pure questions of law, docketed as G.R. No. 183599.
In their separate comments, public and private respondents uniformly
seek the dismissal of the three special civil actions on the threshold issue
43
of the absence of a justiciable case and lack of locus standi on the part of
the petitioners therein.  Other grounds raised range from the impropriety
of certiorari to nullify toll operation agreements; the inapplicability of the
public bidding rules in the selection by PNCC of its JV partners and the
authority of the President to approve TOAs and the transfer of
usufructuary rights. PNCC argues, in esse, that its continuous toll
operations did not constitute an extension of its franchise, its authority to
operate after the expiry date thereof in May 2007 being based on the valid
authority of TRB to issue TOC.  also laid on the doorstep of the TRB for its act of entering into these same
The Issues
The principal consolidated but interrelated issues tendered before the
Court, most of which with constitutional undertones, may be reduced into
six (6) and formulated in the following wise: first, whether or not an
actual case or controversy exists and, relevantly, whether petitioners in
the first three petitions have locus standi; second, whether the TRB is
vested with the power and authority to grant what amounts to a franchise
over tollway facilities; third, corollary to the second, whether the TRB
can enter into TOAs and, at the same time, promulgate toll rates and rule
on petitions for toll rate adjustments; fourth, whether the President is duly
authorized to approve contracts, inclusive of assignment of contracts,
entered into by the TRB relative to tollway operations;  fifth, whether the
subject STOAs covering the NLEX, SLEX and SMMS and their
respective extensions, linkages, etc. are valid;  sixth, whether a public
bidding is required or mandatory for these tollway projects.
Expressly prayed, if not subsumed, in the first three petitions, is to
prohibit TRB and its concessionaires from collecting toll fees along the
Skyway and Luzon Tollways.
Preliminary Issues
Existence of an Actual Controversy, its Ripeness and
the Locus Standi to Sue
The power of judicial review can only be exercised in connection with a
bona fide controversy involving a statute, its implementation or a
government action.21 Withal, courts will decline to pass upon
constitutional issues through advisory opinions, bereft as they are of
authority to resolve hypothetical or moot questions.22 The limitation on
the power of judicial review to actual cases and controversies defines the
role assigned to the judiciary in a tripartite allocation of power, to assure
that the courts will not intrude into areas committed to the other branches
of government.23
In The Province of North Cotabato v. The Government of the Republic of
the Philippines Peace Panel on Ancestral Domain (GRP), the Court has
expounded anew on the concept of actual case or controversy and the
requirement of ripeness for judicial review, thus:
An actual case or controversy involves a conflict of legal rights, an
assertion of opposite legal claims, susceptible of judicial resolution as
distinguished from a hypothetical or abstract difference or dispute. There
must be a contrariety of legal rights x x x. The Court can decide the
constitutionality of an act x x x only when a proper case between
opposing parties is submitted for judicial determination.
Related to the requirement of an actual case or controversy is the
requirement of ripeness. A question is ripe for adjudication when the act
being challenged has had a direct adverse effect on the individual
challenging it. x x x [I]t is a prerequisite that something had then been
accomplished or performed by either branch before a court may come
into the picture, and the petitioner must allege the existence of an
immediate or threatened injury to itself as a result of the challenged
action. He must show that he has sustained or is immediately in danger of
sustaining some direct injury as a result of the act complained of.24
But even with the presence of an actual case or controversy, the Court
may refuse judicial review unless the constitutional question or the
assailed illegal government act is brought before it by a party who
possesses what in Latin is technically called locus standi or the standing
to challenge it.25 To have standing, one must establish that he has a
"personal and substantial interest in the case such that he has sustained, or
will sustain, direct injury as a result of its enforcement." 26 Particularly, he
must show that (1) he has suffered some actual or threatened injury as a
result of the allegedly illegal conduct of the government; (2) the injury is
fairly traceable to the challenged action; and (3) the injury is likely to be
redressed by a favorable action.27
Petitions for certiorari and prohibition are, as here, appropriate remedies
to raise constitutional issues and to review and/or prohibit or nullify,
when proper, acts of legislative and executive officials.28 The present
petitions allege that then President Ramos had exercised vis-à-vis an
assignment of franchise, a function legislative in character. As alleged,
too, the TRB, in the guise of entering into contracts or agreements with
PNCC and other juridical entities, virtually enlarged, modified to the core
and/or extended the statutory franchise of PNCC, thereby usurping a
legislative prerogative. The usurpation came in the form of executing the
assailed STOAs and the issuance of TOCs. Grave abuse of discretion is
contracts or agreements without the required public bidding mandated by
law, specifically the BOT Law (R.A. 6957, as amended) and the
Government Procurement Reform Act (R.A. 9184).
In fine, the certiorari petitions impute on then President Ramos and the
TRB, the commission of acts that translate inter alia into usurpation of
the congressional authority to grant franchises and violation of extant
statutes. The petitions make a prima facie case for certiorari and
prohibition; an actual case or controversy ripe for judicial review exists.
Verily, when an act of a branch of government is seriously alleged to
have infringed the Constitution, it becomes not only the right but in fact
the duty of the judiciary to settle the dispute. In doing so, the judiciary
merely defends the sanctity of its duties and powers under the
Constitution.29
In any case, the rule on standing is a matter of procedural technicality,
which may be relaxed when the subject in issue or the legal question to
be resolved is of transcendental importance to the public.30 Hence, even
absent any direct injury to the suitor, the Court can relax the application
of legal standing or altogether set it aside for non-traditional plaintiffs,
like ordinary citizens, when the public interest so requires.31 There is no
doubt that individual petitioners, Marcos, et al., in G.R. No. 169917, as
then members of the House of Representatives, possess the requisite legal
standing since they assail acts of the executive they perceive to injure the
institution of Congress. On the other hand, petitioners Francisco, Hizon,
and the other petitioning associations, as taxpayers and/or mere users of
the tollways or representatives of such users, would ordinarily not be
clothed with the requisite standing. While this is so, the Court is wont to
presently relax the rule on locus standi owing primarily to the
transcendental importance and the paramount public interest involved in
the implementation of the laws on the Luzon tollways, a roadway
complex used daily by hundreds of thousands of motorists. What we said
a century ago in Severino v. Governor General is just as apropos today:
When the relief is sought merely for the protection of private rights, x x x
[the relator’s] right must clearly appear. On the other hand, when the
question is one of public right and the object of the mandamus is to
procure the enforcement of a public duty, the people are regarded as
the real party in interest, and the relator at whose instigation the
proceedings are instituted need not show that he has any legal or
special interest in the result, it being sufficient to show that he is a
citizen and as such interested in the execution of the laws. 32 (Words in
bracket and emphasis added.)
Accordingly, We take cognizance of the present case on account of its
transcendental importance to the public.
Second Issue: TRB Empowered to Grant Authority to Operate
Toll Facility /System
It is abundantly clear that Sections 3 (a) and (e) of P.D. 1112 in relation
to Section 4 of P.D. 1894 have invested the TRB with sufficient power to
grant a qualified person or entity with authority to construct, maintain,
and operate a toll facility and to issue the corresponding toll operating
permit or TOC. 
Sections 3 (a) and (e) of P.D. 1112 and Section 4 of P.D. 1894 amply
provide the power to grant authority to operate toll facilities:
Section 3. Powers and Duties of the Board.  The Board shall have in
addition to its general powers of administration the following powers and
duties:
(a) Subject to the approval of the President of the Philippines, to enter
into contracts in behalf of the Republic of the Philippines with persons,
natural or juridical, for the construction, operation and maintenance of
toll facilities such as but not limited to national highways, roads, bridges,
and public thoroughfares. Said contract shall be open to citizens of the
Philippines and/or to corporations or associations qualified under the
Constitution and authorized by law to engage in toll operations;
xxxx
44
(e) To grant authority to operate a toll facility and to issue therefore the
necessary "Toll Operation Certificate" subject to such conditions as shall
be imposed by the Board including inter alia the following:
(1) That the Operator shall desist from collecting toll upon the
expiration of the Toll Operation Certificate.
(2) That the entire facility operated as a toll system including all
operation and maintenance equipment directly related thereto shall be
turned over to the government immediately upon the expiration of the
Toll Operation Certificate.
(3) That the toll operator shall not lease, transfer, grant the usufruct
of, sell or assign the rights or privileges acquired under the Toll
Operation Certificate to any person, firm, company, corporation or
other commercial or legal entity, nor merge with any other company
or corporation organized for the same purpose, without the prior
approval of the President of the Philippines. In the event of any valid
transfer of the Toll Operation Certificate, the Transferee shall be
subject to all the conditions, terms, restrictions and limitations of this
Decree as fully and completely and to the same extent as if the Toll
Operation Certificate has been granted to the same person, firm,
company, corporation or other commercial or legal entity.
(4) That in time of war, rebellion, public peril, emergency, calamity,
disaster or disturbance of peace and order, the President of the
Philippines may cause the total or partial closing of the toll facility or
order to take over thereof by the Government without prejudice to the
payment of just compensation. 
(5) That no guarantee, Certificate of Indebtedness, collateral,
securities, or bonds shall be issued by any government agency or
government-owned or controlled corporation on any financing
program of the toll operator in connection with his undertaking under
the Toll Operation Certificate.
(6) The Toll Operation Certificate may be amended, modified or
revoked whenever the public interest so requires.
(a) The Board shall promulgate rules and regulations governing
the procedures for the grant of Toll Certificates. The rights and
privileges of a grantee under a Toll Operation Certificate shall be
defined by the Board.
(b) To issue rules and regulations to carry out the purposes of this
Decree.
SECTION 4. The Toll Regulatory Board is hereby given jurisdiction and
supervision over the GRANTEE with respect to the Expressways, the toll
facilities necessarily appurtenant thereto and, subject to the provisions of
Section 8 and 9 hereof, the toll that the GRANTEE will charge the users
thereof.
By explicit provision of law, the TRB was given the power to grant
administrative franchise for toll facility projects.
The concerned petitioners would argue, however, that PNCC’s [then
CDCP’s] franchise, as toll operator, was granted via P.D. 1113, on the
same day P.D. 1112, creating the TRB, was issued. It is thus pointed out
that P.D. 1112 could not have plausibly granted the TRB with the power
and jurisdiction to issue a similar franchise. Pushing the point, they
maintain that only Congress has, under the 1987 Constitution, the
exclusive prerogative to grant franchise to operate public utilities.
We are unable to agree with petitioners’ stance and their undue reliance
on Article XII, Section 11 of the Constitution, which states that:
SEC. 11. 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. Neither shall
any such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by the Congress when
the common good so requires x x x.  by the courts. It is generally recognized that a franchise may be derived
The limiting thrust of the foregoing constitutional provision on the grant
of franchise or other forms of authorization to operate public utilities
may, in context, be stated as follows: (a) the grant shall be made only in
favor of qualified Filipino citizens or corporations; (b) Congress can
impair the obligation of franchises, as contracts; and (c) no such
authorization shall be exclusive or exceed fifty years.
A franchise is basically a legislative grant of a special privilege to a
person.33 Particularly, the term, franchise, "includes not only
authorizations issuing directly from Congress in the form of statute, but
also those granted by administrative agencies to which the power to grant
franchise has been delegated by Congress."34 The power to authorize and
control a public utility is admittedly a prerogative that stems from the
Legislature. Any suggestion, however, that only Congress has the
authority to grant a public utility franchise is less than accurate. As
stressed in Albano v. Reyes—a case decided under the aegis of the 1987
Constitution—there is nothing in the Constitution remotely indicating the
necessity of a congressional franchise before "each and every public
utility may operate," thus: 
That the Constitution provides x x x that the issuance of a franchise,
certificate or other form of authorization for the operation of a public
utility shall be subject to amendment, alteration or repeal by Congress
does not necessarily imply x x x that only Congress has the power to
grant such authorization. Our statute books are replete with laws granting
specified agencies in the Executive Branch the power to issue such
authorization for certain classes of public utilities.35 (Emphasis ours.)
In such a case, therefore, a special franchise directly emanating from
Congress is not necessary if the law already specifically authorizes an
administrative body to grant a franchise or to award a contract.36 This is
the same view espoused by the Secretary of Justice in his opinion dated
January 9, 2006, when he stated:
That the administrative agencies may be vested with the authority to grant
administrative franchises or concessions over the operation of public
utilities under their respective jurisdiction and regulation, without need of
the grant of a separate legislative franchise, has been upheld by the
Supreme Court x x x.37
Under the 1987 Constitution, Congress has an explicit authority to grant a
public utility franchise. However, it may validly delegate its legislative
authority, under the power of subordinate legislation,38 to issue franchises
of certain public utilities to some administrative agencies. In Kilusang
Mayo Uno Labor Center v. Garcia, Jr., We explained the reason for the
validity of subordinate legislation, thus:
Such delegation of legislative power to an administrative agency is
permitted in order to adapt to the increasing complexity of modern life.
As subjects for governmental regulation multiply, so does the difficulty
of administering the laws. Hence, specialization even in legislation has
become necessary.39 (Emphasis ours.)
As aptly pointed out by the TRB and other private respondents, the Land
Transportation Franchising and Regulatory Board ("LTFRB"), the Civil
Aeronautics Board ("CAB"), the National Telecommunications
Commission ("NTC"), and the Philippine Ports Authority ("PPA"), to
name a few, have been such delegates. The TRB may very well be added
to the growing list, having been statutorily endowed, as earlier indicated,
the power to grant to qualified persons, authority to construct road
projects and operate thereon toll facilities. Such grant, as evidenced by
the corresponding TOC or set out in a TOA, "may be amended, modified,
or revoked [by the TRB] whenever the public interest so requires."40
In Philippine Airlines, Inc. v. Civil Aeronautics Board,41 the Court
reiterated its holding in Albano that the CAB, like the PPA, has sufficient
statutory powers under R.A. 776 to issue a Certificate of Public
Convenience and Necessity, or Temporary Operating Permit to a
domestic air transport operator who, although not possessing a legislative
franchise, meets all the other requirements prescribed by law. We held
therein that "there is nothing in the law nor in the Constitution which
indicates that a legislative franchise is an indispensable requirement for
an entity to operate as a domestic air transport operator."42 We further
explicated:
Congress has granted certain administrative agencies the power to grant
licenses for, or to authorize the operation of certain public utilities. With
the growing complexity of modern life, the multiplication of the subjects
of governmental regulation, and the increased difficulty of administering
the laws, there is a constantly growing tendency towards the delegation of
greater powers by the legislature, and towards the approval of the practice
indirectly from the state through a duly designated agency, and to this
extent, even the power to grant franchises has frequently been delegated,
even to agencies other than those of a legislative nature. In pursuance of
this, it has been held that privileges conferred by grant by local
authorities as agents for the state constitute as much a legislative
45
franchise as though the grant had been made by an act of the
Legislature.43 (Emphasis ours.)
The validity of the delegation by Congress of its franchising prerogative
is beyond cavil. So it was that in Tatad v. Secretary of the Department of
Energy,44 We again ruled that the delegation of legislative power to
administrative agencies is valid. In the instant case, the certiorari
petitioners assume and harp on the lack of authority of PNCC to continue
with its NLEX, SLEX, MMEX operations, in joint venture with private
investors, after the lapse of its P.D. 1113 franchise. None of these
petitioners seemed to have taken due stock of and appreciated the valid
delegation of the appropriate power to TRB under P.D. 1112, as enlarged
in P.D. 1894. To be sure, a franchise may be derived indirectly from the
state through a duly designated agency, and to this extent, the power to
grant franchises has frequently been delegated, even to agencies other
than those of a legislative nature.45 Consequently, it has been held that
privileges conferred by grant by administrative agencies as agents for the
state constitute as much a legislative franchise as though the grant had
been made by an act of the Legislature.46
While it may be, as held in Strategic Alliance Development Corporation
v. Radstock Securities Limited,47 that PNCC’s P.D. 1113 franchise had
already expired effective May 1, 2007, this fact of expiration did not,
however, carry with it the cancellation of PNCC’s authority and that of its
JV partners granted under P.D. 1112 in relation to Section 1 of P.D. 1894
to construct, operate and maintain "any and all such extensions, linkages
or stretches, together with the toll facilities appurtenant thereto, from any
part of the North Luzon Expressway, South Luzon Expressway and/or
Metro Manila Expressway and/or to divert the original route and change
the original end-points of the [NLEX]and/or [SLEX] as may be approved
by the [TRB]. And to highlight the point, the succeeding Section 2 of P.D.
1894 specifically provides that the franchise for the extension and toll
road projects constructed after the approval of P.D. 1894 shall be thirty
years, counted from project completion. Indeed, prior to the expiration of
PNCC’s original franchise in May 2007, the TRB, in the exercise of its
special powers under P.D. 1112, signed supplemental TOAs with PNCC
and its JV partners. These STOAs covered the expansion and
rehabilitation of NLEX and SLEX, as the case may be, and/or the
construction, operation and maintenance of toll road projects
contemplated in P.D.1894. And there can be no denying that the
corresponding toll operation permits have been issued.  were specifically and expressly defined by law, i.e. P.D. 1113, indicates
In fine, the STOAs48 TRB entered with PNCC and its JV partners had the
effect of granting authorities to construct, operate and maintain toll
facilities, but with the injection of additional private sector investments
consistent with the intent of P.D. Nos. 1112, 1113 and 1894.49 The
execution of these STOAs came in 1995, 1998 and 2006, or before the
expiration of PNCC’s original franchise on May 1, 2007. In accordance
with applicable laws, these transactions have actually been authorized
and approved by the President of the Philippines.50 And as a measure to
ensure the legality of the said transactions and in line with due diligence
requirements, a review thereof was secured from the GCC and the DOJ,
prior to their execution.  operate a toll facility or to issue a "[TOC]," such power does not
Inasmuch as its charter empowered the TRB to authorize the PNCC and
like entities to maintain and operate toll facilities, it may be stated as a
corollary that the TRB, subject to certain qualifications, infra, can alter
the conditions of such authorization. Well settled is the rule that a
legislative franchise cannot be modified or amended by an administrative
body with general delegated powers to grant authorities or franchises.
However, in the instant case, the law granting a direct franchise to
PNCC51 evidently and specifically conferred upon the TRB the power to
impose conditions in an appropriate contract.52 And to reiterate, Section 3
of P.D. 1113 provides that "[t]his [PNCC] franchise is granted subject to
such conditions as may be imposed by the [TRB] in an appropriate
contract to be executed for this purpose, and with the understanding and
upon the condition that it shall be subject to amendment, alteration or
repeal when public interest so requires."53 A similarly worded proviso is
found in Section 6 of P.D. 1894. It is in this light that the TRB entered
into the subject STOAs in order to allow the infusion of additional
investments in the subject infrastructure projects. Prior to the expiration
of PNCC’s franchise on May 1, 2007, the STOAs merely imposed
additional conditionalities, or as aptly pointed out by SLTC et al.,
obviously having in mind par. 16.06 of its STOA with TRB,54 served as
supplement, to the existing TOA of PNCC with TRB. We have carefully
gone over the different STOAs and discovered that the tollway projects
covered thereby were all undertaken under the P.D. 1113 franchise of
PNCC. And it cannot be over-emphasized that the respective STOAs of
MNTC and SLTC each contain provisions addressing the eventual
expiration of PNCC’s P.D. 1113 franchise and authorizing, thru the
issuance by the TRB of a TOC, the implementation of a given toll project
even after May 1, 2007. Thus:
MNTC STOA
2.6 CONCESSION PERIOD. In order to sustain the financial viability
and integrity of the Project, GRANTOR [TRB] hereby grants MNTC the
CONCESSION for the PROJECT ROADS for a period commencing
upon the date that this [STOA] comes into effect under Clause 4.1 until
31 December 2030 or thirty years after the issuance of the corresponding
TOLL OPERATION PERMIT for the last completed phase….
Accordingly, unless the PNCC FRANCHISE is further extended beyond
its expiry on 01 May 2007, GRANTOR undertakes to issue the necessary
[TOC] for the rehabilitated and refurbished [NLEX] six months prior to
the expiry of the PNCC FRANCHISE on 01 May 2007…. 
SLTC STOA
2.03 Authority of Investor and Operator to Undertake the Project
(1) The GRANTOR [TRB] has determined that the Project Toll
Roads are within the existing SLEX and are thus covered by the
PNCC Franchise that is due to expire on May 1, 2007. PNCC has
committed to exert its best efforts to obtain an extension x x x It is
understood and agreed that in the event the PNCC Franchise is not
renewed beyond the said expiry date, this [STOA] and the
Concession granted x x x will stand in place of the PNCC Franchise
and serve as a new concession, or authority, pursuant to Section 3 (a)
of the TRB Charter, for the Investor to undertake the Project and for
the Operator to Operate and Maintain the Project Toll Roads
immediately upon the expiration of the PNCC Franchise, without
need of the execution x x x of any other document to effect the same. 
(2) x x x in the event it is subsequently decreed by competent
authority that the issuance by the Grantor of a [TOC] is necessary x x
x the Grantor shall x x x cause the TRB x x x to issue such [TOC] in
favor of the Operator, embodying the terms and conditions of this
Agreement. 
The foregoing notwithstanding, there are to be sure certain aspects in
PNCC’s legislative franchise beyond the altering reach of TRB. We refer
to the coverage area of the tollways and the expiry date of PNCC’s
original franchise, which is May 1, 2007, as expressly stated under
Sections 1 and 2 of P.D. 1894, respectively. The fact that these two items
an intention that any alteration, modification or repeal thereof should only
be done through the same medium. We said as much in Radstock, thus:
"[T]he term of the x x x franchise, ‘which is 30 years from 1 May
1977, shall remain the same,’ as expressly provided in the first sentence
of x x x Section 2 of P.D. 1894." 55 It is likewise worth noting what We
further held in that case:
The TRB does not have the power to give back to PNCC the toll assets
and facilities which were automatically turned over to the Government,
by operation of law, upon the expiration of the franchise of the PNCC on
1 May 2007. Whatever power the TRB may have to grant authority to
obviously include the authority to transfer back to PNCC ownership of
National Government assets, like the toll assets and facilities, which have
become National Government property upon the expiry of PNCC’s
franchise x x x.56 (Emphasis in the original.)
Verily, upon the expiration of PNCC’s legislative franchise on May 1,
2007, the new authorities to construct, maintain and operate the subject
tollways and toll facilities granted by the TRB pursuant to the validly
executed STOAs and TOCs, shall begin to operate and be treated as
administrative franchises or authorities. Pursuant to Section 3 (e) P.D.
1112, TRB possesses the power and duty, inter alia to:
x x x grant authority to operate a toll facility and to issue therefore the
necessary "Toll Operation Certificate" subject to such conditions as shall
be imposed by the [TRB] including inter alia x x x.
This is likewise consistent with the position of the Secretary of Justice in
Opinion No. 122 on November 24, 1995,57thus:
TRB has no authority to extend the legislative franchise of PNCC over
the existing NSLE (North and South Luzon Expressways). However,
TRB is not precluded under Section 3 (e) of P.D. No. 1112 (TRB
Charter) to grant PNCC and its joint venture partner the authority to
operate the existing toll facility of the NSLE and to issue therefore the
necessary "Toll Operation Certificate x x x.
It should be noted that the existing franchise of PNCC over the NSLE,
which will expire on May 1, 2007, gives it the "right, privilege and
authority to construct, maintain and operate" the NSLE. The Toll
Operation Certificate which TRB may issue to the PNCC and its joint
46
venture partner after the expiration of its franchise on May 1, 2007 is an
entirely new authorization, this time for the operation and maintenance of
the NSLE x x x. In other words, the right of PNCC and its joint venture
partner, after May 7, 2007 [sic] to operate and maintain the existing
NSLE will no longer be founded on its legislative franchise which is not
thereby extended, but on the new authorization to be granted by the TRB
pursuant to Section 3 (e), above quoted, of P.D. No. 1112. (Emphasis
ours.)
The same opinion was thereafter made by the Secretary of Justice on
January 9, 2006, in Opinion No. 1,58 stating that:
The existing franchise of PNCC over the NSLE, which will expire on
May 1, 2007, gives it the "right, privilege and authority to construct,
maintain and operate the NSLE." The Toll Operation Certificate which
the TRB may issue to the PNCC and its joint venture partner after the
expiration of its franchise on May 1, 2007 is an entirely new
authorization, this time for the operation and maintenance of the
NSLE…. [T]he right of PNCC and its joint venture partner, after May 1,
2007, to operate and maintain the existing NSLE will no longer be
founded on its legislative franchise which is not thereby extended, but on
the new authorization to be granted by the TRB pursuant to Section 3 (e)
of PD No. 1112.
It appears therefore, that the effect of the STOA is not to extend the
Franchise of PNCC, but rather, to grant a new Concession over the SLEX
Project and the OMCo., entities which are separate and distinct from
PNCC. While initially, the authority of SLTC and OMCo. to enter into
the STOA with the TRB and thereby become grantees of the Concession,
will stem from and be based on the JVA and the assignment by PNCC to
the OMCo. of the Usufruct in the Franchise, we submit that upon the
execution by SLTC and the TRB of the STOA, the right to the
Concession will emanate from the STOA itself and from the authority of
the TRB under Section 3 (a) of the TRB Charter. Such being the case, the
expiration of the Franchise on 1 May 2007, since such Concession is an
entirely new and distinct concession from the Franchise and is, as stated,
granted to entities other than PNCC.
Finally, with regards (sic) the authority of the TRB this Office in
Secretary of Justice Opinion No. 92, s. 2000, stated that:
"Suffice it to say that official acts of the President enjoy full faith and
confidence of the Government of the Republic of the Philippines which
he represents. Furthermore, considering that the queries raised herein
relates to the exercise by the TRB of its regulatory powers over toll road
project, the same falls squarely within the exclusive jurisdiction of TRB
pursuant to P.D. No. 1112. Consequently, it is, therefore, solely within
TRB’s prerogative and determination as to what rule shall govern and is
made applicable to a specific toll road project proposal."
The STOA is an explicit grant of the Concession by the Republic of the
Philippines, through the TRB pursuant to P.D. (No.) 1112 and as
approved by the President xxx. The foregoing grant is in full accord with
the provisions of P.D. (No.) 1112 which authorizes TRB to enter into
contracts on behalf of the Republic of the Philippines for the
construction, operation and maintenance of toll facilities. Such being the
case, we opine that no other legal requirement is necessary to make the
STOA effective of to confirm MNTC’s (In this case, SLTC and the
OMCO) rights and privileges granted therein." (Emphasis in the original.)
Considering, however, that all toll assets and facilities pertaining to
PNCC pursuant to its P.D. 1113 franchise are deemed to have already
been turned over to the National Government on May 1, 2007, 59 whatever
participation that PNCC may have in the new authorities to construct,
maintain and operate the subject tollways, shall be limited to doing the
same in trust for the National Government. In Radstock, the Court held
that "[w]ith the expiration of PNCC’s franchise, [its] assets and facilities
… were automatically turned over, by operation of law, to the
government at no cost."60 The Court went on further to state that the
Government’s ownership of PNCC’s toll assets inevitably resulted in its
owning too of the toll fees and the net income derived, after May 1, 2007,
from the toll assets and facilities.61 But as We have earlier discussed, the
tollways and toll facilities should remain functioning in accordance with
the validly executed STOAs and TOCs. However, PNCC’s assets and
facilities, or, in short, its very share/participation in the JVAs and the
STOAs, inclusive of its percentage share in the toll fees collected by the
JV companies currently operating the tollways shall likewise
automatically accrue to the Government.
In fine, petitioners’ claim about PNCC’s franchise being amenable to an
amendment only by an act of Congress, or, what practically amounts to
the same thing, that the TRB is without authority at all to modify the
terms and conditions of PNCC’s franchise, i.e. by amending its
TOA/TOC, has to be rejected. Their lament then that the TRB, through
the instrumentality of mere contracts and an administrative operating
certificate, or STOAs and TOC, to be precise, effectively, but invalidly
amended PNCC legislative franchise, are untenable. For, the bottom line
is, the TRB has, through the interplay of the pertinent provisions of P.D.
Nos. 1112, 1113 and 1894, the power to grant the authority to construct
and operate toll road projects and toll facilities by way of a TOA and the
corresponding TOC. What is otherwise a legislative power to grant or
renew a franchise is not usurped by the issuance by the TRB of a TOC.
But to emphasize, the case of the TRB is quite peculiarly unique as the
special law conferring the legislative franchise likewise vested the TRB
with the power to impose conditions on the franchise, albeit in a limited
sense, by excluding from the investiture the power to amend or modify
the stated lifetime of the franchise, its coverage and the ownership
arrangement of the toll assets following the expiration of the legislative
franchise.62
At this juncture, the Court wishes to express the observation that P.D.
Nos. 1112, 1113 and 1894, as couched and considered as a package, very
well endowed the TRB with extraordinary powers. For, subject to well-
defined limitations and approval requirements, the TRB can, by way of
STOAs, allow and authorize, as it has allowed and authorized, a
legislative franchisee, PNCC, to share its concession with another entity
or JV partners, the authorization effectively covering periods beyond
May 2007. However, this unpalatable reality, a leftover of the martial law
regime, presents issues on the merits and the wisdom of the economic
programs, which properly belong to the legislature or the executive to
address. The TRB is not precluded from granting PNCC and its joint
venture partners authority, through a TOC for a period following the term
of the proposed SMMS, with the said TOC serving as an entirely new
authorization upon the expiration of PNCC’s franchise on May 1, 2007.
In short, after May 1, 2007, the operation and maintenance of the NLEX
and the other subject tollways will no longer be founded on P.D. 1113 or
portions of P.D. 1894 (PNCC’s original franchise) but on an entirely new
authorization, i.e. a TOC, granted by the TRB pursuant to its statutory
authority under Sections 3 (a) and (e) of P.D. 1112. 
Likewise needing no extended belaboring, in the light of the foregoing
dispositions, is the untenable holding of the RTC in SCA No. 3138-PSG
that the TRB is without power to issue a TOC to PNCC, amend or renew
its authority over the SLEX tollways without separate legislative
enactment. And lest it be overlooked, the TRB may validly issue an
entirely new authorization to a JV company after the lapse of PNCC’s
franchise under P.D. 1113. Its thirty-year concession under P.D. 1894,
however, does not have the quality of definiteness as to its start, as by the
terms of the issuance, it commences and is to be counted "from the date
of approval of the project," the term project obviously referring to "Metro
Manila Expressways and all extensions, linkages, stretches and diversions
refurbishing and rehabilitation of the existing NLEX and SLEX
constructed after the approval of the decree in December 1983." The
suggestion, therefore, of the petitioners in G.R. No. 169917, citing a 1989
Court of Appeals ("CA") decision in CA-G.R. 13235 (Republic v.
Guerrero, et al.), that the Balintawak to Tabang portion of the
expressway no longer forms part of PNCC’s franchise and, therefore,
PNCC is without any right to assign the same to MNTC via a JVA, is
specious. Firstly, in its Decision63 in G.R. No. 89557, a certiorari
proceeding commenced by PNCC to nullify the CA decision adverted to,
the Court approved a compromise agreement, which referred to (1) the
PNCC’s authority to collect toll and maintenance fees; and (2) the
supervision, approval and control by the DPWH 64 of the construction of
additional facilities, on the questioned portion of the NLEX. 65 And still in
another Decision,66 the Court ruled that the Balintawak to Tabang stretch
was recognized as "part of the franchise of, or otherwise restored as toll
facilities to be operated by x x x PNCC."67 Once stamped with
judicial imprimatur, and unless amended, modified or revoked by the
parties, a compromise agreement becomes more than a mere binding
contract; as thus sanctioned, the agreement constitutes the court’s
determination of the controversy, enjoining the parties to faithfully
comply thereto.68 Verily, like any other judgment, it has the effect and
authority of res judicata.69
At any rate, the PNCC was likewise granted temporary or interim
authority by the TRB to operate the SLEX,70 to ensure the continued
development, operations and progress of the projects. We have ruled in
Oroport Cargohandling Services, Inc. v. Phividec Industrial Authority
that an administrative agency vested by law with the power to grant
franchises or authority to operate can validly grant the same in the interim
when it is necessary, temporary and beneficial to the public.71 The grant
by the TRB to PNCC as interim operator of the SLEX was certainly
intended to guarantee the continued operation of the said tollway facility,
and to ensure the want of any delay and inconvenience to the motoring
public.
47
All given, the cited CA holding is not a binding precedent. The time
limitation on PNCC’s franchise under either P.D. 1113 or P.D. 1894 does
not detract from or diminish the TRB’s delegated authority under P.D.
1112 to enter into separate toll concessions apart and distinct from
PNCC’s original legislative franchise.  amount shall be refunded to Expressways users who had paid said toll in
Third Issue: TRB’s Power to Enter into Contracts; Issue,
Modify And Promulgate Toll Rates; and to Rule on Petitions
Relative to Toll Rates Level and Increases Valid
The petitioners in the special civil actions cases would have the Court
declare as invalid (a) Section 3 (a) and (d) of P.D. 1112 (which accord
the TRB, on one hand, the power to enter into contracts for the
construction, and operation of toll facilities, while, on the other hand,
granting it the power to issue and promulgate toll rates) and (b) Section 8
(b) of P.D. 1894 (granting TRB adjudicatory jurisdiction over matters
involving toll rate movements). As submitted, granting the TRB the
power to award toll contracts is inconsistent with its quasi-judicial
function of adjudicating petitions for initial toll and periodic toll rate
adjustments. There cannot, so petitioners would postulate, be impartiality
in such a situation.
The assailed provisions of P.D. 1112 and P.D. 1894 read:
P.D. 1112
Section 3. Powers and Duties of the Board.  The Board shall have in
addition to its general powers of administration the following powers and
duties:
(a) Subject to the approval of the President of the Philippines, to enter
into contracts in behalf of the Republic of the Philippines with
persons, natural or juridical, for the construction, operation and
maintenance of toll facilities such as but not limited to national
highways, roads, bridges, and public thoroughfares. Said contract
shall be open to citizens of the Philippines and/or to corporations or
associations qualified under the Constitution and authorized by law to
engage in toll operations;
(d) Issue, modify and promulgate from time to time the rates of toll
that will be charged the direct users of toll facilities and upon notice
and hearing, to approve or disapprove petitions for the increase
thereof. Decisions of the Board on petitions for the increase of toll
rate shall be appealable to the Office of the President within ten (10)
days from the promulgation thereof. Such appeal shall not suspend
the imposition of the new rates, provided however, that pending the
resolution of the appeal, the petitioner for increased rates in such case
shall deposit in a trust fund such amounts as may be necessary to
reimburse toll payers affected in case a reversal of the decision.
(Emphasis ours.)
P.D. 1894
SECTION 8. x x x  hand, the power (a) to grant, modify or revoke an authority to operate
(b) For the Metro Manila Expressway and such extensions, linkages,
stretches and diversions of the Expressways which may henceforth be
constructed, maintained and operated by the GRANTEE, the GRANTEE
shall collect toll at such rates as shall initially be approved by the Toll
Regulatory Board. The Toll Regulatory Board shall have the authority to
approve such initial toll rates without the necessity of any notice and
hearing, except as provided in the immediately succeeding paragraph of
this Section. For such purpose, the GRANTEE shall submit for the
approval of the Toll Regulatory Board the toll proposed to be charged the
users. After approval of the toll rate(s) by the Toll Regulatory Board and
publication thereof by the GRANTEE once in a newspaper of general
circulation, the toll shall immediately be enforceable and collectible upon
opening of the expressway to traffic use.  or awarding of contracts) and at the same time exercising its quasi-
Any interested Expressways users shall have the right to file, within a
period of ninety (90) days after the date of publication of the initial toll
rate, a petition with the Toll Regulatory Board for a review of the initial
toll rate; provided, however, that the filing of such petition and the
pendency of the resolution thereof shall not suspend the enforceability
and collection of the toll in question. The Toll Regulatory Board, at a
public hearing called for the purpose after due notice, shall then conduct a
review of the initial toll shall be appealable (sic) to the Office of the
President within ten (10) days from the promulgation thereof. The
GRANTEE may be required to post a bond in such amount and from such
surety or sureties and under such terms and conditions as the Toll
Regulatory Board shall fix in case of any petition for review of, or appeal
from, decisions of the Toll Regulatory Board. 
In case it is finally determined, after a review by the Toll Regulatory
Board or appeal therefrom, that the GRANTEE is not entitled, in whole
or in part, to the initial toll, the GRANTEE shall deposit in the escrow
account the amount collected under the approved initial toll fee and such
accordance with the procedure as may be prescribed or promulgated by
the Toll Regulatory Board. (Emphasis ours.)
The petitioners are indulging in gratuitous, if not unfair, conclusion as to
the capacity of the TRB to act as a fair and objective tribunal on matters
of toll fee fixing. 
Administrative bodies have expertise in specific matters within the
purview of their respective jurisdictions. Accordingly, the law concedes
to them the power to promulgate implementing rules and regulations
("IRR") to carry out declared statutory policies – provided that the IRR
conforms to the terms and standards prescribed by that statute.72
The Court does not perceive an irreconcilable clash in the enumerated
TRB’s statutory powers, such that the exercise of one negates another.
The ascription of impartiality on the part of the TRB cannot, under the
premises, be accorded cogency. Petitioners have not shown that the TRB
lacks the expertise, competence and capacity to implement its mandate of
balancing the interests of the toll-paying motoring public and the
imperative of allowing the concessionaires to recoup their investment
with reasonable profits. As it were, Section 9 of P.D. 1894 provides a
parametric formula for adjustment of toll rates that takes into account the
Peso-US Dollar exchange rate, interest rate and construction materials
price index, among other verifiable and quantifiable variables. 
While not determinative of the issue immediately at hand, the grant to
and the exercise by an administrative agency of regulating and allowing
the operation of public utilities and, at the same time, fixing the fees that
they may charge their customers is now commonplace. It must be
presumed that the Congress, in creating said agencies and clothing them
with both adjudicative powers and contract-making prerogatives, must
have carefully studied such dual authority and found the same not
breaching any constitutional principle or concept.73 So must it be for P.D.
Nos. 1112 and 1894. 
The Court can take judicial cognizance of the exercise by the LTFRB and
NTC – both spin-off agencies of the now defunct Public Service
Commission – of similar concurrent powers. The LTFRB, under
Executive Order No. ("E.O.") 202,74 series of 1987, is
empowered,75 among others, to regulate the operation of public utilities or
"for hire" vehicles and to grant franchises or certificates of public
convenience ("CPC"); and to fix rates or fares, to approve petitions for
fare rate increases and to resolve oppositions to such petitions. 
The NTC, on the other hand, has been granted similar powers of granting
franchises, allocating areas of operations, rate-fixing and to rule on
petitions for rate increases under E.O. 546,76 s. of 1979.
The Energy Regulatory Commission ("ERC") likewise enjoys on the one
facilities used in the generation of electricity, and on the other, (b) to
determine, fix and approve rates and tariffs of transmission, and
distribution retail wheeling charges and tariffs of franchise electric
utilities and all electric power rates including that which is charged to
end-users.77 In Chamber of Real Estate and Builders’ Association, Inc. v.
ERC, We even categorically stated that the ERC is a "quasi-judicial and
quasi-legislative regulatory body created under Section 38 of the EPIRA,
[and] x x x an administrative agency vested with broad regulatory and
monitoring functions over the Philippine electric industry to ensure its
successful restructuring and modernization x x x."78
To summarize, the fact that an administrative agency is exercising its
administrative or executive functions (such as the granting of franchises
legislative (e.g. rule-making) and/or quasi-judicial functions (e.g. rate-
fixing), does not support a finding of a violation of due process or the
Constitution. In C.T. Torres Enterprises, Inc. v. Hibionada,79 We
explained the rationale, thus:
48
It is by now commonplace learning that many administrative agencies
exercise and perform adjudicatory powers and functions, though to a
limited extent only. Limited delegation of judicial or quasi-judicial
authority to administrative agencies (e.g. the Securities and Exchange
Commission and the National Labor Relations Commission) is well
recognized in our jurisdiction, basically because the need for special
competence and experience has been recognized as essential in the
resolution of questions of complex or specialized character and because
of a companion recognition that the dockets of our regular courts have
remained crowded and clogged.
xxxx
As a result of the growing complexity of the modern society, it has
become necessary to create more and more administrative bodies to help
in the regulation of its ramified activities. Specialized in the particular
fields assigned to them, they can deal with the problems thereof with
more expertise and dispatch than can be expected from the legislature or
the courts of justice. This is the reason for the increasing vesture of quasi-
legislative and quasi-judicial powers in what is now not unquestionably
called the fourth department of the government.
xxxx
There is no question that a statute may vest exclusive original jurisdiction
in an administrative agency over certain disputes and controversies
falling within the agency's special expertise. The very definition of an
administrative agency includes its being vested with quasi-judicial
powers. The ever increasing variety of powers and functions given to
administrative agencies recognizes the need for the active intervention of
administrative agencies in matters calling for technical knowledge and
speed in countless controversies which cannot possibly be handled by
regular courts. (Emphasis ours.)
Fourth Issue: President Amply Vested With Statutory  This contention is bereft of merit.
Power To Approve TRB Contracts
Just like their parallel stance on the grant to TRB of the power to enter
into toll agreements, e.g., TOAs or STOAs, the petitioners in the first
three petitions would assert that the grant to the President of the power to
peremptorily authorize the assignment by PNCC, as franchise holder, of
its franchise or the usufruct in its franchise is unconstitutional. It is
unconstitutional, so petitioners would claim, for being an encroachment
of legislative power.  delegation of legislative power to administrative agencies is allowed "in
As earlier indicated, Section 3 (a) of P.D. 1112 requires approval by the
President of any contract TRB may have entered into or effected for the
construction and operation of toll facilities. Complementing Section 3 (a)
is 3 (e) (3) of P.D. 1112 enjoining the transfer of the usufruct of PNCC’s
franchise without the President’s prior approval. For perspective, Section
3 (e) (3) of P.D. 1112 provides:
That the toll operator shall not lease, transfer, grant the usufruct of, sell or
assign the rights or privileges acquired under the [TOC] to any person x x
x or legal entity nor merge with any other company or corporation
organized for the same purpose without the prior approval of the
President of the Philippines. In the event of any valid transfer of the TOC,
the Transferee shall be subject to all the conditions, terms, restrictions
and limitations of this Decree x x x.80
The President’s approving authority is of statutory origin. To us, there is
nothing illegal, let alone unconstitutional, with the delegation to the
President of the authority to approve the assignment by PNCC of its
rights and interest in its franchise, the assignment and delegation being
circumscribed by restrictions in the delegating law itself. As the Court
stressed in Kilosbayan v. Guingona, Jr.,81 the rights and privileges
conferred under a franchise may be assigned if authorized by a statute,
subject to such restrictions as may be provided by law, such as the prior
approval of the grantor or a government agency.82
There can, therefore, be no serious challenge to this presidential-
approving prerogative. Should grave abuse of discretion in some way
infect the exercise of the prerogative, then the approval action may be
nullified for that reason, but not on the ground that the underlying
authority is constitutionally doubtful. If the TRB may validly be
empowered to grant private entities the authority to operate toll facilities,
would a delegation of a lesser authority to approve the grant to the head
of the administrative machinery of the government be objectionable? 
The fact that P.D. 1112 partakes of a martial law issuance does not per se
provide an objectionable feature to the decree, albeit it may be argued
with some plausibility that then President Marcos intended to have the
final say as to who shall act as the toll operators of the Luzon
expressways. Be that as it may, "all proclamations, orders, decrees,
instructions, and acts promulgated, issued, or done by the former
President (Ferdinand E. Marcos) are part of the law of the land, and shall
remain valid, legal, binding, and effective, unless modified, revoked or
superseded by subsequent proclamations, orders, decrees, instructions, or
other acts of the President."83 To emphasize, Padua v. Ranada cited
Association of Small Landowners in the Philippines, Inc. v. Secretary of
Agrarian Reform, quoting that:
The Court wryly observes that during the past dictatorship, every
presidential issuance, by whatever name it was called, had the force and
effect of law because it came from President Marcos. Such are the ways
of despots. Hence, it is futile to argue … that LOI 474 could not have
repealed P.D. No. 27 because the former was only a letter of instruction.
The important thing is that it was issued by President Marcos, whose
word was law during that time.84
Fifth Issue: Assailed STOAs Validly Entered
This brings us to the issue of the validity of certain provisions of the
STOAs and related agreements entered into by the TRB, as duly
approved by the President. 
Relying on Clause 17.4.185 of the MNTC STOA that the lenders have the
unrestricted right to appoint a substitute entity in case of default of
MNTC or of the occurrence of an event of default in respect of the loans,
petitioners argue that since MNTC is the assignee or transferee of
PNCC’s franchise, then it steps into the shoes of PNCC. They contend
that the act of replacing MNTC as grantee is tantamount to an
amendment or alteration of the PNCC’s original franchise and hence
unconstitutional, considering that the constitutional power to appoint a
new franchise holder is reserved to Congress.86
Petitioners’ presupposition that only Congress has the power to directly
grant franchises is misplaced. Time and again, We have held that
administrative agencies may be empowered by the Legislature by means
of a law to grant franchises or similar authorizations. 87 And this, We have
sufficiently addressed in the present case.88 To reiterate, We discussed in
Albano that our statute books are replete with laws granting
administrative agencies the power to issue authorizations.89 This
order to adapt to the increasing complexity of modern
life."90 Consequently, We have held that the "privileges conferred by
grant by local authorities as agents for the state constitute as much a
legislative franchise as though the grant had been made by an act of the
Legislature."91
In this case, the TRB’s charter itself, or Section 3 (e) of P.D. 1112,
specifically empowers it to "grant authority to operate a toll facility and
to issue therefore the necessary ‘Toll Operation Certificate’ subject to
such conditions as shall be imposed by the [TRB]x x x."92 Section 3 (a) of
the same law permits the TRB to enter into contracts for the construction,
operation and maintenance of toll facilities. Clearly, there is no question
that the TRB is vested by the Legislature, through P.D. 1112, with the
power not only to grant an authority to operate a toll facility, but also to
enter into contracts for the construction, operation and maintenance
thereof.
Petitioners also contend that substituting MNTC as the grantee in case of
its default with respect to its loans is tantamount to an amendment of
PNCC’s original franchise and is hence, unconstitutional. We also find
this assertion to be without merit. Besides holding that the Legislature
may properly empower administrative agencies to grant franchises
pursuant to a law, We have also earlier explained in this case that P.D.
1113 and the amendatory P.D. 1894 both vested the TRB with the power
to impose conditions on PNCC’s franchise in an appropriate contract and
may therefore amend or alter the same when public interest so
requires;93 save for the conditions stated in Sections 1 and 2 of P.D. 1894,
which relates to the coverage area of the tollways and the expiration of
PNCC’s original franchise.94 P.D. 1112 provided further that the TRB has
the power to amend or modify a Toll Operation Certificate that it issued
when public interest so requires.95 Accordingly, to Our mind, there is
nothing infirm much less questionable about the provision in the STOA,
allowing the substitution of MNTC in case it defaults in its loans.
Furthermore, in the subject provision (Clause 17.4.196), the "unrestricted
right" of the lender to appoint a substituted entity is never intended to
afford such lender a plenary power to do so. The subject clause states:
49
17.4.1 The PARTIES acknowledge that following a Notice of
Substitution under clauses 17.2 or 17.3 the LENDERS have, subject to
the provisions of Clause 17.4.3, the unrestricted right to appoint a
SUBSTITUTED ENTITY in place of MNTC following the declaration of
the occurrence of a MNTC DEFAULT prior to full repayment of the
LOANS or of an event of default in respect of the LOANS. GRANTOR
shall extend all reasonable assistance to the AGENT to put in place a
SUBSTITUTED ENTITY. MNTC shall make available all necessary
information to potential SUBSTITUTED ENTITY to enable such entity
to evaluate the Project. (Emphasis ours.)
It is clear from the above-quoted provision that Clause 17.4.1 should
always be construed and read in conjunction with Clauses 17.2, 17.3,
17.4.2, 17.4.3 and 20.12. Clauses 17.2 and 17.3 discuss the procedures
that must be followed and undertaken in case of MNTC’s default prior to
the full repayment of the loans, and before the substitution under Clause
17.4.1 could take place. These clauses provide the following process:
Prior to Full Repayment of the LOANS:
17.2 Upon occurrence of an MNTC DEFAULT under Clause 17.1(a) and
(e) prior to full repayment of the LOANS, GRANTOR shall serve a
written Notice of Default to MNTC with copy to the AGENT giving a
reasonable period of time to cure the MNTC DEFAULT, such period
being three (3) months from receipt of the notice or such longer period as
may be approved by GRANTOR, taking due consideration of the nature
of the default and of the repair works required. If MNTC fails to remedy
such default during such three (3) month or [sic] curing period,
GRANTOR may issue a Notice of Substitution on MNTC, copy
furnished to the AGENT, which shall take effect upon the assumption
and take over by the SUBSTITUTED ENTITY pursuant to the provisions
of Clause 17.4 hereof; Provided, However, that prior to such assumption
and take over by the SUBSTITUTED ENTITY, MNTC shall continue to
operate and maintain the project roads and shall place in an escrow
account the toll revenues, save such amounts as may be needed to
primarily cover the operating costs and as may be owing and due to the
lenders under the loans and, secondarily, to cover the PNCC Gross Toll
Revenue Share, Provided, Further, that upon the assumption and take
over by the SUBSTITUTED ENTITY, such assumption and take over
shall have the effect of revoking the rights, privileges and obligations of
MNTC under this AGREEMENT in favor of the SUBSTITUTED
ENTITY and MNTC shall cease to be a PARTY to this AGREEMENT.
17.3 If prior to full repayment of the LOANS MNTC fails to remedy
MNTC DEFAULT under Clause 17.1 (b) or an MNTC DEFAULT
occurs under Clause 17.1 (c), (d) or (f) prior to full repayment of the
LOANS, GRANTOR shall serve a Notice of Substitution on MNTC,
copy furnished to the AGENT, as provided under Clause
17.4.97 (Emphasis ours)
It is apparent from the above-quoted provision that it is the TRB –
representing the Republic of the Philippines as Grantor – which has
control over the situation before Clause 17.4.1 could come into place. To
stress, following the condition under Clause 17.4.1, it is only when
Clauses 17.2 and 17.3 have been complied with that the entire Clause
17.4 could begin to materialize.
Clauses 17.4.2 and 17.4.3 also provide for certain parameters as to when
a substituted entity could be considered acceptable, and enumerate the
conditions that should be undertaken and complied with.98 Particularly,
the subject provisions state:
17.4.2 The SUBSTITUTED ENTITY shall be required to provide
evidence to GRANTOR that at the time of substitution:
(i) it is legally and validly nominated by the AGENT as MNTC’s
substitute to continue the implementation of the PROJECT.
(ii) it is legally and validly constituted and has the capability to enter
into such agreement as may be required to give effect to the
substitution;
17.4.3 The AGENT shall have one (1) year to effect a substitution under
Clause 17.4; Provided, However, that during this time the AGENT shall
not take any action which may jeopardize the continuity of the service
and shall take the necessary action to ensure its continuation. To effect
such substitution, the AGENT shall notify its intention to GRANTOR
and shall, at the same time, give all necessary information to GRANTOR.
GRANTOR shall, within one (1) month following such notification,
inform the AGENT of its acceptance of the substitution, if the conditions
set forth in Clause 17.4.2 have been satisfied. The SUBSTITUTED
ENTITY shall be permitted a reasonable period to cure any MNTC
DEFAULT under Clause 17.1 (a), (b) or (e).
From the foregoing, it is clear that the lenders do not actually have an
absolute or "unrestricted" right to appoint the SUBSTITUTED ENTITY
in view of TRB’s right to accept or reject the substitution within one (1)
month from notice and such right to appoint comes into force only if and
when the TRB decides to effectuate the substitution of MNTC as allowed
in Clause 17.2 of the MNTC STOA.
At the same time, Clause 17.4.4 particularizes the conditions upon which
the substitution shall become effective, to wit: 
17.4.4 The Substitution shall be effective upon:
(a) the appointment of a SUBSTITUTED ENTITY in accordance
with the provisions of this Clause 17.4; and,
(b) assumption by the SUBSTITUTED ENTITY of all of the rights
and obligations of MNTC under this AGREEMENT, including the
payment of PNCC’s Gross Toll Revenue Share under the JOINT
VENTURE AGREEMENT dated 29 August 1995 and all other
agreements in connection with this agreement signed and executed by
and between PNCC and MNTC.
The afore-quoted Section (a) of Clause 17.4.4 reiterates the necessity of
compliance by the substituted entity with all the conditions provided
under Clause 17.4. Furthermore, following the above-quoted conditions
veritably protects the interests of the Government. As previously
discussed supra, PNCC’s assets with respect to its legislative franchise
under P.D. 1113, as amended, has already been automatically turned over
to the Government. And whatever share PNCC has in relation to the
currently implemented administrative authority granted by the TRB is
merely being held in trust by it in favor of the Government. Accordingly,
the fact that Section "b" of Clause 17.4.4 ensures that the obligation to
pay PNCC’s Gross Toll Revenue Share is assumed by the substituted
entity, necessarily means that the Government’s Gross Toll Revenue
Share is safeguarded and kept intact.
The MNTC STOA also states that only in case no substituted entity is
established in accordance with Clause 17.4 that Clause 17.5 shall be
applied. Clause 17.5 grants the lenders the power to extend the
concession in case the Grantor (Republic of the Philippines) takes over
the same, for a period not exceeding fifty years, until full payment of the
loans.99 Petitioners contend that the option to extend the concession for
that stated period is, however, unconstitutional. 
This assertion is impressed with merit. At the outset, Clause 17.5 does not
actually grant the lenders of the defaulting concessionaire, the power to
unilaterally extend the concession for a period not exceeding fifty years.
For reference, the pertinent provision states:
17.5 Only if no SUBSTITUTE ENTITY is established … shall the
GRANTOR [TRB] be entitled to take-over the CONCESSION with no
commitment on the LOANS in which case the OPERATION AND
MAINTENANCE CONTRACT shall be assigned to any entity that the
AGENT100 may designate provided such entity has a sufficient legal and
technical capacity to perform and assume the obligations of the
OPERATION AND MAINTENANCE CONTRACT under this
AGREEMENT. The LENDERS shall receive all TOLL, excepting
PNCC’s revenue shareprovided for under the JOINT INVESTMENT
PROPOSAL (vide: Annex "C" hereof), for as long as required until full
repayment of the LOANS including if necessary an extension of the
CONCESSION PERIOD which in no case shall exceed fifty (50)
years; Provided that the LENDERS support all amounts payable under
the OPERATION AND MAINTENANCE CONTRACT. For avoidance
of doubt, the GRANTOR will have no obligation in relation to liabilities
incurred by MNTC prior to such take-over.101 (Emphasis supplied)
The afore-quoted provision should be read in conjunction with Clause
20.12, which expressly provides that the MNTC STOA is "made under
and shall be governed by and construed in accordance with" the laws of
the Philippines, and particularly, by the provisions of P.D. Nos. 1112,
1113 and 1894. Under the applicable laws, the TRB may very well
amend, modify, alter or revoke the authority/franchise "whenever the
public interest so requires."102 In a word, the power to determine whether
or not to continue or extend the authority granted to a concessionaire to
operate and maintain a tollway is vested to the TRB by the applicable
laws. The necessity of whether or not to extend the concession or the
authority to construct, operate and maintain a tollway rests, by operation
of law, with the TRB. As such, the lenders cannot unilaterally extend the
concession period, or, with like effect, impose upon or demand that the
TRB agree to extend such concession. 
Be that as it may, it must be noted, however, that while the TRB is vested
by law with the power to extend the administrative franchise or authority
50
that it granted, nevertheless, it cannot do so for an accumulated period
exceeding fifty years. Otherwise, it would violate the proscription under
Article XII, Section 11 of the 1987 Constitution, which states that:103
Sec. 11. 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. Neither shall
any such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration or repeal by the Congress when
the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise
shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or associations must
be citizens of the Philippines. (Emphasis Ours)
In this case, the MNTC STOA already has an original stipulated period of
thirty years.104 Clause 17.5 allows the extension of this period if necessary
to fully repay the loans made by MNTC to the lenders, thus:
x x x The LENDERS shall receive all TOLL, excepting PNCC’s revenue
share provided for under the JOINT INVESTMENT PROPOSAL (vide:
Annex "C" hereof), for as long as required until full repayment of the
LOANS including if necessary an extension of the CONCESSION
PERIOD which in no case shall exceed a maximum period of fifty (50)
years; x x x (Emphasis ours.)
If the maximum extension as provided for in Clause 17.5, i.e. fifty years,
shall be utilized, the accumulated concession period that would be
granted in this case would effectively be eighty years. To Us, this is a
clear violation of the fifty-year franchise threshold set by the
Constitution. It is in this regard that we strike down the above-quoted
clause, "including if necessary an extension of the CONCESSION
PERIOD which in no case shall exceed a maximum period of fifty (50)
years" in Clause 17.5 as void for being violative of the Constitution.105 It
must be made abundantly clear, however, that the nullity shall be limited
to such extension beyond the 50-year constitutional limit. 
All told, petitioners’ allegations that the TRB acted with grave abuse of
discretion and with gross disadvantage to the Government with respect to
Clauses 17.4.1 and 17.5 of the MNTC STOA are unfounded and
speculative.
Petitioners also allege that the MNTC STOA is grossly disadvantageous
to the Government since under Clause 11.7 thereof, the Government,
through the TRB, guarantees the viability of the financing program of a
toll operator. Under Clause 11.7 of the MNTC STOA, the TRB agreed to
pay monthly, the difference in the toll fees actually collected by MNTC
and that which it could have realized under the STOA. The pertinent
provisions states:  Section 86 of PD 1445, on the other hand, requires that the proper
11.7 To insure the viability and integrity of the Project, the Parties
recognize the necessity for adjustments of the AUTHORIZED TOLL
RATE …. In the event that said adjustment are not effected as provided
under this Agreement for reasons not attributable to MNTC, the
GRANTOR [TRB] warrants and so undertakes to compensate, on a
monthly basis, the resulting loss of revenue due to the difference between
the AUTHORIZED TOLL RATE actually collected and the
AUTHORIZED TOLL RATE which MNTC would have been able to
collect had the … adjustments been implemented. (Emphasis ours)  for public purpose from the General Funds of the Government. The TRB
As set out in the preamble of P.D. 1112, the need to encourage the
infusion of private capital in tollway projects is the underlying rationale
behind the enactment of said decree. Owing to the scarce capital available
to bankroll a huge capital-intensive project, such as the North Luzon
Tollway project, it is well-nigh inevitable that the financing of these types
of projects is sourced from private investors. Quite naturally, the
investors expect the regularity of the cash flow. It is perhaps in this broad
context that the obligation of the Grantor under Clause 11.7 of the MNTC
STOA was included in the STOA. To Us, Clause 11.7 is not only grossly
disadvantageous to the Government but a manifest violation of the
Constitution.
Section 3 (e) (5) of P.D. 1112 explicitly states:
[t]hat no guarantee, Certificate of Indebtedness, collateral securities, or
bonds shall be issued by any government agency or government-owned
or controlled corporation on any financing program of the toll operator in
connection with his undertaking under the Toll Operation Certificate.
What the law seeks to prevent in this situation is the eventuality that the
Government, through any of its agencies, could be obligated to pay or
secure, whether directly or indirectly, the financing by the private
investor of the project. In this case, under Clause 11.7 of the MNTC
STOA, the Republic of the Philippines (through the TRB) guaranteed the
security of the project against revenue losses that could result, in case the
TRB, based on its determination of a just and reasonable toll fee, decides
not to effect a toll fee adjustment under the STOA’s periodic/interim
adjustment formula. The OSG, in its Comment, admitted that "the
amounts the government undertook to pay in case of Clause 11.7
violation … is … an undertaking to pay compensatory damage for
something akin to a breach of contract."106As P.D. 1112 itself expressly
prohibits the guarantee of a security in the financing of the toll operator
pursuant to its tollway project, Clause 11.7 cannot be a valid stipulation
in the STOA.
This is more so for being in violation of the Constitution. Article VI,
Section 29 (1) of the Constitution mandates that "[n]o money shall be
paid out of the Treasury except in pursuance of an appropriation made by
law."107 We have held in Radstock that "government funds or property
shall be spent or used solely for public purposes, as expressly mandated
by Section 4 (2) of PD 1445 or the Government Auditing
Code."108 Particularly, We held in Radstock case that:
[t]he power to appropriate money from the General Funds of the
Government belongs exclusively to the Legislature. Any act in violation
of this iron-clad rule is unconstitutional.
Reinforcing this Constitutional mandate, Sections 84 and 85 of PD 1445
require that before a government agency can enter into a contract
involving the expenditure of government funds, there must be an
appropriation law for such expenditure, thus:
Section 84. Disbursement of government funds.
1. Revenue funds shall not be paid out of any public treasury or
depository except in pursuance of an appropriation law or other specific
statutory authority.
xxxx
Section 85. Appropriation before entering into contract.
No contract involving the expenditure of public funds shall be entered
into unless there is an appropriation therefor, the unexpended balance of
which, free of other obligations, is sufficient to cover the proposed
expenditure.
xxxx
accounting official must certify that funds have been appropriated for the
purpose. Section 87 of PD 1445 provides that any contract entered into
contrary to the requirements of Sections 85 and 86 shall be
void….109 (Emphasis ours.)
In the instant case, the TRB, by warranting to compensate MNTC with
the loss of revenue resulting from the non-implementation of the periodic
and interim toll fee adjustments, violates the very constitutionally
guaranteed power of the Legislature, to exclusively appropriate money
veritably accorded unto itself the exclusive authority granted to Congress
to appropriate money that comes from the General Funds, by making a
warranty to compensate a revenue loss under Clause 11.7 of the MNTC
STOA. There is not even a badge of indication that the aforementioned
requisites under the Constitution and P.D. 1445 in respect of
appropriation of money from the General Funds of the Government have
been properly complied with. Worse, P.D. 1112 expressly prohibits the
guarantee of security of the financing of a toll operator in connection with
his undertaking under the Toll Operation Certificate. Accordingly, Clause
11.7 of the MNTC STOA, under which the TRB warrants and undertakes
to compensate MNTC’s loss of revenue resulting from the non-
implementation of the periodic and interim toll fee adjustments, is illegal,
unconstitutional and hence void. 
Parenthetically, We also find a similar provision in the SLTC STOA
under Clause 8.08 thereof, which states that:110
(2) In the event the Authorized Toll Rate and adjustments thereto are
not implemented or made effective in accordance with the provisions
of this Agreement, for reasons not attributable to the fault of the
51
 Investor and/or the Operator, including the reversal by the TRB or by
any competent court or authority of any such adjustment in the
Authorized Toll Rate previously approved by the TRB, except where
such reversal is by reason of a determination of the misapplication of
the Authorized Toll Rates, the Grantor shall compensate the
Operator, on a monthly basis and within thirty (30) days of
submission by the Operator of a notice thereof, without interest, for
the resulting loss of revenue computed as the difference between:
(a) the actual traffic volume for the month in question multiplied
by the Current Authorized Toll Rate as escalated and/or adjusted,
that should be in effect; and
(b) the Gross Toll Revenue for the month in question.
(3) The obligation of the Grantor to compensate the Operator shall
continue until the applicable Current Authorized Toll Rate is
implemented.
Akin to what is contemplated in Clause 11.7 of the MNTC STOA,
Clauses 8.08 (2) and (3) of the SLTC STOA, under which the TRB
warrants or is obligated to compensate the Operator for its loss of revenue
resulting from the non-implementation of the calculation/formula of
authorized toll price and toll rate adjustments found in Clause 8 thereof,
are illegal, unconstitutional and, hence, void. This ruling is consistent
with the TRB’s power to determine, without any influence or compulsion
– direct or indirect – as to whether a change in the toll fee rates is
warranted. We will discuss the same below.
Petitioners argue that the CITRA, SLTC and MNTC STOAs tie the hands
of the TRB as it is bound by the stipulated periodic and interim toll rate
adjustments provided therein. Petitioners contend that the SMMS
(CITRA STOA), the SLTC and the MNTC STOA’s provisions on initial
toll rates and periodic/interim toll rate adjustments, by using a built-in
automatic toll rate adjustment formula,111 allegedly guaranteed fixed
returns for the investors and negated the public hearing requirement.  petitioners, and notwithstanding its presumptive validity, they did not
This contention is erroneous. The requisite public hearings under Section
3 (d) of P.D. 1112 and Section 8 (b) of P.D. 1894 are not negated by the
fixing of the initial toll rates and the periodic adjustments under the
STOA.  determination of the level of toll rates that may be allowed.
Prefatorily, a clear distinction must be made between the statutory
prescription on the fixing of initial toll rates, on the one hand, and of
periodic/interim or subsequent toll rates, on the other. First, the hearing
required under the said provisos refers to notice and hearing for the
approval or denial of petitions for toll rate adjustments – or the
subsequent toll rates, not to the fixing of initial toll rates. By express legal
provision, the TRB is authorized to approve the initial toll rates without
the necessity of a hearing. It is only when a challenge on the initial toll
rates fixed ensues that public hearings are required. Section 8 of P.D.
1894 says so:
x x x the GRANTEE shall collect toll at such rates as shall initially be
approved by the [TRB]. The [TRB] shall have the authority to approve
such initial toll rates without the necessity of any notice and hearing,
except as provided in the immediately succeeding paragraph of this
Section. For such purpose, the GRANTEE shall submit for the approval
of the [TRB] the toll proposed to be charged the users. After approval of
the toll rate(s) by the [TRB] and publication thereof by the GRANTEE
once in a newspaper of general circulation, the toll shall immediately be
enforceable and collectible upon opening of the expressway to traffic
use.  empowered to "examine under oath any official or employee of the said
Any interested Expressways users shall have the right to file, within x x x
(90) days after the date of publication of the initial toll rate, a petition
with the [TRB] for a review of the initial toll rate; provided, however,
that the filing of such petition and the pendency of the resolution thereof
shall not suspend the enforceability and collection of the toll in question.
The [TRB], at a public hearing called for the purpose … shall then
conduct a review of the initial toll (sic) shall be appealable to the [OP]
within ten (10) days from the promulgation thereof. (Emphasis ours.)
Of the same tenor is Section 3 (d) of P.D. 1112 stating that the TRB has
the power and duty to:
[i]ssue, modify and promulgate from time to time the rates of toll that
will be charged the direct users of toll facilities and upon notice and
hearing, to approve or disapprove petitions for the increase thereof.
Decisions of the [TRB] on petitions for the increase of toll rate shall be
appealable to the [OP] within ten (10) days from the promulgation
thereof. Such appeal shall not suspend the imposition of the new rates,
provided however, that pending the resolution of the appeal, the
petitioner for increased rates in such case shall deposit in a trust fund
such amounts as may be necessary to reimburse toll payers affected in
case a (sic) reversal of the decision.112 (Emphasis Ours.)
Similarly in Padua v. Ranada, the fixing of provisional toll rates by the
TRB without a public hearing was held to be valid, such procedure being
expressly provided by law.113 To be very clear, it is only the fixing of the
initial and the provisional toll rates where a public hearing is not a
vitiating requirement. Accordingly, subsequent toll rate adjustments are
mandated by law to undergo both the requirements of public hearing and
publication.
In Manila International Airport Authority ("MIAA") v. Blancaflor, the
Court expounded on the necessity of a public hearing in rate
fixing/increases scenario. There, the Court ruled that the MIAA, being an
agency attached to the Department of Transportation and
Communications ("DOTC"), is governed by Administrative Code of
1987,114 Book VII, Section 9 of which specifically mandates the conduct
of a public hearing.115 Accordingly, the MIAA’s resolutions, which
increased the rates and charges for the use of its facilities without the
required hearing, were struck down as void.116 Similarly, as We do
concede, the TRB, being likewise an agency attached to the DOTC, 117 is
governed by the same Code and consequently requires public hearing in
appropriate cases. It is, therefore, imperative that in implementing and
imposing new, i.e. subsequent toll rates arrived at using the toll rate
adjustment formula, the subject tollway operators and the TRB must
necessarily comply not only with the requirement of publication but also
with the equally important public hearing. Accordingly, any fixing of the
toll rate, which did not or does not comply with the twin requirements of
public hearing and publication, must therefore be struck down as void. In
such case, the previously valid toll rate shall consequently apply, pending
compliance with the twin requirements for the new toll rate.
In the instant consolidated cases, the fixing of the initial toll rates may
have indeed come to pass without any public hearing. 118 Unfortunately for
assail the initial toll rates within the timeframe provided in P.D. 1112 and
P.D. 1894.119 Besides, as earlier explicated, the STOA provisions on
periodic rate adjustments are not a bar to a public hearing as the formula
set forth therein remains constant, serving only as a guide in the
It is apropos to state at this juncture that, in determining the
reasonableness of the subsequent toll rate increases, it behooves the TRB
to seek out the Commission on Audit ("COA") for assistance in
examining and auditing the financial books of the public utilities
concerned. Section 22, Chapter 4, Subtitle B, Title 1, Book V of the
Administrative Code of 1987 expressly authorizes the COA to examine
the aforementioned documents in connection with the fixing of rates of
every nature, including as in this case, the fixing of toll fees.120 We have
on certain occasions applied this provision. Manila Electric Company,
Inc. v. Lualhati easily comes to mind where this Court tasked the Energy
Regulatory Commission to seek the assistance of the COA in determining
the reasonableness of the rate increases that MERALCO intended to
implement.121 We have consistently held that "the law is deemed written
into every contract."122 Being a provision of law, this authority of the
COA under the Administrative Code should therefore be deemed written
in the subject contracts i.e. the STOAs. 
In this regard, during the examination and audit, the public utilities
concerned are mandated to "produce all the reports, records, books of
accounts and such other papers as may be required," and the COA is
public utilit[ies]."123 Any public utility unreasonably denying COA access
to the aforementioned documents, unnecessarily obstructs the
examination and audit and may be adjudged liable "of concealing any
material information concerning its financial status, shall be subject to the
penalties provided by law."124 Finally, the TRB is further obliged to take
the appropriate action on the COA Report with respect to its finding of
reasonableness of the proposed rate increases.125
Furthermore, while the periodic, interim and other toll rate adjustment
formulas are indicated in the STOAs, 126 it does not necessarily mean that
the TRB should accept a rate adjustment predicated on the economic
data, references or assumptions adopted by the toll operator. At the end of
the day, the final figures should be those of the TRB based on its
appreciation of the relevant rate-influencing data. In fine, the TRB should
exercise its rate-fixing powers vested to it by law within the context of
the agreed formula, but always having in mind that the rates should be
just and reasonable. Conversely, it is very well within the power of the
TRB under the law to approve the change in the current toll
fees.127 Section 3 (d) of P.D. 1112 grants the TRB the power to "[i]ssue,
modify and promulgate from time to time the rates of toll that will be
charged the direct users of toll facilities." But the reasonableness of a
52
possible increase in the fees must first be clearly and convincingly
established by the petitioning entities, i.e. the toll operators. Otherwise,
the same should not be granted by the approving authority concerned. In
Philippine Communications Satellite Corporation v. Alcuaz,128 the Court
had the opportunity to explain what is meant by a just and reasonable
fixing of rates, thus:
Hence, the inherent power and authority of the State, or its authorized
agent, to regulate the rates charged by public utilities should be subject
always to the requirement that the rates so fixed shall be reasonable and
just. A commission has no power to fix rates which are unreasonable or
to regulate them arbitrarily. This basic requirement of reasonableness
comprehends such rates which must not be so low as to be confiscatory,
or too high as to be oppressive.
What is a just and reasonable rate is not a question of formula but of
sound business judgment based upon the evidence it is a question of fact
calling for the exercise of discretion, good sense, and a fair, enlightened
and independent judgment. In determining whether a rate is confiscatory,
it is essential also to consider the given situation, requirements and
opportunities of the utility. A method often employed in determining
reasonableness is the fair return upon the value of the property to the
public utility x x x. (Emphasis ours.) 
If in case the TRB finds the change in the rates to be reasonable and
therefore merited, the increase shall then be implemented after the
formalities of public hearing and publication are complied with. In this
case, it is clear that the change in the toll fees is immediately effective
and implementable. This is notwithstanding that, in case of an increase in
the toll fees, an appeal thereon is filed. The law is clear. Thus:
x x x Decisions of the [TRB] on petitions for the increase of toll rate shall
be appealable to the Office of the President within ten (10) days from the
promulgation thereof. Such appeal shall not suspend the imposition of the
new rates, provided however, that pending the resolution of the appeal,
the petitioner for increased rates in such case shall deposit in a trust fund
such amounts as may be necessary to reimburse toll payers affected in
case a reversal of the decision.129 (Emphasis ours.)
Besides the settled rule under Section 3 (d) of P.D. 1112 that the power to
issue, modify and promulgate toll fees rests with the TRB, it must also be
underscored that the periodic and the interim adjustments found in
Clauses 11.4 to 11.6 of the MNTC STOA do not necessarily guarantee an
increase in the toll fees. To stress, the formula is based on many variable
factors that could mean either an increase or a decrease in the toll fees,
depending, inter alia, on how well certain economies are doing; and on
the projections and figures published by the Bangko Sentral ng Pilipinas
("BSP").130 It is therefore arduous to contemplate a grossness in a
disadvantage that could only possibly arise in case of a non-
implementation of a change – particularly, an increase – in the toll rates.
Petitioners have not incidentally shown that it is the traveling public, the
users of the expressways, who shouldered or will shoulder the completion
of the projects by way of exorbitant fees payment, with the investors
ending up with a "killing" therefrom. This conclusion, for all its factual
dimension, is too simplistic for acceptance. And it does not consider the
reality that the Court is not a trier of facts. Neither does it take stock of
the nature and function of toll roads and toll fees paid by motorists, as
aptly elucidated in North Negros Sugar Co., Inc. v. Hidalgo,131 thus: 
"Toll" is the price of the privilege to travel over that particular highway,
and it is a quid pro quo. It rests on the principle that he who, receives the
toll does or has done something as an equivalent to him who pays it.
Every traveler has the right to use the turnpike as any other highway, but
he must pay the toll.132
A toll road is a public highway, differing from the ordinary public
highways chiefly in this: that the cost of its construction in the first
instance is borne by individuals, or by a corporation, having authority
from the state to build it, and, further, in the right of the public to use the
road after completion, subject only to the payment of toll.133
Toll roads are in a limited sense public roads, and are highways for travel,
but we do not regard them as public roads in a just sense, since there is in
them a private proprietary right x x x.134 (Emphasis ours.)
Parenthetically, our review of Section 7 of the SMMS STOA readily
yields the information that the level of the initial toll rates hinges on a
mix of factors. Tax holidays that may be granted and the tax treatment of
dividends may be mentioned. On the other hand, the subsequent periodic
adjustments are provided to address factors that usually weigh on the
financial condition of any business endeavor, such as currency
devaluation, inflation and the usual increases in maintenance and
operational costs incorporated into the formula provided therefor. Even
with the existence of an automatic toll rate adjustment formula,
compliance by the TRB and the other respondents with the twin
requirements of public hearing and publication is still mandatory. To
reiterate, laws always occupy a plane higher than mere contract
provisions. In case the minimum statutory requirements are stiffer than
that of a contract, or when the contract does not expressly stipulate the
minimum requirements of the law, then We rule that compliance with
such minimum legal requirements should be done. To summarize, any
toll fee increase should comply with the legal twin requirements of
publication and public hearing, the absence of which will nullify the
imposition and collection of the new toll fees.
In all, the initial toll rates and periodic adjustments appear to Us as
simply predicated on the basic rationale for investing in a toll project,
which to repeat is: a reasonable rate of return for the investment. Section
2 (o) of the BOT Law, as amended, provides for a definition for a
reasonable rate of return on investments and operating and maintenance
cost.135 Running through the gamut of our statutes providing for and
encouraging partnership of the public and private sector is the paramount
common good for infrastructure projects and the equally important factor
of giving a reasonable rate of return to private sector’s investments. The
viability of any infrastructure project depends on the returns – which
should be reasonable – of the investment coming from the private sector. 
While the interests of the public are ideally to be accorded primacy in
considering government contracts, the reality on the ground is that the
tollway projects may not at all be possible or would be difficult to realize
without the involvement of the investing private sector, which expects its
usual share of profit. Thus, the Court is at a loss to understand how the
level of the initial toll rates, which depended on several factors indicated
above, and the subsequent adjustments resulted in the charging of
exorbitant toll fees that, to petitioners, enabled the investors to shift the
burden of financing the completion of the projects on the motoring
public.
Neither does the alleged drastic—if we may characterize it as such—
steep increase in the level of toll rates for NLEX constitute a "killing" for
PNCC and its partner MNTC. Petitioners make much of the amount of
the toll fees vis-à-vis the then prevailing minimum wage. These plays of
figures detract from the essential concern on the propriety of the level of
the toll rates vis-à-vis the investments sunk in the NLEX project with a
view, on the part of private investors, to a reasonable return on their
investment. Where no substantial figures were provided on the
investments, the projected operating and maintenance costs vis-à-vis the
projected revenue from the toll fees, no substantial conclusions may
reasonably be deduced therefrom. Besides, to be taken into account in
relation to the costs of the construction and rehabilitation of the NLEX is
the length of the tollway and for which motorists have to pay the
corresponding toll. Certainly, the allegations and conclusions of
petitioners as to the unreasonable increase of the toll rates are without
adequate factual mooring.
The use of a tollway is a privilege that comes at a cost. The toll is a price
paid for the use of a privilege. There are to be sure alternative roads and
routes, which motorists may fall back on if they are unwilling to pay the
toll. The toll, as might be expected, is pegged at a level that makes the
developmental projects and their maintenance viable; otherwise, no
investment can be expected for the furtherance of the projects. 
Petitioners Francisco and Hizon alleged that, per the minutes of the TRB
meetings, the Board deliberately refrained, particularly with respect to the
Skyway project, from conducting public hearings for the grant of the
initial toll rates and on the rate adjustment formula to be used in order to
accelerate the implementation of the projects. The allegation is far from
correct. A perusal of the pertinent minutes of the TRB meetings,
particularly that held on August 17, 1995,136 in fact would disclose a
picture different from that depicted by said petitioners. Nothing in the
minutes of said meeting tends to indicate that the TRB resolved to
dispense with public hearings. We, therefore, find petitioners Francisco
and Hizon’s attempt to mislead the Court by falsely citing supposed
portions137 of the August 17, 1995 TRB meeting very unfortunate. They
quoted a correction on the minutes of the Special Board Meeting No. 95-
05 held on July 26, 1995, which was taken up in the August 17, 1995
meeting for the approval of the minutes of the previous meeting. In said
special meeting of July 26, 1995,138 the Board deliberated on the
recommendation of ADG Santos for the conduct of a public hearing or
soliciting the endorsement of the Metro Manila Development Authority
("MMDA").139 But the TRB did not resolve to omit a public hearing with
respect to the toll rates. In fact, the deliberations used the words "in the
event the Board decides" and "if the Board conducts," clearly conveying
the notion that the TRB had not decided or resolved the issue of public
hearings. Be that as it may, We rule that the TRB is mandated to comply
with the twin requirements of public hearing and publication.
53
Petitioners Francisco and Hizon’s lament about the TRB merely relying
on, if not yielding to, the recommendation and findings of the Technical
Working Group ("TWG") of the DPWH on matters relative to STOA
stipulations and toll-rate fixing cannot be accorded cogency. In the area
involving big finance and complex project planning, banking on the data
supplied by technicians and experts is at once practical as it is inevitable.
The Court cannot see its way clear to understand why petitioners would
begrudge the TRB for tapping the technical know-how of others. And it
cannot be overemphasized that a recommendation is no more than an
exhortation or an urging as to what is advisable or expedient, not binding
on the person to which it is being made.140 To recommend involves the
idea that another has the final decision. 141 The ultimate decision still rests
with the TRB whether or not to accept the findings of the TWG. The
minutes of the TRB meetings show that its members went through the
tedious process of deliberating on the formula to be used in computing
the toll rates. The fact that the TRB might have adopted the TWG’s
recommendation would not, on that ground alone, vitiate the bona
fides of the former’s decision nor stain the proceedings leading to such
decision. In any case, as earlier held, the toll rate adjustment formula does
not and cannot contravene the legal twin requirements of public hearing
and publication.
In another bid to nullify the STOAs in question, petitioners would foist
on the Court the arguments that, firstly, President Ramos twisted the arms
of the TRB towards entering into the agreements in question and,
secondly, that the CITRA STOA contained restrictive confidentiality
provisions barring the public from knowing their contents and the details
of the negotiations related thereto.
We are not persuaded by the first ground, not necessarily because the
pressure brought to bear on TRB rendered the STOAs infirm, but because
the allegations on pressure-tactics allegedly employed by President
Ramos are too speculative for acceptance.  case, public bidding is required under the law.
On the second ground, We fail to see how the insertion of the alleged
confidentiality clause in the CITRA STOA translates into grave abuse of
discretion or a violation of the Constitution, particularly Article III,
Section 7142 thereof. First off, the Court can take judicial notice that most
commercial contracts, including finance-related project agreements carry
the standard confidentiality clause to protect proprietary data and/or
intellectual property rights. This protection angle appears to be the intent
of Clause 14.04(l)143 of the CITRA STOA. And as may be noted, the
succeeding Clause 14.04 (2)144 removes from the ambit of the
confidentiality restriction the following: disclosure of any information:
(a) not otherwise done by the parties; (b) which is required by law to be
disclosed to any person who is authorized by law to receive the same;
(c) to a tribunal hearing pertinent proceedings relative to the contract or
agreement; and (d) to confidential entities and persons relative to the
disclosing party like its banks, consultants, financiers and advisors. The
second (item b) exception provides a reasonable dimension to the assailed
confidentiality clause.  stand as critical JV partners remained all along with PNCC, at least
Needless to stress, the obligation of the government to make information
available cannot be exaggerated.145 The constitutional right to information
does not mean that every day and every hour is open house in
government offices having custody of the desired
documents.146 Petitioners have not sufficiently shown, thus cannot really
be heard to complain, that they had been unreasonably denied access to
information with regard to the MNTC or SMMS STOA. Besides, the
remedy for unreasonable denial of information that is a matter of public
concern is by way of mandamus.147
Finally, as to petitioners’ catch-all claim that the STOAs are
disadvantageous to the government, as therein represented by the TRB,
suffice it to state for the nonce that behind these agreements are the
Board’s expertise and policy determination on technical, financial and
operational matters involving expressways and tollways. It is not for
courts to look into the wisdom and practicalities behind the exercise by
the TRB of its contract-making prerogatives under P.D. Nos. 1112, 1113
and 1894, absent proof of grave abuse of discretion which would justify
judicial review. In this regard, the Court recalls what it wrote in G & S
Transport Corporation v. Court of Appeals,148 to wit: 
x x x courts, as a rule, refuse to interfere with proceedings undertaken by
administrative bodies or officials in the exercise of administrative
functions. This is because such bodies are generally better equipped
technically to decide administrative questions and that non-legal factors,
such as government policy on the matter are usually involved in the
decision.
Sixth Issue: Public Bidding Not Required
Private petitioners would finally maintain that public bidding is required
for the SMMS and the North Luzon/South Luzon Tollways, partaking as
these projects allegedly do of the nature of a BOT infrastructure
undertaking under the BOT Law. Prescinding from this premise, they
would conclude that the STOAs in question and related preliminary and
post-STOA agreements are null and void for want of the necessary public
bidding required for government infrastructure projects.
The contention is patently flawed.
The BOT Law does not squarely apply to the peculiar case of PNCC,
which exercised its prerogatives and obligations under its franchise to
pursue the construction, rehabilitation and expansion of the tollways with
chosen partners. The tollway projects may very well qualify as a build-
operate-transfer undertaking. However, given that the projects in the
instant case have been undertaken by PNCC in the exercise of its
franchise under P.D. Nos. 1113 and 1894, in joint partnership with its
chosen partners at the time when it was held valid to do so by the OGCC
and the DOJ, the public bidding provisions under the BOT Law do not
strictly apply. For, as aptly noted by the OSG, the subject STOAs are not
ordinary contracts for the construction of government infrastructure
projects, which requires under the Government Procurement Reform Act
or the now-repealed P.D. 1594,149 public bidding as the preferred mode of
contract award. Neither are they contracts where financing or financial
guarantees for the project are obtained from the government. Rather, the
STOAs actually constitute a statutorily-authorized transfer or assignment
of usufruct of PNCC’s existing franchise to construct, maintain and
operate expressways.150
The conclusion would perhaps be different if the tollway projects were to
be prosecuted by an outfit completely different from, and not related to,
PNCC. In such a scenario, the entity awarded the winning bid in a BOT-
scheme infrastructure project will have to construct, operate and maintain
the tollways through an automatic grant of a franchise or TOC, in which
Where, in the instant case, a franchisee undertakes the tollway projects of
construction, rehabilitation and expansion of the tollways under its
franchise, there is no need for a public bidding. In pursuing the projects
with the vast resource requirements, the franchisee can partner with other
investors, which it may choose in the exercise of its management
prerogatives. In this case, no public bidding is required upon the
franchisee in choosing its partners as such process was done in the
exercise of management prerogatives and in pursuit of its right
of delectus personae.151 Thus, the subject tollway projects were
undertaken by companies, which are the product of the joint ventures
between PNCC and its chosen partners.
Petitioners Francisco and Hizon’s assertions about the TRB awarding the
tollway projects to favored companies, unsubstantiated as they are, need
no belaboring. Suffice it to state that the discretion to choose who shall
theoretically. Needless to say, the records do not show that the TRB
committed an oversight as an administrative body over any aspect of
tollway operations with regard to PNCC’s selection of partners.
The foregoing disquisitions considered, there is no more point in passing
upon the propriety of prohibiting or enjoining, on the ground of
unconstitutionality or grave abuse of discretion, the implementation of
the initial toll rates and/or the adjusted toll rates for the SMSS, expanded
NLEX and SLEX, as authorized by the separate TRB resolutions, subject
of and originally challenged in these proceedings. 
These TRB resolutions and the STOAs upon which they are predicated
have long been in effect. The parties have acted on these issuances and
contracts whose existence, as an operative fact, cannot be ignored, let
alone erased, even if the charge of unconstitutionality is given currency. 
While not exactly of governing applicability in this case, what the Court
wrote in De Agbayani v. Philippine National Bank,152 on the operative
fact doctrine is apropos:
x x x When the courts declare a law to be inconsistent with the
Constitution, the former shall be void and the latter shall govern.
Administrative or executive acts, orders and regulations shall be valid
only when they are not contrary to the laws of the Constitution." ….
Such a view has support in logic and possesses the merit of simplicity. It
may not however be sufficiently realistic. It does not admit of doubt
that prior to the declaration of nullity such challenged legislative or
executive act must have been in force and had to be complied with.
This is so as until after the judiciary, in an appropriate case, declares its
invalidity, it is entitled to obedience and respect. Parties may have acted
under it and may have changed their positions. What could be more
fitting than that in a subsequent litigation regard be had to what has been
54
done while such legislative or executive act was in operation and
presumed to be valid in all respects. It is now accepted as a doctrine that
prior to its being nullified, its existence as a fact must be reckoned with.
This is merely to reflect awareness that precisely because the judiciary is
the governmental organ which has the final say on whether or not a
legislative or executive measure is valid, a period of time may have
elapsed before it can exercise the power of judicial review that may lead
to a declaration of nullity. It would be to deprive the law of its quality of
fairness and justice then, if there be no recognition of what had transpired
prior to such adjudication.
In the language of an American Supreme Court decision: "The actual
existence of a statute, prior to such a determination [of
constitutionality], is an operative fact and may have consequences
which cannot justly be ignored. The past cannot always be erased by
a new judicial declaration x x x." (Emphasis in the original.)  STOA, as VOID and UNCONSTITUTIONAL for being contrary to
The petitioners in the first three (3) petitions and the respondent in the
fourth have not so said explicitly, but their brief is against the issuance of
P.D. Nos. 1112, 1113 and 1894, which conferred a package of express
and implied powers and discretion to the TRB and the President resulting
in the execution of what is perceived to be offending STOAs and the
runaway collection of illegal toll fees. And they have come to the Court
to strike down all these issuances, agreements and exactions. While the
Court is not insensitive to their concerns, the rule is that all reasonable
doubts should be resolved in favor of the constitutionality of a
statute,153 and the validity of the acts taken in pursuant thereof. It follows,
therefore, that the Court will not set aside a law as violative of the
Constitution except in a clear case of breach154 and only as a last
resort.155 And as the theory of separation of powers prescribes, the Court
does not pass upon questions of wisdom, expediency and justice of
legislation. To Us, petitioners and respondent YPES in the fourth petition
have not discharged the heavy burden of demonstrating in a clear and
convincing manner the unconstitutionality of the decrees challenged or
the invalidity of assailed acts of the President and the TRB. Because they
failed to do so, the Court must uphold the presumptive constitutionality
and validity of the provisions of the three decrees in question, and the
subject contracts and TOCs.
Regarding petitioner Francisco’s Supplemental Petition, the toll rates, the
collection of which in the amount based on the formula and assumptions
set forth in the law, and the adverted STOA dated February 1, 2006 and
subject of the TRO issued on August 13, 2010, has been duly
published156 and approved by the TRB, as required by Section 5 of P.D.
1112.157 And the party-concessionaires have adequately demonstrated,
and the TRB has virtually acknowledged 158 that the said rates subject of
the TRO partake of the nature of opening or initial toll rates, which have
not yet been implemented since the time the SLTC STOA took
effect.159 To note, the toll rates subject of the TRO were approved and are
to be implemented in connection with the new facility, such as Project
Toll Roads 1 and 2 pursuant to the new SLTC STOA and the expanded
and rehabilitated SLEX.160 As earlier discussed, public hearing is not
required in the fixing and implementation of initial toll rates. But an
interested party aggrieved by the initial rates imposed is not without any
resource as he may, within the time frame provided by Section 8 (b) of
P.D. 1894, repair to the TRB for review and thereafter to the OP.161 As
expressly provided in the same section, however, the pendency of the
petition for review, if there be any, shall not suspend the enforceability
and collection of the toll in question. In net effect, the challenge before
the Court of the SLEX toll rate imposition is premature. However, the
Court treats this Supplemental Petition assailing the toll rates covered by
the TRB Notice of Toll Rates published on June 6, 2010 as a petition for
review filed under P.D. 1894, and hereby remands the same to the TRB
for a review of the questioned rates to determine the propriety thereof.
WHEREFORE, the petitions in G.R. Nos. 166910 and 173630 are
hereby DENIED for lack of merit. Accordingly, We declare as VALID
AND CONSTITUTIONAL the following:
4. Section 3, paragraph (a) of Presidential Decree No. 1112,
otherwise known as the "Toll Operation Decree," in relation to
Section 3, paragraph (d) thereof and Section 8, paragraph (b) of
Presidential Decree No. 1894; and
5. Section 3, paragraph (e) 3 of P.D. No. 1112 and Section 13 of P.D.
No. 1894.
We however declare Clause 11.7 of the Supplemental Toll Operation
Agreement between the Republic of the Philippines, represented by
respondent TRB, as grantor, the Philippine National Construction
Corporation, as franchisee, and the Manila North Tollways Corporation
("MNTC") dated April 30, 1998; and the clause "including if necessary
an extension of the CONCESSION PERIOD which in no case shall
exceed a maximum period of fifty (50) years" in Clause 17.5 of the same
Section 2, Article XII of the 1987 Constitution. We likewise declare
Clauses 8.08 (2) & (3) of the Supplemental Toll Operation Agreement
between the Republic of the Philippines, represented by respondent TRB,
as grantor, the Philippine National Construction Corporation as
franchisee, the South Luzon Tollway Corporation as investor, and the
Manila Toll Expressway Systems, Inc. as operator, dated February 1,
2006, as VOID and UNCONSTITUTIONAL.
The petition in G.R. No. 169917 is likewise hereby DENIED for lack of
merit. We declare as VALID and CONSTITUTIONAL the following:
1. Notice of Approval dated May 16, 1995 by former President Fidel
V. Ramos on the assignment of PNCC’s usufructuary rights;
2. the Joint Venture Agreement dated August 29, 1995;
3. the Joint Investment Proposal, etc. dated June 16, 1996;
4. the Supplemental Toll Operation Agreement ("STOA") dated April
30, 1998 and the Notice of Approval of said STOA dated June 15,
1998 by former President Fidel V. Ramos; and
5. the provisional toll rate increases published February 9, 2005,
granted by the TRB.
The petition in G.R. No. 183599 is GRANTED. Accordingly, the
Decision dated June 23, 2008 of the Regional Trial Court, Branch 155 in
Pasig City, docketed as SCA No. 3138-PSG, annulling the TOC covering
the SLEX, enjoining the original toll operating franchisee from collecting
toll fees in the SLEX, and ordering the turnover of related assets to the
Government, is hereby REVERSED and SET ASIDE, and the
petition filed therein by the Young Professionals and Entrepreneurs of
San Pedro, Laguna with the RTC of Pasig is DISMISSED for lack of
merit. 
In view of the foregoing dispositions in the petitions at bar, the TRO
issued by the Court on August 13, 2010 is hereby ordered lifted, with
respect to the petitions in G.R. Nos. 166910, 169917, 173630 and
183599. 
The challenge contained in the Supplemental Petition in G.R. No. 166910
against the toll rates subject of the TRB Notice of Toll Rates published on
June 6, 2010, for the SLEX projects, Toll Road Projects 1 and 2 of the
new SLTC STOA, and the expanded and rehabilitated SLEX, is
remanded to the TRB for a review of the assailed toll rates to determine
whether SLTC and MATES are entitled to the toll fees. 
No Cost.

SO ORDERED.
1. the Supplemental Toll Operation Agreement dated April 30, 1998
covering the North Luzon Tollway Project and the TRB Board
Resolution No. 2005-4 issued pursuant thereto;

2. the Supplemental Toll Operation Agreement dated November 27,

1995 covering the South Metro Manila Skyway and the TRB Board
Resolution No. 2004-53 and previous TRB resolutions issued
pursuant thereto;

3. the Supplemental Toll Operation Agreement covering the South

Luzon Tollway Project or South Luzon Expressway and the TRB
Board resolutions issued pursuant to the said agreement, particularly
the TRB Board resolutions allowing the toll rate increases that are
supposed to have been implemented on June 30, 2010;

55
G.R. No. 171396             May 3, 2006
PROF. RANDOLF S. DAVID, LORENZO TAÑADA III, RONALD
LLAMAS, H. HARRY L. ROQUE, JR., JOEL RUIZ BUTUYAN,
ROGER R. RAYEL, GARY S. MALLARI, ROMEL REGALADO
BAGARES, CHRISTOPHER F.C. BOLASTIG, Petitioners, 
vs.
GLORIA MACAPAGAL-ARROYO, AS PRESIDENT AND
COMMANDER-IN-CHIEF, EXECUTIVE SECRETARY
EDUARDO ERMITA, HON. AVELINO CRUZ II, SECRETARY
OF NATIONAL DEFENSE, GENERAL GENEROSO SENGA,
CHIEF OF STAFF, ARMED FORCES OF THE PHILIPPINES,
DIRECTOR GENERAL ARTURO LOMIBAO, CHIEF,
PHILIPPINE NATIONAL POLICE, Respondents.
x-------------------------------------x
G.R. No. 171409             May 3, 2006
NIÑEZ CACHO-OLIVARES AND TRIBUNE PUBLISHING CO.,
INC., Petitioners, 
vs.
HONORABLE SECRETARY EDUARDO ERMITA AND
HONORABLE DIRECTOR GENERAL ARTURO C.
LOMIBAO, Respondents.
x-------------------------------------x
G.R. No. 171485             May 3, 2006
FRANCIS JOSEPH G. ESCUDERO, JOSEPH A. SANTIAGO,
TEODORO A. CASINO, AGAPITO A. AQUINO, MARIO J.
AGUJA, SATUR C. OCAMPO, MUJIV S. HATAMAN, JUAN
EDGARDO ANGARA, TEOFISTO DL. GUINGONA III,
EMMANUEL JOSEL J. VILLANUEVA, LIZA L. MAZA, IMEE R.
MARCOS, RENATO B. MAGTUBO, JUSTIN MARC SB.
CHIPECO, ROILO GOLEZ, DARLENE ANTONINO-CUSTODIO,
LORETTA ANN P. ROSALES, JOSEL G. VIRADOR, RAFAEL V.
MARIANO, GILBERT C. REMULLA, FLORENCIO G. NOEL,
ANA THERESIA HONTIVEROS-BARAQUEL, IMELDA C.
NICOLAS, MARVIC M.V.F. LEONEN, NERI JAVIER
COLMENARES, MOVEMENT OF CONCERNED CITIZENS FOR
CIVIL LIBERTIES REPRESENTED BY AMADO GAT
INCIONG,  Petitioners, 
vs.
EDUARDO R. ERMITA, EXECUTIVE SECRETARY, AVELINO
J. CRUZ, JR., SECRETARY, DND RONALDO V. PUNO,
SECRETARY, DILG, GENEROSO SENGA, AFP CHIEF OF
STAFF, ARTURO LOMIBAO, CHIEF PNP, Respondents.
x-------------------------------------x
G.R. No. 171483             May 3, 2006
KILUSANG MAYO UNO, REPRESENTED BY ITS
CHAIRPERSON ELMER C. LABOG AND SECRETARY
GENERAL JOEL MAGLUNSOD, NATIONAL FEDERATION OF
LABOR UNIONS – KILUSANG MAYO UNO (NAFLU-KMU),
REPRESENTED BY ITS NATIONAL PRESIDENT, JOSELITO V.
USTAREZ, ANTONIO C. PASCUAL, SALVADOR T.
CARRANZA, EMILIA P. DAPULANG, MARTIN CUSTODIO, JR.,
AND ROQUE M. TAN, Petitioners, 
vs.
HER EXCELLENCY, PRESIDENT GLORIA MACAPAGAL-
ARROYO, THE HONORABLE EXECUTIVE SECRETARY,
EDUARDO ERMITA, THE CHIEF OF STAFF, ARMED FORCES
OF THE PHILIPPINES, GENEROSO SENGA, AND THE PNP
DIRECTOR GENERAL, ARTURO LOMIBAO, Respondents.
x-------------------------------------x
G.R. No. 171400             May 3, 2006
ALTERNATIVE LAW GROUPS, INC. (ALG), Petitioner,  Article 12 of the Constitution do hereby declare a State of National
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, LT. GEN.
GENEROSO SENGA, AND DIRECTOR GENERAL ARTURO
LOMIBAO, Respondents.
G.R. No. 171489             May 3, 2006
JOSE ANSELMO I. CADIZ, FELICIANO M. BAUTISTA,
ROMULO R. RIVERA, JOSE AMOR M. AMORADO, ALICIA A.
RISOS-VIDAL, FELIMON C. ABELITA III, MANUEL P.
LEGASPI, J.B. JOVY C. BERNABE, BERNARD L. DAGCUTA,
ROGELIO V. GARCIA AND INTEGRATED BAR OF THE
PHILIPPINES (IBP), Petitioners, 
vs.
HON. EXECUTIVE SECRETARY EDUARDO ERMITA,
GENERAL GENEROSO SENGA, IN HIS CAPACITY AS AFP
CHIEF OF STAFF, AND DIRECTOR GENERAL ARTURO
LOMIBAO, IN HIS CAPACITY AS PNP CHIEF, Respondents.
x-------------------------------------x
G.R. No. 171424             May 3, 2006
LOREN B. LEGARDA, Petitioner, 
vs.
GLORIA MACAPAGAL-ARROYO, IN HER CAPACITY AS
PRESIDENT AND COMMANDER-IN-CHIEF; ARTURO
LOMIBAO, IN HIS CAPACITY AS DIRECTOR-GENERAL OF
THE PHILIPPINE NATIONAL POLICE (PNP); GENEROSO
SENGA, IN HIS CAPACITY AS CHIEF OF STAFF OF THE
ARMED FORCES OF THE PHILIPPINES (AFP); AND EDUARDO
ERMITA, IN HIS CAPACITY AS EXECUTIVE
SECRETARY, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
All powers need some restraint; practical adjustments rather than rigid
formula are necessary.1 Superior strength – the use of force – cannot
make wrongs into rights. In this regard, the courts should be vigilant in
safeguarding the constitutional rights of the citizens, specifically their
liberty.
Chief Justice Artemio V. Panganiban’s philosophy of liberty is thus most
relevant. He said: "In cases involving liberty, the scales of justice
should weigh heavily against government and in favor of the poor,
the oppressed, the marginalized, the dispossessed and the weak."
Laws and actions that restrict fundamental rights come to the courts "with
a heavy presumption against their constitutional validity."2
These seven (7) consolidated petitions for certiorari and prohibition
allege that in issuing Presidential Proclamation No. 1017 (PP 1017) and
General Order No. 5 (G.O. No. 5), President Gloria Macapagal-Arroyo
committed grave abuse of discretion. Petitioners contend that respondent
officials of the Government, in their professed efforts to defend and
preserve democratic institutions, are actually trampling upon the very
freedom guaranteed and protected by the Constitution. Hence, such
issuances are void for being unconstitutional.
Once again, the Court is faced with an age-old but persistently modern
problem. How does the Constitution of a free people combine the degree
of  liberty, without which, law becomes tyranny, with the degree of law,
without which, liberty becomes license?3
On February 24, 2006, as the nation celebrated the 20th Anniversary of
the  Edsa People Power I, President Arroyo issued PP 1017 declaring a
state of national emergency, thus:
NOW, THEREFORE, I, Gloria Macapagal-Arroyo, President of the
Republic of the Philippines and Commander-in-Chief of the Armed
Forces of the Philippines, by virtue of the powers vested upon me by
Section 18, Article 7 of the Philippine Constitution which states that:
"The President. . . whenever it becomes necessary, . . . may call out (the)
armed forces to prevent or suppress. . .rebellion. . .," and in my capacity
as their Commander-in-Chief, do hereby command the Armed Forces
of the Philippines, to maintain law and order throughout the
Philippines, prevent or suppress all forms of lawless violence as well
as any act of insurrection or rebellion and to enforce obedience to all
the laws and to all decrees, orders and regulations promulgated by
me personally or upon my direction; and as provided in Section 17,
Emergency.
She cited the following facts as bases:
WHEREAS, over these past months, elements in the political
opposition have conspired with authoritarians of the extreme Left
56
represented by the NDF-CPP-NPA and the extreme Right,
represented by military adventurists – the historical enemies of the
democratic Philippine State – who are now in a tactical alliance and
engaged in a concerted and systematic conspiracy, over a broad front, to
bring down the duly constituted Government elected in May 2004;
WHEREAS, these conspirators have repeatedly tried to bring down the
President;
WHEREAS, the claims of these elements have been recklessly
magnified by certain segments of the national media;
WHEREAS, this series of actions is hurting the Philippine State – by
obstructing governance including hindering the growth of the economy
and sabotaging the people’s confidence in government and their faith
in the future of this country;
WHEREAS, these actions are adversely affecting the economy;
WHEREAS, these activities give totalitarian forces of both the
extreme Left and extreme Right the opening to intensify their
avowed aims to bring down the democratic Philippine State;
WHEREAS, Article 2, Section 4 of the our Constitution makes the
defense and preservation of the democratic institutions and the State the
primary duty of Government;
WHEREAS, the activities above-described, their consequences,
ramifications and collateral effects constitute a clear and present
danger to the safety and the integrity of the Philippine State and of the
Filipino people;
On the same day, the President issued G. O. No. 5 implementing PP
1017, thus:
WHEREAS, over these past months, elements in the political opposition
have conspired with authoritarians of the extreme Left, represented by the
NDF-CPP-NPA and the extreme Right, represented by military
adventurists - the historical enemies of the democratic Philippine State –
and who are now in a tactical alliance and engaged in a concerted and
systematic conspiracy, over a broad front, to bring down the duly-
constituted Government elected in May 2004;
WHEREAS, these conspirators have repeatedly tried to bring down our
republican government;
WHEREAS, the claims of these elements have been recklessly
magnified by certain segments of the national media;
WHEREAS, these series of actions is hurting the Philippine State by
obstructing governance, including hindering the growth of the economy
and sabotaging the people’s confidence in the government and their faith
in the future of this country;
WHEREAS, these actions are adversely affecting the economy;
WHEREAS, these activities give totalitarian forces; of both the extreme
Left and extreme Right the opening to intensify their avowed aims to
bring down the democratic Philippine State;
WHEREAS, Article 2, Section 4 of our Constitution makes the defense
and preservation of the democratic institutions and the State the primary
duty of Government;
WHEREAS, the activities above-described, their consequences,
ramifications and collateral effects constitute a clear and present danger
to the safety and the integrity of the Philippine State and of the Filipino
people;
WHEREAS, Proclamation 1017 date February 24, 2006 has been issued
declaring a State of National Emergency;
NOW, THEREFORE, I GLORIA MACAPAGAL-ARROYO, by
virtue of the powers vested in me under the Constitution as President of
the Republic of the Philippines, and Commander-in-Chief of the Republic
of the Philippines, and pursuant to Proclamation No. 1017 dated February
24, 2006, do hereby call upon the Armed Forces of the Philippines (AFP)
and the Philippine National Police (PNP), to prevent and suppress acts of
terrorism and lawless violence in the country;
I hereby direct the Chief of Staff of the AFP and the Chief of the PNP, as
well as the officers and men of the AFP and PNP, to immediately carry
out the necessary and appropriate actions and measures to suppress
and prevent acts of terrorism and lawless violence.
On March 3, 2006, exactly one week after the declaration of a state of
national emergency and after all these petitions had been filed, the
President lifted PP 1017. She issued Proclamation No. 1021 which reads:
WHEREAS, pursuant to Section 18, Article VII and Section 17, Article
XII of the Constitution, Proclamation No. 1017 dated February 24, 2006,
was issued declaring a state of national emergency;
WHEREAS, by virtue of General Order No.5 and No.6 dated February
24, 2006, which were issued on the basis of Proclamation No. 1017, the
Armed Forces of the Philippines (AFP) and the Philippine National
Police (PNP), were directed to maintain law and order throughout the
Philippines, prevent and suppress all form of lawless violence as well as
any act of rebellion and to undertake such action as may be necessary;
WHEREAS, the AFP and PNP have effectively prevented, suppressed
and quelled the acts lawless violence and rebellion;
NOW, THEREFORE, I, GLORIA MACAPAGAL-
ARROYO, President of the Republic of the Philippines, by virtue of the
powers vested in me by law, hereby declare that the state of national
emergency has ceased to exist.
In their presentation of the factual bases of PP 1017 and G.O. No. 5,
respondents stated that the proximate cause behind the executive
issuances was the conspiracy among some military officers, leftist
insurgents of the New People’s Army (NPA), and some members of the
political opposition in a plot to unseat or assassinate President
Arroyo.4 They considered the aim to oust or assassinate the President and
take-over the reigns of government as a clear and present danger.
During the oral arguments held on March 7, 2006, the Solicitor General
specified the facts leading to the issuance of PP 1017 and G.O. No.
5. Significantly, there was no refutation from petitioners’ counsels.
The Solicitor General argued that the intent of the Constitution is to give
full discretionary powers to the President in determining the necessity
of calling out the armed forces. He emphasized that none of the
petitioners has shown that PP 1017 was without factual bases. While he
explained that it is not respondents’ task to state the facts behind the
questioned Proclamation, however, they are presenting the same, narrated
hereunder, for the elucidation of the issues.
On January 17, 2006, Captain Nathaniel Rabonza and First Lieutenants
Sonny Sarmiento, Lawrence San Juan and Patricio Bumidang, members
of the Magdalo Group indicted in the Oakwood mutiny, escaped their
detention cell in Fort Bonifacio, Taguig City. In a public statement, they
vowed to remain defiant and to elude arrest at all costs. They called upon
the people to "show and proclaim our displeasure at the sham regime.
Let us demonstrate our disgust, not only by going to the streets in protest,
but also by wearing red bands on our left arms." 5
On February 17, 2006, the authorities got hold of a document entitled
"Oplan Hackle I " which detailed plans for bombings and attacks during
the Philippine Military Academy Alumni Homecoming in Baguio City.
The plot was to assassinate selected targets including some cabinet
members and President Arroyo herself.6 Upon the advice of her security,
President Arroyo decided not to attend the Alumni Homecoming. The
next day, at the height of the celebration, a bomb was found and
detonated at the PMA parade ground. 
On February 21, 2006, Lt. San Juan was recaptured in a communist
safehouse in Batangas province. Found in his possession were two (2)
flash disks containing minutes of the meetings between members of the
Magdalo Group and the National People’s Army (NPA), a tape recorder,
audio cassette cartridges, diskettes, and copies of subversive
documents.7 Prior to his arrest, Lt. San Juan announced through DZRH
that the "Magdalo’s D-Day would be on February 24, 2006, the 20th
Anniversary of Edsa I."
On February 23, 2006, PNP Chief Arturo Lomibao intercepted
information that members of the PNP- Special Action Force were
planning to defect. Thus, he immediately ordered SAF Commanding
General Marcelino Franco, Jr. to "disavow" any defection. The latter
promptly obeyed and issued a public statement: "All SAF units are under
the effective control of responsible and trustworthy officers with proven
integrity and unquestionable loyalty." 
57
On the same day, at the house of former Congressman Peping Cojuangco,
President Cory Aquino’s brother, businessmen and mid-level government
officials plotted moves to bring down the Arroyo administration. Nelly
Sindayen of TIME Magazine reported that Pastor Saycon, longtime
Arroyo critic, called a U.S. government official about his group’s plans if
President Arroyo is ousted. Saycon also phoned a man code-named Delta.
Saycon identified him as B/Gen. Danilo Lim, Commander of the Army’s
elite Scout Ranger. Lim said "it was all systems go for the planned
movement against Arroyo."8
B/Gen. Danilo Lim and Brigade Commander Col. Ariel Querubin
confided to Gen. Generoso Senga, Chief of Staff of the Armed Forces of
the Philippines (AFP), that a huge number of soldiers would join the
rallies to provide a critical mass and armed component to the Anti-Arroyo
protests to be held on February 24, 2005. According to these two (2)
officers, there was no way they could possibly stop the soldiers because
they too, were breaking the chain of command to join the forces foist to
unseat the President. However, Gen. Senga has remained faithful to his
Commander-in-Chief and to the chain of command. He immediately took
custody of B/Gen. Lim and directed Col. Querubin to return to the
Philippine Marines Headquarters in Fort Bonifacio.
Earlier, the CPP-NPA called for intensification of political and
revolutionary work within the military and the police establishments in
order to forge alliances with its members and key officials. NPA
spokesman Gregorio "Ka Roger" Rosal declared: "The Communist Party
and revolutionary movement and the entire people look forward to the
possibility in the coming year of accomplishing its immediate task of
bringing down the Arroyo regime; of rendering it to weaken and unable
to rule that it will not take much longer to end it."9
On the other hand, Cesar Renerio, spokesman for the National
Democratic Front (NDF) at North Central Mindanao, publicly
announced: "Anti-Arroyo groups within the military and police are
growing rapidly, hastened by the economic difficulties suffered by the
families of AFP officers and enlisted personnel who undertake counter-
insurgency operations in the field." He claimed that with the forces of the
national democratic movement, the anti-Arroyo conservative political
parties, coalitions, plus the groups that have been reinforcing since June
2005, it is probable that the President’s ouster is nearing its concluding
stage in the first half of 2006.
Respondents further claimed that the bombing of telecommunication
towers and cell sites in Bulacan and Bataan was also considered as
additional factual basis for the issuance of PP 1017 and G.O. No. 5. So is
the raid of an army outpost in Benguet resulting in the death of three (3)
soldiers. And also the directive of the Communist Party of the Philippines
ordering its front organizations to join 5,000 Metro Manila radicals and
25,000 more from the provinces in mass protests.10
By midnight of February 23, 2006, the President convened her security
advisers and several cabinet members to assess the gravity of the
fermenting peace and order situation. She directed both the AFP and the
PNP to account for all their men and ensure that the chain of command
remains solid and undivided. To protect the young students from any
possible trouble that might break loose on the streets, the President
suspended classes in all levels in the entire National Capital Region. 
For their part, petitioners cited the events that followed after the
issuance of PP 1017 and G.O. No. 5.
Immediately, the Office of the President announced the cancellation of all
programs and activities related to the 20th anniversary celebration
of Edsa People Power I; and revoked the permits to hold rallies issued
earlier by the local governments. Justice Secretary Raul Gonzales stated
that political rallies, which to the President’s mind were organized for
purposes of destabilization, are cancelled.Presidential Chief of Staff
Michael Defensor announced that "warrantless arrests and take-over of
facilities, including media, can already be implemented."11
Undeterred by the announcements that rallies and public assemblies
would not be allowed, groups of protesters (members of Kilusang Mayo
Uno [KMU] and National Federation of Labor Unions-Kilusang Mayo
Uno [NAFLU-KMU]), marched from various parts of Metro Manila with
the intention of converging at the EDSA shrine. Those who were already
near the EDSA site were violently dispersed by huge clusters of anti-riot
police. The well-trained policemen used truncheons, big fiber glass
shields, water cannons, and tear gas to stop and break up the marching
groups, and scatter the massed participants. The same police action was
used against the protesters marching forward to Cubao, Quezon City and
to the corner of Santolan Street and EDSA. That same evening, hundreds
of riot policemen broke up an EDSA celebration rally held along Ayala
Avenue and Paseo de Roxas Street in Makati City.12
According to petitioner Kilusang Mayo Uno, the police cited PP 1017 as
the ground for the dispersal of their assemblies.
During the dispersal of the rallyists along EDSA, police arrested (without
warrant) petitioner Randolf S. David, a professor at the University of the
Philippines and newspaper columnist. Also arrested was his companion,
Ronald Llamas, president of party-list Akbayan. 
At around 12:20 in the early morning of February 25, 2006, operatives of
the Criminal Investigation and Detection Group (CIDG) of the PNP, on
the basis of PP 1017 and G.O. No. 5, raided the Daily Tribune offices in
Manila. The raiding team confiscated news stories by reporters,
documents, pictures, and mock-ups of the Saturday issue. Policemen
from Camp Crame in Quezon City were stationed inside the editorial and
business offices of the newspaper; while policemen from the Manila
Police District were stationed outside the building.13
A few minutes after the search and seizure at the Daily Tribune offices,
the police surrounded the premises of another pro-opposition paper,
Malaya, and its sister publication, the tabloid Abante.
The raid, according to Presidential Chief of Staff Michael Defensor,
is "meant to show a ‘strong presence,’ to tell media outlets not to
connive or do anything that would help the rebels in bringing down this
government." The PNP warned that it would take over any media
organization that would not follow "standards set by the government
during the state of national emergency."  Director General Lomibao
stated that "if they do not follow the standards – and the standards are -
if they would contribute to instability in the government, or if they do not
subscribe to what is in General Order No. 5 and Proc. No. 1017 – we
will recommend a ‘takeover.’" National Telecommunications’
Commissioner Ronald Solis urged television and radio networks
to "cooperate" with the government for the duration of the state of
national emergency. He asked for "balanced reporting" from
broadcasters when covering the events surrounding the coup attempt
foiled by the government. He warned that his agency will not hesitate to
recommend the closure of any broadcast outfit that violates rules set out
for media coverage when the national security is threatened.14
Also, on February 25, 2006, the police arrested Congressman Crispin
Beltran, representing the Anakpawis Party and Chairman of Kilusang
Mayo Uno  (KMU), while leaving his farmhouse in Bulacan. The police
showed a warrant for his arrest dated 1985. Beltran’s lawyer explained
that the warrant, which stemmed from a case of inciting to rebellion filed
during the Marcos regime, had long been quashed. Beltran, however, is
not a party in any of these petitions.
When members of petitioner KMU went to Camp Crame to visit Beltran,
they were told they could not be admitted because of PP 1017 and G.O.
No. 5. Two members were arrested and detained, while the rest were
dispersed by the police.
Bayan Muna Representative Satur Ocampo eluded arrest when the police
went after him during a public forum at the Sulo Hotel in Quezon City.
But his two drivers, identified as Roel and Art, were taken into custody.
Retired Major General Ramon Montaño, former head of the Philippine
Constabulary, was arrested while with his wife and golfmates at the
Orchard Golf and Country Club in Dasmariñas, Cavite.
Attempts were made to arrest Anakpawis Representative Satur Ocampo,
Representative Rafael Mariano, Bayan Muna Representative Teodoro
Casiño and Gabriela Representative Liza Maza. Bayan
Muna Representative Josel Virador was arrested at the PAL Ticket
Office in Davao City. Later, he was turned over to the custody of the
House of Representatives where the "Batasan 5" decided to stay
indefinitely. 
Let it be stressed at this point that the alleged violations of the rights of
Representatives Beltran, Satur Ocampo, et al., are not being raised in
these petitions.
On March 3, 2006, President Arroyo issued PP 1021 declaring that the
state of national emergency has ceased to exist.
In the interim, these seven (7) petitions challenging the constitutionality
of PP 1017 and G.O. No. 5 were filed with this Court against the above-
named respondents. Three (3) of these petitions impleaded President
Arroyo as respondent.
58
In  G.R. No. 171396, petitioners Randolf S. David, et al. assailed PP
1017 on the grounds that (1) it encroaches on the emergency powers of
Congress; (2) itis a subterfuge to avoid the constitutional requirements for
the imposition of martial law; and (3) it violates the constitutional
guarantees of freedom of the press, of speech and of assembly.
In G.R. No. 171409, petitioners Ninez Cacho-Olivares
and Tribune Publishing Co., Inc. challenged the CIDG’s act of raiding
the Daily Tribune offices as a clear case of "censorship" or "prior
restraint." They also claimed that the term "emergency" refers only to
tsunami, typhoon, hurricane and similar occurrences, hence, there is
"absolutely no emergency" that warrants the issuance of PP 1017. 
In G.R. No. 171485,  petitioners herein are Representative Francis Joseph
G. Escudero, and twenty one (21) other members of the House of
Representatives, including Representatives Satur Ocampo, Rafael
Mariano, Teodoro Casiño, Liza Maza, and Josel Virador.  They asserted
that PP 1017 and G.O. No. 5 constitute "usurpation of legislative
powers"; "violation of freedom of expression" and "a declaration of
martial law." They alleged that President Arroyo "gravely abused her
discretion in calling out the armed forces without clear and verifiable
factual basis of the possibility of lawless violence and a showing that
there is necessity to do so."
In G.R. No. 171483,petitioners KMU, NAFLU-KMU, and their members
averred that PP 1017 and G.O. No. 5 are unconstitutional
because (1) they arrogate unto President Arroyo the power to enact laws
and decrees; (2) their issuance was without factual basis; and (3) they
violate freedom of expression and the right of the people to peaceably
assemble to redress their grievances.
In G.R. No. 171400, petitioner Alternative Law Groups, Inc. (ALGI)
alleged that PP 1017 and G.O. No. 5 are unconstitutional because they
violate (a) Section 415 of Article II, (b) Sections 1,16 2,17 and 418 of Article
III, (c)Section 2319 of Article VI, and (d) Section 1720 of Article XII of
the Constitution.  earliest opportunity; and fourth, the decision of the constitutional
In G.R. No. 171489, petitioners Jose Anselmo I. Cadiz et al., alleged that
PP 1017 is an "arbitrary and unlawful exercise by the President of her
Martial Law powers." And assuming that PP 1017 is not really a
declaration of Martial Law, petitioners argued that "it amounts to an
exercise by the President of emergency powers without congressional
approval." In addition, petitioners asserted that PP 1017 "goes beyond the
nature and function of a proclamation as defined under the Revised
Administrative Code."
And lastly, in G.R. No. 171424,petitionerLoren B. Legarda maintained
that PP 1017 and G.O. No. 5 are "unconstitutional for being violative of
the freedom of expression, including its cognate rights such as freedom of
the press and the right to access to information on matters of public
concern, all guaranteed under Article III, Section 4 of the 1987
Constitution." In this regard, she stated that these issuances prevented her
from fully prosecuting her election protest pending before the Presidential
Electoral Tribunal.  controversy by virtue of supervening events,26so that a declaration
In respondents’ Consolidated Comment, the Solicitor General countered
that: first, the petitions should be dismissed for being
moot; second,petitioners in G.R. Nos. 171400 (ALGI), 171424 (Legarda),
171483 (KMU et al.), 171485 (Escudero et al.) and 171489 (Cadiz et al.)
have no legal standing; third, it is not necessary for petitioners to implead
President Arroyo as respondent; fourth,  PP 1017 has constitutional and
legal basis; and fifth, PP 1017 does not violate the people’s right to free
expression and redress of grievances.
On March 7, 2006, the Court conducted oral arguments and heard the
parties on the above interlocking issues which may be summarized as
follows:
A. PROCEDURAL:
1) Whether the issuance of PP 1021 renders the petitions moot
and academic.
2) Whether petitioners in 171485 (Escudero et al.), G.R. Nos.
171400 (ALGI), 171483 (KMU et al.), 171489(Cadiz et al.),
and 171424 (Legarda) have legal standing.
B. SUBSTANTIVE:
1) Whetherthe Supreme Court can review the factual bases of
PP 1017.
2) Whether PP 1017 and G.O. No. 5 are unconstitutional.
a. Facial Challenge
b. Constitutional Basis
c. As Applied Challenge
A. PROCEDURAL
First, we must resolve the procedural roadblocks.
I- Moot and Academic Principle
One of the greatest contributions of the American system to this country
is the concept of judicial review enunciated in Marbury v.
Madison.21 This concept rests on the extraordinary simple foundation --
The Constitution is the supreme law. It was ordained by the people, the
ultimate source of all political authority. It confers limited powers on the
national government. x x x If the government consciously or
unconsciously oversteps these limitations there must be some
authority competent to hold it in control, to thwart its
unconstitutional attempt, and thus to vindicate and preserve inviolate
the will of the people as expressed in the Constitution. This power the
courts exercise. This is the beginning and the end of the theory of
judicial review.22
But the power of judicial review does not repose upon the courts a "self-
starting capacity."23 Courts may exercise such power only when the
following requisites are present: first, there must be an actual case or
controversy; second,  petitioners have to raise a question of
constitutionality; third, the constitutional question must be raised at the
question must be necessary to the determination of the case itself.24
Respondents maintain that the first and second requisites are absent,
hence, we shall limit our discussion thereon.
An actual case or controversy involves a conflict of legal right, an
opposite legal claims susceptible of judicial resolution. It is "definite and
concrete, touching the legal relations of parties having adverse legal
interest;" a real and substantial controversy admitting of specific
relief.25 The Solicitor General refutes the existence of such actual case or
controversy, contending that the present petitions were rendered "moot
and academic" by President Arroyo’s issuance of PP 1021. 
Such contention lacks merit. 
A moot and academic case is one that ceases to present a justiciable
thereon would be of no practical use or value.27 Generally, courts decline
jurisdiction over such case28 or dismiss it on ground of mootness.29
The Court holds that President Arroyo’s issuance of PP 1021 did not
render the present petitions moot and academic. During the eight (8) days
that PP 1017 was operative, the police officers, according to petitioners,
committed illegal acts in implementing it. Are PP 1017 and G.O. No. 5
constitutional or valid? Do they justify these alleged illegal
acts?  These are the vital issues that must be resolved in the present
petitions. It must be stressed that "an unconstitutional act is not a law,
it confers no rights, it imposes no duties, it affords no protection; it is
in legal contemplation, inoperative."30
The "moot and academic" principle is not a magical formula that can
automatically dissuade the courts in resolving a case. Courts will decide
cases, otherwise moot and academic, if: first, there is a grave violation of
the Constitution;31second, the exceptional character of the situation and
the paramount public interest is involved;32  third,  when constitutional
issue raised requires formulation of controlling principles to guide the
bench, the bar, and the public; 33and fourth, the case is capable of
repetition yet evading review.34
All the foregoing exceptions are present here and justify this Court’s
assumption of jurisdiction over the instant petitions. Petitioners alleged
that the issuance of PP 1017 and G.O. No. 5 violates the Constitution.
There is no question that the issues being raised affect the public’s
interest, involving as they do the people’s basic rights to freedom of
expression, of assembly and of the press. Moreover, the Court has the
duty to formulate guiding and controlling constitutional precepts,
59
doctrines or rules. It has the symbolic function of educating the bench and
the bar, and in the present petitions, the military and the police, on the
extent of the protection given by constitutional guarantees.35 And lastly,
respondents’ contested actions are capable of repetition. Certainly, the
petitions are subject to judicial review.
In their attempt to prove the alleged mootness of this case, respondents
cited Chief Justice Artemio V. Panganiban’s Separate Opinion
in Sanlakas v. Executive Secretary.36 However, they failed to take into
account the Chief Justice’s very statement that an otherwise "moot" case
may still be decided "provided the party raising it in a proper case has
been and/or continues to be prejudiced or damaged as a direct result of
its issuance." The present case falls right within this exception to the
mootness rule pointed out by the Chief Justice.  and the equitable diffusion of natural resources are matters of
II- Legal Standing
In view of the number of petitioners suing in various personalities, the
Court deems it imperative to have a more than passing discussion on
legal standing or locus standi.
Locus standi is defined as "a right of appearance in a court of justice on a
given question."37 In private suits, standing is governed by the "real-
parties-in interest" rule as contained in Section 2, Rule 3 of the 1997
Rules of Civil Procedure, as amended. It provides that "every action
must be prosecuted or defended in the name of the real party in
interest." Accordingly, the "real-party-in interest" is "the party who
stands to be benefited or injured by the judgment in the suit or the
party entitled to the avails of the suit."38 Succinctly put, the plaintiff’s
standing is based on his own right to the relief sought.
The difficulty of determining locus standi arises in public suits. Here,
the plaintiff who asserts a "public right" in assailing an allegedly illegal
official action, does so as a representative of the general public. He may
be a person who is affected no differently from any other person. He
could be suing as a "stranger," or in the category of a "citizen," or
‘taxpayer." In either case, he has to adequately show that he is entitled to
seek judicial protection. In other words, he has to make out a sufficient
interest in the vindication of the public order and the securing of relief as
a "citizen" or "taxpayer.
Case law in most jurisdictions now allows both "citizen" and "taxpayer"
standing in public actions. The distinction was first laid down
in Beauchamp v. Silk,39 where it was held that the plaintiff in a taxpayer’s
suit is in a different category from the plaintiff in a citizen’s suit. In the
former, the plaintiff is affected by the expenditure of public funds,
while in the latter, he is but the mere instrument of the public
concern. As held by the New York Supreme Court in People ex rel Case
v. Collins:40 "In matter of mere public right, however…the people are
the real parties…It is at least the right, if not the duty, of every
citizen to interfere and see that a public offence be properly pursued
and punished, and that a public grievance be remedied." With respect
to taxpayer’s suits, Terr v. Jordan41 held that "the right of a citizen and
a taxpayer to maintain an action in courts to restrain the unlawful
use of public funds to his injury cannot be denied."
However, to prevent just about any person from seeking judicial
interference in any official policy or act with which he disagreed with,
and thus hinders the activities of governmental agencies engaged in
public service, the United State Supreme Court laid down the more
stringent "direct injury" test in Ex Parte Levitt,42 later reaffirmed
in Tileston v. Ullman.43 The same Court ruled that for a private individual
to invoke the judicial power to determine the validity of an executive or
legislative action, he must show that he has sustained a direct injury
as a result of that action, and it is not sufficient that he has a general
interest common to all members of the public.  In Telecommunications and Broadcast Attorneys of the Philippines, Inc.
This Court adopted the "direct injury" test in our jurisdiction. In People
v. Vera,44 it held that the person who impugns the validity of a statute
must have "a personal and substantial interest in the case such that he
has sustained, or will sustain direct injury as a result."
The Vera doctrine was upheld in a litany of cases, such as, Custodio v.
President of the Senate,45 Manila Race Horse Trainers’ Association v. De
la Fuente,46 Pascual v. Secretary of Public Works47 and Anti-Chinese
League of the Philippines v. Felix.48
However, being a mere procedural technicality, the requirement of locus
standi may be waived by the Court in the exercise of its discretion. This
was done in the 1949 Emergency Powers Cases, Araneta v.
Dinglasan,49 where the "transcendental importance" of the cases
prompted the Court to act liberally. Such liberality was neither a rarity
nor accidental. In Aquino v. Comelec,50 this Court resolved to pass upon
the issues raised due to the "far-reaching implications" of the petition
notwithstanding its categorical statement that petitioner therein had no
personality to file the suit. Indeed, there is a chain of cases where this
liberal policy has been observed, allowing ordinary citizens, members of
Congress, and civic organizations to prosecute actions involving the
constitutionality or validity of laws, regulations and rulings.51
Thus, the Court has adopted a rule that even where the petitioners have
failed to show direct injury, they have been allowed to sue under the
principle of "transcendental importance." Pertinent are the following
cases:
(1)  Chavez v. Public Estates Authority,52 where the Court ruled
that the enforcement of the constitutional right to information
transcendental importance which clothe the petitioner with locus
standi; 
(2) Bagong Alyansang Makabayan v. Zamora,53 wherein the Court
held that "given the transcendental importance of the issues
involved, the Court may relax the standing requirements and
allow the suit to prosper despite the lack of direct injury to the
parties seeking judicial review" of the Visiting Forces Agreement;
(3)  Lim v. Executive Secretary,54 while the Court noted that the
petitioners may not file suit in their capacity as taxpayers absent a
showing that "Balikatan 02-01" involves the exercise of Congress’
taxing or spending powers, it reiterated its ruling in Bagong
Alyansang Makabayan v. Zamora,55that in cases of transcendental
importance, the cases must be settled promptly and definitely
and standing requirements may be relaxed.
By way of summary, the following rules may be culled from the cases
decided by this Court. Taxpayers, voters, concerned citizens, and
legislators may be accorded standing to sue, provided that the following
requirements are met:
(1) the cases involve constitutional issues; 
(2) for taxpayers, there must be a claim of illegal disbursement of
public funds or that the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the
validity of the election law in question;
(4) for concerned citizens, there must be a showing that the issues
raised are of transcendental importance which must be settled early;
and
(5) for legislators, there must be a claim that the official action
complained of infringes upon their prerogatives as legislators. 
Significantly, recent decisions show a certain toughening in the Court’s
attitude toward legal standing. 
In Kilosbayan, Inc. v. Morato,56 the Court ruled that the status
of Kilosbayan as a people’s organization does not give it the requisite
personality to question the validity of the on-line lottery contract, more so
where it does not raise any issue of constitutionality. Moreover, it cannot
sue as a taxpayer absent any allegation that public funds are being
misused. Nor can it sue as a concerned citizen as it does not allege any
specific injury it has suffered.
v. Comelec,57 the Court reiterated the "direct injury" test with respect to
concerned citizens’ cases involving constitutional issues. It held that
"there must be a showing that the citizen personally suffered some actual
or threatened injury arising from the alleged illegal official act."
In Lacson v. Perez,58 the Court ruled that one of the petitioners, Laban ng
Demokratikong Pilipino (LDP), is not a real party-in-interest as it had not
demonstrated any injury to itself or to its leaders, members or supporters. 
In Sanlakas v. Executive Secretary,59 the Court ruled that only the
petitioners who are members of Congress have standing to sue, as they
claim that the President’s declaration of a state of rebellion is a
usurpation of the emergency powers of Congress, thus impairing
their legislative powers. As to petitioners Sanlakas, Partido
Manggagawa, and Social Justice Society, the Court declared them to be
devoid of standing, equating them with the LDP in Lacson. 
60
Now, the application of the above principles to the present petitions.  impairs the operation of the Government. However, this does not mean
The locus standi of petitioners in G.R. No. 171396, particularly David
and Llamas, is beyond doubt. The same holds true with petitioners
in G.R. No. 171409, Cacho-Olivares and Tribune Publishing Co. Inc.
They alleged "direct injury" resulting from "illegal arrest" and "unlawful
search" committed by police operatives pursuant to PP 1017. Rightly so,
the Solicitor General does not question their legal standing.
In G.R. No. 171485, the opposition Congressmen alleged there was
usurpation of legislative powers. They also raised the issue of whether or
not the concurrence of Congress is necessary whenever the alarming
powers incident to Martial Law are used. Moreover, it is in the interest of
justice that those affected by PP 1017 can be represented by their
Congressmen in bringing to the attention of the Court the alleged
violations of their basic rights.
In G.R. No. 171400, (ALGI), this Court applied the liberality rule
in Philconsa v. Enriquez,60 Kapatiran Ng Mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan,61 Association of Small Landowners
in the Philippines, Inc. v. Secretary of Agrarian Reform,62  Basco v.
Philippine Amusement and Gaming Corporation,63 and Tañada v.
Tuvera,64 that when the issue concerns a public right, it is sufficient that
the petitioner is a citizen and has an interest in the execution of the laws.
In G.R. No. 171483, KMU’s assertion that PP 1017 and G.O. No. 5
violated its right to peaceful assembly may be deemed sufficient to give it
legal standing. Organizations may be granted standing to assert the
rights of their members.65 We take judicial notice of the announcement
by the Office of the President banning all rallies and canceling all permits
for public assemblies following the issuance of PP 1017 and G.O. No. 5.
In G.R. No. 171489, petitioners,  Cadiz et al., who are national officers of
the Integrated Bar of the Philippines (IBP) have no legal standing, having
failed to allege any direct or potential injury which the IBP as an
institution or its members may suffer as a consequence of the issuance of
PP No. 1017 and G.O. No. 5. In Integrated Bar of the Philippines v.
Zamora,66 the Court held that the mere invocation by the IBP of its duty
to preserve the rule of law and nothing more, while undoubtedly true, is
not sufficient to clothe it with standing in this case. This is too general an
interest which is shared by other groups and the whole citizenry.
However, in view of the transcendental importance of the issue, this
Court declares that petitioner have locus standi.
In G.R. No. 171424, Loren Legarda has no personality as a taxpayer to
file the instant petition as there are no allegations of illegal disbursement
of public funds. The fact that she is a former Senator is of no
consequence. She can no longer sue as a legislator on the allegation that
her prerogatives as a lawmaker have been impaired by PP 1017 and G.O.
No. 5. Her claim that she is a media personality will not likewise aid her
because there was no showing that the enforcement of these issuances
prevented her from pursuing her occupation. Her submission that she has
pending electoral protest before the Presidential Electoral Tribunal is
likewise of no relevance. She has not sufficiently shown that PP 1017
will affect the proceedings or result of her case. But considering once
more the transcendental importance of the issue involved, this Court may
relax the standing rules.
It must always be borne in mind that the question of locus standi is but
corollary to the bigger question of proper exercise of judicial power. This
is the underlying legal tenet of the "liberality doctrine" on legal standing.
It cannot be doubted that the validity of PP No. 1017 and G.O. No. 5 is a
judicial question which is of paramount importance to the Filipino
people. To paraphrase Justice Laurel, the whole of Philippine society now
waits with bated breath the ruling of this Court on this very critical
matter. The petitions thus call for the application of the "transcendental
importance" doctrine, a relaxation of the standing requirements for the
petitioners in the "PP 1017 cases."1avvphil.net
This Court holds that all the petitioners herein have locus standi.  upon the petitioner to show that the President’s decision is totally
Incidentally, it is not proper to implead President Arroyo as respondent.
Settled is the doctrine that the President, during his tenure of office or
actual incumbency,67 may not be sued in any  civil or criminal case, and
there is no need to provide for it in the Constitution or law. It will
degrade the dignity of the high office of the President, the Head of State,
if he can be dragged into court litigations while serving as such.
Furthermore, it is important that he be freed from any form of
harassment, hindrance or distraction to enable him to fully attend to the
performance of his official duties and functions. Unlike the legislative
and judicial branch, only one constitutes the executive branch and
anything which impairs his usefulness in the discharge of the many great
and important duties imposed upon him by the Constitution necessarily
that the President is not accountable to anyone. Like any other official, he
remains accountable to the people68 but he may be removed from office
only in the mode provided by law and that is by impeachment.69
B. SUBSTANTIVE
I. Review of Factual Bases 
Petitioners maintain that PP 1017 has no factual basis. Hence, it was not
"necessary" for President Arroyo to issue such Proclamation. 
The issue of whether the Court may review the factual bases of the
President’s exercise of his Commander-in-Chief power has reached its
distilled point - from the indulgent days of Barcelon v.
Baker70 and Montenegro v. Castaneda71 to the volatile era of Lansang v.
Garcia,72 Aquino, Jr. v. Enrile,73 and Garcia-Padilla v. Enrile.74 The tug-
of-war always cuts across the line defining "political questions,"
particularly those questions "in regard to which full discretionary
authority has been delegated to the legislative or executive branch of the
government."75 Barcelon and Montenegro were in unison in declaring
that the authority to decide whether an exigency has arisen belongs to
the President and his decision is final and conclusive on the
courts. Lansang took the opposite view. There, the members of the Court
were unanimous in the conviction that the Court has the authority to
inquire into the existence of factual bases in order to determine their
constitutional sufficiency. From the principle of separation of powers,
it shifted the focus to the system of checks and balances, "under
which the President is supreme, x x x only if and when he acts within
the sphere allotted to him by the Basic Law, and the authority to
determine whether or not he has so acted is vested in the Judicial
Department, which in this respect, is, in turn,
constitutionally supreme."76 In 1973, the unanimous Court
of Lansang was divided in Aquino v. Enrile.77 There, the Court was
almost evenly divided on the issue of whether the validity of the
imposition of Martial Law is a political or justiciable question.78 Then
came Garcia-Padilla v. Enrile which greatly diluted Lansang. It declared
that there is a need to re-examine the latter case, ratiocinating that "in
times of war or national emergency, the President must be given
absolute control for the very life of the nation and the government is
in great peril. The President, it intoned, is answerable only to his
conscience, the People, and God."79
The Integrated Bar of the Philippines v. Zamora 80 -- a recent case most
pertinent to these cases at bar -- echoed a principle similar
to Lansang. While the Court considered the President’s "calling-out"
power as a discretionary power solely vested in his wisdom, it stressed
that "this does not prevent an examination of whether such power
was exercised within permissible constitutional limits or whether it
was exercised in a manner constituting grave abuse of
discretion."This ruling is mainly a result of the Court’s reliance on
Section 1, Article VIII of 1987 Constitution which fortifies the authority
of the courts to determine in an appropriate action the validity of the acts
of the political departments. Under the new definition of judicial power,
the courts are authorized not only "to settle actual controversies involving
rights which are legally demandable and enforceable," but also "to
determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch
or instrumentality of the government." The latter part of the authority
represents a broadening of judicial power to enable the courts of justice to
review what was before a forbidden territory, to wit, the discretion of the
political departments of the government.81 It speaks of judicial
prerogative not only in terms of power but also of duty.82
As to how the Court may inquire into the President’s exercise of
power, Lansang adopted the test that "judicial inquiry can go no
further than to satisfy the Court not  that the President’s decision
is correct," but that "the President did not act arbitrarily." Thus, the
standard laid down is not correctness, but arbitrariness.83 In Integrated
Bar of the Philippines, this Court further ruled that "it is incumbent
bereft of factual basis" and that if he fails, by way of proof, to support
his assertion, then "this Court cannot undertake an independent
investigation beyond the pleadings." 
Petitioners failed to show that President Arroyo’s exercise of the calling-
out power, by issuing PP 1017, is totally bereft of factual basis. A reading
of the Solicitor General’s Consolidated Comment and Memorandum
shows a detailed narration of the events leading to the issuance of PP
1017, with supporting reports forming part of the records. Mentioned are
the escape of the Magdalo Group, their audacious threat of the Magdalo
D-Day, the defections in the military, particularly in the Philippine
Marines, and the reproving statements from the communist leaders. There
was also the Minutes of the Intelligence Report and Security Group of the
61
Philippine Army showing the growing alliance between the NPA and the
military. Petitioners presented nothing to refute such events. Thus, absent
any contrary allegations, the Court is convinced that the President was
justified in issuing PP 1017 calling for military aid.
Indeed, judging the seriousness of the incidents, President Arroyo was
not expected to simply fold her arms and do nothing to prevent or
suppress what she believed was lawless violence, invasion or rebellion.
However, the exercise of such power or duty must not stifle liberty.
II. Constitutionality of PP 1017 and G.O. No. 5
Doctrines of Several Political Theorists  previous forms of political life."92 He recognized the two (2) key
on the Power of the President in Times of Emergency
This case brings to fore a contentious subject -- the power of the
President in times of emergency.  A glimpse at the various political
theories relating to this subject provides an adequate backdrop for our
ensuing discussion.
John Locke, describing the architecture of civil government, called upon
the English doctrine of prerogative to cope with the problem of
emergency. In times of danger to the nation, positive law enacted by the
legislature might be inadequate or even a fatal obstacle to the promptness
of action necessary to avert catastrophe. In these situations, the Crown
retained a prerogative "power to act according to discretion for the
public good, without the proscription of the law and sometimes even
against it."84 But Locke recognized that this moral restraint might not
suffice to avoid abuse of prerogative powers. Who shall judge the need
for resorting to the prerogative and how may its abuse be
avoided? Here, Locke readily admitted defeat, suggesting that "the
people have no other remedy in this, as in all other cases where they
have no judge on earth, but to appeal to Heaven."85
Jean-Jacques Rousseau also assumed the need for temporary suspension
of democratic processes of government in time of emergency. According
to him:  Clinton L. Rossiter, after surveying the history of the employment of
The inflexibility of the laws, which prevents them from adopting
themselves to circumstances, may, in certain cases, render them
disastrous and make them bring about, at a time of crisis, the ruin of the
State…  conditions of success of the "constitutional dictatorship," thus:
It is wrong therefore to wish to make political institutions as strong as to
render it impossible to suspend their operation. Even Sparta allowed its
law to lapse...  indispensable to the preservation of the State and its constitutional
If the peril is of such a kind that the paraphernalia of the laws are an
obstacle to their preservation, the method is to nominate a supreme
lawyer, who shall silence all the laws and suspend for a moment the
sovereign authority. In such a case, there is no doubt about the general
will, and it clear that the people’s first intention is that the State shall not
perish.86
Rosseau did not fear the abuse of the emergency dictatorship or
"supreme magistracy" as he termed it. For him, it would more likely be
cheapened by "indiscreet use." He was unwilling to rely upon an "appeal
to heaven." Instead, he relied upon a tenure of office of prescribed
duration to avoid perpetuation of the dictatorship.87
John Stuart Mill concluded his ardent defense of representative
government: "I am far from condemning, in cases of extreme
necessity, the assumption of absolute power in the form of a
temporary dictatorship."88
Nicollo Machiavelli’s view of emergency powers, as one element in the
whole scheme of limited government, furnished an ironic contrast to the
Lockean theory of prerogative. He recognized and attempted to bridge
this chasm in democratic political theory, thus:
Now, in a well-ordered society, it should never be necessary to resort to
extra –constitutional measures; for although they may for a time be
beneficial, yet the precedent is pernicious, for if the practice is once
established for good objects, they will in a little while be disregarded
under that pretext but for evil purposes. Thus, no republic will ever be
perfect if she has not by law provided for everything, having a remedy for
every emergency and fixed rules for applying it.89
Machiavelli – in contrast to Locke, Rosseau and Mill – sought to
incorporate into the constitution a regularized system of standby
emergency powers to be invoked with suitable checks and controls in
time of national danger. He attempted forthrightly to meet the problem of
combining a capacious reserve of power and speed and vigor in its
application in time of emergency, with effective constitutional
restraints.90
Contemporary political theorists, addressing themselves to the problem of
response to emergency by constitutional democracies, have employed the
doctrine of constitutional dictatorship.91 Frederick M. Watkins saw "no
reason why absolutism should not be used as a means for the defense
of liberal institutions," provided it "serves to protect established
institutions from the danger of permanent injury in a period of
temporary emergency and is followed by a prompt return to the
elements of the problem of emergency governance, as well as all
constitutional governance: increasing administrative powers of the
executive, while at the same time "imposing limitation upon that
power."93Watkins placed his real faith in a scheme of constitutional
dictatorship. These are the conditions of success of such a
dictatorship: "The period of dictatorship must be relatively short…
Dictatorship should always be strictly legitimate in character…Final
authority to determine the need for dictatorship in any given case
must never rest with the dictator himself…"94 and the objective of such
an emergency dictatorship should be "strict political conservatism." 
Carl J. Friedrich cast his analysis in terms similar to those of
Watkins.95 "It is a problem of concentrating power – in a government
where power has consciously been divided – to cope with… situations of
unprecedented magnitude and gravity. There must be a broad grant of
powers, subject to equally strong limitations as to who shall exercise such
powers, when, for how long, and to what end."96 Friedrich, too, offered
criteria for judging the adequacy of any of scheme of emergency powers,
to wit: "The emergency executive must be appointed by constitutional
means – i.e., he must be legitimate; he should not enjoy power to
determine the existence of an emergency; emergency powers should
be exercised under a strict time limitation; and last, the objective of
emergency action must be the defense of the constitutional order."97
emergency powers in Great Britain, France, Weimar, Germany and the
United States, reverted to a description of a scheme of "constitutional
dictatorship" as solution to the vexing problems presented by
emergency.98 Like Watkins and Friedrich, he stated a priori the
1) No general regime or particular institution of constitutional
dictatorship should be initiated unless it is necessary or even
order…
2) …the decision to institute a constitutional dictatorship should
never be in the hands of the man or men who will constitute the
dictator…
3) No government should initiate a constitutional dictatorship without
making specific provisions for its termination…
4) …all uses of emergency powers and all readjustments in the
organization of the government should be effected in pursuit of
constitutional or legal requirements…
5) … no dictatorial institution should be adopted, no right invaded,
no regular procedure altered any more than is absolutely necessary
for the conquest of the particular crisis . . .
6) The measures adopted in the prosecution of the a constitutional
dictatorship should never be permanent in character or effect…
7) The dictatorship should be carried on by persons representative of
every part of the citizenry interested in the defense of the existing
constitutional order. . .
8) Ultimate responsibility should be maintained for every action
taken under a constitutional dictatorship. . .
9) The decision to terminate a constitutional dictatorship, like the
decision to institute one should never be in the hands of the man or
men who constitute the dictator. . .
10) No constitutional dictatorship should extend beyond the
termination of the crisis for which it was instituted…
62
 11) …the termination of the crisis must be followed by a complete
return as possible to the political and governmental conditions
existing prior to the initiation of the constitutional dictatorship…99
Rossiter accorded to legislature a far greater role in the oversight exercise
of emergency powers than did Watkins. He would secure to Congress
final responsibility for declaring the existence or termination of an
emergency, and he places great faith in the effectiveness of congressional
investigating committees.100
Scott  and Cotter, in analyzing the above contemporary theories in light of
recent experience, were one in saying that, "the suggestion that
democracies surrender the control of government to an authoritarian
ruler in time of grave danger to the nation is not based upon sound
constitutional theory." To appraise emergency power in terms of
constitutional dictatorship serves merely to distort the problem and hinder
realistic analysis. It matters not whether the term "dictator" is used in its
normal sense (as applied to authoritarian rulers) or is employed to
embrace all chief executives administering emergency powers. However
used, "constitutional dictatorship" cannot be divorced from the
implication of suspension of the processes of constitutionalism. Thus,
they favored instead the "concept of constitutionalism" articulated by
Charles H. McIlwain:
A concept of constitutionalism which is less misleading in the analysis of
problems of emergency powers, and which is consistent with the findings
of this study, is that formulated by Charles H. McIlwain. While it does
not by any means necessarily exclude some indeterminate limitations
upon the substantive powers of government, full emphasis is placed
upon procedural limitations, and political responsibility. McIlwain
clearly recognized the need to repose adequate power in government.
And in discussing the meaning of constitutionalism, he insisted that
the historical and proper test of constitutionalism was the existence of
adequate processes for keeping government responsible. He refused to
equate constitutionalism with the enfeebling of government by an
exaggerated emphasis upon separation of powers and substantive
limitations on governmental power. He found that the really effective
checks on despotism have consisted not in the weakening of government
but, but rather in the limiting of it; between which there is a great and
very significant difference. In associating constitutionalism with
"limited" as distinguished from "weak" government, McIlwain
meant government limited to the orderly procedure of law as
opposed to the processes of force. The two fundamental correlative
elements of constitutionalism for which all lovers of liberty must yet
fight are the legal limits to arbitrary power and a complete political
responsibility of government to the governed.101
In the final analysis, the various approaches to emergency of the above
political theorists –- from Lock’s "theory of prerogative," to Watkins’
doctrine of "constitutional dictatorship" and, eventually, to McIlwain’s
"principle of constitutionalism" --- ultimately aim to solve one real
problem in emergency governance, i.e., that of allotting increasing
areas of discretionary power to the Chief Executive, while insuring
that such powers will be exercised with a sense of political
responsibility and under effective limitations and checks.
Our Constitution has fairly coped with this problem. Fresh from the
fetters of a repressive regime, the 1986 Constitutional Commission, in
drafting the 1987 Constitution, endeavored to create a government in the
concept of Justice Jackson’s "balanced power structure." 102 Executive,
legislative, and judicial powers are dispersed to the President, the
Congress, and the Supreme Court, respectively. Each is supreme within
its own sphere. But none has the monopoly of power in times of
emergency. Each branch is given a role to serve as limitation or
check upon the other. This system does not weaken the President, it
just limits his power, using the language of McIlwain. In other words, in
times of emergency, our Constitution reasonably demands that we repose
a certain amount of faith in the basic integrity and wisdom of the Chief
Executive but, at the same time, it obliges him to operate within
carefully prescribed procedural limitations.  In other words, a facial challenge using the overbreadth doctrine will
a. "Facial Challenge"
Petitioners contend that PP 1017 is void on its face because of its
"overbreadth." They claim that its enforcement encroached on both
unprotected and protected rights under Section 4, Article III of the
Constitution and sent a "chilling effect" to the citizens. 
A facial review of PP 1017, using the overbreadth doctrine, is uncalled
for.
First and foremost, the overbreadth doctrine is an analytical tool
developed for testing "on their faces" statutes in free speech cases, also
known under the American Law as First Amendment cases.103
A plain reading of PP 1017 shows that it is not primarily directed to
speech or even speech-related conduct. It is actually a call upon the AFP
to prevent or suppress all forms of lawless violence. In United States v.
Salerno,104the US Supreme Court held that "we have not recognized an
‘overbreadth’ doctrine outside the limited context of the First
Amendment" (freedom of speech). 
Moreover, the overbreadth doctrine is not intended for testing the validity
of a law that "reflects legitimate state interest in maintaining
comprehensive control over harmful, constitutionally unprotected
conduct." Undoubtedly, lawless violence, insurrection and rebellion are
considered "harmful" and "constitutionally unprotected conduct."
In Broadrick v. Oklahoma,105 it was held: 
It remains a ‘matter of no little difficulty’ to determine when a law may
properly be held void on its face and when ‘such summary action’ is
inappropriate. But the plain import of our cases is, at the very least,
that facial overbreadth adjudication is an exception to our traditional
rules of practice and that its function, a limited one at the outset,
attenuates as the otherwise unprotected behavior that it forbids the
State to sanction moves from ‘pure speech’ toward conduct and that
conduct –even if expressive – falls within the scope of otherwise valid
criminal laws that reflect legitimate state interests in maintaining
comprehensive controls over harmful, constitutionally unprotected
conduct. 
Thus, claims of facial overbreadth are entertained in cases involving
statutes which, by their terms, seek to regulate only "spoken words"
and again, that "overbreadth claims, if entertained at all, have been
curtailed when invoked against ordinary criminal laws that are
sought to be applied to protected conduct."106 Here, the
incontrovertible fact remains that PP 1017 pertains to a spectrum
of conduct, not free speech, which is manifestly subject to state
regulation. 
Second, facial invalidation of laws is considered as "manifestly strong
medicine," to be used "sparingly and only as a last resort," and is
"generally disfavored;"107 The reason for this is obvious. Embedded in
the traditional rules governing constitutional adjudication is the principle
that a person to whom a law may be applied will not be heard to
challenge a law on the ground that it may conceivably be applied
unconstitutionally to others, i.e., in other situations not before the
Court.108 A writer and scholar in Constitutional Law explains further:
The most distinctive feature of the overbreadth technique is that it
marks an exception to some of the usual rules of constitutional
litigation. Ordinarily, a particular litigant claims that a statute is
unconstitutional as applied to him or her; if the litigant prevails, the
courts carve away the unconstitutional aspects of the law by
invalidating its improper applications on a case to case basis.
Moreover, challengers to a law are not permitted to raise the rights
of third parties and can only assert their own interests. In
overbreadth analysis, those rules give way; challenges are permitted
to raise the rights of third parties; and the court invalidates the entire
statute "on its face," not merely "as applied for" so that the overbroad law
becomes unenforceable until a properly authorized court construes it
more narrowly. The factor that motivates courts to depart from the
normal adjudicatory rules is the concern with the "chilling;" deterrent
effect of the overbroad statute on third parties not courageous enough to
bring suit. The Court assumes that an overbroad law’s "very existence
may cause others not before the court to refrain from constitutionally
protected speech or expression." An overbreadth ruling is designed to
remove that deterrent effect on the speech of those third parties.
require the Court to examine PP 1017 and pinpoint its flaws and defects,
not on the basis of its actual operation to petitioners, but on the
assumption or prediction that its very existence may cause others not
before the Court to refrain from constitutionally protected speech or
expression. In Younger v. Harris,109 it was held that:
[T]he task of analyzing a proposed statute, pinpointing its deficiencies,
and requiring correction of these deficiencies before the statute is put into
effect, is rarely if ever an appropriate task for the judiciary. The
combination of the relative remoteness of the controversy, the impact
on the legislative process of the relief sought, and above all the
speculative and amorphous nature of the required line-by-line
analysis of detailed statutes,...ordinarily results in a kind of case that
is wholly unsatisfactory for deciding constitutional questions, whichever
way they might be decided.
63
And third, a facial challenge on the ground of overbreadth is the most
difficult challenge to mount successfully, since the challenger must
establish that there can be no instance when the assailed law may be
valid. Here, petitioners did not even attempt to show whether this
situation exists.
Petitioners likewise seek a facial review of PP 1017 on the ground of
vagueness. This, too, is unwarranted.
Related to the "overbreadth" doctrine is the "void for vagueness doctrine"
which holds that "a law is facially invalid if men of common
intelligence must necessarily guess at its meaning and differ as to its
application."110 It is subject to the same principles governing overbreadth
doctrine. For one, it is also an analytical tool for testing "on their
faces" statutes in free speech cases. And like overbreadth, it is said that
a litigant may challenge a statute on its face only if it is vague in all its
possible applications. Again, petitioners did not even attempt to show
that PP 1017 is vague in all its application. They also failed to establish
that men of common intelligence cannot understand the meaning and
application of PP 1017. 
b. Constitutional Basis of PP 1017
Now on the constitutional foundation of PP 1017.
The operative portion of PP 1017 may be divided into three important
provisions, thus:
First provision:
"by virtue of the power vested upon me by Section 18, Artilce VII … do
hereby command the Armed Forces of the Philippines, to maintain law
and order throughout the Philippines, prevent or suppress all forms of
lawless violence as well any act of insurrection or rebellion"
Second provision:
"and to enforce obedience to all the laws and to all decrees, orders and
regulations promulgated by me personally or upon my direction;"  powers as Chief Executive, the statutory authority cited in Sanlakas was
Third provision:
"as provided in Section 17, Article XII of the Constitution do hereby
declare a State of National Emergency."
First Provision: Calling-out Power  of an executive order.
The first provision pertains to the President’s calling-out power.
In Sanlakas v. Executive Secretary,111 this Court, through Mr. Justice
Dante O. Tinga, held that Section 18, Article VII of the Constitution
reproduced as follows:  of Sanlakas, is harmless, without legal significance, and deemed not
Sec. 18. The President shall be the Commander-in-Chief of all armed
forces of the Philippines and whenever it becomes necessary, he may
call out such armed forces to prevent or suppress lawless violence,
invasion or rebellion. In case of invasion or rebellion, when the public
safety requires it, he may, for a period not exceeding sixty days, suspend
the privilege of the writ of habeas corpus or place the Philippines or any
part thereof under martial law. Within forty-eight hours from the
proclamation of martial law or the suspension of the privilege of the writ
of habeas corpus, the President shall submit a report in person or in
writing to the Congress. The Congress, voting jointly, by a vote of at least
a majority of all its Members in regular or special session, may revoke
such proclamation or suspension, which revocation shall not be set aside
by the President. Upon the initiative of the President, the Congress may,
in the same manner, extend such proclamation or suspension for a period
to be determined by the Congress, if the invasion or rebellion shall persist
and public safety requires it.
The Congress, if not in session, shall within twenty-four hours following
such proclamation or suspension, convene in accordance with its rules
without need of a call.
The Supreme Court may review, in an appropriate proceeding filed by
any citizen, the sufficiency of the factual bases of the proclamation of
martial law or the suspension of the privilege of the writ or the extension
thereof, and must promulgate its decision thereon within thirty days from
its filing.
A state of martial law does not suspend the operation of the Constitution,
nor supplant the functioning of the civil courts or legislative assemblies,
nor authorize the conferment of jurisdiction on military courts and
agencies over civilians where civil courts are able to function, nor
automatically suspend the privilege of the writ.
The suspension of the privilege of the writ shall apply only to persons
judicially charged for rebellion or offenses inherent in or directly
connected with invasion.
During the suspension of the privilege of the writ, any person thus
arrested or detained shall be judicially charged within three days,
otherwise he shall be released.
grants the President, as Commander-in-Chief, a "sequence" of graduated
powers. From the most to the least benign, these are: the calling-out
power, the power to suspend the privilege of the writ of habeas corpus,
and the power to declare Martial Law. Citing Integrated Bar of the
Philippines v. Zamora,112 the Court ruled that the only criterion for the
exercise of the calling-out power is that "whenever it becomes
necessary," the President may call the armed forces "to prevent or
suppress lawless violence, invasion or rebellion." Are these conditions
present in the instant cases? As stated earlier, considering the
circumstances then prevailing, President Arroyo found it necessary to
issue PP 1017. Owing to her Office’s vast intelligence network, she is in
the best position to determine the actual condition of the country.
Under the calling-out power, the President may summon the armed forces
to aid him in suppressing lawless violence, invasion and rebellion. This
involves ordinary police action. But every act that goes beyond the
President’s calling-out power is considered illegal or  ultra vires. For this
reason, a President must be careful in the exercise of his powers. He
cannot invoke a greater power when he wishes to act under a lesser
power. There lies the wisdom of our Constitution, the greater the power,
the greater are the limitations.
It is pertinent to state, however, that there is a distinction between the
President’s authority to declare a "state of rebellion" (in Sanlakas) and
the authority to proclaim a state of national emergency. While President
Arroyo’s authority to declare a "state of rebellion" emanates from her
Section 4, Chapter 2, Book II of the Revised Administrative Code of
1987, which provides:
SEC. 4. – Proclamations. – Acts of the President fixing a date or
declaring a status or condition of public moment or interest, upon the
existence of which the operation of a specific law or regulation is made to
depend, shall be promulgated in proclamations which shall have the force
President Arroyo’s declaration of a "state of rebellion" was merely an act
declaring a status or condition of public moment or interest, a declaration
allowed under Section 4 cited above. Such declaration, in the words
written. In these cases, PP 1017 is more than that. In declaring a state of
national emergency, President Arroyo did not only rely on Section 18,
Article VII of the Constitution, a provision calling on the AFP to prevent
or suppress lawless violence, invasion or rebellion. She also relied on
Section 17, Article XII, a provision on the State’s extraordinary power to
take over privately-owned public utility and business affected with public
interest. Indeed, PP 1017 calls for the exercise of an awesome power.
Obviously, such Proclamation cannot be deemed harmless, without legal
significance, or not written, as in the case of Sanlakas.
Some of the petitioners vehemently maintain that PP 1017 is actually a
declaration of Martial Law. It is no so. What defines the character of PP
1017 are its wordings. It is plain therein that what the President invoked
was her calling-out power.
The declaration of Martial Law is a "warn[ing] to citizens that the
military power has been called upon by the executive to assist in the
maintenance of law and order, and that, while the emergency lasts, they
must, upon pain of arrest and punishment, not commit any acts which
will in any way render more difficult the restoration of order and the
enforcement of law."113
In his "Statement before the Senate Committee on Justice" on March 13,
2006, Mr. Justice Vicente V. Mendoza,114an authority in constitutional
law, said that of the three powers of the President as Commander-in-
Chief, the power to declare Martial Law poses the most severe threat to
civil liberties. It is a strong medicine which should not be resorted to
lightly. It cannot be used to stifle or persecute critics of the government.
It is placed in the keeping of the President for the purpose of enabling
64
him to secure the people from harm and to restore order so that they can
enjoy their individual freedoms. In fact, Section 18, Art. VII, provides:
A state of martial law does not suspend the operation of the Constitution,
nor supplant the functioning of the civil courts or legislative assemblies,
nor authorize the conferment of jurisdiction on military courts and
agencies over civilians where civil courts are able to function, nor
automatically suspend the privilege of the writ.
Justice Mendoza also stated that PP 1017 is not a declaration of Martial
Law. It is no more than a call by the President to the armed forces to
prevent or suppress lawless violence. As such, it cannot be used to justify
acts that only under a valid declaration of Martial Law can be done. Its
use for any other purpose is a perversion of its nature and scope, and any
act done contrary to its command is ultra vires.  general or permanent character in implementation or execution of
Justice Mendoza further stated that specifically, (a) arrests and seizures
without judicial warrants; (b) ban on public assemblies; (c) take-over of
news media and agencies and press censorship; and (d) issuance of
Presidential Decrees, are powers which can be exercised by the President
as Commander-in-Chief only where there is a valid declaration of Martial
Law or suspension of the writ of habeas corpus. 
Based on the above disquisition, it is clear that PP 1017 is not a
declaration of Martial Law. It is merely an exercise of President
Arroyo’s calling-out power for the armed forces to assist her in
preventing or suppressing lawless violence.
Second Provision: "Take Care" Power
The second provision pertains to the power of the President to ensure that
the laws be faithfully executed. This is based on Section 17, Article VII
which reads:
SEC. 17. The President shall have control of all the executive
departments, bureaus, and offices. He shall ensure that the laws be
faithfully executed.
As the Executive in whom the executive power is vested,115 the primary
function of the President is to enforce the laws as well as to formulate
policies to be embodied in existing laws. He sees to it that all laws are
enforced by the officials and employees of his department. Before
assuming office, he is required to take an oath or affirmation to the effect
that as President of the Philippines, he will, among others, "execute its
laws."116 In the exercise of such function, the President, if needed, may
employ the powers attached to his office as the Commander-in-Chief of
all the armed forces of the country, 117 including the Philippine National
Police118 under the Department of Interior and Local Government.119
Petitioners, especially Representatives Francis Joseph G. Escudero, Satur
Ocampo, Rafael Mariano, Teodoro Casiño, Liza Maza, and Josel Virador
argue that PP 1017 is unconstitutional as it arrogated upon President
Arroyo the power to enact laws and decrees in violation of Section 1,
Article VI of the Constitution, which vests the power to enact laws in
Congress. They assail the clause "to enforce obedience to all the laws
and to all decrees, orders and regulations promulgated by me
personally or upon my direction."
\
Petitioners’ contention is understandable. A reading of PP 1017 operative
clause shows that it was lifted120 from Former President Marcos’
Proclamation No. 1081, which partly reads: 
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines by virtue of the powers vested upon me by Article VII,
Section 10, Paragraph (2) of the Constitution, do hereby place the entire
Philippines as defined in Article 1, Section 1 of the Constitution under
martial law and, in my capacity as their Commander-in-Chief, do hereby
command the Armed Forces of the Philippines, to maintain law and
order throughout the Philippines, prevent or suppress all forms of
lawless violence as well as any act of insurrection or rebellion and to
enforce obedience to all the laws and decrees, orders and regulations
promulgated by me personally or upon my direction.  The pertinent provision of PP 1017 states:
We all know that it was PP 1081 which granted President Marcos
legislative power. Its enabling clause states: "to enforce obedience to all
the laws and decrees, orders and regulations promulgated by me
personally or upon my direction." Upon the other hand, the enabling
clause of PP 1017 issued by President Arroyo is: to enforce obedience to
all the laws and to all decrees, orders and regulations promulgated by
me personally or upon my direction."
Is it within the domain of President Arroyo to promulgate "decrees"? 
PP 1017 states in part: "to enforce obedience to all the laws and decrees x
x x promulgated by me personally or upon my direction." 
The President is granted an Ordinance Power under Chapter 2, Book III
of Executive Order No. 292 (Administrative Code of 1987). She may
issue any of the following:
Sec. 2. Executive Orders. — Acts of the President providing for rules of a
constitutional or statutory powers shall be promulgated in executive
orders. 
Sec. 3. Administrative Orders. — Acts of the President which relate to
particular aspect of governmental operations in pursuance of his duties as
administrative head shall be promulgated in administrative orders. 
Sec. 4. Proclamations. — Acts of the President fixing a date or declaring
a status or condition of public moment or interest, upon the existence of
which the operation of a specific law or regulation is made to depend,
shall be promulgated in proclamations which shall have the force of an
executive order. 
Sec. 5. Memorandum Orders. — Acts of the President on matters of
administrative detail or of subordinate or temporary interest which only
concern a particular officer or office of the Government shall be
embodied in memorandum orders. 
Sec. 6. Memorandum Circulars. — Acts of the President on matters
relating to internal administration, which the President desires to bring to
the attention of all or some of the departments, agencies, bureaus or
offices of the Government, for information or compliance, shall be
embodied in memorandum circulars. 
Sec. 7. General or Special Orders. — Acts and commands of the
President in his capacity as Commander-in-Chief of the Armed Forces of
the Philippines shall be issued as general or special orders. 
President Arroyo’s ordinance power is limited to the foregoing issuances.
She cannot issue decrees similar to those issued by Former President
Marcos under PP 1081. Presidential Decrees are laws which are of the
same category and binding force as statutes because they were issued by
the President in the exercise of his legislative power during the period of
Martial Law under the 1973 Constitution.121
This Court rules that the assailed PP 1017 is unconstitutional insofar
as it grants President Arroyo the authority to promulgate
"decrees." Legislative power is peculiarly within the province of the
Legislature. Section 1, Article VI categorically states that "[t]he
legislative power shall be vested in the Congress of the Philippines
which shall consist of a Senate and a House of Representatives." To
be sure, neither Martial Law nor a state of rebellion nor a state of
emergency can justify President Arroyo’s exercise of legislative power by
issuing decrees.
Can President Arroyo enforce obedience to all decrees and laws through
the military?
As this Court stated earlier, President Arroyo has no authority to enact
decrees. It follows that these decrees are void and, therefore, cannot be
enforced. With respect to "laws," she cannot call the military to enforce
or implement certain laws, such as customs laws, laws governing family
and property relations, laws on obligations and contracts and the like. She
can only order the military, under PP 1017, to enforce laws pertinent to
its duty to suppress lawless violence.
Third Provision: Power to Take Over 
x x x and to enforce obedience to all the laws and to all decrees, orders,
and regulations promulgated by me personally or upon my direction; and
as provided in Section 17, Article XII of the Constitution do hereby
declare a state of national emergency.
65
The import of this provision is that President Arroyo, during the state of
national emergency under PP 1017, can call the military not only to
enforce obedience "to all the laws and to all decrees x x x" but also to act
pursuant to the provision of Section 17, Article XII which reads:
Sec. 17. In times of national emergency, when the public interest so
requires, the State may, during the emergency and under reasonable terms
prescribed by it, temporarily take over or direct the operation of any
privately-owned public utility or business affected with public interest.
What could be the reason of President Arroyo in invoking the above
provision when she issued PP 1017?
The answer is simple. During the existence of the state of national
emergency, PP 1017 purports to grant the President, without any
authority or delegation from Congress, to take over or direct the operation
of any privately-owned public utility or business affected with public
interest.
This provision was first introduced in the 1973 Constitution, as a product
of the "martial law" thinking of the 1971 Constitutional Convention.122 In
effect at the time of its approval was President Marcos’ Letter of
Instruction No. 2 dated September 22, 1972 instructing the Secretary of
National Defense to take over "the management, control and operation of
the Manila Electric Company, the Philippine Long Distance Telephone
Company, the National Waterworks and Sewerage Authority, the
Philippine National Railways, the Philippine Air Lines, Air Manila (and)
Filipinas Orient Airways . . . for the successful prosecution by the
Government of its effort to contain, solve and end the present national
emergency." 
Petitioners, particularly the members of the House of Representatives,
claim that President Arroyo’s inclusion of Section 17, Article XII in PP
1017 is an encroachment on the legislature’s emergency powers.  claimed that express constitutional language grants this power to the
This is an area that needs delineation.
A distinction must be drawn between the President’s authority
to declare "a state of national emergency" and to exercise emergency
powers. To the first, as elucidated by the Court, Section 18, Article VII
grants the President such power, hence, no legitimate constitutional
objection can be raised. But to the second, manifold constitutional issues
arise.  military power as Commander-in-Chief of the Armed Forces. The
Section 23, Article VI of the Constitution reads: 
SEC. 23. (1) The Congress, by a vote of two-thirds of both Houses in
joint session assembled, voting separately, shall have the sole power to
declare the existence of a state of war.
(2) In times of war or other national emergency, the Congress may, by
law, authorize the President, for a limited period and subject to such
restrictions as it may prescribe, to exercise powers necessary and proper
to carry out a declared national policy. Unless sooner withdrawn by
resolution of the Congress, such powers shall cease upon the next
adjournment thereof.
It may be pointed out that the second paragraph of the above provision
refers not only to war but also to "other national emergency." If the
intention of the Framers of our Constitution was to withhold from the
President the authority to declare a "state of national emergency"
pursuant to Section 18, Article VII (calling-out power) and grant it to
Congress (like the declaration of the existence of a state of war), then the
Framers could have provided so. Clearly, they did not intend that
Congress should first authorize the President before he can declare a
"state of national emergency." The logical conclusion then is that
President Arroyo could validly declare the existence of a state of national
emergency even in the absence of a Congressional enactment.  "emergency."
But the exercise of emergency powers, such as the taking over of
privately owned public utility or business affected with public interest, is
a different matter. This requires a delegation from Congress.  beyond that which is accepted as normal. Implicit in this definitions are
Courts have often said that constitutional provisions in pari materia  are
to be construed together. Otherwise stated, different clauses, sections, and
provisions of a constitution which relate to the same subject matter will
be construed together and considered in the light of each
other.123 Considering that Section 17 of Article XII and Section 23 of
Article VI, previously quoted, relate to national emergencies, they must
be read together to determine the limitation of the exercise of emergency
powers.  typhoon, flood, or other similar catastrophe of nationwide proportions or
Generally, Congress is the repository of emergency powers. This is
evident in the tenor of Section 23 (2), Article VI authorizing it to delegate
such powers to the President. Certainly, a body cannot delegate a
power not reposed upon it. However, knowing that during grave
emergencies, it may not be possible or practicable for Congress to meet
and exercise its powers, the Framers of our Constitution deemed it wise
to allow Congress to grant emergency powers to the President, subject to
certain conditions, thus:
(1) There must be a war or other emergency.
(2) The delegation must be for a limited period only.
(3) The delegation must be subject to such restrictions as the
Congress may prescribe.
(4) The emergency powers must be exercised to carry out a national
policy  declared by Congress.124
Section 17, Article XII must be understood as an aspect of the emergency
powers clause. The taking over of private business affected with public
interest is just another facet of the emergency powers generally reposed
upon Congress. Thus, when Section 17 states that the "the State may,
during the emergency and under reasonable terms prescribed by it,
temporarily take over or direct the operation of any privately owned
public utility or business affected with public interest," it refers to
Congress, not the President. Now, whether or not the President may
exercise such power is dependent on whether Congress may delegate it to
him pursuant to a law prescribing the reasonable terms
thereof. Youngstown Sheet & Tube Co. et al. v. Sawyer,125 held:
It is clear that if the President had authority to issue the order he did, it
must be found in some provision of the Constitution. And it is not
President. The contention is that presidential power should be implied
from the aggregate of his powers under the Constitution. Particular
reliance is placed on provisions in Article II which say that "The
executive Power shall be vested in a President . . . .;" that "he shall take
Care that the Laws be faithfully executed;" and that he "shall be
Commander-in-Chief of the Army and Navy of the United States.
The order cannot properly be sustained as an exercise of the President’s
Government attempts to do so by citing a number of cases upholding
broad powers in military commanders engaged in day-to-day fighting in a
theater of war. Such cases need not concern us here. Even though
"theater of war" be an expanding concept, we cannot with
faithfulness to our constitutional system hold that the Commander-
in-Chief of the Armed Forces has the ultimate power as such to take
possession of private property in order to keep labor disputes from
stopping production. This is a job for the nation’s lawmakers, not for
its military authorities.
Nor can the seizure order be sustained because of the several
constitutional provisions that grant executive power to the President.
In the framework of our Constitution, the President’s power to see
that the laws are faithfully executed refutes the idea that he is to be a
lawmaker. The Constitution limits his functions in the lawmaking
process to the recommending of laws he thinks wise and the vetoing
of laws he thinks bad. And the Constitution is neither silent nor
equivocal about who shall make laws which the President is to
execute. The first section of the first article says that "All legislative
Powers herein granted shall be vested in a Congress of the United
States. . ."126
Petitioner Cacho-Olivares, et al. contends that the term "emergency"
under Section 17, Article XII refers to "tsunami," "typhoon,"
"hurricane"and"similar occurrences." This is a limited view of
Emergency, as a generic term, connotes the existence of conditions
suddenly intensifying the degree of existing danger to life or well-being
the elements of intensity, variety, and perception.127 Emergencies, as
perceived by legislature or executive in the United Sates since 1933, have
been occasioned by a wide range of situations, classifiable under three (3)
principal heads: a)economic,128 b) natural disaster,129 and c) national
security.130
"Emergency," as contemplated in our Constitution, is of the same
breadth. It may include rebellion, economic crisis, pestilence or epidemic,
66
effect.131 This is evident in the Records of the Constitutional Commission,
thus:
MR. GASCON. Yes. What is the Committee’s definition of "national
emergency" which appears in Section 13, page 5? It reads:
When the common good so requires, the State may temporarily take over
or direct the operation of any privately owned public utility or business
affected with public interest.
MR. VILLEGAS. What I mean is threat from external aggression, for
example, calamities or natural disasters.
MR. GASCON. There is a question by Commissioner de los Reyes. What
about strikes and riots?
MR. VILLEGAS. Strikes, no; those would not be covered by the term
"national emergency."
MR. BENGZON. Unless they are of such proportions such that they
would paralyze government service.132
xxxxxx
MR. TINGSON. May I ask the committee if "national emergency" refers
to military national emergency or could this be economic emergency?"
MR. VILLEGAS. Yes, it could refer to both military or economic
dislocations.
MR. TINGSON. Thank you very much.133
It may be argued that when there is national emergency, Congress may
not be able to convene and, therefore, unable to delegate to the President
the power to take over privately-owned public utility or business affected
with public interest.
In Araneta v. Dinglasan,134 this Court emphasized that legislative power,
through which extraordinary measures are exercised, remains in Congress
even in times of crisis.
"x x x
After all the criticisms that have been made against the efficiency of the
system of the separation of powers, the fact remains that the Constitution
has set up this form of government, with all its defects and shortcomings,
in preference to the commingling of powers in one man or group of men.
The Filipino people by adopting parliamentary government have given
notice that they share the faith of other democracy-loving peoples in this
system, with all its faults, as the ideal. The point is, under this framework
of government, legislation is preserved for Congress all the time, not
excepting periods of crisis no matter how serious. Never in the history of
the United States, the basic features of whose Constitution have been
copied in ours, have specific functions of the legislative branch of
enacting laws been surrendered to another department – unless we regard
as legislating the carrying out of a legislative policy according to
prescribed standards; no, not even when that Republic was fighting a total
war, or when it was engaged in a life-and-death struggle to preserve the
Union. The truth is that under our concept of constitutional government,
in times of extreme perils more than in normal circumstances ‘the various
branches, executive, legislative, and judicial,’ given the ability to act, are
called upon ‘to perform the duties and discharge the responsibilities
committed to them respectively."
Following our interpretation of Section 17, Article XII, invoked by
President Arroyo in issuing PP 1017, this Court rules that such
Proclamation does not authorize her during the emergency to temporarily
take over or direct the operation of any privately owned public utility or
business affected with public interest without authority from Congress.  law. Such rules and regulations create no relation except between the
Let it be emphasized that while the President alone can declare a state of
national emergency, however, without legislation, he has no power to
take over privately-owned public utility or business affected with public
interest. The President cannot decide whether exceptional circumstances
exist warranting the take over of privately-owned public utility or
business affected with public interest. Nor can he determine when such
exceptional circumstances have ceased. Likewise, without
legislation,  the President has no power to point out the types of
businesses affected with public interest that should be taken over. In
short, the President has no absolute authority to exercise all the powers of
the State under Section 17, Article VII in the absence of an emergency
powers act passed by Congress. 
c. "AS APPLIED CHALLENGE"
One of the misfortunes of an emergency, particularly, that which pertains
to security, is that military necessity and the guaranteed rights of the
individual are often not compatible. Our history reveals that in the
crucible of conflict, many rights are curtailed and trampled upon. Here,
the right against unreasonable search and seizure; the right against
warrantless arrest; and the freedom of speech, of expression, of the
press, and of assembly under the Bill of Rights suffered the greatest
blow. 
Of the seven (7) petitions, three (3) indicate "direct injury." 
In G.R. No. 171396, petitioners David and Llamas alleged that, on
February 24, 2006, they were arrested without warrants on their way to
EDSA to celebrate the 20th Anniversary of People Power I. The
arresting officers cited PP 1017 as basis of the arrest. 
In G.R. No. 171409, petitioners Cacho-Olivares and Tribune  Publishing
Co., Inc. claimed that on February 25, 2006, the CIDG operatives "raided
and ransacked without warrant" their office. Three policemen were
assigned to guard their office as a possible "source of destabilization."
Again, the basis was PP 1017. 
And in G.R. No. 171483, petitioners KMU and NAFLU-KMU et
al. alleged that their members were "turned away and dispersed" when
they went to EDSA and later, to Ayala Avenue, to celebrate the 20th
Anniversary of People Power I.
A perusal of the "direct injuries" allegedly suffered by the said petitioners
shows that they resulted from the implementation, pursuant to G.O. No.
5, of PP 1017. 
Can this Court adjudge as unconstitutional PP 1017 and G.O. No 5 on
the basis of these illegal acts? In general, does the illegal implementation
of a law render it unconstitutional?
Settled is the rule that courts are not at liberty to declare statutes
invalid although they may be abused and misabused 135 and may
afford an opportunity for abuse in the manner of application.136 The
validity of a statute or ordinance is to be determined from its general
purpose and its efficiency to accomplish the end desired, not from its
effects in a particular case.137 PP 1017 is merely an invocation of the
President’s calling-out power. Its general purpose is to command the AFP
to suppress all forms of lawless violence, invasion or rebellion. It had
accomplished the end desired which prompted President Arroyo to issue
PP 1021. But there is nothing in PP 1017 allowing the police, expressly
or impliedly, to conduct illegal arrest, search or violate the citizens’
constitutional rights.
Now, may this Court adjudge a law or ordinance unconstitutional on the
ground that its implementor committed illegal acts? The answer is no.
The criterion by which the validity of the statute or ordinance is to be
measured is the essential basis for the exercise of power, and not a mere
incidental result arising from its exertion.138 This is logical. Just
imagine the absurdity of situations when laws maybe declared
unconstitutional just because the officers implementing them have acted
arbitrarily. If this were so, judging from the blunders committed by
policemen in the cases passed upon by the Court, majority of the
provisions of the Revised Penal Code would have been declared
unconstitutional a long time ago. 
President Arroyo issued G.O. No. 5 to carry into effect the provisions of
PP 1017. General orders are "acts and commands of the President in his
capacity as Commander-in-Chief of the Armed Forces of the
Philippines." They are internal rules issued by the executive officer to his
subordinates precisely for the proper and efficientadministration of
official who issues them and the official who receives them.139 They are
based on and are the product of, a relationship in which power is their
source, and obedience, their object.140 For these reasons, one requirement
for these rules to be valid is that they must be reasonable, not arbitrary
or capricious.
G.O. No. 5 mandates the AFP and the PNP to immediately carry out the
"necessary and appropriate actions and measures to suppress and
prevent acts of terrorism and lawless violence." 
67
Unlike the term "lawless violence" which is unarguably extant in our
statutes and the Constitution, and which is invariably associated with
"invasion, insurrection or rebellion," the phrase "acts of terrorism" is still
an amorphous and vague concept. Congress has yet to enact a law
defining and punishing acts of terrorism.
In fact, this "definitional predicament" or the "absence of an agreed
definition of terrorism" confronts not only our country, but the
international community as well. The following observations are quite
apropos:
In the actual unipolar context of international relations, the "fight against
terrorism" has become one of the basic slogans when it comes to the
justification of the use of force against certain states and against groups
operating internationally. Lists of states "sponsoring terrorism" and of
terrorist organizations are set up and constantly being updated according
to criteria that are not always known to the public, but are clearly
determined by strategic interests.
The basic problem underlying all these military actions – or threats of the
use of force as the most recent by the United States against Iraq – consists
in the absence of an agreed definition of terrorism.
Remarkable confusion persists in regard to the legal categorization of acts
of violence either by states, by armed groups such as liberation
movements, or by individuals.
The dilemma can by summarized in the saying "One country’s terrorist is
another country’s freedom fighter." The apparent contradiction or lack of
consistency in the use of the term "terrorism" may further be
demonstrated by the historical fact that leaders of national liberation
movements such as Nelson Mandela in South Africa, Habib Bourgouiba
in Tunisia, or Ahmed Ben Bella in Algeria, to mention only a few, were
originally labeled as terrorists by those who controlled the territory at the
time, but later became internationally respected statesmen.
What, then, is the defining criterion for terrorist acts – the differentia
specifica distinguishing those acts from eventually legitimate acts of
national resistance or self-defense?
Since the times of the Cold War the United Nations Organization has
been trying in vain to reach a consensus on the basic issue of definition.
The organization has intensified its efforts recently, but has been unable
to bridge the gap between those who associate "terrorism" with any
violent act by non-state groups against civilians, state functionaries or
infrastructure or military installations, and those who believe in the
concept of the legitimate use of force when resistance against foreign
occupation or against systematic oppression of ethnic and/or religious
groups within a state is concerned. 
The dilemma facing the international community can best be illustrated
by reference to the contradicting categorization of organizations and
movements such as Palestine Liberation Organization (PLO) – which is a
terrorist group for Israel and a liberation movement for Arabs and
Muslims – the Kashmiri resistance groups – who are terrorists in the
perception of India, liberation fighters in that of Pakistan – the earlier
Contras in Nicaragua – freedom fighters for the United States, terrorists
for the Socialist camp – or, most drastically, the Afghani Mujahedeen
(later to become the Taliban movement): during the Cold War period they
were a group of freedom fighters for the West, nurtured by the United
States, and a terrorist gang for the Soviet Union. One could go on and on
in enumerating examples of conflicting categorizations that cannot be
reconciled in any way – because of opposing political interests that are at
the roots of those perceptions.
How, then, can those contradicting definitions and conflicting perceptions
and evaluations of one and the same group and its actions be explained?
In our analysis, the basic reason for these striking inconsistencies lies in
the divergent interest of states. Depending on whether a state is in the
position of an occupying power or in that of a rival, or adversary, of an
occupying power in a given territory, the definition of terrorism will
"fluctuate" accordingly. A state may eventually see itself as protector of
the rights of a certain ethnic group outside its territory and will therefore
speak of a "liberation struggle," not of "terrorism" when acts of violence
by this group are concerned, and vice-versa.
The United Nations Organization has been unable to reach a decision on
the definition of terrorism exactly because of these conflicting interests of
sovereign states that determine in each and every instance how a
particular armed movement (i.e. a non-state actor) is labeled in regard to
the terrorists-freedom fighter dichotomy. A "policy of double standards"
on this vital issue of international affairs has been the unavoidable
consequence.
This "definitional predicament" of an organization consisting of
sovereign states – and not of peoples, in spite of the emphasis in the
Preamble to the United Nations Charter! – has become even more serious
in the present global power constellation: one superpower exercises the
decisive role in the Security Council, former great powers of the Cold
War era as well as medium powers are increasingly being marginalized;
and the problem has become even more acute since the terrorist attacks of
11 September 2001 I the United States.141
The absence of a law defining "acts of terrorism" may result in abuse and
oppression on the part of the police or military. An illustration is when a
group of persons are merely engaged in a drinking spree. Yet the military
or the police may consider the act as an act of terrorism and immediately
arrest them pursuant to G.O. No. 5. Obviously, this is abuse and
oppression on their part. It must be remembered that an act can only be
considered a crime if there is a law defining the same as such and
imposing the corresponding penalty thereon.
So far, the word "terrorism" appears only once in our criminal laws, i.e.,
in P.D. No. 1835 dated January 16, 1981 enacted by President Marcos
during the Martial Law regime. This decree is entitled "Codifying The
Various Laws on Anti-Subversion and Increasing The Penalties for
Membership in Subversive Organizations." The word "terrorism" is
mentioned in the following provision: "That one who conspires with any
other person for the purpose of overthrowing the Government of the
Philippines x x x by force, violence, terrorism, x x x shall be punished
by reclusion temporal  x x x."
P.D. No. 1835 was repealed by E.O. No. 167 (which outlaws the
Communist Party of the Philippines) enacted by President Corazon
Aquino on May 5, 1985. These two (2) laws, however, do not define
"acts of terrorism." Since there is no law defining "acts of terrorism," it is
President Arroyo alone, under G.O. No. 5, who has the discretion to
determine what acts constitute terrorism. Her judgment on this aspect is
absolute, without restrictions. Consequently, there can be indiscriminate
arrest without warrants, breaking into offices and residences, taking over
the media enterprises, prohibition and dispersal of all assemblies and
gatherings unfriendly to the administration. All these can be effected in
the name of G.O. No. 5. These acts go far beyond the calling-out power
of the President. Certainly, they violate the due process clause of the
Constitution. Thus, this Court declares that the "acts of terrorism" portion
of G.O. No. 5 is unconstitutional.
Significantly, there is nothing in G.O. No. 5 authorizing the military or
police to commit acts beyond what are necessary and appropriate to
suppress and prevent lawless violence, the limitation of their authority
in pursuing the Order. Otherwise, such acts are considered illegal. 
We first examine G.R. No. 171396 (David et al.)
The Constitution provides that "the right of the people to be secured in
their persons, houses, papers and effects against unreasonable search and
seizure of whatever nature and for any purpose shall be inviolable,  and
no search warrant or warrant of arrest shall issue except upon probable
cause to be determined personally by the judge after examination under
oath or affirmation of the complainant and the witnesses he may produce,
and particularly describing the place to be searched and the persons or
things to be seized."142 The plain import of the language of the
Constitution is that searches, seizures and arrests
are normally unreasonable unless authorized by a validly issued search
warrant or warrant of arrest. Thus, the fundamental protection given by
this provision is that between person and police must stand the protective
authority of a magistrate clothed with power to issue or refuse to issue
search warrants or warrants of arrest.143
In the Brief Account144 submitted by petitioner David, certain facts are
established: first, he was arrested without warrant; second, the PNP
operatives arrested him on the basis of PP 1017; third, he was brought at
Camp Karingal, Quezon City where he was fingerprinted, photographed
and booked like a criminal suspect; fourth,he was treated brusquely by
policemen who "held his head and tried to push him" inside an unmarked
car; fifth, he was charged with Violation of Batas Pambansa Bilang No.
880145 and Inciting to Sedition; sixth,  he was detained for seven (7)
hours; and seventh,he was eventually released for insufficiency of
evidence. 
Section 5, Rule 113 of the Revised Rules on Criminal Procedure
provides:
Sec. 5. Arrest without warrant; when lawful. - A peace officer or a
private person may, without a warrant, arrest a person:
68
 (a) When, in his presence, the person to be arrested has committed, is
actually committing, or is attempting to commit an offense.
(b) When an offense has just been committed and he has probable
cause to believe based on personal knowledge of facts or
circumstances that the person to be arrested has committed it; and
x x x.
Neither of the two (2) exceptions mentioned above justifies petitioner
David’s warrantless arrest. During the inquest for the charges of inciting
to sedition and violation of BP 880, all that the arresting officers could
invoke was their observation that some rallyists were wearing t-shirts
with the invective "Oust Gloria Now" and their erroneous assumption
that petitioner David was the leader of the rally.146 Consequently, the
Inquest Prosecutor ordered his immediate release on the ground of
insufficiency of evidence. He noted that petitioner David was not wearing
the subject t-shirt and even if he was wearing it, such fact is insufficient
to charge him with inciting to sedition. Further, he also stated that there
is insufficient evidence for the charge of violation of BP 880 as it was
not even known whether petitioner David was the leader of the rally.147
But what made it doubly worse for petitioners David et al. is that not only
was their right against warrantless arrest violated, but also their right to
peaceably assemble.
Section 4 of Article III guarantees:
No law shall be passed abridging the freedom of speech, of expression, or
of the press, or the right of the people peaceably to assemble and petition
the government for redress of grievances.
"Assembly" means a right on the part of the citizens to meet peaceably
for consultation in respect to public affairs. It is a necessary consequence
of our republican institution and complements the right of speech. As in
the case of freedom of expression, this right is not to be limited, much
less denied, except on a showing of a clear and present danger of a
substantive evil that Congress has a right to prevent. In other words, like
other rights embraced in the freedom of expression, the right to assemble
is not subject to previous restraint or censorship. It may not be
conditioned upon the prior issuance of a permit or authorization from the
government authorities except, of course, if the assembly is intended to
be held in a public place, a permit for the use of such place, and not for
the assembly itself, may be validly required.  probable cause in connection with one specific offence to be determined
The ringing truth here is that petitioner David, et al. were arrested while
they were exercising their right to peaceful assembly. They were not
committing any crime, neither was there a showing of a clear and present
danger that warranted the limitation of that right. As can be gleaned from
circumstances, the charges of inciting to sedition and violation of BP
880 were mere afterthought. Even the Solicitor General, during the oral
argument, failed to justify the arresting officers’ conduct. In De Jonge v.
Oregon,148 it was held that peaceable assembly cannot be made a crime,
thus:
Peaceable assembly for lawful discussion cannot be made a crime. The
holding of meetings for peaceable political action cannot be proscribed.
Those who assist in the conduct of such meetings cannot be branded as
criminals on that score. The question, if the rights of free speech and
peaceful assembly are not to be preserved, is not as to the auspices under
which the meeting was held but as to its purpose; not as to the relations of
the speakers, but whether their utterances transcend the bounds of the
freedom of speech which the Constitution protects. If the persons
assembling have committed crimes elsewhere, if they have formed or are
engaged in a conspiracy against the public peace and order, they may be
prosecuted for their conspiracy or other violations of valid laws. But it is
a different matter when the State, instead of prosecuting them for
such offenses, seizes upon mere participation in a peaceable assembly
and a lawful public discussion as the basis for a criminal charge.
On the basis of the above principles, the Court likewise considers the
dispersal and arrest of the members of KMU et al. (G.R. No. 171483)
unwarranted. Apparently, their dispersal was done merely on the basis of
Malacañang’s directive canceling all permits previously issued by local
government units. This is arbitrary. The wholesale cancellation of all
permits to rally is a blatant disregard of the principle that "freedom of
assembly is not to be limited, much less denied, except on a showing
of a clear and present danger of a substantive evil that the State has a
right to prevent."149 Tolerance is the rule and limitation is the exception.
Only upon a showing that an assembly presents a clear and present
danger that the State may deny the citizens’ right to exercise it. Indeed,
respondents failed to show or convince the Court that the rallyists
committed acts amounting to lawless violence, invasion or rebellion.
With the blanket revocation of permits, the distinction between protected
and unprotected assemblies was eliminated. 
Moreover, under BP 880, the authority to regulate assemblies and rallies
is lodged with the local government units. They have the power to issue
permits and to revoke such permits after due notice and hearing on the
determination of the presence of clear and present danger. Here,
petitioners were not even notified and heard on the revocation of their
permits.150 The first time they learned of it was at the time of the
dispersal. Such absence of notice is a fatal defect. When a person’s right
is restricted by government action, it behooves a democratic government
to see to it that the restriction is fair, reasonable, and according to
procedure.
G.R. No. 171409, (Cacho-Olivares, et al.) presents another facet of
freedom of speech i.e., the freedom of the press. Petitioners’ narration of
facts, which the Solicitor General failed to refute, established the
following: first, the Daily Tribune’s offices were searched without
warrant;second, the police operatives seized several materials for
publication; third, the search was conducted at about 1:00 o’ clock in the
morning of February 25, 2006; fourth, the search was conducted in the
absence of any official of the Daily Tribune except the security guard of
the building; and fifth,  policemen stationed themselves at the vicinity of
the Daily Tribune offices. 
Thereafter, a wave of warning came from government officials.
Presidential Chief of Staff Michael Defensor was quoted as saying that
such raid was "meant to show a ‘strong presence,’ to tell media outlets
not to connive or do anything that would help the rebels in bringing
down this government." Director General Lomibao further stated
that "if they do not follow the standards –and the standards are if
they would contribute to instability in the government, or if they do
not subscribe to what is in General Order No. 5 and Proc. No. 1017 –
we will recommend a ‘takeover.’" National Telecommunications
Commissioner Ronald Solis urged television and radio networks
to "cooperate" with the government for the duration of the state of
national emergency. He warned that his agency will not hesitate to
recommend the closure of any broadcast outfit that violates rules set
out for media coverage during times when the national security is
threatened.151
The search is illegal. Rule 126 of The Revised Rules on Criminal
Procedure lays down the steps in the conduct of search and
seizure. Section 4 requires that a search warrant be issued upon
personally by the judge after examination under oath or affirmation of the
complainant and the witnesses he may produce. Section 8 mandates that
the search of a house, room, or any other premise be made in the
presence of the lawful occupant thereof or any member of his family or
in the absence of the latter, in the presence of two (2) witnesses of
sufficient age and discretion residing in the same locality. And Section
9 states that the warrant must direct that it be served in the daytime,
unless the property is on the person or in the place ordered to be searched,
in which case a direction may be inserted that it be served at any time of
the day or night. All these rules were violated by the CIDG operatives. 
Not only that, the search violated petitioners’ freedom of the press. The
best gauge of a free and democratic society rests in the degree of freedom
enjoyed by its media. In the  Burgos v. Chief of Staff152 this Court held that
-- 
As heretofore stated, the premises searched were the business and
printing offices of the "Metropolitan Mail" and the "We Forum"
newspapers. As a consequence of the search and seizure, these premises
were padlocked and sealed, with the further result that the printing
and publication of said newspapers were discontinued.
Such closure is in the nature of previous restraint or censorship
abhorrent to the freedom of the press guaranteed under the
fundamental law, and constitutes a virtual denial of petitioners'
freedom to express themselves in print. This state of being is patently
anathematic to a democratic framework where a free, alert and even
militant press is essential for the political enlightenment and growth
of the citizenry.
While admittedly, the Daily Tribune was not padlocked and sealed like
the "Metropolitan Mail" and "We Forum" newspapers in the above case,
yet it cannot be denied that the CIDG operatives exceeded their
enforcement duties. The search and seizure of materials for publication,
the stationing of policemen in the vicinity of the The Daily
Tribune  offices, and the arrogant warning of government officials to
media, are plain censorship. It is that officious functionary of the
repressive government who tells the citizen that he may speak only if
allowed to do so, and no more and no less than what he is permitted to
69
say on pain of punishment should he be so rash as to
disobey.153Undoubtedly, the The Daily Tribune was subjected to these
arbitrary intrusions because of its anti-government sentiments. This Court
cannot tolerate the blatant disregard of a constitutional right even if it
involves the most defiant of our citizens. Freedom to comment on public
affairs is essential to the vitality of a representative democracy. It is the
duty of the courts to be watchful for the constitutional rights of the
citizen, and against any stealthy encroachments thereon. The motto
should always be obsta principiis.154
Incidentally, during the oral arguments, the Solicitor General admitted
that the search of the Tribune’s offices and the seizure of its materials for
publication and other papers are illegal; and that the same are
inadmissible "for any purpose," thus:
JUSTICE CALLEJO:
You made quite a mouthful of admission when you said that the
policemen, when inspected the Tribune for the purpose of gathering
evidence and you admitted that the policemen were able to get the
clippings. Is that not in admission of the admissibility of these clippings
that were taken from the Tribune?
SOLICITOR GENERAL BENIPAYO:
Under the law they would seem to be, if they were illegally seized, I think
and I know, Your Honor, and these are inadmissible for any purpose.155
xxxxxxxxx
SR. ASSO. JUSTICE PUNO:
These have been published in the past issues of the Daily Tribune; all you
have to do is to get those past issues. So why do you have to go there at 1
o’clock in the morning and without any search warrant? Did they become
suddenly part of the evidence of rebellion or inciting to sedition or what?
SOLGEN BENIPAYO:
Well, it was the police that did that, Your Honor. Not upon my
instructions.
SR. ASSO. JUSTICE PUNO:
Are you saying that the act of the policeman is illegal, it is not based on
any law, and it is not based on Proclamation 1017.
SOLGEN BENIPAYO:
It is not based on Proclamation 1017, Your Honor, because there is
nothing in 1017 which says that the police could go and inspect and
gather clippings from Daily Tribune or any other newspaper.
SR. ASSO. JUSTICE PUNO:
Is it based on any law?
SOLGEN BENIPAYO:
As far as I know, no, Your Honor, from the facts, no.
SR. ASSO. JUSTICE PUNO:
So, it has no basis, no legal basis whatsoever?
SOLGEN BENIPAYO:
Maybe so, Your Honor. Maybe so, that is why I said, I don’t know if it is
premature to say this, we do not condone this. If the people who have
been injured by this would want to sue them, they can sue and there
are remedies for this.156
Likewise, the warrantless arrests and seizures executed by the police
were, according to the Solicitor General, illegal and cannot be condoned,
thus: 
CHIEF JUSTICE PANGANIBAN:
There seems to be some confusions if not contradiction in your theory.
SOLICITOR GENERAL BENIPAYO:
I don’t know whether this will clarify. The acts, the supposed illegal or
unlawful acts committed on the occasion of 1017, as I said, it cannot be
condoned. You cannot blame the President for, as you said, a
misapplication of the law. These are acts of the police officers, that is
their responsibility.157
The Dissenting Opinion states that PP 1017 and G.O. No. 5 are
constitutional in every aspect and "should result in no constitutional or
statutory breaches if applied according to their letter."
The Court has passed upon the constitutionality of these issuances. Its
ratiocination has been exhaustively presented. At this point, suffice it to
reiterate that PP 1017 is limited to the calling out by the President of the
military to prevent or suppress lawless violence, invasion or rebellion.
When in implementing its provisions, pursuant to G.O. No. 5, the military
and the police committed acts which violate the citizens’ rights under the
Constitution, this Court has to declare such acts unconstitutional and
illegal.
In this connection, Chief Justice Artemio V. Panganiban’s concurring
opinion, attached hereto, is considered an integral part of this ponencia.
SUMMATION
In sum, the lifting of PP 1017 through the issuance of PP 1021 – a
supervening event – would have normally rendered this case moot and
academic. However, while PP 1017 was still operative, illegal acts were
committed allegedly in pursuance thereof. Besides, there is no guarantee
that PP 1017, or one similar to it, may not again be issued. Already, there
have been media reports on April 30, 2006 that allegedly PP 1017 would
be reimposed "if the May 1 rallies" become "unruly and violent."
Consequently, the transcendental issues raised by the parties should not
be "evaded;" they must now be resolved to prevent future constitutional
aberration.
The Court finds and so holds that PP 1017 is constitutional insofar as it
constitutes a call by the President for the AFP to prevent or
suppress lawless violence. The proclamation is sustained by Section 18,
Article VII of the Constitution and the relevant jurisprudence discussed
earlier. However, PP 1017’s extraneous provisions giving the President
express or implied power (1) to issue decrees; (2) to direct the AFP to
enforce obedience to all laws even those not related to lawless violence
as well as decrees promulgated by the President; and (3) to impose
standards on media or any form of prior restraint on the press, are ultra
vires and unconstitutional. The Court also rules that under Section 17,
Article XII of the Constitution, the President, in the absence of a
legislation, cannot take over privately-owned public utility and private
business affected with public interest.
In the same vein, the Court finds G.O. No. 5 valid. It is an Order issued
by the President – acting as Commander-in-Chief – addressed to
subalterns in the AFP to carry out the provisions of PP 1017.
Significantly, it also provides a valid standard – that the military and the
police should take only the "necessary and appropriate actions and
measures to suppress and prevent acts of lawless violence."But the
words "acts of terrorism" found in G.O. No. 5 have not been legally
defined and made punishable by Congress and should thus be deemed
deleted from the said G.O. While "terrorism" has been denounced
generally in media, no law has been enacted to guide the military, and
eventually the courts, to determine the limits of the AFP’s authority in
carrying out this portion of G.O. No. 5. 
On the basis of the relevant and uncontested facts narrated earlier, it is
also pristine clear that (1) the warrantless arrest of petitioners Randolf S.
David and Ronald Llamas; (2) the dispersal of the rallies and warrantless
arrest of the KMU and NAFLU-KMU members; (3) the imposition of
standards on media or any prior restraint on the press; and (4) the
warrantless search of the Tribune offices and the whimsical seizures of
some articles for publication and other materials, are not authorized by
the Constitution, the law and jurisprudence. Not even by the valid
provisions of PP 1017 and G.O. No. 5.
70
Other than this declaration of invalidity, this Court cannot impose any
civil, criminal or administrative sanctions on the individual police
officers concerned. They have not been individually identified and given
their day in court. The civil complaints or causes of action and/or relevant
criminal Informations have not been presented before this Court.
Elementary due process bars this Court from making any specific
pronouncement of civil, criminal or administrative liabilities.
It is well to remember that military power is a means to an end and
substantive civil rights are ends in themselves. How to give the
military the power it needs to protect the Republic without
unnecessarily trampling individual rights is one of the eternal
balancing tasks of a democratic state.During emergency, governmental
action may vary in breadth and intensity from normal times, yet they
should not be arbitrary as to unduly restrain our people’s liberty.  REYES, AILEEN SAPINA, RAMIL TAMAYO, PHILLIPS TAN,
Perhaps, the vital lesson that we must learn from the theorists who
studied the various competing political philosophies is that, it is possible
to grant government the authority to cope with crises without
surrendering the two vital principles of constitutionalism: the
maintenance of legal limits to arbitrary power, and political
responsibility of the government to the governed.158
WHEREFORE, the Petitions are partly granted. The Court rules that PP
1017 is CONSTITUTIONAL insofar as it constitutes a call by President
Gloria Macapagal-Arroyo on the AFP to prevent or suppress lawless
violence. However, the provisions of PP 1017 commanding the AFP to
enforce laws not related to lawless violence, as well as decrees
promulgated by the President, are declared UNCONSTITUTIONAL. In
addition, the provision in PP 1017 declaring national emergency under
Section 17, Article VII of the Constitution is CONSTITUTIONAL, but
such declaration does not authorize the President to take over privately-
owned public utility or business affected with public interest without
prior legislation.
G.O. No. 5 is CONSTITUTIONAL since it provides a standard by
which the AFP and the PNP should implement PP 1017, i.e. whatever is
"necessary and appropriate actions and measures to suppress and
prevent acts of lawless violence." Considering that "acts of terrorism"
have not yet been defined and made punishable by the Legislature, such
portion of G.O. No. 5 is declared UNCONSTITUTIONAL.  VILLARAMA, PROSPERO C. NOGRALES, PROSPERO A.
The warrantless arrest of Randolf S. David and Ronald Llamas; the
dispersal and warrantless arrest of the KMU and NAFLU-KMU members
during their rallies, in the absence of proof that these petitioners were
committing acts constituting lawless violence, invasion or rebellion and
violating BP 880; the imposition of standards on media or any form of
prior restraint on the press, as well as the warrantless search of
the Tribune offices and whimsical seizure of its articles for publication
and other materials, are declared UNCONSTITUTIONAL.
No costs.
SO ORDERED.  DENNIS MANALO, RAUL MANGALIMAN, JOEL MANLANGIT,
G.R. No. 155001             January 21, 2004
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE
MARI B. REUNILLA, MANUEL ANTONIO B. BOÑE, MAMERTO
S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON,
CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P.
ADOLFO, BIENVENIDO C. HILARIO, MIASCOR WORKERS
UNION-NATIONAL LABOR UNION (MWU-NLU), and
PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION
(PALEA),petitioners,  x-------------------------x
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC.,
MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS and SECRETARY LEANDRO M.
MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-
WINGS AVIATION SYSTEMS CORPORATION, MACROASIA-
EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT
SERVICES CORPORATION, MIASCOR CATERING SERVICES
CORPORATION, MIASCOR AIRCRAFT MAINTENANCE
CORPORATION, and MIASCOR LOGISTICS
CORPORATION, Petitioners-in-Intervention,
FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO,
ROSEMARIE ANG, EUGENE ARADA, NENETTE BARREIRO,
NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE DIVINE
BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA
CAILAO, ERWIN CALAR, MARIFEL CONSTANTINO,
JANETTE CORDERO, ARNOLD FELICITAS, MARISSA
GAYAGOY, ALEX GENERILLO, ELIZABETH GRAY, ZOILO
HERICO, JACQUELINE IGNACIO, THELMA INFANTE, JOEL
JUMAO-AS, MARIETTA LINCHOCO, ROLLY LORICO,
FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT,
DENNIS MANALO, RAUL MANGALIMAN, JOEL MANLANGIT,
CHARLIE MENDOZA, HAZNAH MENDOZA, NICHOLS
MORALES, ALLEN OLAÑO, CESAR ORTAL, MICHAEL
ORTEGA, WAYNE PLAZA, JOSELITO REYES, ROLANDO
ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI
YUPANO, MARY JANE ONG, RICHARD RAMIREZ, CHERYLE
MARIE ALFONSO, LYNDON BAUTISTA, MANUEL CABOCAN
AND NEDY LAZO, Respondents-in-Intervention,
NAGKAISANG MARALITA NG TAÑONG ASSOCIATION,
INC., Respondents-in-Intervention,
x-------------------------x
G.R. No. 155547 January 21, 2004
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and
CONSTANTINO G. JARAULA, petitioners, 
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC.,
MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his
capacity as Head of the Department of Transportation and
Communications, and SECRETARY SIMEON A. DATUMANONG,
in his capacity as Head of the Department of Public Works and
Highways, respondents, JACINTO V. PARAS, RAFAEL P.
NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON
PICHAY, JR., HARLIN CAST ABAYON, and BENASING O.
MACARANBON, Respondents-Intervenors,
FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO,
ROSEMARIE ANG, EUGENE ARADA, NENETTE BARREIRO,
NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE DIVINE
BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA
CAILAO, ERWIN CALAR, MARIFEL CONSTANTINO,
JANETTE CORDERO, ARNOLD FELICITAS, MARISSA
GAYAGOY, ALEX GENERILLO, ELIZABETH GRAY, ZOILO
HERICO, JACQUELINE IGNACIO, THELMA INFANTE, JOEL
JUMAO-AS, MARIETTA LINCHOCO, ROLLY LORICO,
FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT,
CHARLIE MENDOZA, HAZNAH MENDOZA, NICHOLS
MORALES, ALLEN OLAÑO, CESAR ORTAL, MICHAEL
ORTEGA, WAYNE PLAZA, JOSELITO REYES, ROLANDO
REYES, AILEEN SAPINA, RAMIL TAMAYO, PHILLIPS TAN,
ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI
YUPANO, MARY JANE ONG, RICHARD RAMIREZ, CHERYLE
MARIE ALFONSO, LYNDON BAUTISTA, MANUEL CABOCAN
AND NEDY LAZO, Respondents-in-Intervention,
NAGKAISANG MARALITA NG TAÑONG ASSOCIATION,
INC., Respondents-in-Intervention,
G.R. No. 155661 January 21, 2004
CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B.
VALENCIA, MA. TERESA V. GAERLAN, LEONARDO DE LA
ROSA, DINA C. DE LEON, VIRGIE CATAMIN, RONALD
SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and
SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS
(SMPP), petitioners, 
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC.,
MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA,
71
in his capacity as Head of the Department of Transportation and
Communications, respondents,
FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO,
ROSEMARIE ANG, EUGENE ARADA, NENETTE BARREIRO,
NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE DIVINE
BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA
CAILAO, ERWIN CALAR, MARIFEL CONSTANTINO,
JANETTE CORDERO, ARNOLD FELICITAS, MARISSA
GAYAGOY, ALEX GENERILLO, ELIZABETH GRAY, ZOILO
HERICO, JACQUELINE IGNACIO, THELMA INFANTE, JOEL
JUMAO-AS, MARIETTA LINCHOCO, ROLLY LORICO,
FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT,
DENNIS MANALO, RAUL MANGALIMAN, JOEL MANLANGIT,
CHARLIE MENDOZA, HAZNAH MENDOZA, NICHOLS
MORALES, ALLEN OLAÑO, CESAR ORTAL, MICHAEL
ORTEGA, WAYNE PLAZA, JOSELITO REYES, ROLANDO
REYES, AILEEN SAPINA, RAMIL TAMAYO, PHILLIPS TAN,
ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI
YUPANO, MARY JANE ONG, RICHARD RAMIREZ, CHERYLE
MARIE ALFONSO, LYNDON BAUTISTA, MANUEL CABOCAN
AND NEDY LAZO, Respondents-in-Intervention,
NAGKAISANG MARALITA NG TAÑONG ASSOCIATION,
INC., Respondents-in-Intervention.
RESOLUTION
PUNO, J.:
Before this Court are the separate Motions for Reconsideration filed by
respondent Philippine International Air Terminals Co., Inc. (PIATCO),
respondents-intervenors Jacinto V. Paras, Rafael P. Nantes, Eduardo C.
Zialcita, Willie Buyson Villarama, Prospero C. Nograles, Prospero A.
Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon, all
members of the House of Representatives (Respondent
Congressmen),1 respondents-intervenors who are employees of PIATCO
and other workers of the Ninoy Aquino International Airport
International Passenger Terminal III (NAIA IPT III) (PIATCO
Employees)2 and respondents-intervenors Nagkaisang Maralita ng
Tañong Association, Inc., (NMTAI) 3 of the Decision of this Court dated
May 5, 2003 declaring the contracts for the NAIA IPT III project null and
void.
Briefly, the proceedings. On October 5, 1994, Asia’s Emerging Dragon
Corp. (AEDC) submitted an unsolicited proposal to the Philippine
Government through the Department of Transportation and
Communication (DOTC) and Manila International Airport Authority
(MIAA) for the construction and development of the NAIA IPT III under
a build-operate-and-transfer arrangement pursuant to R.A. No. 6957, as
amended by R.A. No. 7718 (BOT Law). 4 In accordance with the BOT
Law and its Implementing Rules and Regulations (Implementing Rules),
the DOTC/MIAA invited the public for submission of competitive and
comparative proposals to the unsolicited proposal of AEDC. On
September 20, 1996 a consortium composed of the People’s Air Cargo
and Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services,
Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively,
Paircargo Consortium), submitted their competitive proposal to the
Prequalification Bids and Awards Committee (PBAC).
After finding that the Paircargo Consortium submitted a bid superior to
the unsolicited proposal of AEDC and after failure by AEDC to match
the said bid, the DOTC issued the notice of award for the NAIA IPT III
project to the Paircargo Consortium, which later organized into herein
respondent PIATCO. Hence, on July 12, 1997, the Government, through
then DOTC Secretary Arturo T. Enrile, and PIATCO, through its
President, Henry T. Go, signed the "Concession Agreement for the Build-
Operate-and-Transfer Arrangement of the Ninoy Aquino International
Airport Passenger Terminal III" (1997 Concession Agreement). On
November 26, 1998, the 1997 Concession Agreement was superseded by
the Amended and Restated Concession Agreement (ARCA) containing
certain revisions and modifications from the original contract. A series of
supplemental agreements was also entered into by the Government and
PIATCO. The First Supplement was signed on August 27, 1999, the
Second Supplement on September 4, 2000, and the Third Supplement on
June 22, 2001 (collectively, Supplements) (the 1997 Concession
Agreement, ARCA and the Supplements collectively referred to as the
PIATCO Contracts).
On September 17, 2002, various petitions were filed before this Court to
annul the 1997 Concession Agreement, the ARCA and the
Supplements and to prohibit the public respondents DOTC and MIAA
from implementing them.
In a decision dated May 5, 2003, this Court granted the said petitions and
declared the 1997 Concession Agreement, the ARCA and the
Supplements null and void.
Respondent PIATCO, respondent-Congressmen and respondents-
intervenors now seek the reversal of the May 5, 2003 decision and pray
that the petitions be dismissed. In the alternative, PIATCO prays that the
Court should not strike down the entire 1997 Concession Agreement, the
ARCA and its supplements in light of their separability clause.
Respondent-Congressmen and NMTAI also pray that in the alternative,
the cases at bar should be referred to arbitration pursuant to the
provisions of the ARCA. PIATCO-Employees pray that the petitions be
dismissed and remanded to the trial courts for trial on the merits or in the
alternative that the 1997 Concession Agreement, the ARCA and the
Supplements be declared valid and binding.
I
Procedural Matters
a. Lack of Jurisdiction
Private respondents and respondents-intervenors reiterate a number of
procedural issues which they insist deprived this Court of jurisdiction to
hear and decide the instant cases on its merits. They continue to claim
that the cases at bar raise factual questions which this Court is ill-
equipped to resolve, hence, they must be remanded to the trial court for
reception of evidence. Further, they allege that although designated as
petitions for certiorari and prohibition, the cases at bar are actually
actions for nullity of contracts over which the trial courts have exclusive
jurisdiction. Even assuming that the cases at bar are special civil actions
for certiorari and prohibition, they contend that the principle of hierarchy
of courts precludes this Court from taking primary jurisdiction over them.
We are not persuaded.
There is a question of fact when doubt or difference arises as to the truth
or falsity of the facts alleged.5 Even a cursory reading of the cases at bar
will show that the Court decided them by interpreting and applying the
Constitution, the BOT Law, its Implementing Rules and other relevant
legal principles on the basis of clearly undisputed facts. All
the operative facts were settled, hence, there is no need for a trial type
determination of their truth or falsity by a trial court.
We reject the unyielding insistence of PIATCO Employees that the
following factual issues are critical and beyond the capability of this
Court to resolve, viz: (a) whether the National Economic Development
Authority- Investment Coordinating Committee (NEDA-ICC) approved
the Supplements; (b) whether the First Supplement created ten (10) new
financial obligations on the part of the government; and (c) whether the
1997 Concession Agreement departed from the draft Concession
Agreement contained in the Bid Documents.6
The factual issue of whether the NEDA-ICC approved the Supplements is
hardly relevant. It is clear in our Decision that the PIATCO contracts
were invalidated on other and more substantial grounds. It did not rely on
the presence or absence of NEDA-ICC approval of the Supplements. On
the other hand, the last two issues do not involve disputed facts. Rather,
they involve contractual provisions which are clear and categorical and
need only to be interpreted. The interpretation of contracts and the
determination of whether their provisions violate our laws or contravene
any public policy is a legal issue which this Court may properly pass
upon.
Respondents’ corollary contention that this Court violated the hierarchy
of courts when it entertained the cases at bar must also fail. The rule on
hierarchy of courts in cases falling within the concurrent jurisdiction of
the trial courts and appellate courts generally applies to cases involving
warring factual allegations. For this reason, litigants are required to repair
to the trial courts at the first instance to determine the truth or falsity of
these contending allegations on the basis of the evidence of the parties.
Cases which depend on disputed facts for decision cannot be brought
immediately before appellate courts as they are not triers of facts. 
It goes without saying that when cases brought before the appellate courts
do not involve factual but legal questions, a strict application of the rule
of hierarchy of courts is not necessary. As the cases at bar merely concern
the construction of the Constitution, the interpretation of the BOT Law
and its Implementing Rules and Regulations on undisputed contractual
provisions and government actions, and as the cases concern public
interest, this Court resolved to take primary jurisdiction over them. This
choice of action follows the consistent stance of this Court to settle any
controversy with a high public interest component in a single proceeding
and to leave no root or branch that could bear the seeds of future
72
litigation. The suggested remand of the cases at bar to the trial court will
stray away from this policy.7
b. Legal Standing
Respondent PIATCO stands pat with its argument that petitioners lack
legal personality to file the cases at bar as they are not real parties in
interest who are bound principally or subsidiarily to the PIATCO
Contracts. Further, respondent PIATCO contends that petitioners failed to
show any legally demandable or enforceable right to justify their standing
to file the cases at bar.
These arguments are not difficult to deflect. The determination of
whether a person may institute an action or become a party to a suit
brings to fore the concepts of real party in interest, capacity to sue and
standing to sue. To the legally discerning, these three concepts are
different although commonly directed towards ensuring that only certain
parties can maintain an action.8 As defined in the Rules of Court, a real
party in interest is the party who stands to be benefited or injured by the
judgment in the suit or the party entitled to the avails of the
suit.9 Capacity to sue deals with a situation where a person who may have
a cause of action is disqualified from bringing a suit under applicable law
or is incompetent to bring a suit or is under some legal disability that
would prevent him from maintaining an action unless represented by a
guardian ad litem. Legal standing is relevant in the realm of public law.
In certain instances, courts have allowed private parties to institute
actions challenging the validity of governmental action for violation of
private rights or constitutional principles.10 In these cases, courts apply
the doctrine of legal standing by determining whether the party has
a direct and personal interest in the controversy and whether such
party has sustained or is in imminent danger of sustaining an injury
as a result of the act complained of, a standard which is distinct from
the concept of real party in interest. 11 Measured by this yardstick, the
application of the doctrine on legal standing necessarily involves a
preliminary consideration of the merits of the case and is not purely a
procedural issue.12
Considering the nature of the controversy and the issues raised in the
cases at bar, this Court affirms its ruling that the petitioners have the
requisite legal standing. The petitioners in G.R. Nos. 155001 and 155661
are employees of service providers operating at the existing international
airports and employees of MIAA while petitioners-intervenors are service
providers with existing contracts with MIAA and they will all sustain
direct injury upon the implementation of the PIATCO Contracts. The
1997 Concession Agreement and the ARCA both provide that upon the
commencement of operations at the NAIA IPT III, NAIA Passenger
Terminals I and II will cease to be used as international passenger
terminals.13 Further, the ARCA provides: 
(d) For the purpose of an orderly transition, MIAA shall not renew
any expired concession agreement relative to any service or operation
currently being undertaken at the Ninoy Aquino International Airport
Passenger Terminal I, or extend any concession agreement which
may expire subsequent hereto, except to the extent that the
continuation of the existing services and operations shall lapse on or
before the In-Service Date.14
Beyond iota of doubt, the implementation of the PIATCO Contracts,
which the petitioners and petitioners-intervenors denounce as
unconstitutional and illegal, would deprive them of their sources of
livelihood. Under settled jurisprudence, one's employment, profession,
trade, or calling is a property right and is protected from wrongful
interference.15 It is also self evident that the petitioning service providers
stand in imminent danger of losing legitimate business investments in the
event the PIATCO Contracts are upheld.
Over and above all these, constitutional and other legal issues with far-
reaching economic and social implications are embedded in the cases at
bar, hence, this Court liberally granted legal standing to the petitioning
members of the House of Representatives. First, at stake is the build-
operate-and–transfer contract of the country’s premier international
airport with a projected capacity of 10 million passengers a year. Second,
the huge amount of investment to complete the project is estimated to be
P13,000,000,000.00. Third, the primary issues posed in the cases at bar
demand a discussion and interpretation of the Constitution, the BOT Law
and its implementing rules which have not been passed upon by this
Court in previous cases. They can chart the future inflow of investment
under the BOT Law.
Before writing finis to the issue of legal standing, the Court notes the bid
of new parties to participate in the cases at bar as respondents-
intervenors, namely, (1) the PIATCO Employees and (2) NMTAI
(collectively, the New Respondents-Intervenors). After the Court’s
Decision, the New Respondents-Intervenors filed separate Motions for
Reconsideration-In-Intervention alleging prejudice and direct injury.
PIATCO employees claim that "they have a direct and personal interest
[in the controversy]... since they stand to lose their jobs should the
government’s contract with PIATCO be declared null and
void."16 NMTAI, on the other hand, represents itself as a corporation
composed of responsible tax-paying Filipino citizens with the objective
of "protecting and sustaining the rights of its members to civil liberties,
decent livelihood, opportunities for social advancement, and to a good,
conscientious and honest government."17
The Rules of Court govern the time of filing a Motion to Intervene.
Section 2, Rule 19 provides that a Motion to Intervene should be filed
"before rendition of judgment...." The New Respondents-Intervenors filed
their separate motions after a decision has been promulgated in the
present cases. They have not offered any worthy explanation to justify
their late intervention. Consequently, their Motions for Reconsideration-
In-Intervention are denied for the rules cannot be relaxed to await
litigants who sleep on their rights. In any event, a sideglance at these late
motions will show that they hoist no novel arguments.
c. Failure to Implead an Indispensable Party
PIATCO next contends that petitioners should have impleaded the
Republic of the Philippines as an indispensable party. It alleges that
petitioners sued the DOTC, MIAA and the DPWH in their own capacities
or as implementors of the PIATCO Contracts and not as a contract party
or as representatives of the Government of the Republic of the
Philippines. It then leapfrogs to the conclusion that the "absence of an
indispensable party renders ineffectual all the proceedings subsequent to
the filing of the complaint including the judgment."18
PIATCO’s allegations are inaccurate. The petitions clearly bear out that
public respondents DOTC and MIAA were impleaded as parties to the
PIATCO Contracts and not merely as their implementors. The separate
petitions filed by the MIAA employees19 and members of the House of
Representatives20 alleged that "public respondents are impleaded herein
because they either executed the PIATCO Contracts or are undertaking
acts which are related to the PIATCO Contracts. They are interested and
indispensable parties to this Petition."21 Thus, public respondents DOTC
and MIAA were impleaded as parties to the case for having executed the
contracts.
More importantly, it is also too late in the day for PIATCO to raise this
issue. If PIATCO seriously views the non-inclusion of the Republic of
the Philippines as an indispensable party as fatal to the petitions at bar, it
should have raised the issue at the onset of the proceedings as a ground to
dismiss. PIATCO cannot litigate issues on a piecemeal basis, otherwise,
litigations shall be like a shore that knows no end. In any event, the
Solicitor General, the legal counsel of the Republic, appeared in the cases
at bar in representation of the interest of the government. 
II
Pre-qualification of PIATCO
The Implementing Rules provide for the unyielding standards the PBAC
should apply to determine the financial capability of a bidder for pre-
qualification purposes: (i) proof of the ability of the project proponent
and/or the consortium to provide a minimum amount of equity to the
project and (ii) a letter testimonial from reputable banks attesting that the
project proponent and/or members of the consortium are banking
with them, that they are in good financial standing, and that they
have adequate resources.22 The evident intent of these standards is to
protect the integrity and insure the viability of the project by seeing to it
that the proponent has the financial capability to carry it out. As a further
measure to achieve this intent, it maintains a certain debt-to-equity
ratio for the project.
At the pre-qualification stage, it is most important for a bidder to show
that it has the financial capacity to undertake the project by proving that it
can fulfill the requirement on minimum amount of equity. For this
purpose, the Bid Documents require in no uncertain terms:
The minimum amount of equity to which the proponent’s financial
capability will be based shall be thirty percent (30%) of the project
cost instead of the twenty percent (20%) specified in Section 3.6.4
of the Bid Documents. This is to correlate with the required debt-to-
equity ratio of 70:30 in Section 2.01a of the draft concession
agreement. The debt portion of the project financing should not
exceed 70% of the actual project cost.23
In relation thereto, section 2.01 (a) of the ARCA provides:
73
 Section 2.01 Project Scope.
The scope of the project shall include:
(a) Financing the project at an actual Project cost of not less than
Three Hundred Fifty Million United States Dollars
(US$350,000,000.00) while maintaining a debt-to-equity ratio of
70:30, provided that if the actual Project costs should exceed the
aforesaid amount, Concessionaire shall ensure that the debt-to-equity
ratio is maintained;24
Under the debt-to-equity restriction, a bidder may only seek financing of
the NAIA IPT III Project up to 70% of the project cost. Thirty percent
(30%) of the cost must come in the form of equity or investment by the
bidder itself. It cannot be overly emphasized that the rules require a
minimum amount of equity to ensure that a bidder is not merely an
operator or implementor of the project but an investor with a
substantial interest in its success. The minimum equity requirement
also guarantees the Philippine government and the general public, who
are the ultimate beneficiaries of the project, that a bidder will not be
indifferent to the completion of the project. The discontinuance of the
project will irreparably damage public interest more than private interest.
In the cases at bar, after applying the investment ceilings provided under
the General Banking Act and considering the maximum amounts that
each member of the consortium may validly invest in the project, it is
daylight clear that the Paircargo Consortium, at the time of pre-
qualification, had a net worth equivalent to only 6.08% of the total
estimated project cost.25 By any reckoning, a showing by a bidder that at
the time of pre-qualification its maximum funds available for investment
amount to only 6.08% of the project cost is insufficient to satisfy the
requirement prescribed by the Implementing Rules that the project
proponent must have the ability to provide at least 30% of the total
estimated project cost. In peso and centavo terms, at the time of pre-
qualification, the Paircargo Consortium had maximum funds available for
investment to the NAIA IPT III Project only in the amount of
P558,384,871.55, when it had to show that it had the ability to provide at
least P2,755,095,000.00. The huge disparity cannot be dismissed as of de
minimis  importance considering the high public interest at stake in the
project.
PIATCO nimbly tries to sidestep its failure by alleging that it submitted
not only audited financial statements but also testimonial letters from
reputable banks attesting to the good financial standing of the Paircargo
Consortium. It contends that in adjudging whether the Paircargo
Consortium is a pre-qualified bidder, the PBAC should have considered
not only its financial statements but other factors showing its financial
capability.  and has far reaching consequence. The 1997 Concession Agreement
Anent this argument, the guidelines provided in the Bid Documents are
instructive:
3.3.4 FINANCING AND FINANCIAL PREQUALIFICATIONS
REQUIREMENTS
· Minimum Amount of Equity
Each member of the proponent entity is to provide evidence of
networth in cash and assets representing the proportionate share in
the proponent entity. Audited financial statements for the past five
(5) years as a company for each member are to be provided.
· Project Loan Financing
Testimonial letters from reputable banks attesting that each of the
members of the ownership entity are banking with them, in good
financial standing and having adequate resources are to be provided.26
It is beyond refutation that Paircargo Consortium failed to prove
its ability to provide the amount of at least P2,755,095,000.00, or 30%
of the estimated project cost. Its submission of testimonial letters
attesting to its good financial standing will not cure this failure. At best,
the said letters merely establish its credit worthiness or its ability to
obtain loans to finance the project. They do not, however, prove
compliance with the aforesaid requirement of minimum amount of equity
in relation to the prescribed debt-to-equity ratio. This equity cannot be
satisfied through possible loans. 
In sum, we again hold that given the glaring gap between the net worth of
Paircargo and PAGS combined with the amount of maximum funds that
Security Bank may invest by equity in a non-allied undertaking,
Paircargo Consortium, at the time of pre-qualification, failed to show that
it had the ability to provide 30% of the project cost and necessarily, its
financial capability for the project cannot pass muster.
III
Concession Agreement
Again, we brightline the principle that in public bidding, bids are
submitted in accord with the prescribed terms, conditions and parameters
laid down by government and pursuant to the requirements of the project
bidded upon. In light of these parameters, bidders formulate competing
proposals which are evaluated to determine the bid most favorable to the
government. Once the contract based on the bid most favorable to the
government is awarded, all that is left to be done by the parties is to
execute the necessary agreements and implement them. There can be no
substantial or material change to the parameters of the project, including
the essential terms and conditions of the contract bidded upon, after the
contract award. If there were changes and the contracts end up
unfavorable to government, the public bidding becomes a mockery and
the modified contracts must be struck down. 
Respondents insist that there were no substantial or material amendments
in the 1997 Concession Agreement as to the technical aspects of the
project, i.e., engineering design, technical soundness, operational and
maintenance methods and procedures of the project or the technical
proposal of PIATCO. Further, they maintain that there was no
modification of the financial features of the project, i.e., minimum project
cost, debt-to-equity ratio, the operations and maintenance budget, the
schedule and amount of annual guaranteed payments, or the financial
proposal of PIATCO. A discussion of some of these changes to
determine whether they altered the terms and conditions upon which the
bids were made is again in order.
a. Modification on Fees and Charges to be collected by PIATCO
PIATCO clings to the contention that the removal of the groundhandling
fees, airline office rentals and porterage fees from the category of fees
subject to MIAA regulation in the 1997 Concession Agreement does not
constitute a substantial amendment as these fees are not really public
utility fees. In other words, PIATCO justifies the re-classification under
the 1997 Concession Agreement on the ground that these fees are non-
public utility revenues.
We disagree. The removal of groundhandling fees, airline office rentals
and porterage fees from the category of "Public Utility Revenues" under
the draft Concession Agreement and its re-classification to "Non-Public
Utility Revenues" under the 1997 Concession Agreement is significant
provides that with respect to Non-Public Utility Revenues, which include
groundhandling fees, airline office rentals and porterage
fees,27 "[PIATCO] may make any adjustments it deems
appropriate without need for the consent of GRP or any government
agency."28 In contrast, the draft Concession Agreement specifies these
fees as part of Public Utility Revenues and can be adjusted "only once
every two yearsand in accordance with the Parametric Formula" and "the
adjustments shall be made effective only after the written express
approval of the MIAA."29 The Bid Documents themselves clearly
provide:
4.2.3 Mechanism for Adjustment of Fees and Charges
4.2.3.1 Periodic Adjustment in Fees and Charges
Adjustments in the fees and charges enumerated hereunder,
whether or not falling within the purview of public utility
revenues, shall be allowed only once every two years in
accordance with the parametric formula attached hereto as Annex
4.2f. Provided that the adjustments shall be made effective only
after the written express approval of MIAA. Provided, further,
that MIAA’s approval, shall be contingent only on conformity of
the adjustments to the said parametric formula. …
The fees and charges to be regulated in the above manner shall
consist of the following: 
....
c) groundhandling fees;
d) rentals on airline offices;
74
 ....
(f) porterage fees;
. . . .30
The plain purpose in re-classifying groundhandling fees, airline office
rentals and porterage fees as non-public utility fees is to remove them
from regulation by the MIAA. In excluding these fees from government
regulation, the danger to public interest cannot be downplayed.
We are not impressed by the effort of PIATCO to depress this prejudice
to public interest by its contention that in the 1997 Concession
Agreement governing Non-Public Utility Revenues, it is provided that
"[PIATCO] shall at all times be judicious in fixing fees and charges
constituting Non-Public Utility Revenues in order to ensure that End
Users are not unreasonably deprived of services."31 PIATCO then peddles
the proposition that the said provision confers upon MIAA "full
regulatory powers to ensure that PIATCO is charging non-public utility
revenues at judicious  rates."32 To the trained eye, the argument will not
fly for it is obviously non sequitur. Fairly read, it is PIATCO that wields
the power to determine the judiciousness of the said fees and charges. In
the draft Concession Agreement the power was expressly lodged with the
MIAA and any adjustment can only be done once every two years. The
changes are not insignificant specks as interpreted by PIATCO.
PIATCO further argues that there is no substantial change in the 1997
Concession Agreement with respect to fees and charges PIATCO is
allowed to impose which are not covered by Administrative Order No. 1,
Series of 199333as the "relevant provision of the 1997 Concession
Agreement is practically identical with the draft Concession
Agreement."34
We are not persuaded. Under the draft Concession Agreement, PIATCO
may impose fees and charges other than those fees and charges
previously imposed or collected at the Ninoy Aquino International
Airport Passenger Terminal I, subject to the written approval of
MIAA.35 Further, the draft Concession Agreement provides that
MIAA reserves the right to regulate these new fees and charges if in its
judgment the users of the airport shall be deprived of a free option for the
services they cover.36 In contrast, under the 1997 Concession
Agreement, the MIAA merely retained the right to approve any
imposition of new fees and charges which were not previously collected
at the Ninoy Aquino International Airport Passenger Terminal I. The
agreement did not contain an equivalent provision allowing MIAA to
reserve the right to regulate the adjustments of these new fees and
charges.37 PIATCO justifies the amendment by arguing that MIAA can
establish terms before approval of new fees and charges, inclusive of the
mode for their adjustment.
PIATCO’s stance is again a strained one. There would have been no need
for an amendment if there were no change in the power to regulate on the
part of MIAA. The deletion of MIAA’s reservation of its right to regulate
the price adjustments of new fees and charges can have no other purpose
but to dilute the extent of MIAA’s regulation in the collection of these
fees. Again, the amendment diminished the authority of MIAA to protect
the public interest in case of abuse by PIATCO.
b. Assumption by the Government of the liabilities of PIATCO in the
event of the latter’s default
PIATCO posits the thesis that the new provisions in the 1997 Concession
Agreement in case of default by PIATCO on its loans were merely meant
to prescribe and limit the rights of PIATCO’s creditors with regard to the
NAIA Terminal III. PIATCO alleges that Section 4.04 of the 1997
Concession Agreement simply provides that PIATCO’s creditors have no
right to foreclose the NAIA Terminal III.
We cannot concur. The pertinent provisions of the 1997 Concession
Agreement state:
Section 4.04 Assignment.
....
(b) In the event Concessionaire should default in the payment of an
Attendant Liability, and the default has resulted in the acceleration of
the payment due date of the Attendant Liability prior to its stated date
of maturity, the Unpaid Creditors and Concessionaire shall
immediately inform GRP in writing of such default. GRP shall,
within one hundred eighty (180) Days from receipt of the joint
written notice of the Unpaid Creditors and Concessionaire, either (i)
take over the Development Facility and assume the Attendant
Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be
substituted as concessionaire and operator of the Development
Facility in accordance with the terms and conditions hereof, or
designate a qualified operator acceptable to GRP to operate the
Development Facility, likewise under the terms and conditions of this
Agreement; Provided that if at the end of the 180-day period GRP
shall not have served the Unpaid Creditors and Concessionaire
written notice of its choice, GRP shall be deemed to have elected to
take over the Development Facility with the concomitant
assumption of Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors to
be substituted as concessionaire, the latter shall form and organize a
concession company qualified to take over the operation of the
Development Facility. If the concession company should elect to
designate an operator for the Development Facility, the concession
company shall in good faith identify and designate a qualified
operator acceptable to GRP within one hundred eighty (180) days
from receipt of GRP’s written notice. If the concession company,
acting in good faith and with due diligence, is unable to designate a
qualified operator within the aforesaid period, then GRP shall at the
end of the 180-day period take over the Development Facility and
assume Attendant Liabilities.
A plain reading of the above provision shows that it spells out in limpid
language the obligation of government in case of default by PIATCO on
its loans. There can be no blinking from the fact that in case of PIATCO’s
default, the government will assume PIATCO’s Attendant Liabilities as
defined in the 1997 Concession Agreement.38 This obligation is not found
in the draft Concession Agreement and the change runs roughshod to the
spirit and policy of the BOT Law which was crafted precisely to prevent
government from incurring financial risk. 
In any event, PIATCO pleads that the entire agreement should not be
struck down as the 1997 Concession Agreement contains a separability
clause.
The plea is bereft of merit. The contracts at bar which made a mockery of
the bidding process cannot be upheld and must be annulled in their
entirety for violating law and public policy. As demonstrated, the
contracts were substantially amended after their award to the successful
bidder on terms more beneficial to PIATCO and prejudicial to public
interest. If this flawed process would be allowed, public bidding will
cease to be competitive and worse, government would not be favored
with the best bid. Bidders will no longer bid on the basis of the prescribed
terms and conditions in the bid documents but will formulate their bid in
anticipation of the execution of a future contract containing new and
better terms and conditions that were not previously available at the time
of the bidding. Such a public bidding will not inure to the public good.
The resulting contracts cannot be given half a life but must be struck
down as totally lawless.
IV.
Direct Government Guarantee
The respondents further contend that the PIATCO Contracts do not
contain direct government guarantee provisions. They assert that section
4.04 of the ARCA, which superseded sections 4.04(b) and (c), Article IV
of the 1997 Concession Agreement, is but a "clarification and
explanation"39 of the securities allowed in the bid documents. They allege
that these provisions merely provide for "compensation to PIATCO"40 in
case of a government buy-out or takeover of NAIA IPT III. The
respondents, particularly respondent PIATCO, also maintain that the
guarantee contained in the contracts, if any, is an indirect guarantee
allowed under the BOT Law, as amended.41
We do not agree. Section 4.04(c), Article IV 42 of the ARCA should be
read in conjunction with section 1.06, Article I,43 in the same manner that
sections 4.04(b) and (c), Article IV of the 1997 Concession Agreement
should be related to Article 1.06 of the same contract. Section 1.06,
Article I of the ARCA and its counterpart provision in the 1997
Concession Agreement define in no uncertain terms the meaning of
"attendant liabilities." They tell us of the amounts that the Government
has to pay in the event respondent PIATCO defaults in its loan payments
to its Senior Lenders and no qualified transferee or nominee is chosen by
the Senior Lenders or is willing to take over from respondent PIATCO.
A reasonable reading of all these relevant provisions would reveal that
the ARCA made the Government liable to pay "all amounts ... from time
to time owed or which may become owing by Concessionaire
[PIATCO] to Senior Lenders or any other persons or entities who
have provided, loaned, or advanced funds or provided financial
75
facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal
3]."44 These amounts include "without limitation, all principal, interest,
associated fees, charges, reimbursements, and other related
expenses... whether payable at maturity, by acceleration or
otherwise."45 They further include amounts owed by respondent PIATCO
to its "professional consultants and advisers, suppliers, contractors and
sub-contractors" as well as "fees, charges and expenses of any agents or
trustees" of the Senior Lenders or any other persons or entities who have
provided loans or financial facilities to respondent PIATCO in relation to
NAIA IPT III.46 The counterpart provision in the 1997 Concession
Agreement specifying the attendant liabilities that the Government would
be obligated to pay should PIATCO default in its loan obligations is
equally onerous to the Government as those contained in the ARCA.
According to the 1997 Concession Agreement, in the event the
Government is forced to prematurely take over NAIA IPT III as a result
of respondent PIATCO’s default in the payment of its loan obligations to
its Senior Lenders, it would be liable to pay the following amounts as
"attendant liabilities": 
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and from time
to time outstanding in the books of the Concessionaire as owing
to Unpaid Creditors who have provided, loaned or advanced funds
actually used for the Project, including all interests, penalties,
associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses, and further including
amounts owed by Concessionaire to its suppliers, contractors and
sub-contractors.47
These provisions reject respondents’ contention that what the
Government is obligated to pay, in the event that respondent PIATCO
defaults in the payment of its loans, is merely termination payment or just
compensation for its takeover of NAIA IPT III. It is clear from said
section 1.06 that what the Government would pay is the sum total of
all the debts, including all interest, fees and charges, that respondent
PIATCO incurred in pursuance of the NAIA IPT III Project. This reading
is consistent with section 4.04 of the ARCA itself which states that the
Government "shall make a termination payment to Concessionaire
[PIATCO] equal to the Appraised Value (as hereinafter defined) of the
Development Facility [NAIA Terminal III] or the sum of the Attendant
Liabilities, if greater." For sure, respondent PIATCO will not receive
any amount less than sufficient to cover its debts, regardless of
whether or not the value of NAIA IPT III, at the time of its turn over
to the Government, may actually be less than the amount of
PIATCO’s debts. The scheme is a form of direct government guarantee
for it is undeniable that it leaves the government no option but to pay the
"attendant liabilities" in the event that the Senior Lenders are unable or
unwilling to appoint a qualified nominee or transferee as a result of
PIATCO’s default in the payment of its Senior Loans. As we stressed in
our Decision, this Court cannot depart from the legal maxim that "those
that cannot be done directly cannot be done indirectly."
This is not to hold, however, that indirect government guarantee is not
allowed under the BOT Law, as amended. The intention to permit
indirect government guarantee is evident from the Senate deliberations on
the amendments to the BOT Law. The idea is to allow for reasonable
government undertakings, such as to authorize the project proponent to
undertake related ventures within the project area, in order to encourage
private sector participation in development projects.48 An example cited
by then Senator Gloria Macapagal-Arroyo, one of the sponsors of R.A.
No. 7718, is the Mandaluyong public market which was built under the
Build-and-Transfer ("BT") scheme wherein instead of the government
paying for the transfer, the project proponent was allowed to operate the
upper floors of the structure as a commercial mall in order to recoup their
investments.49 It was repeatedly stressed in the deliberations that in
allowing indirect government guarantee, the law seeks to encourage both
the government and the private sector to formulate reasonable and
innovative government undertakings in pursuance of BOT projects. In no
way, however, can the government be made liable for the debts of the
project proponent as this would be tantamount to a direct government
guarantee which is prohibited by the law. Such liability would defeat the
very purpose of the BOT Law which is to encourage the use of private
sector resources in the construction, maintenance and/or operation of
development projects with no, or at least minimal, capital outlay on the
part of the government.
The respondents again urge that should this Court affirm its ruling that
the PIATCO Contracts contain direct government guarantee provisions,
the whole contract should not be nullified. They rely on the separability
clause in the PIATCO Contracts.  Complex."58 It clearly obligates the government in the exercise of its
We are not persuaded.
The BOT Law and its implementing rules provide that there are three (3)
essential requisites for an unsolicited proposal to be accepted: (1) the
project involves a new concept in technology and/or is not part of the list
of priority projects, (2) no direct government guarantee, subsidy or
equity is required, and (3) the government agency or local government
unit has invited by publication other interested parties to a public bidding
and conducted the same.50 The failure to fulfill any of the requisites will
result in the denial of the proposal. Indeed, it is further provided that a
direct government guarantee, subsidy or equity provision will
"necessarily disqualify a proposal from being treated and accepted as an
unsolicited proposal."51 In fine, the mere inclusion of a direct government
guarantee in an unsolicited proposal is fatal to the proposal. There is more
reason to invalidate a contract if a direct government guarantee provision
is inserted later in the contract via a backdoor amendment. Such an
amendment constitutes a crass circumvention of the BOT Law and
renders the entire contract void.
Respondent PIATCO likewise claims that in view of the fact that other
BOT contracts such as the JANCOM contract, the Manila Water contract
and the MRT contract had been considered valid, the PIATCO contracts
should be held valid as well.52 There is no parity in the cited cases. For
instance, a reading of Metropolitan Manila Development Authority v.
JANCOM Environmental Corporation53 will show that its issue is
different from the issues in the cases at bar. In the JANCOM case, the
main issue is whether there is a perfected contract between JANCOM and
the Government. The resolution of the issue hinged on the following: (1)
whether the conditions precedent to the perfection of the contract were
complied with; (2) whether there is a valid notice of award; and (3)
whether the signature of the Secretary of the Department of Environment
and Natural Resources is sufficient to bind the Government. These issue
and sub-issues are clearly distinguishable and different. For one, the issue
of direct government guarantee was not considered by this Court when it
held the JANCOM contract valid, yet, it is a key reason for invalidating
the PIATCO Contracts. It is a basic principle in law that cases with
dissimilar facts cannot have similar disposition. 
This Court, however, is not unmindful of the reality that the structures
comprising the NAIA IPT III facility are almost complete and that funds
have been spent by PIATCO in their construction. For the government to
take over the said facility, it has to compensate respondent PIATCO as
builder of the said structures. The compensation must be just and in
accordance with law and equity for the government can not unjustly
enrich itself at the expense of PIATCO and its investors. 
II.
Temporary takeover of business affected with public interest in times
of national emergency
Section 17, Article XII of the 1987 Constitution grants the State in times
of national emergency the right to temporarily take over the operation of
any business affected with public interest. This right is an exercise of
police power which is one of the inherent powers of the State.
Police power has been defined as the "state authority to enact legislation
that may interfere with personal liberty or property in order to promote
the general welfare."54 It consists of two essential elements. First, it is an
imposition of restraint upon liberty or property. Second, the power is
exercised for the benefit of the common good. Its definition in elastic
terms underscores its all-encompassing and comprehensive embrace.55 It
is and still is the "most essential, insistent, and illimitable"56 of the State’s
powers. It is familiar knowledge that unlike the power of eminent
domain, police power is exercised without provision for just
compensation for its paramount consideration is public welfare.57
It is also settled that public interest on the occasion of a national
emergency is the primary consideration when the government decides to
temporarily take over or direct the operation of a public utility or a
business affected with public interest. The nature and extent of the
emergency is the measure of the duration of the takeover as well as the
terms thereof. It is the State that prescribes such reasonable terms which
will guide the implementation of the temporary takeover as dictated by
the exigencies of the time. As we ruled in our Decision, this power of the
State can not be negated by any party nor should its exercise be a source
of obligation for the State. 
Section 5.10(c), Article V of the ARCA provides that respondent
PIATCO "shall be entitled to reasonable compensation for the duration of
the temporary takeover by GRP, which compensation shall take into
account the reasonable cost for the use of the Terminal and/or Terminal
police power to compensate respondent PIATCO and this obligation is
offensive to the Constitution. Police power can not be diminished, let
alone defeated by any contract for its paramount consideration is public
welfare and interest.59
76
Again, respondent PIATCO’s reliance on the case of Heirs of Suguitan
v. City of Mandaluyong 60 to justify its claim for reasonable
compensation for the Government’s temporary takeover of NAIA IPT III
in times of national emergency is erroneous. What was involved in Heirs
of Suguitan is the exercise of the state’s power of eminent domain and
not of police power, hence, just compensation was awarded. The cases at
bar will not involve the exercise of the power of eminent domain.
III.
Monopoly
Section 19, Article XII of the 1987 Constitution mandates that the State
prohibit or regulate monopolies when public interest so requires.
Monopolies are not per se prohibited. Given its susceptibility to abuse,
however, the State has the bounden duty to regulate monopolies to
protect public interest. Such regulation may be called for, especially in
sensitive areas such as the operation of the country’s premier
international airport, considering the public interest at stake.
By virtue of the PIATCO contracts, NAIA IPT III would be the only
international passenger airport operating in the Island of Luzon, with the
exception of those already operating in Subic Bay Freeport Special
Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ")
and in Laoag City. Undeniably, the contracts would create a monopoly in
the operation of an international commercial passenger airport at the
NAIA in favor of PIATCO. 
The grant to respondent PIATCO of the exclusive right to operate NAIA
IPT III should not exempt it from regulation by the government. The
government has the right, indeed the duty, to protect the interest of the
public. Part of this duty is to assure that respondent PIATCO’s exercise
of its right does not violate the legal rights of third parties. We reiterate
our ruling that while the service providers presently operating at NAIA
Terminals I and II do not have the right to demand for the renewal or
extension of their contracts to continue their services in NAIA IPT III,
those who have subsisting contracts beyond the In-Service Date of NAIA
IPT III can not be arbitrarily or unreasonably treated.
Finally, the Respondent Congressmen assert that at least two (2)
committee reports by the House of Representatives found the PIATCO
contracts valid and contend that this Court, by taking cognizance of the
cases at bar, reviewed an action of a co-equal body. 61 They insist that the
Court must respect the findings of the said committees of the House of
Representatives.62 With due respect, we cannot subscribe to their
submission. There is a fundamental difference between a case in court
and an investigation of a congressional committee. The purpose of a
judicial proceeding is to settle the dispute in controversy by adjudicating
the legal rights and obligations of the parties to the case. On the other
hand, a congressional investigation is conducted in aid of legislation. 63 Its
aim is to assist and recommend to the legislature a possible action that the
body may take with regard to a particular issue, specifically as to whether
or not to enact a new law or amend an existing one. Consequently, this
Court cannot treat the findings in a congressional committee report as
binding because the facts elicited in congressional hearings are not
subject to the rigors of the Rules of Court on admissibility of evidence.
The Court in assuming jurisdiction over the petitions at bar simply
performed its constitutional duty as the arbiter of legal disputes properly
brought before it, especially in this instance when public interest requires
nothing less.
WHEREFORE, the motions for reconsideration filed by the respondent
PIATCO, respondent Congressmen and the respondents-in-intervention
are DENIED with finality.
SO ORDERED.
G.R. No. 156087               May 8, 2009
KUWAIT AIRWAYS, CORPORATION, Petitioner, 
vs.
PHILIPPINE AIRLINES, INC., Respondent.
DECISION
TINGA, J.:
This petition for review1 filed by the duly designated air carrier of the
Kuwait Government assails a decision2 dated 25 October 2002 of the
Makati Regional Trial Court (RTC), Branch 60, ordering Kuwait Airways
to pay respondent Philippine Airlines the amount of US$1,092,690.00,
plus interest, attorney’s fees, and cost of suit.3 The principal liability
represents the share to Philippine Airlines in the revenues the foreign
carrier had earned for the uplift of passengers and cargo in its flights to
and from Kuwait and Manila which the foreign carrier committed to
remit as a contractual obligation.
On 21 October 1981, Kuwait Airways and Philippine Airlines entered
into a Commercial Agreement,4 annexed to which was a Joint Services
Agreement5 between the two airlines. The Commercial Agreement
covered a twice weekly Kuwait Airways flight on the route Kuwait-
Bangkok-Manila and vice versa.6 The agreement stipulated that "only 3rd
and 4th freedom traffic rights between Kuwait and Manila and vice versa
will be exercised. No 5th freedom traffic rights will be exercised between
Manila on the one hand and Bangkok on the other."7
The "freedom traffic rights" referred to in the Agreement are the so-called
"five freedoms" contained in the International Air Transport Agreement
(IATA) signed in Chicago on 7 December 1944. Under the IATA, each
contracting State agreed to grant to the other contracting states, five
"freedoms of air." Among these freedoms were "[t]he privilege to put
down passengers, mail and cargo taken on in 
the territory of the State whose nationality the aircraft possesses" (Third
Freedom); "[t]he privilege to take on passengers, mail or cargo destined
for the territory of the State whose nationality the aircraft possesses"
(Fourth Freedom); and the right to carry passengers from one's own
country to a second country, and from that country to a third country
(Fifth Freedom). In essence, the Kuwait Airways flight was authorized to
board passengers in Kuwait and deplane them in Manila, as well as to
board passengers in Manila and deplane them in Kuwait. At the same
time, with the limitation in the exercise of Fifth Freedom traffic rights,
the flight was barred from boarding passengers in Bangkok and deplaning
them in Manila, or boarding passengers in Manila and deplaning them in
Bangkok.
The Commercial Agreement likewise adverted to the annexed Joint
Services Agreement covering the Kuwait-Manila (and vice versa) route,
which both airlines had entered into "[i]n order to reflect the high level of
friendly relationships between [Kuwait Airways] and [Philippine
Airlines] and to assist each other to develop traffic on the route." 8 The
Agreement likewise stipulated that "[u]ntil such time as [Philippine
Airlines] commences its operations to or via Kuwait, the Joint Services
shall be operated with the use of [Kuwait Airways] aircraft and
crew."9 By virtue of the Joint Services Agreement, Philippine Airlines
was entitled to seat allocations on specified 
Kuwait Airways sectors, special prorates for use by Philippine Airlines to
specified Kuwait Airways sectors, joint advertising by both carriers in
each other’s timetables and other general advertising, and mutual
assistance to each other with respect to the development of traffic on the
route.10
Most pertinently for our purposes, under Article 2.1 of the Commercial
Agreement, Kuwait Airways obligated itself to "share with Philippine
Airlines revenue earned from the uplift of passengers between Kuwait
and Manila and vice versa."11 The succeeding paragraphs of Article 2
stipulated the basis for the shared revenue earned from the uplift of
passengers. 
The Commercial Agreement and the annexed Joint Services Agreement
was subsequently amended by the parties six times between 1981 and
1994. At one point, in 1988, the agreement was amended to authorize
Philippine Airlines to operate provisional services, referred to as "ad hoc
joint services," on the Manila-Kuwait (and vice versa) route for the
period between April to June 1988.12 In 1989, another amendment was
agreed to by the parties, subjecting the uplift of cargo between Kuwait
and Manila to the same revenue sharing arrangement as the uplift of
passengers.13From 1981 until when the present incidents arose in 1995,
there seems to have been no serious disagreements relating to the
contract.
In April of 1995, delegations from the Philippines and Kuwait (Philippine
Panel and Kuwait Panel) met in Kuwait. The talks culminated in a
Confidential Memorandum of Understanding (CMU) entered into in
Kuwait on 12 April 1995. Among the members of the Philippine Panel
were officials of the Civil Aeronautics Board (CAB), the Department of
Foreign Affairs (DFA), and four officials of Philippine Airlines: namely
its Vice-President for Marketing, Director for International Relations,
Legal Counsel, and a Senior International Relations Specialist. Dr. Victor
S. Linlingan, the Head of the Delegation and Executive Director of the
77
CAB, signed the CMU in behalf of the Government of the Republic of
the Philippines.  could not divest its proprietary rights under the Commercial Agreement.
The present controversy stems from the fourth paragraph of the CMU,
which read:
4. The two delegations agreed that the unilateral operation and the
exercise of third and fourth freedom traffic rights shall not be subject to
any royalty payment or commercial arrangements, as from the date of
signing of this [CMU].
The aeronautical authorities of the two Contracting Parties will bless and
encourage any cooperation between the two designated airlines.
The designated airlines shall enter into commercial arrangements for the
unilateral exercise of fifth freedom traffic rights. Such arrangements will
be subject to the approval of the aeronautical authorities of both
contracting parties.14
On 15 May 1995, Philippine Airlines received a letter from Dawoud M.
Al-Dawoud, the Deputy Marketing & Sales Director for International
Affairs of Kuwait Airways, addressed to Ms. Socorro Gonzaga, the
Director for International Relations of Philippine Airlines.15 Both Al-
Dawoud and Gonzaga were members of their country’s respective
delegations that had met in Kuwait the previous month. The letter stated
in part:
Regarding the [Kuwait Airways/Philippine Airlines] Commercial
Agreement, pursuant to item 4 of the new MOU[,] we will advise our
Finance Department that the Agreement concerning royalty for 3rd/4th
freedom traffic will be terminated effective April 12, 1995. Although the
royalty agreement will no longer be valid, we are very keen on seeing
that [Philippine Airlines] continues to enjoy direct participation in the
Kuwait/Philippines market through the Block Space Agreement and to
that extent we would like to maintain the Jt. Venture (Block Space)
Agreement, although with some minor modifications.16
To this, Gonzaga replied to Kuwait Airways in behalf of Philippine
Airlines in a letter dated 22 June 1995. 17 Philippine Airlines called
attention to Section 6.5 of the Commercial Agreement, which read:
This agreement may be terminated by either party by giving ninety (90)
days notice in writing to the other party. However, any termination date
must be the last day of any traffic period, e.g.[,] 31st March or 31st
October.18
Pursuant to this clause, Philippine Airlines acknowledged the 15 May
1995 letter as the requisite notice of termination. However, it also pointed
out that the agreement could only be effectively terminated on 31 October
1995, or the last day of the then current traffic period. Thus, Philippine
Airlines insisted that the provisions of the Commercial Agreement "shall
continue to be enforced until such date."19
Subsequently, Philippine Airlines insisted that Kuwait Airways pay it the
principal sum of US$1,092,690.00 as revenue for the uplift of passengers
and cargo for the period 13 April 1995 until 28 October 1995. 20 When
Kuwait Airways refused to pay, Philippine Airlines filed a
Complaint21 against the foreign airline with the Regional Trial Court
(RTC) of Makati City, seeking the payment of the aforementioned sum
with interest, attorney’s fees, and costs of suit. In its Answer, 22 Kuwait
Airways invoked the CMU and argued that its obligations under the
Commercial Agreement were terminated as of the effectivity date of the
CMU, or on 12 April 1995. Philippine Airlines countered in its Reply that
it was "not privy to the [CMU],"23 though it would eventually concede the
existence of the CMU.24
An exhaustive trial on the merits was had. On 25 October 2002, the RTC
rendered a Decision in favor of Philippine Airlines. The RTC noted that
"the only issue to resolve in this case is a legal one," particularly whether
Philippine Airlines is entitled to the sums claimed under the terms of the
Commercial Agreement. The RTC also considered as a corollary issue
whether Kuwait Airways "validly terminated the Commercial Agreement
x x x, plaintiff’s contention being that [Kuwait Airways] had not
complied with the terms of termination provided for in the Commercial
Agreement."  was a private corporation no longer controlled by the Government. This
The bulk of the RTC’s discussion centered on the Philippine Airlines’
claim that the execution of the CMU could not prejudice its existing
rights under the Commercial Agreement, and that the CMU could only be
deemed effective only after 31 October 1995, the purported effectivity
date of termination under the Commercial Agreement. The rationale for
this position of Philippine Airlines was that the execution of the CMU
 
On this crucial point, the RTC agreed with Philippine Airlines. It asserted
the obligatory force of contracts between contracting parties as the source
of vested rights which may not be modified or impaired. After recasting
Kuwait Airway’s arguments on this point as being that "the Confidential
Memorandum of Understanding is superior to the Commercial
Agreement[,] the same having been supposedly executed by virtue of the
state’s sovereign power," the RTC rejected the argument, holding that
"[t]he fact that the [CMU] may have been executed by a Philippine Panel
consisting of representative [sic] of CAB, DFA, etc. does not necessarily
give rise to the conclusion that the [CMU] is a superior contract[,] for the
exercise of the State’s sovereign power cannot be arbitrarily and
indiscriminately utilized specifically to impair contractual vested
rights."25
Instead, the RTC held that "[t]he Commercial Agreement and its specific
provisions on revenue sharing having been freely and voluntarily agreed
upon by the affected parties x x x has the force of law between the parties
and they are bound to the fulfillment of what has been expressly
stipulated therein."26 Accordingly, "the provision of the [CMU] must be
applied in such a manner that it does not impair the vested rights of the
parties." 
From this Decision, Kuwait Airways directly filed with this Court the
present Petition for Review, raising pure questions of law. Kuwait
Airways poses three questions of law for resolution: whether the
designated air carrier of the Republic of the Philippines can have better
rights than the government itself; whether the bilateral agreement
between the Republic of the Philippines and the State of Kuwait is
superior to the Commercial Agreement; and whether the enforcement of
the CMU violates the non-impairment clause of the Constitution. 
Let us review the factual backdrop to appreciate the underlying context
behind the Commercial Agreement and the CMU. The Commercial
Agreement was entered into in 1981 at a time when Philippine Airlines
had not provided a route to Kuwait while Kuwait Airways had a route to
Manila. The Commercial Agreement established a joint commercial
arrangement whereby Philippine Airlines and Kuwait Airways were to
jointly operate the Manila-Kuwait (and vice versa) route, utilizing the
planes and services of Kuwait Airways. Based on the preambular
paragraphs of the Joint Services Agreement, as of 1981, Kuwait Airways
was interested in establishing a "second frequency" (or an increase of its
Manila flights to two) and that "as a result of cordial and frank
discussions the concept of a joint service emerged as the most desirable
alternative option."27
As a result, the revenue-sharing agreement was reached between the two
airlines, an agreement which stood as an alternative to both carriers
offering competing flights servicing the Manila-Kuwait route. An
apparent concession though by Philippine Airlines was the preclusion of
the exercise of one of the fundamental air traffic rights, the Fifth Freedom
traffic rights with respect to the Manila-Bangkok-Kuwait, thereby
precluding the deplaning of passengers from Manila in Bangkok and the
boarding in Bangkok of passengers bound for Manila. 
The CMU effectively sought to end the 1981 agreement between
Philippine Airlines and Kuwait Airways, by precluding any commercial
arrangements in the exercise of the Third and Fourth freedom traffic
rights. As a result, both Kuwait and the Philippines had the respective
right to board passengers from their respective countries and deplane
them in the other country, without having to share any revenue or enter
into any commercial arrangements to exercise such rights. In exchange,
the designated airline or airlines of each country was entitled to operate
six frequencies per week in each direction. In addition, the designated
airlines were allowed to enter into commercial arrangements for the
unilateral exercise of the Fifth Freedom traffic rights. 
Another notable point, one not touched upon by the parties or the trial
court. It is well known that at the time of the execution of the 1981
agreements, Philippine Airlines was controlled by the Philippine
government, with the Government Service Insurance System (GSIS)
holding the majority of shares. However, in 1992, Philippine Airlines was
privatized, with a private consortium acquiring 67% of the shares of the
carrier.28 Thus, at the time of the signing of the CMU, Philippine Airlines
fact is significant. Had Philippine Airlines remained a government owned
or controlled corporation at the time the CMU was executed in 1995, its
status as such would have bound Philippine Airlines to the commitments
made in the document by no less than the Philippine government.
However, since Philippine Airlines had already become a private
corporation at that juncture, the question of impairment of private rights
may come into consideration. 
78
In this regard, we observe that the RTC appears to have been under the
impression that the CMU was brought about by machinations of the
Philippine Panel and the Kuwait Panel of which Philippine Airlines was
not aware or in which it had a part. This impression is not exactly borne
by the record since no less than four of the nine members of the
Philippine Panel were officials of Philippine Airlines. It should be noted
though that one of these officials, Senior International Relations
Specialist Arnel Vibar, testified for Philippine Airlines that the airline
voiced its opposition to the withdrawal of the commercial agreements
under the CMU even months before the signing of the CMU, but the
objections were overruled.  economic aspect of air transportation, [its] general supervision and
Now, the arguments raised in the petition.  their property, property rights, equipment, facilities, and franchise." R.A.
One line of argument raised by Kuwait Airways can be dismissed
outright. Kuwait Airways points out that the third Whereas clause of the
1981 Commercial Agreement stated: "NOW, it is hereby agreed, subject
to and without prejudice to any existing or future agreements between the
Government Authorities of the Contracting Parties hereto …" That
clause, it is argued, evinces acknowledgement that from the beginning
Philippine Airlines had known fully well that its rights under the
Commercial Agreement would be limited by whatever agreements the
Philippine and Kuwait governments may enter into later.  subsequently incorporated in its franchise. Second, Philippine Airlines is
But can a perambulatory clause, which is what the adverted "Whereas"
clause is, impose a binding obligation or limitation on the contracting
parties? In the case of statutes, while a preamble manifests the reasons for
the passage of the statute and aids in the interpretation of any ambiguities
within the statute to which it is prefixed, it nonetheless is not an essential
part of an act, and it neither enlarges nor confers powers.29 Philippine
Airlines submits that the same holds true as to the preambular whereas
clauses of a contract.  At the same time, especially since Philippine Airlines was already under
What was the intention of the parties in forging the "Whereas" clause and
the contexts the parties understood it in 1981? In order to judge the
intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered,30 and in doing so, the
courts may consider the relations existing between the parties and the
purpose of the contract.31 In 1981, Philippine Airlines was still owned by
the Philippine government. In that context, it is evident that the Philippine
government, as owner Philippine Airlines, could enter into agreements
with the Kuwait government that would supersede the Commercial
Agreement entered into by one of its GOCCs, a scenario that changed
once Philippine Airlines fell to private ownership. Philippine Airlines
argues before us that the cited preambular stipulation is in fact
superfluous, and we can agree in the sense that as of the time of the
execution of the Commercial Agreement, it was evident, without need of
stipulation, that the Philippine government could enter into an agreement
with the Kuwait government that would prejudice the terms of the
commercial arrangements between the two airlines. After all, Philippine
Airlines then would not have been in a position to challenge the wishes of
its then majority stockholder – the Philippine government. 
Yet by the time ownership of Philippine Airlines was transferred into
private hands, the controverted "Whereas" clause had taken on a different
complexion, for it was newly evident that an act of the Philippine
government negating the commercial arrangement between the two
airlines would infringe the vested rights of a private individual. The
original intention of the "Whereas" clause was to reflect what was then a
given fact relative to the nationalized status of Philippine Airlines. With
the change of ownership of Philippine Airlines, the "Whereas" clause had
ceased to be reflective of the current situation as it now stands as a
seeming invitation to the Philippine government to erode private vested
rights. We would have no problem according the interpretation preferred
by Kuwait Airways of the "Whereas" clause had it been still reflective of
the original intent to waive vested rights of private persons, rather than
the rights in favor of the government by a GOCC. That is not the case,
and we are not inclined to give effect to the "Whereas" clause in a manner
that does not reflect the original intention of the contracting parties. 
Thusly, the proper focus of our deliberation should be whether the
execution of the CMU between the Philippine and Kuwait governments
could have automatically terminated the Commercial Agreement, as well
as the Joint Services Agreement between Philippine Airlines and Kuwait
Airways.  desired.
Philippine Airlines is the grantee of a legislative franchise authorizing it
to provide domestic and international air services. 32 Its initial franchise
was granted in 1935 through Act No. 4271, which underwent substantial
amendments in 1959 through Republic Act No. 2360. 33 It was granted a
new franchise in 1979 through Presidential Decree No. 1590, wherein
statutory recognition was accorded to Philippine Airlines as the "national
flag carrier." P.D. No. 1590 also recognized that the "ownership, control,
and management" of Philippine Airlines had been reacquired by the
Government. Section 19 of P.D. No. 1590 authorized Philippine Airlines
to contract loans, credits and indebtedness from foreign sources,
including foreign governments, with the unconditional guarantee of the
Republic of the Philippines. 
At the same time, Section 8 of P.D. No. 1590 subjects Philippine Airlines
"to the laws of the Philippines now existing or hereafter enacted." After
pointing to this provision, Kuwait Airways correlates it to Republic Act
(R.A.) No. 776, or the Civil Aeronautics Act of the Philippines, which
grants the Civil Aeronautics Board (CAB) "the power to regulate the
regulation of, and jurisdiction and control over, air carriers as well as
No. 776 also mandates that the CAB "shall take into consideration the
obligation assumed by the Republic of the Philippines in any treaty,
convention or agreement with foreign countries on matters affecting civil
aviation." 
There is no doubt that Philippine Airlines forebears under several
regulatory perspectives. First, its authority to operate air services in the
Philippines derives from its legislative franchise and is accordingly bound
by whatever limitations that are presently in place or may be
subject to the other laws of the Philippines, including R.A. No. 776,
which grants regulatory power to the CAB over the economic aspect of
air transportation. Third, there is a very significant public interest in state
regulation of air travel in view of considerations of public safety,
domestic and international commerce, as well as the fact that air travel
necessitates steady traversal of international boundaries, the amity
between nations. 
private ownership at the time the CMU was entered into, we cannot
presume that any and all commitments made by the Philippine
government are unilaterally binding on the carrier even if this comes at
the expense of diplomatic embarrassment. While it may have been, prior
to the privatization of Philippine Airlines, that the Philippine Government
had the authority to bind the airline in its capacity as owner of the airline,
under the post-privatization era, however, whatever authority of the
Philippine Government to bind Philippine Airlines can only come in its
capacity as regulator.1awphi1
As with all regulatory subjects of the government, infringement of
property rights can only avail with due process of law. Legislative
regulation of public utilities must not have the effect of depriving an
owner of his property without due process of law, nor of confiscating or
appropriating private property without due process of law, nor of
confiscating or appropriating private property without just compensation,
nor of limiting or prescribing irrevocably vested rights or privileges
lawfully acquired under a charter or franchise. The power to regulate is
subject to these constitutional limits.34
We can deem that the CAB has ample power under its organizing charter,
to compel Philippine Airlines to terminate whatever commercial
agreements the carrier may have. After all, Section 10 of R.A. No. 776
grants to the CAB the "general supervision and regulation of, and
jurisdiction and control over, air carriers as well as their property,
property rights, equipment, facilities and franchise," and this power
correlates to Section 4(c) of the same law, which mandates that the Board
consider in the exercise of its functions "the regulation of air
transportation in such manner as to recognize and preserve the inherent
advantages of, assure the highest degree of safety in, and foster sound
economic condition in, such transportation, and to improve the relations
between, and coordinate transportation by air carriers." 
We do not doubt that the CAB, in the exercise of its statutory mandate,
has the power to compel Philippine Airlines to immediately terminate its
Commercial Agreement with Kuwait Airways pursuant to the CMU.
Considering that it is the Philippine government that has the sole
authority to charter air policy and negotiate with foreign governments
with respect to air traffic rights, the government through the CAB has the
indispensable authority to compel local air carriers to comply with
government determined policies, even at the expense of economic rights.
The airline industry is a sector where government abjuration is least
However, this is not a case where the CAB had duly exercised its
regulatory authority over a local airline in order to implement or further
government air policy. What happened instead was an officer of the
CAB, acting in behalf not of the Board but of the Philippine government,
had committed to a foreign nation the immediate abrogation of Philippine
Airlines’s commercial agreement with Kuwait Airways. And while we do
not question that ability of that member of the CAB to represent the
Philippine government in signing the CMU, we do question whether such
79
member could have bound Philippine Airlines in a manner that can be
accorded legal recognition by our courts. 

Imagine if the President of the Philippines, or one of his alter egos,

acceded to the demands of a foreign counterpart and agreed to shut down
a particular Filipino business or enterprise, going as far as to co-sign a
document averring that the business "will be shut down immediately."
Granting that there is basis in Philippine law for the closure of such
business, could the mere declaration of the President have the legal effect
of immediately rendering business operations illegal? We, as magistrates
in a functioning democratic State with a fully fleshed Bill of Rights and a
Constitution that emphatically rejects "l’etat cest moi" as the governing
philosophy, think not. There is nothing to prevent the Philippine
government from utilizing all the proper channels under law to enforce
such closure, but unless and until due process is observed, it does not
have legal effect in this jurisdiction. Even granting that the "agreement"
between the two governments or their representatives creates a binding
obligation under international law, it remains incumbent for each
contracting party to adhere to its own internal law in the process of
complying with its obligations. 

The promises made by a Philippine president or his alter egos to a foreign

monarch are not transubstantiated by divine right so as to ipso facto
render legal rights of private persons obviated. Had Philippine Airlines
remained a government-owned or controlled corporation, it would have
been bound, as part of the executive branch, to comply with the dictates
of the President or his alter egos since the President has executive control
and supervision over the components of the executive branch. Yet
Philippine Airlines has become, by this time, a private corporation – one
that may have labored under the conditions of its legislative franchise that
allowed it to conduct air services, but private in character nonetheless.
The President or his alter egos do not have the legal capacity to dictate
insuperable commands to private persons. And that undesirable trait
would be refuted on the President had petitioner’s position prevailed,
since it is imbued with the presumption that the commitment made to a
foreign government becomes operative without complying with the
internal processes for the divestiture of private rights. 

Herein, we do not see why the Philippine government could not have
observed due process of law, should it have desired to see the
Commercial Agreement immediately terminated in order to adhere to its
apparent commitment to the Kuwait government. The CAB, with its
ample regulatory power over the economic affairs of local airliners, could
have been called upon to exercise its jurisdiction to make it so. A remedy
even exists in civil law–the judicial annulment or reformation of
contracts–which could have been availed of to effect the immediate
termination of the Commercial Agreement. No such remedy was
attempted by the government.

Nor can we presume, simply because Dr. Linlingan, Executive Director

of the CAB had signed the CMU in behalf of the Philippine Panel, that he
could have done so bearing the authority of the Board, in the exercise of
regulatory jurisdiction over Philippine Airlines. For one, the CAB is a
collegial body composed of five members,35 and no one member–even
the chairman–can act in behalf of the entire Board. The Board is disabled
from performing as such without a quorum. For another, the Executive
Director of the CAB is not even a member of the Board, per R.A. No.
776, as amended. 

Even granting that the police power of the State, as given flesh in the
various laws governing the regulation of the airline industry in the
Philippines, may be exercised to impair the vested rights of privately-
owned airlines, the deprivation of property still requires due process of
law. In order to validate petitioner’s position, we will have to concede
that the right to due process may be extinguished by executive command.
While we sympathize with petitioner, who reasonably could rely on the
commitment made to it by the Philippine government, we still have to
respect the segregate identity of the government and that of a private
corporation and give due meaning to that segregation, vital as it is to the
very notion of democracy.

WHEREFORE, the petition is DENIED. No pronouncement as to costs. 

SO ORDERED.

80