SPECIAL FIRST DIVISION

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. One of its salient features is the grant
1 

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. The 5 

provisions of the ASBR were explained to the interested

bidders who were notified that the bidding would be held
on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT)
sale through public bidding is the National
Government’s equity in PHILSECO consisting of
896,869,942 shares of stock (representing 87.67% of
PHILSECO’s outstanding capital stock), which will be
sold as a whole block in accordance with the rules
herein enumerated.
...
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

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

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. Consequently, petitioner
10 

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. It further ruled that a shipyard like
12 

PHILSECO is a public utility whose capitalization must be

sixty percent (60%) Filipino-owned. Consequently, the
13 

right to top granted to KAWASAKI under the Asset

Specific Bidding Rules (ASBR) drafted for the sale of the
87.67% equity of the National Government in PHILSECO
is illegal---not only because it violates the rules on
competitive bidding--- but more so, because it allows
foreign corporations to own more than 40% equity in the
shipyard. It also held that "although the petitioner had the
14 

opportunity to examine the ASBR before it participated in

the bidding, it cannot be estopped from questioning the
unconstitutional, illegal and inequitable provisions
thereof." Thus, this Court voided the transfer of the
15 

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 interests from petitioner;
(b) execute a Stock Purchase Agreement with
petitioner;
(c) cause the issuance in favor of petitioner of the
certificates of stocks representing 87.6% of
PHILSECO’s total capitalization;
(d) return to private respondent PHGI the amount of
Two Billion One Hundred Thirty-One Million Five
Hundred Thousand Pesos (₱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, respondents

17 

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)
Whether the right to top granted to KAWASAKI violates
the principles of competitive bidding.
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." To18 

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. Unlike a private enterprise which
19 

independently determines whom it will serve, a "public

utility holds out generally and may not refuse legitimate
demand for service." Thus, in Iloilo Ice and Cold Storage
20 

Co. vs. Public Utility Board, this Court defined "public

21 

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. (emphasis supplied)
22 

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." Its nature dictates that it serves but a limited
23 

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

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. A 25 

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. In addition, such persons or corporations
26 

should abide by the citizenship requirement provided in

Article XIII, section 8 of the 1935 Constitution, viz:
27 

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 separate fund,
to be known as "Shipyard Development Fund", by the
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:
(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. Consequently, sections 13 (b) and 15 of C.A.
28 

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

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. In other words, with the
30 

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 Blg. 391 by E.O. No. 226, the revival of
sections 13 (b) and 15 of C.A. 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. Hence, there is simply
31 

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, none
33 

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 to issue franchises for the operation of
34 

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 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 partnership which, unlike
36 

an ordinary corporation, is based on delectus

personae. No one can become a member of the
37 

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. The three principles of public bidding are:
38 

(1) the offer to the public; (2) an opportunity for

competition; and (3) a basis for comparison of bids. As
39 

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.  Thus:
40 

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 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. But the requirement for public bidding does
42 

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.  It is only after the public bidding that the
1âwphi1

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

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 and in the absence of competent evidence to
44 

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.