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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 industrys demise
or breathe new life to the struggling but potentially healthy partner in the
countrys 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 P330 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 Governments share

in PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to


settle its huge obligations to PNB, the National Governments shareholdings
in PHILSECO increased to 97.41% thereby reducing KAWASAKIs
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 Governments share in PHILSECO
to private entities. After a series of negotiations between the APT and
KAWASAKI, they agreed that the latters 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 Governments
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 Governments equity in PHILSECO consisting of
896,869,942 shares of stock (representing 87.67% of PHILSECOs 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 Governments 87.67% equity in PHILSECO
is PESOS: ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00).
...
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 APTs 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 bidders 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
(P2,030,000,000.00) 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 APTs 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 JGSMIs 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.
[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 governments 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 (P2,030,000,000.00 ), less its bid deposit plus interests
upon the finality of this Decision. In turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit
and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of
stocks representing 87.6% of PHILSECOs total
capitalization;
(d) return to private respondent PHGI the amount of Two Billion
One Hundred Thirty-One Million Five Hundred Thousand
Pesos (P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.[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) 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. [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]

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 contractors percentage tax.- The gross receipts derived
by shipbuilders and ship repairers from shipbuilding and ship repairing
activities shall be exempt from the Contractors 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 contractors 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 contractors 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. [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]
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 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. [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 PHILSECOs 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
PHILSECOs total capitalization. Section 1 of the 1977 JVA states:
1.3 The authorized capital stock of Philseco shall be P330 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 P312 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 P330 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 P312 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 P312 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 partys 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 [36] 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 PHILSECOs 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 Governments share to 40% of Philsecos 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 partners 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 partners 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 COAs official representative and
before all interested bidders. The only question that remains is whether or
not the existence of KAWASAKIs 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 KAWASAKIs 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 JGSMIs 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 petitioners 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 KAWASAKIs 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
KAWASAKIs right of first refusal, which is concededly the basis for the grant
of the right to top. Under KAWASAKIs 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. [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. 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 KAWASAKIs right of first refusal
with the right to top, KAWASAKI would have been able to buy the National
Governments shares in PHILSECOunder 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 P2.03 billion and not the
higher amount of P2.1315 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 latters effort to raise P2.131 billion necessary in exercising the right to
top is not contrary to law, public policy or public morals. There is nothing in
the ASBR that bars the losing bidders from joining either the winning bidder
(should the right to top is not exercised) or KAWASAKI/PHI (should it exercise
its right to top as it did), to raise the purchase price. The petitioner did not
allege, nor was it shown by competent evidence, that the participation of the
losing bidders in the public bidding was done with fraudulent intent. Absent
any proof of fraud, the formation by Philyards of a consortium is legitimate in
a free enterprise system. The appellate court is thus correct in holding the
petitioner estopped from questioning the validity of the transfer of the
National Governments 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. L-22545

November 28, 1969

BALDOMERO S. LUQUE AND OTHER PASSENGERS FROM THE


PROVINCE OF CAVITE AND BATANGAS; AND PUBLIC SERVICE
OPERATORS FILOMENA ABALOS, AND OTHERS, petitioners,
vs.
HON. ANTONIO J. VILLEGAS, MAYOR OF MANILA; MUNICIPAL BOARD

OF MANILA; MANILA POLICE DEPARTMENT; HON. ENRIQUE MEDINA,


PSC COMMISSIONER; PUBLIC SERVICE COMMISSION; SAULOG
TRANSIT, INC.; AND BATANGAS TRANSPORTATION CO.,
INC., respondents.
Samuel Bautista, Arturo J. Clemente, Emigdio Arcilla, Delfin Villanueva and
Baldomero S. Luque for petitioners.
Generoso O. Almario and Paulino S. Gueco for respondents Enrique Medina
and The Public Service Commission.
Graciano C. Regala and Associates for respondents Saulog Transit, Inc. and
Batangas Transportation Co., Inc.
Gregorio A. Ejercito and Felix C. Chavez for respondents Antonio J. Villegas,
et al.
SANCHEZ, J.:
Challenged as unconstitutional, illegal and unjust in these original
proceedings for certiorari and mandamus are two substantially identical bus
ban measures: (1) Ordinance No. 4986 of the City of Manila approved on July
13, 1964, entitled "An Ordinance Rerouting Traffic on Roads and Streets in
the City of Manila, and for Other Purposes," and (2) Administrative Order No.
1, series of 1964, dated February 7, 1964, and Administrative Order No. 3,
series of 1964, dated April 21, 1964, both issued by Commissioner Enrique
Medina (hereinafter referred to as the Commissioner) of the Public Service
Commission.
Original petitioners are passengers from the provinces of Cavite and
Batangas who ride on buses plying along the routes between the said
provinces and Manila. Other petitioners are public service operators
operating PUB and PUJ public service vehicles from the provinces with
terminals in Manila, while the rest are those allegedly operating PUB, PUJ or
AC motor vehicles operating within Manila and suburbs.
Ordinance 4986, amongst others, provides that:
RULE II. ENTRY POINTS AND ROUTES OF PROVINCIAL PASSENGER
BUSES AND JEEPNEYS
1. Provincial passenger buses and jeepneys (PUB and PUJ) shall be
allowed to enter Manila, but only through the following entry points

and routes, from 6:30 A.M. to 8:30 P.M. every day except Sundays and
holidays:
xxx

xxx

xxx

(m) Those coming from the south through F. B. Harrison shall


proceed to Mabini; turn right to Harrison Boulevard; turn right to
Taft Avenue and proceed towards Pasay City;
(n) Those coming from the south through Taft Avenue shall turn
left at Vito Cruz; turn right to Dakota; turn right to Harrison
Boulevard; turn right to Taft Avenue; thence proceed towards
Pasay City;
Loading and unloading shall be allowed only at Harrison
Boulevard, between A. Mabini and Taft Avenue;
xxx

xxx

xxx

RULE III. FLEXIBLE SHUTTLE BUS SERVICE


1. In order that provincial commuters shall not be unduly
inconvenienced as a result of the implementation of these essential
traffic control regulations, operators of provincial passenger buses shall
be allowed to provide buses to shuttle their passengers from their
respective entry control points, under the following conditions:
(a) Each provincial bus company or firm shall be allowed such
number of shuttle buses proportionate to the number of units
authorized it, the ratio to be determined by the Chief, Traffic
Control Bureau, based on his observations as to the actual needs
of commuters and traffic volume; in no case shall the allocation
be more than one shuttle bus for every 10 authorized units, or
fraction thereof.
(b) No shuttle bus shall enter Manila unless the same shall have
been provided with identification stickers as required under Rule
IV hereof, which shall be furnished and allocated by the Chief,
Traffic Control Bureau to each provincial bus company or firm.

(c) All such shuttle buses are not permitted to load or unload or
to pick and/or drop passengers along the way but must do so
only in the following places:
xxx

xxx

xxx

(3) South
(a) Harrison Boulevard, between Dakota and Taft Avenue.
Administrative Order No. 1, series of 1964, issued by the Commissioner, in
part, provides:
2. All public utilities including jeepneys heretofore authorized to
operate from the City of Manila to any point in Luzon, beyond the
perimeter of Greater Manila, shall carry the words "For Provincial
Operation" in bold and clear types on both sides or on one side and at
the back of the vehicle and must not be less than 12 inches in
dimension. All such vehicles marked "For Provincial Operation" are
authorized to operate outside the perimeter of Greater Manila in
accordance with their respective certificates of public convenience,
and are not authorized to enter or to operate beyond the boundary line
fixed in our order of March 12, 1963 and July 22, 1963, with the
exception of those vehicles authorized to carry their provincial
passengers thru the boundary line up to their Manila terminal which
shall be identified by a sticker signed and furnished by the PSC and by
the Mayors of the affected Cities and municipalities, and which shall be
carried on a prominent place of the vehicle about the upper middle
part of the windshield.
xxx

xxx

xxx

All such public utility vehicles authorized by this Order to enter the City
of Manila and to carry their passengers thru the boundary line, are not
permitted to load or unload or to pick and/or drop passengers along
the way, but must do so only in the following places:
xxx

xxx

xxx

c. Vehicles coming from the SOUTH may load or unload at the San
Andres-Taft Rotonda; at Plaza Lawton or at the Corner of Harrison and
Mabini Streets near the Manila Zoo.
On April 21, 1964, the Commissioner issued Administrative Order No. 3 which
resolved motions for reconsideration (of the first administrative order
Administrative Order No. 1, series of 1964) filed by several affected
operators. This order (No. 3), amongst others, states that only 10% of the
provincial buses and jeepneys shall be allowed to enter Manila; however,
provincial buses and jeepneys "operating within a radius of 50 kms. from
Manila City Hall and whose business is more on the Manila end than on the
provincial end are given fifteen per cent to prevent a dislocation of their
business; provided that operators having less than five units are not
permitted to cross the boundary and shall operate exclusively on the
provincial end." This order also allocated the number of units each provincial
bus operator is allowed to operate within the City of Manila.
1. On the main, nothing new there is in the present petition. For, the validity
of Ordinance 4986 and the Commissioner's Administrative Order No. 1, series
of 1964, here challenged, has separately passed judicial tests in two cases
brought before this Court.
In Lagman vs. City of Manila (June 30, 1966), 17 SCRA 579, petitioner
Lagman was an operator of PU auto trucks with fixed routes and regular
terminals for the transportation of passengers and freight on the Bocaue
(Bulacan) Paraaque (Rizal) line via Rizal Avenue, Plaza Goiti, Sta. Cruz
Bridge, Plaza Lawton, P. Burgos, Taft Avenue, and Taft Avenue Extension,
Manila. He sought to prohibit the City of Manila, its officers and agents, from
enforcing Ordinance 4986. His ground was that said ordinance was
unconstitutional, illegal, ultra vires and null and void. He alleged, amongst
others, that (1) "the power conferred upon respondent City of Manila, under
said Section 18 (hh) of Republic Act No. 409, as amended, does not include
the right to enact an ordinance such as the one in question, which has the
effect of amending or modifying a certificate of public convenience granted
by the Public Service Commission, because any amendment or modification
of said certificate is solely vested by law in the latter governmental agency,
and only after notice and hearing (Sec. 16 [m], Public Service Act); but since
this procedure was not adopted or followed by respondents in enacting the
disputed ordinance, the same is likewise illegal and null and void"; (2) "the
enforcement of said ordinance is arbitrary, oppressive and unreasonable

because the city streets from which he had been prevented to operate his
buses are the cream of his business"; and (3) "even assuming that Ordinance
No. 4986 is valid, it is only the Public Service Commission which can require
compliance with its provisions (Sec. 17[j], Public Service Act), but since its
implementation is without the sanction or approval of the Commission, its
enforcement is also unauthorized and illegal." This Court, in a decision
impressive because of its unanimity, upheld the ordinance. Speaking through
Mr. Justice J.B.L. Reyes, we ruled:
First, as correctly maintained by respondents, Republic Act No. 409, as
amended, otherwise known as the Revised Charter of the City of
Manila, is a special law and of later enactment than Commonwealth
Act No. 548 and the Public Service Law (Commonwealth Act No. 146,
as amended), so that even if conflict exists between the provisions of
the former act and the latter acts, Republic Act No. 409 should prevail
over both Commonwealth Acts Nos. 548 and 146. In Cassion vs. Banco
Nacional Filipino, 89 Phil. 560, 561, this Court said:
". . . for with or without an express enactment it is a familiar rule
of statutory construction that to the extent of any necessary
repugnancy between a general and a special law or provision,
the latter will control the former without regard to the respective
dates of passage."
It is to be noted that Commonwealth Act No. 548 does not confer
an exclusive power or authority upon the Director of Public Works,
subject to the approval of the Secretary of Public Works and
Communications, to promulgate rules and regulations relating to the
use of and traffic on national roads or streets. This being the case,
section 18 (hh) of the Manila Charter is deemed enacted as an
exception to the provisions of Commonwealth Act No. 548.
xxx

xxx

xxx

Second, the same situation holds true with respect to the provision of
the Public Service Act. Although the Public Service Commission is
empowered, under its Section 16(m), to amend, modify or revoke
certificates of public convenience after notice and hearing, yet there is
no provision, specific or otherwise, which can be found in this statute
(Commonwealth Act No. 146) vesting power in the Public Service
Commission to superintend, regulate, or control the streets of

respondent City or suspend its power to license or prohibit the


occupancy thereof. On the other hand, this right or authority, as
hereinabove concluded is conferred upon respondent City of Manila.
The power vested in the Public Service Commission under Section
16(m) is, therefore, subordinate to the authority granted to respondent
City, under said section 18 (hh). . . .
xxx

xxx

xxx

That the powers conferred by law upon the Public Service Commission
were not designed to deny or supersede the regulatory power of local
governments over motor traffic, in the streets subject to their control is
made evident by section 17 (j) of the Public Service Act
(Commonwealth Act No. 146) that provides as follows:
"SEC. 17. Proceedings of Commission without previous hearing.
The Commission shall have power, without previous hearing,
subject to established limitations and exceptions, and saving
provisions to the contrary:
xxx

xxx

xxx.

(j) To require any public service to comply with the laws of


the Philippines, and with any provincial resolution or
municipal ordinance relating thereto, and to conform to the
duties imposed upon it thereby, or by the provisions of its
own charter, whether obtained under any general or
special law of the Philippines." (Emphasis supplied)
The petitioner's contention that, under this section, the respective
ordinances of the City can only be enforced by the Commission alone is
obviously unsound. Subsection (j) refers not only to ordinances but also
to "the laws of the Philippines," and it is plainly absurd to assume that
even laws relating to public services are to remain a dead letter
without the placet of the Commission; and the section makes no
distinction whatever between enforcement of laws and that of
municipal ordinances.
The very fact, furthermore, that the Commission is empowered, but not
required, to demand compliance with apposite laws and ordinances
proves that the Commission's powers are merely supplementary to

those of state organs, such as the police, upon which the enforcement
of laws primarily rests.
Third, the implementation of the ordinance in question cannot be
validly assailed as arbitrary, oppressive and unreasonable. Aside from
the fact that there is no evidence to substantiate this charge it is not
disputed that petitioner has not been totally banned or prohibited from
operating all his buses, he having been allowed to operate two (2)
"shuttle" buses within the city limits.1
The second case for certiorari and prohibition, filed by same petitioner in the
first case just mentioned, is entitled "Lagman vs. Medina" (December 24,
1968), 26 SCRA 442. Put at issue there is the validity of the Commissioner's
Administrative Order No. 1, series of 1964, also disputed herein. It was there
alleged, inter alia, that "the provisions of the bus ban had not been
incorporated into his certificate of public convenience"; "to be applicable to a
grantee of such certificate subsequently to the issuance of the order
establishing the ban, there should be a decision, not merely by the
Commissioner, but, also, by the PSC, rendered after due notice and hearing,
based upon material changes in the facts and circumstances under which the
certificate had been granted"; and "the ban is unfair, unreasonable and
oppressive." We dismissed this petition and upheld the validity of the
questioned order of the Commissioner. On the aforequoted issues, Chief
Justice Roberto Concepcion, speaking for an equally unanimous Court, said
Petitioner's claim is devoid of merit, inasmuch as:
1. The terms and conditions of the bus ban established by the
Commissioner are substantially identical to those contained in
Ordinance No. 4986 of the City of Manila 'rerouting traffic on roads and
streets' therein, approved on July 30, 1964. In G.R. No. L-23305,
entitled "Lagman vs. City of Manila, petitioner herein assailed the
validity of said ordinance," upon the ground, among others, that it
tended to amend or modify certificates of public conveniences issued
by the PSC; that the power therein exercised by the City of Manila
belongs to the PSC; and that the ordinance is arbitrary, oppressive and
unreasonable. In a decision promulgated on June 30, 1966, this Court
rejected this pretense and dismissed Lagman's petition in said case.
2. Petitioner's certificate of public convenience, like all other similar
certificates, was issued subject to the condition that operators shall

observe and comply [with] . . . all the rules and regulations of the
Commission relative to PUB service," and the contested orders
issued pursuant to Sections 13 (a), 16 (g) and 17 (a) of Commonwealth
Act 146, as amended partake of the nature of such rules and
regulations.
xxx

xxx

xxx

4. The purpose of the ban to minimize the "traffic problem in the


City of Manila" and the "traffic congestion, delays and even accidents"
resulting from the free entry into the streets of said City and the
operation "around said streets, loading and unloading or picking up
passengers and cargoes" of PU buses in great "number and size"
and the letter and spirit of the contested orders are inconsistent with
the exclusion of Lagman or of those granted certificates of public
convenience subsequently to the issuance of said orders from the
operation thereof.
xxx

xxx

xxx

9. The theory to the effect that, to be valid, the aforementioned orders


must be issued by the PSC, not merely by its Commissioner, and only
after due notice and hearing, is predicated upon the premise that the
bus ban operates as an amendment of petitioner's certificate of public
convenience, which is false, and was not sustained by this Court in its
decision in G.R. No. L-23305, which is binding upon Lagman, he being
the petitioner in said case.2
The issues raised by Lagman in the two cases just mentioned were likewise
relied upon by the petitioners in the case now before us. But for the fact that
the present petitioners raised other issues, we could have perhaps
written finis to the present case. The obvious reason is that we find no cause
or reason why we should break away from our ruling in said cases.
Petitioners herein, however, draw our attention to points which are not
specifically ruled upon in the Lagman cases heretofore mentioned.
2. Petitioners' other gripe against Ordinance 4986 is that it destroys vested
rights of petitioning public services to operate inside Manila and to proceed
to their respective terminals located in the City. They would want likewise to
nullify said ordinance upon the averment that it impairs the vested rights of
petitioning bus passengers to be transported directly to downtown Manila.

It has been said that a vested right is one which is "fixed, unalterable, or
irrevocable."3 Another definition would give vested right the connotation that
it is "absolute, complete, and unconditional, to the exercise of which no
obstacle exists . . . ."4 Petitioners' citation from 16 C.J.S., pp. 642643,5 correctly expresses the view that when the "right to enjoyment,
present or prospective, has become the property of some particular person
or persons as a present interest," that right is a vested right. Along the same
lines is our jurisprudential concept. Thus, inBenguet Consolidated Mining Co.
vs. Pineda,6 we put forth the thought that a vested right is "some right or
interest in the property which has become fixed and established, and is no
longer open to doubt or controversy"; it is an "immediate fixed right of
present and future enjoyment"; it is to be contra-distinguished from a right
that is "expectant or contingent." The Benguet case also quoted from 16
C.J.S., Sec. 215, pp. 642-643, as follows: "Rights are vested when the right to
enjoyment, present or prospective, has become the property of some
particular person or persons as a present interest. The right must be
absolute, complete, and unconditional, independent of a contingency, and a
mere expectancy of future benefit, or a contingent interest in property
founded on anticipated continuance of existing laws, does not constitute a
vested right. So, inchoate rights which have not been acted on are not
vested."7
Of course, whether a right is vested or not, much depends upon the
environmental facts.8
Contending that they possess valid and subsisting certificates of public
convenience, the petitioning public services aver that they acquired a vested
right to operate their public utility vehicles to and from Manila as appearing
in their said respective certificates of public convenience.
Petitioner's argument pales on the face of the fact that the very nature of a
certificate of public convenience is at cross purposes with the concept of
vested rights. To this day, the accepted view, at least insofar as the State is
concerned, is that "a certificate of public convenience constitutes neither a
franchise nor a contract, confers no property right, and is a mere license or
privilege."9 The holder of such certificate does not acquire a property right in
the route covered thereby. Nor does it confer upon the holder any proprietary
right or interest of franchise in the public highways.10 Revocation of this
certificate deprives him of no vested right.11 Little reflection is necessary to
show that the certificate of public convenience is granted with so many

strings attached. New and additional burdens, alteration of the certificate,


and even revocation or annulment thereof is reserved to the State.
We need but add that the Public Service Commission, a government agency
vested by law with "jurisdiction, supervision, and control over all public
services and their franchises, equipment, and other properties"12 is
empowered, upon proper notice and hearing, amongst others: (1) "[t]o
amend, modify or revoke at any time a certificate issued under the
provisions of this Act [Commonwealth Act 146, as amended], whenever the
facts and circumstances on the strength of which said certificate was issued
have been misrepresented or materially changed";13 and (2) "[t]o suspend or
revoke any certificate issued under the provisions of this Act whenever the
holder thereof has violated or wilfully and contumaciously refused to comply
with any order, rule or regulation of the Commission or any provision of this
Act: Provided, That the Commission, for good cause, may prior to the hearing
suspend for a period not to exceed thirty days any certificate or the exercise
of any right or authority issued or granted under this Act by order of the
Commission, whenever such step shall in the judgment of the Commission be
necessary to avoid serious and irreparable damage or inconvenience to the
public or to private interests."14 Jurisprudence echoes the rule that the
Commission is authorized to make reasonable rules and regulations for the
operation of public services and to enforce them.15 In reality, all certificates
of public convenience issued are subject to the condition that all public
services "shall observe and comply [with] ... all the rules and regulations of
the Commission relative to" the service.16 To further emphasize the control
imposed on public services, before any public service can "adopt, maintain,
or apply practices or measures, rules, or regulations to which the public shall
be subject in its relation with the public service," the Commission's approval
must first be had.17
And more. Public services must also reckon with provincial resolutions and
municipal ordinances relating to the operation of public utilities within the
province or municipality concerned. The Commission can require compliance
with these provincial resolutions or municipal ordinances.18
Illustrative of the lack of "absolute, complete, and unconditional" right on the
part of public services to operate because of the delimitations and
restrictions which circumscribe the privilege afforded a certificate of public
convenience is the following from the early (March 31, 1915) decision of this
Court in Fisher vs. Yangco Steamship Company, 31 Phil. 1, 18-19:

Common carriers exercise a sort of public office, and have duties to


perform in which the public is interested. Their business is, therefore,
affected with a public interest, and is subject of public regulation. (New
Jersey Steam Nav. Co. vs. Merchants Banks, 6 How. 344, 382; Munn vs.
Illinois, 94 U.S. 113, 130.) Indeed, this right of regulation is so far
beyond question that it is well settled that the power of the state to
exercise legislative control over railroad companies and other carriers
'in all respects necessary to protect the public against danger, injustice
and oppression' may be exercised through boards of commissioners.
(New York, etc. R. Co. vs. Bristol, 151 U.S. 556, 571; Connecticut, etc.
R. Co. vs. Woodruff, 153 U.S. 689.).
xxx

xxx

xxx

. . . . The right to enter the public employment as a common carrier


and to offer one's services to the public for hire does not carry with it
the right to conduct that business as one pleases, without regard to
the interests of the public and free from such reasonable and just
regulations as may be prescribed for the protection of the public from
the reckless or careless indifference of the carrier as to the public
welfare and for the prevention of unjust and unreasonable
discrimination of any kind whatsoever in the performance of the
carrier's duties as a servant of the public.
Business of certain kinds, including the business of a common carrier,
holds such a peculiar relation to the public interest that there is
superinduced upon it the right of public regulation. (Budd vs. New York,
143 U.S. 517, 533.) When private property is "affected with a public
interest it ceases to be juris privati only." Property becomes clothed
with a public interest when used in a manner to make it of public
consequence and affect the community at large. "When, therefore, one
devotes his property to a use in which the public has an interest, he, in
effect, grants to the public an interest in that use, and must submit to
be controlled by the public for the common good, to the extent of the
interest he has thus created. He may withdraw his grant by
discontinuing the use, but so long as he maintains the use he must
submit to control." (Munn vs. Illinois, 94 U.S. 113; Georgia R. & Bkg. Co.
vs. Smith, 128 U.S. 174; Budd vs. New York, 143 U.S. 517; Louisville,
etc. Ry. Co. vs. Kentucky, 161 U.S. 677, 695.).

The foregoing, without more, rejects the vested rights theory espoused by
petitioning bus operators.
Very little need be added to show that neither do bus passengers have a
vested right to be transported directly into the City of Manila. It would suffice
if a statement be here made that the alleged right of bus passengers, to a
great extent, is dependent upon the manner public services are allowed to
operate within a given area. Because, regulations imposed upon public
services directly affect the bus passengers. It is quite obvious that if buses
were allowed to load or unload solely at specific or designated places, a
passenger cannot legally demand or insist that the operator load or unload
him at a place other than those specified or designated.
It is no argument to support the vested rights theory that petitioning
passengers have enjoyed the privilege of having been continuously
transported even before the outbreak of the war directly without transfer
from the provinces to places inside Manila up to the respective bus terminals
in said City. Times have changed. Vehicles have increased in number. Traffic
congestion has moved from bad to worse, from tolerable to critical. The
number of people who use the thoroughfares has multiplied.
3. It is because of all of these that it has become necessary for the police
power of the State to step in, not for the benefit of the few, but for the
benefit of the many. Reasonable restrictions have to be provided for the use
of the thoroughfares.19 The operation of public services may be subjected to
restraints and burdens, in order to secure the general comfort.20 No franchise
or right can be availed of to defeat the proper exercise of police power21
the authority "to enact rules and regulations for the promotion of the general
welfare." 22 So it is, that by the exercise of the police power, which is a
continuing one, a business lawful today may in the future, because of the
changed situation, the growth of population or other causes, become a
menace to the public health and welfare, and be required to yield to the
public good."23 Public welfare, we have said, lies at the bottom of any
regulatory measure designed "to relieve congestion of traffic, which is, to say
the least, a menace to public safety."24 As a corollary, measures calculated to
promote the safety and convenience of the people using the thoroughfares
by the regulation of vehicular traffic, present a proper subject for the
exercise of police power.25

Both Ordinance 4986 and the Commissioner's administrative orders fit into
the concept of promotion of the general welfare. Expressive of the purpose of
Ordinance 4986 is Section 1 thereof, thus "As a positive measure to
relieve the critical traffic congestion in the City of Manila, which has grown to
alarming and emergency proportions, and in the best interest of public
welfare and convenience, the following traffic rules and regulations are
hereby promulgated." Along the same lines, the bus ban instituted by the
Commissioner has for its object "to minimize the 'traffic problem in the City
of Manila' and the 'traffic congestion, delays and even accidents' resulting
from the free entry into the streets of said City and the operation 'around
said streets, loading and unloading or picking up passengers and cargoes' of
PU buses in great 'number and size.'"26
Police power in both was properly exercised.
4. We find no difficulty in saying that, contrary to the assertion made by
petitioners, Ordinance 4986 is not a class legislation.
It is true that inter-urban buses are allowed to enter the City of Manila, while
provincial buses are not given the same privilege, although they are allowed
shuttle service into the City of Manila. There is no point, however, in placing
provincial buses on the same level as the inter-urban buses plying to and
from Manila and its suburban towns and cities (Makati, Pasay, Mandaluyong,
Caloocan, San Juan, Quezon City and Navotas). Inter-urban buses are used
for transporting passengers only. Provincial buses are used for passengers
and freight. Provincial buses, because of the freight or baggage which the
passengers usually bring along with them, take longer time to load or unload
than inter-urban buses. Provincial buses generally travel along national
highways and provincial roads, cover long distances, have fixed trip
schedules. Provincial buses are greater in size and weight than inter-urban
buses. The routes of inter-urban buses are short, covering contiguous
municipalities and cities only. Inter-urban buses mainly use city and
municipal streets.
These distinctions generally hold true between provincial passenger
jeepneys and inter-urban passenger jeepneys.
No unjustified discrimination there is under the law.
The obvious inequality in treatment is but the result flowing from the
classification made by the ordinance and does not trench upon the equal

protection clause.27 The least that can be said is that persons engaged in the
same business "are subjected to different restrictions or are held entitled to
different privileges under the same conditions."28
Neither is there merit to the charge that private vehicles are being
unjustifiably favored over public vehicles. Private vehicles are not geared for
profit, usually have but one destination. Public vehicles are operated
primarily for profit and for this reason are continually operated to make the
most of time. Public and private vehicles belong to different classes.
Differences in class beget differences in privileges. And petitioners have no
cause to complain.
The principles just enunciated have long been recognized. In Ichong vs.
Hernandez,29 our ruling is that the equal protection of the law clause "does
not demand absolute equality amongst residents; it merely requires that all
persons shall be treated alike, under like circumstances and conditions both
as to privileges conferred and liabilities enforced"; and, that the equal
protection clause "is not infringed by legislation which applies only to those
persons falling within a specified class, if it applies alike to all persons within
such class, and reasonable grounds exist for making a distinction between
those who fall within such class and those who do not."30
FOR THE REASONS GIVEN, the petition herein is denied.
Costs against petitioners. So ordered.
G.R. No. 115381 December 23, 1994
KILUSANG MAYO UNO LABOR CENTER, petitioner,
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
fare declared by LTFRB on many provincial routes. It is in this
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
propio implementation 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 proposed basic per
kilometer fare rate, with the said minimum-maximum fare range applying
only to ordinary, first class and premium class buses and a fifty-centavo
(P0.50) minimum per kilometer fare for aircon buses, was sought.
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
LUZON
MIN. OF 5 KMS. SUCCEEDING KM.
REGULAR P1.50 P0.37
STUDENT P1.15 P0.28
VISAYAS/MINDANAO
REGULAR P1.60 P0.375
STUDENT P1.20 P0.285
FIRST CLASS (PER KM.)
LUZON P0.385
VISAYAS/
MINDANAO P0.395
PREMIERE CLASS (PER KM.)
LUZON P0.395
VISAYAS/
MINDANAO P0.405
AIRCON (PER KM.) P0.415. 4
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:
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.
In determining public need, the presumption of need for a
service shall be deemed in favor of the applicant. The burden of
proving that there is no need for a proposed service shall be with
the oppositor(s).
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.
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
(normally third class passenger transport) for which the
government will fix indicative or reference fares. Operators of
particular services may fix their own fares within a range 15%
above and below the indicative or reference rate.
Where there is lack of effective competition for services, or on
specific routes, or for the transport of particular commodities,
maximum mandatory freight rates or passenger fares shall be
set temporarily by the government pending actions to increase
the level of competition.
For unserved or single operator routes, the government shall
contract such services in the most advantageous terms to the
public and the government, following public bids for the services.
The advisability of bidding out the services or using other kinds
of incentives on such routes shall be studied by the government.
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.
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 prerequisite 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:
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 theEmergency 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. L2621)." 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
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
(Osmea 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 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
1994
1998
2002

P0.37
P0.42
P0.56
P0.73

15% (P0.05) P0.42


+ 0.05 = 0.47 20% (P0.09) P0.56
+ 0.05 = 0.61 20% (P0.12) 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 farreaching 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 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.

ERNESTO B. FRANCISCO,
JR.and JOSE MA. O. HIZON,
Petitioners,
- versus TOLL REGULATORY BOARD,
PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION,
MANILA NORTH TOLLWAYS

G.R. No. 166910


Present:
CORONA, CJ,
CARPIO,
CARPIO-MORALES,*
VELASCO, JR.,
NACHURA,
LEONARDO-DE CASTRO,

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
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,
- versus The REPUBLIC OF THE
PHILIPPINES, acting by and
through the TOLL REGULATORY
BOARD, MANILA NORTH
TOLLWAYS CORPORATION,
PHILIPPINE NATIONAL

BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,*
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
SERENO, JJ.

G.R. No. 169917

CONSTRUCTION CORPORATION,
and FIRST PHILIPPINE
INFRASTRUCTURE
DEVELOPMENT CORP.,
Respondents.
x-------------------------------------------x
GISING KABATAAN MOVEMENT,
INC., BARANGAY COUNCIL
OF SAN
ANTONIO,MUNICIPALITY OF SA
NPEDRO, LAGUNA [as
Represented by COUNCILOR
CARLON G. AMBAYEC], and
YOUNG PROFESSIONALS AND
ENTREPRENEURS OF SAN
PEDRO, LAGUNA
Petitioners,

G.R. No. 173630

- versus THE REPUBLIC OF THE


PHILIPPINES, acting through
the TOLL REGULATORY BOARD
(TRB), PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION
(PNCC),
Respondents.
x-------------------------------------------x
THE REPUBLIC OF THE
PHILIPPINES, represented by
the TOLL REGULATORY BOARD,
Petitioner,

G.R. No. 183599

- versus YOUNG PROFESSIONALS AND


ENTREPRENEURS OF SAN
PEDRO, LAGUNA,
Respondent.

Promulgated:

October 19, 2010


x-----------------------------------------------------------------------------------------x
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 the major
tollway systems in Luzon. The petitions likewise seek to 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 45, seeks to annul and set aside the decision
dated June 23, 2008 of the Regional Trial Court (RTC) of Pasig, in SCA No.
3138-PSG, enjoining the original toll operating franchisee from collecting toll
fees in the 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.
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 governments
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.
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 usufruct [4] thereof
upon the Presidents 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 PNCCs
request, issued Opinion No. 224, s. 1993, [8] later 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. PNCCs 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.
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).
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 concessionaires, PNCCs
or TRBs 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 the requisite technical and
financial capabilities.
On May 16, 1995, then President Ramos approved the assignment of
PNCCs 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. [10] The 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 completed phase or until
December 31, 2030, whichever is earlier. The 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 Corporationwas 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.
THE SOUTH LUZON EXPRESSWAY PROJECT (NICHOLS

TO

LUCENA CITY)

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 STOA [13] 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.
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 Completion[16] 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 PNCCs 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.
169917some 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
PNCCs tollway operation franchise for the SLEX. As YPES argued, only the
Congress can extend the term of PNCCs franchise which expired on May 1,
2007.
RULING

OF THE

RTC

IN

SCA NO. 3138-PSG

By Decision[19] 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 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.
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.

EXISTENCE

PRELIMINARY ISSUES
ACTUAL CONTROVERSY, ITS RIPENESS
THE LOCUS STANDI TO SUE

OF AN

AND

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--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 also laid on the
doorstep of the TRB for its act of entering into these same 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 relators] 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
TOLL FACILITY /SYSTEM

TO

OPERATE

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
(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 PNCCs [then
CDCPs] 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.

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. Reyesa case decided
under the aegis of the 1987 Constitutionthere 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
administrative agency is permitted in order to adapt
the increasing complexity of modern life. As subjects
governmental regulation multiply, so does the difficulty
administering the laws. Hence, specialization even
legislation has become necessary.[39] (Emphasis ours.)

an
to
for
of
in

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 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, 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 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 PNCCs P.D. 1113 franchise had already
expired effective May 1, 2007, this fact of expiration did not, however, carry
with it the cancellation of PNCCs 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 PNCCs 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.
In fine, the STOAs[48] 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 PNCCs 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.
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 PNCC [51] 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 PNCCs 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
PNCCs 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 PNCCs legislative franchise beyond the altering reach of TRB. We
refer to the coverage area of the tollways and the expiry date of PNCCs
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 were
specifically and expressly defined by law, i.e. P.D. 1113, indicates 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 operate a toll facility or to issue a [TOC],
such power does not 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 PNCCs franchise x x x.
[56]
(Emphasis in the original.)
Verily, upon the expiration of PNCCs 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,[57] thus:
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 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

TRBs 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 MNTCs (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 PNCCs 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 Governments ownership of
PNCCs 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, PNCCs 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 PNCCs 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 PNCCs 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 PNCCs 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 (PNCCs 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 PNCCs 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 PNCCs franchise and, therefore, PNCC is
without any right to assign the same to MNTC via a JVA, is specious. Firstly, in
its Decision[63] 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 PNCCs 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 courts
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.
All given, the cited CA holding is not a binding precedent. The time
limitation on PNCCs franchise under either P.D. 1113 or P.D. 1894 does not
detract from or diminish the TRBs delegated authority under P.D. 1112 to
enter into separate toll concessions apart and distinct from PNCCs original
legislative franchise.
THIRD ISSUE: TRBS 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
(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.
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 amount shall be refunded to
Expressways users who had paid said toll in 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
TRBs 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 hand,
the power (a) to grant, modify or revoke an authority to operate 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 or
awarding of contracts) and at the same time exercising its quasi-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:
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 quasijudicial 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

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.
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 PNCCs franchise
without the Presidents 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 Presidents 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 presidentialapproving 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. Ranadacited 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 17.4.1[85] 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 PNCCs
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 PNCCs original franchise and hence unconstitutional, considering that the
constitutional power to appoint a new franchise holder is reserved to
Congress.[86]
This contention is bereft of merit.
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 delegation
of legislative power to administrative agencies is allowed in 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 TRBs 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
PNCCs 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 PNCCs 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 PNCCs 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 17.4.1 [96]), 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:
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 MNTCs 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
toOPERATE 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


MNTCs 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
TRBs 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 PNCCs 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, PNCCs 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 PNCCs Gross
Toll Revenue Share is assumed by the substituted entity, necessarily means
that the Governments 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 AGENT[100] 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 PNCCs 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 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 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 PNCCs
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 50year 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:
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)
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 STOAs 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.[106] As 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
Section 86 of PD 1445, on the other hand, requires that the
proper 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 for
public purpose from the General Funds of the Government. The TRB 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 MNTCs 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 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 TRBs
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 STOAs 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.

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.
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.
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 MIAAs
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
petitioners, and notwithstanding its presumptive validity, they did not 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 determination of the level of
toll rates that may be allowed.
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
empowered to examine under oath any official or employee of the said 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 ratefixing 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 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 anincrease 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 inNorth 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
rightx 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 sectors 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 drasticif we may characterize it as suchsteep
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--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--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--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 Hizons attempt to
mislead the Court by falsely citing supposed portions [137] 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.

Petitioners Francisco and Hizons 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 TWGs recommendation would not, on that ground
alone, vitiate the bona fides of the formers 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.
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

7[142] 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.
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 Boards
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 contractmaking 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-operatetransfer 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 PNCCs 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 BOTscheme infrastructure project will have to construct, operate and maintain
the tollways through an automatic grant of a franchise or TOC, in which case,
public bidding is required under the law.
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 Hizons 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 stand as
critical JV partners remained all along with PNCC, at least
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 PNCCs 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 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.)

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
breach[154] 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 Franciscos 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 published [156] 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
CONSTITUTIONALthe following:
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;

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
STOA,

as VOID andUNCONSTITUTIONAL for being contrary to 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 PNCCs 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.
EN BANC
METROPOLITAN
CEBU
WATER DISTRICT (MCWD),
Petitioner,

- versus -

MARGARITA A. ADALA,
Respondent.

G.R. No. 168914


Present:
PUNO, C.J.,
QUISUMBING,*
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,**
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
GARCIA,
VELASCO, JR., and
NACHURA, JJ.
Promulgated:
July 4, 2007

x------------------------------------------------x
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) datedSeptember 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.
198[1] 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 petitioners
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 respondents application
on the following grounds: (1) petitioners 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 petitioners 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 petitioners 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 Sitios 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
0-10 cu. m.
11-20 cu. m.
21-30 cu. m.
31-40 cu. m.
41-50 cu. m.
51-60 cu. m.
61-70 cu. m.
71-100 cu. m.
Over 100 cu. m.

Proposed Rates
P125.00(min.
charge)
13.50 per cu. m.
14.50 per cu. m.
35.00 per cu. m.
37.00 per cu. m.
38.00 per cu. m.
40.00 per cu. m.
45.00 per 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 petitioners 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?
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 respondents claim, petitioners 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 Appeals[6] 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
Appeals[7] 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 to file cases in
behalf of petitioner is not disputed. Attached to the petition is petitioners
Board of Directors 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
Districtexpropriation and other cases and to affirm and
confirm above-stated authority with respect to previous cases
filed by MCWD.
x x x x[8] (Emphasis and underscoring supplied)
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.
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 petitioners 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 Appeals[10] 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 petitioners 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. 198[11] 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
thereofunless 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)
There being no such consent on the part of its board of directors, petitioner
concludes that respondents 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 districts 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
distinguished a franchise from a CPC, thus:

dated May 17,

2004 which

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)
Petitioners 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
districts 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
Marcos[14] 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 quasipublic 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".
(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)
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)
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]
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)

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 Unions[21] 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 ofsupplying water to the inhabitants, as
well as consolidate and centralize all water supplies and drainage
systems in the Philippines. x x x (Emphasis supplied)

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 isunconstitutional and may not, therefore, be relied upon
by petitioner in support of its opposition against respondents 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. 166471

March 22, 2011

TAWANG MULTI-PURPOSE COOPERATIVE Petitioner,


vs.
LA TRINIDAD WATER DISTRICT, Respondent.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari under Rule 45 of the Rules of Court.
The petition1 challenges the 1 October 2004 Judgment2 and 6 November
2004 Order3 of the Regional Trial Court (RTC), Judicial Region 1, Branch 62, La
Trinidad, Benguet, in Civil Case No. 03-CV-1878.
The Facts
Tawang Multi-Purpose Cooperative (TMPC) is a cooperative, registered with
the Cooperative Development Authority, and organized to provide domestic
water services in Barangay Tawang, La Trinidad, Benguet.

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


Presidential Decree (PD) No. 198, as amended. It is authorized to supply
water for domestic, industrial and commercial purposes within the
municipality of La Trinidad, Benguet.
On 9 October 2000, TMPC filed with the National Water Resources Board
(NWRB) an application for a certificate of public convenience (CPC) to
operate and maintain a waterworks system in Barangay Tawang. LTWD
opposed TMPCs application. LTWD claimed that, under Section 47 of PD No.
198, as amended, its franchise is exclusive. Section 47 states that:
Sec. 47. Exclusive Franchise. No franchise shall be granted to any other
person or agency for domestic, industrial or commercial water service within
the district or any portion thereof unless and except to the extent that the
board of directors of said district consents thereto by resolution duly
adopted, such resolution, however, shall be subject to review by the
Administration.
In its Resolution No. 04-0702 dated 23 July 2002, the NWRB approved TMPCs
application for a CPC. In its 15 August 2002 Decision,4 the NWRB held that
LTWDs franchise cannot be exclusive since exclusive franchises are
unconstitutional and found that TMPC is legally and financially qualified to
operate and maintain a waterworks system. NWRB stated that:
With respect to LTWDs opposition, this Board observes that:
1. It is a substantial reproduction of its opposition to the application for water
permits previously filed by this same CPC applicant, under WUC No. 98-17
and 98-62 which was decided upon by this Board on April 27, 2000. The
issues being raised by Oppositor had been already resolved when this Board
said in pertinent portions of its decision:
"The authority granted to LTWD by virtue of P.D. 198 is not Exclusive. While
Barangay Tawang is within their territorial jurisdiction, this does not mean
that all others are excluded in engaging in such service, especially, if the
district is not capable of supplying water within the area. This Board has time
and again ruled that the "Exclusive Franchise" provision under P.D. 198 has
misled most water districts to believe that it likewise extends to be [sic] the
waters within their territorial boundaries. Such ideological adherence collides
head on with the constitutional provision that "ALL WATERS AND NATURAL
RESOURCES BELONG TO THE STATE". (Sec. 2, Art. XII) and that "No franchise,

certificate or authorization for the operation of public [sic] shall be exclusive


in character".
xxxx
All the foregoing premises all considered, and finding that Applicant is legally
and financially qualified to operate and maintain a waterworks system; that
the said operation shall redound to the benefit of the homeowners/residents
of the subdivision, thereby, promoting public service in a proper and suitable
manner, the instant application for a Certificate of Public Convenience is,
hereby, GRANTED.5
LTWD filed a motion for reconsideration. In its 18 November 2002
Resolution,6 the NWRB denied the motion.
LTWD appealed to the RTC.
The RTCs Ruling
In its 1 October 2004 Judgment, the RTC set aside the NWRBs 23 July 2002
Resolution and 15 August 2002 Decision and cancelled TMPCs CPC. The RTC
held that Section 47 is valid. The RTC stated that:
The Constitution uses the term "exclusive in character". To give effect to this
provision, a reasonable, practical and logical interpretation should be
adopted without disregard to the ultimate purpose of the Constitution. What
is this ultimate purpose? It is for the state, through its authorized agencies or
instrumentalities, to be able to keep and maintain ultimate control and
supervision over the operation of public utilities. Essential part of this control
and supervision is the authority to grant a franchise for the operation of a
public utility to any person or entity, and to amend or repeal an existing
franchise to serve the requirements of public interest. Thus, what is
repugnant to the Constitution is a grant of franchise "exclusive in character"
so as to preclude the State itself from granting a franchise to any other
person or entity than the present grantee when public interest so requires. In
other words, no franchise of whatever nature can preclude the State, through
its duly authorized agencies or instrumentalities, from granting franchise to
any person or entity, or to repeal or amend a franchise already granted.
Consequently, the Constitution does not necessarily prohibit a franchise that
is exclusive on its face, meaning, that the grantee shall be allowed to
exercise this present right or privilege to the exclusion of all others.

Nonetheless, the grantee cannot set up its exclusive franchise against the
ultimate authority of the State.7
TMPC filed a motion for reconsideration. In its 6 November 2004 Order, the
RTC denied the motion. Hence, the present petition.
Issue
TMPC raises as issue that the RTC erred in holding that Section 47 of PD No.
198, as amended, is valid.
The Courts Ruling
The petition is meritorious.
What cannot be legally done directly cannot be done indirectly. This rule is
basic and, to a reasonable mind, does not need explanation. Indeed, if acts
that cannot be legally done directly can be done indirectly, then all laws
would be illusory.
In Alvarez v. PICOP Resources, Inc.,8 the Court held that, "What one cannot
do directly, he cannot do indirectly."9In Akbayan Citizens Action Party v.
Aquino,10 quoting Agan, Jr. v. Philippine International Air Terminals Co.,
Inc.,11 the Court held that, "This Court has long and consistently adhered to
the legal maxim that those that cannot be done directly cannot be done
indirectly."12 In Central Bank Employees Association, Inc. v. Bangko Sentral
ng Pilipinas,13 the Court held that, "No one is allowed to do indirectly what he
is prohibited to do directly."14
The President, Congress and the Court cannot create directly franchises for
the operation of a public utility that are exclusive in character. The 1935,
1973 and 1987 Constitutions expressly and clearly prohibit the creation of
franchises that are exclusive in character. Section 8, Article XIII of the 1935
Constitution states that:
No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to
corporations or other entities organized under the laws of the Philippines,
sixty per centum of the capital of which is owned by citizens of the
Philippines, nor shall such franchise, certificate or authorization be

exclusive in character or for a longer period than fifty years. (Empahsis


supplied)
Section 5, Article XIV of the 1973 Constitution states that:
No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at
least sixty per centum of the capital of which is owned by such citizens, nor
shall such franchise, certificate or authorization be exclusive in
character or for a longer period than fifty years. (Emphasis supplied)
Section 11, Article XII of the 1987 Constitution states that:
No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned by such citizens, nor shall
such franchise, certificate or authorization be exclusive in character or
for a longer period than fifty years. (Emphasis supplied)
Plain words do not require explanation. The 1935, 1973 and 1987
Constitutions are clear franchises for the operation of a public utility
cannot be exclusive in character. The 1935, 1973 and 1987 Constitutions
expressly and clearly state that, "nor shall such franchise x x x be
exclusive in character." There is no exception.
When the law is clear, there is nothing for the courts to do but to apply it.
The duty of the Court is to apply the law the way it is worded. In Security
Bank and Trust Company v. Regional Trial Court of Makati, Branch 61,15 the
Court held that:
Basic is the rule of statutory construction that when the law is clear and
unambiguous, the court is left with no alternative but to apply the
same according to its clear language. As we have held in the case
of Quijano v. Development Bank of the Philippines:
"x x x We cannot see any room for interpretation or construction in the clear
and unambiguous language of the above-quoted provision of law. This Court
had steadfastly adhered to the doctrine that its first and
fundamental duty is the application of the law according to its

express terms, interpretation being called for only when such literal
application is impossible. No process of interpretation or construction need
be resorted to where a provision of law peremptorily calls for
application. Where a requirement or condition is made in explicit and
unambiguous terms, no discretion is left to the judiciary. It must see
to it that its mandate is obeyed."16 (Emphasis supplied)
In Republic of the Philippines v. Express Telecommunications Co., Inc.,17 the
Court held that, "The Constitution is quite emphatic that the operation of a
public utility shall not be exclusive."18 In Pilipino Telephone Corporation v.
National Telecommunications Commission,19 the Court held that, "Neither
Congress nor the NTC can grant an exclusive franchise, certificate, or any
other form of authorization to operate a public utility."20 In National Power
Corp. v. Court of Appeals,21 the Court held that, "Exclusivity of any public
franchise has not been favored by this Court such that in most, if not all,
grants by the government to private corporations, the interpretation of
rights, privileges or franchises is taken against the grantee."22 In Radio
Communications of the Philippines, Inc. v. National Telecommunications
Commission,23 the Court held that, "The Constitution mandates that a
franchise cannot be exclusive in nature."24
Indeed, the President, Congress and the Court cannot create directly
franchises that are exclusive in character. What the President, Congress and
the Court cannot legally do directly they cannot do indirectly. Thus, the
President, Congress and the Court cannot create indirectly franchises that
are exclusive in character by allowing the Board of Directors (BOD) of a water
district and the Local Water Utilities Administration (LWUA) to create
franchises that are exclusive in character.
In PD No. 198, as amended, former President Ferdinand E. Marcos (President
Marcos) created indirectly franchises that are exclusive in character by
allowing the BOD of LTWD and the LWUA to create directly franchises that are
exclusive in character. Section 47 of PD No. 198, as amended, allows the
BOD and the LWUA to create directly franchises that are exclusive in
character. Section 47 states:
Sec. 47. Exclusive Franchise. No franchise shall be granted to any other
person or agency for domestic, industrial or commercial water service
within the district or any portion thereof unless and except to the extent
that the board of directors of said district consents thereto by

resolution duly adopted, such resolution, however, shall be subject


to review by the Administration. (Emphasis supplied)
In case of conflict between the Constitution and a statute, the Constitution
always prevails because the Constitution is the basic law to which all other
laws must conform to. The duty of the Court is to uphold the Constitution and
to declare void all laws that do not conform to it.
In Social Justice Society v. Dangerous Drugs Board,25 the Court held that, "It
is basic that if a law or an administrative rule violates any norm of the
Constitution, that issuance is null and void and has no effect. The
Constitution is the basic law to which all laws must conform; no act shall be
valid if it conflicts with the Constitution."26 In Sabio v. Gordon,27 the Court
held that, "the Constitution is the highest law of the land. It is the basic and
paramount law to which all other laws must conform."28 In Atty. Macalintal v.
Commission on Elections,29 the Court held that, "The Constitution is the
fundamental and paramount law of the nation to which all other laws must
conform and in accordance with which all private rights must be determined
and all public authority administered. Laws that do not conform to the
Constitution shall be stricken down for being unconstitutional."30 In Manila
Prince Hotel v. Government Service Insurance System,31 the Court held that:
Under the doctrine of constitutional supremacy, if a law or
contract violates any norm of the constitution that law or
contract whether promulgated by the legislative or by the executive
branch or entered into by private persons for private purposes is null and
void and without any force and effect. Thus, since the Constitution is
the fundamental, paramount and supreme law of the nation, it is
deemed written in every statute and contract."32 (Emphasis supplied)
To reiterate, the 1935, 1973 and 1987 Constitutions expressly prohibit the
creation of franchises that are exclusive in character. They uniformly
command that "nor shall such franchise x x x be exclusive in
character." This constitutional prohibition is absolute and accepts no
exception. On the other hand, PD No. 198, as amended, allows the BOD of
LTWD and LWUA to create franchises that are exclusive in character. Section
47 states that, "No franchise shall be granted to any other person or agency
x x x unless and except to the extent that the board of directors
consents thereto x x x subject to review by the Administration."

Section 47 creates a glaring exception to the absolute prohibition in the


Constitution. Clearly, it is patently unconstitutional.
Section 47 gives the BOD and the LWUA the authority to make an exception
to the absolute prohibition in the Constitution. In short, the BOD and the
LWUA are given the discretion to create franchises that are exclusive in
character. The BOD and the LWUA are not even legislative bodies. The BOD is
not a regulatory body but simply a management board of a water district.
Indeed, neither the BOD nor the LWUA can be granted the power to create
any exception to the absolute prohibition in the Constitution, a power that
Congress itself cannot exercise.
In Metropolitan Cebu Water District v. Adala,33 the Court categorically
declared Section 47 void. The Court held that:
Nonetheless, while the prohibition in Section 47 of P.D. 198 applies to the
issuance of CPCs for the reasons discussed above, the same provision must
be deemed void ab initio for being irreconcilable with Article XIV,
Section 5 of the 1973 Constitution which was ratified on January 17,
1973 the constitution in force when P.D. 198 was issued on May 25, 1973.
Thus, Section 5 of Art. XIV of the 1973 Constitution reads:
"SECTION 5. No franchise, certificate, or any other form of authorization for
the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of the capital of which is owned by such
citizens, nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither shall
any such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by the Batasang
Pambansa when the public interest so requires. The State shall encourage
equity participation in public utiltities by the general public. The participation
of foreign investors in the governing body of any public utility enterprise
shall be limited to their proportionate share in the capital thereof."
This provision has been substantially reproduced in Article XII Section 11 of
the 1987 Constitution, including the prohibition against exclusive franchises.
xxxx

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


upon public utilities, is clearly repugnant to Article XIV, Section 5 of
the 1973 Constitution, it is unconstitutional and may not, therefore, be
relied upon by petitioner in support of its opposition against respondents
application for CPC and the subsequent grant thereof by the NWRB.
WHEREFORE, Section 47 of P.D. 198 is unconstitutional.34 (Emphasis
supplied)
The dissenting opinion declares Section 47 valid and constitutional. In effect,
the dissenting opinion holds that (1) President Marcos can create indirectly
franchises that are exclusive in character; (2) the BOD can create directly
franchises that are exclusive in character; (3) the LWUA can create directly
franchises that are exclusive in character; and (4) the Court should allow the
creation of franchises that are exclusive in character.
Stated differently, the dissenting opinion holds that (1) President Marcos can
violate indirectly the Constitution; (2) the BOD can violate directly the
Constitution; (3) the LWUA can violate directly the Constitution; and (4) the
Court should allow the violation of the Constitution.
The dissenting opinion states that the BOD and the LWUA can create
franchises that are exclusive in character "based on reasonable and
legitimate grounds," and such creation "should not be construed as a
violation of the constitutional mandate on the non-exclusivity of a franchise"
because it "merely refers to regulation" which is part of "the governments
inherent right to exercise police power in regulating public utilities" and that
their violation of the Constitution "would carry with it the legal presumption
that public officers regularly perform their official functions." The dissenting
opinion states that:
To begin with, a government agencys refusal to grant a franchise to another
entity, based on reasonable and legitimate grounds, should not be construed
as a violation of the constitutional mandate on the non-exclusivity of a
franchise; this merely refers to regulation, which the Constitution does not
prohibit. To say that a legal provision is unconstitutional simply because it
enables a government instrumentality to determine the propriety of granting
a franchise is contrary to the governments inherent right to exercise police
power in regulating public utilities for the protection of the public and the
utilities themselves. The refusal of the local water district or the LWUA to

consent to the grant of other franchises would carry with it the legal
presumption that public officers regularly perform their official functions.
The dissenting opinion states two "reasonable and legitimate grounds" for
the creation of exclusive franchise: (1) protection of "the governments
investment,"35 and (2) avoidance of "a situation where ruinous competition
could compromise the supply of public utilities in poor and remote areas." 36
There is no "reasonable and legitimate" ground to violate the Constitution.
The Constitution should never be violated by anyone. Right or wrong, the
President, Congress, the Court, the BOD and the LWUA have no choice but to
follow the Constitution. Any act, however noble its intentions, is void if it
violates the Constitution. This rule is basic.
In Social Justice Society,37 the Court held that, "In the discharge of their
defined functions, the three departments of government have no
choice but to yield obedience to the commands of the Constitution.
Whatever limits it imposes must be observed."38 In Sabio,39 the Court
held that, "the Constitution is the highest law of the land. It is the basic
and paramount law to which x x x all persons, including the highest
officials of the land, must defer. No act shall be valid, however noble
its intentions, if it conflicts with the Constitution."40 In Bengzon v.
Drilon,41 the Court held that, "the three branches of government must
discharge their respective functions within the limits of authority conferred
by the Constitution."42 In Mutuc v. Commission on Elections,43 the Court held
that, "The three departments of government in the discharge of the
functions with which it is [sic] entrusted have no choice but to yield
obedience to [the Constitutions] commands. Whatever limits it
imposes must be observed."44
Police power does not include the power to violate the Constitution. Police
power is the plenary power vested in Congress to make
laws not repugnant to the Constitution. This rule is basic.
In Metropolitan Manila Development Authority v. Viron Transportation Co.,
Inc.,45 the Court held that, "Police power is the plenary power vested in the
legislature to make, ordain, and establish wholesome and reasonable laws,
statutes and ordinances, not repugnant to the Constitution."46 In Carlos
Superdrug Corp. v. Department of Social Welfare and Development,47 the
Court held that, police power "is the power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome and

reasonable laws, statutes, and ordinances x x x not repugnant to the


constitution."48 In Metropolitan Manila Development Authority v.
Garin,49 the Court held that, "police power, as an inherent attribute of
sovereignty, is the power vested by the Constitution in the legislature to
make, ordain, and establish all manner of wholesome and reasonable laws,
statutes and ordinances x x x not repugnant to the Constitution."50
There is no question that the effect of Section 47 is the creation of franchises
that are exclusive in character. Section 47 expressly allows the BOD and the
LWUA to create franchises that are exclusive in character.
The dissenting opinion explains why the BOD and the LWUA should be
allowed to create franchises that are exclusive in character to protect "the
governments investment" and to avoid "a situation where ruinous
competition could compromise the supply of public utilities in poor and
remote areas." The dissenting opinion declares that these are "reasonable
and legitimate grounds." The dissenting opinion also states that, "The refusal
of the local water district or the LWUA to consent to the grant of other
franchises would carry with it the legal presumption that public officers
regularly perform their official functions."
When the effect of a law is unconstitutional, it is void. In Sabio,51 the Court
held that, "A statute may be declared unconstitutional because it is
not within the legislative power to enact; or it creates or establishes methods
or forms that infringe constitutional principles; or its purpose or effect
violates the Constitution or its basic principles."52 The effect of Section 47
violates the Constitution, thus, it is void.
In Strategic Alliance Development Corporation v. Radstock Securities
Limited,53 the Court held that, "This Court must perform its duty to defend
and uphold the Constitution."54 In Bengzon,55 the Court held that, "The
Constitution expressly confers on the judiciary the power to maintain
inviolate what it decrees."56 In Mutuc,57 the Court held that:
The concept of the Constitution as the fundamental law, setting forth the
criterion for the validity of any public act whether proceeding from the
highest official or the lowest functionary, is a postulate of our system of
government. That is to manifest fealty to the rule of law, with priority
accorded to that which occupies the topmost rung in the legal hierarchy. The
three departments of government in the discharge of the functions with
which it is [sic] entrusted have no choice but to yield obedience to its

commands. Whatever limits it imposes must be observed. Congress in the


enactment of statutes must ever be on guard lest the restrictions on its
authority, whether substantive or formal, be transcended. The Presidency in
the execution of the laws cannot ignore or disregard what it ordains. In its
task of applying the law to the facts as found in deciding cases, the judiciary
is called upon to maintain inviolate what is decreed by the fundamental law.
Even its power of judicial review to pass upon the validity of the acts of the
coordinate branches in the course of adjudication is a logical corollary of this
basic principle that the Constitution is paramount. It overrides any
governmental measure that fails to live up to its mandates. Thereby there is
a recognition of its being the supreme law.58
Sustaining the RTCs ruling would make a dangerous precedent. It will allow
Congress to do indirectly what it cannot do directly. In order to circumvent
the constitutional prohibition on franchises that are exclusive in character, all
Congress has to do is to create a law allowing the BOD and the LWUA to
create franchises that are exclusive in character, as in the present case.
WHEREFORE, we GRANT the petition. We DECLARE Section 47 of
Presidential Decree No. 198UNCONSTITUTIONAL. We SET ASIDE the 1
October 2004 Judgment and 6 November 2004 Order of the Regional Trial
Court, Judicial Region 1, Branch 62, La Trinidad, Benguet, in Civil Case No. 03CV-1878 andREINSTATE the 23 July 2002 Resolution and 15 August 2002
Decision of the National Water Resources Board.
SO ORDERED.
G.R. No. 176579

October 9, 2012

HEIRS OF WILSON P. GAMBOA,* Petitioners,


vs.
FINANCE SECRETARYMARGARITO B. TEVES, FINANCE
UNDERSECRETARYJOHN 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 AND EXCHANGE COMMISSION, and PRESIDENT


FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.
RESOLUTION
CARPIO, J.:
This resolves the motions for reconsideration of the 28 June 2011 Decision
filed by (1) the Philippine Stock Exchange's (PSE) President, 1 (2) Manuel V.
Pangilinan (Pangilinan),2 (3) Napoleon L. Nazareno (Nazareno ),3and ( 4) the
Securities and Exchange Commission (SEC)4 (collectively, movants ).
The Office of the Solicitor General (OSG) initially filed a motion for
reconsideration on behalfofthe SEC,5 assailing the 28 June 2011 Decision.
However, it subsequently filed a Consolidated Comment on behalf of the
State,6declaring expressly that it agrees with the Court's definition of the
term "capital" in Section 11, Article XII of the Constitution. During the Oral
Arguments on 26 June 2012, the OSG reiterated its position consistent with
the Court's 28 June 2011 Decision.
We deny the motions for reconsideration.
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.
As we emphatically stated in the 28 June 2011 Decision, the interpretation of
the term "capital" in Section 11, Article XII of the Constitution has farreaching 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 Philippine 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 threshold legal issue
presented in this case.
Contrary to Pangilinans narrow view, the serious economic consequences
resulting in the interpretation of the term "capital" in Section 11, Article XII of
the Constitution undoubtedly demand an immediate adjudication of this
issue. Simply put, the far-reaching implications of this issue justify
the treatment of the petition as one for mandamus. 7
In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court deemed it wise
and expedient to resolve the case although the petition for declaratory relief

could be outrightly dismissed for being procedurally defective. There,


appellant admittedly had already committed a breach of the Public Service
Act in relation to the Anti-Dummy Law since it had been employing nonAmerican aliens long before the decision in a prior similar case. However, the
main issue in Luzon Stevedoring was of transcendental importance, involving
the exercise or enjoyment of rights, franchises, privileges, properties and
businesses which only Filipinos and qualified corporations could exercise or
enjoy under the Constitution and the statutes. Moreover, the same issue
could be raised by appellant in an appropriate action. Thus, in Luzon
Stevedoring the Court deemed it necessary to finally dispose of the case for
the guidance of all concerned, despite the apparent procedural flaw in the
petition.
The circumstances surrounding the present case, such as the supposed
procedural defect of the petition and the pivotal legal issue involved,
resemble those in Luzon Stevedoring. Consequently, in the interest of
substantial justice and faithful adherence to the Constitution, we opted to
resolve this case for the guidance of the public and all concerned parties.
II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in Section 11, Article XII of the
Constitution has long been settled and defined to refer to the total
outstanding shares of stock, whether voting or non-voting. In fact, movants
claim that the SEC, which is the administrative agency tasked to enforce the
60-40 ownership requirement in favor of Filipino citizens in the Constitution
and various statutes, has consistently adopted this particular definition in its
numerous opinions. Movants point out that with the 28 June 2011 Decision,
the Court in effect introduced a "new" definition or "midstream
redefinition"9 of the term "capital" in Section 11, Article XII of the
Constitution.
This is egregious error.
For more than 75 years since the 1935 Constitution, the Court
has not interpreted or defined the term "capital" found in various economic
provisions of the 1935, 1973 and 1987 Constitutions. There has never been a
judicial precedent interpreting the term "capital" in the 1935, 1973 and 1987
Constitutions, until now. Hence, it is patently wrong and utterly baseless to
claim that the Court in defining the term "capital" in its 28 June 2011
Decision modified, reversed, or set aside the purported long-standing
definition of the term "capital," which supposedly refers to the total
outstanding shares of stock, whether voting or non-voting. To repeat, until
the present case there has never been a Court ruling categorically defining

the term "capital" found in the various economic provisions of the 1935,
1973 and 1987 Philippine Constitutions.
The opinions of the SEC, as well as of the Department of Justice (DOJ), on the
definition of the term "capital" as referring to both voting and non-voting
shares (combined total of common and preferred shares) are, in the first
place, conflicting and inconsistent. There is no basis whatsoever to the claim
that the SEC and the DOJ have consistently and uniformly adopted a
definition of the term "capital" contrary to the definition that this Court
adopted in its 28 June 2011 Decision.
In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the
term "capital" in Section 9, Article XIV of the 1973 Constitution was raised,
that is, whether the term "capital" includes "both preferred and common
stocks." The issue was raised in relation to a stock-swap transaction between
a Filipino and a Japanese corporation, both stockholders of a domestic
corporation that owned lands in the Philippines. Then Minister of Justice
Estelito P. Mendoza ruled that the resulting ownership structure of the
corporation would beunconstitutional because 60% of the voting stock
would be owned by Japanese while Filipinos would own only 40% of the
voting stock, although when the non-voting stock is added, Filipinos would
own 60% of the combined voting and non-voting stock. This ownership
structure is remarkably similar to the current ownership structure of
PLDT. Minister Mendoza ruled:
xxxx
Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital
stock (common and preferred) while the Japanese investors control sixty
percent (60%) of the common (voting) shares.
It is your position that x x x since Section 9, Article XIV of the
Constitution uses the word "capital," which is construed "to include
both preferred and common shares" and "that where the law does
not distinguish, the courts shall not distinguish."
xxxx
In light of the foregoing jurisprudence, it is my opinion that the stockswap transaction in question may not be constitutionally upheld.
While it may be ordinary corporate practice to classify corporate shares into
common voting shares and preferred non-voting shares, any arrangement
which attempts to defeat the constitutional purpose should be
eschewed. Thus, the resultant equity arrangement which would place
ownership of 60%11 of the common (voting) shares in the Japanese
group, while retaining 60% of the total percentage of common and

preferred shares in Filipino hands would amount to circumvention of


the principle of control by Philippine stockholders that is implicit in
the 60% Philippine nationality requirement in the
Constitution. (Emphasis supplied)
In short, Minister Mendoza categorically rejected the theory that the term
"capital" in Section 9, Article XIV of the 1973 Constitution includes "both
preferred and common stocks" treated as the same class of shares
regardless of differences in voting rights and privileges. Minister Mendoza
stressed that the 60-40 ownership requirement in favor of Filipino citizens in
the Constitution is not complied with unless the corporation "satisfies the
criterion of beneficial ownership" and that in applying the same "the
primordial consideration is situs of control."
On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to
Castillo Laman Tan Pantaleon & San Jose, then SEC General Counsel Vernette
G. Umali-Paco applied the Voting Control Test, that is, using only the
voting stock to determine whether a corporation is a Philippine national. The
Opinion states:
Applying the foregoing, particularly the Control Test, MLRC is deemed as
a Philippine national because: (1) sixty percent (60%) of its outstanding
capital stock entitled to vote is owned by a Philippine national, the
Trustee; and (2) at least sixty percent (60%) of the ERF will accrue to the
benefit of Philippine nationals. Still pursuant to the Control Test, MLRCs
investment in 60% of BFDCs outstanding capital stock entitled to
vote shall be deemed as of Philippine nationality, thereby qualifying
BFDC to own private land.
Further, under, and for purposes of, the FIA, MLRC and BFDC are both
Philippine nationals, considering that: (1) sixty percent (60%) of their
respective outstanding capital stock entitled to vote is owned by a
Philippine national (i.e., by the Trustee, in the case of MLRC; and by MLRC, in
the case of BFDC); and (2) at least 60% of their respective board of directors
are Filipino citizens. (Boldfacing and italicization supplied)
Clearly, these DOJ and SEC opinions are compatible with the Courts
interpretation of the 60-40 ownership requirement in favor of Filipino citizens
mandated by the Constitution for certain economic activities. At the same
time, these opinions highlight the conflicting, contradictory, and inconsistent
positions taken by the DOJ and the SEC on the definition of the term "capital"
found in the economic provisions of the Constitution.
The opinions issued by SEC legal officers do not have the force and effect of
SEC rules and regulations because only the SEC en banc can adopt rules and
regulations. As expressly provided in Section 4.6 of the Securities Regulation

Code,12 the SEC cannot delegate to any of its individual Commissioner or


staff the power to adopt any rule or regulation. Further, under Section 5.1
of the same Code, it is the SEC as a collegial body, and not any of its
legal officers, that is empowered to issue opinions and approve
rules and regulations. Thus:
4.6. The Commission may, for purposes of efficiency, delegate any of its
functions to any department or office of the Commission, an individual
Commissioner or staff member of the Commission exceptits review or
appellate authority and its power to adopt, alter and supplement any
rule or regulation.
The Commission may review upon its own initiative or upon the petition of
any interested party any action of any department or office, individual
Commissioner, or staff member of the Commission.
SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall
act with transparency and shall have the powers and functions provided by
this Code, Presidential Decree No. 902-A, the Corporation Code, the
Investment Houses Law, the Financing Company Act and other existing laws.
Pursuant thereto the Commission shall have, among others, the following
powers and functions:
xxxx
(g) Prepare, approve, amend or repeal rules, regulations and orders,
and issue opinions and provide guidance on and supervise
compliance with such rules, regulations and orders;
x x x x (Emphasis supplied)
Thus, the act of the individual Commissioners or legal officers of the SEC in
issuing opinions that have the effect of SEC rules or regulations is ultra vires.
Under Sections 4.6 and 5.1(g) of the Code, only the SEC en banc can "issue
opinions" that have the force and effect of rules or regulations. Section 4.6 of
the Code bars the SEC en banc from delegating to any individual
Commissioner or staff the power to adopt rules or regulations. In short, any
opinion of individual Commissioners or SEC legal officers does not
constitute a rule or regulation of the SEC.
The SEC admits during the Oral Arguments that only the SEC en banc, and
not any of its individual commissioners or legal staff, is empowered to issue
opinions which have the same binding effect as SEC rules and regulations,
thus:
JUSTICE CARPIO:

So, under the law, it is the Commission En Banc that can issue an
SEC Opinion, correct?
COMMISSIONER GAITE:13
Thats correct, Your Honor.
JUSTICE CARPIO:
Can the Commission En Banc delegate this function to an SEC
officer?
COMMISSIONER GAITE:
Yes, Your Honor, we have delegated it to the General Counsel.
JUSTICE CARPIO:
It can be delegated. What cannot be delegated by the
Commission En Banc to a commissioner or an individual
employee of the Commission?
COMMISSIONER GAITE:
Novel opinions that [have] to be decided by the En Banc...
JUSTICE CARPIO:
What cannot be delegated, among others, is the power to adopt
or amend rules and regulations, correct?
COMMISSIONER GAITE:
Thats correct, Your Honor.
JUSTICE CARPIO:
So, you combine the two (2), the SEC officer, if delegated
that power, can issue an opinion but that opinion does
not constitute a rule or regulation, correct?
COMMISSIONER GAITE:
Correct, Your Honor.

JUSTICE CARPIO:
So, all of these opinions that you mentioned they are not
rules and regulations, correct?
COMMISSIONER GAITE:
They are not rules and regulations.
JUSTICE CARPIO:
If they are not rules and regulations, they apply only to that
particular situation and will not constitute a precedent, correct?
COMMISSIONER GAITE:
Yes, Your Honor.14 (Emphasis supplied)
Significantly, the SEC en banc, which is the collegial body statutorily
empowered to issue rules and opinions on behalf of the SEC, has adopted
even the Grandfather Rule in determining compliance with the 60-40
ownership requirement in favor of Filipino citizens mandated by the
Constitution for certain economic activities. This prevailing SEC ruling, which
the SEC correctly adopted to thwart any circumvention of the required
Filipino "ownership and control," is laid down in the 25 March 2010 SEC en
banc ruling in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et
al.,15 to wit:
The avowed purpose of the Constitution is to place in the hands of Filipinos
the exploitation of our natural resources. Necessarily, therefore, the Rule
interpreting the constitutional provision should not diminish that
right through the legal fiction of corporate ownership and control.
But the constitutional provision, as interpreted and practiced via the 1967
SEC Rules, has favored foreigners contrary to the command of the
Constitution. Hence, the Grandfather Rule must be applied to
accurately determine the actual participation, both direct and
indirect, of foreigners in a corporation engaged in a nationalized
activity or business.
Compliance with the constitutional limitation(s) on engaging in nationalized
activities must be determined by ascertaining if 60% of the investing
corporations outstanding capital stock is owned by "Filipino citizens", or as
interpreted, by natural or individual Filipino citizens. If such investing
corporation is in turn owned to some extent by another investing
corporation, the same process must be observed. One must not stop until
the citizenships of the individual or natural stockholders of layer after layer

of investing corporations have been established, the very essence of the


Grandfather Rule.
Lastly, it was the intent of the framers of the 1987 Constitution to
adopt the Grandfather Rule. In one of the discussions on what is now
Article XII of the present Constitution, the framers made the following
exchange:
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 the 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. (Boldfacing and underscoring supplied; italicization in the
original)
This SEC en banc ruling conforms to our 28 June 2011 Decision that the 6040 ownership requirement in favor of Filipino citizens in the Constitution to
engage in certain economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the corporation.
Thus, in our 28 June 2011 Decision we stated:

Mere legal title is insufficient to meet the 60 percent Filipinoowned "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]." (Emphasis supplied)
Both the Voting Control Test and the Beneficial Ownership Test must be
applied to determine whether a corporation is a "Philippine national."
The interpretation by legal officers of the SEC of the term "capital,"
embodied in various opinions which respondents relied upon, is merely
preliminary and an opinion only of such officers. To repeat, any such opinion
does not constitute an SEC rule or regulation. In fact, many of these opinions
contain a disclaimer which expressly states: "x x x the foregoing opinion is
based solely on facts disclosed in your query and relevant only to the
particular issue raised therein and shall not be used in the nature of a
standing rule binding upon the Commission in other cases whether
of similar or dissimilar circumstances."16 Thus, the opinions clearly make
a caveat that they do not constitute binding precedents on any one, not even
on the SEC itself.
Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting
the law are neither conclusive nor controlling and thus, do not bind the
Court. It is hornbook doctrine that any interpretation of the law that
administrative or quasi-judicial agencies make is only preliminary, never
conclusive on the Court. The power to make a final interpretation of the law,
in this case the term "capital" in Section 11, Article XII of the 1987
Constitution, lies with this Court, not with any other government entity.
In his motion for reconsideration, the PSE President cites the cases
of National Telecommunications Commission v. Court of
Appeals17 and Philippine Long Distance Telephone Company v. National
Telecommunications Commission18 in arguing that the Court has already
defined the term "capital" in Section 11, Article XII of the 1987 Constitution. 19
The PSE President is grossly mistaken. In both cases of National
Telecommunications v. Court of Appeals20 andPhilippine Long Distance
Telephone Company v. National Telecommunications Commission, 21 the Court
did not define the term "capital" as found in Section 11, Article XII of the
1987 Constitution. In fact, these two cases never mentioned,
discussed or cited Section 11, Article XII of the Constitution or any
of its economic provisions, and thus cannot serve as precedent in
the interpretation of Section 11, Article XII of the Constitution. These

two cases dealt solely with the determination of the correct regulatory fees
under Section 40(e) and (f) of the Public Service Act, to wit:
(e) For annual reimbursement of the expenses incurred by the Commission in
the supervision of other public services and/or in the regulation or fixing of
their rates, twenty centavos for each one hundred pesos or fraction thereof,
of the capital stock subscribed or paid, or if no shares have been issued,
of the capital invested, or of the property and equipment whichever is higher.
(f) For the issue or increase of capital stock, twenty centavos for each one
hundred pesos or fraction thereof, of the increased capital. (Emphasis
supplied)
The Courts interpretation in these two cases of the terms "capital stock
subscribed or paid," "capital stock" and "capital" does not pertain to, and
cannot control, the definition of the term "capital" as used in Section 11,
Article XII of the Constitution, or any of the economic provisions of the
Constitution where the term "capital" is found. The definition of the term
"capital" found in the Constitution must not be taken out of context. A careful
reading of these two cases reveals that the terms "capital stock subscribed
or paid," "capital stock" and "capital" were defined solely to determine the
basis for computing the supervision and regulation fees under Section 40(e)
and (f) of the Public Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the prologue of the supreme law
of the land, embodies the ideals that the Constitution intends to
achieve.22 The Preamble reads:
We, the sovereign Filipino people, imploring the aid of Almighty God, in order
to build a just and humane society, and establish a Government that shall
embody our ideals and aspirations, promote the common good, conserve
and develop our patrimony, and secure to ourselves and our posterity,
the blessings of independence and democracy under the rule of law and a
regime of truth, justice, freedom, love, equality, and peace, do ordain and
promulgate this Constitution. (Emphasis supplied)
Consistent with these ideals, Section 19, Article II of the 1987 Constitution
declares as State policy the development of a national economy
"effectively controlled" by Filipinos:
Section 19. The State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos.

Fortifying the State policy of a Filipino-controlled economy, the Constitution


decrees:
Section 10. The Congress shall, upon recommendation of the economic and
planning agency, when the national interest dictates, 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 higher percentage as
Congress may prescribe, certain areas of investments. The Congress shall
enact measures that will encourage the formation and operation of
enterprises whose capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national
economy and patrimony, the State shall give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments
within its national jurisdiction and in accordance with its national goals and
priorities.23
Under Section 10, Article XII of the 1987 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 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.
With respect to public utilities, the 1987 Constitution specifically ordains:
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)
This provision, which mandates the Filipinization of public utilities, requires
that any form of authorization for the operation of public utilities shall 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." 24
The 1987 Constitution reserves the ownership and operation of public
utilities exclusively to (1) Filipino citizens, or (2) corporations or associations
at least 60 percent of whose "capital" is owned by Filipino citizens. Hence, in
the case of individuals, only Filipino citizens can validly own and operate a
public utility. In the case of corporations or associations, at least 60 percent
of their "capital" must be owned by Filipino citizens. In other words, under
Section 11, Article XII of the 1987 Constitution, to own and operate
a public utility a corporations capital must at least be 60 percent
owned by Philippine nationals.
IV.
Definition of "Philippine National"
Pursuant to the express mandate of Section 11, Article XII of the 1987
Constitution, Congress enacted Republic Act No. 7042 or the Foreign
Investments Act of 1991 (FIA), as amended, which defined a "Philippine
national" as follows:
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." (Boldfacing, italicization and underscoring supplied)
Thus, the FIA clearly and unequivocally defines a "Philippine national" as a
Philippine citizen, or a domestic corporation at least "60% of the capital
stock outstanding and entitled to vote" is owned by Philippine citizens.
The definition of a "Philippine national" in the FIA reiterated the meaning of
such term as provided in its predecessor statute, Executive Order No. 226 or
the Omnibus Investments Code of 1987,25 which was issued by then
President Corazon C. Aquino. Article 15 of this Code states:
Article 15. "Philippine national" shall mean a citizen of the Philippines or a
diplomatic 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 per cent (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 per cent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-Filipino
stockholders own stock in a registered enterprise, at least sixty per cent
(60%) of the capital stock outstanding and entitled to vote of both
corporations must be owned and held by the citizens of the Philippines and
at least sixty per cent (60%) of the members of the Board of Directors of
both corporations must be citizens of the Philippines in order that the
corporation shall be considered a Philippine national. (Boldfacing, italicization
and underscoring supplied)
Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no
corporation x x x which is not a Philippine national x x x shall do business
x x x in the Philippines x x x without first securing from the Board of
Investments a written certificate to the effect that such business or economic
activity x x x would not conflict with the Constitution or laws of the
Philippines."27Thus, a "non-Philippine national" cannot own and operate a
reserved economic activity like a public utility. This means, of course, that
only a "Philippine national" can own and operate a public utility.
In turn, the definition of a "Philippine national" under Article 15 of the
Omnibus Investments Code of 1987 was a reiteration of the meaning of such
term as provided in Article 14 of the Omnibus Investments Code of 1981,28 to
wit:

Article 14. "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 per cent (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 per cent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-Filipino
stockholders own stock in a registered enterprise, at least sixty per cent
(60%) of the capital stock outstanding and entitled to vote of both
corporations must be owned and held by the citizens of the Philippines and
at least sixty per cent (60%) of the members of the Board of Directors of
both corporations must be citizens of the Philippines in order that the
corporation shall be considered a Philippine national. (Boldfacing, italicization
and underscoring supplied)
Under Article 69(3) of the Omnibus Investments Code of 1981, "no
corporation x x x which is not a Philippine national x x x shall do business x
x x in the Philippines x x x without first securing a written certificate from the
Board of Investments to the effect that such business or economic activity x
x x would not conflict with the Constitution or laws of the
Philippines."29 Thus, a "non-Philippine national" cannot own and operate a
reserved economic activity like a public utility. Again, this means that only a
"Philippine national" can own and operate a public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act No. 518630 or
the Investment Incentives Act, which took effect on 16 September 1967,
contained a similar definition of a "Philippine national," to wit:
(f) "Philippine National" shall mean a citizen of the Philippines; or a
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 per cent 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 per cent of the fund will
accrue to the benefit of Philippine Nationals: Provided, That where a
corporation and its non-Filipino stockholders own stock in a registered
enterprise, at least sixty per cent of the capital stock outstanding and
entitled to vote of both corporations must be owned and held by the citizens
of the Philippines and at least sixty per cent of the members of the Board of
Directors of both corporations must be citizens of the Philippines in order
that the corporation shall be considered a Philippine National. (Boldfacing,
italicization and underscoring supplied)

Under Section 3 of Republic Act No. 5455 or the Foreign Business


Regulations Act, which took effect on 30 September 1968, if the investment
in a domestic enterprise by non-Philippine nationals exceeds 30% of its
outstanding capital stock, such enterprise must obtain prior approval from
the Board of Investments before accepting such investment. Such approval
shall not be granted if the investment "would conflict with existing
constitutional provisions and laws regulating the degree of required
ownership by Philippine nationals in the enterprise."31 A "non-Philippine
national" cannot own and operate a reserved economic activity like a public
utility. Again, this means that only a "Philippine national" can own and
operate a public utility.
The FIA, like all its predecessor statutes, clearly defines a "Philippine
national" as a Filipino citizen, or adomestic corporation "at least sixty
percent (60%) of the capital stock outstanding and entitled to
vote"is owned by Filipino citizens. A domestic corporation is a "Philippine
national" only if at least 60% of its voting stock is owned by Filipino
citizens. This definition of a "Philippine national" is crucial in the present case
because the FIA reiterates and clarifies Section 11, Article XII of the 1987
Constitution, which limits the ownership and operation of public utilities to
Filipino citizens or to corporations or associations at least 60% Filipinoowned.
The FIA is the basic law governing foreign investments in the Philippines,
irrespective of the nature of business and area of investment. The FIA spells
out the procedures by which non-Philippine nationals can invest in the
Philippines. Among the key features of this law is the concept of a negative
list or the Foreign Investments Negative List.32 Section 8 of the law states:
SEC. 8. List of Investment Areas Reserved to Philippine
Nationals [Foreign Investment Negative List]. - The Foreign Investment
Negative List shall have two 2 component lists: A and B:
a. List A shall enumerate the areas of activities reserved to
Philippine nationals by mandate of the Constitution and specific
laws.
b. List B shall contain the areas of activities and enterprises regulated
pursuant to law:
1. which are defense-related activities, requiring prior clearance and
authorization from the Department of National Defense [DND] to engage in
such activity, such as the manufacture, repair, storage and/or distribution of
firearms, ammunition, lethal weapons, military ordinance, explosives,
pyrotechnics and similar materials; unless such manufacturing or repair

activity is specifically authorized, with a substantial export component, to a


non-Philippine national by the Secretary of National Defense; or
2. which have implications on public health and morals, such as the
manufacture and distribution of dangerous drugs; all forms of gambling;
nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses and
massage clinics. (Boldfacing, underscoring and italicization supplied)
Section 8 of the FIA enumerates the investment areas "reserved to Philippine
nationals." Foreign Investment Negative List A consists of "areas of
activities reserved to Philippine nationals by mandate of the
Constitution and specific laws," where foreign equity participation
in any enterprise shall be limited to the maximum percentage
expressly prescribed by the Constitution and other specific laws. In
short, to own and operate a public utility in the Philippines one
must be a "Philippine national" as defined in the FIA. The FIA is
abundant notice to foreign investors to what extent they can invest
in public utilities in the Philippines.
To repeat, among the areas of investment covered by the Foreign Investment
Negative List A is the ownership and operation of public utilities, which the
Constitution expressly reserves to Filipino citizens and to corporations at
least 60% owned by Filipino citizens. In other words, Negative List A of
the FIA reserves the ownership and operation of public utilities only
to "Philippine nationals," defined in Section 3(a) of the FIA as "(1) a
citizen of the Philippines; x x x or (3) 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 (4) 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."
Clearly, from the effectivity of the Investment Incentives Act of 1967 to the
adoption of the Omnibus Investments Code of 1981, to the enactment of the
Omnibus Investments Code of 1987, and to the passage of the present
Foreign Investments Act of 1991, or for more than four decades, the
statutory definition of the term "Philippine national" has been
uniform and consistent: it means a Filipino citizen, or a domestic
corporation at least 60% of the voting stock is owned by Filipinos.
Likewise, these same statutes have uniformly and consistently
required that only "Philippine nationals" could own and operate

public utilities in the Philippines. The following exchange during the Oral
Arguments is revealing:
JUSTICE CARPIO:
Counsel, I have some questions. You are aware of the Foreign
Investments Act of 1991, x x x? And the FIA of 1991 took effect
in 1991, correct? Thats over twenty (20) years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And Section 8 of the Foreign Investments Act of 1991 states that
[]only Philippine nationals can own and operate public utilities[],
correct?
COMMISSIONER GAITE:
Yes, Your Honor.
JUSTICE CARPIO:
And the same Foreign Investments Act of 1991 defines a
"Philippine national" either as a citizen of the Philippines, or if it
is a corporation at least sixty percent (60%) of the voting stock is
owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And, you are also aware that under the predecessor law of the
Foreign Investments Act of 1991, the Omnibus Investments Act
of 1987, the same provisions apply: x x x only Philippine
nationals can own and operate a public utility and the Philippine
national, if it is a corporation, x x x sixty percent (60%) of the
capital stock of that corporation must be owned by citizens of the
Philippines, correct?
COMMISSIONER GAITE:

Correct, Your Honor.


JUSTICE CARPIO:
And even prior to the Omnibus Investments Act of 1987, under
the Omnibus Investments Act of 1981, the same rules apply: x x
x only a Philippine national can own and operate a public utility
and a Philippine national, if it is a corporation, sixty percent
(60%) of its x x x voting stock, must be owned by citizens of the
Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to that, under [the]1967 Investments Incentives
Act and the Foreign Company Act of 1968, the same rules
applied, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, for the last four (4) decades, x x x, the law has been
very consistent only a Philippine national can own and
operate a public utility, and a Philippine national, if it is a
corporation, x x x at least sixty percent (60%) of the
voting stock must be owned by citizens of the Philippines,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.33 (Emphasis supplied)
Government agencies like the SEC cannot simply ignore Sections 3(a) and 8
of the FIA which categorically prescribe that certain economic activities, like
the ownership and operation of public utilities, are reserved to corporations
"at least sixty percent (60%) of the capital stock outstanding and entitled
to vote is owned and held by citizens of the Philippines." Foreign Investment
Negative List A refers to "activities reserved to Philippine nationals by
mandate of the Constitution and specific laws." The FIA is the basic
statute regulating foreign investments in the Philippines.

Government agencies tasked with regulating or monitoring foreign


investments, as well as counsels of foreign investors, should start with the
FIA in determining to what extent a particular foreign investment is allowed
in the Philippines. Foreign investors and their counsels who ignore the FIA do
so at their own peril. Foreign investors and their counsels who rely on
opinions of SEC legal officers that obviously contradict the FIA do so also at
their own peril.
Occasional opinions of SEC legal officers that obviously contradict the FIA
should immediately raise a red flag. There are already numerous opinions of
SEC legal officers that cite the definition of a "Philippine national" in Section
3(a) of the FIA in determining whether a particular corporation is qualified to
own and operate a nationalized or partially nationalized business in the
Philippines. This shows that SEC legal officers are not only aware of, but also
rely on and invoke, the provisions of the FIA in ascertaining the eligibility of a
corporation to engage in partially nationalized industries. The following are
some of such opinions:
1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;
2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of
the Philippine Overseas Employment Administration;
3. Opinion of 23 November 1993, addressed to Messrs. Dominador
Almeda and Renato S. Calma;
4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan
Migallos & Jardeleza;
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura
Sayoc & De Los Angeles;
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David;
and
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi
and Rudyard S. Arbolado.
The SEC legal officers occasional but blatant disregard of the definition of
the term "Philippine national" in the FIA signifies their lack of integrity and
competence in resolving issues on the 60-40 ownership requirement in favor
of Filipino citizens in Section 11, Article XII of the Constitution.
The PSE President argues that the term "Philippine national" defined in the
FIA should be limited and interpreted to refer to corporations seeking to avail
of tax and fiscal incentives under investment incentives laws and cannot be

equated with the term "capital" in Section 11, Article XII of the 1987
Constitution. Pangilinan similarly contends that the FIA and its predecessor
statutes do not apply to "companies which have not registered and obtained
special incentives under the schemes established by those laws."
Both are desperately grasping at straws. The FIA does not grant tax or fiscal
incentives to any enterprise. Tax and fiscal incentives to investments are
granted separately under the Omnibus Investments Code of 1987, not under
the FIA. In fact, the FIA expressly repealed Articles 44 to 56 of Book II of the
Omnibus Investments Code of 1987, which articles previously regulated
foreign investments in nationalized or partially nationalized industries.
The FIA is the applicable law regulating foreign investments in nationalized
or partially nationalized industries. There is nothing in the FIA, or even in the
Omnibus Investments Code of 1987 or its predecessor statutes, that states,
expressly or impliedly, that the FIA or its predecessor statutes do not apply
to enterprises not availing of tax and fiscal incentives under the Code. The
FIA and its predecessor statutes apply to investments in all domestic
enterprises, whether or not such enterprises enjoy tax and fiscal incentives
under the Omnibus Investments Code of 1987 or its predecessor
statutes. The reason is quite obvious mere non-availment of tax and
fiscal incentives by a non-Philippine national cannot exempt it from
Section 11, Article XII of the Constitution regulating foreign
investments in public utilities. In fact, the Board of Investments Primer
on Investment Policies in the Philippines,34 which is given out to foreign
investors, provides:
PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES
Investors who do not seek incentives and/or whose chosen activities do not
qualify for incentives, (i.e., the activity is not listed in the IPP, and they are
not exporting at least 70% of their production) may go ahead and make the
investments without seeking incentives. They only have to be guided by
the Foreign Investments Negative List (FINL).
The FINL clearly defines investment areas requiring at least 60% Filipino
ownership. All other areas outside of this list are fully open to foreign
investors. (Emphasis supplied)
V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60 percent Filipino ownership
required by the Constitution to engage in certain economic activities applies

not only to voting control of the corporation, but also to the beneficial
ownership of the corporation. To repeat, we held:
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]." (Emphasis supplied)
This is consistent with Section 3 of the FIA which provides that where 100%
of the capital stock is held by "a trustee of funds for pension or other
employee retirement or separation benefits," the trustee is a Philippine
national if "at least sixty percent (60%) of the fund will accrue to the benefit
of Philippine nationals." Likewise, Section 1(b) of the Implementing Rules of
the FIA provides that "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."
Since the constitutional requirement of at least 60 percent Filipino ownership
applies not only to voting control of the corporation but also to the beneficial
ownership of the corporation, it is therefore imperative that such
requirement apply uniformly and across the board to all classes of shares,
regardless of nomenclature and category, comprising the capital of a
corporation. Under the Corporation Code, capital stock35 consists of all
classes of shares issued to stockholders, that is, common shares as well as
preferred shares, which may have different rights, privileges or restrictions
as stated in the articles of incorporation.36
The Corporation Code allows denial of the right to vote to preferred and
redeemable shares, but disallows denial of the right to vote in specific
corporate matters. Thus, common shares have the right to vote in the
election of directors, while preferred shares may be denied such right.
Nonetheless, preferred shares, even if denied the right to vote in the election
of directors, are entitled to vote on the following corporate matters: (1)
amendment of articles of incorporation; (2) increase and decrease of capital
stock; (3) incurring, creating or increasing bonded indebtedness; (4) sale,
lease, mortgage or other disposition of substantially all corporate assets; (5)
investment of funds in another business or corporation or for a purpose other
than the primary purpose for which the corporation was organized; (6)
adoption, amendment and repeal of by-laws; (7) merger and consolidation;
and (8) dissolution of corporation.37

Since a specific class of shares may have rights and privileges or restrictions
different from the rest of the shares in a corporation, the 60-40 ownership
requirement in favor of Filipino citizens in Section 11, Article XII of the
Constitution must apply not only to shares with voting rights but also to
shares without voting rights. Preferred shares, denied the right to vote in the
election of directors, are anyway still entitled to vote on the eight specific
corporate matters mentioned above. Thus, if a corporation, engaged in a
partially nationalized industry, issues a mixture of common and
preferred non-voting shares, at least 60 percent of the common
shares and at least 60 percent of the preferred non-voting shares
must be owned by Filipinos. Of course, if a corporation issues only a
single class of shares, at least 60 percent of such shares must necessarily be
owned by Filipinos. In short, the 60-40 ownership requirement in favor
of Filipino citizens must apply separately to each class of shares,
whether common, preferred non-voting, preferred voting or any
other class of shares. This uniform application of the 60-40 ownership
requirement in favor of Filipino citizens clearly breathes life to the
constitutional command that the ownership and operation of public utilities
shall be reserved exclusively to corporations at least 60 percent of whose
capital is Filipino-owned. Applying uniformly the 60-40 ownership
requirement in favor of Filipino citizens to each class of shares, regardless of
differences in voting rights, privileges and restrictions, guarantees effective
Filipino control of public utilities, as mandated by the Constitution.
Moreover, such uniform application to each class of shares insures that the
"controlling interest" in public utilities always lies in the hands of Filipino
citizens. This addresses and extinguishes Pangilinans worry that foreigners,
owning most of the non-voting shares, will exercise greater control over
fundamental corporate matters requiring two-thirds or majority vote of all
shareholders.
VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting Opinion38 a portion of the
deliberations of the Constitutional Commission to support his claim that the
term "capital" refers to the total outstanding shares of stock, whether voting
or non-voting, the following excerpts of the deliberations reveal otherwise. It
is clear from the following exchange that the term "capital" refers
to controlling interest of a corporation, thus:
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.39
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.40 (Boldfacing and underscoring supplied)
Thus, 60 percent of the "capital" assumes, or should result in, a
"controlling interest" in the corporation.
The use of the term "capital" was intended to replace the word "stock"
because associations without stocks can operate public utilities as long as
they meet the 60-40 ownership requirement in favor of Filipino citizens
prescribed in Section 11, Article XII of the Constitution. However, this did not
change the intent of the framers of the Constitution to reserve exclusively to
Philippine nationals the "controlling interest" in public utilities.
During the drafting of the 1935 Constitution, economic protectionism was
"the battle-cry of the nationalists in the Convention."41 The same battle-cry
resulted in the nationalization of the public utilities.42 This is also the same
intent of the framers of the 1987 Constitution who adopted the exact
formulation embodied in the 1935 and 1973 Constitutions on foreign equity
limitations in partially nationalized industries.
The OSG, in its own behalf and as counsel for the State,43 agrees fully with
the Courts interpretation of the term "capital." In its Consolidated Comment,
the OSG explains that the deletion of the phrase "controlling interest" and
replacement of the word "stock" with the term "capital" were intended
specifically to extend the scope of the entities qualified to operate public
utilities to include associations without stocks. The framers omission of the
phrase "controlling interest" did not mean the inclusion of all shares of stock,
whether voting or non-voting. The OSG reiterated essentially the Courts
declaration that the Constitution reserved exclusively to Philippine nationals
the ownership and operation of public utilities consistent with the States

policy to "develop a self-reliant and independent national


economy effectively controlled by Filipinos."
As we held in our 28 June 2011 Decision, to construe broadly the term
"capital" as the total outstanding capital stock, treated as a single class
regardless of the actual classification of shares, grossly contravenes the
intent and letter of the Constitution that the "State shall develop a self-reliant
and independent national economyeffectively controlled by Filipinos." We
illustrated the glaring anomaly which would result in defining the term
"capital" as the total outstanding capital stock of a corporation, treated as
a single class of shares regardless of the actual classification of shares, to
wit:
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 (P 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. x x x
Further, even if foreigners who own more than forty percent of the voting
shares elect an all-Filipino board of directors, this situation does not
guarantee Filipino control and does not in any way cure the violation of the
Constitution. The independence of the Filipino board members so elected by
such foreign shareholders is highly doubtful. As the OSG pointed out, quoting
Justice George Sutherlands words in Humphreys Executor v. US,44 "x x x it is
quite evident that one who holds his office only during the pleasure of
another cannot be depended upon to maintain an attitude of independence
against the latters will." Allowing foreign shareholders to elect a controlling
majority of the board, even if all the directors are Filipinos, grossly
circumvents the letter and intent of the Constitution and defeats the very
purpose of our nationalization laws.

VII.
Last sentence of Section 11, Article XII of the Constitution
The last sentence of Section 11, Article XII of the 1987 Constitution reads:
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.
During the Oral Arguments, the OSG emphasized that there was never a
question on the intent of the framers of the Constitution to limit foreign
ownership, and assure majority Filipino ownership and control of public
utilities. The OSG argued, "while the delegates disagreed as to the
percentage threshold to adopt, x x x the records show they clearly
understood that Filipino control of the public utility corporation can only be
and is obtained only through the election of a majority of the members of the
board."
Indeed, the only point of contention during the deliberations of the
Constitutional Commission on 23 August 1986 was the extent of majority
Filipino control of public utilities. This is evident from the following exchange:
THE PRESIDENT. Commissioner Jamir is recognized.
MR. JAMIR. Madam President, my proposed amendment on lines 20 and 21 is
to delete the phrase "two thirds of whose voting stock or controlling
interest," and instead substitute the words "SIXTY PERCENT OF WHOSE
CAPITAL" so that the sentence will read: "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
PERCENT OF WHOSE CAPITAL is owned by such citizens."
xxxx
THE PRESIDENT: Will Commissioner Jamir first explain?
MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were
two previous sections in which we fixed the Filipino equity to 60 percent as
against 40 percent for foreigners. It is only in this Section 15 with respect to
public utilities that the committee proposal was increased to two-thirds. I
think it would be better to harmonize this provision by providing that even in
the case of public utilities, the minimum equity for Filipino citizens should be
60 percent.

MR. ROMULO. Madam President.


THE PRESIDENT. Commissioner Romulo is recognized.
MR. ROMULO. My reason for supporting the amendment is based on the
discussions I have had with representatives of the Filipino majority owners of
the international record carriers, and the subsequent memoranda they
submitted to me. x x x
Their second point is that under the Corporation Code, the management and
control of a corporation is vested in the board of directors, not in the officers
but in the board of directors. The officers are only agents of the board. And
they believe that with 60 percent of the equity, the Filipino majority
stockholders undeniably control the board. Only on important corporate acts
can the 40-percent foreign equity exercise a veto, x x x.
x x x x45
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. Commissioner Rosario Braid is recognized.
MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also read from a
memorandum by the spokesman of the Philippine Chamber of
Communications on why they would like to maintain the present equity, I am
referring to the 66 2/3. They would prefer to have a 75-25 ratio but would
settle for 66 2/3. x x x
xxxx
THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support
the proposal of two-thirds rather than the 60 percent?
MS. ROSARIO BRAID. I have added a clause that will put management in the
hands of Filipino citizens.
x x x x46
While they had differing views on the percentage of Filipino ownership of
capital, it is clear that the framers of the Constitution intended public utilities
to be majority Filipino-owned and controlled. To ensure that Filipinos control
public utilities, the framers of the Constitution approved, as additional
safeguard, the inclusion of the last sentence of Section 11, Article XII of the
Constitution commanding that "[t]he 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." In


other words, the last sentence of Section 11, Article XII of the Constitution
mandates that (1) the participation of foreign investors in the governing
body of the corporation or association shall be limited to their proportionate
share in the capital of such entity; and (2) all officers of the corporation or
association must be Filipino citizens.
Commissioner Rosario Braid proposed the inclusion of the phrase requiring
the managing officers of the corporation or association to be Filipino citizens
specifically to prevent management contracts, which were designed
primarily to circumvent the Filipinization of public utilities, and to assure
Filipino control of public utilities, thus:
MS. ROSARIO BRAID. x x x They also like to suggest that we amend this
provision by adding a phrase which states: "THE MANAGEMENT BODY OF
EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE
CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have with me their
position paper.
THE PRESIDENT. The Commissioner may proceed.
MS. ROSARIO BRAID. The three major international record carriers in the
Philippines, which Commissioner Romulo mentioned Philippine Global
Communications, Eastern Telecommunications, Globe Mackay Cable are 40percent owned by foreign multinational companies and 60-percent owned by
their respective Filipino partners. All three, however, also have management
contracts with these foreign companies Philcom with RCA, ETPI with Cable
and Wireless PLC, and GMCR with ITT. Up to the present time, the general
managers of these carriers are foreigners. While the foreigners in these
common carriers are only minority owners, the foreign multinationals are the
ones managing and controlling their operations by virtue of their
management contracts and by virtue of their strength in the governing
bodies of these carriers.47
xxxx
MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario
Braid to propose an amendment with respect to the operating management
of public utilities, and in this amendment, we are associated with Fr. Bernas,
Commissioners Nieva and Rodrigo. Commissioner Rosario Braid will state this
amendment now.
Thank you.
MS. ROSARIO BRAID. Madam President.

THE PRESIDENT. This is still on Section 15.


MS. ROSARIO BRAID. Yes.
MR. VILLEGAS. Yes, Madam President.
xxxx
MS. ROSARIO BRAID. Madam President, I propose a new section to read: THE
MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL
CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES."
This will prevent management contracts and assure control by
Filipino citizens. Will the committee assure us that this amendment will
insure that past activities such as management contracts will no longer be
possible under this amendment?
xxxx
FR. BERNAS. Madam President.
THE PRESIDENT. Commissioner Bernas is recognized.
FR. BERNAS. Will the committee accept a reformulation of the first part?
MR. BENGZON. Let us hear it.
FR. BERNAS. The reformulation will be essentially the formula of the 1973
Constitution which reads: "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 AND..."
MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH
CORPORATIONS AND ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
MR. BENGZON. Will Commissioner Bernas read the whole thing again?
FR. BERNAS. "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..." I do not have the
rest of the copy.
MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF
SUCH CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE
PHILIPPINES." Is that correct?

MR. VILLEGAS. Yes.


MR. BENGZON. Madam President, I think that was said in a more elegant
language. We accept the amendment. Is that all right with Commissioner
Rosario Braid?
MS. ROSARIO BRAID. Yes.
xxxx
MR. DE LOS REYES. The governing body refers to the board of directors and
trustees.
MR. VILLEGAS. That is right.
MR. BENGZON. Yes, the governing body refers to the board of directors.
MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote, Madam President.
VOTING
xxxx
The results show 29 votes in favor and none against; so the proposed
amendment is approved.
xxxx
THE PRESIDENT. All right. Can we proceed now to vote on Section 15?
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the committee please read Section 15?
MR. VILLEGAS. The entire Section 15, as amended, reads: "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 60
PERCENT OF WHOSE CAPITAL is owned by such citizens." May I request
Commissioner Bengzon to please continue reading.
MR. BENGZON. "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 AND ALL THE

EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR


ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR
AUTHORIZATION BE EXCLUSIVE IN CHARACTER OR FOR A PERIOD LONGER
THAN TWENTY-FIVE YEARS RENEWABLE FOR NOT MORE THAN TWENTY-FIVE
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
Congress when the common good so requires. The State shall encourage
equity participation in public utilities by the general public."
VOTING
xxxx
The results show 29 votes in favor and 4 against; Section 15, as amended, is
approved.48 (Emphasis supplied)
The last sentence of Section 11, Article XII of the 1987 Constitution,
particularly the provision on the limited participation of foreign investors in
the governing body of public utilities, is a reiteration of the last sentence of
Section 5, Article XIV of the 1973 Constitution,49 signifying its importance in
reserving ownership and control of public utilities to Filipino citizens.
VIII.
The undisputed facts
There is no dispute, and respondents do not claim the contrary, that (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
foreigners control PLDT; (2) Filipinos own only 35.73% of PLDTs common
shares, constituting a minority of the voting stock, and thus Filipinos do not
control 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;50 (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%.
Despite the foregoing facts, the Court did not decide, and in fact refrained
from ruling on the question of whether PLDT violated the 60-40 ownership
requirement in favor of Filipino citizens in Section 11, Article XII of the 1987
Constitution. Such question indisputably calls for a presentation and
determination of evidence through a hearing, which is generally outside the
province of the Courts jurisdiction, but well within the SECs statutory
powers. Thus, for obvious reasons, the Court limited its decision on the
purely legal and threshold issue on the definition of the term "capital" in

Section 11, Article XII of the Constitution and directed the SEC to apply such
definition in determining the exact percentage of foreign ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a declaratory relief that ownership of
common or voting shares is the sole basis in determining foreign equity in a
public utility and that any other government rulings, opinions, and
regulations inconsistent with this declaratory relief be declared
unconstitutional and a violation of the intent and spirit of the 1987
Constitution;
6. For the Honorable Court to declare null and void all sales of common
stocks to foreigners in excess of 40 percent of the total subscribed common
shareholdings; and
7. For the Honorable Court to direct the Securities and Exchange
Commission and Philippine Stock Exchange to require PLDT to make a
public disclosure of all of its foreign shareholdings and their actual
and real beneficial owners.
Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)
As can be gleaned from his prayer, Gamboa clearly asks this Court to compel
the SEC to perform its statutory duty to investigate whether "the required
percentage of ownership of the capital stock to be owned by citizens of the
Philippines has been complied with [by PLDT] as required by x x x the
Constitution."51 Such plea clearly negates SECs argument that it was not
impleaded.
Granting that only the SEC Chairman was impleaded in this case, the Court
has ample powers to order the SECs compliance with its directive contained
in the 28 June 2011 Decision in view of the far-reaching implications of this
case. In Domingo v. Scheer,52 the Court dispensed with the amendment of
the pleadings to implead the Bureau of Customs considering (1) the unique
backdrop of the case; (2) the utmost need to avoid further delays; and (3)
the issue of public interest involved. The Court held:
The Court may be curing the defect in this case by adding the BOC as partypetitioner. The petition should not be dismissed because the second action

would only be a repetition of the first. InSalvador, et al., v. Court of Appeals,


et al., we held that this Court has full powers, apart from that power and
authority which is inherent, to amend the processes, pleadings, proceedings
and decisions by substituting as party-plaintiff the real party-in-interest. The
Court has the power to avoid delay in the disposition of this case, to
order its amendment as to implead the BOC as party-respondent.
Indeed, it may no longer be necessary to do so taking into account
the unique backdrop in this case, involving as it does an issue of
public interest. After all, the Office of the Solicitor General has represented
the petitioner in the instant proceedings, as well as in the appellate court,
and maintained the validity of the deportation order and of the BOCs
Omnibus Resolution. It cannot, thus, be claimed by the State that the BOC
was not afforded its day in court, simply because only the petitioner, the
Chairperson of the BOC, was the respondent in the CA, and the petitioner in
the instant recourse. In Alonso v. Villamor, we had the occasion to state:
There is nothing sacred about processes or pleadings, their forms or
contents. Their sole purpose is to facilitate the application of justice
to the rival claims of contending parties. They were created, not to
hinder and delay, but to facilitate and promote, the administration of justice.
They do not constitute the thing itself, which courts are always striving to
secure to litigants. They are designed as the means best adapted to obtain
that thing. In other words, they are a means to an end. When they lose the
character of the one and become the other, the administration of justice is at
fault and courts are correspondingly remiss in the performance of their
obvious duty.53(Emphasis supplied)
In any event, the SEC has expressly manifested54 that it will abide by
the Courts decision and defer to the Courts definition of the term
"capital" in Section 11, Article XII of the Constitution. Further, the
SEC entered its special appearance in this case and argued during
the Oral Arguments, indicating its submission to the Courts
jurisdiction. It is clear, therefore, that there exists no legal
impediment against the proper and immediate implementation of
the Courts directive to the SEC.
PLDT is an indispensable party only insofar as the other issues, particularly
the factual questions, are concerned. In other words, PLDT must be
impleaded in order to fully resolve the issues on (1) whether the sale of
111,415 PTIC shares to First Pacific violates the constitutional limit on foreign
ownership of PLDT; (2) whether the sale of common shares to foreigners
exceeded the 40 percent limit on foreign equity in PLDT; and (3) whether the
total percentage of the PLDT common shares with voting rights complies with
the 60-40 ownership requirement in favor of Filipino citizens under the
Constitution for the ownership and operation of PLDT. These issues
indisputably call for an examination of the parties respective evidence, and

thus are clearly within the jurisdiction of the SEC. In short, PLDT must be
impleaded, and must necessarily be heard, in the proceedings before the
SEC where the factual issues will be thoroughly threshed out and resolved.
Notably, the foregoing issues were left untouched by the Court. The
Court did not rule on the factual issues raised by Gamboa, except the single
and purely legal issue on the definition of the term "capital" in Section 11,
Article XII of the Constitution. The Court confined the resolution of the instant
case to this threshold legal issue in deference to the fact-finding power of the
SEC.
Needless to state, the Court can validly, properly, and fully dispose of the
fundamental legal issue in this case even without the participation of PLDT
since defining the term "capital" in Section 11, Article XII of the Constitution
does not, in any way, depend on whether PLDT was impleaded. Simply put,
PLDT is not indispensable for a complete resolution of the purely legal
question in this case.55 In fact, the Court, by treating the petition as one for
mandamus,56 merely directed the SEC to apply the Courts definition of the
term "capital" in Section 11, Article XII of the Constitution in determining
whether PLDT committed any violation of the said constitutional
provision. The dispositive portion of the Courts ruling is addressed
not to PLDT but solely to the SEC, which is the administrative
agency tasked to enforce the 60-40 ownership requirement in favor
of Filipino citizens in Section 11, Article XII of the Constitution.
Since the Court limited its resolution on the purely legal issue on the
definition of the term "capital" in Section 11, Article XII of the 1987
Constitution, and directed the SEC to investigate any violation by PLDT of the
60-40 ownership requirement in favor of Filipino citizens under the
Constitution,57 there is no deprivation of PLDTs property or denial of PLDTs
right to due process, contrary to Pangilinan and Nazarenos misimpression.
Due process will be afforded to PLDT when it presents proof to the SEC that it
complies, as it claims here, with Section 11, Article XII of the Constitution.
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell disaster to our
economy, as it may result in a sudden flight of existing foreign investors to
"friendlier" countries and simultaneously deterring new foreign investors to
our country. In particular, the PSE claims that the 28 June 2011 Decision may
result in the following: (1) loss of more than P 630 billion in foreign
investments in PSE-listed shares; (2) massive decrease in foreign trading
transactions; (3) lower PSE Composite Index; and (4) local investors not
investing in PSE-listed shares.58

Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments,
shared movants apprehension. Without providing specific details, he pointed
out the depressing state of the Philippine economy compared to our
neighboring countries which boast of growing economies. Further, Dr.
Villegas explained that the solution to our economic woes is for the
government to "take-over" strategic industries, such as the public utilities
sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas if you have additional
information on whether this high FDI59 countries in East Asia have allowed
foreigners x x x control [of] their public utilities, so that we can compare
apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When these neighbors of ours find
an industry strategic, their solution is not to "Filipinize" or "Vietnamize" or
"Singaporize." Their solution is to make sure that those industries are
in the hands of state enterprises. So, in these countries,
nationalization means the government takes over. And because
their governments are competent and honest enough to the public,
that is the solution. x x x 60 (Emphasis supplied)
If government ownership of public utilities is the solution, then foreign
investments in our public utilities serve no purpose. Obviously, there can
never be foreign investments in public utilities if, as Dr. Villegas claims, the
"solution is to make sure that those industries are in the hands of state
enterprises." Dr. Villegass argument that foreign investments in
telecommunication companies like PLDT are badly needed to save our ailing
economy contradicts his own theory that the solution is for government to
take over these companies. Dr. Villegas is barking up the wrong tree since
State ownership of public utilities and foreign investments in such industries
are diametrically opposed concepts, which cannot possibly be reconciled.
In any event, the experience of our neighboring countries cannot be used as
argument to decide the present case differently for two reasons. First, the
governments of our neighboring countries have, as claimed by Dr. Villegas,
taken over ownership and control of their strategic public utilities like the
telecommunications industry. Second, our Constitution has specific
provisions limiting foreign ownership in public utilities which the Court is
sworn to uphold regardless of the experience of our neighboring countries.
In our jurisdiction, the Constitution expressly reserves the ownership and
operation of public utilities to Filipino citizens, or corporations or associations

at least 60 percent of whose capital belongs to Filipinos. Following Dr.


Villegass claim, the Philippines appears to be more liberal in allowing foreign
investors to own 40 percent of public utilities, unlike in other Asian countries
whose governments own and operate such industries.
XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the SEC sought to clarify the
reckoning period of the application and imposition of appropriate sanctions
against PLDT if found violating Section 11, Article XII of the
Constitution.1avvphi1
As discussed, the Court has directed the SEC to investigate and determine
whether PLDT violated Section 11, Article XII of the Constitution. Thus, there
is no dispute that it is only after the SEC has determined PLDTs violation, if
any exists at the time of the commencement of the administrative case or
investigation, that the SEC may impose the statutory sanctions against PLDT.
In other words, once the 28 June 2011 Decision becomes final, the SEC shall
impose the appropriate sanctions only if it finds after due hearing that, at the
start of the administrative case or investigation, there is an existing violation
of Section 11, Article XII of the Constitution. Under prevailing jurisprudence,
public utilities that fail to comply with the nationality requirement under
Section 11, Article XII and the FIA can cure their deficiencies prior to the start
of the administrative case or investigation.61
XII.
Final Word
The Constitution expressly declares as State policy the development of an
economy "effectively controlled" by Filipinos. Consistent with such State
policy, the Constitution explicitly reserves the ownership and operation of
public utilities to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or associations
at least 60 percent of whose capital with voting rights belongs to Filipinos.
The FIAs implementing rules explain that "[f]or 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." In
effect, the FIA clarifies, reiterates and confirms the interpretation that the
term "capital" in Section 11, Article XII of the 1987 Constitution refers
toshares with voting rights, as well as with full beneficial ownership.
This is precisely because the right to vote in the election of directors,
coupled with full beneficial ownership of stocks, translates to effective
control of a corporation.

Any other construction of the term "capital" in Section 11, Article XII of the
Constitution contravenes the letter and intent of the Constitution. Any other
meaning of the term "capital" openly invites alien domination of economic
activities reserved exclusively to Philippine nationals. Therefore,
respondents interpretation will ultimately result in handing over effective
control of our national economy to foreigners in patent violation of the
Constitution, making Filipinos second-class citizens in their own country.
Filipinos have only to remind themselves of how this country was exploited
under the Parity Amendment, which gave Americans the same rights as
Filipinos in the exploitation of natural resources, and in the ownership and
control of public utilities, in the Philippines. To do this the 1935 Constitution,
which contained the same 60 percent Filipino ownership and control
requirement as the present 1987 Constitution, had to be amended to give
Americans parity rights with Filipinos. There was bitter opposition to the
Parity Amendment62 and many Filipinos eagerly awaited its expiration. In late
1968, PLDT was one of the American-controlled public utilities that became
Filipino-controlled when the controlling American stockholders divested in
anticipation of the expiration of the Parity Amendment on 3 July 1974.63 No
economic suicide happened when control of public utilities and mining
corporations passed to Filipinos hands upon expiration of the Parity
Amendment.
Movants interpretation of the term "capital" would bring us back to the same
evils spawned by the Parity Amendment, effectively giving foreigners
parity rights with Filipinos, but this time even without any
amendment to the present Constitution. Worse, movants interpretation
opens up our national economy toeffective control not only by Americans
but also by all foreigners, be they Indonesians, Malaysians or
Chinese, even in the absence of reciprocal treaty arrangements. At
least the Parity Amendment, as implemented by the Laurel-Langley
Agreement, gave the capital-starved Filipinos theoretical parity the same
rights as Americans to exploit natural resources, and to own and control
public utilities, in the United States of America. Here, movants interpretation
would effectively mean a unilateral opening up of our national economy to
all foreigners, without any reciprocal arrangements. That would mean
that Indonesians, Malaysians and Chinese nationals could effectively control
our mining companies and public utilities while Filipinos, even if they have
the capital, could not control similar corporations in these countries.
The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino
ownership and control requirement for public utilities like PLOT. Any deviation
from this requirement necessitates an amendment to the Constitution as
exemplified by the Parity Amendment. This Court has no power to amend the
Constitution for its power and duty is only to faithfully apply and interpret the
Constitution.

WHEREFORE, we DENY the motions for reconsideration WITH


FINALITY. No further pleadings shall be entertained.
SO ORDERED.
EXECUTIVE ORDER NO. 712
DIRECTING THE IMMEDIATE REVIEW OF EXISTING ORDERS, RULES
AND REGULATIONS ISSUED BY LOCAL GOVERNMENT UNITS
CONCERNING PUBLIC TRANSPORTATION, INCLUDING THE GRANT OF
FRANCHISES TO TRICYCLES, ESTABLISHMENT AND OPERATION OF
TRANSPORT TERMINALS, AUTHORITY TO ISSUE TRAFFIC CITATION
TICKETS, AND UNILATERAL REROUTING SCHEMES OF PUBLIC UTILITY
VEHICLES, AND FOR OTHER PURPOSES
WHEREAS, numerous transport organizations have complained about the
establishment of common transport terminals by the Local Government Units
in their respective jurisdiction, the use of their own traffic citation tickets
known as Ordinance Violation Receipts (OVR), rerouting schemes in violation
of authorized routes as provided in their respective certificates of public
convenience issued by the LTFRB, and the enactment of various ordinances
which result in additional cost to operators and drivers, such as the
mandatory purchase of stickers and drivers identification cards;
WHEREAS, said transport organizations have also objected to the
continuous issuance of new franchises for the operation of tricycles and
pedicabs despite the existence of too many units already operating on the
road and the unsynchronized truck ban resulting in the delay in the delivery
of goods;
WHEREAS, the operations of public utility vehicles is imbued with
paramount public interest, such that factors that increase the cost of
operations of public utility vehicles have a direct impact on transport fares,
hence local ordinances, programs and projects which require a fee should be
coordinated with the DOTC to ensure that public interest is not prejudiced;
WHEREAS, Section 5 (d) of Executive Order No. 125 as amended grants the
Department of Transportation and Communications (DOTC) the power and
function to administer and enforce all laws, rules and regulations in the field
of transportation while Republic Act No. 4136, otherwise known as the Land
Transportation and Traffic Code grants unto the Land Transportation Office

(LTO) the power and duty to enforce traffic laws and issue the appropriate
traffic citation tickets to erring drivers as well as confiscate their drivers
license;
WHEREAS, the establishment and use of transport terminals by public utility
vehicles with franchises issued by the national government as well as the
determination of their routes fall within the jurisdiction of the DOTC/Land
Transportation Franchising and Regulatory Board (LTFRB);
WHEREAS, pursuant to Article 458 of the Local Government Code, the
power of the Local Government Units (LGUs) to regulate the operation of
tricycles and to grant franchise is subject to the guidelines prescribed by the
DOTC;
WHEREAS, under Section 17, Article VII of the Constitution, the President
has control of all executive departments, bureaus and offices, and pursuant
to Section 4, Article IX exercises general supervision over all local
government units;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the
Republic of the Philippines, by virtue of the powers vested in me by
Constitution, do hereby order:
SECTION 1. The Department of Transportation and Communications (DOTC)
is hereby directed to immediately review all existing orders, rules and
regulations issued by Local Government Units (LGUs) concerning public
transportation within their jurisdiction, including the grant of franchises to
tricycles, establishment and operation of transport terminals, authority to
issue traffic citation tickets, and unilateral rerouting schemes of public utility
vehicles.
SECTION 2. Pending the review by the DOTC under Section 1 hereof of
existing orders, rules and regulations issued by LGUs, the Department of
Interior and Local Government (DILG) shall, subject to existing laws, advise
LGUs to suspend (1) the establishment and operations of new and existing
transport terminals that charge fees and require compulsory use by public
utility vehicles, (2) the enforcement of re-routing schemes that violate the
authorized routes as provided for in the PUV franchises, (3) the issuance of
new tricycle franchises while respecting those that have been issued already,
(4) the increase in local fees and charges applicable to public transportation,
and (5) the implementation of local programs, projects and ordinances that

have impact on the cost of operations of public utility vehicles without first
coordinating and getting the approval of the DOTC to ensure that these
programs, projects and ordinances do not prejudice public interest by way of
higher transport fares.
SECTION 3. The DOTC shall establish a National Land Transport Policy
Framework, which shall facilitate the modernization of the land transport
industry through the promotion of utility services which are environmentfriendly and shall provide assistance to the land transport sector through
lease-to-own programs, technical assistance, subsidies, and the
encouragement of the use of alternative fuels and/or renewable energy,
among others.
SECTION 4. The Metropolitan Manila Development Authority (MMDA) shall
implement a single ticketing system throughout Metro Manila in accordance
with Republic Act 7924
SECTION 5. The DILG shall, subject to existing laws, establish and
implement uniform truck ban hours that shall be applicable to LGUs located
in a common area nationwide.
SECTION 6. If any section or part of this Executive Order shall be declared
unconstitutional or illegal, the other sections or parts thereof shall not
thereby be affected.
SECTION 7. All other orders, issuances or portions thereof, which are
inconsistent with this Executive Order are hereby revoked, amended or
modified accordingly.
SECTION 8. This Executive Order shall take effect immediately following its
publication in a national newspaper of general circulation.
DONE in the City of Manila, this 11th day of March in the year of our Lord,
Two Thousand Eight.
(Sgd.) GLORIA MACAPAGAL-ARROYO
President of the Philippines