You are on page 1of 195

G.R. No.

96541 August 24, 1993 On 15 August 1990, PCGG, through Chairman Caparas, representing the Government
of the Republic of the Philippines, signed the Consignment Agreement with Christie's
DEAN JOSE JOYA, CARMEN GUERRERO NAKPIL, ARMIDA SIGUION REYNA, PROF. of New York. According to the agreement, PCGG shall consign to CHRISTIE'S for sale
RICARTE M. PURUGANAN, IRMA POTENCIANO, ADRIAN CRISTOBAL, INGRID at public auction the eighty-two (82) Old Masters Paintings then found at the
SANTAMARIA, CORAZON FIEL, AMBASSADOR E. AGUILAR CRUZ, FLORENCIO R. Metropolitan Museum of Manila as well as the silverware contained in seventy-one
JACELA, JR., MAURO MALANG, FEDERICO AGUILAR ALCUAZ, LUCRECIA R. URTULA, (71) cartons in the custody of the Central Bank of the Philippines, and such other
SUSANO GONZALES, STEVE SANTOS, EPHRAIM SAMSON, SOLER SANTOS, ANG KIU property as may subsequently be identified by PCGG and accepted by CHRISTIE'S to
KOK, KERIMA POLOTAN, LUCRECIA KASILAG, LIGAYA DAVID PEREZ, VIRGILIO be subject to the provisions of the agreement. 1
ALMARIO, LIWAYWAY A. ARCEO, CHARITO PLANAS, HELENA BENITEZ, ANNA
MARIA L. HARPER, ROSALINDA OROSA, SUSAN CALO MEDINA, PATRICIA RUIZ, On 26 October 1990, the Commission on Audit (COA) through then Chairman Eufemio
BONNIE RUIZ, NELSON NAVARRO, MANDY NAVASERO, ROMEO SALVADOR, C. Domingo submitted to President Aquino the audit findings and observations of
JOSEPHINE DARANG, and PAZ VETO PLANAS, petitioners, COA on the Consignment Agreement of 15 August 1990 to the effect that: (a) the
vs. authority of former PCGG Chairman Caparas to enter into the Consignment
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), CATALINO Agreement was of doubtful legality; (b) the contract was highly disadvantageous to
MACARAIG, JR., in his official capacity, and/or the Executive Secretary, and the government; (c) PCGG had a poor track record in asset disposal by auction in the
CHAIRMAN MATEO A.T. CAPARAS, respondents. U.S.; and, (d) the assets subject of auction were historical relics and had cultural
significance, hence, their disposal was prohibited by law. 2

On 15 November 1990, PCGG through its new Chairman David M. Castro, wrote
BELLOSILLO, J.: President Aquino defending the Consignment Agreement and refuting the allegations
of COA Chairman Domingo.3 On the same date, Director of National Museum Gabriel
All thirty-five (35) petitioners in this Special Civil Action for Prohibition and S. Casal issued a certification that the items subject of the Consignment Agreement
Mandamus with Prayer for Preliminary Injunction and/or Restraining Order seek to did not fall within the classification of protected cultural properties and did not
enjoin the Presidential Commission on Good Government (PCGG) from proceeding specifically qualify as part of the Filipino cultural heritage. 4 Hence, this petition
with the auction sale scheduled on 11 January 1991 by Christie's of New York of the originally filed on 7 January 1991 by Dean Jose Joya, Carmen Guerrero Nakpil, Armida
Old Masters Paintings and 18th and 19th century silverware seized from Malacañang Siguion Reyna, Prof. Ricarte M. Puruganan, Irma Potenciano, Adrian Cristobal, Ingrid
and the Metropolitan Museum of Manila and placed in the custody of the Central Santamaria, Corazon Fiel, Ambassador E. Aguilar Cruz, Florencio R. Jacela, Jr., Mauro
Bank. Malang, Federico Aguilar Alcuaz, Lucrecia R. Urtula, Susano Gonzales, Steve Santos,
Ephraim Samson, Soler Santos, Ang Kiu Kok, Kerima Polotan, Lucrecia Kasilag, Ligaya
David Perez, Virgilio Almario and Liwayway A. Arceo.
The antecedents: On 9 August 1990, Mateo A.T. Caparas, then Chairman of PCGG,
wrote then President Corazon C. Aquino, requesting her for authority to sign the
proposed Consignment Agreement between the Republic of the Philippines through After the oral arguments of the parties on 9 January 1991, we issued immediately our
PCGG and Christie, Manson and Woods International, Inc. (Christie's of New York, or resolution denying the application for preliminary injunction to restrain the
CHRISTIE'S) concerning the scheduled sale on 11 January 1991 of eighty-two (82) Old scheduled sale of the artworks on the ground that petitioners had not presented a
Masters Paintings and antique silverware seized from Malacañang and the clear legal right to a restraining order and that proper parties had not been
Metropolitan Museum of Manila alleged to be part of the ill-gotten wealth of the late impleaded.
President Marcos, his relatives and cronies.
On 11 January 1991, the sale at public auction proceeded as scheduled and the
On 14 August 1990, then President Aquino, through former Executive Secretary proceeds of $13,302,604.86 were turned over to the Bureau of Treasury.5
Catalino Macaraig, Jr., authorized Chairman Caparas to sign the Consignment
Agreement allowing Christie's of New York to auction off the subject art pieces for On 5 February 1991, on motion of petitioners, the following were joined as additional
and in behalf of the Republic of the Philippines. petitioners: Charito Planas, Helena Benitez, Ana Maria L. Harper, Rosalinda Orosa,
Susan Carlo Medina, Patricia Ruiz, Bonnie Ruiz, Nelson Navarro, Mandy Navasero, The rule is settled that no question involving the constitutionality or validity of a law
Romeo Salvador, Josephine Darang and Paz Veto Planas. or governmental act may be heard and decided by the court unless there is
compliance with the legal requisites for judicial inquiry, namely: that the question
On the other hand, Catalino Macaraig, Jr., in his capacity as former Executive must be raised by the proper party; that there must be an actual case or controversy;
Secretary, the incumbent Executive Secretary, and Chairman Mateo A.T. Caparas that the question must be raised at the earliest possible opportunity; and, that the
were impleaded as additional respondents. decision on the constitutional or legal question must be necessary to the
determination of the case itself.6 But the most important are the first two (2)
Petitioners raise the following issues: (a) whether petitioners have legal standing to requisites.
file the instant petition; (b) whether the Old Masters Paintings and antique silverware
are embraced in the phrase "cultural treasure of the nation" which is under the On the first requisite, we have held that one having no right or interest to protect
protection of the state pursuant to the 1987 Constitution and/or "cultural properties" cannot invoke the jurisdiction of the court as party-plaintiff in an
contemplated under R.A. 4846, otherwise known as "The Cultural Properties action.7 This is premised on Sec. 2, Rule 3, of the Rules of Court which provides that
Preservation and Protection Act;" (c) whether the paintings and silverware are every action must be prosecuted and defended in the name of the real party-in-
properties of public dominion on which can be disposed of through the joint interest, and that all persons having interest in the subject of the action and in
concurrence of the President and Congress; obtaining the relief demanded shall be joined as plaintiffs. The Court will exercise its
(d) whether respondent, PCGG has the jurisdiction and authority to enter into an power of judicial review only if the case is brought before it by a party who has the
agreement with Christie's of New York for the sale of the artworks; (e) whether, PCGG legal standing to raise the constitutional or legal question. "Legal standing" means a
has complied with the due process clause and other statutory requirements for the personal and substantial interest in the case such that the party has sustained or will
exportation and sale of the subject items; and, (f) whether the petition has become sustain direct injury as a result of the governmental act that is being challenged. The
moot and academic, and if so, whether the above issues warrant resolution from this term "interest" is material interest, an interest in issue and to be affected by the
Court. decree, as distinguished from mere interest in the question involved, or a mere
incidental interest.8 Moreover, the interest of the party plaintiff must be personal
The issues being interrelated, they will be discussed jointly hereunder. However, and not one based on a desire to vindicate the constitutional right of some third and
before proceeding, we wish to emphasize that we admire and commend petitioners' related party. 9
zealous concern to keep and preserve within the country great works of art by well-
known old masters. Indeed, the value of art cannot be gainsaid. For, by serving as a There are certain instances however when this Court has allowed exceptions to the
creative medium through which man can express his innermost thoughts and rule on legal standing, as when a citizen brings a case for mandamus to procure the
unbridled emotions while, at the same time, reflecting his deep-seated ideals, art has enforcement of a public duty for the fulfillment of a public right recognized by the
become a true expression of beauty, joy, and life itself. Such artistic creations give us Constitution, 10 and when a taxpayer questions the validity of a governmental act
insights into the artists' cultural heritage — the historic past of the nation and the era authorizing the disbursement of public funds. 11
to which they belong — in their triumphant, glorious, as well as troubled and
turbulent years. It must be for this reason that the framers of the 1987 Constitution Petitioners claim that as Filipino citizens, taxpayers and artists deeply concerned with
mandated in Art. XIV, Sec. 14, that is the solemn duty of the state to "foster the the preservation and protection of the country's artistic wealth, they have the legal
preservation, enrichment, and dynamic evolution of a Filipino national culture based personality to restrain respondents Executive Secretary and PCGG from acting
on the principle of unity in diversity in a climate of free artistic and intellectual contrary to their public duty to conserve the artistic creations as mandated by the
expression." And, in urging this Court to grant their petition, petitioners invoke this 1987 Constitution, particularly Art. XIV, Secs. 14 to 18, on Arts and Culture, and R.A.
policy of the state on the protection of the arts. 4846 known as "The Cultural Properties Preservation and Protection Act," governing
the preservation and disposition of national and important cultural properties.
But, the altruistic and noble purpose of the petition notwithstanding, there is that Petitioners also anchor their case on the premise that the paintings and silverware
basic legal question which must first be resolved: whether the instant petition are public properties collectively owned by them and by the people in general to view
complies with the legal requisites for this Court to exercise its power of judicial review and enjoy as great works of art. They allege that with the unauthorized act of PCGG
over this case. in selling the art pieces, petitioners have been deprived of their right to public
property without due process of law in violation of the Constitution. 12
Petitioners' arguments are devoid of merit. They lack basis in fact and in law. They by an officer of the state for the purpose of administering an unconstitutional act
themselves allege that the paintings were donated by private persons from different constitutes a misapplication of such funds, which may be enjoined at the request of
parts of the world to the Metropolitan Museum of Manila Foundation, which is a non- a taxpayer. 14 Obviously, petitioners are not challenging any expenditure involving
profit and non-stock corporations established to promote non-Philippine arts. The public funds but the disposition of what they allege to be public properties. It is
foundation's chairman was former First Lady Imelda R. Marcos, while its president worthy to note that petitioners admit that the paintings and antique silverware were
was Bienvenido R. Tantoco. On this basis, the ownership of these paintings legally acquired from private sources and not with public money.
belongs to the foundation or corporation or the members thereof, although the
public has been given the opportunity to view and appreciate these paintings when Anent the second requisite of actual controversy, petitioners argue that this case
they were placed on exhibit. should be resolved by this Court as an exception to the rule on moot and academic
cases; that although the sale of the paintings and silver has long been consummated
Similarly, as alleged in the petition, the pieces of antique silverware were given to the and the possibility of retrieving the treasure trove is nil, yet the novelty and
Marcos couple as gifts from friends and dignitaries from foreign countries on their importance of the issues raised by the petition deserve this Court's attention. They
silver wedding and anniversary, an occasion personal to them. When the Marcos submit that the resolution by the Court of the issues in this case will establish future
administration was toppled by the revolutionary government, these paintings and guiding principles and doctrines on the preservation of the nation's priceless artistic
silverware were taken from Malacañang and the Metropolitan Museum of Manila and cultural possessions for the benefit of the public as a whole. 15
and transferred to the Central Bank Museum. The confiscation of these properties by
the Aquino administration however should not be understood to mean that the For a court to exercise its power of adjudication, there must be an actual case of
ownership of these paintings has automatically passed on the government without controversy — one which involves a conflict of legal rights, an assertion of opposite
complying with constitutional and statutory requirements of due process and just legal claims susceptible of judicial resolution; the case must not be moot or academic
compensation. If these properties were already acquired by the government, any or based on extra-legal or other similar considerations not cognizable by a court of
constitutional or statutory defect in their acquisition and their subsequent justice. 16 A case becomes moot and academic when its purpose has become
disposition must be raised only by the proper parties — the true owners thereof — stale, 17 such as the case before us. Since the purpose of this petition for prohibition
whose authority to recover emanates from their proprietary rights which are is to enjoin respondent public officials from holding the auction sale of the artworks
protected by statutes and the Constitution. Having failed to show that they are the on a particular date — 11 January 1991 — which is long past, the issues raised in the
legal owners of the artworks or that the valued pieces have become publicly owned, petition have become moot and academic.
petitioners do not possess any clear legal right whatsoever to question their alleged
unauthorized disposition. At this point, however, we need to emphasize that this Court has the discretion to
take cognizance of a suit which does not satisfy the requirements of an actual case
Further, although this action is also one of mandamus filed by concerned citizens, it or legal standing when paramount public interest is involved. 18We find however that
does not fulfill the criteria for a mandamus suit. In Legaspi v. Civil Service there is no such justification in the petition at bar to warrant the relaxation of the
Commission, 13 this Court laid down the rule that a writ of mandamus may be issued rule.
to a citizen only when the public right to be enforced and the concomitant duty of
the state are unequivocably set forth in the Constitution. In the case at bar, Section 2 of R.A. 4846, as amended by P.D. 374, declares it to be the policy of the
petitioners are not after the fulfillment of a positive duty required of respondent state to preserve and protect the important cultural properties and national cultural
officials under the 1987 Constitution. What they seek is the enjoining of an official treasures of the nation and to safeguard their intrinsic value. As to what kind of
act because it is constitutionally infirmed. Moreover, petitioners' claim for the artistic and cultural properties are considered by the State as involving public interest
continued enjoyment and appreciation by the public of the artworks is at most a which should therefore be protected, the answer can be gleaned from reading of the
privilege and is unenforceable as a constitutional right in this action for mandamus. reasons behind the enactment of R.A. 4846:

Neither can this petition be allowed as a taxpayer's suit. Not every action filed by a WHEREAS, the National Museum has the difficult task, under
taxpayer can qualify to challenge the legality of official acts done by the government. existing laws and regulations, of preserving and protecting the
A taxpayer's suit can prosper only if the governmental acts being questioned involve cultural properties of the nation;
disbursement of public funds upon the theory that the expenditure of public funds
WHEREAS, inumerable sites all over the country have since been registration, designation or classification, with the aid of competent experts, of
excavated for cultural relics, which have passed on to private important cultural properties and national cultural treasures. 21 Findings of
hands, representing priceless cultural treasure that properly administrative officials and agencies who have acquired expertise because their
belongs to the Filipino people as their heritage; jurisdiction is confined to specific matters are generally accorded not only respect
but at times even finality if such findings are supported by substantial evidence and
WHEREAS, it is perhaps impossible now to find an area in the are controlling on the reviewing authorities because of their acknowledged expertise
Philippines, whether government or private property, which has in the fields of specialization to which they are assigned. 22
not been disturbed by commercially-minded diggers and collectors,
literally destroying part of our historic past; In view of the foregoing, this Court finds no compelling reason to grant the petition.
Petitioners have failed to show that respondents Executive Secretary and PCGG
WHEREAS, because of this the Philippines has been charged as exercised their functions with grave abuse of discretion or in excess of their
incapable of preserving and protecting her cultural legacies; jurisdiction.

WHEREAS, the commercialization of Philippine relics from the WHEREFORE, for lack of merit, the petition for prohibition and mandamus
contact period, the Neolithic Age, and the Paleolithic Age, has is DISMISSED.
reached a point perilously placing beyond reach of savants the
study and reconstruction of Philippine prehistory; and SO ORDERED.

WHEREAS, it is believed that more stringent regulation on Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Griño-Aquino, Regalado, Davide, Jr.,
movement and a limited form of registration of important cultural Romero, Nocon, Melo, Quiason, Puno and Vitug, JJ., concur.
properties and of designated national cultural treasures is
necessary, and that regardless of the item, any cultural property
exported or sold locally must be registered with the National
Museum to control the deplorable situation regarding our national
cultural properties and to implement the Cultural Properties Law
(emphasis supplied).

Clearly, the cultural properties of the nation which shall be under the protection of
the state are classified as the "important cultural properties" and the "national
cultural treasures." "Important cultural properties" are cultural properties which
have been singled out from among the innumerable cultural properties as having
exceptional historical cultural significance to the Philippines but are not sufficiently
outstanding to merit the classification of national cultural treasures. 19 On the other
hand, a "national cultural treasures" is a unique object found locally, possessing
outstanding historical, cultural, artistic and/or scientific value which is highly
significant and important to this country and nation. 20 This Court takes note of the
certification issued by the Director of the Museum that the Italian paintings and
silverware subject of this petition do not constitute protected cultural properties and
are not among those listed in the Cultural Properties Register of the National
Museum.

We agree with the certification of the Director of the Museum. Under the law, it is
the Director of the Museum who is authorized to undertake the inventory,
G.R. No. 155001 | May 5, 2003 to pursue the project, they formed the Asia's Emerging Dragon Corp. (AEDC) which
was registered with the Securities and Exchange Commission (SEC) on September 15,
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL 1993.
ANTONIO B. BOÑE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON,
CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, On October 5, 1994, AEDC submitted an unsolicited proposal to the Government
MIASCOR WORKERS UNION - NATIONAL LABOR UNION (MWU-NLU), and PHILIPPINE through the DOTC/MIAA for the development of NAIA International Passenger
AIRLINES EMPLOYEES ASSOCIATION (PALEA), petitioners, Terminal III (NAIA IPT III) under a build-operate-and-transfer arrangement pursuant
vs. to RA 6957 as amended by RA 7718 (BOT Law).1
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the
LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and Prequalification Bids and Awards Committee (PBAC) for the implementation of the NAIA IPT III
Communications, respondents, project.
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS
CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the
SERVICES CORPORATION, MIASCOR CATERING SERVICES CORPORATION, MIASCOR
National Economic and Development Authority (NEDA). A revised proposal, however, was
AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR LOGISTICS
forwarded by the DOTC to NEDA on December 13, 1995. On January 5, 1996, the NEDA
CORPORATION, petitioners-in-intervention,
Investment Coordinating Council (NEDA ICC) – Technical Board favorably endorsed the project
to the ICC – Cabinet Committee which approved the same, subject to certain conditions, on
PUNO, J.: January 19, 1996. On February 13, 1996, the NEDA passed Board Resolution No. 2 which
approved the NAIA IPT III project.
Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under Rule
65 of the Revised Rules of Court seeking to prohibit the Manila International Airport Authority On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of an
(MIAA) and the Department of Transportation and Communications (DOTC) and its Secretary invitation for competitive or comparative proposals on AEDC's unsolicited proposal, in
from implementing the following agreements executed by the Philippine Government through accordance with Sec. 4-A of RA 6957, as amended. The alternative bidders were required to
the DOTC and the MIAA and the Philippine International Air Terminals Co., Inc. (PIATCO): (1) submit three (3) sealed envelopes on or before 5:00 p.m. of September 20, 1996. The first
the Concession Agreement signed on July 12, 1997, (2) the Amended and Restated Concession envelope should contain the Prequalification Documents, the second envelope the Technical
Agreement dated November 26, 1999, (3) the First Supplement to the Amended and Restated Proposal, and the third envelope the Financial Proposal of the proponent.
Concession Agreement dated August 27, 1999, (4) the Second Supplement to the Amended
and Restated Concession Agreement dated September 4, 2000, and (5) the Third Supplement
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid
to the Amended and Restated Concession Agreement dated June 22, 2001 (collectively, the
Documents and the submission of the comparative bid proposals. Interested firms were
PIATCO Contracts).
permitted to obtain the Request for Proposal Documents beginning June 28, 1996, upon
submission of a written application and payment of a non-refundable fee of P50,000.00
The facts are as follows: (US$2,000).

In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct The Bid Documents issued by the PBAC provided among others that the proponent must have
a comprehensive study of the Ninoy Aquino International Airport (NAIA) and adequate capability to sustain the financing requirement for the detailed engineering, design,
determine whether the present airport can cope with the traffic development up to construction, operation, and maintenance phases of the project. The proponent would be
the year 2010. The study consisted of two parts: first, traffic forecasts, capacity of evaluated based on its ability to provide a minimum amount of equity to the project, and its
existing facilities, NAIA future requirements, proposed master plans and capacity to secure external financing for the project.
development plans; and second, presentation of the preliminary design of the
passenger terminal building. The ADP submitted a Draft Final Report to the DOTC in
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid
December 1989.
conference on July 29, 1996.

Some time in 1993, six business leaders consisting of John Gokongwei, Andrew
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The
Gotianun, Henry Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then
following amendments were made on the Bid Documents:
President Fidel V. Ramos to explore the possibility of investing in the construction
and operation of a new international airport terminal. To signify their commitment
a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in could still be revised, depending on the outcome of PBAC's query on the matter with the
its financial proposal an additional percentage of gross revenue share of the Department of Justice.
Government, as follows:
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the Queries of
i. First 5 years 5.0% PAIRCARGO as Per Letter Dated September 3 and 10, 1996." Paircargo's queries and the PBAC's
responses were as follows:
ii. Next 10 years 7.5%
iii. Next 10 years 10.0% 1. It is difficult for Paircargo and Associates to meet the required minimum equity
requirement as prescribed in Section 8.3.4 of the Bid Documents considering that the
capitalization of each member company is so structured to meet the requirements
b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price and needs of their current respective business undertaking/activities. In order to
challenge. Proponent may offer an Annual Guaranteed Payment which need not be comply with this equity requirement, Paircargo is requesting PBAC to just allow each
of equal amount, but payment of which shall start upon site possession. member of (sic) corporation of the Joint Venture to just execute an agreement that
embodies a commitment to infuse the required capital in case the project is awarded
c. The project proponent must have adequate capability to sustain the financing to the Joint Venture instead of increasing each corporation's current authorized
requirement for the detailed engineering, design, construction, and/or operation capital stock just for prequalification purposes.
and maintenance phases of the project as the case may be. For purposes of pre-
qualification, this capability shall be measured in terms of: In prequalification, the agency is interested in one's financial capability at the time
of prequalification, not future or potential capability.
i. Proof of the availability of the project proponent and/or the consortium
to provide the minimum amount of equity for the project; and A commitment to put up equity once awarded the project is not enough to establish
that "present" financial capability. However, total financial capability of all member
ii. a letter testimonial from reputable banks attesting that the project companies of the Consortium, to be established by submitting the respective
proponent and/or the members of the consortium are banking with them, companies' audited financial statements, shall be acceptable.
that the project proponent and/or the members are of good financial
standing, and have adequate resources. 2. At present, Paircargo is negotiating with banks and other institutions for the
extension of a Performance Security to the joint venture in the event that the
d. The basis for the prequalification shall be the proponent's compliance with the Concessions Agreement (sic) is awarded to them. However, Paircargo is being
minimum technical and financial requirements provided in the Bid Documents and required to submit a copy of the draft concession as one of the documentary
the IRR of the BOT Law. The minimum amount of equity shall be 30% of the Project requirements. Therefore, Paircargo is requesting that they'd (sic) be furnished copy
Cost. of the approved negotiated agreement between the PBAC and the AEDC at the
soonest possible time.
e. Amendments to the draft Concession Agreement shall be issued from time to time.
Said amendments shall only cover items that would not materially affect the A copy of the draft Concession Agreement is included in the Bid Documents. Any
preparation of the proponent's proposal. material changes would be made known to prospective challengers through bid
bulletins. However, a final version will be issued before the award of contract.
On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were
made. Upon the request of prospective bidder People's Air Cargo & Warehousing Co., Inc The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents
(Paircargo), the PBAC warranted that based on Sec. 11.6, Rule 11 of the Implementing Rules (Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to submit the same with
and Regulations of the BOT Law, only the proposed Annual Guaranteed Payment submitted by the required Bid Security.
the challengers would be revealed to AEDC, and that the challengers' technical and financial
proposals would remain confidential. The PBAC also clarified that the list of revenue sources On September 20, 1996, the consortium composed of People's Air Cargo and Warehousing Co.,
contained in Annex 4.2a of the Bid Documents was merely indicative and that other revenue Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security
sources may be included by the proponent, subject to approval by DOTC/MIAA. Furthermore, Bank) (collectively, Paircargo Consortium) submitted their competitive proposal to the PBAC.
the PBAC clarified that only those fees and charges denominated as Public Utility Fees would On September 23, 1996, the PBAC opened the first envelope containing the prequalification
be subject to regulation, and those charges which would be actually deemed Public Utility Fees
documents of the Paircargo Consortium. On the following day, September 24, 1996, the PBAC Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by
prequalified the Paircargo Consortium. the Paircargo Consortium, and gave AEDC 30 working days or until November 28, 1996 within
which to match the said bid, otherwise, the project would be awarded to Paircargo.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the
Paircargo Consortium, which include: As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado
Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium regarding AEDC's
a. The lack of corporate approvals and financial capability of PAIRCARGO; failure to match the proposal.

b. The lack of corporate approvals and financial capability of PAGS; On February 27, 1997, Paircargo Consortium incorporated into Philippine International Airport
Terminals Co., Inc. (PIATCO).
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the
amount that Security Bank could legally invest in the project; AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated its
objections as regards the prequalification of PIATCO.
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for
prequalification purposes; and On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval
of the NEDA-ICC.
e. The appointment of Lufthansa as the facility operator, in view of the Philippine
requirement in the operation of a public utility. On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration
of Nullity of the Proceedings, Mandamus and Injunction against the Secretary of the DOTC, the
Chairman of the PBAC, the voting members of the PBAC and Pantaleon D. Alvarez, in his
The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues
capacity as Chairman of the PBAC Technical Committee.
raised by the latter, and that based on the documents submitted by Paircargo and the
established prequalification criteria, the PBAC had found that the challenger, Paircargo, had
prequalified to undertake the project. The Secretary of the DOTC approved the finding of the On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a
PBAC. no-objection basis, of the BOT agreement between the DOTC and PIATCO. As the ad
referendum gathered only four (4) of the required six (6) signatures, the NEDA merely noted
the agreement.
The PBAC then proceeded with the opening of the second envelope of the Paircargo
Consortium which contained its Technical Proposal.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's
financial capability, in view of the restrictions imposed by Section 21-B of the General Banking On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO,
Act and Sections 1380 and 1381 of the Manual Regulations for Banks and Other Financial through its President, Henry T. Go, signed the "Concession Agreement for the Build-Operate-
Intermediaries. On October 7, 1996, AEDC again manifested its objections and requested that and-Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III"
it be furnished with excerpts of the PBAC meeting and the accompanying technical evaluation (1997 Concession Agreement). The Government granted PIATCO the franchise to operate and
report where each of the issues they raised were addressed. maintain the said terminal during the concession period and to collect the fees, rentals and
other charges in accordance with the rates or schedules stipulated in the 1997 Concession
Agreement. The Agreement provided that the concession period shall be for twenty-five (25)
On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the
years commencing from the in-service date, and may be renewed at the option of the
Paircargo Consortium containing their respective financial proposals. Both proponents offered
Government for a period not exceeding twenty-five (25) years. At the end of the concession
to build the NAIA Passenger Terminal III for at least $350 million at no cost to the government
period, PIATCO shall transfer the development facility to MIAA.
and to pay the government: 5% share in gross revenues for the first five years of operation,
7.5% share in gross revenues for the next ten years of operation, and 10% share in gross
revenues for the last ten years of operation, in accordance with the Bid Documents. However, On November 26, 1998, the Government and PIATCO signed an Amended and Restated
in addition to the foregoing, AEDC offered to pay the government a total of P135 million as Concession Agreement (ARCA). Among the provisions of the 1997 Concession Agreement that
guaranteed payment for 27 years while Paircargo Consortium offered to pay the government were amended by the ARCA were: Sec. 1.11 pertaining to the definition of "certificate of
a total of P17.75 billion for the same period. completion"; Sec. 2.05 pertaining to the Special Obligations of GRP; Sec. 3.02 (a) dealing with
the exclusivity of the franchise given to the Concessionaire; Sec. 4.04 concerning the
assignment by Concessionaire of its interest in the Development Facility; Sec. 5.08 (c) dealing
with the proceeds of Concessionaire's insurance; Sec. 5.10 with respect to the temporary take- agreements, filed before this Court a petition for prohibition to enjoin the enforcement of said
over of operations by GRP; Sec. 5.16 pertaining to the taxes, duties and other imposts that may agreements.2
be levied on the Concessionaire; Sec. 6.03 as regards the periodic adjustment of public utility
fees and charges; the entire Article VIII concerning the provisions on the termination of the On October 15, 2002, the service providers, joining the cause of the petitioning workers, filed
contract; and Sec. 10.02 providing for the venue of the arbitration proceedings in case a a motion for intervention and a petition-in-intervention.
dispute or controversy arises between the parties to the agreement.
On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula
Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First filed a similar petition with this Court.3
Supplement was signed on August 27, 1999; the Second Supplement on September 4, 2000;
and the Third Supplement on June 22, 2001 (collectively, Supplements).
On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the
legality of the various agreements.4
The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining "Revenues" or
"Gross Revenues"; Sec. 2.05 (d) of the ARCA referring to the obligation of MIAA to provide
On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P. Nantes,
sufficient funds for the upkeep, maintenance, repair and/or replacement of all airport facilities
Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin
and equipment which are owned or operated by MIAA; and further providing additional special
Cast Abayon and Benasing O. Macaranbon, moved to intervene in the case as Respondents-
obligations on the part of GRP aside from those already enumerated in Sec. 2.05 of the ARCA.
Intervenors. They filed their Comment-In-Intervention defending the validity of the assailed
The First Supplement also provided a stipulation as regards the construction of a surface road
agreements and praying for the dismissal of the petitions.
to connect NAIA Terminal II and Terminal III in lieu of the proposed access tunnel crossing
Runway 13/31; the swapping of obligations between GRP and PIATCO regarding the
improvement of Sales Road; and the changes in the timetable. It also amended Sec. 6.01 (c) of During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on
the ARCA pertaining to the Disposition of Terminal Fees; Sec. 6.02 of the ARCA by inserting an November 29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacañang
introductory paragraph; and Sec. 6.02 (a) (iii) of the ARCA referring to the Payments of Palace, stated that she will not "honor (PIATCO) contracts which the Executive Branch's legal
Percentage Share in Gross Revenues. offices have concluded (as) null and void."5

The Second Supplement to the ARCA contained provisions concerning the clearing, removal, Respondent PIATCO filed its Comments to the present petitions on November 7 and 27, 2002.
demolition or disposal of subterranean structures uncovered or discovered at the site of the The Office of the Solicitor General and the Office of the Government Corporate Counsel filed
construction of the terminal by the Concessionaire. It defined the scope of works; it provided their respective Comments in behalf of the public respondents.
for the procedure for the demolition of the said structures and the consideration for the same
which the GRP shall pay PIATCO; it provided for time extensions, incremental and On December 10, 2002, the Court heard the case on oral argument. After the oral argument,
consequential costs and losses consequent to the existence of such structures; and it provided the Court then resolved in open court to require the parties to file simultaneously their
for some additional obligations on the part of PIATCO as regards the said structures. respective Memoranda in amplification of the issues heard in the oral arguments within 30
days and to explore the possibility of arbitration or mediation as provided in the challenged
Finally, the Third Supplement provided for the obligations of the Concessionaire as regards the contracts.
construction of the surface road connecting Terminals II and III.
In their consolidated Memorandum, the Office of the Solicitor General and the Office of the
Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA Government Corporate Counsel prayed that the present petitions be given due course and that
Terminals I and II, had existing concession contracts with various service providers to offer judgment be rendered declaring the 1997 Concession Agreement, the ARCA and the
international airline airport services, such as in-flight catering, passenger handling, ramp and Supplements thereto void for being contrary to the Constitution, the BOT Law and its
ground support, aircraft maintenance and provisions, cargo handling and warehousing, and Implementing Rules and Regulations.
other services, to several international airlines at the NAIA. Some of these service providers
are the Miascor Group, DNATA-Wings Aviation Systems Corp., and the MacroAsia Group. On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO
Miascor, DNATA and MacroAsia, together with Philippine Airlines (PAL), are the dominant commenced arbitration proceedings before the International Chamber of Commerce,
players in the industry with an aggregate market share of 70%. International Court of Arbitration (ICC) by filing a Request for Arbitration with the Secretariat
of the ICC against the Government of the Republic of the Philippines acting through the DOTC
On September 17, 2002, the workers of the international airline service providers, claiming and MIAA.
that they stand to lose their employment upon the implementation of the questioned
In the present cases, the Court is again faced with the task of resolving complicated issues BOT Law and its Implementing Rules and Regulations, and public policy. Petitioners contend
made difficult by their intersecting legal and economic implications. The Court is aware of the that the DOTC and the MIAA, by entering into said contracts, have committed grave abuse of
far reaching fall out effects of the ruling which it makes today. For more than a century and discretion amounting to lack or excess of jurisdiction which can be remedied only by a writ of
whenever the exigencies of the times demand it, this Court has never shirked from its solemn prohibition, there being no plain, speedy or adequate remedy in the ordinary course of law.
duty to dispense justice and resolve "actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been grave abuse of In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA
discretion amounting to lack or excess of jurisdiction."6 To be sure, this Court will not begin to which grant PIATCO the exclusive right to operate a commercial international passenger
do otherwise today. terminal within the Island of Luzon, except those international airports already existing at the
time of the execution of the agreement. The contracts further provide that upon the
We shall first dispose of the procedural issues raised by respondent PIATCO which they allege commencement of operations at the NAIA IPT III, the Government shall cause the closure of
will bar the resolution of the instant controversy. Ninoy Aquino International Airport Passenger Terminals I and II as international passenger
terminals. With respect to existing concession agreements between MIAA and international
Petitioners' Legal Standing to File airport service providers regarding certain services or operations, the 1997 Concession
Agreement and the ARCA uniformly provide that such services or operations will not be carried
over to the NAIA IPT III and PIATCO is under no obligation to permit such carry over except
the present Petitions
through a separate agreement duly entered into with PIATCO.8

a. G.R. Nos. 155001 and 155661


With respect to the petitioning service providers and their employees, upon the
commencement of operations of the NAIA IPT III, they allege that they will be effectively barred
In G.R. No. 155001 individual petitioners are employees of various service providers7 having from providing international airline airport services at the NAIA Terminals I and II as all
separate concession contracts with MIAA and continuing service agreements with various international airlines and passengers will be diverted to the NAIA IPT III. The petitioning service
international airlines to provide in-flight catering, passenger handling, ramp and ground providers will thus be compelled to contract with PIATCO alone for such services, with no
support, aircraft maintenance and provisions, cargo handling and warehousing and other assurance that subsisting contracts with MIAA and other international airlines will be
services. Also included as petitioners are labor unions MIASCOR Workers Union-National Labor respected. Petitioning service providers stress that despite the very competitive market, the
Union and Philippine Airlines Employees Association. These petitioners filed the instant action substantial capital investments required and the high rate of fees, they entered into their
for prohibition as taxpayers and as parties whose rights and interests stand to be violated by respective contracts with the MIAA with the understanding that the said contracts will be in
the implementation of the PIATCO Contracts. force for the stipulated period, and thereafter, renewed so as to allow each of the petitioning
service providers to recoup their investments and obtain a reasonable return thereon.
Petitioners-Intervenors in the same case are all corporations organized and existing under
Philippine laws engaged in the business of providing in-flight catering, passenger handling, Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA
ramp and ground support, aircraft maintenance and provisions, cargo handling and on the other hand allege that with the closure of the NAIA Terminals I and II as international
warehousing and other services to several international airlines at the Ninoy Aquino passenger terminals under the PIATCO Contracts, they stand to lose employment.
International Airport. Petitioners-Intervenors allege that as tax-paying international airline and
airport-related service operators, each one of them stands to be irreparably injured by the
The question on legal standing is whether such parties have "alleged such a personal stake in
implementation of the PIATCO Contracts. Each of the petitioners-intervenors have separate
the outcome of the controversy as to assure that concrete adverseness which sharpens the
and subsisting concession agreements with MIAA and with various international airlines which
presentation of issues upon which the court so largely depends for illumination of difficult
they allege are being interfered with and violated by respondent PIATCO.
constitutional questions."9 Accordingly, it has been held that the interest of a person assailing
the constitutionality of a statute must be direct and personal. He must be able to show, not
In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa only that the law or any government act is invalid, but also that he sustained or is in imminent
Paliparan ng Pilipinas - a legitimate labor union and accredited as the sole and exclusive danger of sustaining some direct injury as a result of its enforcement, and not merely that he
bargaining agent of all the employees in MIAA. Petitioners anchor their petition for prohibition suffers thereby in some indefinite way. It must appear that the person complaining has been
on the nullity of the contracts entered into by the Government and PIATCO regarding the build- or is about to be denied some right or privilege to which he is lawfully entitled or that he is
operate-and-transfer of the NAIA IPT III. They filed the petition as taxpayers and persons who about to be subjected to some burdens or penalties by reason of the statute or act complained
have a legitimate interest to protect in the implementation of the PIATCO Contracts. of.10

Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations We hold that petitioners have the requisite standing. In the above-mentioned cases,
which directly contravene numerous provisions of the Constitution, specific provisions of the petitioners have a direct and substantial interest to protect by reason of the implementation
of the PIATCO Contracts. They stand to lose their source of livelihood, a property right which jurisdiction with this Court with respect to a special civil action for prohibition and hence,
is zealously protected by the Constitution. Moreover, subsisting concession agreements following the rule on hierarchy of courts, resort must first be had before the trial courts.
between MIAA and petitioners-intervenors and service contracts between international
airlines and petitioners-intervenors stand to be nullified or terminated by the operation of the After a thorough study and careful evaluation of the issues involved, this Court is of the view
NAIA IPT III under the PIATCO Contracts. The financial prejudice brought about by the PIATCO that the crux of the instant controversy involves significant legal questions. The facts necessary
Contracts on petitioners and petitioners-intervenors in these cases are legitimate interests to resolve these legal questions are well established and, hence, need not be determined by a
sufficient to confer on them the requisite standing to file the instant petitions. trial court.

b. G.R. No. 155547 The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over
the cases at bar. The said rule may be relaxed when the redress desired cannot be obtained in
In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of the appropriate courts or where exceptional and compelling circumstances justify availment
Representatives, citizens and taxpayers. They allege that as members of the House of of a remedy within and calling for the exercise of this Court's primary jurisdiction.19
Representatives, they are especially interested in the PIATCO Contracts, because the contracts
compel the Government and/or the House of Representatives to appropriate funds necessary It is easy to discern that exceptional circumstances exist in the cases at bar that call for the
to comply with the provisions therein.11 They cite provisions of the PIATCO Contracts which relaxation of the rule. Both petitioners and respondents agree that these cases are
require disbursement of unappropriated amounts in compliance with the contractual of transcendental importance as they involve the construction and operation of the country's
obligations of the Government. They allege that the Government obligations in the PIATCO premier international airport. Moreover, the crucial issues submitted for resolution are of first
Contracts which compel government expenditure without appropriation is a curtailment of impression and they entail the proper legal interpretation of key provisions of the Constitution,
their prerogatives as legislators, contrary to the mandate of the Constitution that "[n]o money the BOT Law and its Implementing Rules and Regulations. Thus, considering the nature of the
shall be paid out of the treasury except in pursuance of an appropriation made by law."12 controversy before the Court, procedural bars may be lowered to give way for the speedy
disposition of the instant cases.
Standing is a peculiar concept in constitutional law because in some cases, suits are not
brought by parties who have been personally injured by the operation of a law or any other Legal Effect of the Commencement
government act but by concerned citizens, taxpayers or voters who actually sue in the public
interest. Although we are not unmindful of the cases of Imus Electric Co. v. Municipality of
of Arbitration Proceedings by
Imus13 and Gonzales v. Raquiza14 wherein this Court held that appropriation must be made
only on amounts immediately demandable, public interest demands that we take a more
liberal view in determining whether the petitioners suing as legislators, taxpayers and PIATCO
citizens have locus standi to file the instant petition. In Kilosbayan, Inc. v. Guingona,15 this
Court held "[i]n line with the liberal policy of this Court on locus standi, ordinary taxpayers, There is one more procedural obstacle which must be overcome. The Court is aware that
members of Congress, and even association of planters, and non-profit civic organizations arbitration proceedings pursuant to Section 10.02 of the ARCA have been filed at the instance
were allowed to initiate and prosecute actions before this Court to question the of respondent PIATCO. Again, we hold that the arbitration step taken by PIATCO will not oust
constitutionality or validity of laws, acts, decisions, rulings, or orders of various government this Court of its jurisdiction over the cases at bar.
agencies or instrumentalities."16 Further, "insofar as taxpayers' suits are concerned . . . (this
Court) is not devoid of discretion as to whether or not it should be entertained."17 As such ". . In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the arbitration
. even if, strictly speaking, they [the petitioners] are not covered by the definition, it is still clause in the Distributorship Agreement in question is valid and the dispute between the
within the wide discretion of the Court to waive the requirement and so remove the parties is arbitrable, this Court affirmed the trial court's decision denying petitioner's Motion
impediment to its addressing and resolving the serious constitutional questions raised."18 In to Suspend Proceedings pursuant to the arbitration clause under the contract. In so ruling, this
view of the serious legal questions involved and their impact on public interest, we resolve to Court held that as contracts produce legal effect between the parties, their assigns and heirs,
grant standing to the petitioners. only the parties to the Distributorship Agreement are bound by its terms, including the
arbitration clause stipulated therein. This Court ruled that arbitration proceedings could be
Other Procedural Matters called for but only with respect to the parties to the contract in question. Considering that
there are parties to the case who are neither parties to the Distributorship Agreement nor
Respondent PIATCO further alleges that this Court is without jurisdiction to review the instant heirs or assigns of the parties thereto, this Court, citing its previous ruling in Salas, Jr. v. Laperal
cases as factual issues are involved which this Court is ill-equipped to resolve. Moreover, Realty Corporation,21 held that to tolerate the splitting of proceedings by allowing arbitration
PIATCO alleges that submission of this controversy to this Court at the first instance is a as to some of the parties on the one hand and trial for the others on the other hand would, in
violation of the rule on hierarchy of courts. They contend that trial courts have concurrent effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay.22 Thus, we
ruled that the interest of justice would best be served if the trial court hears and adjudicates The financial statement or the net worth is not the sole basis in establishing financial
the case in a single and complete proceeding. capability. As stated in Bid Bulletin No. 3, financial capability may also be established
by testimonial letters issued by reputable banks. The Challenger has complied with
It is established that petitioners in the present cases who have presented legitimate interests this requirement.
in the resolution of the controversy are not parties to the PIATCO Contracts. Accordingly, they
cannot be bound by the arbitration clause provided for in the ARCA and hence, cannot be To recap, net worth reflected in the Financial Statement should not be taken as the
compelled to submit to arbitration proceedings. A speedy and decisive resolution of all the amount of the money to be used to answer the required thirty percent (30%) equity
critical issues in the present controversy, including those raised by petitioners, cannot be of the challenger but rather to be used in establishing if there is enough basis to
made before an arbitral tribunal. The object of arbitration is precisely to allow an expeditious believe that the challenger can comply with the required 30% equity. In fact, proof
determination of a dispute. This objective would not be met if this Court were to allow the of sufficient equity is required as one of the conditions for award of contract (Section
parties to settle the cases by arbitration as there are certain issues involving non-parties to the 12.1 IRR of the BOT Law) but not for pre-qualification (Section 5.4 of the same
PIATCO Contracts which the arbitral tribunal will not be equipped to resolve. document).23

Now, to the merits of the instant controversy. Under the BOT Law, in case of a build-operate-and-transfer arrangement, the
contract shall be awarded to the bidder "who, having satisfied the minimum
I financial, technical, organizational and legal standards" required by the law, has
submitted the lowest bid and most favorable terms of the project.24 Further, the
1994 Implementing Rules and Regulations of the BOT Law provide:
Is PIATCO a qualified bidder?

Section 5.4 Pre-qualification Requirements.


Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a duly
pre-qualified bidder on the unsolicited proposal submitted by AEDC as the Paircargo
Consortium failed to meet the financial capability required under the BOT Law and the Bid xxx xxx xxx
Documents. They allege that in computing the ability of the Paircargo Consortium to meet the
minimum equity requirements for the project, the entire net worth of Security Bank, a c. Financial Capability: The project proponent must have adequate capability to
member of the consortium, should not be considered. sustain the financing requirements for the detailed engineering design, construction
and/or operation and maintenance phases of the project, as the case may be. For
PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14, 1996 purposes of pre-qualification, this capability shall be measured in terms of (i) proof
issued by the DOTC Undersecretary Primitivo C. Cal stating that the Paircargo Consortium is of the ability of the project proponent and/or the consortium to provide a
found to have a combined net worth of P3,900,000,000.00, sufficient to meet the equity minimum amount of equity to the project, and (ii) a letter testimonial from
requirements of the project. The said Memorandum was in response to a letter from Mr. reputable banks attesting that the project proponent and/or members of the
Antonio Henson of AEDC to President Fidel V. Ramos questioning the financial capability of the consortium are banking with them, that they are in good financial standing, and
Paircargo Consortium on the ground that it does not have the financial resources to put up the that they have adequate resources. The government agency/LGU concerned shall
required minimum equity of P2,700,000,000.00. This contention is based on the restriction determine on a project-to-project basis and before pre-qualification, the minimum
under R.A. No. 337, as amended or the General Banking Act that a commercial bank cannot amount of equity needed. (emphasis supplied)
invest in any single enterprise in an amount more than 15% of its net worth. In the said
Memorandum, Undersecretary Cal opined: Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996
amending the financial capability requirements for pre-qualification of the project proponent
The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that as follows:
financial capability will be evaluated based on total financial capability of all the
member companies of the [Paircargo] Consortium. In this connection, the Challenger 6. Basis of Pre-qualification
was found to have a combined net worth of P3,926,421,242.00 that could support a
project costing approximately P13 Billion. The basis for the pre-qualification shall be on the compliance of the proponent to
the minimum technical and financial requirements provided in the Bid Documents
It is not a requirement that the net worth must be "unrestricted." To impose that as and in the IRR of the BOT Law, R.A. No. 6957, as amended by R.A. 7718.
a requirement now will be nothing less than unfair.
The minimum amount of equity to which the proponent's financial capability will be percent (35%) of the voting stock in that enterprise; and (d) the equity investment in
based shall be thirty percent (30%) of the project cost instead of the twenty percent other banks shall be deducted from the investing bank's net worth for purposes of
(20%) specified in Section 3.6.4 of the Bid Documents. This is to correlate with the computing the prescribed ratio of net worth to risk assets.
required debt-to-equity ratio of 70:30 in Section 2.01a of the draft concession
agreement. The debt portion of the project financing should not exceed 70% of the xxx xxx xxx
actual project cost.
Further, the 1993 Manual of Regulations for Banks provides:
Accordingly, based on the above provisions of law, the Paircargo Consortium or any challenger
to the unsolicited proposal of AEDC has to show that it possesses the requisite financial
SECTION X383. Other Limitations and Restrictions. — The following limitations and
capability to undertake the project in the minimum amount of 30% of the project
restrictions shall also apply regarding equity investments of banks.
cost through (i) proof of the ability to provide a minimum amount of equity to the project, and
(ii) a letter testimonial from reputable banks attesting that the project proponent or members
of the consortium are banking with them, that they are in good financial standing, and that a. In any single enterprise. — The equity investments of banks in any single
they have adequate resources. enterprise shall not exceed at any time fifteen percent (15%) of the net worth of the
investing bank as defined in Sec. X106 and Subsec. X121.5.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly
P9,183,650,000.00,25 the Paircargo Consortium had to show to the satisfaction of the PBAC Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium
that it had the ability to provide the minimum equity for the project in the amount of at is only P528,525,656.55, representing 15% of its entire net worth. The total net worth
least P2,755,095,000.00. therefore of the Paircargo Consortium, after considering the maximum amounts that may be
validly invested by each of its members is P558,384,871.55 or only 6.08% of the project
cost,29 an amount substantially less than the prescribed minimum equity investment required
Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth
for the project in the amount of P2,755,095,000.00 or 30% of the project cost.
of P2,783,592.00 and P3,123,515.00 respectively.26 PAGS' Audited Financial Statements as of
1995 indicate that it has approximately P26,735,700.00 to invest as its equity for the
project.27 Security Bank's Audited Financial Statements as of 1995 show that it has a net worth The purpose of pre-qualification in any public bidding is to determine, at the earliest
equivalent to its capital funds in the amount of P3,523,504,377.00.28 opportunity, the ability of the bidder to undertake the project. Thus, with respect to the
bidder's financial capacity at the pre-qualification stage, the law requires the government
agency to examine and determine the ability of the bidder to fund the entire cost of the
We agree with public respondents that with respect to Security Bank, the entire amount of its
project by considering the maximum amounts that each bidder may invest in the project at
net worth could not be invested in a single undertaking or enterprise, whether allied or non-
the time of pre-qualification.
allied in accordance with the provisions of R.A. No. 337, as amended or the General Banking
Act:
The PBAC has determined that any prospective bidder for the construction, operation and
maintenance of the NAIA IPT III project should prove that it has the ability to provide equity in
Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding,
the minimum amount of 30% of the project cost, in accordance with the 70:30 debt-to-equity
the Monetary Board, whenever it shall deem appropriate and necessary to further
ratio prescribed in the Bid Documents. Thus, in the case of Paircargo Consortium, the PBAC
national development objectives or support national priority projects, may
should determine the maximum amounts that each member of the consortium may commit
authorize a commercial bank, a bank authorized to provide commercial banking
for the construction, operation and maintenance of the NAIA IPT III project at the time of pre-
services, as well as a government-owned and controlled bank, to operate under an
qualification. With respect to Security Bank, the maximum amount which may be invested by
expanded commercial banking authority and by virtue thereof exercise, in addition
it would only be 15% of its net worth in view of the restrictions imposed by the General Banking
to powers authorized for commercial banks, the powers of an Investment House
Act. Disregarding the investment ceilings provided by applicable law would not result in a
as provided in Presidential Decree No. 129, invest in the equity of a non-allied
proper evaluation of whether or not a bidder is pre-qualified to undertake the project as for
undertaking, or own a majority or all of the equity in a financial intermediary other
all intents and purposes, such ceiling or legal restriction determines the true maximum
than a commercial bank or a bank authorized to provide commercial banking
amount which a bidder may invest in the project.
services: Provided, That (a) the total investment in equities shall not exceed fifty
percent (50%) of the net worth of the bank; (b) the equity investment in any one
enterprise whether allied or non-allied shall not exceed fifteen percent (15%) of Further, the determination of whether or not a bidder is pre-qualified to undertake the project
the net worth of the bank; (c) the equity investment of the bank, or of its wholly or requires an evaluation of the financial capacity of the said bidder at the time the bid is
majority-owned subsidiary, in a single non-allied undertaking shall not exceed thirty- submitted based on the required documents presented by the bidder. The PBAC should not
five percent (35%) of the total equity in the enterprise nor shall it exceed thirty-five be allowed to speculate on the future financial ability of the bidder to undertake the project
on the basis of documents submitted. This would open doors to abuse and defeat the very Amendments to the Draft Concessions Agreement shall be issued from time to time.
purpose of a public bidding. This is especially true in the case at bar which involves the Said amendments shall only cover items that would not materially affect the
investment of billions of pesos by the project proponent. The relevant government authority preparation of the proponent's proposal.
is duty-bound to ensure that the awardee of the contract possesses the minimum required
financial capability to complete the project. To allow the PBAC to estimate the bidder's future By its very nature, public bidding aims to protect the public interest by giving the public the
financial capability would not secure the viability and integrity of the project. A restrictive and best possible advantages through open competition. Thus:
conservative application of the rules and procedures of public bidding is necessary not only to
protect the impartiality and regularity of the proceedings but also to ensure the financial and
Competition must be legitimate, fair and honest. In the field of government contract
technical reliability of the project. It has been held that:
law, competition requires, not only `bidding upon a common standard, a common
basis, upon the same thing, the same subject matter, the same undertaking,' but also
The basic rule in public bidding is that bids should be evaluated based on the required that it be legitimate, fair and honest; and not designed to injure or defraud the
documents submitted before and not after the opening of bids. Otherwise, the government.31
foundation of a fair and competitive public bidding would be defeated. Strict
observance of the rules, regulations, and guidelines of the bidding process is the
An essential element of a publicly bidded contract is that all bidders must be on equal footing.
only safeguard to a fair, honest and competitive public bidding.30
Not simply in terms of application of the procedural rules and regulations imposed by the
relevant government agency, but more importantly, on the contract bidded upon. Each bidder
Thus, if the maximum amount of equity that a bidder may invest in the project at the time the must be able to bid on the same thing. The rationale is obvious. If the winning bidder is allowed
bids are submittedfalls short of the minimum amounts required to be put up by the bidder, to later include or modify certain provisions in the contract awarded such that the contract is
said bidder should be properly disqualified. Considering that at the pre-qualification stage, the altered in any material respect, then the essence of fair competition in the public bidding is
maximum amounts which the Paircargo Consortium may invest in the project fell short of the destroyed. A public bidding would indeed be a farce if after the contract is awarded, the
minimum amounts prescribed by the PBAC, we hold that Paircargo Consortium was not a winning bidder may modify the contract and include provisions which are favorable to it that
qualified bidder. Thus the award of the contract by the PBAC to the Paircargo Consortium, a were not previously made available to the other bidders. Thus:
disqualified bidder, is null and void.
It is inherent in public biddings that there shall be a fair competition among the
While it would be proper at this juncture to end the resolution of the instant controversy, as bidders. The specifications in such biddings provide the common ground or basis for
the legal effects of the disqualification of respondent PIATCO's predecessor would come into the bidders. The specifications should, accordingly, operate equally or
play and necessarily result in the nullity of all the subsequent contracts entered by it in indiscriminately upon all bidders.32
pursuance of the project, the Court feels that it is necessary to discuss in full the pressing issues
of the present controversy for a complete resolution thereof.
The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:

II
The law is well settled that where, as in this case, municipal authorities can only let
a contract for public work to the lowest responsible bidder, the proposals and
Is the 1997 Concession Agreement valid? specifications therefore must be so framed as to permit free and full competition.
Nor can they enter into a contract with the best bidder containing substantial
Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as provisions beneficial to him, not included or contemplated in the terms and
it contains provisions that substantially depart from the draft Concession Agreement included specifications upon which the bids were invited.33
in the Bid Documents. They maintain that a substantial departure from the draft Concession
Agreement is a violation of public policy and renders the 1997 Concession Agreement null and In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft
void. concession agreement is subject to amendment, the pertinent portion of which was quoted
above, the PBAC also clarified that "[s]aid amendments shall only cover items that would not
PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is materially affect the preparation of the proponent's proposal."
intended to be a draft, i.e., subject to change, alteration or modification, and that this
intention was clear to all participants, including AEDC, and DOTC/MIAA. It argued further that While we concede that a winning bidder is not precluded from modifying or amending certain
said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued by the PBAC which states: provisions of the contract bidded upon, such changes must not constitute substantial or
material amendments that would alter the basic parameters of the contract and would
6. Amendments to the Draft Concessions Agreement constitute a denial to the other bidders of the opportunity to bid on the same terms. Hence,
the determination of whether or not a modification or amendment of a contract bidded out collected at the Ninoy Aquino International Airport Passenger Terminal I, pursuant to
constitutes a substantial amendment rests on whether the contract, when taken as a whole, Administrative Order No. 1, Series of 1993, as amended. The glaring distinctions between the
would contain substantially different terms and conditions that would have the effect of draft Concession Agreement and the 1997 Concession Agreement lie in the types of fees
altering the technical and/or financial proposals previously submitted by other bidders. The included in each category and the extent of the supervision and regulation which MIAA is
alterations and modifications in the contract executed between the government and the allowed to exercise in relation thereto.
winning bidder must be such as to render such executed contract to be an entirely different
contract from the one that was bidded upon. For fees under the first category, i.e., those which are subject to periodic adjustment in
accordance with a prescribed parametric formula and effective only upon written approval by
In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted with MIAA, the draft Concession Agreementincludes the following:36
approval the ruling of the trial court that an amendment to a contract awarded through public
bidding, when such subsequent amendment was made without a new public bidding, is null (1) aircraft parking fees;
and void:
(2) aircraft tacking fees;
The Court agrees with the contention of counsel for the plaintiffs that the due
execution of a contract after public bidding is a limitation upon the right of the
(3) groundhandling fees;
contracting parties to alter or amend it without another public bidding, for
otherwise what would a public bidding be good for if after the execution of a
contract after public bidding, the contracting parties may alter or amend the (4) rentals and airline offices;
contract, or even cancel it, at their will?Public biddings are held for the protection
of the public, and to give the public the best possible advantages by means of open (5) check-in counter rentals; and
competition between the bidders. He who bids or offers the best terms is awarded
the contract subject of the bid, and it is obvious that such protection and best (6) porterage fees.
possible advantages to the public will disappear if the parties to a contract executed
after public bidding may alter or amend it without another previous public bidding.35
Under the 1997 Concession Agreement, fees which are subject to adjustment and effective
upon MIAA approval are classified as "Public Utility Revenues" and include:37
Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same
agreement that was offered for public bidding, i.e., the draft Concession Agreement attached
to the Bid Documents? A close comparison of the draft Concession Agreement attached to the (1) aircraft parking fees;
Bid Documents and the 1997 Concession Agreement reveals that the documents differ in at
least two material respects: (2) aircraft tacking fees;

a. Modification on the Public (3) check-in counter fees; and

Utility Revenues and Non-Public (4) Terminal Fees.

Utility Revenues that may be The implication of the reduced number of fees that are subject to MIAA approval is best
appreciated in relation to fees included in the second category identified above. Under
collected by PIATCO the 1997 Concession Agreement, fees which PIATCO may adjust whenever it deems necessary
without need for consent of DOTC/MIAA are "Non-Public Utility Revenues" and is defined as
"all other income not classified as Public Utility Revenues derived from operations of the
The fees that may be imposed and collected by PIATCO under the draft Concession Agreement Terminal and the Terminal Complex."38 Thus, under the 1997 Concession Agreement, ground
and the 1997 Concession Agreement may be classified into three distinct categories: (1) fees handling fees, rentals from airline offices and porterage fees are no longer subject to MIAA
which are subject to periodic adjustment of once every two years in accordance with a regulation.
prescribed parametric formula and adjustments are made effective only upon written approval
by MIAA; (2) fees other than those included in the first category which maybe adjusted by
PIATCO whenever it deems necessary without need for consent of DOTC/MIAA; and (3) new Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to
fees and charges that may be imposed by PIATCO which have not been previously imposed or regulate (1) lobby and vehicular parking fees and (2) other new fees and charges that may be
imposed by PIATCO. Such regulation may be made by periodic adjustment and is effective only parametric formula and effective only upon written approval by MIAA. However, under
upon written approval of MIAA. The full text of said provision is quoted below: the 1997 Concession Agreement, adjustment of fees under the third category is not subject to
MIAA regulation.
Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft
parking fees, aircraft tacking fees, groundhandling fees, rentals and airline offices, With respect to terminal fees that may be charged by PIATCO,41 as shown earlier, this was
check-in-counter rentals and porterage fees shall be allowed only once every two included within the category of "Public Utility Revenues" under the 1997 Concession
years and in accordance with the Parametric Formula attached hereto as Annex F. Agreement. This classification is significant because under the 1997 Concession
Provided that adjustments shall be made effective only after the written express Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment" of fees upon the
approval of the MIAA. Provided, further, that such approval of the MIAA, shall be occurrence of certain extraordinary events specified in the agreement.42 However, under
contingent only on the conformity of the adjustments with the above said parametric the draft Concession Agreement, terminal fees are not included in the types of fees that may
formula. The first adjustment shall be made prior to the In-Service Date of the be subject to "Interim Adjustment."43
Terminal.
Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal
The MIAA reserves the right to regulate under the foregoing terms and conditions fees, are denominated in US Dollars44 while payments to the Government are in Philippine
the lobby and vehicular parking fees and other new fees and charges as Pesos. In the draft Concession Agreement,no such stipulation was included. By stipulating that
contemplated in paragraph 2 of Section 6.01 if in its judgment the users of the "Public Utility Revenues" will be paid to PIATCO in US Dollars while payments by PIATCO to the
airport shall be deprived of a free option for the services they cover.39 Government are in Philippine currency under the 1997 Concession Agreement, PIATCO is able
to enjoy the benefits of depreciations of the Philippine Peso, while being effectively insulated
On the other hand, the equivalent provision under the 1997 Concession Agreement reads: from the detrimental effects of exchange rate fluctuations.

Section 6.03 Periodic Adjustment in Fees and Charges. When taken as a whole, the changes under the 1997 Concession Agreement with respect to
reduction in the types of fees that are subject to MIAA regulation and the relaxation of such
regulation with respect to other fees are significant amendments that substantially distinguish
xxx xxx xxx
the draft Concession Agreement from the 1997 Concession Agreement. The 1997 Concession
Agreement, in this respect, clearly gives PIATCO more favorable terms than what was
(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting available to other bidders at the time the contract was bidded out. It is not very difficult to
Non-Public Utility Revenues in order to ensure that End Users are not unreasonably see that the changes in the 1997 Concession Agreement translate to direct and concrete
deprived of services. While the vehicular parking fee, porterage fee and financial advantages for PIATCO which were not available at the time the contract was offered
greeter/well wisher fee constitute Non-Public Utility Revenues of Concessionaire, for bidding. It cannot be denied that under the 1997 Concession Agreement only "Public Utility
GRP may intervene and require Concessionaire to explain and justify the fee it may Revenues" are subject to MIAA regulation. Adjustments of all other fees imposed and collected
set from time to time, if in the reasonable opinion of GRP the said fees have become by PIATCO are entirely within its control. Moreover, with respect to terminal fees, under the
exorbitant resulting in the unreasonable deprivation of End Users of such services. 40 1997 Concession Agreement, the same is further subject to "Interim Adjustments" not
previously stipulated in the draft Concession Agreement. Finally, the change in the currency
Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2) stipulated for "Public Utility Revenues" under the 1997 Concession Agreement, except
porterage fee and (3) greeter/well wisher fee, all that MIAA can do is to require PIATCO terminal fees, gives PIATCO an added benefit which was not available at the time of bidding.
to explain and justify the fees set by PIATCO. In the draft Concession Agreement, vehicular
parking fee is subject to MIAA regulation and approval under the second paragraph of Section b. Assumption by the
6.03 thereof while porterage fee is covered by the first paragraph of the same provision. There
is an obvious relaxation of the extent of control and regulation by MIAA with respect to the
Government of the liabilities of
particular fees that may be charged by PIATCO.

PIATCO in the event of the latter's


Moreover, with respect to the third category of fees that may be imposed and collected by
PIATCO, i.e., new fees and charges that may be imposed by PIATCO which have not been
previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal default thereof
I, under Section 6.03 of the draft Concession Agreement MIAA has reserved the right to
regulate the same under the same conditions that MIAA may regulate fees under the first Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors
category, i.e., periodic adjustment of once every two years in accordance with a prescribed who have provided, loaned or advanced funds for the NAIA IPT III project does not result in the
assumption by the Government of these liabilities. In fact, nowhere in the said contract does Under the above quoted portions of Section 4.04 in relation to the definition of "Attendant
default of PIATCO's loans figure in the agreement. Such default does not directly result in any Liabilities," default by PIATCO of its loans used to finance the NAIA IPT III project triggers the
concomitant right or obligation in favor of the Government. occurrence of certain events that leads to the assumption by the Government of the liability
for the loans. Only in one instance may the Government escape the assumption of PIATCO's
However, the 1997 Concession Agreement provides: liabilities, i.e., when the Government so elects and allows a qualified operator to take over as
Concessionaire. However, this circumstance is dependent on the existence and availability of
a qualified operator who is willing to take over the rights and obligations of PIATCO under
Section 4.04 Assignment.
the contract, a circumstance that is not entirely within the control of the Government.

xxx xxx xxx


Without going into the validity of this provision at this juncture, suffice it to state that Section
4.04 of the 1997 Concession Agreement may be considered a form of security for the loans
(b) In the event Concessionaire should default in the payment of an Attendant PIATCO has obtained to finance the project, an option that was not made available in the draft
Liability, and the default has resulted in the acceleration of the payment due date of Concession Agreement. Section 4.04 is an important amendment to the 1997 Concession
the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and Agreement because it grants PIATCO a financial advantage or benefit which was not
Concessionaire shall immediately inform GRP in writing of such default. GRP shall, previously made available during the bidding process. This financial advantage is a significant
within one hundred eighty (180) Days from receipt of the joint written notice of the modification that translates to better terms and conditions for PIATCO.
Unpaid Creditors and Concessionaire, either (i) take over the Development Facility
and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified,
PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft
to be substituted as concessionaire and operator of the Development Facility in
Concession Agreement is subject to amendment because the Bid Documents permit financing
accordance with the terms and conditions hereof, or designate a qualified operator
or borrowing. They claim that it was the lenders who proposed the amendments to the draft
acceptable to GRP to operate the Development Facility, likewise under the terms and
Concession Agreement which resulted in the 1997 Concession Agreement.
conditions of this Agreement; Provided that if at the end of the 180-day period GRP
shall not have served the Unpaid Creditors and Concessionaire written notice of its
choice, GRP shall be deemed to have elected to take over the Development Facility We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow the
with the concomitant assumption of Attendant Liabilities. project proponent or the winning bidder to obtain financing for the project, especially in this
case which involves the construction, operation and maintenance of the NAIA IPT III.
Expectedly, compliance by the project proponent of its undertakings therein would involve a
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as
substantial amount of investment. It is therefore inevitable for the awardee of the contract to
concessionaire, the latter shall form and organize a concession company qualified to
seek alternate sources of funds to support the project. Be that as it may, this Court maintains
take over the operation of the Development Facility. If the concession company
that amendments to the contract bidded upon should always conform to the general policy on
should elect to designate an operator for the Development Facility, the concession
public bidding if such procedure is to be faithful to its real nature and purpose. By its very
company shall in good faith identify and designate a qualified operator acceptable
nature and characteristic, competitive public bidding aims to protect the public interest by
to GRP within one hundred eighty (180) days from receipt of GRP's written notice. If
giving the public the best possible advantages through open competition. 45 It has been held
the concession company, acting in good faith and with due diligence, is unable to
that the three principles in public bidding are (1) the offer to the public; (2) opportunity for
designate a qualified operator within the aforesaid period, then GRP shall at the end
competition; and (3) a basis for the exact comparison of bids. A regulation of the matter which
of the 180-day period take over the Development Facility and assume Attendant
excludes any of these factors destroys the distinctive character of the system and thwarts the
Liabilities.
purpose of its adoption.46 These are the basic parameters which every awardee of a contract
bidded out must conform to, requirements of financing and borrowing notwithstanding. Thus,
The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as: upon a concrete showing that, as in this case, the contract signed by the government and the
contract-awardee is an entirely different contract from the contract bidded, courts should not
Attendant Liabilities refer to all amounts recorded and from time to time outstanding hesitate to strike down said contract in its entirety for violation of public policy on public
in the books of the Concessionaire as owing to Unpaid Creditors who have bidding. A strict adherence on the principles, rules and regulations on public bidding must be
provided, loaned or advanced funds actually used for the Project, including all sustained if only to preserve the integrity and the faith of the general public on the procedure.
interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses, and further including amounts owed Public bidding is a standard practice for procuring government contracts for public service and
by Concessionaire to its suppliers, contractors and sub-contractors. for furnishing supplies and other materials. It aims to secure for the government the lowest
possible price under the most favorable terms and conditions, to curtail favoritism in the award
of government contracts and avoid suspicion of anomalies and it places all bidders in equal
footing.47 Any government action which permits any substantial variance between the
conditions under which the bids are invited and the contract executed after the award takeover the operation of the Development Facility. If the concession company
thereof is a grave abuse of discretion amounting to lack or excess of jurisdiction which should elect to designate an operator for the Development Facility, the concession
warrants proper judicial action. company shall in good faith identify and designate a qualified operator acceptable
to GRP within one hundred eighty (180) days from receipt of GRP's written notice. If
In view of the above discussion, the fact that the foregoing substantial amendments were the concession company, acting in good faith and with due diligence, is unable to
made on the 1997 Concession Agreement renders the same null and void for being contrary designate a qualified operator within the aforesaid period, then GRP shall at the end
to public policy. These amendments convert the 1997 Concession Agreement to an entirely of the 180-day period take over the Development Facility and assume Attendant
different agreement from the contract bidded out or the draft Concession Agreement. It is not Liabilities.
difficult to see that the amendments on (1) the types of fees or charges that are subject to
MIAA regulation or control and the extent thereof and (2) the assumption by the Government, ….
under certain conditions, of the liabilities of PIATCO directly translates concrete financial
advantages to PIATCO that were previously not available during the bidding process. These Section 1.06. Attendant Liabilities
amendments cannot be taken as merely supplements to or implementing provisions of those
already existing in the draft Concession Agreement. The amendments discussed above present
Attendant Liabilities refer to all amounts recorded and from time to time
new terms and conditions which provide financial benefit to PIATCO which may have altered
outstanding in the books of the Concessionaire as owing to Unpaid Creditors who
the technical and financial parameters of other bidders had they known that such terms were
have provided, loaned or advanced funds actually used for the Project, including all
available.
interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses, and further including amounts owed
III by Concessionaire to its suppliers, contractors and sub-contractors.48

Direct Government Guarantee It is clear from the above-quoted provisions that Government, in the event that PIATCO
defaults in its loan obligations, is obligated to pay "all amounts recorded and from time to
Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession Agreement time outstanding from the books" of PIATCO which the latter owes to its creditors. 49 These
provides: amounts include "all interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses." 50 This obligation of the Government to pay
Section 4.04 Assignment PIATCO's creditors upon PIATCO's default would arise if the Government opts to take over
NAIA IPT III. It should be noted, however, that even if the Government chooses the second
option, which is to allow PIATCO's unpaid creditors operate NAIA IPT III, the Government is still
xxx xxx xxx
at a risk of being liable to PIATCO's creditors should the latter be unable to designate a qualified
operator within the prescribed period.51 In effect, whatever option the Government chooses
(b) In the event Concessionaire should default in the payment of an Attendant to take in the event of PIATCO's failure to fulfill its loan obligations, the Government is still
Liability, and the default resulted in the acceleration of the payment due date of the at a risk of assuming PIATCO's outstanding loans. This is due to the fact that the Government
Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and would only be free from assuming PIATCO's debts if the unpaid creditors would be able to
Concessionaire shall immediately inform GRP in writing of such default. GRP shall designate a qualified operator within the period provided for in the contract. Thus, the
within one hundred eighty (180) days from receipt of the joint written notice of the Government's assumption of liability is virtually out of its control. The Government under the
Unpaid Creditors and Concessionaire, either (i) take over the Development Facility circumstances provided for in the 1997 Concession Agreement is at the mercy of the existence,
and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified availability and willingness of a qualified operator. The above contractual provisions constitute
to be substituted as concessionaire and operator of the Development facility in a direct government guarantee which is prohibited by law.
accordance with the terms and conditions hereof, or designate a qualified operator
acceptable to GRP to operate the Development Facility, likewise under the terms and
One of the main impetus for the enactment of the BOT Law is the lack of government funds to
conditions of this Agreement; Provided, that if at the end of the 180-day period GRP
construct the infrastructure and development projects necessary for economic growth and
shall not have served the Unpaid Creditors and Concessionaire written notice of its
development. This is why private sector resources are being tapped in order to finance these
choice, GRP shall be deemed to have elected to take over the Development Facility
projects. The BOT law allows the private sector to participate, and is in fact encouraged to do
with the concomitant assumption of Attendant Liabilities.
so by way of incentives, such as minimizing the unstable flow of returns,52 provided that the
government would not have to unnecessarily expend scarcely available funds for the project
(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as itself. As such, direct guarantee, subsidy and equity by the government in these projects are
concessionaire, the latter shall form and organize a concession company qualified to strictly prohibited.53 This is but logical for if the government would in the end still be at a risk
of paying the debts incurred by the private entity in the BOT projects, then the purpose of (vi) if the Senior Lenders, acting in good faith and using reasonable efforts,
the law is subverted. are unable to designate a nominee or effect a transfer in terms and
conditions satisfactory to the Senior Lenders within one hundred eighty
Section 2(n) of the BOT Law defines direct guarantee as follows: (180) days after giving GRP notice as referred to respectively in (iv) or (v)
above, then GRP and the Senior Lenders shall endeavor in good faith to
enter into any other arrangement relating to the Development Facility
(n) Direct government guarantee — An agreement whereby the government or any
[NAIA Terminal 3] (other than a turnover of the Development Facility [NAIA
of its agencies or local government units assume responsibility for the repayment of
Terminal 3] to GRP) within the following one hundred eighty (180) days. If
debt directly incurred by the project proponent in implementing the project in case
no agreement relating to the Development Facility [NAIA Terminal 3] is
of a loan default.
arrived at by GRP and the Senior Lenders within the said 180-day period,
then at the end thereof the Development Facility [NAIA Terminal 3] shall
Clearly by providing that the Government "assumes" the attendant liabilities, which consists be transferred by the Concessionaire [PIATCO] to GRP or its designee and
of PIATCO's unpaid debts, the 1997 Concession Agreement provided for a direct government GRP shall make a termination payment to Concessionaire [PIATCO] equal
guarantee for the debts incurred by PIATCO in the implementation of the NAIA IPT III project. to the Appraised Value (as hereinafter defined) of the Development
It is of no moment that the relevant sections are subsumed under the title of "assignment". Facility [NAIA Terminal 3] or the sum of the Attendant Liabilities, if
The provisions providing for direct government guarantee which is prohibited by law is clear greater. Notwithstanding Section 8.01(c) hereof, this Agreement shall be
from the terms thereof. deemed terminated upon the transfer of the Development Facility [NAIA
Terminal 3] to GRP pursuant hereto;
The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal
defect. Article IV, Section 4.04(c), in relation to Article I, Section 1.06, of the ARCA provides: xxx xxx xxx

Section 4.04 Security Section 1.06. Attendant Liabilities

xxx xxx xxx Attendant Liabilities refer to all amounts in each case supported by verifiable
evidence from time to time owed or which may become owing by Concessionaire
(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and [PIATCO] to Senior Lenders or any other persons or entities who have provided,
enter into direct agreement with the Senior Lenders, or with an agent of such Senior loaned, or advanced funds or provided financial facilities to Concessionaire
Lenders (which agreement shall be subject to the approval of the Bangko Sentral ng [PIATCO] for the Project [NAIA Terminal 3], including, without limitation, all
Pilipinas), in such form as may be reasonably acceptable to both GRP and Senior principal, interest, associated fees, charges, reimbursements, and other related
Lenders, with regard, inter alia, to the following parameters: expenses (including the fees, charges and expenses of any agents or trustees of such
persons or entities), whether payable at maturity, by acceleration or otherwise, and
xxx xxx xxx further including amounts owed by Concessionaire [PIATCO] to its professional
consultants and advisers, suppliers, contractors and sub-contractors.54

(iv) If the Concessionaire [PIATCO] is in default under a payment


obligation owed to the Senior Lenders, and as a result thereof the Senior It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill
Lenders have become entitled to accelerate the Senior Loans, the Senior its loan obligations to its Senior Lenders, the Government is obligated to directly negotiate and
Lenders shall have the right to notify GRP of the same, and without enter into an agreement relating to NAIA IPT III with the Senior Lenders, should the latter fail
prejudice to any other rights of the Senior Lenders or any Senior Lenders' to appoint a qualified nominee or transferee who will take the place of PIATCO. If the Senior
agent may have (including without limitation under security interests Lenders and the Government are unable to enter into an agreement after the prescribed
granted in favor of the Senior Lenders), to either in good faith identify and period, the Government must then pay PIATCO, upon transfer of NAIA IPT III to the
designate a nominee which is qualified under sub-clause (viii)(y) below to Government, termination payment equal to the appraised value of the project or the value of
operate the Development Facility [NAIA Terminal 3] or transfer the the attendant liabilities whichever is greater. Attendant liabilities as defined in the ARCA
Concessionaire's [PIATCO] rights and obligations under this Agreement to includes all amounts owed or thereafter may be owed by PIATCO not only to the Senior
a transferee which is qualified under sub-clause (viii) below; Lenders with whom PIATCO has defaulted in its loan obligations but to all other persons who
may have loaned, advanced funds or provided any other type of financial facilities to PIATCO
for NAIA IPT III. The amount of PIATCO's debt that the Government would have to pay as a
xxx xxx xxx result of PIATCO's default in its loan obligations -- in case no qualified nominee or transferee
is appointed by the Senior Lenders and no other agreement relating to NAIA IPT III has been
reached between the Government and the Senior Lenders -- includes, but is not limited to, "all to that effect is fatal and is sufficient to deny the proposal. It stands to reason therefore that
principal, interest, associated fees, charges, reimbursements, and other related expenses . . . if a proposal can be denied by reason of the existence of direct government guarantee, then
whether payable at maturity, by acceleration or otherwise." 55 its inclusion in the contract executed after the said proposal has been accepted is likewise
sufficient to invalidate the contract itself. A prohibited provision, the inclusion of which would
It is clear from the foregoing that the ARCA provides for a direct guarantee by the result in the denial of a proposal cannot, and should not, be allowed to later on be inserted in
government to pay PIATCO's loans not only to its Senior Lenders but all other entities who the contract resulting from the said proposal. The basic rules of justice and fair play alone
provided PIATCO funds or services upon PIATCO's default in its loan obligation with its Senior militate against such an occurrence and must not, therefore, be countenanced particularly in
Lenders. The fact that the Government's obligation to pay PIATCO's lenders for the latter's this instance where the government is exposed to the risk of shouldering hundreds of million
obligation would only arise after the Senior Lenders fail to appoint a qualified nominee or of dollars in debt.
transferee does not detract from the fact that, should the conditions as stated in the contract
occur, the ARCA still obligates the Government to pay any and all amounts owed by PIATCO to This Court has long and consistently adhered to the legal maxim that those that cannot be
its lenders in connection with NAIA IPT III. Worse, the conditions that would make the done directly cannot be done indirectly.58 To declare the PIATCO contracts valid despite the
Government liable for PIATCO's debts is triggered by PIATCO's own default of its loan clear statutory prohibition against a direct government guarantee would not only make a
obligations to its Senior Lenders to which loan contracts the Government was never a party to. mockery of what the BOT Law seeks to prevent -- which is to expose the government to the
The Government was not even given an option as to what course of action it should take in risk of incurring a monetary obligation resulting from a contract of loan between the project
case PIATCO defaulted in the payment of its senior loans. The Government, upon PIATCO's proponent and its lenders and to which the Government is not a party to -- but would also
default, would be merely notified by the Senior Lenders of the same and it is the Senior Lenders render the BOT Law useless for what it seeks to achieve –- to make use of the resources of
who are authorized to appoint a qualified nominee or transferee. Should the Senior Lenders the private sector in the "financing, operation and maintenance of infrastructure and
fail to make such an appointment, the Government is then automatically obligated to "directly development projects"59which are necessary for national growth and development but
deal and negotiate" with the Senior Lenders regarding NAIA IPT III. The only way the which the government, unfortunately, could ill-afford to finance at this point in time.
Government would not be liable for PIATCO's debt is for a qualified nominee or transferee to
be appointed in place of PIATCO to continue the construction, operation and maintenance of IV
NAIA IPT III. This "pre-condition", however, will not take the contract out of the ambit of a
direct guarantee by the government as the existence, availability and willingness of a qualified
Temporary takeover of business affected with public interest
nominee or transferee is totally out of the government's control. As such the Government is
virtually at the mercy of PIATCO (that it would not default on its loan obligations to its Senior
Lenders), the Senior Lenders (that they would appoint a qualified nominee or transferee or Article XII, Section 17 of the 1987 Constitution provides:
agree to some other arrangement with the Government) and the existence of a qualified
nominee or transferee who is able and willing to take the place of PIATCO in NAIA IPT III. Section 17. In times of national emergency, when the public interest so requires, the
State may, during the emergency and under reasonable terms prescribed by it,
The proscription against government guarantee in any form is one of the policy temporarily take over or direct the operation of any privately owned public utility or
considerations behind the BOT Law. Clearly, in the present case, the ARCA obligates the business affected with public interest.
Government to pay for all loans, advances and obligations arising out of financial facilities
extended to PIATCO for the implementation of the NAIA IPT III project should PIATCO default The above provision pertains to the right of the State in times of national emergency, and in
in its loan obligations to its Senior Lenders and the latter fails to appoint a qualified nominee the exercise of its police power, to temporarily take over the operation of any business affected
or transferee. This in effect would make the Government liable for PIATCO's loans should the with public interest. In the 1986 Constitutional Commission, the term "national emergency"
conditions as set forth in the ARCA arise. This is a form of direct government guarantee. was defined to include threat from external aggression, calamities or national disasters, but
not strikes "unless it is of such proportion that would paralyze government service."60 The
The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a duration of the emergency itself is the determining factor as to how long the temporary
BOT project may be accepted, the following conditions must first be met: (1) the project takeover by the government would last.61 The temporary takeover by the government extends
involves a new concept in technology and/or is not part of the list of priority projects, (2) no only to the operation of the business and not to the ownership thereof. As such
direct government guarantee, subsidy or equity is required, and (3) the government agency the government is not required to compensate the private entity-owner of the said business
or local government unit has invited by publication other interested parties to a public bidding as there is no transfer of ownership, whether permanent or temporary. The private entity-
and conducted the same.56 The failure to meet any of the above conditions will result in the owner affected by the temporary takeover cannot, likewise, claim just compensation for the
denial of the proposal. It is further provided that the presence of direct government guarantee, use of the said business and its properties as the temporary takeover by the government is in
subsidy or equity will "necessarily disqualify a proposal from being treated and accepted as an exercise of its police power and not of its power of eminent domain.
unsolicited proposal."57 The BOT Law clearly and strictly prohibits direct government
guarantee, subsidy and equity in unsolicited proposals that the mere inclusion of a provision Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
Section 5.10 Temporary Take-over of operations by GRP. for their prohibition if public interest so requires. Article XII, Section 19 of the 1987
Constitution states:
….
Sec. 19. The state shall regulate or prohibit monopolies when the public interest so
(c) In the event the development Facility or any part thereof and/or the operations requires. No combinations in restraint of trade or unfair competition shall be
of Concessionaire or any part thereof, become the subject matter of or be included allowed.
in any notice, notification, or declaration concerning or relating to acquisition,
seizure or appropriation by GRP in times of war or national emergency, GRP shall, by Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist
written notice to Concessionaire, immediately take over the operations of the to aid the government in carrying on an enterprise or to aid in the performance of various
Terminal and/or the Terminal Complex. During such take over by GRP, the services and functions in the interest of the public.67 Nonetheless, a determination must first
Concession Period shall be suspended; provided, that upon termination of war, be made as to whether public interest requires a monopoly. As monopolies are subject to
hostilities or national emergency, the operations shall be returned to abuses that can inflict severe prejudice to the public, they are subject to a higher level of State
Concessionaire, at which time, the Concession period shall commence to run regulation than an ordinary business undertaking.
again. Concessionaire shall be entitled to reasonable compensation for the
duration of the temporary take over by GRP, which compensation shall take into In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is granted
account the reasonable cost for the use of the Terminal and/or Terminal Complex, the "exclusive rightto operate a commercial international passenger terminal within the Island
(which is in the amount at least equal to the debt service requirements of of Luzon" at the NAIA IPT III.68 This is with the exception of already existing international
Concessionaire, if the temporary take over should occur at the time when airports in Luzon such as those located in the Subic Bay Freeport Special Economic Zone
Concessionaire is still servicing debts owed to project lenders), any loss or damage ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in Laoag City.69 As such, upon
to the Development Facility, and other consequential damages. If the parties cannot commencement of PIATCO's operation of NAIA IPT III, Terminals 1 and 2 of NAIA would cease
agree on the reasonable compensation of Concessionaire, or on the liability of GRP to function as international passenger terminals. This, however, does not prevent MIAA to use
as aforesaid, the matter shall be resolved in accordance with Section 10.01 Terminals 1 and 2 as domestic passenger terminals or in any other manner as it may deem
[Arbitration]. Any amount determined to be payable by GRP to Concessionaire shall appropriate except those activities that would compete with NAIA IPT III in the latter's
be offset from the amount next payable by Concessionaire to GRP.62 operation as an international passenger terminal.70 The right granted to PIATCO to exclusively
operate NAIA IPT III would be for a period of twenty-five (25) years from the In-Service
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on Date71 and renewable for another twenty-five (25) years at the option of the
temporary government takeover and obligate the government to pay "reasonable cost for government.72 Both the 1997 Concession Agreement and the ARCA further provide that, in
the use of the Terminal and/or Terminal Complex."63 Article XII, section 17 of the 1987 view of the exclusive right granted to PIATCO, the concession contracts of the service
Constitution envisions a situation wherein the exigencies of the times necessitate the providers currently servicing Terminals 1 and 2 would no longer be renewed and those
government to "temporarily take over or direct the operation of any privately owned public concession contracts whose expiration are subsequent to the In-Service Date would cease to
utility or business affected with public interest." It is the welfare and interest of the public be effective on the said date.73
which is the paramount consideration in determining whether or not to temporarily take over
a particular business. Clearly, the State in effecting the temporary takeover is exercising its The operation of an international passenger airport terminal is no doubt an undertaking
police power. Police power is the "most essential, insistent, and illimitable of powers."64 Its imbued with public interest. In entering into a Build–Operate-and-Transfer contract for the
exercise therefore must not be unreasonably hampered nor its exercise be a source of construction, operation and maintenance of NAIA IPT III, the government has determined that
obligation by the government in the absence of damage due to arbitrariness of its public interest would be served better if private sector resources were used in its construction
exercise.65 Thus, requiring the government to pay reasonable compensation for the reasonable and an exclusive right to operate be granted to the private entity undertaking the said project,
use of the property pursuant to the operation of the business contravenes the Constitution. in this case PIATCO. Nonetheless, the privilege given to PIATCO is subject to reasonable
regulation and supervision by the Government through the MIAA, which is the government
V agency authorized to operate the NAIA complex, as well as DOTC, the department to which
MIAA is attached.74
Regulation of Monopolies
This is in accord with the Constitutional mandate that a monopoly which is not prohibited must
A monopoly is "a privilege or peculiar advantage vested in one or more persons or companies, be regulated.75 While it is the declared policy of the BOT Law to encourage private sector
consisting in the exclusive right (or power) to carry on a particular business or trade, participation by "providing a climate of minimum government regulations,"76 the same does
manufacture a particular article, or control the sale of a particular commodity."66 The not mean that Government must completely surrender its sovereign power to protect public
1987 Constitution strictly regulates monopolies, whether private or public, and even provides interest in the operation of a public utility as a monopoly. The operation of said public utility
can not be done in an arbitrary manner to the detriment of the public which it seeks to serve. right to supervise the operation of the whole NAIA complex, including NAIA IPT III. As the
The right granted to the public utility may be exclusive but the exercise of the right cannot run primary government agency tasked with the job,79 it is MIAA's responsibility to ensure that
riot. Thus, while PIATCO may be authorized to exclusively operate NAIA IPT III as an whoever by contract is given the right to operate NAIA IPT III will do so within the bounds of
international passenger terminal, the Government, through the MIAA, has the right and the the law and with due regard to the rights of third parties and above all, the interest of the
duty to ensure that it is done in accord with public interest. PIATCO's right to operate NAIA IPT public.
III cannot also violate the rights of third parties.
VI
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
CONCLUSION
3.01 Concession Period
In sum, this Court rules that in view of the absence of the requisite financial capacity of the
xxx xxx xxx Paircargo Consortium, predecessor of respondent PIATCO, the award by the PBAC of the
contract for the construction, operation and maintenance of the NAIA IPT III is null and void.
(e) GRP confirms that certain concession agreements relative to certain services Further, considering that the 1997 Concession Agreement contains material and substantial
and operations currently being undertaken at the Ninoy Aquino International Airport amendments, which amendments had the effect of converting the 1997 Concession
passenger Terminal I have a validity period extending beyond the In-Service Date. Agreement into an entirely different agreement from the contract bidded upon, the 1997
GRP through DOTC/MIAA, confirms that these services and operations shall not be Concession Agreement is similarly null and void for being contrary to public policy. The
carried over to the Terminal and the Concessionaire is under no legal obligation to provisions under Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997 Concession
permit such carry-over except through a separate agreement duly entered into with Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA, which constitute a
Concessionaire. In the event Concessionaire becomes involved in any litigation direct government guarantee expressly prohibited by, among others, the BOT Law and its
initiated by any such concessionaire or operator, GRP undertakes and hereby holds Implementing Rules and Regulations are also null and void. The Supplements, being accessory
Concessionaire free and harmless on full indemnity basis from and against any loss contracts to the ARCA, are likewise null and void.
and/or any liability resulting from any such litigation, including the cost of litigation
and the reasonable fees paid or payable to Concessionaire's counsel of choice, all WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession
such amounts shall be fully deductible by way of an offset from any amount which Agreement and the Supplements thereto are set aside for being null and void.
the Concessionaire is bound to pay GRP under this Agreement.
SO ORDERED.
During the oral arguments on December 10, 2002, the counsel for the petitioners-in-
intervention for G.R. No. 155001 stated that there are two service providers whose Davide, Jr., C.J., Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona,
contracts are still existing and whose validity extends beyond the In-Service Date. and Carpio-Morales, JJ., concur.
One contract remains valid until 2008 and the other until 2010.77 Vitug, J., see separate (dissenting) opinion.
Panganiban, J., please see separate opinion.
We hold that while the service providers presently operating at NAIA Terminal 1 do not have Quisumbing, J., no jurisdiction, please see separate opinion of J. Vitug in which he concurs.
an absolute right for the renewal or the extension of their respective contracts, those contracts Carpio, J., no part.
whose duration extends beyond NAIA IPT III's In-Service-Date should not be unduly prejudiced. Callejo, Sr., J., also concur in the separate opinion of J. Panganiban.
These contracts must be respected not just by the parties thereto but also by third parties. Azcuna, J., joins the separate opinion of J. Vitug.
PIATCO cannot, by law and certainly not by contract, render a valid and binding contract
nugatory. PIATCO, by the mere expedient of claiming an exclusive right to operate, cannot
require the Government to break its contractual obligations to the service providers. In SEPARATE OPINIONS
contrast to the arrastre and stevedoring service providers in the case of Anglo-Fil Trading
Corporation v. Lazaro78 whose contracts consist of temporary hold-over permits, the affected
VITUG, J.:
service providers in the cases at bar, have a valid and binding contract with the Government,
through MIAA, whose period of effectivity, as well as the other terms and conditions thereof,
cannot be violated. This Court is bereft of jurisdiction to hear the petitions at bar. The Constitution provides that
the Supreme Court shall exercise original jurisdiction over, among other actual controversies,
petitions for certiorari, prohibition, mandamus, quo warranto, and habeas corpus.1 The cases
In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of
in question, although denominated to be petitions for prohibition, actually pray for the
the 1997 Concession Agreement and the ARCA did not strip government, thru the MIAA, of its
nullification of the PIATCO contracts and to restrain respondents from implementing said
agreements for being illegal and unconstitutional. PANGANIBAN, J.:

Section 2, Rule 65 of the Rules of Court states: The five contracts for the construction and the operation of Ninoy Aquino International Airport
(NAIA) Terminal III, the subject of the consolidated Petitions before the Court, are replete with
"When the proceedings of any tribunal, corporation, board, officer or person, outright violations of law, public policy and the Constitution. The only proper thing to do is
whether exercising judicial, quasi-judicial or ministerial functions, are without or in declare them all null and void ab initio and let the chips fall where they may. Fiat iustitia ruat
excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack coelum.
or excess of jurisdiction, and there is no appeal or any other plain, speedy and
adequate remedy in the ordinary course of law, a person aggrieved thereby may file The facts leading to this controversy are already well presented in the ponencia. I shall not
a verified petition in the proper court, alleging the facts with certainty and praying burden the readers with a retelling thereof. Instead, I will cut to the chase and directly address
that judgment be rendered commanding the respondent to desist from further the two sets of gut issues:
proceedings in the action or matter specified therein, or otherwise granting such
incidental reliefs as law and justice may require." 1. The first issue is procedural: Does the Supreme Court have original jurisdiction to hear and
decide the Petitions? Corollarily, do petitioners have locus standi and should this Court decide
The rule is explicit. A petition for prohibition may be filed against a tribunal, corporation, board, the cases without any mandatory referral to arbitration?
officer or person, exercising judicial, quasi-judicial or ministerial functions. What the petitions
seek from respondents do not involve judicial, quasi-judicial or ministerial functions. In 2. The second one is substantive in character: Did the subject contracts violate the
prohibition, only legal issues affecting the jurisdiction of the tribunal, board or officer involved Constitution, the laws, and public policy to such an extent as to render all of them void and
may be resolved on the basis of undisputed facts.2 The parties allege, respectively, contentious inexistent?
evidentiary facts. It would be difficult, if not anomalous, to decide the jurisdictional issue on
the basis of the contradictory factual submissions made by the parties.3 As the Court has so
My answer to all the above questions is a firm "Yes."
often exhorted, it is not a trier of facts.

The Procedural Issue:


The petitions, in effect, are in the nature of actions for declaratory relief under Rule 63 of the
Jurisdiction, Standing and Arbitration
Rules of Court. The Rules provide that any person interested under a contract may, before
breach or violation thereof, bring an action in the appropriate Regional Trial Court to
determine any question of construction or validity arising, and for a declaration of his rights or Definitely and surely, the issues involved in these Petitions are clearly of transcendental
duties thereunder.4 The Supreme Court assumes no jurisdiction over petitions for declaratory importance and of national interest. The subject contracts pertain to the construction and the
relief which are cognizable by regional trial courts.5 operation of the country's premiere international airport terminal - an ultramodern world-
class public utility that will play a major role in the country's economic development and serve
to project a positive image of our country abroad. The five build-operate-&-transfer (BOT)
As I have so expressed in Tolentino vs. Secretary of Finance,6 reiterated in Santiago vs.
contracts, while entailing the investment of billions of pesos in capital and the availment of
Guingona, Jr.7 , the Supreme Court should not be thought of as having been tasked with the
several hundred millions of dollars in loans, contain provisions that tend to establish a
awesome responsibility of overseeing the entire bureaucracy. Pervasive and limitless, such as
monopoly, require the disbursements of public funds sans appropriations, and provide
it may seem to be under the 1987 Constitution, judicial power still succumbs to the paramount
government guarantees in violation of statutory prohibitions, as well as other provisions
doctrine of separation of powers. The Court may not at good liberty intrude, in the guise of
equally offensive to law, public policy and the Constitution. Public interest will inevitably be
sovereign imprimatur, into every affair of government. What significance can still then remain
affected thereby.
of the time-honored and widely acclaimed principle of separation of powers if, at every turn,
the Court allows itself to pass upon at will the disposition of a co-equal, independent and
coordinate branch in our system of government. I dread to think of the so varied uncertainties Thus, objections to these Petitions, grounded upon (a) the hierarchy of courts, (b) the need for
that such an undue interference can lead to. arbitration prior to court action, and (c) the alleged lack of sufficient personality, standing or
interest, being in the main procedural matters, must now be set aside, as they have been in
past cases. This Court must be permitted to perform its constitutional duty of determining
Accordingly, I vote for the dismissal of the petition.
whether the other agencies of government have acted within the limits of the Constitution and
the laws, or if they have gravely abused the discretion entrusted to them.1
Quisumbing, and Azcuna, JJ., concur.
Hierarchy of Courts
The Court has, in the past, held that questions relating to gargantuan government contracts Given this Court's previous decisions in cases of similar import, no one will seriously doubt that,
ought to be settled without delay.2 This holding applies with greater force to the instant cases. being taxpayers and members of the House of Representatives, Petitioners Baterina et al.
Respondent Piatco is partly correct in averring that petitioners can obtain relief from the have locus standi to bring the Petition in GR No. 155547. In Albano v. Reyes,7 this Court held
regional trial courts via an action to annul the contracts. that the petitioner therein, suing as a citizen, taxpayer and member of the House of
Representatives, was sufficiently clothed with standing to bring the suit questioning the
Nevertheless, the unavoidable consequence of having to await the rendition and the finality validity of the assailed contract. The Court cited the fact that public interest was involved, in
of any such judgment would be a prolonged state of uncertainty that would be prejudicial to view of the important role of the Manila International Container Terminal (MICT) in the
the nation, the parties and the general public. And, in light of the feared loss of jobs of the country's economic development and the magnitude of the financial consideration. This,
petitioning workers, consequent to the inevitable pretermination of contracts of the notwithstanding the fact that expenditure of public funds was not required under the assailed
petitioning service providers that will follow upon the heels of the impending opening of NAIA contract.
Terminal III, the need for relief is patently urgent, and therefore, direct resort to this Court
through the special civil action of prohibition is thus justified.3 In the cases presently under consideration, petitioners' personal and substantial interest in the
controversy is shown by the fact that certain provisions in the Piatco contracts create
Contrary to Piatco's argument that the resolution of the issues raised in the Petitions will obligations on the part of government (through the DOTC and the MIAA) to disburse public
require delving into factual questions,4 I submit that their disposition ultimately turns on funds without prior congressional appropriations.
questions of law.5 Further, many of the significant and relevant factual questions can be easily
addressed by an examination of the documents submitted by the parties. In any event, the Petitioners thus correctly assert that the injury to them has a twofold aspect: (1) they are
Petitions raise some novel questions involving the application of the amended BOT Law, which adversely affected as taxpayers on account of the illegal disbursement of public funds; and (2)
this Court has seen fit to tackle. they are prejudiced qua legislators, since the contractual provisions requiring the government
to incur expenditures without appropriations also operate as limitations upon the exclusive
Arbitration power and prerogative of Congress over the public purse. As members of the House of
Representatives, they are actually deprived of discretion insofar as the inclusion of those items
of expenditure in the budget is concerned. To prevent such encroachment upon the legislative
Should the dispute be referred to arbitration prior to judicial recourse? Respondent Piatco
privilege and obviate injury to the institution of which they are members, petitioners-
claims that Section 10.02 of the Amended and Restated Concession Agreement (ARCA)
legislators have locus standi to bring suit.
provides for arbitration under the auspices of the International Chamber of Commerce to
settle any dispute or controversy or claim arising in connection with the Concession
Agreement, its amendments and supplements. The government disagrees, however, insisting Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus possessed of standing to
that there can be no arbitration based on Section 10.02 of the ARCA, since all the Piatco challenge the illegal disbursement of public funds. Messrs. Agan et al., in particular, are
contracts are void ab initio. Therefore, all contractual provisions, including Section 10.02 of the employees (or representatives of employees) of various service providers that have (1) existing
ARCA, are likewise void, inexistent and inoperative. To support its stand, the government concession agreements with the MIAA to provide airport services necessary to the operation
cites Chavez v. Presidential Commission on Good Government:6"The void agreement will not be of the NAIA and (2) service agreements to furnish essential support services to the
rendered operative by the parties' alleged performance (partial or full) of their respective international airlines operating at the NAIA.
prestations. A contract that violates the Constitution and the law is null and void ab initio and
vests no rights and creates no obligations. It produces no legal effect at all." On the other hand, Messrs. Lopez et al. are employees of the MIAA. These petitioners (Messrs.
Agan et al. and Messrs. Lopez et al.) are confronted with the prospect of being laid off from
As will be discussed at length later, the Piatco contracts are indeed void in their entirety; thus, their jobs and losing their means of livelihood when their employer-companies are forced to
a resort to the aforesaid provision on arbitration is unavailing. Besides, petitioners and shut down or otherwise retrench and cut back on manpower. Such development would result
petitioners-in-intervention have pointed out that, even granting arguendo that the arbitration from the imminent implementation of certain provisions in the contracts that tend toward the
clause remained a valid provision, it still cannot bind them inasmuch as they are not parties to creation of a monopoly in favor of Piatco, its subsidiaries and related companies.
the Piatco contracts. And in the final analysis, it is unarguable that the arbitration process
provided for under Section 10.02 of the ARCA, to be undertaken by a panel of three (3) Petitioners-in-intervention are service providers in the business of furnishing airport-related
arbitrators appointed in accordance with the Rules of Arbitration of the International Chamber services to international airlines and passengers in the NAIA and are therefore competitors of
of Commerce, will not be able to address, determine and definitively resolve the constitutional Piatco as far as that line of business is concerned. On account of provisions in the Piatco
and legal questions that have been raised in the Petitions before us. contracts, petitioners-in-intervention have to enter into a written contract with Piatco so as
not to be shut out of NAIA Terminal III and barred from doing business there. Since there is no
Locus Standi provision to ensure or safeguard free and fair competition, they are literally at its mercy. They
claim injury on account of their deprivation of property (business) and of the liberty to bid and most favorable terms for the project, based on the present value of its
contract, without due process of law. proposed tolls, fees, rentals and charges over a fixed term for the facility to be
constructed, rehabilitated, operated and maintained according to the prescribed
And even if petitioners and petitioners-in-intervention were not sufficiently clothed with legal minimum design and performance standards, plans and specifications. . . ."
standing, I have at the outset already established that, given its impact on the public and on (Emphasis supplied.)
national interest, this controversy is laden with transcendental importance and constitutional
significance. Hence, I do not hesitate to adopt the same position as was enunciated The same provision requires that the price challenge via public bidding "must be conducted
in Kilosbayan v. Guingona Jr.8 that "in cases of transcendental importance, the Court may relax under a two-envelope/two-stage system: the first envelope to contain the technical proposal
the standing requirements and allow a suit to prosper even when there is no direct injury to the and the second envelope to contain the financial proposal." Moreover, the 1994 Implementing
party claiming the right of judicial review."9 Rules and Regulations (IRR) provide that only those bidders that have passed the
prequalification stage are permitted to have their two envelopes reviewed.
The Substantive Issue:
Violations of the Constitution and the Laws In other words, prospective bidders must prequalify by submitting their prequalification
documents for evaluation; and only the pre-qualified bidders would be entitled to have their
From the Outset, the Bidding Process Was Flawed and Tainted bids opened, evaluated and appreciated. On the other hand, disqualified bidders are to be
informed of the reason for their disqualification. This procedure was confirmed and reiterated
in the Bid Documents, which I quote thus: "Prequalified proponents will be considered eligible
After studying the documents submitted and arguments advanced by the parties, I have no
to move to second stage technical proposal evaluation. The second and third envelopes of pre-
doubt that, right at the outset, Piatco was not qualified to participate in the bidding process
disqualified proponents will be returned."11
for the Terminal III project, but was nevertheless permitted to do so. It even won the bidding
and was helped along by what appears to be a series of collusive and corrosive acts.
Aside from complying with the legal and technical requirements (track record or experience of
the firm and its key personnel), a project proponent desiring to prequalify must also
The build-operate-and-transfer (BOT) project for the NAIA Passenger Terminal III comes under
demonstrate its financial capacity to undertake the project. To establish such capability, a
the category of an "unsolicited proposal," which is the subject of Section 4-A of the BOT
proponent must prove that it is able to raise the minimum amount of equity required for the
Law.10 The unsolicited proposal was originally submitted by the Asia's Emerging Dragon
project and to procure the loans or financing needed for it. Section 5.4(c) of the 1994 IRR
Corporation (AEDC) to the Department of Transportation and Communications (DOTC) and the
provides:
Manila International Airport Authority (MIAA), which reviewed and approved the proposal.

"Sec. 5.4. Prequalification Requirements. - To pre-qualify, a project proponent must


The draft of the concession agreement as negotiated between AEDC and DOTC/MIAA was
comply with the following requirements:
endorsed to the National Economic Development Authority (NEDA-ICC), which in turn
reviewed it on the basis of its scope, economic viability, financial indicators and risks; and
thereafter approved it for bidding. xxx xxx xxx

The DOTC/MIAA then prepared the Bid Documents, incorporating therein the negotiated Draft "c. Financial Capability. The project proponent must have adequate capability to
Concession Agreement, and published invitations for public bidding, i.e., for the submission of sustain the financing requirements for the detailed engineering design, construction,
comparative or competitive proposals. Piatco's predecessor-in-interest, the Paircargo and/or operation and maintenance phases of the project, as the case may be. For
Consortium, was the only company that submitted a competitive bid or price challenge. purposes of prequalification, this capability shall be measured in terms of: (i) proof
of the ability of the project proponent and/or the consortium to provide a minimum
amount of equity to the project, and (ii) a letter testimonial from reputable banks
At this point, I must emphasize that the law requires the award of a BOT project to the bidder
attesting that the project proponent and/or members of the consortium are banking
that has satisfied the minimum requirements; and met the technical, financial, organizational
with them, that they are in good financial standing, and that they have adequate
and legal standards provided in the BOT Law. Section 5 of this statute states:
resources. The government Agency/LGU concerned shall determine on a project-to-
project basis, and before prequalification, the minimum amount of equity needed. .
"Sec. 5. Public bidding of projects. - . . . . . ." (Italics supplied)

"In the case of a build-operate-and-transfer arrangement, the contract shall be Since the minimum amount of equity for the project was set at 30 percent12 of the minimum
awarded to the bidder who, having satisfied the minimum financial, technical, project cost of US$350 million, the minimum amount of equity required of any proponent
organizational and legal standards required by this Act, has submitted the lowest stood at US$105 million. Converted to pesos at the exchange rate then of P26.239 to US$1.00
(as quoted by the Bangko Sentral ng Pilipinas), the peso equivalent of the minimum equity was therefore not have opened the two envelopes of the consortium containing its technical and
P2,755,095,000. financial proposals; required AEDC to match the consortium's bid; 16 or awarded the
Concession Agreement to the consortium's successor-in-interest, Piatco.
However, the combined equity or net worth of the Paircargo consortium stood at only
P558,384,871.55.13 This amount was only slightly over 6 percent of the minimum project cost As there was effectively no public bidding to speak of, the entire bidding process having been
and very much short of the required minimum equity, which was equivalent to 30 percent of flawed and tainted from the very outset, therefore, the award of the concession to Paircargo's
the project cost. Such deficiency should have immediately caused the disqualification of the successor Piatco was void, and the Concession Agreement executed with the latter was
Paircargo consortium. This matter was brought to the attention of the Prequalification and likewise void ab initio. For this reason, Piatco cannot and should not be allowed to benefit from
Bidding Committee (PBAC). that Agreement.17

Notwithstanding the glaring deficiency, DOTC Undersecretary Primitivo C. Cal, concurrent chair AEDC Was Deprived of the Right to Match PIATCO's Price Challenge
of the PBAC, declared in a Memorandum dated 14 October 1996 that "the Challenger
(Paircargo consortium) was found to have a combined net worth of P3,926,421,242.00 that In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal declared that, for purposes of
could support a project costing approximately P13 billion." To justify his conclusion, he matching the price challenge of Piatco, AEDC as originator of the unsolicited proposal would
asserted: "It is not a requirement that the networth must be `unrestricted'. To impose this as a be permitted access only to the schedule of proposed Annual Guaranteed Payments submitted
requirement now will be nothing less than unfair." by Piatco, and not to the latter's financial and technical proposals that constituted the basis
for the price challenge in the first place. This was supposedly in keeping with Section 11.6 of
He further opined, "(T)he networth reflected in the Financial Statement should not be taken as the 1994 IRR, which provides that proprietary information is to be respected, protected and
the amount of money to be used to answer the required thirty (30%) percent equity of the treated with utmost confidentiality, and is therefore not to form part of the bidding/tender
challenger but rather to be used in establishing if there is enough basis to believe that the and related documents.
challenger can comply with the required 30% equity. In fact, proof of sufficient equity is required
as one of the conditions for award of contract (Sec. 12.1 of IRR of the BOT Law) but not for This pronouncement, I believe, was a grievous misapplication of the mentioned provision. The
prequalification (Sec. 5.4 of same document)." "proprietary information" referred to in Section 11.6 of the IRR pertains only to the proprietary
information of the originator of an unsolicited proposal, and not to those belonging to
On the basis of the foregoing dubious declaration, the Paircargo consortium was deemed a challenger. The reason for the protection accorded proprietary information at all is the fact
prequalified and thus permitted to proceed to the other stages of the bidding process. that, according to Section 4-A of the BOT Law as amended, a proposal qualifies as an
"unsolicited proposal" when it pertains to a project that involves "a new concept or
By virtue of the prequalified status conferred upon the Paircargo, Undersecretary Cal's findings technology", and/or a project that is not on the government's list of priority projects.
in effect relieved the consortium of the need to comply with the financial capability
requirement imposed by the BOT Law and IRR. This position is unmistakably and squarely at To be considered as utilizing a new concept or technology, a project must involve the
odds with the Supreme Court's consistent doctrine emphasizing the strict application of possession of exclusive rights (worldwide or regional) over a process; or possession of
pertinent rules, regulations and guidelines for the public bidding process, in order to place each intellectual property rights over a design, methodology or engineering concept.18 Patently, the
bidder - actual or potential - on the same footing. Thus, it is unarguably irregular and contrary intent of the BOT Law is to encourage individuals and groups to come up with creative
to the very concept of public bidding to permit a variance between the conditions under which innovations, fresh ideas and new technology. Hence, the significance and necessity of
bids are invited and those under which proposals are submitted and approved. protecting proprietary information in connection with unsolicited proposals. And to make the
encouragement real, the law also extends to such individuals and groups what amounts to a
Republic v. Capulong,14 teaches that if one bidder is relieved from having to conform to the "right of first refusal" to undertake the project they conceptualized, involving the use of new
conditions that impose some duty upon it, that bidder is not contracting in fair competition technology or concepts, through the mechanism of matching a price challenge.
with those bidders that propose to be bound by all conditions. The essence of public bidding
is, after all, an opportunity for fair competition and a basis for the precise comparison of A competing bid is never just any figure conjured from out of the blue; it is arrived at after
bids.15 Thus, each bidder must bid under the same conditions; and be subject to the same studying economic, financial, technical and other, factors; it is likewise based on certain
guidelines, requirements and limitations. The desired result is to be able to determine the best assumptions as to the nature of the business, the market potentials, the probable demand for
offer or lowest bid, all things being equal. the product or service, the future behavior of cost items, political and other risks, and so on. It
is thus self-evident that in order to be able to intelligently match a bid or price challenge, a
Inasmuch as the Paircargo consortium did not possess the minimum equity equivalent to 30 bidder must be given access to the assumptions and the calculations that went into crafting
percent of the minimum project cost, it should not have been prequalified or allowed to the competing bid.
participate further in the bidding. The Prequalification and Bidding Committee (PBAC) should
In this instance, the financial and technical proposals of Piatco would have provided AEDC with draft contract shall be submitted to the ICC for clearance on a no-objection basis. If the draft
the necessary information to enable it to make a reasonably informed matching bid. To put it contract includes government undertakings already previously approved, then the submission
more simply, a bidder unable to access the competitor's assumptions will never figure out how shall be for information only.
the competing bid came about; requiring him to "counter-propose" is like having him shoot at
a target in the dark while blindfolded. However, should there be additional or new provisions different from the original government
undertakings, the draft shall have to be reviewed and approved. The ICC has 15 working days
By withholding from AEDC the challenger's financial and technical proposals containing the to act thereon, and unless otherwise specified, its failure to act on the contract within the
critical information it needed, Undersecretary Cal actually and effectively deprived AEDC of the specified time frame signifies that the agency or LGU may proceed with the award. The head
ability to match the price challenge. One could say that AEDC did not have the benefit of a of agency or LGU shall approve the Notice of Award within seven days of the clearance by the
"level playing field." It seems to me, though, that AEDC was actually shut out of the game ICC on a no-objection basis, and the Notice itself has to be issued within seven days thereafter.
altogether.
The highly regulated time-frames within which the agents of government were to act evinced
At the end of the day, the bottom line is that the validity and the propriety of the award to the intent to impose upon them the duty to act expeditiously throughout the process, to the
Piatco had been irreparably impaired. end that the project be prosecuted and implemented without delay. This regulated scenario
was likewise intended to discourage collusion and substantially reduce the opportunity for
Delayed Issuance of the Notice of Award Violated the BOT Law and the IRR agents of government to abuse their discretion in the course of the award process.

Section 9.5 of the IRR requires that the Notice of Award must indicate the time frame within Despite the clear timetables set out in the IRR, several lengthy and still-unexplained delays
which the winner of the bidding (and therefore the prospective awardee) shall submit the occurred in the award process, as can be observed from the presentation made by the counsel
prescribed performance security, proof of commitment of equity contributions, and for public respondents,19 quoted hereinbelow:
indications of sources of financing (loans); and, in the case of joint ventures, an agreement
showing that the members are jointly and severally responsible for the obligations of the "11 Dec. 1996 - The Paircargo Joint Venture was informed by the PBAC that AEDC
project proponent under the contract. failed to match and that negotiations preparatory to Notice of Award should be
commenced. This was the decision to award that should have commenced the
The purpose of having a definite and firm timetable for the submission of the aforementioned running of the 7-day period to approve the Notice of Award, as per Section 9.1 of the
requirements is not only to prevent delays in the project implementation, but also to expose IRR, or to submit the draft contract to the ICC for approval conformably with Section
and weed out unqualified proponents, who might have unceremoniously slipped through the 9.2.
earlier prequalification process, by compelling them to put their money where their mouths
are, so to speak. "01 April 1997 - The PBAC resolved that a copy of the final draft of the Concession
Agreement be submitted to the NEDA for clearance on a no-objection basis. This
Nevertheless, this provision can be easily circumvented by merely postponing the actual resolution came more than 3 months too late as it should have been made on the
issuance of the Notice of Award, in order to give the favored proponent sufficient time to 20th of December 1996 at the latest.
comply with the requirements. Hence, to avert or minimize the manipulation of the post-
bidding process, the IRR not only set out the precise sequence of events occurring between "16 April 1997 - The PBAC resolved that the period of signing the Concession
the completion of the evaluation of the technical bids and the issuance of the Notice of Award, Agreement be extended by 15 days.
but also specified the timetables for each such event. Definite allowable extensions of time
were provided for, as were the consequences of a failure to meet a particular deadline. "18 April 1997 - NEDA approved the Concession Agreement. Again this is more than
3 months too late as the NEDA's decision should have been released on the 16th of
In particular, Section 9.1 of the 1994 IRR prescribed that within 30 calendar days from the time January 1997 or fifteen days after it should have been submitted to it for review.
the second-stage evaluation shall have been completed, the Committee must come to a
decision whether or not to award the contract and, within 7 days therefrom, the Notice of "09 July 1997 - The Notice of Award was issued to PIATCO. Following the provisions
Award must be approved by the head of agency or local government unit (LGU) concerned, of the IRR, the Notice of Award should have been issued fourteen days after NEDA's
and its issuance must follow within another 7 days thereafter. approval, or the 28th of January 1997. In any case, even if it were to be assumed that
the release of NEDA's approval on the 18th of April was timely, the Notice of Award
Section 9.2 of the IRR set the procedure applicable to projects involving substantial should have been issued on the 9th of May 1997. In both cases, therefore, the
government undertakings as follows: Within 7 days after the decision to award is made, the release of the Notice of Award occurred in a decidedly less than timely fashion."
This chronology of events bespeaks an unmistakable disregard, if not disdain, by the persons inclusive of the businesses of providing various airport-related services to
in charge of the award process for the time limitations prescribed by the IRR. Their attitude international airlines, within the scope of the prohibition.
flies in the face of this Court's solemn pronouncement in Republic v. Capulong,20 that "strict
observance of the rules, regulations and guidelines of the bidding process is the only safeguard 6. Under Section 6.01 of the DCA, the following fees are subject to the written
to a fair, honest and competitive public bidding." approval of MIAA: lease/rental charges, concession privilege fees for passenger
services, food services, transportation utility concessions, groundhandling, catering
From the foregoing, the only conclusion that can possibly be drawn is that the BOT law and its and miscellaneous concession fees, porterage fees, greeter/well-wisher fees,
IRR were repeatedly violated with unmitigated impunity - and by agents of government, no carpark fees, advertising fees, VIP facilities fees and others. Moreover, adjustments
less! On account of such violation, the award of the contract to Piatco, which undoubtedly to the groundhandling fees, rentals and porterage fees are permitted only once
gained time and benefited from the delays, must be deemed null and void from the beginning. every two years and in accordance with a parametric formula, per DCA Section 6.03.
However, the CA as executed with Piatco provides in Section 6.06 that all the
Further Amendments Resulted in a Substantially Different Contract, Awarded Without Public aforesaid fees, rentals and charges may be adjusted without MIAA's approval or
Bidding intervention. Neither are the adjustments to these fees and charges subject to or
limited by any parametric formula.25
But the violations and desecrations did not stop there. After the PBAC made its decision on
December 11, 1996 to award the contract to Piatco, the latter negotiated changes to the 7. Section 1.29 of the DCA provides that the terminal fees, aircraft tacking fees,
Contract bidded out and ended up with what amounts to a substantially new contract without aircraft parking fees, check-in counter fees and other fees are to be quoted and paid
any public bidding. This Contract was subsequently further amended four more times through in Philippine pesos. But per Section 1.33 of the CA, all the aforesaid fees save the
negotiation and without any bidding. Thus, the contract actually executed between Piatco and terminal fee are denominated in US Dollars.
DOTC/MIAA on July 12, 1997 (the Concession Agreement or "CA") differed from the contract
bidded out (the draft concession agreement or "DCA") in the following very significant 8. Under Section 8.07 of the DCA, the term attendant liabilities refers to liabilities
respects: pertinent to NAIA Terminal III, such as payment of lease rentals and performance of
other obligations under the Land Lease Agreement; the obligations under the Tenant
1. The CA inserted stipulations creating a monopoly in favor of Piatco in the business Agreements; and payment of all taxes, fees, charges and assessments of whatever
of providing airport-related services for international airlines and passengers.21 kind that may be imposed on NAIA Terminal III or parts thereof. But in Section 1.06
of the CA, Attendant Liabilities refers to unpaid debts of Piatco: "All amounts
recorded and from time to time outstanding in the books of (Piatco) as owing to
2. The CA provided that government is to answer for Piatco's unpaid loans and debts
Unpaid Creditors who have provided, loaned or advanced funds actually used for the
(lumped under the term Attendant Liabilities) in the event Piatco fails to pay its
Project, including all interests, penalties, associated fees, charges, surcharges,
senior lenders.22
indemnities, reimbursements and other related expenses, and further including
amounts owed by [Piatco] to its suppliers, contractors and subcontractors."
3. The CA provided that in case of termination of the contract due to the fault of
government, government shall pay all expenses that Piatco incurred for the project
9. Per Sections 8.04 and 8.06 of the DCA, government may, on account of the
plus the appraised value of the Terminal.23
contractors breach, rescind the contract and select one of four options: (a) take over
the terminal and assume all its attendant liabilities; (b) allow the contractor's
4. The CA imposed new and special obligations on government, including delivery of creditors to assign the Project to another entity acceptable to DOTC/MIAA; (c) pay
clean possession of the site for the terminal; acquisition of additional land at the the contractor rent for the facilities and equipment the DOTC may utilize; or (d)
government's expense for construction of road networks required by Piatco's purchase the terminal at a price established by independent appraisers. Depending
approved plans and specifications; and assistance to Piatco in securing site utilities, on the option selected, government may take immediate possession and control of
as well as all necessary permits, licenses and authorizations.24 the terminal and its operations. Government will be obligated to compensate the
contractor for the "equivalent or proportionate contract costs actually disbursed,"
5. Where Section 3.02 of the DCA requires government to refrain from competing but only where government is the one in breach of the contract. But under Section
with the contractor with respect to the operation of NAIA Terminal III, Section 8.06(a) of the CA, whether on account of Piatco's breach of contract or its inability
3.02(b) of the CA excludes and prohibits everyone, including government, from to pay its creditors, government is obliged to either (a) take over Terminal III and
directly or indirectly competing with Piatco, with respect to the operation of, as well assume all of Piatco's debts or (b) permit the qualified unpaid creditors to be
as operations in, NAIA Terminal III. Operations in is sufficiently broad to encompass substituted in place of Piatco or to designate a new operator. And in the event of
all retail and other commercial business enterprises operating within Terminal III, government's breach of contract, Piatco may compel it to purchase the terminal at
fair market value, per Section 8.06(b) of the CA.
10. Under the DCA, any delay by Piatco in the payment of the amounts due the prohibition, however, refers to a change in vital and essential particulars of the
government constitutes breach of contract. However, under the CA, such delay does agreement which results in a substantially new contract."
not necessarily constitute breach of contract, since Piatco is permitted to suspend
payments to the government in order to first satisfy the claims of its secured Piatco's counter-argument may be summed up thus: There was nothing in the 1994 IRR that
creditors, per Section 8.04(d) of the CA. prohibited further negotiations and eventual amendments to the DCA even after the bidding
had been concluded. In fact, PBAC Bid Bulletin No. 3 states: "[A]mendments to the Draft
It goes without saying that the amendment of the Contract bidded out (the DCA or draft Concession Agreement shall be issued from time to time. Said amendments will only cover items
concession agreement) - in such substantial manner, without any public bidding, and after the that would not materially affect the preparation of the proponent's proposal."
bidding process had been concluded on December 11, 1996 - is violative of public policy on
public biddings, as well as the spirit and intent of the BOT Law. The whole point of going I submit that accepting such warped argument will result in perverting the policy underlying
through the public bidding exercise was completely lost. Its very rationale was totally subverted public bidding. The BOT Law cannot be said to allow the negotiation of contractual stipulations
by permitting Piatco to amend the contract for which public bidding had already been resulting in a substantially new contract after the bidding process and price challenge had been
concluded. Competitive bidding aims to obtain the best deal possible by fostering transparency concluded. In fact, the BOT Law, in recognition of the time, money and effort invested in an
and preventing favoritism, collusion and fraud in the awarding of contracts. That is the reason unsolicited proposal, accords its originator the privilege of matching the challenger's bid.
why procedural rules pertaining to public bidding demand strict observance.26
Section 4-A of the BOT Law specifically refers to a "lower price proposal" by a competing
In a relatively early case, Caltex v. Delgado Brothers,27 this Court made it clear that substantive bidder; and to the right of the original proponent "to match the price" of the challenger. Thus,
amendments to a contract for which a public bidding has already been finished should only be only the price proposals are in play. The terms, conditions and stipulations in the contract for
awarded after another public bidding: which public bidding has been concluded are understood to remain intact and not be subject
to further negotiation. Otherwise, the very essence of public bidding will be destroyed - there
"The due execution of a contract after public bidding is a limitation upon the right of will be no basis for an exact comparison between bids.
the contracting parties to alter or amend it without another public bidding, for
otherwise what would a public bidding be good for if after the execution of a contract Moreover, Piatco misinterpreted the meaning behind PBAC Bid Bulletin No. 3. The
after public bidding, the contracting parties may alter or amend the contract, or even phrase amendments . . . from time to time refers only to those amendments to the draft
cancel it, at their will? Public biddings are held for the protection of the public, and concession agreement issued by the PBAC prior to the submission of the price challenge; it
to give the public the best possible advantages by means of open competition certainly does not include or permit amendments negotiated for and introduced after the
between the bidders. He who bids or offers the best terms is awarded the contract bidding process, has been terminated.
subject of the bid, and it is obvious that such protection and best possible advantages
to the public will disappear if the parties to a contract executed after public bidding
Piatco's Concession Agreement Was Further Amended, (ARCA) Again Without Public Bidding
may alter or amend it without another previous public bidding." 28

Not satisfied with the Concession Agreement, Piatco - once more without bothering with public
The aforementioned case dealt with the unauthorized amendment of a contract executed after
bidding - negotiated with government for still more substantial changes. The result was the
public bidding; in the situation before us, the amendments were made also after the bidding,
Amended and Restated Concession Agreement (ARCA) executed on November 26, 1998. The
but prior to execution. Be that as it may, the same rationale underlying Caltex applies to the
following changes were introduced:
present situation with equal force. Allowing the winning bidder to renegotiate the contract for
which the bidding process has ended is tantamount to permitting it to put in anything it wants.
Here, the winning bidder (Piatco) did not even bother to wait until after actual execution of 1. The definition of Attendant Liabilities was further amended with the result that
the contract before rushing to amend it. Perhaps it believed that if the changes were made to the unpaid loans of Piatco, for which government may be required to answer, are no
a contract already won through bidding (DCA) instead of waiting until it is executed, the longer limited to only those loans recorded in Piatco's books or loans whose
amendments would not be noticed or discovered by the public. proceeds were actually used in the Terminal III project.30

In a later case, Mata v. San Diego,29 this Court reiterated its ruling as follows: 2. Although the contract may be terminated due to breach by Piatco, it will not be
liable to pay the government any Liquidated Damages if a new operator is designated
to take over the operation of the terminal.31
"It is true that modification of government contracts, after the same had been
awarded after a public bidding, is not allowed because such modification serves to
nullify the effects of the bidding and whatever advantages the Government had 3. The Liquidated Damages which government becomes liable for in case of its
secured thereby and may also result in manifest injustice to the other bidders. This breach of contract were substantially increased.32
4. Government's right to appoint a comptroller for Piatco in case the latter more costly short-term borrowing rates instead of the longer-terms rates in the
encounters liquidity problems was deleted.33 computations for adjustments, with the end result that the changes will redound to
its greater financial benefit.
5. Government is made liable for Incremental and Consequential Costs and Losses in
case it fails to comply or cause any third party under its direct or indirect control to 16. The Certificate of Completion simply deleted the successful performance-testing
comply with the special obligations imposed on government.34 of the terminal facility in accordance with defined performance standards as a pre-
condition for government's acceptance of the terminal facility.44
6. The insurance policies obtained by Piatco covering the terminal are now required
to be assigned to the Senior Lenders as security for the loans; previously, their In sum, the foregoing revisions and amendments as embodied in the ARCA constitute very
proceeds were to be used to repair and rehabilitate the facility in case of damage.35 material alterations of the terms and conditions of the CA, and give further manifestly undue
advantage to Piatco at the expense of government. Piatco claims that the changes to the CA
7. Government bound itself to set the initial rate of the terminal fee, to be charged were necessitated by the demands of its foreign lenders. However, no proof whatsoever has
when Terminal III begins operations, at an amount higher than US$20.36 been adduced to buttress this claim.

8. Government waived its defense of the illegality of the contract and even agreed In any event, it is quite patent that the sum total of the aforementioned changes resulted
to be liable to pay damages to Piatco in the event the contract was declared illegal.37 in drastically weakening the position of government to a degree that seems quite excessive,
even from the standpoint of a businessperson who regularly transacts with banks and foreign
lenders, is familiar with their mind-set, and understands what motivates them. On the other
9. Even though government may be entitled to terminate the ARCA on account of
hand, whatever it was that impelled government officials concerned to accede to those grossly
breach by Piatco, government is still liable to pay Piatco the appraised value of
disadvantageous changes, I can only hazard a guess.
Terminal III or the Attendant Liabilities, if the termination occurs before the In-
Service Date.38 This condition contravenes the BOT Law provision on termination
compensation. There is no question in my mind that the ARCA was unauthorized and illegal for lack of public
bidding and for being patently disadvantageous to government.
10. Government is obligated to take the administrative action required for Piatco's
imposition, collection and application of all Public Utility Revenues. 39 No such The Three Supplements Imposed New Obligations on Government, Also Without Prior Public
obligation existed previously. Bidding

11. Government is now also obligated to perform and cause other persons and After Piatco had managed to breach the protective rampart of public bidding, it recklessly went
entities under its direct or indirect control to perform all acts necessary to perfect on a rampage of further assaults on the ARCA.
the security interests to be created in favor of Piatco's Senior Lenders. 40 No such
obligation existed previously. The First Supplement Is as Void as the ARCA

12. DOTC/MIAA's right of intervention in instances where Piatco's Non-Public Utility In the First Supplement ("FS") executed on August 27, 1999, the following changes were made
Revenues become exorbitant or excessive has been removed.41 to the ARCA:

13. The illegality and unenforceability of the ARCA or any of its material provisions 1. The amounts payable by Piatco to government were reduced by allowing
was made an event of default on the part of government only, thus constituting a additional exceptions to the Gross Revenues in which government is supposed to
ground for Piatco to terminate the ARCA.42 participate.45

14. Amounts due from and payable by government under the contract were made 2. Made part of the properties which government is obliged to construct and/or
payable on demand - net of taxes, levies, imposts, duties, charges or fees of any kind maintain and keep in good repair are (a) the access road connecting Terminals II and
except as required by law.43 III - the construction of this access road is the obligation of Piatco, in lieu of its
obligation to construct an Access Tunnel connecting Terminals II and III; and (b) the
15. The Parametric Formula in the contract, which is utilized to compute for taxilane and taxiway - these are likewise part of Piatco's obligations, since they are
adjustments/increases to the public utility revenues (i.e., aircraft parking and tacking part and parcel of the project as described in Clause 1.3 of the Bid Documents .46
fees, check-in counter fee and terminal fee), was revised to permit Piatco to input its
3. The MIAA is obligated to provide funding for the maintenance and repair of the inexistent and inoperative. Second, even assuming arguendo that the ARCA is somehow
airports and facilities owned or operated by it and by third persons under its control. remotely valid, nonetheless the FS, in imposing significant new obligations upon government,
It will also be liable to Piatco for the latter's losses, expenses and damages as well as altered the fundamental terms and stipulations of the ARCA, thus necessitating a public
liability to third persons, in case MIAA fails to perform such obligations. In addition, bidding all over again. That the FS was entered into sans public bidding renders it utterly void
MIAA will also be liable for the incremental and consequential costs of the remedial and inoperative.
work done by Piatco on account of the former's default.47
The Second Supplement Is Similarly Void and Inexistent
4. The FS also imposed on government ten (10) "Additional Special Obligations,"
including the following: The Second Supplement ("SS") was executed between the government and Piatco on
September 4, 2000. It calls for Piatco, acting not as concessionaire of NAIA Terminal III but as
(a) Working for the removal of the general aviation traffic from the NAIA a public works contractor, to undertake - in the government's stead - the clearing, removal,
airport complex48 demolition and disposal of improvements, subterranean obstructions and waste materials at
the project site.57
(b) Providing through MIAA the land required by Piatco for the taxilane and
one taxiway at no cost to Piatco49 The scope of the works, the procedures involved, and the obligations of the contractor are
provided for in Parts II and III of the SS. Section 4.1 sets out the compensation to be paid, listing
(c) Implementing the government's existing storm drainage master plan50 specific rates per cubic meter of materials for each phase of the work - excavation, leveling,
removal and disposal, backfilling and dewatering. The amounts collectible by Piatco are to be
offset against the Annual Guaranteed Payments it must pay government.
(d) Coordinating with DPWH the financing, the implementation and the
completion of the following works before the In-Service Date: three left-
turning overpasses (EDSA to Tramo St., Tramo to Andrews Ave., and Though denominated as Second Supplement, it was nothing less than an entirely new public
Manlunas Road to Sales Ave.);51 and a road upgrade and improvement works contract. Yet it, too, did not undergo any public bidding, for which reason it is also void
program involving widening, repair and resurfacing of Sales Road, Andrews and inoperative.
Avenue and Manlunas Road; improvement of Nichols Interchange; and
removal of squatters along Andrews Avenue.52 Not surprisingly, Piatco had to subcontract the works to a certain Wintrack Builders, a firm
reputedly owned by a former high-ranking DOTC official. But that is another story altogether.
(e) Dealing directly with BCDA and the Phil. Air Force in acquiring additional
land or right of way for the road upgrade and improvement program.53 The Third Supplement Is Likewise Void and Inexistent

5. Government is required to work for the immediate reversion to MIAA of The Third Supplement ("TS"), executed between the government and Piatco on June 22, 2001,
the Nayong Pilipino National Park.54 passed on to the government certain obligations of Piatco as Terminal III concessionaire, with
respect to the surface road connecting Terminals II and III.
6. Government's share in the terminal fees collected was revised from a flat rate of
P180 to 36 percent thereof; together with government's percentage share in the By way of background, at the inception of and forming part of the NAIA Terminal III project
gross revenues of Piatco, the amount will be remitted to government in pesos was the proposed construction of an access tunnel crossing Runway 13/31, which. would
instead of US dollars.55 This amendment enables Piatco to benefit from the further connect Terminal III to Terminal II. The Bid Documents in Section 4.1.2.3[B][i] declared that the
erosion of the peso-dollar exchange rate, while preventing government from said access tunnel was subject to further negotiation; but for purposes of the bidding, the
building up its foreign exchange reserves. proponent should submit a bid for it as well. Therefore, the tunnel was supposed to be part
and parcel of the Terminal III project.
7. All payments from Piatco to government are now to be invoiced to MIAA, and
payments are to accrue to the latter's exclusive benefit. 56 This move appears to be However, in Section 5 of the First Supplement, the parties declared that the access tunnel was
in support of the funds MIAA advanced to DPWH. not economically viable at that time. In lieu thereof, the parties agreed that a surface access
road (now called the T2-T3 Road) was to be constructed by Piatco to connect the two
I must emphasize that the First Supplement is void in two respects. First, it is merely an terminals. Since it was plainly in substitution of the tunnel, the surface road construction
amendment to the ARCA, upon which it is wholly dependent; therefore, since the ARCA is void, should likewise be considered part and parcel of the same project, and therefore part of
inexistent and not capable of being ratified or amended, it follows that the FS too is void, Piatco's obligation as well. While the access tunnel was estimated to cost about P800 million,
the surface road would have a price tag in the vicinity of about P100 million, thus producing government guarantee as "an agreement whereby the government or any of its agencies or
significant savings for Piatco. local government units (will) assume responsibility for the repayment of debt directly incurred
by the project proponent in implementing the project in case of a loan default."
Yet, the Third Supplement, while confirming that Piatco would construct the T2-T3 Road,
nevertheless shifted to government some of the obligations pertaining to the former, as Both the CA and the ARCA have provisions that undeniably create such prohibited government
follows: guarantee. Section 4.04 (c)(iv) to (vi) of the ARCA, which is similar to Section 4.04 of the CA,
provides thus:
1. Government is now obliged to remove at its own expense all tenants, squatters,
improvements and/or waste materials on the site where the T2-T3 road is to be "(iv) that if Concessionaire is in default under a payment obligation owed to the
constructed.58 There was no similar obligation on the part of government insofar as Senior Lenders, and as a result thereof the Senior Lenders have become entitled to
the access tunnel was concerned. accelerate the Senior Loans, the Senior Lenders shall have the right to notify GRP of
the same . . .;
2. Should government fail to carry out its obligation as above described, Piatco may
undertake it on government's behalf, subject to the terms and conditions (including (v) . . . the Senior Lenders may after written notification to GRP, transfer the
compensation payments) contained in the Second Supplement.59 Concessionaire's rights and obligations to a transferee . . .;

3. MIAA will answer for the operation, maintenance and repair of the T2-T3 Road.60 (vi) if the Senior Lenders . . . are unable to . . . effect a transfer . . ., then GRP and the
Senior Lenders shall endeavor . . . to enter into any other arrangement relating to
The TS depends upon and is intended to supplement the ARCA as well as the First Supplement, the Development Facility . . . If no agreement relating to the Development Facility is
both of which are void and inexistent and not capable of being ratified or amended. It follows arrived at by GRP and the Senior Lenders within the said 180-day period, then at the
that the TS is likewise void, inexistent and inoperative. And even if, hypothetically speaking, end thereof the Development Facility shall be transferred by the Concessionaire to
both ARCA and FS are valid, still, the Third Supplement - imposing as it does significant new GRP or its designee and GRP shall make a termination payment to Concessionaire
obligations upon government - would in effect alter the terms and stipulations of the ARCA in equal to the Appraised Value (as hereinafter defined) of the Development Facility or
material respects, thus necessitating another public bidding. Since the TS was not subjected to the sum of the Attendant Liabilities, if greater. . . ."
public bidding, it is consequently utterly void as well. At any rate, the TS created new monetary
obligations on the part of government, for which there were no prior appropriations. Hence it In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA as follows:
follows that the same is void ab initio.
"Attendant Liabilities refer to all amounts in each case supported by verifiable
In patiently tracing the progress of the Piatco contracts from their inception up to the present, evidence from time to time owed or which may become, owing by Concessionaire to
I noted that the whole process was riddled with significant lapses, if not outright irregularity Senior Lenders or any other persons or entities who have provided, loaned or
and wholesale violations of law and public policy. The rationale of beginning at the beginning, advanced funds or provided financial facilities to Concessionaire for the Project,
so to speak, will become evident when the question of what to do with the five Piatco contracts including, without limitation, all principal, interest, associated fees, charges,
is discussed later on. reimbursements, and other related expenses (including the fees, charges and
expenses of any agents or trustees of such persons or entities), whether payable at
In the meantime, I shall take up specific, provisions or changes in the contracts and highlight maturity, by acceleration or otherwise, and further including amounts owed by
the more prominent objectionable features. Concessionaire to its professional consultants and advisers, suppliers, contractors
and sub-contractors."
Government Directly Guarantees Piatco Debts
Government's agreement to pay becomes effective in the event of a default by Piatco on any
of its loan obligations to the Senior Lenders, and the amount to be paid by government is the
Certainly the most discussed provision in the parties' arguments is the one creating an
greater of either the Appraised Value of Terminal III or the aggregate amount of the moneys
unauthorized, direct government guarantee of Piatco's obligations in favor of the lenders.
owed by Piatco - whether to the Senior Lenders or to other entities, including its suppliers,
contractors and subcontractors. In effect, therefore, this agreement already constitutes the
Section 4-A of the BOT Law as amended states that unsolicited proposals, such as the NAIA prohibited assumption by government of responsibility for repayment of Piatco's debts in case
Terminal III Project, may be accepted by government provided inter alia that no of a loan default. In fine, a direct government guarantee.
direct government guarantee, subsidy or equity is required. In short, such guarantee is
prohibited in unsolicited proposals. Section 2(n) of the same legislation defines direct
It matters not that there is a roundabout procedure prescribed by Section 4.04(c)(iv), (v) and This point brings us back to the guarantee itself. In Section 4.04(c)(vi) of ARCA, the amount
(vi) that would require, first, an attempt (albeit unsuccessful) by the Senior Lenders to transfer which government has guaranteed to pay as termination payment is the greater of either (i)
Piatco's rights to a transferee of their choice; and, second, an effort (equally unsuccessful) to the Appraised Value of the terminal facility or (ii) the aggregate of the Attendant Liabilities.
"enter into any other arrangement" with the government regarding the Terminal III facility, Given that the Attendant Liabilities may include practically any Piatco debt under the sun, it is
before government is required to make good on its guarantee. What is abundantly clear is the highly conceivable that their sum may greatly exceed the appraised value of the facility, and
fact that, in the devious labyrinthine process detailed in the aforesaid section, it is entirely government may end up paying very much more than the real worth of Terminal III. (So why
within the Senior Lenders' power, prerogative and control - exercisable via a mere refusal or did government have to bother with public bidding anyway?)
inability to agree upon "a transferee" or "any other arrangement" regarding the terminal
facility - to push the process forward to the ultimate contractual cul-de-sac, wherein In the final analysis, Section 4.04(c)(iv) to (vi) of the ARCA is diametrically at odds with the spirit
government will be compelled to abjectly surrender and make good on its guarantee of and the intent of the BOT Law. The law meant to mobilize private resources (the private sector)
payment. to take on the burden and the risks of financing the construction, operation and maintenance
of relevant infrastructure and development projects for the simple reason that government is
Piatco also argues that there is no proviso requiring government to pay the Senior Lenders in not in a position to do so. By the same token, government guarantee was prohibited, since it
the event of Piatco's default. This is literally true, in the sense that Section 4.04(c)(vi) of ARCA would merely defeat the purpose and raison d'être of a build-operate-and-transfer project to
speaks of government making the termination payment to Piatco, not to the lenders. However, be undertaken by the private sector.
it is almost a certainty that the Senior Lenders will already have made Piatco sign over to them,
ahead of time, its right to receive such payments from government; and/or they may already To the extent that the project proponent is able to obtain loans to fund the project, those risks
have had themselves appointed its attorneys-in-fact for the purpose of collecting and receiving are shared between the project proponent on the one hand, and its banks and other lenders
such payments. on the other. But where the proponent or its lenders manage to cajol or coerce the
government into extending a guarantee of payment of the loan obligations, the risks assumed
Nevertheless, as petitioners-in-intervention pointed out in their Memorandum,61 the by the lenders are passed right back to government. I cannot understand why, in the instant
termination payment is to be made to Piatco, not to the lenders; and there is no provision case, government cheerfully assented to re-assuming the risks of the project when it gave the
anywhere in the contract documents to prevent it from diverting the proceeds to its own prohibited guarantee and thus simply negated the very purpose of the BOT Law and the
benefit and/or to ensure that it will necessarily use the same to pay off the Senior Lenders and protection it gives the government.
other creditors, in order to avert the foreclosure of the mortgage and other liens on the
terminal facility. Such deficiency puts the interests of government at great risk. Indeed, if the Contract Termination Provisions in the Piatco Contracts Are Void
unthinkable were to happen, government would be paying several hundreds of millions of
dollars, but the mortgage liens on the facility may still be foreclosed by the Senior Lenders just
The BOT Law as amended provides for contract termination as follows:
the same.

"Sec. 7. Contract Termination. - In the event that a project is revoked, cancelled or


Consequently, the Piatco contracts are also objectionable for grievously failing to adequately
terminated by the government through no fault of the project proponent or by
protect government's interests. More accurately, the contracts would consistently weaken and
mutual agreement, the Government shall compensate the said project proponent
do away with protection of government interests. As such, they are therefore grossly lopsided
for its actual expenses incurred in the project plus a reasonable rate of return
in favor of Piatco and/or its Senior Lenders.
thereon not exceeding that stated in the contract as of the date of such revocation,
cancellation or termination: Provided, That the interest of the Government in this
While on this subject, it is well to recall the earlier discussion regarding a particularly noticeable instances [sic] shall be duly insured with the Government Service Insurance System
alteration of the concept of "Attendant Liabilities." In Section 1.06 of the CA defining the term, or any other insurance entity duly accredited by the Office of the Insurance
the Piatco debts to be assumed/paid by government were qualified by the phrases recorded Commissioner: Provided, finally, That the cost of the insurance coverage shall be
and from time to time outstanding in the books of the Concessionaire and actually used for the included in the terms and conditions of the bidding referred to above.
project. These phrases were eliminated from the ARCA's definition of Attendant Liabilities.
"In the event that the government defaults on certain major obligations in the
Since no explanation has been forthcoming from Piatco as to the possible justification for such contract and such failure is not remediable or if remediable shall remain unremedied
a drastic change, the only conclusion, possible is that it intends to have all of its debts covered for an unreasonable length of time, the project proponent/contractor may, by prior
by the guarantee, regardless of whether or not they are disclosed in its books. This has notice to the concerned national government agency or local government unit
particular reference to those borrowings which were obtained in violation of the loan specifying the turn-over date, terminate the contract. The project
covenants requiring Piatco to maintain a minimum 70:30 debt-to-equity ratio, and even if the proponent/contractor shall be reasonably compensated by the Government for
loan proceeds were not actually used for the project itself. equivalent or proportionate contract cost as defined in the contract."
The foregoing statutory provision in effect provides for the following limited instances when Furthermore, in those instances where such termination compensation is authorized by the
termination compensation may be allowed: BOT Law, it is indispensable that the interest of government be duly insured. Section 5.08 the
ARCA mandates insurance coverage for the terminal facility; but all insurance policies are to
1. Termination by the government through no fault of the project proponent be assigned, and all proceeds are payable, to the Senior Lenders. In brief, the interest being
secured by such coverage is that of the Senior Lenders, not that of government. This can hardly
be considered compliance with law.
2. Termination upon the parties' mutual agreement

In essence, the ARCA provisions on termination compensation result in another unauthorized


3. Termination by the proponent due to government's default on certain major
government guarantee, this time in favor of Piatco.
contractual obligations

A Prohibited Direct Government Subsidy, Which at the Same Time Is an Assault on the
To emphasize, the law does not permit compensation for the project proponent when contract
National Honor
termination is due to the proponent's own fault or breach of contract.

Still another contractual provision offensive to law and public policy is Section 8.01(d) of the
This principle was clearly violated in the Piatco Contracts. The ARCA stipulates that government
ARCA, which is a "bolder and badder" version of Section 8.04(d) of the CA.
is to pay termination compensation to Piatco even when termination is initiated by
government for the following causes:
It will be recalled that Section 4-A of the BOT Law as amended prohibits not only direct
government guarantees, but likewise a direct government subsidy for unsolicited proposals.
"(i) Failure of Concessionaire to finish the Works in all material respects in
Section 13.2. b. iii. of the 1999 IRR defines a direct government subsidy as encompassing "an
accordance with the Tender Design and the Timetable;
agreement whereby the Government . . . will . . . postpone any payments due from the
proponent."
(ii) Commission by Concessionaire of a material breach of this Agreement . . .;
Despite the statutory ban, Section 8.01 (d) of the ARCA provides thus:
(iii) . . . a change in control of Concessionaire arising from the sale, assignment,
transfer or other disposition of capital stock which results in an ownership structure
"(d) The provisions of Section 8.01(a) notwithstanding, and for the purpose of
violative of statutory or constitutional limitations;
preventing a disruption of the operations in the Terminal and/or Terminal Complex,
in the event that at any time Concessionaire is of the reasonable opinion that it shall
(iv) A pattern of continuing or repeated non-compliance, willful violation, or non- be unable to meet a payment obligation owed to the Senior Lenders, Concessionaire
performance of other terms and conditions hereof which is hereby deemed a shall give prompt notice to GRP, through DOTC/MIAA and to the Senior Lenders. In
material breach of this Agreement . . ."62 such circumstances, the Senior Lenders (or the Senior Lenders' Representative) may
ensure that after making provision for administrative expenses and depreciation, the
As if that were not bad enough, the ARCA also inserted into Section 8.01 the phrase "Subject cash resources of Concessionaire shall first be used and applied to meet all payment
to Section 4.04." The effect of this insertion is that in those instances where government may obligations owed to the Senior Lenders. Any excess cash, after meeting such payment
terminate the contract on account of Piatco's breach, and it is nevertheless required under the obligations, shall be earmarked for the payment of all sums payable by
ARCA to make termination compensation to Piatco even though unauthorized by law, such Concessionaire to GRP under this Agreement. If by reason of the foregoing GRP
compensation is to be equivalent to the payment amount guaranteed by government - either should be unable to collect in full all payments due to GRP under this Agreement,
a) the Appraised Value of the terminal facility or (b) the aggregate of the Attendant Liabilities, then the unpaid balance shall be payable within a 90-day grace period counted from
whichever amount is greater! the relevant due date, with interest per annum at the rate equal to the average 91-
day Treasury Bill Rate as of the auction date immediately preceding the relevant due
Clearly, this condition is not in line with Section 7 of the BOT Law. That provision permits a date. If payment is not effected by Concessionaire within the grace period, then a
project proponent to recover the actual expenses it incurred in the prosecution of the project spread of five (5%) percent over the applicable 91-day Treasury Bill Rate shall be
plus a reasonable rate of return not in excess of that provided in the contract; or to be added on the unpaid amount commencing on the expiry of the grace period up to
compensated for the equivalent or proportionate contract cost as defined in the contract, in the day of full payment. When the temporary illiquidity of Concessionaire shall have
case the government is in default on certain major contractual obligations. been corrected and the cash position of Concessionaire should indicate its ability to
meet its maturing obligations, then the provisions set forth under this Section 8.01(d)
shall cease to apply. The foregoing remedial measures shall be applicable only while
there remains unpaid and outstanding amounts owed to the Senior Lenders." Section 11 of Article XII of the Constitution prohibits the grant of a "franchise, certificate, or
(Emphasis supplied) any other form of authorization for the operation of a public utility" that is "exclusive in
character."
By any manner of interpretation or application, Section 8.01(d) of the ARCA clearly mandates
the indefinitepostponement of payment of all of Piatco's obligations to the government, in In its Opinion No. 078, Series of 1995, the Department of justice held that "the NAIA Terminal
order to ensure that Piatco's obligations to the Senior Lenders are paid in full first. That is III which . . . is a 'terminal for public use' is a public utility." Consequently, the constitutional
nothing more or less than the direct government subsidy prohibited by the BOT Law and the prohibition against the exclusivity of a franchise applies to the franchise for the operation of
IRR. The fact that Piatco will pay interest on the unpaid amounts owed to government does NAIA Terminal III as well.
not change the situation or render the prohibited subsidy any less unacceptable.
What was granted to Piatco was not merely a franchise, but an "exclusive right" to operate an
But beyond the clear violations of law, there are larger issues involved in the ARCA. Earlier, I international passenger terminal within the "Island of Luzon." What this grant effectively
mentioned that Section 8.01(d) of the ARCA completely eliminated the proviso in Section means is that the government is now estopped from exercising its inherent power to award
8.04(d) of the CA which gave government the right to appoint a financial controller to manage any other person another franchise or a right to operate such a public utility, in the event public
the cash position of Piatco during situations of financial distress. Not only has government interest in Luzon requires it. This restriction is highly detrimental to government and to the
been deprived of any means of monitoring and managing the situation; worse, as can be seen public interest. Former Secretary of Justice Hernando B. Perez expressed this point well in his
from Section 8.01(d) above-quoted, the Senior Lenders have effectively locked in on the right Memorandum for the President dated 21 May 2002:
to exercise financial controllership over Piatco and to allocate its cash resources to the
payment of all amounts owed to the Senior Lenders before allowing any payment to be made "Section 3.02 on 'Exclusivity'
to government.
"This provision gives to PIATCO (the Concessionaire) the exclusive right to operate a
In brief, this particular provision of the ARCA has placed in the hands of foreign lenders the commercial international airport within the Island of Luzon with the exception of
power and the authority to determine how much (if at all) and when the Philippine government those already existing at the time of the execution of the Agreement, such as the
(as grantor of the franchise) may be allowed to receive from Piatco. In that situation, airports at Subic, Clark and Laoag City. In the case of the Clark International Airport,
government will be at the mercy of the foreign lenders. This is a situation completely contrary however, the provision restricts its operation beyond its design capacity of 850,000
to the rationale of the BOT Law and to public policy. passengers per annum and the operation of new terminal facilities therein until after
the new NAIA Terminal III shall have consistently reached or exceeded its design
The aforesaid provision rouses mixed emotions - shame and disgust at the parties' (especially capacity of ten (10) million passenger capacity per year for three (3) consecutive
the government officials') docile submission and abject servitude and surrender to the years during the concession period.
imperious and excessive demands of the foreign lenders, on the one hand; and vehement
outrage at the affront to the sovereignty of the Republic and to the national honor, on the "This is an onerous and disadvantageous provision. It effectively grants PIATCO
other. It is indeed time to put an end to such an unbearable, dishonorable situation. a monopoly in Luzon and ties the hands of government in the matter of developing
new airports which may be found expedient and necessary in carrying out any future
The Piatco Contracts Unarguably Violate Constitutional Injunctions plan for an inter-modal transportation system in Luzon.

I will now discuss the manner in which the Piatco Contracts offended the Constitution. "Additionally, it imposes an unreasonable restriction on the operation of the Clark
International Airport which could adversely affect the operation and development
The Exclusive Right Granted to Piatco to Operate a Public Utility Is Prohibited by the of the Clark Special Economic Zone to the economic prejudice of the local
Constitution constituencies that are being benefited by its operation." (Emphasis supplied)

While Section 2.02 of the ARCA spoke of granting to Piatco "a franchise to operate and While it cannot be gainsaid that an enterprise that is a public utility may happen to constitute
maintain the Terminal Complex," Section 3.02(a) of the same ARCA granted to Piatco, for the a monopoly on account of the very nature of its business and the absence of competition, such
entire term of the concession agreement, "the exclusive right to operate a commercial a situation does not however constitute justification to violate the constitutional prohibition
international passenger terminal within the Island of Luzon" with the exception of those three and grant an exclusive franchise or exclusive right to operate a public utility.
terminals already existing63 at the time of execution of the ARCA.
Piatco's contention that the Constitution does not actually prohibit monopolies is beside the
point. As correctly argued,64 the existence of a monopoly by a public utility is a situation
created by circumstances that do not encourage competition. This situation is different from to the concessionaire (Piatco) will be on "installment basis," interest charges on the remaining
the grant of a franchise to operate a public utility, a privilege granted by government. Of unpaid balance would undoubtedly cause the total outstanding balance to swell. Piatco would
course, the grant of a franchise may result in a monopoly. But making such thus be entitled to remain in the driver's seat and keep operating the terminal for an indefinite
franchise exclusive is what is expressly proscribed by the Constitution. length of time.

Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed exclusivity; The Contracts Create Two Monopolies for Piatco
it also guaranteed that the government will not improve or expand the facilities at Clark - and
in fact is required to put a cap on the latter's operations - until after Terminal III shall have By way of background, two monopolies were actually created by the Piatco contracts. The first
been operated at or beyond its peak capacity for three consecutive years.65 As counsel for and more obvious one refers to the business of operating an international passenger terminal
public respondents pointed out, in the real world where the rate of influx of international in Luzon, the business end of which involves providing international airlines with parking space
passengers can fluctuate substantially from year to year, it may take many years before for their aircraft, and airline passengers with the use of departure and arrival areas, check-in
Terminal III sees three consecutive years' operations at peak capacity. The Diosdado counters, information systems, conveyor systems, security equipment and paraphernalia,
Macapagal International Airport may thus end up stagnating for a long time. Indeed, in order immigrations and customs processing areas; and amenities such as comfort rooms, restaurants
to ensure greater profits for Piatco, the economic progress of a region has had to be sacrificed. and shops.

The Piatco Contracts Violate the Time Limitation on Franchises In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA Terminal III
will be the only facility to be operated as an international passenger terminal;66 that NAIA
Section 11 of Article XII of the Constitution also provides that "no franchise, certificate or any Terminals I and II will no longer be operated as such; 67 and that no one (including the
other form of authorization for the operation of a public utility shall be . . . for a longer period government) will be allowed to compete with Piatco in the operation of an international
than fifty years." After all, a franchise held for an unreasonably long time would likely give rise passenger terminal in the NAIA Complex.68 Given that, at this time, the government and Piatco
to the same evils as a monopoly. are the only ones engaged in the business of operating an international passenger terminal, I
am not acutely concerned with this particular monopolistic situation.
The Piatco Contracts have come up with an innovative way to circumvent the prohibition and
obtain an extension. This fact can be gleaned from Section 8.03(b) of the ARCA, which I quote There was however another monopoly within the NAIA created by the subject contracts for
thus: Piatco - in the business of providing international airlines with the following: groundhandling,
in-flight catering, cargo handling, and aircraft repair and maintenance services. These are lines
"Sec. 8.03. Termination Procedure and Consequences of Termination. - of business activity in which are engaged many service providers (including the petitioners-in-
intervention), who will be adversely affected upon full implementation of the Piatco Contracts,
particularly Sections 3.01(d)69 and (e)70 of both the ARCA and the CA.
a) x x x xxx xxx

On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only international
b) In the event the Agreement is terminated pursuant to Section 8.01 (b)
passenger terminal at the NAIA, and therefore the only place within the NAIA Complex where
hereof, Concessionaire shall be entitled to collect the Liquidated Damages
the business of providing airport-related services to international airlines may be conducted.
specified in Annex 'G'. The full payment by GRP to Concessionaire of the
On the other hand, Section 3.01(d) of the ARCA requires government, through the MIAA, not
Liquidated Damages shall be a condition precedent to the transfer by
to allow service providers with expired MIAA contracts to renew or extend their contracts to
Concessionaire to GRP of the Development Facility. Prior to the full
render airport-related services to airlines. Meanwhile, Section 3.01(e) of the ARCA requires
payment of the Liquidated Damages, Concessionaire shall to the extent
government, through the DOTC and MIAA, not to allow service providers - those with
practicable continue to operate the Terminal and the Terminal Complex
subsisting concession agreements for services and operations being conducted at Terminal I -
and shall be entitled to retain and withhold all payments to GRP for the
to carry over their concession agreements, services and operations to Terminal III, unless they
purpose of offsetting the same against the Liquidated Damages. Upon full
first enter into a separate agreement with Piatco.
payment of the Liquidated Damages, Concessionaire shall immediately
transfer the Development Facility to GRP on 'as-is-where-is' basis."
The aforementioned provisions vest in Piatco effective and exclusive control over which service
provider may and may not operate at Terminal III and render the airport-related services
The aforesaid easy payment scheme is less beneficial than it first appears. Although it enables
needed by international airlines. It thereby possesses the power to exclude competition. By
government to avoid having to make outright payment of an obligation that will likely run into
necessary implication, it also has effective control over the fees and charges that will be
billions of pesos, this easy payment plan will nevertheless cost government considerable loss
imposed and collected by these service providers.
of income, which it would earn if it were to operate Terminal III by itself. Inasmuch as payments
This intention is exceedingly clear in the declaration by Piatco that it is "completely within its "A monopoly is a privilege or peculiar advantage vested in one or more persons or
rights to exclude any party that it has not contracted with from NAIA Terminal III."71 companies, consisting in the exclusive right or power to carry on a particular business
or trade, manufacture a particular article, or control the sale or the whole supply of
Worse, there is nothing whatsoever in the Piatco Contracts that can serve to restrict, control a particular commodity. It is a form of market structure in which one or only a few
or regulate the concessionaire's discretion and power to reject any service provider and/or firms dominate the total sales of a product or service. On the other hand, a
impose any term or condition it may see fit in any contract it enters into with a service provider. combination in restraint of trade is an agreement or understanding between two or
In brief, there is no safeguard whatsoever to ensure free and fair competition in the service- more persons, in the form of a contract, trust, pool, holding company, or other form
provider sector. of association, for the purpose of unduly restricting competition, monopolizing trade
and commerce in a certain commodity, controlling its production, distribution and
price, or otherwise interfering with freedom of trade without statutory authority.
In the meantime, and not surprisingly, Piatco is first in line, ready to exploit the unique business
Combination in restraint of trade refers to the means while monopoly refers to the
opportunity. It announced72 that it has accredited three groundhandlers for Terminal III. Aside
end.
from the Philippine Airlines, the other accredited entities are the Philippine Airport and Ground
Services Globeground, Inc. ("PAGSGlobeground") and the Orbit Air Systems, Inc. ("Orbit").
PAGSGlobeground is a wholly-owned subsidiary of the Philippine Airport and Ground Services, "x x x xxx xxx
Inc. or PAGS,73 while Orbit is a wholly-owned subsidiary of Friendship Holdings, Inc.,74 which is
in turn owned 80 percent by PAGS.75 PAGS is a service provider owned 60 percent by the Cheng "Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It
Family;76 it is a stockholder of 35 percent of Piatco77 and is the latter's designated contractor- espouses competition. The desirability of competition is the reason for the
operator for NAIA Terminal III.78 prohibition against restraint of trade, the reason for the interdiction of unfair
competition, and the reason for regulation of unmitigated monopolies. Competition
Such entry into and domination of the airport-related services sector appear to be very much is thus the underlying principle of [S]ection 19, Article XII of our Constitution, . . ."81
in line with the following provisions contained in the First Addendum to the Piatco
Shareholders Agreement,79 executed on July 6, 1999, which appear to constitute a sort of Gokongwei Jr. v. Securities and Exchange Commission82 elucidates the criteria to be employed:
master plan to create a monopoly and combinations in restraint of trade: "A 'monopoly' embraces any combination the tendency of which is to prevent competition in
the broad and general sense, or to control prices to the detriment of the public. In short, it is
"11. The Shareholders shall ensure: the concentration of business in the hands of a few. The material consideration in determining
its existence is not that prices are raised and competition actually excluded, but that power
exists to raise prices or exclude competition when desired."83 (Emphasis supplied)
a. x x x xxx x x x.;

The Contracts Encourage Monopolistic Pricing, Too


b. That (Phil. Airport and Ground Services, Inc.) PAGS and/or its designated Affiliates
shall, at all times during the Concession Period, be exclusively authorized by (PIATCO)
to engage in the provision of ground-handling, catering and fueling services within Aside from creating a monopoly, the Piatco contracts also give the concessionaire virtually
the Terminal Complex. limitless power over the charging of fees, rentals and so forth. What little "oversight function"
the government might be able and minded to exercise is less than sufficient to protect the
public interest, as can be gleaned from the following provisions:
c. That PAIRCARGO and/or its designated Affiliate shall, during the Concession
Period, be the only entities authorized to construct and operate a warehouse for all
cargo handling and related services within the Site." "Sec. 6.06. Adjustment of Non-Public Utility Fees and Charges

Precisely, proscribed by our Constitution are the monopoly and the restraint of trade being "For fees, rentals and charges constituting Non-Public Utility Revenues,
fostered by the Piatco Contracts through the erection of barriers to the entry of other service Concessionaire may make any adjustments it deems appropriate without need for
providers into Terminal III. In Tatad v. Secretary of the Department of Energy,80 the Court ruled: the consent of GRP or any government agency subject to Sec. 6.03(c)."

". . . [S]ection 19 of Article XII of the Constitution . . . mandates: 'The State shall Section 6.03(c) in turn provides:
regulate or prohibit monopolies when the public interest so requires. No
combinations in restraint of trade or unfair competition shall be allowed.' "(c) Concessionaire shall at all times be judicious in fixing fees and charges
constituting Non-Public Utility Revenues in order to ensure that End Users are not
unreasonably deprived of services. While the vehicular parking fee, porterage fee
and greeter/wellwisher fee constitute Non-Public Utility Revenues of means of livelihood. This situation comprises still another violation of the constitution
Concessionaire, GRP may require Concessionaire to explain and justify the fee it may prohibition against deprivation of property without due process.
set from time to time, if in the reasonable opinion of GRP the said fees have become
exorbitant resulting in the unreasonable deprivation of End Users of such services." True, doing business at the NAIA may be viewed more as a privilege than as a right.
Nonetheless, where that privilege has been availed of by the petitioners-in-intervention
It will be noted that the above-quoted provision has no teeth, so the concessionaire can defy service providers for years on end, a situation arises, similar to that in American Inter-fashion
the government without fear of any sanction. Moreover, Section 6.06 - taken together with v. GTEB.89 We held therein that a privilege enjoyed for seven years "evolved into some form of
Section 6.03(c) of the ARCA - falls short of the standard set by the BOT Law as amended, which property right which should not be removed x x x arbitrarily and without due process." Said
expressly requires in Section 2(b) that the project proponent is "allowed to charge facility users pronouncement is particularly relevant and applicable to the situation at bar because the
appropriate tolls, fees, rentals and charges not exceeding those proposed in its bid or as livelihood of the employees of petitioners-intervenors are at stake.
negotiated and incorporated in the contract x x x."
The Piatco Contracts Violate Constitutional Prohibition
The Piatco Contracts Violate Constitutional Prohibitions Against Against Deprivation of Liberty Without Due Process
Impairment of Contracts and Deprivation of Property Without Due Process
The Piatco Contracts by locking out existing service providers from entry into Terminal III and
Earlier, I discussed how Section 3.01(e)84 of both the CA and the ARCA requires government, restricting entry of future service providers, thereby infringed upon the freedom - guaranteed
through DOTC/MIAA, not to permit the carry-over to Terminal III of the services and operations to and heretofore enjoyed by international airlines - to contract with local service providers of
of certain service providers currently operating at Terminal I with subsisting contracts. their choice, and vice versa.

By the In-Service Date, Terminal III shall be the only facility to be operated as an international Both the service providers and their client airlines will be deprived of the right to liberty, which
passenger terminal at the NAIA;85 thus, Terminals I and II shall no longer operate as such,86 and includes the right to enter into all contracts,90 and/or the right to make a contract in relation
no one shall be allowed to compete with Piatco in the operation of an international passenger to one's business.91
terminal in the NAIA.87 The bottom line is that, as of the In-Service Date, Terminal III will be the
only terminal where the business of providing airport-related services to international airlines By Creating New Financial Obligations for Government,
and passengers may be conducted at all. Supplements to the ARCA Violate the Constitutional
Ban on Disbursement of Public Funds Without Valid Appropriation
Consequently, government through the DOTC/MIAA will be compelled to cease honoring
existing contracts with service providers after the In-Service Date, as they cannot be allowed Clearly prohibited by the Constitution is the disbursement of public funds out of the treasury,
to operate in Terminal III. except in pursuance of an appropriation made by law.92 The immediate effect of this
constitutional ban is that all the various agencies of government are constrained to limit their
In short, the CA and the ARCA obligate and constrain government to break its existing contracts expenditures to the amounts appropriated by law for each fiscal year; and to carefully count
with these service providers. their cash before taking on contractual commitments. Giving flesh and form to the injunction
of the fundamental law, Sections 46 and 47 of Executive Order 292, otherwise known as the
Notably, government is not in a position to require Piatco to accommodate the displaced Administrative Code of 1987, provide as follows:
service providers, and it would be unrealistic to think that these service providers can perform
their service contracts in some other international airport outside Luzon. Obviously, then, "Sec. 46. Appropriation Before Entering into Contract. - (1) No contract involving the
these displaced service providers are - to borrow a quaint expression - up the river without a expenditure of public funds shall be entered into unless there is an appropriation
paddle. In plainer terms, they will have lost their businesses entirely, in the blink of an eye. therefor, the unexpended balance of which, free of other obligations, is sufficient to
cover the proposed expenditure; and . .
What we have here is a set of contractual provisions that impair the obligation of contracts
and contravene the constitutional prohibition against deprivation of property without due "Sec. 47. Certificate Showing Appropriation to Meet Contract. - Except in the case of
process of law.88 a contract for personal service, for supplies for current consumption or to be carried
in stock not exceeding the estimated consumption for three (3) months, or banking
Moreover, since the displaced service providers, being unable to operate, will be forced to transactions of government-owned or controlled banks, no contract involving the
close shop, their respective employees - among them Messrs. Agan and Lopez et al. - have very expenditure of public funds by any government agency shall be entered into or
grave cause for concern, as they will find themselves out of employment and bereft of their authorized unless the proper accounting official of the agency concerned shall have
certified to the officer entering into the obligation that funds have been duly and Manlunas Road; improvement of Nichols Interchange; and removal of
appropriated for the purpose and that the amount necessary to cover the proposed squatters along Andrews Avenue
contract for the current calendar year is available for expenditure on account o Dealing directly with BCDA and the Philippine Air Force in acquiring
thereof, subject to verification by the auditor concerned. The certificate signed by additional land or right of way for the road upgrade and improvement
the proper accounting official and the auditor who verified it, shall be attached to program
and become an integral part of the proposed contract, and the sum so certified shall o Requiring government to work for the immediate reversion to MIAA of the
not thereafter be available for expenditure for any other purpose until the obligation Nayong Pilipino National Park, in order to permit the building of the second
of the government agency concerned under the contract is fully extinguished." west parallel taxiway

Referring to the aforequoted provisions, this Court has held that "(I)t is quite evident from the • Section 5 of the FS also provides that in lieu of the access tunnel, a surface access
tenor of the language of the law that the existence of appropriations and the availability of road (T2-T3) will be constructed. This provision requires government to expend
funds are indispensable pre-requisites to or conditions sine qua non for the execution of funds to purchase additional land from Nayong Pilipino and to clear the same in
government contracts. The obvious intent is to impose such conditions as a priori requisites to order to be able to deliver clean possession of the site to Piatco, as required in
the validity of the proposed contract."93 Section 5(c) of the FS.

Notwithstanding the constitutional ban, statutory mandates and Jurisprudential precedents, On the other hand, the Third Supplement ("TS") obligates the government to deliver, within
the three Supplements to the ARCA, which were not approved by NEDA, imposed on 120 days from date thereof, clean possession of the land on which the T2-T3 Road is to be
government the additional burden of spending public moneys without prior appropriation. constructed.

In the First Supplement ("FS") dated August 27, 1999, the following requirements were The foregoing contractual stipulations undeniably impose on government the expenditures of
imposed on the government: public funds not included in any congressional appropriation or authorized by any other
statute. Piatco however attempts to take these stipulations out of the ambit of Sections 46 and
• To construct, maintain and keep in good repair and operating condition all airport 47 of the Administrative Code by characterizing them as stipulations for compliance on a "best-
support services, facilities, equipment and infrastructure owned and/or operated by efforts basis" only.
MIAA, which are not part of the Project or which are located outside the Site, even
though constructed by Concessionaire - including the access road connecting To determine whether the additional obligations under the Supplements may really be
Terminals II and III and the taxilane, taxiways and runways undertaken on a best-efforts basis only, the nature of each of these obligations must be
examined in the context of its relevance and significance to the Terminal III Project, as well as
• To obligate the MIAA to provide funding for the upkeep, maintenance and repair of any adverse impact that may result if such obligation is not performed or undertaken on
of the airports and facilities owned or operated by it and by third persons under its time. In short, the criteria for determining whether the best-efforts basis will apply is whether
control in order to ensure compliance with international standards; and holding the obligations are critical to the success of the Project and, accordingly, whether failure to
MIAA liable to Piatco for the latter's losses, expenses and damages as well as for the perform them (or to perform them on time) could result in a material breach of the contract.
latter's liability to third persons, in case MIAA fails to perform such obligations; in
addition, MIAA will also be liable for the incremental and consequential costs of the Viewed in this light, the "Additional Special Obligations" set out in Section 4 of the FS take on
remedial work done by Piatco on account of the former's default. a different aspect. In particular, each of the following may all be deemed to play a major role
in the successful and timely prosecution of the Terminal III Project: the obtention of land
• Section 4 of the FS imposed on government ten (10) "Additional Special required by PIATCO for the taxilane and taxiway; the implementation of government's existing
Obligations," including the following: storm drainage master plan; and coordination with DPWH for the completion of the three left-
turning overpasses before the In-Service Date, as well as acquisition and delivery of additional
land for the construction of the T2-T3 access road.
o Providing thru MIAA the land required by Piatco for the taxilane and one
taxiway, at no cost to Piatco
o Implementing the government's existing storm drainage master plan Conversely, failure to deliver on any of these obligations may conceivably result in substantial
o Coordinating with DPWH the financing, implementation and completion of prejudice to the concessionaire, to such an extent as to constitute a material breach of the
the following works before the In-Service Date: three left-turning Piatco Contracts. Whereupon, the concessionaire may outrightly terminate the Contracts
overpasses (Edsa to Tramo St., Tramo to Andrews Ave., and Manlunas pursuant to Section 8.01(b)(i) and (ii) of the ARCA and seek payment of Liquidated Damages in
Road to Sales Ave.) and a road upgrade and improvement program accordance with Section 8.02(a) of the ARCA; or the concessionaire may instead require
involving widening, repair and resurfacing of Sales Road, Andrews Avenue government to pay the Incremental and Consequential Losses under Section 1.23 of the
ARCA.94The logical conclusion then is that the obligations in the Supplements are not to be In the final analysis, there remains but one ultimate question, which I raised during the Oral
performed on a best-efforts basis only, but are unarguably mandatory in character. Argument on December 10, 2002: What do we do with the Piatco Contracts and Terminal
III?96 (Feeding directly into the resolution of the decisive question is the other nagging issue:
Regarding MIAA's obligation to coordinate with the DPWH for the complete implementation Why should we bother with determining the legality and validity of these contracts, when the
of the road upgrading and improvement program for Sales, Andrews and Manlunas Roads Terminal itself has already been built and is practically complete?)
(which provide access to the Terminal III site) prior to the In-Service Date, it is essential to take
note of the fact that there was a pressing need to complete the program before the opening Prescinding from all the foregoing disquisition, I find that all the Piatco contracts, without
of Terminal III.95 For that reason, the MIAA was compelled to enter into a memorandum of exception, are void ab initio, and therefore inoperative. Even the very process by which the
agreement with the DPWH in order to ensure the timely completion of the road widening and contracts came into being - the bidding and the award - has been riddled with irregularities
improvement program. MIAA agreed to advance the total amount of P410.11 million to DPWH galore and blatant violations of law and public policy, far too many to ignore. There is thus no
for the works, while the latter was committed to do the following: conceivable way, as proposed by some, of saving one (the original Concession Agreement)
while junking all the rest.
"2.2.8. Reimburse all advance payments to MIAA including but not limited to
interest, fees, plus other costs of money within the periods CY2004 and CY2006 with Neither is it possible to argue for the retention of the Draft Concession Agreement (referred
payment of no less than One Hundred Million Pesos (PhP100M) every year. to in the various pleadings as the Contract Bidded Out) as the contract that should be kept in
force and effect to govern the situation, inasmuch as it was never executed by the parties.
"2.2.9. Perform all acts necessary to include in its CY2004 to CY2006 budget What Piatco and the government executed was the Concession Agreement which is entirely
allocation the repayments for the advances made by MIAA, to ensure that the different from the Draft Concession Agreement.
advances are fully repaid by CY2006. For this purpose, DPWH shall include the
amounts to be appropriated for reimbursement to MIAA in the "Not Needing Ultimately, though, it would be tantamount to an outrageous, grievous and unforgivable
Clearance" column of their Agency Budget Matrix (ABM) submitted to the mutilation of public policy and an insult to ourselves if we opt to keep in place a contract - any
Department of Budget and Management." contract - for to do so would assume that we agree to having Piatco continue as the
concessionaire for Terminal III.
It can be easily inferred, then, that DPWH did not set aside enough funds to be able to complete
the upgrading program for the crucially situated access roads prior to the targeted opening Despite all the insidious contraventions of the Constitution, law and public policy Piatco
date of Terminal III; and that, had MIAA not agreed to lend the P410 Million, DPWH would not perpetrated, keeping Piatco on as concessionaire and even rewarding it by allowing it to
have been able to complete the program on time. As a consequence, government would have operate and profit from Terminal III - instead of imposing upon it the stiffest sanctions
been in breach of a material obligation. Hence, this particular undertaking of government may permissible under the laws - is unconscionable.
likewise not be construed as being for best-efforts compliance only.
It is no exaggeration to say that Piatco may not really mind which contract we decide to keep
They also Infringe on the Legislative Prerogative and Power Over the Public Purse in place. For all it may care, we can do just as well without one, if we only let it continue and
operate the facility. After all, the real money will come not from building the Terminal, but
But the particularly sad thing about this transaction between MIAA and DPWH is the fact that from actually operating it for fifty or more years and charging whatever it feels like, without
both agencies were maneuvered into (or allowed themselves to be maneuvered into) an any competition at all. This scenario must not be allowed to happen.
agreement that would ensure delivery of upgraded roads for Piatco's benefit, using funds not
allocated for that purpose. The agreement would then be presented to Congress as a done If the Piatco contracts are junked altogether as I think they should be, should not AEDC
deal. Congress would thus be obliged to uphold the agreement and support it with the automatically be considered the winning bidder and therefore allowed to operate the facility?
necessary allocations and appropriations for three years, in order to enable DPWH to deliver My answer is a stone-cold 'No'. AEDC never won the bidding, never signed any contract, and
on its committed repayments to MIAA. The net result is an infringement on the legislative never built any facility. Why should it be allowed to automatically step in and benefit from the
power over the public purse and a diminution of Congress' control over expenditures of public greed of another?
funds - a development that would not have come about, were it not for the Supplements. Very
clever but very illegal! Should government pay at all for reasonable expenses incurred in the construction of the
Terminal? Indeed it should, otherwise it will be unjustly enriching itself at the expense of Piatco
EPILOGUE and, in particular, its funders, contractors and investors - both local and foreign. After all, there
What Do We Do Now? is no question that the State needs and will make use of Terminal III, it being part and parcel
of the critical infrastructure and transportation-related programs of government.
In Melchor v. Commission on Audit,97 this Court held that even if the contract therein was void,
the principle of payment by quantum meruit was found applicable, and the contractor was
allowed to recover the reasonable value of the thing or services rendered (regardless of any
agreement as to the supposed value), in order to avoid unjust enrichment on the part of
government. The principle of quantum meruit was likewise applied in Eslao v. Commission on
Audit,98 because to deny payment for a building almost completed and already occupied would
be to permit government to unjustly enrich itself at the expense of the contractor. The same
principle was applied in Republic v. Court of Appeals.99

One possible practical solution would be for government - in view of the nullity of the Piatco
contracts and of the fact that Terminal III has already been built and is almost finished - to bid
out the operation of the facility under the same or analogous principles as build-operate-and-
transfer projects. To be imposed, however, is the condition that the winning bidder must pay
the builder of the facility a price fixed by government based on quantum meruit; on the real,
reasonable - not inflated - value of the built facility.

How the payment or series of payments to the builder, funders, investors and contractors will
be staggered and scheduled, will have to be built into the bids, along with the annual
guaranteed payments to government. In this manner, this whole sordid mess could result in
something truly beneficial for all, especially for the Filipino people.

WHEREFORE, I vote to grant the Petitions and to declare the subject contracts NULL and VOID.
[G.R. No. 155336. November 25, 2004] purchase of books, journals, periodicals and equipment; (d) necessary expenses for the
COMMISSION ON HUMAN RIGHTS EMPLOYEES ASSOCIATION (CHREA) Represented by its employment of temporary, contractual and casual employees; (e) payment of extraordinary
President, MARCIAL A. SANCHEZ, JR., petitioner, vs. COMMISSION ON HUMAN and miscellaneous expenses, commutable representation and transportation allowances, and
RIGHTS, respondent. fringe benefits for their officials and employees as may be authorized by law; and (f) other
official purposes, subject to accounting and auditing rules and regulations. (Emphases
DECISION supplied)

CHICO-NAZARIO, J.: On the strength of these special provisions, the CHR, through its then Chairperson Aurora
P. Navarette-Recia and Commissioners Nasser A. Marohomsalic, Mercedes V. Contreras,
Can the Commission on Human Rights lawfully implement an upgrading and Vicente P. Sibulo, and Jorge R. Coquia, promulgated Resolution No. A98-047 on 04 September
reclassification of personnel positions without the prior approval of the Department of Budget 1998, adopting an upgrading and reclassification scheme among selected positions in the
and Management? Commission, to wit:

Before this Court is a petition for review filed by petitioner Commission on Human Rights
Employees Association (CHREA) challenging the Decision[1] dated 29 November 2001 of the WHEREAS, the General Appropriations Act, FY 1998, R.A. No. 8522 has provided special
Court of Appeals in CA-G.R. SP No. 59678 affirming the Resolutions[2] dated 16 December 1999 provisions applicable to all Constitutional Offices enjoying Fiscal Autonomy, particularly on
and 09 June 2000 of the Civil Service Commission (CSC), which sustained the validity of the organizational structures and authorizes the same to formulate and implement the
upgrading and reclassification of certain personnel positions in the Commission on Human organizational structures of their respective offices to fix and determine the salaries,
Rights (CHR) despite the disapproval thereof by the Department of Budget and Management allowances and other benefits of their personnel and whenever public interest so requires,
(DBM). Also assailed is the resolution dated 11 September 2002 of the Court of Appeals make adjustments in the personnel services itemization including, but not limited to, the
denying the motion for reconsideration filed by petitioner. transfer of item or creation of new positions in their respective offices: PROVIDED, That officers
and employees whose positions are affected by such reorganization or adjustments shall be
The antecedent facts which spawned the present controversy are as follows: granted retirement gratuities and separation pay in accordance with existing laws, which shall
be payable from any unexpanded balance of, or savings in the appropriations of their
On 14 February 1998, Congress passed Republic Act No. 8522, otherwise known as the respective offices;
General Appropriations Act of 1998. It provided for Special Provisions Applicable to All
Constitutional Offices Enjoying Fiscal Autonomy. The last portion of Article XXXIII covers the
WHEREAS, the Commission on Human Rights is a member of the Constitutional Fiscal
appropriations of the CHR. These special provisions state:
Autonomy Group (CFAG) and on July 24, 1998, CFAG passed an approved Joint Resolution No.
49 adopting internal rules implementing the special provisions heretoforth mentioned;
1. Organizational Structure. Any provision of law to the contrary notwithstanding and within
the limits of their respective appropriations as authorized in this Act, the Constitutional
NOW THEREFORE, the Commission by virtue of its fiscal autonomy hereby approves and
Commissions and Offices enjoying fiscal autonomy are authorized to formulate and implement
authorizes the upgrading and augmentation of the commensurate amount generated from
the organizational structures of their respective offices, to fix and determine the salaries,
savings under Personal Services to support the implementation of this resolution effective
allowances, and other benefits of their personnel, and whenever public interest so requires,
Calendar Year 1998;
make adjustments in their personal services itemization including, but not limited to, the
transfer of item or creation of new positions in their respective offices: PROVIDED, That officers
and employees whose positions are affected by such reorganization or adjustments shall be Let the Human Resources Development Division (HRDD) prepare the necessary Notice of Salary
granted retirement gratuities and separation pay in accordance with existing laws, which shall Adjustment and other appropriateP documents to implement this resolution; . . . .[3](Emphasis
be payable from any unexpended balance of, or savings in the appropriations of their supplied)
respective offices: PROVIDED, FURTHER, That the implementation hereof shall be in
accordance with salary rates, allowances and other benefits authorized under compensation Annexed to said resolution is the proposed creation of ten additional plantilla positions,
standardization laws. namely: one Director IV position, with Salary Grade 28 for the Caraga Regional Office, four
Security Officer II with Salary Grade 15, and five Process Servers, with Salary Grade 5 under the
2. Use of Savings. The Constitutional Commissions and Offices enjoying fiscal autonomy are Office of the Commissioners. [4]
hereby authorized to use savings in their respective appropriations for: (a) printing and/or
On 19 October 1998, CHR issued Resolution No. A98-055[5] providing for the
publication of decisions, resolutions, and training information materials; (b) repair,
upgrading or raising of salary grades of the following positions in the Commission:
maintenance and improvement of central and regional offices, facilities and equipment; (c)
Position Salary Grade
Number Total Salary
of Requirements
Title
Positions
From To From To
12 Attorney VI Director IV 26 28 P229,104.00
(In the
Regional Field
Offices)
4 Director III 27 28 38,928.00
Director IV
1 24 28 36,744.00
Financial & Director IV
Management
Officer II
1 18 24 51,756.00
Budget Budget
Officer III Officer IV
1 18 24 51,756.00
Accountant Chief
III Accountant
1 18 24 51,756.00
Cashier III Cashier V
1 24 28 36,744.00[6]
Information Director IV
Officer V
It, likewise, provided for the creation and upgrading of the following positions:

A. Creation

Position Title Salary Grade Total Salary


Number of
Requirements
Positions
4 15 684,780.00
Security Officer II
(Coterminous)

B. Upgrading

Number of Position Title Salary Grade Total Salary


Positions Requirements
From To From To
1 Attorney V Director IV 25 28 P28,092.00
2 Security 11 15 57,456.00
Security
Officer I
Officer II
------------------

Total 3 P 85,548.00[7]
Being a member of the fiscal autonomy group does not vest the agency with the authority to
To support the implementation of such scheme, the CHR, in the same resolution, authorized reclassify, upgrade, and create positions without approval of the DBM. While the members of
the augmentation of a commensurate amount generated from savings under Personnel the Group are authorized to formulate and implement the organizational structures of their
Services. respective offices and determine the compensation of their personnel, such authority is not
By virtue of Resolution No. A98-062 dated 17 November 1998, the CHR collapsed the absolute and must be exercised within the parameters of the Unified Position Classification and
vacant positions in the body to provide additional source of funding for said staffing Compensation System established under RA 6758 more popularly known as the Compensation
modification. Among the positions collapsed were: one Attorney III, four Attorney IV, one Standardization Law. We therefore reiterate our previous stand on the matter.[9] (Emphases
Chemist III, three Special Investigator I, one Clerk III, and one Accounting Clerk II.[8] supplied)

The CHR forwarded said staffing modification and upgrading scheme to the DBM with a In light of the DBMs disapproval of the proposed personnel modification scheme, the
request for its approval, but the then DBM secretary Benjamin Diokno denied the request on CSC-National Capital Region Office, through a memorandum dated 29 March 1999,
the following justification: recommended to the CSC-Central Office that the subject appointments be rejected owing to
the DBMs disapproval of the plantilla reclassification.
Based on the evaluations made the request was not favorably considered as it effectively
involved the elevation of the field units from divisions to services. Meanwhile, the officers of petitioner CHREA, in representation of the rank and file
employees of the CHR, requested the CSC-Central Office to affirm the recommendation of the
CSC-Regional Office. CHREA stood its ground in saying that the DBM is the only agency with
The present proposal seeks further to upgrade the twelve (12) positions of Attorney VI, SG-26
appropriate authority mandated by law to evaluate and approve matters of reclassification
to Director IV, SG-28. This would elevate the field units to a bureau or regional office, a level
and upgrading, as well as creation of positions.
even higher than the one previously denied.
The CSC-Central Office denied CHREAs request in a Resolution dated 16 December 1999,
The request to upgrade the three (3) positions of Director III, SG-27 to Director IV, SG-28, in and reversed the recommendation of the CSC-Regional Office that the upgrading scheme be
the Central Office in effect would elevate the services to Office and change the context from censured. The decretal portion of which reads:
support to substantive without actual change in functions.
WHEREFORE, the request of Ronnie N. Rosero, Hubert V. Ruiz, Flordeliza A. Briones, George Q.
In the absence of a specific provision of law which may be used as a legal basis to elevate the Dumlao [and], Corazon A. Santos-Tiu, is hereby denied.[10]
level of divisions to a bureau or regional office, and the services to offices, we reiterate our
previous stand denying the upgrading of the twelve (12) positions of Attorney VI, SG-26 to CHREA filed a motion for reconsideration, but the CSC-Central Office denied the same on
Director III, SG-27 or Director IV, SG-28, in the Field Operations Office (FOO) and three (3) 09 June 2000.
Director III, SG-27 to Director IV, SG-28 in the Central Office.
Given the cacophony of judgments between the DBM and the CSC, petitioner CHREA
elevated the matter to the Court of Appeals. The Court of Appeals affirmed the
As represented, President Ramos then issued a Memorandum to the DBM Secretary dated 10
pronouncement of the CSC-Central Office and upheld the validity of the upgrading, retitling,
December 1997, directing the latter to increase the number of Plantilla positions in the CHR
and reclassification scheme in the CHR on the justification that such action is within the ambit
both Central and Regional Offices to implement the Philippine Decade Plan on Human Rights
of CHRs fiscal autonomy. The fallo of the Court of Appeals decision provides:
Education, the Philippine Human Rights Plan and Barangay Rights Actions Center in accordance
with existing laws. (Emphasis in the original)
IN VIEW OF ALL THE FOREGOING, the instant petition is ordered DISMISSED and the questioned
Civil Service Commission Resolution No. 99-2800 dated December 16, 1999 as well as No.
Pursuant to Section 78 of the General Provisions of the General Appropriations Act (GAA) FY
001354 dated June 9, 2000, are hereby AFFIRMED. No cost.[11]
1998, no organizational unit or changes in key positions shall be authorized unless provided by
law or directed by the President, thus, the creation of a Finance Management Office and a
Public Affairs Office cannot be given favorable recommendation. Unperturbed, petitioner filed this petition in this Court contending that:

A.
Moreover, as provided under Section 2 of RA No. 6758, otherwise known as the Compensation
Standardization Law, the Department of Budget and Management is directed to establish and THE COURT OF APPEALS GRAVELY ERRED WHEN IT HELD THAT UNDER THE 1987
administer a unified compensation and position classification system in the government. The CONSTITUTION, THE COMMISSION ON HUMAN RIGHTS ENJOYS FISCAL AUTONOMY.
Supreme Court ruled in the case of Victorina Cruz vs. Court of Appeals, G.R. No. 119155, dated
January 30, 1996, that this Department has the sole power and discretion to administer the
compensation and position classification system of the National Government. B.
THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE CONSTRUCTION OF THE Appeals when it passed upon the merits of this case. Thus, neither should our hands be tied by
COMMISSION ON HUMAN RIGHTS OF REPUBLIC ACT NO. 8522 (THE GENERAL this technical concern. Indeed, it is settled jurisprudence that an issue that was neither raised
APPROPRIATIONS ACT FOR THE FISCAL YEAR 1998) DESPITE ITS BEING IN SHARP CONFLICT in the complaint nor in the court below cannot be raised for the first time on appeal, as to do
WITH THE 1987 CONSTITUTION AND THE STATUTE ITSELF. so would be offensive to the basic rules of fair play, justice, and due process.[14]

We now delve into the main issue of whether or not the approval by the DBM is a
C. condition precedent to the enactment of an upgrading, reclassification, creation and collapsing
of plantilla positions in the CHR.
THE COURT OF APPEALS SERIOUSLY AND GRAVELY ERRED IN AFFIRMING THE VALIDITY OF THE
CIVIL SERVICE COMMISSION RESOLUTION NOS. 992800 AND 001354 AS WELL AS THAT OF THE Germane to our discussion is Rep. Act No. 6758, An Act Prescribing a Revised
OPINION OF THE DEPARTMENT OF JUSTICE IN STATING THAT THE COMMISSION ON HUMAN Compensation and Position Classification System in the Government and For Other Purposes,
RIGHTS ENJOYS FISCAL AUTONOMY UNDER THE 1987 CONSTITUTION AND THAT THIS FISCAL or the Salary Standardization Law, dated 01 July 1989, which provides in Sections 2 and 4
AUTONOMY INCLUDES THE ACTION TAKEN BY IT IN COLLAPSING, UPGRADING AND thereof that it is the DBM that shall establish and administer a unified Compensation and
RECLASSIFICATION OF POSITIONS THEREIN.[12] Position Classification System. Thus:

The central question we must answer in order to resolve this case is: Can the Commission SEC. 2. Statement of Policy. -- It is hereby declared the policy of the State to provide equal pay
on Human Rights validly implement an upgrading, reclassification, creation, and collapsing for substantially equal work and to base differences in pay upon substantive differences in
of plantilla positions in the Commission without the prior approval of the Department of duties and responsibilities, and qualification requirements of the positions. In determining
Budget and Management? rates of pay, due regard shall be given to, among others, prevailing rates in the private sector
for comparable work. For this purpose, the Department of Budget and Management (DBM) is
Petitioner CHREA grouses that the Court of Appeals and the CSC-Central Office both hereby directed to establish and administer a unified Compensation and Position Classification
erred in sanctioning the CHRs alleged blanket authority to upgrade, reclassify, and create System, hereinafter referred to as the System as provided for in Presidential Decree No. 985, as
positions inasmuch as the approval of the DBM relative to such scheme is still indispensable. amended, that shall be applied for all government entities, as mandated by the
Petitioner bewails that the CSC and the Court of Appeals erroneously assumed that CHR enjoys Constitution. (Emphasis supplied.)
fiscal autonomy insofar as financial matters are concerned, particularly with regard to the
upgrading and reclassification of positions therein. SEC. 4. Coverage. The Compensation and Position Classification System herein provided shall
Respondent CHR sharply retorts that petitioner has no locus standi considering that apply to all positions, appointive or elective, on full or part-time basis, now existing or hereafter
there exists no official written record in the Commission recognizing petitioner as a bona created in the government, including government-owned or controlled corporations and
fide organization of its employees nor is there anything in the records to show that its government financial institutions.
president, Marcial A. Sanchez, Jr., has the authority to sue the CHR. The CHR contends that it
has the authority to cause the upgrading, reclassification, plantilla creation, and collapsing The term government refers to the Executive, the Legislative and the Judicial Branches and the
scheme sans the approval of the DBM because it enjoys fiscal autonomy. Constitutional Commissions and shall include all, but shall not be limited to, departments,
bureaus, offices, boards, commissions, courts, tribunals, councils, authorities, administrations,
After a thorough consideration of the arguments of both parties and an assiduous centers, institutes, state colleges and universities, local government units, and the armed
scrutiny of the records in the case at bar, it is the Courts opinion that the present petition is forces. The term government-owned or controlled corporations and financial institutions shall
imbued with merit. include all corporations and financial institutions owned or controlled by the National
On petitioners personality to bring this suit, we held in a multitude of cases that a proper Government, whether such corporations and financial institutions perform governmental or
party is one who has sustained or is in immediate danger of sustaining an injury as a result of proprietary functions. (Emphasis supplied.)
the act complained of.[13] Here, petitioner, which consists of rank and file employees of
respondent CHR, protests that the upgrading and collapsing of positions benefited only a select The disputation of the Court of Appeals that the CHR is exempt from the long arm of the
few in the upper level positions in the Commission resulting to the demoralization of the rank Salary Standardization Law is flawed considering that the coverage thereof, as defined above,
and file employees. This sufficiently meets the injury test. Indeed, the CHRs upgrading scheme, encompasses the entire gamut of government offices, sans qualification.
if found to be valid, potentially entails eating up the Commissions savings or that portion of its
budgetary pie otherwise allocated for Personnel Services, from which the benefits of the This power to administer is not purely ministerial in character as erroneously held by the
employees, including those in the rank and file, are derived. Court of Appeals. The word to administer means to control or regulate in behalf of others; to
direct or superintend the execution, application or conduct of; and to manage or conduct public
Further, the personality of petitioner to file this case was recognized by the CSC when it affairs, as to administer the government of the state.[15]
took cognizance of the CHREAs request to affirm the recommendation of the CSC-National
Capital Region Office. CHREAs personality to bring the suit was a non-issue in the Court of
The regulatory power of the DBM on matters of compensation is encrypted not only in classification systems, assessment of organizational effectiveness and review and evaluation
law, but in jurisprudence as well. In the recent case of Philippine Retirement Authority (PRA) v. of legislative proposals having budgetary or organizational implications. (Emphasis supplied.)
Jesusito L. Buag,[16] this Court, speaking through Mr. Justice Reynato Puno, ruled that
compensation, allowances, and other benefits received by PRA officials and employees Irrefragably, it is within the turf of the DBM Secretary to disallow the upgrading,
without the requisite approval or authority of the DBM are unauthorized and irregular. In the reclassification, and creation of additional plantilla positions in the CHR based on its finding
words of the Court that such scheme lacks legal justification.

Despite the power granted to the Board of Directors of PRA to establish and fix a compensation Notably, the CHR itself recognizes the authority of the DBM to deny or approve
and benefits scheme for its employees, the same is subject to the review of the Department the proposed reclassification of positions as evidenced by its three letters to the DBM
of Budget and Management. However, in view of the express powers granted to PRA under its requesting approval thereof. As such, it is now estopped from now claiming that the nod of
charter, the extent of the review authority of the Department of Budget and Management is approval it has previously sought from the DBM is a superfluity.
limited. As stated in Intia, the task of the Department of Budget and Management is simply to The Court of Appeals incorrectly relied on the pronouncement of the CSC-Central Office
review the compensation and benefits plan of the government agency or entity concerned and that the CHR is a constitutional commission, and as such enjoys fiscal autonomy.[20]
determine if the same complies with the prescribed policies and guidelines issued in this
regard. The role of the Department of Budget and Management is supervisorial in nature, its Palpably, the Court of Appeals Decision was based on the mistaken premise that the CHR
main duty being to ascertain that the proposed compensation, benefits and other incentives belongs to the species of constitutional commissions. But, Article IX of the Constitution states
to be given to PRA officials and employees adhere to the policies and guidelines issued in in no uncertain terms that only the CSC, the Commission on Elections, and the Commission on
accordance with applicable laws. Audit shall be tagged as Constitutional Commissions with the appurtenant right to fiscal
autonomy. Thus:
In Victorina Cruz v. Court of Appeals,[17] we held that the DBM has the sole power and
discretion to administer the compensation and position classification system of the national Sec. 1. The Constitutional Commissions, which shall be independent, are the Civil Service
government. Commission, the Commission on Elections, and the Commission on Audit.

In Intia, Jr. v. Commission on Audit,[18] the Court held that although the charter[19] of the
Sec. 5. The Commission shall enjoy fiscal autonomy. Their approved annual appropriations
Philippine Postal Corporation (PPC) grants it the power to fix the compensation and benefits
of its employees and exempts PPC from the coverage of the rules and regulations of the shall be automatically and regularly released.
Compensation and Position Classification Office, by virtue of Section 6 of P.D. No. 1597, the
compensation system established by the PPC is, nonetheless, subject to the review of the DBM. Along the same vein, the Administrative Code, in Chapter 5, Sections 24 and 26 of Book
This Court intoned: II on Distribution of Powers of Government, the constitutional commissions shall include only
the Civil Service Commission, the Commission on Elections, and the Commission on Audit,
which are granted independence and fiscal autonomy. In contrast, Chapter 5, Section 29
It should be emphasized that the review by the DBM of any PPC resolution affecting the
thereof, is silent on the grant of similar powers to the other bodies including the CHR. Thus:
compensation structure of its personnel should not be interpreted to mean that the DBM can
dictate upon the PPC Board of Directors and deprive the latter of its discretion on the matter.
Rather, the DBMs function is merely to ensure that the action taken by the Board of Directors SEC. 24. Constitutional Commissions. The Constitutional Commissions, which shall be
complies with the requirements of the law, specifically, that PPCs compensation system independent, are the Civil Service Commission, the Commission on Elections, and the
conforms as closely as possible with that provided for under R.A. No. 6758. (Emphasis supplied.) Commission on Audit.

As measured by the foregoing legal and jurisprudential yardsticks, the imprimatur of the SEC. 26. Fiscal Autonomy. The Constitutional Commissions shall enjoy fiscal autonomy. The
DBM must first be sought prior to implementation of any reclassification or upgrading of approved annual appropriations shall be automatically and regularly released.
positions in government. This is consonant to the mandate of the DBM under the Revised
Administrative Code of 1987, Section 3, Chapter 1, Title XVII, to wit: SEC. 29. Other Bodies. There shall be in accordance with the Constitution, an Office of the
Ombudsman, a Commission on Human Rights, and independent central monetary authority,
SEC. 3. Powers and Functions. The Department of Budget and Management shall assist the and a national police commission. Likewise, as provided in the Constitution, Congress may
President in the preparation of a national resources and expenditures budget, preparation, establish an independent economic and planning agency. (Emphasis ours.)
execution and control of the National Budget, preparation and maintenance of accounting
systems essential to the budgetary process, achievement of more economy and efficiency in From the 1987 Constitution and the Administrative Code, it is abundantly clear that the
the management of government operations, administration of compensation and position CHR is not among the class of Constitutional Commissions. As expressed in the oft-repeated
maxim expressio unius est exclusio alterius, the express mention of one person, thing, act or 1. Organizational Structure. Any provision of law to the contrary notwithstanding and within
consequence excludes all others. Stated otherwise, expressium facit cessare tacitum what is the limits of their respective appropriations authorized in this Act, the Chief Justice of the
expressed puts an end to what is implied.[21] Supreme Court is authorized to formulate and implement organizational structure of the
Judiciary, to fix and determine the salaries, allowances, and other benefits of their personnel,
Nor is there any legal basis to support the contention that the CHR enjoys fiscal and whenever public interest so requires, make adjustments in the personal services
autonomy. In essence, fiscal autonomy entails freedom from outside control and limitations, itemization including, but not limited to, the transfer of item or creation of new positions in
other than those provided by law. It is the freedom to allocate and utilize funds granted by the Judiciary; PROVIDED, That officers and employees whose positions are affected by such
law, in accordance with law, and pursuant to the wisdom and dispatch its needs may require reorganization or adjustments shall be granted retirement gratuities and separation pay in
from time to time.[22] In Blaquera v. Alcala and Bengzon v. Drilon,[23] it is understood that it is accordance with existing law, which shall be payable from any unexpended balance of, or
only the Judiciary, the Civil Service Commission, the Commission on Audit, the Commission on savings in the appropriations of their respective offices: PROVIDED, FURTHER, That the
Elections, and the Office of the Ombudsman, which enjoy fiscal autonomy. Thus, implementation hereof shall be in accordance with salary rates, allowances and other benefits
in Bengzon,[24] we explained: authorized under compensation standardization laws. (Emphasis supplied.)

As envisioned in the Constitution, the fiscal autonomy enjoyed by the Judiciary, the Civil Service All told, the CHR, although admittedly a constitutional creation is, nonetheless, not
Commission, the Commission on Audit, the Commission on Elections, and the Office of the included in the genus of offices accorded fiscal autonomy by constitutional or legislative fiat.
Ombudsman contemplates a guarantee of full flexibility to allocate and utilize their resources
with the wisdom and dispatch that their needs require. It recognizes the power and authority Even assuming en arguendo that the CHR enjoys fiscal autonomy, we share the stance of
to levy, assess and collect fees, fix rates of compensation not exceeding the highest rates the DBM that the grant of fiscal autonomy notwithstanding, all government offices must, all
authorized by law for compensation and pay plans of the government and allocate and the same, kowtow to the Salary Standardization Law. We are of the same mind with the DBM
disburse such sums as may be provided by law or prescribed by them in the course of the on its standpoint, thus-
discharge of their functions.
Being a member of the fiscal autonomy group does not vest the agency with the authority to
... reclassify, upgrade, and create positions without approval of the DBM. While the members of
the Group are authorized to formulate and implement the organizational structures of their
The Judiciary, the Constitutional Commissions, and the Ombudsman must have the respective offices and determine the compensation of their personnel, such authority is not
independence and flexibility needed in the discharge of their constitutional duties. The absolute and must be exercised within the parameters of the Unified Position Classification and
imposition of restrictions and constraints on the manner the independent constitutional Compensation System established under RA 6758 more popularly known as the Compensation
offices allocate and utilize the funds appropriated for their operations is anathema to fiscal Standardization Law.[25] (Emphasis supplied.)
autonomy and violative not only of the express mandate of the Constitution but especially as
regards the Supreme Court, of the independence and separation of powers upon which the The most lucid argument against the stand of respondent, however, is the provision of
entire fabric of our constitutional system is based. In the interest of comity and cooperation, Rep. Act No. 8522 that the implementation hereof shall be in accordance with salary rates,
the Supreme Court, [the] Constitutional Commissions, and the Ombudsman have so far limited allowances and other benefits authorized under compensation standardization laws.[26]
their objections to constant reminders. We now agree with the petitioners that this grant of
autonomy should cease to be a meaningless provision. (Emphasis supplied.) Indeed, the law upon which respondent heavily anchors its case upon has expressly
provided that any form of adjustment in the organizational structure must be within the
parameters of the Salary Standardization Law.
Neither does the fact that the CHR was admitted as a member by the Constitutional Fiscal
Autonomy Group (CFAG) ipso facto clothed it with fiscal autonomy. Fiscal autonomy is a The Salary Standardization Law has gained impetus in addressing one of the basic causes
constitutional grant, not a tag obtainable by membership. of discontent of many civil servants.[27] For this purpose, Congress has delegated to the DBM
the power to administer the Salary Standardization Law and to ensure that the spirit behind it
We note with interest that the special provision under Rep. Act No. 8522, while cited is observed. This power is part of the system of checks and balances or system of restraints in
under the heading of the CHR, did not specifically mention CHR as among those offices to which our government. The DBMs exercise of such authority is not in itself an arrogation inasmuch
the special provision to formulate and implement organizational structures apply, but merely as it is pursuant to the paramount law of the land, the Salary Standardization Law and the
states its coverage to include Constitutional Commissions and Offices enjoying fiscal autonomy. Administrative Code.
In contrast, the Special Provision Applicable to the Judiciary under Article XXVIII of the General
Appropriations Act of 1998 specifically mentions that such special provision applies to the In line with its role to breathe life into the policy behind the Salary Standardization Law
judiciary and had categorically authorized the Chief Justice of the Supreme Court to formulate of providing equal pay for substantially equal work and to base differences in pay upon
and implement the organizational structure of the Judiciary, to wit: substantive differences in duties and responsibilities, and qualification requirements of the
positions, the DBM, in the case under review, made a determination, after a thorough
evaluation, that the reclassification and upgrading scheme proposed by the CHR lacks legal
rationalization.

The DBM expounded that Section 78 of the general provisions of the General
Appropriations Act FY 1998, which the CHR heavily relies upon to justify its reclassification
scheme, explicitly provides that no organizational unit or changes in key positions shall be
authorized unless provided by law or directed by the President. Here, the DBM discerned that
there is no law authorizing the creation of a Finance Management Office and a Public Affairs
Office in the CHR. Anent CHRs proposal to upgrade twelve positions of Attorney VI, SG-26 to
Director IV, SG-28, and four positions of Director III, SG-27 to Director IV, SG-28, in the Central
Office, the DBM denied the same as this would change the context from support to substantive
without actual change in functions.

This view of the DBM, as the laws designated body to implement and administer a unified
compensation system, is beyond cavil. The interpretation of an administrative government
agency, which is tasked to implement a statute is accorded great respect and ordinarily
controls the construction of the courts. In Energy Regulatory Board v. Court of Appeals,[28] we
echoed the basic rule that the courts will not interfere in matters which are addressed to the
sound discretion of government agencies entrusted with the regulation of activities coming
under the special technical knowledge and training of such agencies.

To be sure, considering his expertise on matters affecting the nations coffers, the
Secretary of the DBM, as the Presidents alter ego, knows from where he speaks inasmuch as
he has the front seat view of the adverse effects of an unwarranted upgrading or creation of
positions in the CHR in particular and in the entire government in general.

WHEREFORE, the petition is GRANTED, the Decision dated 29 November 2001 of the
Court of Appeals in CA-G.R. SP No. 59678 and its Resolution dated 11 September 2002 are
hereby REVERSED and SET ASIDE. The ruling dated 29 March 1999 of the Civil Service
Commision-National Capital Region is REINSTATED. The Commission on Human Rights
Resolution No. A98-047 dated 04 September 1998, Resolution No. A98-055 dated 19 October
1998 and Resolution No. A98-062 dated 17 November 1998 without the approval of the
Department of Budget and Management are disallowed. No pronouncement as to costs.

SO ORDERED.

Puno, Acting C.J., Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
G.R. No. 157509 | January 18, 2005 the pre-Rep. Act No. 6715 set-up, amending the latter law which only Congress can
do.
AUTOMOTIVE INDUSTRY WORKERS ALLIANCE (AIWA) and its Affiliated Unions:
Mitsubishi Motors Workers Phils. Union; Mitsubishi Motors Phils. Supervisors The respondents herein, as represented by the Office of the Solicitor General,
Union, Nissan Motors Phils., Inc. Workers Union, Toyota Motors Phils. Workers opposed the petition on procedural3and substantive4 grounds. Procedurally, it is
Union, DURASTEEL WORKERS UNION, FILSHUTTERS EMPLOYEES & WORKERS alleged that the petition does not pose an actual case or controversy upon which
UNION, NATIONAL LABOR UNION, PEPSI-COLA SUPERVISORS AND EMPLOYEES judicial review may be exercised as petitioners have not specifically cited how E.O.
UNION, PSBA FACULTY ASSOCIATION, PLDT SECURITY PERSONNEL UNION, No. 185 has prejudiced or threatened to prejudice their rights and existence as labor
PUREFOODS UNIFIED LABOR ORGANIZATION, SAMAHANG MANGGAGAWA NG unions and as taxpayers. Closely intertwined therewith, respondents further argue
BICUTAN CONTAINERS CORP., SAMAHANG MANGGAGAWA NG CINDERELLA, that petitioners have no locus standi to assail the validity of E.O. No. 185, not even in
SAMAHANG MANGGAGAWA NG LAURA’S FOOD PRODUCTS, petitioners, their capacity as taxpayers, considering that labor unions are exempt from paying
vs. taxes, citing Sec. 30 of the Tax Reform Act of 1997. Even assuming that their individual
HON. ALBERTO ROMULO, in his capacity as Executive Secretary, and HON. PATRICIA members are taxpayers, respondents maintain that a taxpayer suit will not prosper
STO. TOMAS, in her capacity as Secretary of Labor and Employment, respondents. as E.O. No. 185 does not require additional appropriation for its implementation. As
the petition can be decided without passing on the validity of the subject executive
DECISION order, respondents conclude that the same should be forthwith dismissed.

CHICO-NAZARIO, J.: Even on the merits, respondents advance the view that the petition must fail as the
administrative supervision granted by the Labor Code to the NLRC Chairman over the
Petitioners, composed of ten (10) labor unions, call upon this Court to exercise its NLRC, its regional branches and personnel, does not place them beyond the
power of judicial review to declare as unconstitutional an executive order assailed to President’s broader power of control and supervision, a power conferred no less than
be in derogation of the constitutional doctrine of separation of powers. by the Constitution in Section 17, Article VII thereof. Thus, in the exercise of the
President’s power of control and supervision, he can generally oversee the
operations of the NLRC, its regional branches and personnel thru his alter ego, the
In an original action for certiorari, petitioners invoke their status as labor unions and
Secretary of Labor, pursuant to the doctrine of qualified political agency.
as taxpayers whose rights and interests are allegedly violated and prejudiced by
Executive Order No. 185 dated 10 March 2003 whereby administrative supervision
over the National Labor Relations Commission (NLRC), its regional branches and all In their Reply,5 petitioners affirm their locus standi contending that they are suing for
its personnel including the executive labor arbiters and labor arbiters was transferred and in behalf of their members – estimated to be more or less fifty thousand (50,000)
from the NLRC Chairperson to the Secretary of Labor and Employment. In support of workers – who are the real parties to be affected by the resolution of this Court. They
their position,1 petitioners argue that the NLRC -- created by Presidential Decree No. likewise maintain that they are suing in behalf of the employees of the NLRC who
442, otherwise known as the Labor Code, during Martial Law – was an integral part have pending cases for dismissal. Thus, possessed of the necessary standing,
of the Department (then Ministry) of Labor and Employment (DOLE) under the petitioners theorize that the issue before this Court must necessarily be decided as it
administrative supervision of the Secretary of Justice. During the time of President involves an act of the Chief Executive amending a provision of law.
Corazon C. Aquino, and while she was endowed with legislative functions after EDSA
I, Executive Order No. 2922 was issued whereby the NLRC became an agency attached For clarity, E.O. No. 185 is hereby quoted:
to the DOLE for policy and program coordination and for administrative supervision.
On 02 March 1989, Article 213 of the Labor Code was expressly amended by Republic EXECUTIVE ORDER NO. 185
Act No. 6715 declaring that the NLRC was to be attached to the DOLE for program
and policy coordination only while the administrative supervision over the NLRC, its AUTHORIZING THE SECRETARY OF LABOR AND EMPLOYMENT TO EXERCISE
regional branches and personnel, was turned over to the NLRC Chairman. The subject ADMINISTRATIVE SUPERVISION OVER THE NATIONAL LABOR RELATIONS
E.O. No. 185, in authorizing the Secretary of Labor to exercise administrative COMMISSION
supervision over the NLRC, its regional branches and personnel, allegedly reverted to
WHEREAS, Section 17, Article VII of the Constitution provides that the President shall NOW, THEREFORE, I, GLORIA MACAPAGAL ARROYO, President of the Republic of the
have control of all executive departments, bureaus and offices and shall ensure that Philippines, by virtue of the powers vested in me by the Constitution and existing
the laws be faithfully executed; laws, do hereby order:

WHEREAS, the National Labor Relations Commission (NLRC) which was created by SECTION 1. Authority To Exercise Administrative Supervision. – The Secretary of Labor
virtue of Presidential Decree No. 442, otherwise known as the "Labor Code of the is hereby authorized to exercise administrative supervision over the NLRC, its
Philippines," is an agency under the Executive Department and was originally regional branches and all its personnel, including the Executive Labor Arbiters and
envisaged as being an integral part of the Department (then Ministry) of Labor and Labor Arbiters, with the objective of improving the rate of disposition of cases
Employment (DOLE) under the administrative supervision of the Secretary of Labor pending before it and its regional and sub-regional branches or provincial extension
and Employment ("Secretary of Labor"); units and to institute adequate measures for the prevention of graft and corruption
within the said agency.
WHEREAS, upon the issuance of Executive Order No. 292, otherwise known as the
"Revised Administrative Code of 1987" (the "Administrative Code"), the NLRC, by For this purpose, the Secretary of Labor shall, among others:
virtue of Section 25, Chapter 6, Title VII, Book IV thereof, became an agency attached
to the DOLE for policy and program coordination and administrative supervision; a. Generally oversee the operations of the NLRC and its regional and sub-
regional branches or provincial extension units for the purpose of ensuring
WHEREAS, Article 213 of the Labor Code and Section 25, Chapter 6, Title VII, Book IV that cases pending before them are decided or resolved expeditiously;
of the Administrative Code were amended by Republic Act. No. 6715 approved on
March 2, 1989, which provides that the NLRC shall be attached to the DOLE for b. Require the submission of reports as the Secretary of Labor may deem
program and policy coordination only and transferred administrative supervision necessary;
over the NLRC, all its regional branches and personnel to the NLRC Chairman;
c. Initiate measures within the agency to prevent graft and corruption,
WHEREAS, Section 16, Article III of the Constitution guarantees the right of all persons including but not limited to, the conduct of management audits,
to a speedy disposition of their cases before all judicial, quasi-judicial and performance evaluations and inspections to determine compliance with
administrative bodies; established policies, standards and guidelines;

WHEREAS, the Secretary of Labor, after evaluating the NLRC’s performance record in d. To take such action as may be necessary for the proper performance of
the last five (5) years, including the rate of disposition of pending cases before it, has official functions, including rectification of violations, abuses and other
informed the President that there is a need to expedite the disposition of labor cases forms of mal-administration; and
pending before the NLRC and all its regional and sub-regional branches or provincial
extension units and initiate potent measures to prevent graft and corruption therein e. Investigate, on its own or upon complaint, matters involving disciplinary
so as to reform its systems and personnel, as well as infuse the organization with a action against any of the NLRC’s personnel, including Presidential
sense of public service in consonance with the imperative of change for the greater appointees, in accordance with existing laws, rules and regulations. After
interest of the people; completing his/her investigation, the Secretary of Labor shall submit a
report to the President on the investigation conducted with a
WHEREAS, after consultations with the relevant sectors, the Secretary of Labor has recommendation as to the penalty to be imposed or other action to be
recommended that the President, pursuant to her powers under the Constitution and taken, including referral to the Presidential Anti-Graft Commission (PAGC),
existing laws, authorize the Secretary of Labor to exercise administrative supervision the Office of the Ombudsman or any other office, committee, commission,
over the NLRC and all its regional and sub-regional branches or provincial extension agency, department, instrumentality or branch of the government for
units with the objective of improving the rate of disposition of pending cases and appropriate action.
institute adequate measures for the prevention of graft and corruption within the
said agency; The authority conferred herein upon the Secretary of Labor shall not extend to the
power to review, reverse, revise, or modify the decisions of the NLRC in the exercise
of its quasi-judicial functions (cf. Section 38(2) (b), Chapter 7, Book IV, Administrative question; (3) the plea that the function be exercised at the earliest opportunity; and
Code). (4) the necessity that the constitutional question be passed upon in order to decide
the case.71awphi1.nét
SECTION 2. Report to the Secretary of Labor. – The NLRC, through its Chairman, shall
submit a report to the Secretary of Labor within thirty (30) days from issuance of this As correctly pointed out by respondents, judicial review cannot be exercised in vacuo.
Executive Order, on the following matters: The function of the courts is to determine controversies between litigants and not to
give advisory opinions.8 The power of judicial review can only be exercised in
a. Performance Report/Audit for the last five (5) years, including list of connection with a bona fide case or controversy which involves the statute sought to
pending cases and cases disposed of within the said period by the NLRC en be reviewed.9
banc, by Division and by the Labor Arbiters in each of its regional and sub-
regional branches or provincial extension units; Even with the presence of an actual case or controversy, the Court may refuse to
exercise judicial review unless the constitutional question is brought before it by a
b. Detailed Master Plan on how to liquidate its backlog of cases with clear party having the requisite standing to challenge it.10 Legal standing or locus standi is
timetables to clean up its dockets within six (6) months from the issuance defined as a "personal and substantial interest in the case such that the party has
hereof; sustained or will sustain direct injury as a result of the governmental act that is being
challenged."11 For a citizen to have standing, he must establish that he has suffered
c. Complete inventory of its assets and list of personnel indicating their some actual or threatened injury as a result of the allegedly illegal conduct of the
present positions and stations; and government; the injury is fairly traceable to the challenged action; and the injury is
likely to be redressed by a favorable action.12
d. Such other matters as may be required by the Secretary of Labor.
Petitioners have not shown that they have sustained or are in danger of sustaining
any personal injury attributable to the enactment of E.O. No. 185. As labor unions
SECTION 3. Rules and Regulations. – The Secretary of Labor, in consultation with the
representing their members, it cannot be said that E.O. No. 185 will prejudice their
Chairman of the NLRC, is hereby authorized to issue rules and regulations for the
rights and interests considering that the scope of the authority conferred upon the
effective implementation of the provisions of this Executive Order.
Secretary of Labor does not extend to the power to review, reverse, revise or modify
the decisions of the NLRC in the exercise of its quasi-judicial functions.13 Thus, only
SECTION 4. Repealing Clause. All laws, executive issuances, rules and regulations or
NLRC personnel who may find themselves the subject of the Secretary of Labor’s
parts thereof which are inconsistent with the provisions of this Executive Order are
disciplinary authority, conferred by Section 1(d) of the subject executive order, may
hereby repealed, amended, or modified accordingly.
be said to have a direct and specific interest in raising the substantive issue herein.
Moreover, and if at all, only Congress, and not petitioners, can claim any injury14 from
SECTION 5. Effectivity. – This Executive Order shall take effect immediately upon the the alleged executive encroachment of the legislative function to amend, modify
completion of its publication in the Official Gazette or in a newspaper of general and/or repeal laws.
circulation in the country.
Neither can standing be conferred on petitioners as taxpayers since petitioners have
City of Manila, March 10, 2003.6 not established disbursement of public funds in contravention of law or the
Constitution.15 A taxpayer’s suit is properly brought only when there is an exercise of
The constitutionality of a governmental act having been challenged, it comes as no the spending or taxing power of Congress.16 As correctly pointed out by respondents,
surprise that the first line of defense is to question the standing of petitioners and E.O. No. 185 does not even require for its implementation additional appropriation.
the justiciability of herein case.
All told, if we were to follow the strict rule on locus standi, this petition should be
It is hornbook doctrine that the exercise of the power of judicial review requires the forthwith dismissed on that score. The rule on standing, however, is a matter of
concurrence of the following requisites, namely: (1) the existence of an appropriate procedure, hence, can be relaxed for nontraditional plaintiffs like ordinary citizens,
case; (2) an interest personal and substantial by the party raising the constitutional taxpayers and legislators when the public interest so requires, such as when the
matter is of transcendental importance, of overarching significance to society, or of A lesser but not insignificant reason for screening the standing of persons who desire
paramount public interest.171awphi1.nét to litigate constitutional issues is economic in character. Given the sparseness of our
resources, the capacity of courts to render efficient judicial service to our people is
The question is, does the issue posed in this petition meet the exacting standard severely limited. For courts to indiscriminately open their doors to all types of suits
required for this Court to take the liberal approach and recognize the standing of and suitors is for them to unduly overburden their dockets, and ultimately render
herein petitioners? themselves ineffective dispensers of justice. To be sure, this is an evil that clearly
confronts our judiciary today.
The instant petition fails to persuade us.
All things considered, whether or not E.O. No. 185 is indeed unconstitutional will have
The subject matter of E.O. No. 185 is the grant of authority by the President to the to await the proper party in a proper case to assail its validity.
Secretary of Labor to exercise administrative supervision over the NLRC, its regional
branches and all its personnel, including the Executive Labor Arbiters and Labor WHEREFORE, premises considered, the instant petition dated 27 March 2003 is
Arbiters. Its impact, sans the challenge to its constitutionality, is thereby limited to hereby DISMISSED for lack of merit. No costs.
the departments to which it is addressed. Taking our cue from the early case of Olsen
v. Herstein and Rafferty,18 the subject executive order can be considered as nothing SO ORDERED.
more or less than a command from a superior to an inferior. It creates no relation
except between the official who issued it and the officials who received it. It has for
its object simply the efficient and economical administration of the affairs of the
department to which it is issued in accordance with the law governing the subject
matter. Administrative in its nature, the subject order does not pass beyond the limits
of the departments to which it is directed, hence, it has not created any rights in third
persons, not even in the fifty thousand or so union members being represented by
petitioners who may or may not have pending cases before the labor arbiters or the
NLRC.

In fine, considering that the governmental act being questioned has a limited reach,
its impact confined to corridors of the executive department, this is not one of those
exceptional occasions where the Court is justified in sweeping aside a critical
procedural requirement, rooted as it is in the constitutionally enshrined principle of
separation of powers. As succinctly put by Mr. Justice Reynato S. Puno in his
dissenting opinion in the first Kilosbayan case:19

. . . [C]ourts are neither free to decide all kinds of cases dumped into their laps nor
are they free to open their doors to all parties or entities claiming a grievance. The
rationale for this constitutional requirement of locus standi is by no means trifle. It is
intended "to assure a vigorous adversary presentation of the case, and, perhaps more
importantly to warrant the judiciary’s overruling the determination of a coordinate,
democratically elected organ of government." 20 It thus goes to the very essence of
representative democracies.

...
G.R. No. 133250 | July 9, 2002 terms and conditions provided for in Presidential Decree No. 1594. All the
financing required for such works shall be provided by PEA.
FRANCISCO I. CHAVEZ, petitioner,
vs. xxx
PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT
CORPORATION, respondents. (iii) x x x CDCP shall give up all its development rights and hereby agrees to
cede and transfer in favor of PEA, all of the rights, title, interest and
CARPIO, J.: participation of CDCP in and to all the areas of land reclaimed by CDCP in the
MCCRRP as of December 30, 1981 which have not yet been sold, transferred
This is an original Petition for Mandamus with prayer for a writ of preliminary or otherwise disposed of by CDCP as of said date, which areas consist of
injunction and a temporary restraining order. The petition seeks to compel the Public approximately Ninety-Nine Thousand Four Hundred Seventy Three (99,473)
Estates Authority ("PEA" for brevity) to disclose all facts on PEA's then on-going square meters in the Financial Center Area covered by land pledge No. 5 and
renegotiations with Amari Coastal Bay and Development Corporation ("AMARI" for approximately Three Million Three Hundred Eighty Two Thousand Eight
brevity) to reclaim portions of Manila Bay. The petition further seeks to enjoin PEA Hundred Eighty Eight (3,382,888) square meters of reclaimed areas at
from signing a new agreement with AMARI involving such reclamation. varying elevations above Mean Low Water Level located outside the
Financial Center Area and the First Neighborhood Unit." 3
The Facts
On January 19, 1988, then President Corazon C. Aquino issued Special Patent No.
On November 20, 1973, the government, through the Commissioner of Public 3517, granting and transferring to PEA "the parcels of land so reclaimed under the
Highways, signed a contract with the Construction and Development Corporation of Manila-Cavite Coastal Road and Reclamation Project (MCCRRP) containing a total
the Philippines ("CDCP" for brevity) to reclaim certain foreshore and offshore areas area of one million nine hundred fifteen thousand eight hundred ninety four
of Manila Bay. The contract also included the construction of Phases I and II of the (1,915,894) square meters." Subsequently, on April 9, 1988, the Register of Deeds of
Manila-Cavite Coastal Road. CDCP obligated itself to carry out all the works in the Municipality of Parañaque issued Transfer Certificates of Title Nos. 7309, 7311,
consideration of fifty percent of the total reclaimed land. and 7312, in the name of PEA, covering the three reclaimed islands known as the
"Freedom Islands" located at the southern portion of the Manila-Cavite Coastal Road,
Parañaque City. The Freedom Islands have a total land area of One Million Five
On February 4, 1977, then President Ferdinand E. Marcos issued Presidential Decree
Hundred Seventy Eight Thousand Four Hundred and Forty One (1,578,441) square
No. 1084 creating PEA. PD No. 1084 tasked PEA "to reclaim land, including foreshore
meters or 157.841 hectares.
and submerged areas," and "to develop, improve, acquire, x x x lease and sell any and
all kinds of lands."1 On the same date, then President Marcos issued Presidential
Decree No. 1085 transferring to PEA the "lands reclaimed in the foreshore and On April 25, 1995, PEA entered into a Joint Venture Agreement ("JVA" for brevity)
offshore of the Manila Bay"2 under the Manila-Cavite Coastal Road and Reclamation with AMARI, a private corporation, to develop the Freedom Islands. The JVA also
Project (MCCRRP). required the reclamation of an additional 250 hectares of submerged areas
surrounding these islands to complete the configuration in the Master Development
Plan of the Southern Reclamation Project-MCCRRP. PEA and AMARI entered into the
On December 29, 1981, then President Marcos issued a memorandum directing PEA
JVA through negotiation without public bidding. 4 On April 28, 1995, the Board of
to amend its contract with CDCP, so that "[A]ll future works in MCCRRP x x x shall be
Directors of PEA, in its Resolution No. 1245, confirmed the JVA.5 On June 8, 1995,
funded and owned by PEA." Accordingly, PEA and CDCP executed a Memorandum of
then President Fidel V. Ramos, through then Executive Secretary Ruben Torres,
Agreement dated December 29, 1981, which stated:
approved the JVA.6
"(i) CDCP shall undertake all reclamation, construction, and such other
On November 29, 1996, then Senate President Ernesto Maceda delivered a privilege
works in the MCCRRP as may be agreed upon by the parties, to be paid
speech in the Senate and denounced the JVA as the "grandmother of all scams." As a
according to progress of works on a unit price/lump sum basis for items of
result, the Senate Committee on Government Corporations and Public Enterprises,
work to be agreed upon, subject to price escalation, retention and other
and the Committee on Accountability of Public Officers and Investigations, conducted
a joint investigation. The Senate Committees reported the results of their the renegotiated PEA-AMARI contract; (b) for issuance of a temporary restraining
investigation in Senate Committee Report No. 560 dated September 16, order; and (c) to set the case for hearing on oral argument. Petitioner filed a
1997.7 Among the conclusions of their report are: (1) the reclaimed lands PEA seeks Reiterative Motion for Issuance of a TRO dated May 26, 1999, which the Court denied
to transfer to AMARI under the JVA are lands of the public domain which the in a Resolution dated June 22, 1999.
government has not classified as alienable lands and therefore PEA cannot alienate
these lands; (2) the certificates of title covering the Freedom Islands are thus void, In a Resolution dated March 23, 1999, the Court gave due course to the petition and
and (3) the JVA itself is illegal. required the parties to file their respective memoranda.

On December 5, 1997, then President Fidel V. Ramos issued Presidential On March 30, 1999, PEA and AMARI signed the Amended Joint Venture Agreement
Administrative Order No. 365 creating a Legal Task Force to conduct a study on the ("Amended JVA," for brevity). On May 28, 1999, the Office of the President under the
legality of the JVA in view of Senate Committee Report No. 560. The members of the administration of then President Joseph E. Estrada approved the Amended JVA.
Legal Task Force were the Secretary of Justice,8 the Chief Presidential Legal
Counsel,9 and the Government Corporate Counsel.10 The Legal Task Force upheld the Due to the approval of the Amended JVA by the Office of the President, petitioner
legality of the JVA, contrary to the conclusions reached by the Senate Committees. 11 now prays that on "constitutional and statutory grounds the renegotiated contract
be declared null and void."14
On April 4 and 5, 1998, the Philippine Daily Inquirer and Today published reports that
there were on-going renegotiations between PEA and AMARI under an order issued The Issues
by then President Fidel V. Ramos. According to these reports, PEA Director Nestor
Kalaw, PEA Chairman Arsenio Yulo and retired Navy Officer Sergio Cruz composed the
The issues raised by petitioner, PEA15 and AMARI16 are as follows:
negotiating panel of PEA.
I. WHETHER THE PRINCIPAL RELIEFS PRAYED FOR IN THE PETITION ARE
On April 13, 1998, Antonio M. Zulueta filed before the Court a Petition for Prohibition
MOOT AND ACADEMIC BECAUSE OF SUBSEQUENT EVENTS;
with Application for the Issuance of a Temporary Restraining Order and Preliminary
Injunction docketed as G.R. No. 132994 seeking to nullify the JVA. The Court
II. WHETHER THE PETITION MERITS DISMISSAL FOR FAILING TO OBSERVE
dismissed the petition "for unwarranted disregard of judicial hierarchy, without
THE PRINCIPLE GOVERNING THE HIERARCHY OF COURTS;
prejudice to the refiling of the case before the proper court."12

III. WHETHER THE PETITION MERITS DISMISSAL FOR NON-EXHAUSTION OF


On April 27, 1998, petitioner Frank I. Chavez ("Petitioner" for brevity) as a taxpayer,
ADMINISTRATIVE REMEDIES;
filed the instant Petition for Mandamus with Prayer for the Issuance of a Writ of
Preliminary Injunction and Temporary Restraining Order. Petitioner contends the
government stands to lose billions of pesos in the sale by PEA of the reclaimed lands IV. WHETHER PETITIONER HAS LOCUS STANDI TO BRING THIS SUIT;
to AMARI. Petitioner prays that PEA publicly disclose the terms of any renegotiation
of the JVA, invoking Section 28, Article II, and Section 7, Article III, of the 1987 V. WHETHER THE CONSTITUTIONAL RIGHT TO INFORMATION INCLUDES
Constitution on the right of the people to information on matters of public concern. OFFICIAL INFORMATION ON ON-GOING NEGOTIATIONS BEFORE A FINAL
Petitioner assails the sale to AMARI of lands of the public domain as a blatant AGREEMENT;
violation of Section 3, Article XII of the 1987 Constitution prohibiting the sale of
alienable lands of the public domain to private corporations. Finally, petitioner VI. WHETHER THE STIPULATIONS IN THE AMENDED JOINT VENTURE
asserts that he seeks to enjoin the loss of billions of pesos in properties of the State AGREEMENT FOR THE TRANSFER TO AMARI OF CERTAIN LANDS, RECLAIMED
that are of public dominion. AND STILL TO BE RECLAIMED, VIOLATE THE 1987 CONSTITUTION; AND

After several motions for extension of time, 13 PEA and AMARI filed their Comments VII. WHETHER THE COURT IS THE PROPER FORUM FOR RAISING THE ISSUE
on October 19, 1998 and June 25, 1998, respectively. Meanwhile, on December 28, OF WHETHER THE AMENDED JOINT VENTURE AGREEMENT IS GROSSLY
1998, petitioner filed an Omnibus Motion: (a) to require PEA to submit the terms of DISADVANTAGEOUS TO THE GOVERNMENT.
The Court's Ruling the transfer of title and ownership of alienable lands of the public domain in the name
of AMARI. Even in cases where supervening events had made the cases moot, the
First issue: whether the principal reliefs prayed for in the petition are moot and Court did not hesitate to resolve the legal or constitutional issues raised to formulate
academic because of subsequent events. controlling principles to guide the bench, bar, and the public. 17

The petition prays that PEA publicly disclose the "terms and conditions of the on- Also, the instant petition is a case of first impression. All previous decisions of the
going negotiations for a new agreement." The petition also prays that the Court Court involving Section 3, Article XII of the 1987 Constitution, or its counterpart
enjoin PEA from "privately entering into, perfecting and/or executing any new provision in the 1973 Constitution,18 covered agricultural lands sold to private
agreement with AMARI." corporations which acquired the lands from private parties. The transferors of the
private corporations claimed or could claim the right to judicial confirmation of their
PEA and AMARI claim the petition is now moot and academic because AMARI imperfect titles19 under Title II of Commonwealth Act. 141 ("CA No. 141" for brevity).
furnished petitioner on June 21, 1999 a copy of the signed Amended JVA containing In the instant case, AMARI seeks to acquire from PEA, a public corporation, reclaimed
the terms and conditions agreed upon in the renegotiations. Thus, PEA has satisfied lands and submerged areas for non-agricultural purposes by purchase under PD No.
petitioner's prayer for a public disclosure of the renegotiations. Likewise, petitioner's 1084 (charter of PEA) and Title III of CA No. 141. Certain undertakings by AMARI
prayer to enjoin the signing of the Amended JVA is now moot because PEA and under the Amended JVA constitute the consideration for the purchase. Neither
AMARI have already signed the Amended JVA on March 30, 1999. Moreover, the AMARI nor PEA can claim judicial confirmation of their titles because the lands
Office of the President has approved the Amended JVA on May 28, 1999. covered by the Amended JVA are newly reclaimed or still to be reclaimed. Judicial
confirmation of imperfect title requires open, continuous, exclusive and notorious
occupation of agricultural lands of the public domain for at least thirty years since
Petitioner counters that PEA and AMARI cannot avoid the constitutional issue by
June 12, 1945 or earlier. Besides, the deadline for filing applications for judicial
simply fast-tracking the signing and approval of the Amended JVA before the Court
confirmation of imperfect title expired on December 31, 1987.20
could act on the issue. Presidential approval does not resolve the constitutional issue
or remove it from the ambit of judicial review.
Lastly, there is a need to resolve immediately the constitutional issue raised in this
petition because of the possible transfer at any time by PEA to AMARI of title and
We rule that the signing of the Amended JVA by PEA and AMARI and its approval by
ownership to portions of the reclaimed lands. Under the Amended JVA, PEA is
the President cannot operate to moot the petition and divest the Court of its
obligated to transfer to AMARI the latter's seventy percent proportionate share in
jurisdiction. PEA and AMARI have still to implement the Amended JVA. The prayer to
the reclaimed areas as the reclamation progresses. The Amended JVA even allows
enjoin the signing of the Amended JVA on constitutional grounds necessarily includes
AMARI to mortgage at any time the entire reclaimed area to raise financing for the
preventing its implementation if in the meantime PEA and AMARI have signed one in
reclamation project.21
violation of the Constitution. Petitioner's principal basis in assailing the renegotiation
of the JVA is its violation of Section 3, Article XII of the Constitution, which prohibits
the government from alienating lands of the public domain to private corporations. Second issue: whether the petition merits dismissal for failing to observe the
If the Amended JVA indeed violates the Constitution, it is the duty of the Court to principle governing the hierarchy of courts.
enjoin its implementation, and if already implemented, to annul the effects of such
unconstitutional contract. PEA and AMARI claim petitioner ignored the judicial hierarchy by seeking relief
directly from the Court. The principle of hierarchy of courts applies generally to cases
The Amended JVA is not an ordinary commercial contract but one which seeks involving factual questions. As it is not a trier of facts, the Court cannot entertain
to transfer title and ownership to 367.5 hectares of reclaimed lands and submerged cases involving factual issues. The instant case, however, raises constitutional issues
areas of Manila Bay to a single private corporation. It now becomes more of transcendental importance to the public.22 The Court can resolve this case without
compelling for the Court to resolve the issue to insure the government itself does not determining any factual issue related to the case. Also, the instant case is a petition
violate a provision of the Constitution intended to safeguard the national patrimony. for mandamus which falls under the original jurisdiction of the Court under Section
Supervening events, whether intended or accidental, cannot prevent the Court from 5, Article VIII of the Constitution. We resolve to exercise primary jurisdiction over the
rendering a decision if there is a grave violation of the Constitution. In the instant instant case.
case, if the Amended JVA runs counter to the Constitution, the Court can still prevent
Third issue: whether the petition merits dismissal for non-exhaustion of perform an affirmative duty imposed on PEA by the Constitution. PEA also claims that
administrative remedies. petitioner has not shown that he will suffer any concrete injury because of the signing
or implementation of the Amended JVA. Thus, there is no actual controversy
PEA faults petitioner for seeking judicial intervention in compelling PEA to disclose requiring the exercise of the power of judicial review.
publicly certain information without first asking PEA the needed information. PEA
claims petitioner's direct resort to the Court violates the principle of exhaustion of The petitioner has standing to bring this taxpayer's suit because the petition seeks to
administrative remedies. It also violates the rule that mandamus may issue only if compel PEA to comply with its constitutional duties. There are two constitutional
there is no other plain, speedy and adequate remedy in the ordinary course of law. issues involved here. First is the right of citizens to information on matters of public
concern. Second is the application of a constitutional provision intended to insure the
PEA distinguishes the instant case from Tañada v. Tuvera23 where the Court granted equitable distribution of alienable lands of the public domain among Filipino citizens.
the petition for mandamus even if the petitioners there did not initially demand from The thrust of the first issue is to compel PEA to disclose publicly information on the
the Office of the President the publication of the presidential decrees. PEA points out sale of government lands worth billions of pesos, information which the Constitution
that in Tañada, the Executive Department had an affirmative statutory duty under and statutory law mandate PEA to disclose. The thrust of the second issue is to
Article 2 of the Civil Code24 and Section 1 of Commonwealth Act No. 63825 to publish prevent PEA from alienating hundreds of hectares of alienable lands of the public
the presidential decrees. There was, therefore, no need for the petitioners in Tañada domain in violation of the Constitution, compelling PEA to comply with a
to make an initial demand from the Office of the President. In the instant case, PEA constitutional duty to the nation.
claims it has no affirmative statutory duty to disclose publicly information about its
renegotiation of the JVA. Thus, PEA asserts that the Court must apply the principle of Moreover, the petition raises matters of transcendental importance to the public.
exhaustion of administrative remedies to the instant case in view of the failure of In Chavez v. PCGG,28 the Court upheld the right of a citizen to bring a taxpayer's suit
petitioner here to demand initially from PEA the needed information. on matters of transcendental importance to the public, thus -

The original JVA sought to dispose to AMARI public lands held by PEA, a government "Besides, petitioner emphasizes, the matter of recovering the ill-gotten
corporation. Under Section 79 of the Government Auditing Code,26 the disposition of wealth of the Marcoses is an issue of 'transcendental importance to the
government lands to private parties requires public bidding. PEA was under a public.' He asserts that ordinary taxpayers have a right to initiate and
positive legal duty to disclose to the public the terms and conditions for the sale of prosecute actions questioning the validity of acts or orders of government
its lands. The law obligated PEA to make this public disclosure even without demand agencies or instrumentalities, if the issues raised are of 'paramount public
from petitioner or from anyone. PEA failed to make this public disclosure because the interest,' and if they 'immediately affect the social, economic and moral well
original JVA, like the Amended JVA, was the result of a negotiated contract, not of a being of the people.'
public bidding. Considering that PEA had an affirmative statutory duty to make the
public disclosure, and was even in breach of this legal duty, petitioner had the right Moreover, the mere fact that he is a citizen satisfies the requirement of
to seek direct judicial intervention. personal interest, when the proceeding involves the assertion of a public
right, such as in this case. He invokes several decisions of this Court which
Moreover, and this alone is determinative of this issue, the principle of exhaustion of have set aside the procedural matter of locus standi, when the subject of
administrative remedies does not apply when the issue involved is a purely legal or the case involved public interest.
constitutional question.27 The principal issue in the instant case is the capacity of
AMARI to acquire lands held by PEA in view of the constitutional ban prohibiting the xxx
alienation of lands of the public domain to private corporations. We rule that the
principle of exhaustion of administrative remedies does not apply in the instant case. In Tañada v. Tuvera, the Court asserted that when the issue concerns a
public right and the object of mandamus is to obtain the enforcement of a
Fourth issue: whether petitioner has locus standi to bring this suit public duty, the people are regarded as the real parties in interest; and
because it is sufficient that petitioner is a citizen and as such is interested in
PEA argues that petitioner has no standing to institute mandamus proceedings to the execution of the laws, he need not show that he has any legal or special
enforce his constitutional right to information without a showing that PEA refused to interest in the result of the action. In the aforesaid case, the petitioners
sought to enforce their right to be informed on matters of public concern, a "Sec. 7. The right of the people to information on matters of public concern
right then recognized in Section 6, Article IV of the 1973 Constitution, in shall be recognized. Access to official records, and to documents, and
connection with the rule that laws in order to be valid and enforceable must papers pertaining to official acts, transactions, or decisions, as well as to
be published in the Official Gazette or otherwise effectively promulgated. In government research data used as basis for policy development, shall be
ruling for the petitioners' legal standing, the Court declared that the right afforded the citizen, subject to such limitations as may be provided by law."
they sought to be enforced 'is a public right recognized by no less than the (Emphasis supplied)
fundamental law of the land.'
The State policy of full transparency in all transactions involving public interest
Legaspi v. Civil Service Commission, while reiterating Tañada, further reinforces the people's right to information on matters of public concern. This State
declared that 'when a mandamus proceeding involves the assertion of a policy is expressed in Section 28, Article II of the Constitution, thus:
public right, the requirement of personal interest is satisfied by the mere
fact that petitioner is a citizen and, therefore, part of the general 'public' "Sec. 28. Subject to reasonable conditions prescribed by law, the State
which possesses the right.' adopts and implements a policy of full public disclosure of all its
transactions involving public interest." (Emphasis supplied)
Further, in Albano v. Reyes, we said that while expenditure of public funds
may not have been involved under the questioned contract for the These twin provisions of the Constitution seek to promote transparency in policy-
development, management and operation of the Manila International making and in the operations of the government, as well as provide the people
Container Terminal, 'public interest [was] definitely involved considering the sufficient information to exercise effectively other constitutional rights. These twin
important role [of the subject contract] . . . in the economic development of provisions are essential to the exercise of freedom of expression. If the government
the country and the magnitude of the financial consideration involved.' We does not disclose its official acts, transactions and decisions to citizens, whatever
concluded that, as a consequence, the disclosure provision in the citizens say, even if expressed without any restraint, will be speculative and amount
Constitution would constitute sufficient authority for upholding the to nothing. These twin provisions are also essential to hold public officials "at all times
petitioner's standing. x x x accountable to the people,"29 for unless citizens have the proper information,
they cannot hold public officials accountable for anything. Armed with the right
Similarly, the instant petition is anchored on the right of the people to information, citizens can participate in public discussions leading to the formulation
information and access to official records, documents and papers — a right of government policies and their effective implementation. An informed citizenry is
guaranteed under Section 7, Article III of the 1987 Constitution. Petitioner, essential to the existence and proper functioning of any democracy. As explained by
a former solicitor general, is a Filipino citizen. Because of the satisfaction of the Court in Valmonte v. Belmonte, Jr.30 –
the two basic requisites laid down by decisional law to sustain petitioner's
legal standing, i.e. (1) the enforcement of a public right (2) espoused by a "An essential element of these freedoms is to keep open a continuing
Filipino citizen, we rule that the petition at bar should be allowed." dialogue or process of communication between the government and the
people. It is in the interest of the State that the channels for free political
We rule that since the instant petition, brought by a citizen, involves the enforcement discussion be maintained to the end that the government may perceive and
of constitutional rights - to information and to the equitable diffusion of natural be responsive to the people's will. Yet, this open dialogue can be effective
resources - matters of transcendental public importance, the petitioner has the only to the extent that the citizenry is informed and thus able to formulate
requisite locus standi. its will intelligently. Only when the participants in the discussion are aware
of the issues and have access to information relating thereto can such bear
Fifth issue: whether the constitutional right to information includes official fruit."
information on on-going negotiations before a final agreement.
PEA asserts, citing Chavez v. PCGG,31 that in cases of on-going negotiations the right
Section 7, Article III of the Constitution explains the people's right to information on to information is limited to "definite propositions of the government." PEA maintains
matters of public concern in this manner: the right does not include access to "intra-agency or inter-agency recommendations
or communications during the stage when common assertions are still in the process Information, however, on on-going evaluation or review of bids or proposals being
of being formulated or are in the 'exploratory stage'." undertaken by the bidding or review committee is not immediately accessible under
the right to information. While the evaluation or review is still on-going, there are no
Also, AMARI contends that petitioner cannot invoke the right at the pre-decisional "official acts, transactions, or decisions" on the bids or proposals. However, once the
stage or before the closing of the transaction. To support its contention, AMARI cites committee makes its official recommendation, there arises a "definite
the following discussion in the 1986 Constitutional Commission: proposition" on the part of the government. From this moment, the public's right to
information attaches, and any citizen can access all the non-proprietary information
"Mr. Suarez. And when we say 'transactions' which should be distinguished leading to such definite proposition. In Chavez v. PCGG,33 the Court ruled as follows:
from contracts, agreements, or treaties or whatever, does the Gentleman
refer to the steps leading to the consummation of the contract, or does he "Considering the intent of the framers of the Constitution, we believe that
refer to the contract itself? it is incumbent upon the PCGG and its officers, as well as other government
representatives, to disclose sufficient public information on any proposed
Mr. Ople: The 'transactions' used here, I suppose is generic and therefore, settlement they have decided to take up with the ostensible owners and
it can cover both steps leading to a contract and already a consummated holders of ill-gotten wealth. Such information, though, must pertain
contract, Mr. Presiding Officer. to definite propositions of the government, not necessarily to intra-agency
or inter-agency recommendations or communications during the stage
when common assertions are still in the process of being formulated or are
Mr. Suarez: This contemplates inclusion of negotiations leading to the
in the "exploratory" stage. There is need, of course, to observe the same
consummation of the transaction.
restrictions on disclosure of information in general, as discussed earlier –
such as on matters involving national security, diplomatic or foreign
Mr. Ople: Yes, subject only to reasonable safeguards on the national
relations, intelligence and other classified information." (Emphasis supplied)
interest.
Contrary to AMARI's contention, the commissioners of the 1986 Constitutional
Mr. Suarez: Thank you."32 (Emphasis supplied)
Commission understood that the right to information "contemplates inclusion of
negotiations leading to the consummation of the transaction."Certainly, a
AMARI argues there must first be a consummated contract before petitioner can consummated contract is not a requirement for the exercise of the right to
invoke the right. Requiring government officials to reveal their deliberations at the information. Otherwise, the people can never exercise the right if no contract is
pre-decisional stage will degrade the quality of decision-making in government consummated, and if one is consummated, it may be too late for the public to expose
agencies. Government officials will hesitate to express their real sentiments during its defects.1âwphi1.nêt
deliberations if there is immediate public dissemination of their discussions, putting
them under all kinds of pressure before they decide.
Requiring a consummated contract will keep the public in the dark until the contract,
which may be grossly disadvantageous to the government or even illegal, becomes
We must first distinguish between information the law on public bidding requires PEA a fait accompli. This negates the State policy of full transparency on matters of public
to disclose publicly, and information the constitutional right to information requires concern, a situation which the framers of the Constitution could not have intended.
PEA to release to the public. Before the consummation of the contract, PEA must, on Such a requirement will prevent the citizenry from participating in the public
its own and without demand from anyone, disclose to the public matters relating to discussion of any proposed contract, effectively truncating a basic right enshrined in
the disposition of its property. These include the size, location, technical description the Bill of Rights. We can allow neither an emasculation of a constitutional right, nor
and nature of the property being disposed of, the terms and conditions of the a retreat by the State of its avowed "policy of full disclosure of all its transactions
disposition, the parties qualified to bid, the minimum price and similar information. involving public interest."
PEA must prepare all these data and disclose them to the public at the start of the
disposition process, long before the consummation of the contract, because the
The right covers three categories of information which are "matters of public
Government Auditing Code requires public bidding. If PEA fails to make this
concern," namely: (1) official records; (2) documents and papers pertaining to official
disclosure, any citizen can demand from PEA this information at any time during the
acts, transactions and decisions; and (3) government research data used in
bidding process.
formulating policies. The first category refers to any document that is part of the secrets and similar matters affecting national security and public order. 40 Congress
public records in the custody of government agencies or officials. The second has also prescribed other limitations on the right to information in several
category refers to documents and papers recording, evidencing, establishing, legislations.41
confirming, supporting, justifying or explaining official acts, transactions or decisions
of government agencies or officials. The third category refers to research data, Sixth issue: whether stipulations in the Amended JVA for the transfer to AMARI of
whether raw, collated or processed, owned by the government and used in lands, reclaimed or to be reclaimed, violate the Constitution.
formulating government policies.
The Regalian Doctrine
The information that petitioner may access on the renegotiation of the JVA includes
evaluation reports, recommendations, legal and expert opinions, minutes of The ownership of lands reclaimed from foreshore and submerged areas is rooted in
meetings, terms of reference and other documents attached to such reports or the Regalian doctrine which holds that the State owns all lands and waters of the
minutes, all relating to the JVA. However, the right to information does not compel public domain. Upon the Spanish conquest of the Philippines, ownership of all "lands,
PEA to prepare lists, abstracts, summaries and the like relating to the renegotiation territories and possessions" in the Philippines passed to the Spanish Crown.42 The
of the JVA.34 The right only affords access to records, documents and papers, which King, as the sovereign ruler and representative of the people, acquired and owned all
means the opportunity to inspect and copy them. One who exercises the right must lands and territories in the Philippines except those he disposed of by grant or sale
copy the records, documents and papers at his expense. The exercise of the right is to private individuals.
also subject to reasonable regulations to protect the integrity of the public records
and to minimize disruption to government operations, like rules specifying when and
The 1935, 1973 and 1987 Constitutions adopted the Regalian doctrine substituting,
how to conduct the inspection and copying.35
however, the State, in lieu of the King, as the owner of all lands and waters of the
public domain. The Regalian doctrine is the foundation of the time-honored principle
The right to information, however, does not extend to matters recognized as of land ownership that "all lands that were not acquired from the Government, either
privileged information under the separation of powers. 36 The right does not also by purchase or by grant, belong to the public domain."43 Article 339 of the Civil Code
apply to information on military and diplomatic secrets, information affecting of 1889, which is now Article 420 of the Civil Code of 1950, incorporated the Regalian
national security, and information on investigations of crimes by law enforcement doctrine.
agencies before the prosecution of the accused, which courts have long recognized
as confidential.37 The right may also be subject to other limitations that Congress may
Ownership and Disposition of Reclaimed Lands
impose by law.
The Spanish Law of Waters of 1866 was the first statutory law governing the
There is no claim by PEA that the information demanded by petitioner is privileged
ownership and disposition of reclaimed lands in the Philippines. On May 18, 1907,
information rooted in the separation of powers. The information does not cover
the Philippine Commission enacted Act No. 1654 which provided for the lease, but
Presidential conversations, correspondences, or discussions during closed-door
not the sale, of reclaimed lands of the government to corporations and individuals.
Cabinet meetings which, like internal deliberations of the Supreme Court and other
Later, on November 29, 1919, the Philippine Legislature approved Act No. 2874, the
collegiate courts, or executive sessions of either house of Congress, 38 are recognized
Public Land Act, which authorized the lease, but not the sale, of reclaimed lands of
as confidential. This kind of information cannot be pried open by a co-equal branch
the government to corporations and individuals. On November 7, 1936, the National
of government. A frank exchange of exploratory ideas and assessments, free from
Assembly passed Commonwealth Act No. 141, also known as the Public Land Act,
the glare of publicity and pressure by interested parties, is essential to protect the
which authorized the lease, but not the sale, of reclaimed lands of the government
independence of decision-making of those tasked to exercise Presidential, Legislative
to corporations and individuals. CA No. 141 continues to this day as the general law
and Judicial power.39 This is not the situation in the instant case.
governing the classification and disposition of lands of the public domain.

We rule, therefore, that the constitutional right to information includes official


The Spanish Law of Waters of 1866 and the Civil Code of 1889
information on on-going negotiationsbefore a final contract. The information,
however, must constitute definite propositions by the government and should not
Under the Spanish Law of Waters of 1866, the shores, bays, coves, inlets and all
cover recognized exceptions like privileged information, military and diplomatic
waters within the maritime zone of the Spanish territory belonged to the public
domain for public use.44 The Spanish Law of Waters of 1866 allowed the reclamation This provision, however, was not self-executing. The legislature, or the executive
of the sea under Article 5, which provided as follows: department pursuant to law, must declare the property no longer needed for public
use or territorial defense before the government could lease or alienate the property
"Article 5. Lands reclaimed from the sea in consequence of works to private parties.45
constructed by the State, or by the provinces, pueblos or private persons,
with proper permission, shall become the property of the party constructing Act No. 1654 of the Philippine Commission
such works, unless otherwise provided by the terms of the grant of
authority." On May 8, 1907, the Philippine Commission enacted Act No. 1654 which regulated
the lease of reclaimed and foreshore lands. The salient provisions of this law were as
Under the Spanish Law of Waters, land reclaimed from the sea belonged to the party follows:
undertaking the reclamation, provided the government issued the necessary permit
and did not reserve ownership of the reclaimed land to the State. "Section 1. The control and disposition of the foreshore as defined in
existing law, and the title to all Government or public lands made or
Article 339 of the Civil Code of 1889 defined property of public dominion as follows: reclaimed by the Government by dredging or filling or otherwise
throughout the Philippine Islands, shall be retained by the
"Art. 339. Property of public dominion is – Government without prejudice to vested rights and without prejudice to
rights conceded to the City of Manila in the Luneta Extension.
1. That devoted to public use, such as roads, canals, rivers, torrents, ports
and bridges constructed by the State, riverbanks, shores, roadsteads, and Section 2. (a) The Secretary of the Interior shall cause all Government or
that of a similar character; public lands made or reclaimed by the Government by dredging or filling or
otherwise to be divided into lots or blocks, with the necessary streets and
2. That belonging exclusively to the State which, without being of general alleyways located thereon, and shall cause plats and plans of such surveys
public use, is employed in some public service, or in the development of the to be prepared and filed with the Bureau of Lands.
national wealth, such as walls, fortresses, and other works for the defense
of the territory, and mines, until granted to private individuals." (b) Upon completion of such plats and plans the Governor-General shall
give notice to the public that such parts of the lands so made or reclaimed
Property devoted to public use referred to property open for use by the public. In as are not needed for public purposes will be leased for commercial and
contrast, property devoted to public service referred to property used for some business purposes, x x x.
specific public service and open only to those authorized to use the property.
xxx
Property of public dominion referred not only to property devoted to public use, but
also to property not so used but employed to develop the national wealth. This class (e) The leases above provided for shall be disposed of to the highest and
of property constituted property of public dominion although employed for some best bidder therefore, subject to such regulations and safeguards as the
economic or commercial activity to increase the national wealth. Governor-General may by executive order prescribe." (Emphasis supplied)

Article 341 of the Civil Code of 1889 governed the re-classification of property of Act No. 1654 mandated that the government should retain title to all lands
public dominion into private property, to wit: reclaimed by the government. The Act also vested in the government control and
disposition of foreshore lands. Private parties could lease lands reclaimed by the
"Art. 341. Property of public dominion, when no longer devoted to public government only if these lands were no longer needed for public purpose. Act No.
use or to the defense of the territory, shall become a part of the private 1654 mandated public bidding in the lease of government reclaimed lands. Act No.
property of the State." 1654 made government reclaimed lands sui generis in that unlike other public lands
which the government could sell to private parties, these reclaimed lands were
available only for lease to private parties.
Act No. 1654, however, did not repeal Section 5 of the Spanish Law of Waters of 1866. (b) Foreshore;
Act No. 1654 did not prohibit private parties from reclaiming parts of the sea under
Section 5 of the Spanish Law of Waters. Lands reclaimed from the sea by private (c) Marshy lands or lands covered with water bordering upon the
parties with government permission remained private lands. shores or banks of navigable lakes or rivers;

Act No. 2874 of the Philippine Legislature (d) Lands not included in any of the foregoing classes.

On November 29, 1919, the Philippine Legislature enacted Act No. 2874, the Public x x x.
Land Act.46 The salient provisions of Act No. 2874, on reclaimed lands, were as
follows: Sec. 58. The lands comprised in classes (a), (b), and (c) of section fifty-six
shall be disposed of to private parties by lease only and not otherwise, as
"Sec. 6. The Governor-General, upon the recommendation of the Secretary soon as the Governor-General, upon recommendation by the Secretary of
of Agriculture and Natural Resources, shall from time to time classify the Agriculture and Natural Resources, shall declare that the same are not
lands of the public domain into – necessary for the public service and are open to disposition under this
chapter. The lands included in class (d) may be disposed of by sale or lease
(a) Alienable or disposable, under the provisions of this Act." (Emphasis supplied)

(b) Timber, and Section 6 of Act No. 2874 authorized the Governor-General to "classify lands of the
public domain into x x x alienable or disposable" 47 lands. Section 7 of the Act
(c) Mineral lands, x x x. empowered the Governor-General to "declare what lands are open to disposition or
concession." Section 8 of the Act limited alienable or disposable lands only to those
Sec. 7. For the purposes of the government and disposition of alienable or lands which have been "officially delimited and classified."
disposable public lands, the Governor-General, upon recommendation by
the Secretary of Agriculture and Natural Resources, shall from time to time Section 56 of Act No. 2874 stated that lands "disposable under this title48 shall be
declare what lands are open to disposition or concession under this Act." classified" as government reclaimed, foreshore and marshy lands, as well as other
lands. All these lands, however, must be suitable for residential, commercial,
Sec. 8. Only those lands shall be declared open to disposition or concession industrial or other productive non-agricultural purposes. These provisions vested
which have been officially delimited or classified x x x. upon the Governor-General the power to classify inalienable lands of the public
domain into disposable lands of the public domain. These provisions also empowered
the Governor-General to classify further such disposable lands of the public domain
xxx
into government reclaimed, foreshore or marshy lands of the public domain, as well
as other non-agricultural lands.
Sec. 55. Any tract of land of the public domain which, being neither timber
nor mineral land, shall be classified as suitable for residential purposes or
Section 58 of Act No. 2874 categorically mandated that disposable lands of the public
for commercial, industrial, or other productive purposes other than
domain classified as government reclaimed, foreshore and marshy lands "shall be
agricultural purposes, and shall be open to disposition or concession, shall
disposed of to private parties by lease only and not otherwise." The Governor-
be disposed of under the provisions of this chapter, and not otherwise.
General, before allowing the lease of these lands to private parties, must formally
declare that the lands were "not necessary for the public service." Act No. 2874
Sec. 56. The lands disposable under this title shall be classified as follows:
reiterated the State policy to lease and not to sell government reclaimed, foreshore
and marshy lands of the public domain, a policy first enunciated in 1907 in Act No.
(a) Lands reclaimed by the Government by dredging, filling, or 1654. Government reclaimed, foreshore and marshy lands remained sui generis, as
other means; the only alienable or disposable lands of the public domain that the government
could not sell to private parties.
The rationale behind this State policy is obvious. Government reclaimed, foreshore inalienable by constitutional fiat, available only for lease for 25 years, renewable for
and marshy public lands for non-agricultural purposes retain their inherent potential another 25 years. The government could alienate foreshore lands only after these
as areas for public service. This is the reason the government prohibited the sale, and lands were reclaimed and classified as alienable agricultural lands of the public
only allowed the lease, of these lands to private parties. The State always reserved domain. Government reclaimed and marshy lands of the public domain, being
these lands for some future public service. neither timber nor mineral lands, fell under the classification of public agricultural
lands.50 However, government reclaimed and marshy lands, although subject to
Act No. 2874 did not authorize the reclassification of government reclaimed, classification as disposable public agricultural lands, could only be leased and not sold
foreshore and marshy lands into other non-agricultural lands under Section 56 (d). to private parties because of Act No. 2874.
Lands falling under Section 56 (d) were the only lands for non-agricultural purposes
the government could sell to private parties. Thus, under Act No. 2874, the The prohibition on private parties from acquiring ownership of government
government could not sell government reclaimed, foreshore and marshy lands to reclaimed and marshy lands of the public domain was only a statutory prohibition
private parties, unless the legislature passed a law allowing their sale.49 and the legislature could therefore remove such prohibition. The 1935 Constitution
did not prohibit individuals and corporations from acquiring government reclaimed
Act No. 2874 did not prohibit private parties from reclaiming parts of the sea and marshy lands of the public domain that were classified as agricultural lands under
pursuant to Section 5 of the Spanish Law of Waters of 1866. Lands reclaimed from existing public land laws. Section 2, Article XIII of the 1935 Constitution provided as
the sea by private parties with government permission remained private lands. follows:

Dispositions under the 1935 Constitution "Section 2. No private corporation or association may acquire, lease, or
hold public agricultural lands in excess of one thousand and twenty four
On May 14, 1935, the 1935 Constitution took effect upon its ratification by the hectares, nor may any individual acquire such lands by purchase in excess
Filipino people. The 1935 Constitution, in adopting the Regalian doctrine, declared in of one hundred and forty hectares, or by lease in excess of one thousand
Section 1, Article XIII, that – and twenty-four hectares, or by homestead in excess of twenty-four
hectares. Lands adapted to grazing, not exceeding two thousand hectares,
may be leased to an individual, private corporation, or association."
"Section 1. All agricultural, timber, and mineral lands of the public domain,
(Emphasis supplied)
waters, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy and other natural resources of the Philippines belong to
the State, and their disposition, exploitation, development, or utilization Still, after the effectivity of the 1935 Constitution, the legislature did not repeal
shall be limited to citizens of the Philippines or to corporations or Section 58 of Act No. 2874 to open for sale to private parties government reclaimed
associations at least sixty per centum of the capital of which is owned by and marshy lands of the public domain. On the contrary, the legislature continued
such citizens, subject to any existing right, grant, lease, or concession at the the long established State policy of retaining for the government title and ownership
time of the inauguration of the Government established under this of government reclaimed and marshy lands of the public domain.
Constitution. Natural resources, with the exception of public agricultural
land, shall not be alienated, and no license, concession, or lease for the Commonwealth Act No. 141 of the Philippine National Assembly
exploitation, development, or utilization of any of the natural resources shall
be granted for a period exceeding twenty-five years, renewable for another On November 7, 1936, the National Assembly approved Commonwealth Act No. 141,
twenty-five years, except as to water rights for irrigation, water supply, also known as the Public Land Act, which compiled the then existing laws on lands of
fisheries, or industrial uses other than the development of water power, in the public domain. CA No. 141, as amended, remains to this day the existing general
which cases beneficial use may be the measure and limit of the grant." law governing the classification and disposition of lands of the public domain other
(Emphasis supplied) than timber and mineral lands.51

The 1935 Constitution barred the alienation of all natural resources except public Section 6 of CA No. 141 empowers the President to classify lands of the public domain
agricultural lands, which were the only natural resources the State could alienate. into "alienable or disposable"52 lands of the public domain, which prior to such
Thus, foreshore lands, considered part of the State's natural resources, became classification are inalienable and outside the commerce of man. Section 7 of CA No.
141 authorizes the President to "declare what lands are open to disposition or agricultural, and is open to disposition or concession, shall be disposed of
concession." Section 8 of CA No. 141 states that the government can declare open under the provisions of this chapter and not otherwise.
for disposition or concession only lands that are "officially delimited and classified."
Sections 6, 7 and 8 of CA No. 141 read as follows: Sec. 59. The lands disposable under this title shall be classified as follows:

"Sec. 6. The President, upon the recommendation of the Secretary of (a) Lands reclaimed by the Government by dredging, filling, or
Agriculture and Commerce, shall from time to time classify the lands of the other means;
public domain into –
(b) Foreshore;
(a) Alienable or disposable,
(c) Marshy lands or lands covered with water bordering upon the
(b) Timber, and shores or banks of navigable lakes or rivers;

(c) Mineral lands, (d) Lands not included in any of the foregoing classes.

and may at any time and in like manner transfer such lands from one class Sec. 60. Any tract of land comprised under this title may be leased or sold,
to another,53 for the purpose of their administration and disposition. as the case may be, to any person, corporation, or association authorized to
purchase or lease public lands for agricultural purposes. x x x.
Sec. 7. For the purposes of the administration and disposition of alienable
or disposable public lands, the President, upon recommendation by the Sec. 61. The lands comprised in classes (a), (b), and (c) of section fifty-nine
Secretary of Agriculture and Commerce, shall from time to time declare shall be disposed of to private parties by lease only and not otherwise, as
what lands are open to disposition or concession under this Act. soon as the President, upon recommendation by the Secretary of
Agriculture, shall declare that the same are not necessary for the public
Sec. 8. Only those lands shall be declared open to disposition or concession service and are open to disposition under this chapter. The lands included
which have been officially delimited and classified and, when practicable, in class (d) may be disposed of by sale or lease under the provisions of this
surveyed, and which have not been reserved for public or quasi-public uses, Act." (Emphasis supplied)
nor appropriated by the Government, nor in any manner become private
property, nor those on which a private right authorized and recognized by Section 61 of CA No. 141 readopted, after the effectivity of the 1935 Constitution,
this Act or any other valid law may be claimed, or which, having been Section 58 of Act No. 2874 prohibiting the sale of government reclaimed, foreshore
reserved or appropriated, have ceased to be so. x x x." and marshy disposable lands of the public domain. All these lands are intended for
residential, commercial, industrial or other non-agricultural purposes. As before,
Thus, before the government could alienate or dispose of lands of the public domain, Section 61 allowed only the lease of such lands to private parties. The government
the President must first officially classify these lands as alienable or disposable, and could sell to private parties only lands falling under Section 59 (d) of CA No. 141, or
then declare them open to disposition or concession. There must be no law reserving those lands for non-agricultural purposes not classified as government reclaimed,
these lands for public or quasi-public uses. foreshore and marshy disposable lands of the public domain. Foreshore lands,
however, became inalienable under the 1935 Constitution which only allowed the
The salient provisions of CA No. 141, on government reclaimed, foreshore and lease of these lands to qualified private parties.
marshy lands of the public domain, are as follows:
Section 58 of CA No. 141 expressly states that disposable lands of the public domain
"Sec. 58. Any tract of land of the public domain which, being neither timber intended for residential, commercial, industrial or other productive purposes other
nor mineral land, is intended to be used for residential purposes or for than agricultural "shall be disposed of under the provisions of this chapter and not
commercial, industrial, or other productive purposes other than otherwise." Under Section 10 of CA No. 141, the term "disposition" includes lease of
the land. Any disposition of government reclaimed, foreshore and marshy disposable Since then and until now, the only way the government can sell to private parties
lands for non-agricultural purposes must comply with Chapter IX, Title III of CA No. government reclaimed and marshy disposable lands of the public domain is for the
141,54 unless a subsequent law amended or repealed these provisions. legislature to pass a law authorizing such sale. CA No. 141 does not authorize the
President to reclassify government reclaimed and marshy lands into other non-
In his concurring opinion in the landmark case of Republic Real Estate Corporation v. agricultural lands under Section 59 (d). Lands classified under Section 59 (d) are the
Court of Appeals,55Justice Reynato S. Puno summarized succinctly the law on this only alienable or disposable lands for non-agricultural purposes that the government
matter, as follows: could sell to private parties.

"Foreshore lands are lands of public dominion intended for public use. So Moreover, Section 60 of CA No. 141 expressly requires congressional authority
too are lands reclaimed by the government by dredging, filling, or other before lands under Section 59 that the government previously transferred to
means. Act 1654 mandated that the control and disposition of the foreshore government units or entities could be sold to private parties. Section 60 of CA No.
and lands under water remained in the national government. Said law 141 declares that –
allowed only the 'leasing' of reclaimed land. The Public Land Acts of 1919
and 1936 also declared that the foreshore and lands reclaimed by the "Sec. 60. x x x The area so leased or sold shall be such as shall, in the
government were to be "disposed of to private parties by lease only and not judgment of the Secretary of Agriculture and Natural Resources, be
otherwise." Before leasing, however, the Governor-General, upon reasonably necessary for the purposes for which such sale or lease is
recommendation of the Secretary of Agriculture and Natural Resources, had requested, and shall not exceed one hundred and forty-four hectares:
first to determine that the land reclaimed was not necessary for the public Provided, however, That this limitation shall not apply to grants, donations,
service. This requisite must have been met before the land could be or transfers made to a province, municipality or branch or subdivision of the
disposed of. But even then, the foreshore and lands under water were not Government for the purposes deemed by said entities conducive to the
to be alienated and sold to private parties. The disposition of the reclaimed public interest; but the land so granted, donated, or transferred to a
land was only by lease. The land remained property of the State." province, municipality or branch or subdivision of the Government shall not
(Emphasis supplied) be alienated, encumbered, or otherwise disposed of in a manner affecting
its title, except when authorized by Congress: x x x." (Emphasis supplied)
As observed by Justice Puno in his concurring opinion, "Commonwealth Act No. 141
has remained in effect at present." The congressional authority required in Section 60 of CA No. 141 mirrors the
legislative authority required in Section 56 of Act No. 2874.
The State policy prohibiting the sale to private parties of government reclaimed,
foreshore and marshy alienable lands of the public domain, first implemented in 1907 One reason for the congressional authority is that Section 60 of CA No. 141 exempted
was thus reaffirmed in CA No. 141 after the 1935 Constitution took effect. The government units and entities from the maximum area of public lands that could be
prohibition on the sale of foreshore lands, however, became a constitutional edict acquired from the State. These government units and entities should not just turn
under the 1935 Constitution. Foreshore lands became inalienable as natural around and sell these lands to private parties in violation of constitutional or
resources of the State, unless reclaimed by the government and classified as statutory limitations. Otherwise, the transfer of lands for non-agricultural purposes
agricultural lands of the public domain, in which case they would fall under the to government units and entities could be used to circumvent constitutional
classification of government reclaimed lands. limitations on ownership of alienable or disposable lands of the public domain. In the
same manner, such transfers could also be used to evade the statutory prohibition in
After the effectivity of the 1935 Constitution, government reclaimed and marshy CA No. 141 on the sale of government reclaimed and marshy lands of the public
disposable lands of the public domain continued to be only leased and not sold to domain to private parties. Section 60 of CA No. 141 constitutes by operation of law a
private parties.56 These lands remained sui generis, as the only alienable or lien on these lands.57
disposable lands of the public domain the government could not sell to private
parties. In case of sale or lease of disposable lands of the public domain falling under Section
59 of CA No. 141, Sections 63 and 67 require a public bidding. Sections 63 and 67 of
CA No. 141 provide as follows:
"Sec. 63. Whenever it is decided that lands covered by this chapter are not Again, the government must formally declare that the property of public dominion is
needed for public purposes, the Director of Lands shall ask the Secretary of no longer needed for public use or public service, before the same could be classified
Agriculture and Commerce (now the Secretary of Natural Resources) for as patrimonial property of the State.59 In the case of government reclaimed and
authority to dispose of the same. Upon receipt of such authority, the marshy lands of the public domain, the declaration of their being disposable, as well
Director of Lands shall give notice by public advertisement in the same as the manner of their disposition, is governed by the applicable provisions of CA No.
manner as in the case of leases or sales of agricultural public land, x x x. 141.

Sec. 67. The lease or sale shall be made by oral bidding; and adjudication Like the Civil Code of 1889, the Civil Code of 1950 included as property of public
shall be made to the highest bidder. x x x." (Emphasis supplied) dominion those properties of the State which, without being for public use, are
intended for public service or the "development of the national wealth." Thus,
Thus, CA No. 141 mandates the Government to put to public auction all leases or government reclaimed and marshy lands of the State, even if not employed for public
sales of alienable or disposable lands of the public domain.58 use or public service, if developed to enhance the national wealth, are classified as
property of public dominion.
Like Act No. 1654 and Act No. 2874 before it, CA No. 141 did not repeal Section 5 of
the Spanish Law of Waters of 1866. Private parties could still reclaim portions of the Dispositions under the 1973 Constitution
sea with government permission. However, the reclaimed land could become
private land only if classified as alienable agricultural land of the public The 1973 Constitution, which took effect on January 17, 1973, likewise adopted the
domain open to disposition under CA No. 141. The 1935 Constitution prohibited the Regalian doctrine. Section 8, Article XIV of the 1973 Constitution stated that –
alienation of all natural resources except public agricultural lands.
"Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and
The Civil Code of 1950 other mineral oils, all forces of potential energy, fisheries, wildlife, and other
natural resources of the Philippines belong to the State. With the exception
The Civil Code of 1950 readopted substantially the definition of property of public of agricultural, industrial or commercial, residential, and resettlement
dominion found in the Civil Code of 1889. Articles 420 and 422 of the Civil Code of lands of the public domain, natural resources shall not be alienated, and
1950 state that – no license, concession, or lease for the exploration, development,
exploitation, or utilization of any of the natural resources shall be granted
"Art. 420. The following things are property of public dominion: for a period exceeding twenty-five years, renewable for not more than
twenty-five years, except as to water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, in
(1) Those intended for public use, such as roads, canals, rivers, torrents,
which cases, beneficial use may be the measure and the limit of the grant."
ports and bridges constructed by the State, banks, shores, roadsteads, and
(Emphasis supplied)
others of similar character;

The 1973 Constitution prohibited the alienation of all natural resources with the
(2) Those which belong to the State, without being for public use, and are
exception of "agricultural, industrial or commercial, residential, and resettlement
intended for some public service or for the development of the national
lands of the public domain." In contrast, the 1935 Constitution barred the alienation
wealth.
of all natural resources except "public agricultural lands." However, the term "public
agricultural lands" in the 1935 Constitution encompassed industrial, commercial,
x x x.
residential and resettlement lands of the public domain.60 If the land of public domain
were neither timber nor mineral land, it would fall under the classification of
Art. 422. Property of public dominion, when no longer intended for public agricultural land of the public domain. Both the 1935 and 1973 Constitutions,
use or for public service, shall form part of the patrimonial property of the therefore, prohibited the alienation of all natural resources except agricultural
State." lands of the public domain.
The 1973 Constitution, however, limited the alienation of lands of the public domain other forms of real property, owned, managed, controlled and/or operated
to individuals who were citizens of the Philippines. Private corporations, even if by the government;
wholly owned by Philippine citizens, were no longer allowed to acquire alienable
lands of the public domain unlike in the 1935 Constitution. Section 11, Article XIV of (c) To provide for, operate or administer such service as may be necessary
the 1973 Constitution declared that – for the efficient, economical and beneficial utilization of the above
properties.
"Sec. 11. The Batasang Pambansa, taking into account conservation,
ecological, and development requirements of the natural resources, shall Sec. 5. Powers and functions of the Authority. The Authority shall, in carrying
determine by law the size of land of the public domain which may be out the purposes for which it is created, have the following powers and
developed, held or acquired by, or leased to, any qualified individual, functions:
corporation, or association, and the conditions therefor. No private
corporation or association may hold alienable lands of the public domain (a)To prescribe its by-laws.
except by lease not to exceed one thousand hectares in area nor may any
citizen hold such lands by lease in excess of five hundred hectares or acquire
xxx
by purchase, homestead or grant, in excess of twenty-four hectares. No
private corporation or association may hold by lease, concession, license or
(i) To hold lands of the public domain in excess of the area permitted to
permit, timber or forest lands and other timber or forest resources in excess
private corporations by statute.
of one hundred thousand hectares. However, such area may be increased
by the Batasang Pambansa upon recommendation of the National Economic
and Development Authority." (Emphasis supplied) (j) To reclaim lands and to construct work across, or otherwise, any stream,
watercourse, canal, ditch, flume x x x.
Thus, under the 1973 Constitution, private corporations could hold alienable lands of
the public domain only through lease. Only individuals could now acquire alienable xxx
lands of the public domain, and private corporations became absolutely barred from
acquiring any kind of alienable land of the public domain. The constitutional ban (o) To perform such acts and exercise such functions as may be necessary
extended to all kinds of alienable lands of the public domain, while the statutory ban for the attainment of the purposes and objectives herein specified."
under CA No. 141 applied only to government reclaimed, foreshore and marshy (Emphasis supplied)
alienable lands of the public domain.
PD No. 1084 authorizes PEA to reclaim both foreshore and submerged areas of the
PD No. 1084 Creating the Public Estates Authority public domain. Foreshore areas are those covered and uncovered by the ebb and
flow of the tide.61 Submerged areas are those permanently under water regardless
On February 4, 1977, then President Ferdinand Marcos issued Presidential Decree of the ebb and flow of the tide.62 Foreshore and submerged areas indisputably belong
No. 1084 creating PEA, a wholly government owned and controlled corporation with to the public domain63 and are inalienable unless reclaimed, classified as alienable
a special charter. Sections 4 and 8 of PD No. 1084, vests PEA with the following lands open to disposition, and further declared no longer needed for public service.
purposes and powers:
The ban in the 1973 Constitution on private corporations from acquiring alienable
"Sec. 4. Purpose. The Authority is hereby created for the following purposes: lands of the public domain did not apply to PEA since it was then, and until today, a
fully owned government corporation. The constitutional ban applied then, as it still
applies now, only to "private corporations and associations." PD No. 1084 expressly
(a) To reclaim land, including foreshore and submerged areas, by dredging,
empowers PEA "to hold lands of the public domain" even "in excess of the area
filling or other means, or to acquire reclaimed land;
permitted to private corporations by statute." Thus, PEA can hold title to private
lands, as well as title to lands of the public domain.
(b) To develop, improve, acquire, administer, deal in, subdivide,
dispose, lease and sell any and all kinds of lands, buildings, estates and
In order for PEA to sell its reclaimed foreshore and submerged alienable lands of the Taking into account the requirements of conservation, ecology, and
public domain, there must be legislative authority empowering PEA to sell these development, and subject to the requirements of agrarian reform, the
lands. This legislative authority is necessary in view of Section 60 of CA No.141, which Congress shall determine, by law, the size of lands of the public domain
states – which may be acquired, developed, held, or leased and the conditions
therefor." (Emphasis supplied)
"Sec. 60. x x x; but the land so granted, donated or transferred to a province,
municipality, or branch or subdivision of the Government shall not be The 1987 Constitution continues the State policy in the 1973 Constitution banning
alienated, encumbered or otherwise disposed of in a manner affecting its private corporations from acquiring any kind of alienable land of the public domain.
title, except when authorized by Congress; x x x." (Emphasis supplied) Like the 1973 Constitution, the 1987 Constitution allows private corporations to hold
alienable lands of the public domain only through lease. As in the 1935 and 1973
Without such legislative authority, PEA could not sell but only lease its reclaimed Constitutions, the general law governing the lease to private corporations of
foreshore and submerged alienable lands of the public domain. Nevertheless, any reclaimed, foreshore and marshy alienable lands of the public domain is still CA No.
legislative authority granted to PEA to sell its reclaimed alienable lands of the public 141.
domain would be subject to the constitutional ban on private corporations from
acquiring alienable lands of the public domain. Hence, such legislative authority could The Rationale behind the Constitutional Ban
only benefit private individuals.
The rationale behind the constitutional ban on corporations from acquiring, except
Dispositions under the 1987 Constitution through lease, alienable lands of the public domain is not well understood. During
the deliberations of the 1986 Constitutional Commission, the commissioners probed
The 1987 Constitution, like the 1935 and 1973 Constitutions before it, has adopted the rationale behind this ban, thus:
the Regalian doctrine. The 1987 Constitution declares that all natural resources are
"owned by the State," and except for alienable agricultural lands of the public "FR. BERNAS: Mr. Vice-President, my questions have reference to page 3,
domain, natural resources cannot be alienated. Sections 2 and 3, Article XII of the line 5 which says:
1987 Constitution state that –
`No private corporation or association may hold alienable lands of the public
"Section 2. All lands of the public domain, waters, minerals, coal, petroleum domain except by lease, not to exceed one thousand hectares in area.'
and other mineral oils, all forces of potential energy, fisheries, forests or
timber, wildlife, flora and fauna, and other natural resources are owned by If we recall, this provision did not exist under the 1935 Constitution, but this
the State. With the exception of agricultural lands, all other natural was introduced in the 1973 Constitution. In effect, it prohibits private
resources shall not be alienated. The exploration, development, and corporations from acquiring alienable public lands. But it has not been very
utilization of natural resources shall be under the full control and clear in jurisprudence what the reason for this is. In some of the cases
supervision of the State. x x x. decided in 1982 and 1983, it was indicated that the purpose of this is to
prevent large landholdings. Is that the intent of this provision?
Section 3. Lands of the public domain are classified into agricultural, forest
or timber, mineral lands, and national parks. Agricultural lands of the public MR. VILLEGAS: I think that is the spirit of the provision.
domain may be further classified by law according to the uses which they
may be devoted. Alienable lands of the public domain shall be limited to FR. BERNAS: In existing decisions involving the Iglesia ni Cristo, there were
agricultural lands. Private corporations or associations may not hold such instances where the Iglesia ni Cristo was not allowed to acquire a mere 313-
alienable lands of the public domain except by lease, for a period not square meter land where a chapel stood because the Supreme Court said it
exceeding twenty-five years, renewable for not more than twenty-five would be in violation of this." (Emphasis supplied)
years, and not to exceed one thousand hectares in area. Citizens of the
Philippines may lease not more than five hundred hectares, or acquire not
more than twelve hectares thereof by purchase, homestead, or grant.
In Ayog v. Cusi,64 the Court explained the rationale behind this constitutional ban in The Amended Joint Venture Agreement
this way:
The subject matter of the Amended JVA, as stated in its second Whereas clause,
"Indeed, one purpose of the constitutional prohibition against purchases of consists of three properties, namely:
public agricultural lands by private corporations is to equitably diffuse land
ownership or to encourage 'owner-cultivatorship and the economic family- 1. "[T]hree partially reclaimed and substantially eroded islands along Emilio
size farm' and to prevent a recurrence of cases like the instant case. Huge Aguinaldo Boulevard in Paranaque and Las Pinas, Metro Manila, with a
landholdings by corporations or private persons had spawned social unrest." combined titled area of 1,578,441 square meters;"

However, if the constitutional intent is to prevent huge landholdings, the Constitution 2. "[A]nother area of 2,421,559 square meters contiguous to the three
could have simply limited the size of alienable lands of the public domain that islands;" and
corporations could acquire. The Constitution could have followed the limitations on
individuals, who could acquire not more than 24 hectares of alienable lands of the 3. "[A]t AMARI's option as approved by PEA, an additional 350 hectares
public domain under the 1973 Constitution, and not more than 12 hectares under more or less to regularize the configuration of the reclaimed area."65
the 1987 Constitution.
PEA confirms that the Amended JVA involves "the development of the Freedom
If the constitutional intent is to encourage economic family-size farms, placing the Islands and further reclamation of about 250 hectares x x x," plus an option "granted
land in the name of a corporation would be more effective in preventing the break- to AMARI to subsequently reclaim another 350 hectares x x x."66
up of farmlands. If the farmland is registered in the name of a corporation, upon the
death of the owner, his heirs would inherit shares in the corporation instead of
In short, the Amended JVA covers a reclamation area of 750 hectares. Only 157.84
subdivided parcels of the farmland. This would prevent the continuing break-up of
hectares of the 750-hectare reclamation project have been reclaimed, and the rest
farmlands into smaller and smaller plots from one generation to the next.
of the 592.15 hectares are still submerged areas forming part of Manila Bay.

In actual practice, the constitutional ban strengthens the constitutional limitation on


Under the Amended JVA, AMARI will reimburse PEA the sum of P1,894,129,200.00
individuals from acquiring more than the allowed area of alienable lands of the public
for PEA's "actual cost" in partially reclaiming the Freedom Islands. AMARI will also
domain. Without the constitutional ban, individuals who already acquired the
complete, at its own expense, the reclamation of the Freedom Islands. AMARI will
maximum area of alienable lands of the public domain could easily set up
further shoulder all the reclamation costs of all the other areas, totaling 592.15
corporations to acquire more alienable public lands. An individual could own as many
hectares, still to be reclaimed. AMARI and PEA will share, in the proportion of 70
corporations as his means would allow him. An individual could even hide his
percent and 30 percent, respectively, the total net usable area which is defined in the
ownership of a corporation by putting his nominees as stockholders of the
Amended JVA as the total reclaimed area less 30 percent earmarked for common
corporation. The corporation is a convenient vehicle to circumvent the constitutional
areas. Title to AMARI's share in the net usable area, totaling 367.5 hectares, will be
limitation on acquisition by individuals of alienable lands of the public domain.
issued in the name of AMARI. Section 5.2 (c) of the Amended JVA provides that –

The constitutional intent, under the 1973 and 1987 Constitutions, is to transfer
"x x x, PEA shall have the duty to execute without delay the necessary deed
ownership of only a limited area of alienable land of the public domain to a qualified
of transfer or conveyance of the title pertaining to AMARI's Land share
individual. This constitutional intent is safeguarded by the provision prohibiting
based on the Land Allocation Plan. PEA, when requested in writing by
corporations from acquiring alienable lands of the public domain, since the vehicle to
AMARI, shall then cause the issuance and delivery of the proper certificates
circumvent the constitutional intent is removed. The available alienable public lands
of title covering AMARI's Land Share in the name of AMARI, x x x; provided,
are gradually decreasing in the face of an ever-growing population. The most
that if more than seventy percent (70%) of the titled area at any given time
effective way to insure faithful adherence to this constitutional intent is to grant or
pertains to AMARI, PEA shall deliver to AMARI only seventy percent (70%)
sell alienable lands of the public domain only to individuals. This, it would seem, is
of the titles pertaining to AMARI, until such time when a corresponding
the practical benefit arising from the constitutional ban.
proportionate area of additional land pertaining to PEA has been titled."
(Emphasis supplied)
Indisputably, under the Amended JVA AMARI will acquire and own a maximum of "Under the Public Land Act (CA 141, as amended), reclaimed lands are
367.5 hectares of reclaimed land which will be titled in its name. classified as alienable and disposable lands of the public domain:

To implement the Amended JVA, PEA delegated to the unincorporated PEA-AMARI 'Sec. 59. The lands disposable under this title shall be classified as
joint venture PEA's statutory authority, rights and privileges to reclaim foreshore and follows:
submerged areas in Manila Bay. Section 3.2.a of the Amended JVA states that –
(a) Lands reclaimed by the government by dredging, filling, or other
"PEA hereby contributes to the joint venture its rights and privileges to means;
perform Rawland Reclamation and Horizontal Development as well as own
the Reclamation Area, thereby granting the Joint Venture the full and x x x.'" (Emphasis supplied)
exclusive right, authority and privilege to undertake the Project in
accordance with the Master Development Plan." Likewise, the Legal Task Force68 constituted under Presidential Administrative Order
No. 365 admitted in its Report and Recommendation to then President Fidel V.
The Amended JVA is the product of a renegotiation of the original JVA dated April 25, Ramos, "[R]eclaimed lands are classified as alienable and disposable lands of the
1995 and its supplemental agreement dated August 9, 1995. public domain."69 The Legal Task Force concluded that –

The Threshold Issue "D. Conclusion

The threshold issue is whether AMARI, a private corporation, can acquire and own Reclaimed lands are lands of the public domain. However, by statutory
under the Amended JVA 367.5 hectares of reclaimed foreshore and submerged areas authority, the rights of ownership and disposition over reclaimed lands have
in Manila Bay in view of Sections 2 and 3, Article XII of the 1987 Constitution which been transferred to PEA, by virtue of which PEA, as owner, may validly
state that: convey the same to any qualified person without violating the Constitution
or any statute.
"Section 2. All lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, fisheries, forests or The constitutional provision prohibiting private corporations from holding
timber, wildlife, flora and fauna, and other natural resources are owned by public land, except by lease (Sec. 3, Art. XVII,70 1987 Constitution), does not
the State. With the exception of agricultural lands, all other natural apply to reclaimed lands whose ownership has passed on to PEA by
resources shall not be alienated. x x x. statutory grant."

xxx Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged
areas of Manila Bay are part of the "lands of the public domain, waters x x x and other
Section 3. x x x Alienable lands of the public domain shall be limited to natural resources" and consequently "owned by the State." As such, foreshore and
agricultural lands. Private corporations or associations may not hold such submerged areas "shall not be alienated," unless they are classified as "agricultural
alienable lands of the public domain except by lease, x x x."(Emphasis lands" of the public domain. The mere reclamation of these areas by PEA does not
supplied) convert these inalienable natural resources of the State into alienable or disposable
lands of the public domain. There must be a law or presidential proclamation officially
Classification of Reclaimed Foreshore and Submerged Areas classifying these reclaimed lands as alienable or disposable and open to disposition
or concession. Moreover, these reclaimed lands cannot be classified as alienable or
PEA readily concedes that lands reclaimed from foreshore or submerged areas of disposable if the law has reserved them for some public or quasi-public use.71
Manila Bay are alienable or disposable lands of the public domain. In its
Memorandum,67 PEA admits that – Section 8 of CA No. 141 provides that "only those lands shall be declared open to
disposition or concession which have been officially delimited and classified."72 The
President has the authority to classify inalienable lands of the public domain into necessarily fall under the classification of agricultural lands of the public domain.
alienable or disposable lands of the public domain, pursuant to Section 6 of CA No. Under the 1987 Constitution, agricultural lands of the public domain are the only
141. In Laurel vs. Garcia,73 the Executive Department attempted to sell the Roppongi natural resources that the State may alienate to qualified private parties. All other
property in Tokyo, Japan, which was acquired by the Philippine Government for use natural resources, such as the seas or bays, are "waters x x x owned by the State"
as the Chancery of the Philippine Embassy. Although the Chancery had transferred to forming part of the public domain, and are inalienable pursuant to Section 2, Article
another location thirteen years earlier, the Court still ruled that, under Article XII of the 1987 Constitution.
42274 of the Civil Code, a property of public dominion retains such character until
formally declared otherwise. The Court ruled that – AMARI claims that the Freedom Islands are private lands because CDCP, then a
private corporation, reclaimed the islands under a contract dated November 20, 1973
"The fact that the Roppongi site has not been used for a long time for actual with the Commissioner of Public Highways. AMARI, citing Article 5 of the Spanish Law
Embassy service does not automatically convert it to patrimonial property. of Waters of 1866, argues that "if the ownership of reclaimed lands may be given to
Any such conversion happens only if the property is withdrawn from public the party constructing the works, then it cannot be said that reclaimed lands are lands
use (Cebu Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]. A of the public domain which the State may not alienate."75 Article 5 of the Spanish Law
property continues to be part of the public domain, not available for of Waters reads as follows:
private appropriation or ownership 'until there is a formal declaration on
the part of the government to withdraw it from being such' (Ignacio v. "Article 5. Lands reclaimed from the sea in consequence of works
Director of Lands, 108 Phil. 335 [1960]." (Emphasis supplied) constructed by the State, or by the provinces, pueblos or private
persons, with proper permission, shall become the property of the party
PD No. 1085, issued on February 4, 1977, authorized the issuance of special land constructing such works, unless otherwise provided by the terms of the
patents for lands reclaimed by PEA from the foreshore or submerged areas of Manila grant of authority." (Emphasis supplied)
Bay. On January 19, 1988 then President Corazon C. Aquino issued Special Patent No.
3517 in the name of PEA for the 157.84 hectares comprising the partially reclaimed Under Article 5 of the Spanish Law of Waters of 1866, private parties could reclaim
Freedom Islands. Subsequently, on April 9, 1999 the Register of Deeds of the from the sea only with "proper permission" from the State. Private parties could own
Municipality of Paranaque issued TCT Nos. 7309, 7311 and 7312 in the name of PEA the reclaimed land only if not "otherwise provided by the terms of the grant of
pursuant to Section 103 of PD No. 1529 authorizing the issuance of certificates of title authority." This clearly meant that no one could reclaim from the sea without
corresponding to land patents. To this day, these certificates of title are still in the permission from the State because the sea is property of public dominion. It also
name of PEA. meant that the State could grant or withhold ownership of the reclaimed land
because any reclaimed land, like the sea from which it emerged, belonged to the
PD No. 1085, coupled with President Aquino's actual issuance of a special patent State. Thus, a private person reclaiming from the sea without permission from the
covering the Freedom Islands, is equivalent to an official proclamation classifying the State could not acquire ownership of the reclaimed land which would remain
Freedom Islands as alienable or disposable lands of the public domain. PD No. 1085 property of public dominion like the sea it replaced.76 Article 5 of the Spanish Law of
and President Aquino's issuance of a land patent also constitute a declaration that Waters of 1866 adopted the time-honored principle of land ownership that "all lands
the Freedom Islands are no longer needed for public service. The Freedom Islands that were not acquired from the government, either by purchase or by grant, belong
are thus alienable or disposable lands of the public domain, open to disposition or to the public domain."77
concession to qualified parties.
Article 5 of the Spanish Law of Waters must be read together with laws subsequently
At the time then President Aquino issued Special Patent No. 3517, PEA had already enacted on the disposition of public lands. In particular, CA No. 141 requires that
reclaimed the Freedom Islands although subsequently there were partial erosions on lands of the public domain must first be classified as alienable or disposable before
some areas. The government had also completed the necessary surveys on these the government can alienate them. These lands must not be reserved for public or
islands. Thus, the Freedom Islands were no longer part of Manila Bay but part of the quasi-public purposes.78 Moreover, the contract between CDCP and the government
land mass. Section 3, Article XII of the 1987 Constitution classifies lands of the public was executed after the effectivity of the 1973 Constitution which barred private
domain into "agricultural, forest or timber, mineral lands, and national parks." Being corporations from acquiring any kind of alienable land of the public domain. This
neither timber, mineral, nor national park lands, the reclaimed Freedom Islands
contract could not have converted the Freedom Islands into private lands of a private the State may alienate. Once reclaimed and transformed into public agricultural
corporation. lands, the government may then officially classify these lands as alienable or
disposable lands open to disposition. Thereafter, the government may declare these
Presidential Decree No. 3-A, issued on January 11, 1973, revoked all laws authorizing lands no longer needed for public service. Only then can these reclaimed lands be
the reclamation of areas under water and revested solely in the National Government considered alienable or disposable lands of the public domain and within the
the power to reclaim lands. Section 1 of PD No. 3-A declared that – commerce of man.

"The provisions of any law to the contrary notwithstanding, the The classification of PEA's reclaimed foreshore and submerged lands into alienable
reclamation of areas under water, whether foreshore or inland, shall or disposable lands open to disposition is necessary because PEA is tasked under its
be limited to the National Government or any person authorized by it charter to undertake public services that require the use of lands of the public
under a proper contract. (Emphasis supplied) domain. Under Section 5 of PD No. 1084, the functions of PEA include the following:
"[T]o own or operate railroads, tramways and other kinds of land transportation, x x
x x x." x; [T]o construct, maintain and operate such systems of sanitary sewers as may be
necessary; [T]o construct, maintain and operate such storm drains as may be
necessary." PEA is empowered to issue "rules and regulations as may be necessary
PD No. 3-A repealed Section 5 of the Spanish Law of Waters of 1866 because
for the proper use by private parties of any or all of the highways, roads, utilities,
reclamation of areas under water could now be undertaken only by the National
buildings and/or any of its properties and to impose or collect fees or tolls for their
Government or by a person contracted by the National Government. Private parties
use." Thus, part of the reclaimed foreshore and submerged lands held by the PEA
may reclaim from the sea only under a contract with the National Government, and
would actually be needed for public use or service since many of the functions
no longer by grant or permission as provided in Section 5 of the Spanish Law of
imposed on PEA by its charter constitute essential public services.
Waters of 1866.

Moreover, Section 1 of Executive Order No. 525 provides that PEA "shall be primarily
Executive Order No. 525, issued on February 14, 1979, designated PEA as the National
responsible for integrating, directing, and coordinating all reclamation projects for
Government's implementing arm to undertake "all reclamation projects of the
and on behalf of the National Government." The same section also states that "[A]ll
government," which "shall be undertaken by the PEA or through a proper contract
reclamation projects shall be approved by the President upon recommendation of
executed by it with any person or entity." Under such contract, a private party
the PEA, and shall be undertaken by the PEA or through a proper contract executed
receives compensation for reclamation services rendered to PEA. Payment to the
by it with any person or entity; x x x." Thus, under EO No. 525, in relation to PD No.
contractor may be in cash, or in kind consisting of portions of the reclaimed land,
3-A and PD No.1084, PEA became the primary implementing agency of the National
subject to the constitutional ban on private corporations from acquiring alienable
Government to reclaim foreshore and submerged lands of the public domain. EO No.
lands of the public domain. The reclaimed land can be used as payment in kind only
525 recognized PEA as the government entity "to undertake the reclamation of lands
if the reclaimed land is first classified as alienable or disposable land open to
and ensure their maximum utilization in promoting public welfare and
disposition, and then declared no longer needed for public service.
interests."79 Since large portions of these reclaimed lands would obviously be needed
for public service, there must be a formal declaration segregating reclaimed lands no
The Amended JVA covers not only the Freedom Islands, but also an additional 592.15
longer needed for public service from those still needed for public
hectares which are still submerged and forming part of Manila Bay. There is no
service.1âwphi1.nêt
legislative or Presidential act classifying these submerged areas as alienable or
disposable lands of the public domain open to disposition. These submerged areas
Section 3 of EO No. 525, by declaring that all lands reclaimed by PEA "shall belong to
are not covered by any patent or certificate of title. There can be no dispute that
or be owned by the PEA," could not automatically operate to classify inalienable lands
these submerged areas form part of the public domain, and in their present state
into alienable or disposable lands of the public domain. Otherwise, reclaimed
are inalienable and outside the commerce of man. Until reclaimed from the sea,
foreshore and submerged lands of the public domain would automatically become
these submerged areas are, under the Constitution, "waters x x x owned by the
alienable once reclaimed by PEA, whether or not classified as alienable or disposable.
State," forming part of the public domain and consequently inalienable. Only when
actually reclaimed from the sea can these submerged areas be classified as public
agricultural lands, which under the Constitution are the only natural resources that
The Revised Administrative Code of 1987, a later law than either PD No. 1084 or EO DENR also exercises exclusive jurisdiction over the disposition of all lands of the public
No. 525, vests in the Department of Environment and Natural Resources ("DENR" for domain. Hence, DENR decides whether reclaimed lands of PEA should be classified as
brevity) the following powers and functions: alienable under Sections 681 and 782 of CA No. 141. Once DENR decides that the
reclaimed lands should be so classified, it then recommends to the President the
"Sec. 4. Powers and Functions. The Department shall: issuance of a proclamation classifying the lands as alienable or disposable lands of
the public domain open to disposition. We note that then DENR Secretary Fulgencio
(1) x x x S. Factoran, Jr. countersigned Special Patent No. 3517 in compliance with the Revised
Administrative Code and Sections 6 and 7 of CA No. 141.
xxx
In short, DENR is vested with the power to authorize the reclamation of areas under
water, while PEA is vested with the power to undertake the physical reclamation of
(4) Exercise supervision and control over forest lands, alienable and
areas under water, whether directly or through private contractors. DENR is also
disposable public lands, mineral resources and, in the process of exercising
empowered to classify lands of the public domain into alienable or disposable lands
such control, impose appropriate taxes, fees, charges, rentals and any such
subject to the approval of the President. On the other hand, PEA is tasked to develop,
form of levy and collect such revenues for the exploration, development,
sell or lease the reclaimed alienable lands of the public domain.
utilization or gathering of such resources;

Clearly, the mere physical act of reclamation by PEA of foreshore or submerged areas
xxx
does not make the reclaimed lands alienable or disposable lands of the public
domain, much less patrimonial lands of PEA. Likewise, the mere transfer by the
(14) Promulgate rules, regulations and guidelines on the issuance of
National Government of lands of the public domain to PEA does not make the lands
licenses, permits, concessions, lease agreements and such other privileges
alienable or disposable lands of the public domain, much less patrimonial lands of
concerning the development, exploration and utilization of the country's
PEA.
marine, freshwater, and brackish water and over all aquatic resources of
the country and shall continue to oversee, supervise and police our natural
Absent two official acts – a classification that these lands are alienable or disposable
resources; cancel or cause to cancel such privileges upon failure, non-
and open to disposition and a declaration that these lands are not needed for public
compliance or violations of any regulation, order, and for all other causes
service, lands reclaimed by PEA remain inalienable lands of the public domain. Only
which are in furtherance of the conservation of natural resources and
such an official classification and formal declaration can convert reclaimed lands into
supportive of the national interest;
alienable or disposable lands of the public domain, open to disposition under the
Constitution, Title I and Title III83 of CA No. 141 and other applicable laws.84
(15) Exercise exclusive jurisdiction on the management and disposition of
all lands of the public domain and serve as the sole agency responsible for
PEA's Authority to Sell Reclaimed Lands
classification, sub-classification, surveying and titling of lands in
consultation with appropriate agencies."80 (Emphasis supplied)
PEA, like the Legal Task Force, argues that as alienable or disposable lands of the
public domain, the reclaimed lands shall be disposed of in accordance with CA No.
As manager, conservator and overseer of the natural resources of the State, DENR
141, the Public Land Act. PEA, citing Section 60 of CA No. 141, admits that reclaimed
exercises "supervision and control over alienable and disposable public lands." DENR
lands transferred to a branch or subdivision of the government "shall not be
also exercises "exclusive jurisdiction on the management and disposition of all lands
alienated, encumbered, or otherwise disposed of in a manner affecting its
of the public domain." Thus, DENR decides whether areas under water, like foreshore
title, except when authorized by Congress: x x x."85 (Emphasis by PEA)
or submerged areas of Manila Bay, should be reclaimed or not. This means that PEA
needs authorization from DENR before PEA can undertake reclamation projects in
Manila Bay, or in any part of the country. In Laurel vs. Garcia,86 the Court cited Section 48 of the Revised Administrative Code
of 1987, which states that –
"Sec. 48. Official Authorized to Convey Real Property. Whenever real Corporation of the Philippines, as may be necessary to implement the
property of the Government is authorized by law to be conveyed, the deed above.
of conveyance shall be executed in behalf of the government by the
following: x x x." Special land patent/patents shall be issued by the Secretary of Natural
Resources in favor of the Public Estates Authority without prejudice to the
Thus, the Court concluded that a law is needed to convey any real property belonging subsequent transfer to the contractor or his assignees of such portion or
to the Government. The Court declared that - portions of the land reclaimed or to be reclaimed as provided for in the
above-mentioned contract. On the basis of such patents, the Land
"It is not for the President to convey real property of the government on his Registration Commission shall issue the corresponding certificate of title."
or her own sole will. Any such conveyance must be authorized and (Emphasis supplied)
approved by a law enacted by the Congress. It requires executive and
legislative concurrence." (Emphasis supplied) On the other hand, Section 3 of EO No. 525, issued on February 14, 1979, provides
that -
PEA contends that PD No. 1085 and EO No. 525 constitute the legislative authority
allowing PEA to sell its reclaimed lands. PD No. 1085, issued on February 4, 1977, "Sec. 3. All lands reclaimed by PEA shall belong to or be owned by the
provides that – PEA which shall be responsible for its administration, development,
utilization or disposition in accordance with the provisions of Presidential
"The land reclaimed in the foreshore and offshore area of Manila Decree No. 1084. Any and all income that the PEA may derive from the sale,
Bay pursuant to the contract for the reclamation and construction of the lease or use of reclaimed lands shall be used in accordance with the
Manila-Cavite Coastal Road Project between the Republic of the Philippines provisions of Presidential Decree No. 1084."
and the Construction and Development Corporation of the Philippines dated
November 20, 1973 and/or any other contract or reclamation covering the There is no express authority under either PD No. 1085 or EO No. 525 for PEA to sell
same area is hereby transferred, conveyed and assigned to the ownership its reclaimed lands. PD No. 1085 merely transferred "ownership and administration"
and administration of the Public Estates Authority established pursuant to of lands reclaimed from Manila Bay to PEA, while EO No. 525 declared that lands
PD No. 1084; Provided, however, That the rights and interests of the reclaimed by PEA "shall belong to or be owned by PEA." EO No. 525 expressly states
Construction and Development Corporation of the Philippines pursuant to that PEA should dispose of its reclaimed lands "in accordance with the provisions of
the aforesaid contract shall be recognized and respected. Presidential Decree No. 1084," the charter of PEA.

Henceforth, the Public Estates Authority shall exercise the rights and assume PEA's charter, however, expressly tasks PEA "to develop, improve, acquire,
the obligations of the Republic of the Philippines (Department of Public administer, deal in, subdivide, dispose, lease and sell any and all kinds of lands x x x
Highways) arising from, or incident to, the aforesaid contract between the owned, managed, controlled and/or operated by the government." 87(Emphasis
Republic of the Philippines and the Construction and Development supplied) There is, therefore, legislative authority granted to PEA to sell its lands,
Corporation of the Philippines. whether patrimonial or alienable lands of the public domain. PEA may sell to private
parties its patrimonial propertiesin accordance with the PEA charter free from
In consideration of the foregoing transfer and assignment, the Public Estates constitutional limitations. The constitutional ban on private corporations from
Authority shall issue in favor of the Republic of the Philippines the acquiring alienable lands of the public domain does not apply to the sale of PEA's
corresponding shares of stock in said entity with an issued value of said patrimonial lands.
shares of stock (which) shall be deemed fully paid and non-assessable.
PEA may also sell its alienable or disposable lands of the public domain to private
The Secretary of Public Highways and the General Manager of the Public individuals since, with the legislative authority, there is no longer any statutory
Estates Authority shall execute such contracts or agreements, including prohibition against such sales and the constitutional ban does not apply to
appropriate agreements with the Construction and Development individuals. PEA, however, cannot sell any of its alienable or disposable lands of the
public domain to private corporations since Section 3, Article XII of the 1987
Constitution expressly prohibits such sales. The legislative authority benefits only in at least three public places in the locality where the property is to be
individuals. Private corporations remain barred from acquiring any kind of alienable sold. In the event that the public auction fails, the property may be sold at
land of the public domain, including government reclaimed lands. a private sale at such price as may be fixed by the same committee or body
concerned and approved by the Commission."
The provision in PD No. 1085 stating that portions of the reclaimed lands could be
transferred by PEA to the "contractor or his assignees" (Emphasis supplied) would It is only when the public auction fails that a negotiated sale is allowed, in which case
not apply to private corporations but only to individuals because of the constitutional the Commission on Audit must approve the selling price.90 The Commission on Audit
ban. Otherwise, the provisions of PD No. 1085 would violate both the 1973 and 1987 implements Section 79 of the Government Auditing Code through Circular No. 89-
Constitutions. 29691 dated January 27, 1989. This circular emphasizes that government assets must
be disposed of only through public auction, and a negotiated sale can be resorted to
The requirement of public auction in the sale of reclaimed lands only in case of "failure of public auction."

Assuming the reclaimed lands of PEA are classified as alienable or disposable lands At the public auction sale, only Philippine citizens are qualified to bid for PEA's
open to disposition, and further declared no longer needed for public service, PEA reclaimed foreshore and submerged alienable lands of the public domain. Private
would have to conduct a public bidding in selling or leasing these lands. PEA must corporations are barred from bidding at the auction sale of any kind of alienable land
observe the provisions of Sections 63 and 67 of CA No. 141 requiring public auction, of the public domain.
in the absence of a law exempting PEA from holding a public auction.88 Special Patent
No. 3517 expressly states that the patent is issued by authority of the Constitution PEA originally scheduled a public bidding for the Freedom Islands on December 10,
and PD No. 1084, "supplemented by Commonwealth Act No. 141, as amended." This 1991. PEA imposed a condition that the winning bidder should reclaim another 250
is an acknowledgment that the provisions of CA No. 141 apply to the disposition of hectares of submerged areas to regularize the shape of the Freedom Islands, under
reclaimed alienable lands of the public domain unless otherwise provided by law. a 60-40 sharing of the additional reclaimed areas in favor of the winning bidder.92 No
Executive Order No. 654,89 which authorizes PEA "to determine the kind and manner one, however, submitted a bid. On December 23, 1994, the Government Corporate
of payment for the transfer" of its assets and properties, does not exempt PEA from Counsel advised PEA it could sell the Freedom Islands through negotiation, without
the requirement of public auction. EO No. 654 merely authorizes PEA to decide the need of another public bidding, because of the failure of the public bidding on
mode of payment, whether in kind and in installment, but does not authorize PEA to December 10, 1991.93
dispense with public auction.
However, the original JVA dated April 25, 1995 covered not only the Freedom Islands
Moreover, under Section 79 of PD No. 1445, otherwise known as the Government and the additional 250 hectares still to be reclaimed, it also granted an option to
Auditing Code, the government is required to sell valuable government property AMARI to reclaim another 350 hectares. The original JVA, a negotiated contract,
through public bidding. Section 79 of PD No. 1445 mandates that – enlarged the reclamation area to 750 hectares.94 The failure of public bidding on
December 10, 1991, involving only 407.84 hectares,95 is not a valid justification for a
"Section 79. When government property has become unserviceable for any negotiated sale of 750 hectares, almost double the area publicly auctioned. Besides,
cause, or is no longer needed, it shall, upon application of the officer the failure of public bidding happened on December 10, 1991, more than three years
accountable therefor, be inspected by the head of the agency or his duly before the signing of the original JVA on April 25, 1995. The economic situation in the
authorized representative in the presence of the auditor concerned and, if country had greatly improved during the intervening period.
found to be valueless or unsaleable, it may be destroyed in their presence. If
found to be valuable, it may be sold at public auction to the highest Reclamation under the BOT Law and the Local Government Code
bidder under the supervision of the proper committee on award or similar
body in the presence of the auditor concerned or other authorized The constitutional prohibition in Section 3, Article XII of the 1987 Constitution is
representative of the Commission, after advertising by printed notice in the absolute and clear: "Private corporations or associations may not hold such alienable
Official Gazette, or for not less than three consecutive days in any lands of the public domain except by lease, x x x." Even Republic Act No. 6957 ("BOT
newspaper of general circulation, or where the value of the property does Law," for brevity), cited by PEA and AMARI as legislative authority to sell reclaimed
not warrant the expense of publication, by notices posted for a like period
lands to private parties, recognizes the constitutional ban. Section 6 of RA No. 6957 Registration of lands of the public domain
states –
Finally, PEA theorizes that the "act of conveying the ownership of the reclaimed lands
"Sec. 6. Repayment Scheme. - For the financing, construction, operation and to public respondent PEA transformed such lands of the public domain to private
maintenance of any infrastructure projects undertaken through the build- lands." This theory is echoed by AMARI which maintains that the "issuance of the
operate-and-transfer arrangement or any of its variations pursuant to the special patent leading to the eventual issuance of title takes the subject land away
provisions of this Act, the project proponent x x x may likewise be repaid in from the land of public domain and converts the property into patrimonial or private
the form of a share in the revenue of the project or other non-monetary property." In short, PEA and AMARI contend that with the issuance of Special Patent
payments, such as, but not limited to, the grant of a portion or percentage No. 3517 and the corresponding certificates of titles, the 157.84 hectares comprising
of the reclaimed land, subject to the constitutional requirements with the Freedom Islands have become private lands of PEA. In support of their theory,
respect to the ownership of the land: x x x." (Emphasis supplied) PEA and AMARI cite the following rulings of the Court:

A private corporation, even one that undertakes the physical reclamation of a 1. Sumail v. Judge of CFI of Cotabato,97 where the Court held –
government BOT project, cannot acquire reclaimed alienable lands of the public
domain in view of the constitutional ban. "Once the patent was granted and the corresponding certificate of title was
issued, the land ceased to be part of the public domain and became private
Section 302 of the Local Government Code, also mentioned by PEA and AMARI, property over which the Director of Lands has neither control nor
authorizes local governments in land reclamation projects to pay the contractor or jurisdiction."
developer in kind consisting of a percentage of the reclaimed land, to wit:
2. Lee Hong Hok v. David,98 where the Court declared -
"Section 302. Financing, Construction, Maintenance, Operation, and
Management of Infrastructure Projects by the Private Sector. x x x "After the registration and issuance of the certificate and duplicate
certificate of title based on a public land patent, the land covered thereby
xxx automatically comes under the operation of Republic Act 496 subject to all
the safeguards provided therein."3. Heirs of Gregorio Tengco v. Heirs of Jose
In case of land reclamation or construction of industrial estates, the Aliwalas,99 where the Court ruled -
repayment plan may consist of the grant of a portion or percentage of the
reclaimed land or the industrial estate constructed." "While the Director of Lands has the power to review homestead patents,
he may do so only so long as the land remains part of the public domain and
Although Section 302 of the Local Government Code does not contain a proviso continues to be under his exclusive control; but once the patent is registered
similar to that of the BOT Law, the constitutional restrictions on land ownership and a certificate of title is issued, the land ceases to be part of the public
automatically apply even though not expressly mentioned in the Local Government domain and becomes private property over which the Director of Lands has
Code. neither control nor jurisdiction."

Thus, under either the BOT Law or the Local Government Code, the contractor or 4. Manalo v. Intermediate Appellate Court,100 where the Court held –
developer, if a corporate entity, can only be paid with leaseholds on portions of the
reclaimed land. If the contractor or developer is an individual, portions of the "When the lots in dispute were certified as disposable on May 19, 1971, and
reclaimed land, not exceeding 12 hectares96 of non-agricultural lands, may be free patents were issued covering the same in favor of the private
conveyed to him in ownership in view of the legislative authority allowing such respondents, the said lots ceased to be part of the public domain and,
conveyance. This is the only way these provisions of the BOT Law and the Local therefore, the Director of Lands lost jurisdiction over the same."
Government Code can avoid a direct collision with Section 3, Article XII of the 1987
Constitution. 5.Republic v. Court of Appeals,101 where the Court stated –
"Proclamation No. 350, dated October 9, 1956, of President Magsaysay Jurisprudence holding that upon the grant of the patent or issuance of the certificate
legally effected a land grant to the Mindanao Medical Center, Bureau of of title the alienable land of the public domain automatically becomes private land
Medical Services, Department of Health, of the whole lot, validly sufficient cannot apply to government units and entities like PEA. The transfer of the Freedom
for initial registration under the Land Registration Act. Such land grant is Islands to PEA was made subject to the provisions of CA No. 141 as expressly stated
constitutive of a 'fee simple' title or absolute title in favor of petitioner in Special Patent No. 3517 issued by then President Aquino, to wit:
Mindanao Medical Center. Thus, Section 122 of the Act, which governs the
registration of grants or patents involving public lands, provides that "NOW, THEREFORE, KNOW YE, that by authority of the Constitution of the
'Whenever public lands in the Philippine Islands belonging to the Philippines and in conformity with the provisions of Presidential Decree No.
Government of the United States or to the Government of the Philippines 1084, supplemented by Commonwealth Act No. 141, as amended, there
are alienated, granted or conveyed to persons or to public or private are hereby granted and conveyed unto the Public Estates Authority the
corporations, the same shall be brought forthwith under the operation of aforesaid tracts of land containing a total area of one million nine hundred
this Act (Land Registration Act, Act 496) and shall become registered lands.'" fifteen thousand eight hundred ninety four (1,915,894) square meters; the
technical description of which are hereto attached and made an integral
The first four cases cited involve petitions to cancel the land patents and the part hereof." (Emphasis supplied)
corresponding certificates of titles issued to private parties. These four cases
uniformly hold that the Director of Lands has no jurisdiction over private lands or that Thus, the provisions of CA No. 141 apply to the Freedom Islands on matters not
upon issuance of the certificate of title the land automatically comes under the covered by PD No. 1084. Section 60 of CA No. 141 prohibits, "except when authorized
Torrens System. The fifth case cited involves the registration under the Torrens by Congress," the sale of alienable lands of the public domain that are transferred to
System of a 12.8-hectare public land granted by the National Government to government units or entities. Section 60 of CA No. 141 constitutes, under Section 44
Mindanao Medical Center, a government unit under the Department of Health. The of PD No. 1529, a "statutory lien affecting title" of the registered land even if not
National Government transferred the 12.8-hectare public land to serve as the site for annotated on the certificate of title. 104Alienable lands of the public domain held by
the hospital buildings and other facilities of Mindanao Medical Center, which government entities under Section 60 of CA No. 141 remain public lands because they
performed a public service. The Court affirmed the registration of the 12.8-hectare cannot be alienated or encumbered unless Congress passes a law authorizing their
public land in the name of Mindanao Medical Center under Section 122 of Act No. disposition. Congress, however, cannot authorize the sale to private corporations of
496. This fifth case is an example of a public land being registered under Act No. 496 reclaimed alienable lands of the public domain because of the constitutional ban.
without the land losing its character as a property of public dominion. Only individuals can benefit from such law.

In the instant case, the only patent and certificates of title issued are those in the The grant of legislative authority to sell public lands in accordance with Section 60 of
name of PEA, a wholly government owned corporation performing public as well as CA No. 141 does not automatically convert alienable lands of the public domain into
proprietary functions. No patent or certificate of title has been issued to any private private or patrimonial lands. The alienable lands of the public domain must be
party. No one is asking the Director of Lands to cancel PEA's patent or certificates of transferred to qualified private parties, or to government entities not tasked to
title. In fact, the thrust of the instant petition is that PEA's certificates of title should dispose of public lands, before these lands can become private or patrimonial lands.
remain with PEA, and the land covered by these certificates, being alienable lands of Otherwise, the constitutional ban will become illusory if Congress can declare lands
the public domain, should not be sold to a private corporation. of the public domain as private or patrimonial lands in the hands of a government
agency tasked to dispose of public lands. This will allow private corporations to
Registration of land under Act No. 496 or PD No. 1529 does not vest in the registrant acquire directly from government agencies limitless areas of lands which, prior to
private or public ownership of the land. Registration is not a mode of acquiring such law, are concededly public lands.
ownership but is merely evidence of ownership previously conferred by any of the
recognized modes of acquiring ownership. Registration does not give the registrant Under EO No. 525, PEA became the central implementing agency of the National
a better right than what the registrant had prior to the registration. 102 The Government to reclaim foreshore and submerged areas of the public domain. Thus,
registration of lands of the public domain under the Torrens system, by itself, cannot EO No. 525 declares that –
convert public lands into private lands.103
"EXECUTIVE ORDER NO. 525
Designating the Public Estates Authority as the Agency Primarily Responsible As the central implementing agency tasked to undertake reclamation projects
for all Reclamation Projects nationwide, with authority to sell reclaimed lands, PEA took the place of DENR as the
government agency charged with leasing or selling reclaimed lands of the public
Whereas, there are several reclamation projects which are ongoing or being domain. The reclaimed lands being leased or sold by PEA are not private lands, in the
proposed to be undertaken in various parts of the country which need to be same manner that DENR, when it disposes of other alienable lands, does not dispose
evaluated for consistency with national programs; of private lands but alienable lands of the public domain. Only when qualified private
parties acquire these lands will the lands become private lands. In the hands of the
Whereas, there is a need to give further institutional support to the government agency tasked and authorized to dispose of alienable of disposable
Government's declared policy to provide for a coordinated, economical and lands of the public domain, these lands are still public, not private lands.
efficient reclamation of lands;
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public
Whereas, Presidential Decree No. 3-A requires that all reclamation of areas domain" as well as "any and all kinds of lands." PEA can hold both lands of the public
shall be limited to the National Government or any person authorized by it domain and private lands. Thus, the mere fact that alienable lands of the public
under proper contract; domain like the Freedom Islands are transferred to PEA and issued land patents or
certificates of title in PEA's name does not automatically make such lands private.
Whereas, a central authority is needed to act on behalf of the National
Government which shall ensure a coordinated and integrated approach in To allow vast areas of reclaimed lands of the public domain to be transferred to PEA
the reclamation of lands; as private lands will sanction a gross violation of the constitutional ban on private
corporations from acquiring any kind of alienable land of the public domain. PEA will
simply turn around, as PEA has now done under the Amended JVA, and transfer
Whereas, Presidential Decree No. 1084 creates the Public Estates Authority
several hundreds of hectares of these reclaimed and still to be reclaimed lands to a
as a government corporation to undertake reclamation of lands and
single private corporation in only one transaction. This scheme will effectively nullify
ensure their maximum utilization in promoting public welfare and
the constitutional ban in Section 3, Article XII of the 1987 Constitution which was
interests; and
intended to diffuse equitably the ownership of alienable lands of the public domain
among Filipinos, now numbering over 80 million strong.
Whereas, Presidential Decree No. 1416 provides the President with
continuing authority to reorganize the national government including the
This scheme, if allowed, can even be applied to alienable agricultural lands of the
transfer, abolition, or merger of functions and offices.
public domain since PEA can "acquire x x x any and all kinds of lands." This will open
the floodgates to corporations and even individuals acquiring hundreds of hectares
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines,
of alienable lands of the public domain under the guise that in the hands of PEA these
by virtue of the powers vested in me by the Constitution and pursuant to
lands are private lands. This will result in corporations amassing huge landholdings
Presidential Decree No. 1416, do hereby order and direct the following:
never before seen in this country - creating the very evil that the constitutional ban
was designed to prevent. This will completely reverse the clear direction of
Section 1. The Public Estates Authority (PEA) shall be primarily responsible constitutional development in this country. The 1935 Constitution allowed private
for integrating, directing, and coordinating all reclamation projects for and corporations to acquire not more than 1,024 hectares of public lands. 105 The 1973
on behalf of the National Government. All reclamation projects shall be Constitution prohibited private corporations from acquiring any kind of public land,
approved by the President upon recommendation of the PEA, and shall be and the 1987 Constitution has unequivocally reiterated this prohibition.
undertaken by the PEA or through a proper contract executed by it with any
person or entity; Provided, that, reclamation projects of any national
The contention of PEA and AMARI that public lands, once registered under Act No.
government agency or entity authorized under its charter shall be
496 or PD No. 1529, automatically become private lands is contrary to existing laws.
undertaken in consultation with the PEA upon approval of the President.
Several laws authorize lands of the public domain to be registered under the Torrens
System or Act No. 496, now PD No. 1529, without losing their character as public
x x x ."
lands. Section 122 of Act No. 496, and Section 103 of PD No. 1529, respectively, (1) x x x
provide as follows:
(2) For property belonging to the Republic of the Philippines, but titled in
Act No. 496 the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or instrumentality."
"Sec. 122. Whenever public lands in the Philippine Islands belonging to the (Emphasis supplied)
x x x Government of the Philippine Islands are alienated, granted, or
conveyed to persons or the public or private corporations, the same shall Thus, private property purchased by the National Government for expansion of a
be brought forthwith under the operation of this Act and shall become public wharf may be titled in the name of a government corporation regulating port
registered lands." operations in the country. Private property purchased by the National Government
for expansion of an airport may also be titled in the name of the government agency
PD No. 1529 tasked to administer the airport. Private property donated to a municipality for use
as a town plaza or public school site may likewise be titled in the name of the
"Sec. 103. Certificate of Title to Patents. Whenever public land is by the municipality.106 All these properties become properties of the public domain, and if
Government alienated, granted or conveyed to any person, the same shall already registered under Act No. 496 or PD No. 1529, remain registered land. There
be brought forthwith under the operation of this Decree." (Emphasis is no requirement or provision in any existing law for the de-registration of land from
supplied) the Torrens System.

Based on its legislative history, the phrase "conveyed to any person" in Section 103 Private lands taken by the Government for public use under its power of eminent
of PD No. 1529 includes conveyances of public lands to public corporations. domain become unquestionably part of the public domain. Nevertheless, Section 85
of PD No. 1529 authorizes the Register of Deeds to issue in the name of the National
Government new certificates of title covering such expropriated lands. Section 85 of
Alienable lands of the public domain "granted, donated, or transferred to a province,
PD No. 1529 states –
municipality, or branch or subdivision of the Government," as provided in Section 60
of CA No. 141, may be registered under the Torrens System pursuant to Section 103
of PD No. 1529. Such registration, however, is expressly subject to the condition in "Sec. 85. Land taken by eminent domain. Whenever any registered land, or
Section 60 of CA No. 141 that the land "shall not be alienated, encumbered or interest therein, is expropriated or taken by eminent domain, the National
otherwise disposed of in a manner affecting its title, except when authorized by Government, province, city or municipality, or any other agency or
Congress." This provision refers to government reclaimed, foreshore and marshy instrumentality exercising such right shall file for registration in the proper
lands of the public domain that have been titled but still cannot be alienated or Registry a certified copy of the judgment which shall state definitely by an
encumbered unless expressly authorized by Congress. The need for legislative adequate description, the particular property or interest expropriated, the
authority prevents the registered land of the public domain from becoming private number of the certificate of title, and the nature of the public use. A
land that can be disposed of to qualified private parties. memorandum of the right or interest taken shall be made on each certificate
of title by the Register of Deeds, and where the fee simple is taken, a new
certificate shall be issued in favor of the National Government, province,
The Revised Administrative Code of 1987 also recognizes that lands of the public
city, municipality, or any other agency or instrumentality exercising such
domain may be registered under the Torrens System. Section 48, Chapter 12, Book I
right for the land so taken. The legal expenses incident to the memorandum
of the Code states –
of registration or issuance of a new certificate of title shall be for the account
of the authority taking the land or interest therein." (Emphasis supplied)
"Sec. 48. Official Authorized to Convey Real Property. Whenever real
property of the Government is authorized by law to be conveyed, the deed
Consequently, lands registered under Act No. 496 or PD No. 1529 are not exclusively
of conveyance shall be executed in behalf of the government by the
private or patrimonial lands. Lands of the public domain may also be registered
following:
pursuant to existing laws.
AMARI makes a parting shot that the Amended JVA is not a sale to AMARI of the disposable lands open to disposition and declared no longer needed for
Freedom Islands or of the lands to be reclaimed from submerged areas of Manila Bay. public service. The government can make such classification and declaration
In the words of AMARI, the Amended JVA "is not a sale but a joint venture with a only after PEA has reclaimed these submerged areas. Only then can these
stipulation for reimbursement of the original cost incurred by PEA for the earlier lands qualify as agricultural lands of the public domain, which are the only
reclamation and construction works performed by the CDCP under its 1973 contract natural resources the government can alienate. In their present state, the
with the Republic." Whether the Amended JVA is a sale or a joint venture, the fact 592.15 hectares of submerged areas are inalienable and outside the
remains that the Amended JVA requires PEA to "cause the issuance and delivery of commerce of man.
the certificates of title conveying AMARI's Land Share in the name of AMARI." 107
3. Since the Amended JVA seeks to transfer to AMARI, a private corporation,
This stipulation still contravenes Section 3, Article XII of the 1987 Constitution which ownership of 77.34 hectares110of the Freedom Islands, such transfer is void
provides that private corporations "shall not hold such alienable lands of the public for being contrary to Section 3, Article XII of the 1987 Constitution which
domain except by lease." The transfer of title and ownership to AMARI clearly means prohibits private corporations from acquiring any kind of alienable land of
that AMARI will "hold" the reclaimed lands other than by lease. The transfer of title the public domain.
and ownership is a "disposition" of the reclaimed lands, a transaction considered a
sale or alienation under CA No. 141,108 the Government Auditing Code,109 and Section 4. Since the Amended JVA also seeks to transfer to AMARI ownership of
3, Article XII of the 1987 Constitution. 290.156 hectares111 of still submerged areas of Manila Bay, such transfer is
void for being contrary to Section 2, Article XII of the 1987 Constitution
The Regalian doctrine is deeply implanted in our legal system. Foreshore and which prohibits the alienation of natural resources other than agricultural
submerged areas form part of the public domain and are inalienable. Lands reclaimed lands of the public domain. PEA may reclaim these submerged areas.
from foreshore and submerged areas also form part of the public domain and are Thereafter, the government can classify the reclaimed lands as alienable or
also inalienable, unless converted pursuant to law into alienable or disposable lands disposable, and further declare them no longer needed for public service.
of the public domain. Historically, lands reclaimed by the government are sui generis, Still, the transfer of such reclaimed alienable lands of the public domain to
not available for sale to private parties unlike other alienable public lands. Reclaimed AMARI will be void in view of Section 3, Article XII of the 1987 Constitution
lands retain their inherent potential as areas for public use or public service. Alienable which prohibits private corporations from acquiring any kind of alienable
lands of the public domain, increasingly becoming scarce natural resources, are to be land of the public domain.
distributed equitably among our ever-growing population. To insure such equitable
distribution, the 1973 and 1987 Constitutions have barred private corporations from Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article XII of the 1987
acquiring any kind of alienable land of the public domain. Those who attempt to Constitution. Under Article 1409112 of the Civil Code, contracts whose "object or
dispose of inalienable natural resources of the State, or seek to circumvent the purpose is contrary to law," or whose "object is outside the commerce of men," are
constitutional ban on alienation of lands of the public domain to private corporations, "inexistent and void from the beginning." The Court must perform its duty to defend
do so at their own risk. and uphold the Constitution, and therefore declares the Amended JVA null and void
ab initio.
We can now summarize our conclusions as follows:
Seventh issue: whether the Court is the proper forum to raise the issue of whether
1. The 157.84 hectares of reclaimed lands comprising the Freedom Islands, the Amended JVA is grossly disadvantageous to the government.
now covered by certificates of title in the name of PEA, are alienable lands
of the public domain. PEA may lease these lands to private corporations but Considering that the Amended JVA is null and void ab initio, there is no necessity to
may not sell or transfer ownership of these lands to private corporations. rule on this last issue. Besides, the Court is not a trier of facts, and this last issue
PEA may only sell these lands to Philippine citizens, subject to the ownership involves a determination of factual matters.
limitations in the 1987 Constitution and existing laws.
WHEREFORE, the petition is GRANTED. The Public Estates Authority and Amari Coastal Bay
2. The 592.15 hectares of submerged areas of Manila Bay remain inalienable Development Corporation are PERMANENTLY ENJOINED from implementing the Amended
natural resources of the public domain until classified as alienable or Joint Venture Agreement which is hereby declared NULL and VOID ab initio.
G.R. No. 115381 December 23, 1994 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
KILUSANG MAYO UNO LABOR CENTER, petitioner, of public convenience (CPC) and place on the oppositor the burden of proving that
vs. there is no need for the proposed service, in patent violation not only of Sec. 16(c) of
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND CA 146, as amended, but also of Sec. 20(a) of the same Act mandating that fares
REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS ASSOCIATION OF should be "just and reasonable." It is, likewise, violative of the Rules of Court which
THE PHILIPPINES, respondents. 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,
Potenciano A. Flores for 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
Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private respondent.
without hearing and due process.
Jose F. Miravite for movants.
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.
KAPUNAN, J.: 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
Public utilities are privately owned and operated businesses whose service are and procedures to implement Department Order No. 92-587; (d) LTFRB
essential to the general public. They are enterprises which specially cater to the Memorandum Circular No. 92-009, providing implementing guidelines on the DOTC
needs of the public and conduce to their comfort and convenience. As such, public Department Order No. 92-587; and (e) LTFRB Order dated March 24, 1994 in Case
utility services are impressed with public interest and concern. The same is true with No. 94-3112.
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 The relevant antecedents are as follows:
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
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum
has an interest, he, in effect grants to the public an interest in that use, and must
Circular No. 90-395 to then LTFRB Chairman, Remedios A.S. Fernando allowing
submit to the control by the public for the common good, to the extent of the interest
provincial bus operators to charge passengers rates within a range of 15% above and
he has thus created.1
15% below the LTFRB official rate for a period of one (1) year. The text of the
memorandum order reads in full:
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
One of the policy reforms and measures that is in line with the
administrative policy but it is inimical to public trust and public interest as well.
thrusts and the priorities set out in the Medium-Term Philippine
Development Plan (MTPDP) 1987 — 1992) is the liberalization of
The instant petition for certiorari assails the constitutionality and validity of certain regulations in the transport sector. Along this line, the Government
memoranda, circulars and/or orders of the Department of Transportation and intends to move away gradually from regulatory policies and make
Communications (DOTC) and the Land Transportation Franchising and Regulatory progress towards greater reliance on free market forces.
Board LTFRB)2 which, among others, (a) authorize provincial bus and jeepney
operators to increase or decrease the prescribed transportation fares without
Based on several surveys and observations, bus companies are
application therefor with the LTFRB and without hearing and approval thereof by said
already charging passenger rates above and below the official fare
agency in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended,
declared by LTFRB on many provincial routes. It is in this context
otherwise known as the Public Service Act, and in derogation of LTFRB's duty to fix
that some form of liberalization on public transport fares is to be requirements of the Public Service Act may not
tested on a pilot basis. be legally feasible.

In view thereof, the LTFRB is hereby directed to immediately 2. To allow bus operators in the country to charge
publicize a fare range scheme for all provincial bus routes in fares fifteen (15%) above the present LTFRB fares
country (except those operating within Metro Manila). Transport in the wake of the devastation, death and
Operators shall be allowed to charge passengers within a range of suffering caused by the July 16 earthquake will
fifteen percent (15%) above and fifteen percent (15%) below the not be socially warranted and will be politically
LTFRB official rate for a period of one year. unsound; most likely public criticism against the
DOTC and the LTFRB will be triggered by the
Guidelines and procedures for the said scheme shall be prepared untimely motu propioimplementation of the
by LTFRB in coordination with the DOTC Planning Service. proposal by the mere expedient of publicizing the
fare range scheme without calling a public
The implementation of the said fare range scheme shall start on 6 hearing, which scheme many as early as during
August 1990. the Secretary's predecessor know through
newspaper reports and columnists' comments to
be Asian Development Bank and World Bank
For compliance. (Emphasis ours.)
inspired.
Finding the implementation of the fare range scheme "not legally feasible," Remedios
3. More than inducing a reduction in bus fares by
A.S. Fernando submitted the following memorandum to Oscar M. Orbos on July 24,
fifteen percent (15%) the implementation of the
1990, to wit:
proposal will instead trigger an upward
adjustment in bus fares by fifteen percent (15%)
With reference to DOTC Memorandum Order No. 90-395 dated 26
at a time when hundreds of thousands of people
June 1990 which the LTFRB received on 19 July 1990, directing the
in Central and Northern Luzon, particularly in
Board "to immediately publicize a fare range scheme for all
Central Pangasinan, La Union, Baguio City, Nueva
provincial bus routes in the country (except those operating within
Ecija, and the Cagayan Valley are suffering from
Metro Manila)" that will allow operators "to charge passengers the devastation and havoc caused by the recent
within a range of fifteen percent (15%) above and fifteen percent
earthquake.
(15%) below the LTFRB official rate for a period of one year" the
undersigned is respectfully adverting the Secretary's attention to
4. In lieu of the said proposal, the DOTC with its
the following for his consideration:
agencies involved in public transportation can
consider measures and reforms in the industry
1. Section 16(c) of the Public Service Act
that will be socially uplifting, especially for the
prescribes the following for the fixing and people in the areas devastated by the recent
determination of rates — (a) the rates to be
earthquake.
approved should be proposed by public service
operators; (b) there should be a publication and
In view of the foregoing considerations, the undersigned
notice to concerned or affected parties in the
respectfully suggests that the implementation of the proposed fare
territory affected; (c) a public hearing should be
range scheme this year be further studied and evaluated.
held for the fixing of the rates; hence,
implementation of the proposed fare range
scheme on August 6 without complying with the 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 On March 30, 1992, then Secretary of the Department of Transportation and
provincial buses with a minimum-maximum fare range of fifteen (15%) percent over Communications Pete Nicomedes Prado issued Department Order No.
and below the proposed basic per kilometer fare rate, with the said minimum- 92-587 defining the policy framework on the regulation of transport services. The full
maximum fare range applying only to ordinary, first class and premium class buses text of the said order is reproduced below in view of the importance of the provisions
and a fifty-centavo (P0.50) minimum per kilometer fare for aircon buses, was sought. contained therein:

On December 6, 1990, private respondent PBOAP reduced its applied proposed fare WHEREAS, Executive Order No. 125 as amended, designates the
to an across-the-board increase of six and a half (P0.065) centavos per kilometer for Department of Transportation and Communications (DOTC) as the
ordinary buses. The decrease was due to the drop in the expected price of diesel. primary policy, planning, regulating and implementing agency on
transportation;
The application was opposed by the Philippine Consumers Foundation, Inc. and Perla
C. Bautista alleging that the proposed rates were exorbitant and unreasonable and WHEREAS, to achieve the objective of a viable, efficient, and
that the application contained no allegation on the rate of return of the proposed dependable transportation system, the transportation regulatory
increase in rates. agencies under or attached to the DOTC have to harmonize their
decisions and adopt a common philosophy and direction;
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 WHEREAS, the government proposes to build on the successful
computation method, viz: liberalization measures pursued over the last five years and bring
the transport sector nearer to a balanced longer term regulatory
AUTHORIZED FARES framework;

LUZON NOW, THEREFORE, pursuant to the powers granted by laws to the


MIN. OF 5 KMS. SUCCEEDING KM. DOTC, the following policies and principles in the economic
regulation of land, air, and water transportation services are
REGULAR P1.50 P0.37 hereby adopted:
STUDENT P1.15 P0.28
1. Entry into and exit out of the industry. Following the
VISAYAS/MINDANAO 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.
REGULAR P1.60 P0.375
STUDENT P1.20 P0.285
FIRST CLASS (PER KM.) The requirements to grant a certificate to operate, or certificate of
LUZON P0.385 public convenience, shall be: proof of Filipino citizenship, financial
VISAYAS/ capability, public need, and sufficient insurance cover to protect
MINDANAO P0.395 the riding public.
PREMIERE CLASS (PER KM.)
LUZON P0.395 In determining public need, the presumption of need for a service
VISAYAS/ shall be deemed in favor of the applicant. The burden of proving
MINDANAO P0.405 that there is no need for a proposed service shall be with the
oppositor(s).
AIRCON (PER KM.) P0.415.4
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 The Land Transportation Franchising and Regulatory Board, the
tests of demand for vehicle/vessel fleet on any route shall be used Civil Aeronautics Board, the Maritime Industry Authority are
only as a guide in weighing the merits of each franchise application hereby directed to submit to the Office of the Secretary, within
and not as a limit to the services offered. forty-five (45) days of this Order, the detailed rules and procedures
for the Implementation of the policies herein set forth. In the
Where there are limitations in facilities, such as congested road formulation of such rules, the concerned agencies shall be guided
space in urban areas, or at airports and ports, the use of demand by the most recent studies on the subjects, such as the Provincial
management measures in conformity with market principles may Road Passenger Transport Study, the Civil Aviation Master Plan, the
be considered. Presidential Task Force on the Inter-island Shipping Industry, and
the Inter-island Liner Shipping Rate Rationalization Study.
The right of an operator to leave the industry is recognized as a
business decision, subject only to the filing of appropriate notice For the compliance of all concerned. (Emphasis ours)
and following a phase-out period, to inform the public and to
minimize disruption of services. On October 8, 1992, public respondent Secretary of the Department of
Transportation and Communications Jesus B. Garcia, Jr. issued a memorandum to the
2. Rate and Fare Setting. Freight rates shall be freed gradually from Acting Chairman of the LTFRB suggesting swift action on the adoption of rules and
government controls. Passenger fares shall also be deregulated, procedures to implement above-quoted Department Order No. 92-587 that laid
except for the lowest class of passenger service (normally third class down deregulation and other liberalization policies for the transport sector. Attached
passenger transport) for which the government will fix indicative or to the said memorandum was a revised draft of the required rules and procedures
reference fares. Operators of particular services may fix their own covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting, with
fares within a range 15% above and below the indicative or comments and suggestions from the World Bank incorporated therein. Likewise,
reference rate. resplendent from the said memorandum is the statement of the DOTC Secretary that
the adoption of the rules and procedures is a pre-requisite to the approval of the
Where there is lack of effective competition for services, or on Economic Integration Loan from the World Bank.5
specific routes, or for the transport of particular commodities,
maximum mandatory freight rates or passenger fares shall be set On February 17, 1993, the LTFRB issued Memorandum Circular
temporarily by the government pending actions to increase the No. 92-009 promulgating the guidelines for the implementation of DOTC
level of competition. Department Order No. 92-587. The Circular provides, among others, the following
challenged portions:
For unserved or single operator routes, the government shall
contract such services in the most advantageous terms to the xxx xxx xxx
public and the government, following public bids for the services.
The advisability of bidding out the services or using other kinds of IV. Policy Guidelines on the Issuance of Certificate of Public
incentives on such routes shall be studied by the government. Convenience.

3. Special Incentives and Financing for Fleet Acquisition. As a The issuance of a Certificate of Public Convenience is determined
matter of policy, the government shall not engage in special by public need. The presumption of public need for a service shall
financing and incentive programs, including direct subsidies for be deemed in favor of the applicant, while burden of proving that
fleet acquisition and expansion. Only when the market situation there is no need for the proposed service shall be the oppositor'(s).
warrants government intervention shall programs of this type be
considered. Existing programs shall be phased out gradually. xxx xxx xxx

V. Rate and Fare Setting


The control in pricing shall be liberalized to introduce price Hence, the instant petition for certiorari with an urgent prayer for issuance of a
competition complementary with the quality of service, subject to temporary restraining order.
prior notice and public hearing. Fares shall not be provisionally
authorized without public hearing. The Court, on June 20, 1994, issued a temporary restraining order enjoining,
prohibiting and preventing respondents from implementing the bus fare rate
A. On the General Structure of Rates 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
1. The existing authorized fare range system of plus or minus 15 per prior to March 16, 1994. A moratorium was likewise enforced on the issuance of
cent for provincial buses and jeepneys shall be widened to 20% and franchises for the operation of buses, jeepneys, and taxicabs.
-25% limit in 1994 with the authorized fare to be replaced by an
indicative or reference rate as the basis for the expanded fare Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by
range. 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 (-
2. Fare systems for aircon buses are liberalized to cover first class 25%) percent, over and above the existing authorized fare without having to file a
and premier services. 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
xxx xxx xxx transport service without having to prove public necessity, is illegal for being violative
of the Public Service Act and the Rules of Court.
(Emphasis ours).
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
Sometime in March, 1994, private respondent PBOAP, availing itself of the
instant petition was filed. It asserts that the petitioner has no legal standing to sue or
deregulation policy of the DOTC allowing provincial bus operators to collect plus 20%
has no real interest in the case at bench and in obtaining the reliefs prayed for.
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 In their Comment filed by the Office of the Solicitor General, public respondents
effective on March 16, 1994. 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
On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the
of public need in applications for certificates of public convenience.
upward adjustment of bus fares.

We find the instant petition impressed with merit.


On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the
petition for lack of merit. The dispositive portion reads:
At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has
the standing to sue.
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 The requirement of locus standi inheres from the definition of judicial power. Section
case was resolved with dispatch at the request of petitioner to 1 of Article VIII of the Constitution provides:
enable it to immediately avail of the legal remedies or options it is
entitled under existing laws. xxx xxx xxx

SO ORDERED.6 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 that they be settled promptly and definitely, brushing aside, if we
a grave abuse of discretion amounting to lack or excess of must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-
jurisdiction on the part of any branch or instrumentality of the 2621)." Insofar as taxpayers' suits are concerned, this Court had
Government. declared that it "is not devoid of discretion as to whether or not it
should be entertained," (Tan v. Macapagal, 43 SCRA 677, 680
In Lamb v. Phipps,7 we ruled that judicial power is the power to hear and decide [1972]) or that it "enjoys an open discretion to entertain the same
causes pending between parties who have the right to sue in the courts of law and or not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].
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 xxx xxx xxx
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 In line with the liberal policy of this Court on locus standi, ordinary
redressed by a favorable decision so as to warrant an invocation of the court's taxpayers, members of Congress, and even association of planters,
jurisdiction and to justify the exercise of the court's remedial powers in his behalf. 8 and
non-profit civic organizations were allowed to initiate and
In the case at bench, petitioner, whose members had suffered and continue to suffer prosecute actions before this court to question the
grave and irreparable injury and damage from the implementation of the questioned constitutionality or validity of laws, acts, decisions, rulings, or
memoranda, circulars and/or orders, has shown that it has a clear legal right that was orders of various government agencies or instrumentalities.
violated and continues to be violated with the enforcement of the challenged Among such cases were those assailing the constitutionality of (a)
memoranda, circulars and/or orders. KMU members, who avail of the use of buses, R.A. No. 3836 insofar as it allows retirement gratuity and
trains and jeepneys everyday, are directly affected by the burdensome cost of commutation of vacation and sick leave to Senators and
arbitrary increase in passenger fares. They are part of the millions of commuters who Representatives and to elective officials of both Houses of Congress
comprise the riding public. Certainly, their rights must be protected, not neglected (Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA 479
nor ignored. [1965]); (b) Executive Order No. 284, issued by President Corazon
C. Aquino on 25 July 1987, which allowed members of the cabinet,
Assuming arguendo that petitioner is not possessed of the standing to sue, this court their undersecretaries, and assistant secretaries to hold other
is ready to brush aside this barren procedural infirmity and recognize the legal government offices or positions (Civil Liberties Union v. Executive
standing of the petitioner in view of the transcendental importance of the issues Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation
raised. And this act of liberality is not without judicial precedent. As early as for debt service in the General Appropriations Act (Guingona v.
the Emergency Powers Cases, this Court had exercised its discretion and waived the Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056 on the holding of
requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto desynchronized elections (Osmeña v. Commission on Elections, 199
Guingona, Jr., et al.,9 we ruled in the same lines and enumerated some of the cases SCRA 750 [1991]); (e) P.D. No. 1869 (the charter of the Philippine
where the same policy was adopted, viz: Amusement and Gaming Corporation) on the ground that it is
contrary to morals, public policy, and order (Basco v. Philippine
. . . A party's standing before this Court is a procedural technicality Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f) R.A.
which it may, in the exercise of its discretion, set aside in view of No. 6975, establishing the Philippine National Police. (Carpio v.
the importance of the issues raised. In the landmark Emergency Executive Secretary, 206 SCRA 290 [1992]).
Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No. L-
2756 (Araneta Other cases where we have followed a liberal policy regarding locus
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); standi include those attacking the validity or legality of (a) an order
G.R. No. L-3055 (Guerrero v. Commissioner of Customs); and G.R. allowing the importation of rice in the light of the prohibition
No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368 imposed by R.A. No. 3452 (Iloilo Palay and Corn Planters
(1949)], this Court brushed aside this technicality because "the Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991
transcendental importance to the public of these cases demands and 1033 insofar as they proposed amendments to the
Constitution and P.D. No. 1031 insofar as it directed the COMELEC Now on the merits of the case.
to supervise, control, hold, and conduct the referendum-plebiscite
on 16 October 1976 (Sanidad v. Commission on Elections, supra); On the fare range scheme.
(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 Section 16(c) of the Public Service Act, as amended, reads:
[1990]); (d) the approval without hearing by the Board of
Investments of the amended application of the Bataan
Sec. 16. Proceedings of the Commission, upon notice and hearing.
Petrochemical Corporation to transfer the site of its plant from
— The Commission shall have power, upon proper notice and
Bataan to Batangas and the validity of such transfer and the shift of
hearing in accordance with the rules and provisions of this Act,
feedstock from naphtha only to naphtha and/or liquefied
subject to the limitations and exceptions mentioned and saving
petroleum gas (Garcia v. Board of Investments, 177 SCRA 374
provisions to the contrary:
[1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e)
the decisions, orders, rulings, and resolutions of the Executive
xxx xxx xxx
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 (c) To fix and determine individual or joint rates, tolls, charges,
duties (Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of classifications, or schedules thereof, as well as commutation,
the Energy Regulatory Board of 5 and 6 December 1990 on the mileage kilometrage, and other special rates which shall be
ground that the hearings conducted on the second provisional imposed, observed, and followed thereafter by any public
increase in oil prices did not allow the petitioner substantial cross- service: Provided, That the Commission may, in its discretion,
examination; (Maceda v. Energy Regulatory Board, 199 SCRA 454 approve rates proposed by public services provisionally and
[1991]); (g) Executive Order No. 478 which levied a special duty of without necessity of any hearing; but it shall call a hearing thereon
P0.95 per liter of imported oil products (Garcia v. Executive within thirty days thereafter, upon publication and notice to the
Secretary, 211 SCRA 219 [1992]); (h) resolutions of the Commission concerns operating in the territory affected: Provided, further, That
on Elections concerning the apportionment, by district, of the in case the public service equipment of an operator is used
number of elective members of Sanggunians (De Guia vs. principally or secondarily for the promotion of a private business,
Commission on Elections, 208 SCRA 420 [1992]); and (i) the net profits of said private business shall be considered in
memorandum orders issued by a Mayor affecting the Chief of relation with the public service of such operator for the purpose of
Police of Pasay City (Pasay Law and Conscience Union, Inc. v. fixing the rates. (Emphasis ours).
Cuneta, 101 SCRA 662 [1980]).
xxx xxx xxx
In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275
[1975]), this Court, despite its unequivocal ruling that the Under the foregoing provision, the Legislature delegated to the defunct
petitioners therein had no personality to file the petition, resolved Public Service Commission the power of fixing the rates of public services.
nevertheless to pass upon the issues raised because of the far- Respondent LTFRB, the existing regulatory body today, is likewise vested
reaching implications of the petition. We did no less in De Guia v. with the same under Executive Order No. 202 dated June 19, 1987. Section
COMELEC (Supra) where, although we declared that De Guia "does 5(c) of the said executive order authorizes LTFRB "to determine, prescribe,
not appear to have locus standi, a standing in law, a personal or approve and periodically review and adjust, reasonable fares, rates and
substantial interest," we brushed aside the procedural infirmity other related charges, relative to the operation of public land transportation
"considering the importance of the issue involved, concerning as it services provided by motorized vehicles."
does the political exercise of qualified voters affected by the
apportionment, and petitioner alleging abuse of discretion and Such delegation of legislative power to an administrative agency is permitted in order
violation of the Constitution by respondent." 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 approved by the Public Service Commission after they have been
determining sensitive and delicate matters as shown to be just and reasonable. The public service may, of course,
route-fixing and rate-making for the transport sector, the responsible regulatory propose new rates, as the Philippine Railway Co. did in case No.
body is entrusted with the power of subordinate legislation. With this authority, an 31827, but it cannot lawfully make said new rates effective without
administrative body and in this case, the LTFRB, may implement broad policies laid the approval of the Public Service Commission, and the Public
down in a statute by "filling in" the details which the Legislature may neither have Service Commission itself cannot authorize a public service to
time or competence to provide. However, nowhere under the aforesaid provisions of enforce new rates without the prior approval of said rates by the
law are the regulatory bodies, the PSC and LTFRB alike, authorized to delegate that commission. The commission must approve new rates when they
power to a common carrier, a transport operator, or other public service. are submitted to it, if the evidence shows them to be just and
reasonable, otherwise it must disapprove them. Clearly, the
In the case at bench, the authority given by the LTFRB to the provincial bus operators commission cannot determine in advance whether or not the new
to set a fare range over and above the authorized existing fare, is illegal and invalid rates of the Philippine Railway Co. will be just and reasonable,
as it is tantamount to an undue delegation of legislative authority. Potestas delegata because it does not know what those rates will be.
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 In the present case the Philippine Railway Co. in effect asked for
but a duty to be performed by the delegate through the instrumentality of his own permission to change its freight rates at will. It may change them
judgment and not through the intervening mind of another.10 A further delegation of every day or every hour, whenever it deems it necessary to do so
such power would indeed constitute a negation of the duty in violation of the trust in order to meet competition or whenever in its opinion it would
reposed in the delegate mandated to discharge it directly. 11 The policy of allowing be to its advantage. Such a procedure would create a most
the provincial bus operators to change and increase their fares at will would result unsatisfactory state of affairs and largely defeat the purposes of the
not only to a chaotic situation but to an anarchic state of affairs. This would leave the public service law.13(Emphasis ours).
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 One veritable consequence of the deregulation of transport fares is a compounded
deem it "necessary" to do so. In Panay Autobus Co. v. Philippine Railway Co.,12 where fare. If transport operators will be authorized to impose and collect an additional
respondent Philippine Railway Co. was granted by the Public Service Commission the amount equivalent to 20% over and above the authorized fare over a period of time,
authority to change its freight rates at will, this Court categorically declared that: 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.
In our opinion, the Public Service Commission was not authorized
by law to delegate to the Philippine Railway Co. the power of Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus
altering its freight rates whenever it should find it necessary to do operators to collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary
so in order to meet the competition of road trucks and autobuses, buses. At the same time, they were allowed to impose and collect a fare range of plus
or to change its freight rates at will, or to regard its present rates or minus 15% over the authorized rate. Thus P0.37 centavo per kilometer authorized
as maximum rates, and to fix lower rates whenever in the opinion fare plus P0.05 centavos (which is 15% of P0.37 centavos) is equivalent to P0.42
of the Philippine Railway Co. it would be to its advantage to do so. 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
The mere recital of the language of the application of the Philippine would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators
Railway Co. is enough to show that it is untenable. The Legislature will exercise their authority to impose an additional 20% over and above the
has delegated to the Public Service Commission the power of fixing authorized fare, then the fare to be collected shall amount to P0.56 (that is, P0.47
the rates of public services, but it has not authorized the Public authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will be
Service Commission to delegate that power to a common carrier or continuously subjected, not only to a double fare adjustment but to a compounding
other public service. The rates of public services like the Philippine fare as well. On their part, transport operators shall enjoy a bigger chunk of the pie.
Railway Co. have been approved or fixed by the Public Service Aside from fare increase applied for, they can still collect an additional amount by
Commission, and any change in such rates must be authorized or
virtue of the authorized fare range. Mathematically, the situation translates into the Pursuant to Section 16(a) of the Public Service Act, as amended, the following
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-
Year** LTFRB authorized Fare Range Fare to be stock company constituted and organized under the laws of the Philippines, at least
rate*** collected per 60 per centum of its stock or paid-up capital must belong entirely to citizens of the
kilometer Philippines; (ii) the applicant must be financially capable of undertaking the proposed
service and meeting the responsibilities incident to its operation; and (iii) the
1990 P0.37 15% (P0.05) P0.42 applicant must prove that the operation of the public service proposed and the
1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56 authorization to do business will promote the public interest in a proper and suitable
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73 manner. It is understood that there must be proper notice and hearing before the
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94 PSC can exercise its power to issue a CPC.

Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB
government function that requires dexterity of judgment and sound discretion with Memorandum Circular No. 92-009, Part IV, provides for yet incongruous and
the settled goal of arriving at a just and reasonable rate acceptable to both the public contradictory policy guideline on the issuance of a CPC. The guidelines states:
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 The issuance of a Certificate of Public Convenience is determined
an operator in a situation where he will continue to operate at a loss. Hence, the rate by public need. The presumption of public need for a service shall
should enable public utilities to generate revenues sufficient to cover operational be deemed in favor of the applicant, while the burden of proving
costs and provide reasonable return on the investments. On the other hand, a rate that there is no need for the proposed service shall be the
which is too high becomes discriminatory. It is contrary to public interest. A rate, oppositor's. (Emphasis ours).
therefore, must be reasonable and fair and must be affordable to the end user who
will utilize the services. 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
Given the complexity of the nature of the function of rate-fixing and its far-reaching applicant must prove by proper notice and hearing that the operation of the public
effects on millions of commuters, government must not relinquish this important service proposed will promote public interest in a proper and suitable manner. On
function in favor of those who would benefit and profit from the industry. Neither the contrary, the policy guideline states that the presumption of public need for a
should the requisite notice and hearing be done away with. The people, represented public service shall be deemed in favor of the applicant. In case of conflict between a
by reputable oppositors, deserve to be given full opportunity to be heard in their statute and an administrative order, the former must prevail.
opposition to any fare increase.
By its terms, public convenience or necessity generally means something fitting or
14
The present administrative procedure, to our mind, already mirrors an orderly and suited to the public need.16 As one of the basic requirements for the grant of a CPC,
satisfactory arrangement for all parties involved. To do away with such a procedure public convenience and necessity exists when the proposed facility or service meets
and allow just one party, an interested party at that, to determine what the rate a reasonable want of the public and supply a need which the existing facilities do not
should be, will undermine the right of the other parties to due process. The purpose adequately supply. The existence or
of a hearing is precisely to determine what a just and reasonable rate is.15 Discarding non-existence of public convenience and necessity is therefore a question of fact that
such procedural and constitutional right is certainly inimical to our fundamental law must be established by evidence, real and/or testimonial; empirical data; statistics
and to public interest. 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
On the presumption of public need. protect, the interests of both the public and the existing transport operators.

A certificate of public convenience (CPC) is an authorization granted by the LTFRB for Verily, the power of a regulatory body to issue a CPC is founded on the condition that
the operation of land transportation services for public use as required by law. 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 hereby DECLARED contrary to law and invalid insofar as they affect provisions therein
consideration for which a CPC is issued, and that fact alone must be consistently (a) delegating to provincial bus and jeepney operators the authority to increase or
borne in mind. Also, existing operators in subject routes must be given an opportunity decrease the duly prescribed transportation fares; and (b) creating a presumption of
to offer proof and oppose the application. Therefore, an applicant must, at all times, public need for a service in favor of the applicant for a certificate of public
be required to prove his capacity and capability to furnish the service which he has convenience and placing the burden of proving that there is no need for the proposed
undertaken to service to the oppositor.
render. 18 And all this will be possible only if a public hearing were conducted for that
purpose. 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
Otherwise stated, the establishment of public need in favor of an applicant reverses provisions of the aforementioned administrative circulars, memoranda and/or orders
well-settled and institutionalized judicial, quasi-judicial and administrative declared invalid.
procedures. It allows the party who initiates the proceedings to prove, by mere
application, his affirmative allegations. Moreover, the offending provisions of the No pronouncement as to costs.
LTFRB memorandum circular in question would in effect amend the Rules of Court by
adding another disputable presumption in the enumeration of 37 presumptions SO ORDERED.
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
G.R. No. 141284 | August 15, 2000 The Joint Implementing Police Visibility Patrols between the PNP NCRPO and the Philippine
Marines partnership in the conduct of visibility patrols in Metro Manila for the suppression of
INTEGRATED BAR OF THE PHILIPPINES, petitioner, crime prevention and other serious threats to national security.
vs.
HON. RONALDO B. ZAMORA, GEN. PANFILO M. LACSON, GEN. EDGAR B. AGLIPAY, and GEN. 3. SITUATION:
ANGELO REYES, respondents.
Criminal incidents in Metro Manila have been perpetrated not only by ordinary criminals but
DECISION also by organized syndicates whose members include active and former police/military
personnel whose training, skill, discipline and firepower prove well-above the present
KAPUNAN, J.: capability of the local police alone to handle. The deployment of a joint PNP NCRPO-Philippine
Marines in the conduct of police visibility patrol in urban areas will reduce the incidence of
crimes specially those perpetrated by active or former police/military personnel.
At bar is a special civil action for certiorari and prohibition with prayer for issuance of a
temporary restraining order seeking to nullify on constitutional grounds the order of
President Joseph Ejercito Estrada commanding the deployment of the Philippine Marines 4. MISSION:
(the "Marines") to join the Philippine National Police (the "PNP") in visibility patrols around
the metropolis. The PNP NCRPO will organize a provisional Task Force to conduct joint NCRPO-PM visibility
patrols to keep Metro Manila streets crime-free, through a sustained street patrolling to
In view of the alarming increase in violent crimes in Metro Manila, like robberies, kidnappings minimize or eradicate all forms of high-profile crimes especially those perpetrated by
and carnappings, the President, in a verbal directive, ordered the PNP and the Marines to organized crime syndicates whose members include those that are well-trained, disciplined
conduct joint visibility patrols for the purpose of crime prevention and suppression. The and well-armed active or former PNP/Military personnel.
Secretary of National Defense, the Chief of Staff of the Armed Forces of the Philippines (the
"AFP"), the Chief of the PNP and the Secretary of the Interior and Local Government were 5. CONCEPT IN JOINT VISIBILITY PATROL OPERATIONS:
tasked to execute and implement the said order. In compliance with the presidential
mandate, the PNP Chief, through Police Chief Superintendent Edgar B. Aglipay, formulated a. The visibility patrols shall be conducted jointly by the NCRPO [National Capital
Letter of Instruction 02/20001 (the "LOI") which detailed the manner by which the joint Regional Police Office] and the Philippine Marines to curb criminality in Metro
visibility patrols, called Task Force Tulungan, would be conducted.2 Task Force Tulungan was Manila and to preserve the internal security of the state against insurgents and
placed under the leadership of the Police Chief of Metro Manila. other serious threat to national security, although the primary responsibility over
Internal Security Operations still rests upon the AFP.
Subsequently, the President confirmed his previous directive on the deployment of the
Marines in a Memorandum, dated 24 January 2000, addressed to the Chief of Staff of the b. The principle of integration of efforts shall be applied to eradicate all forms of
AFP and the PNP Chief.3 In the Memorandum, the President expressed his desire to improve high-profile crimes perpetrated by organized crime syndicates operating in Metro
the peace and order situation in Metro Manila through a more effective crime prevention Manila. This concept requires the military and police to work cohesively and unify
program including increased police patrols.4 The President further stated that to heighten efforts to ensure a focused, effective and holistic approach in addressing crime
police visibility in the metropolis, augmentation from the AFP is necessary.5 Invoking his prevention. Along this line, the role of the military and police aside from
powers as Commander-in-Chief under Section 18, Article VII of the Constitution, the neutralizing crime syndicates is to bring a wholesome atmosphere wherein delivery
President directed the AFP Chief of Staff and PNP Chief to coordinate with each other for the of basic services to the people and development is achieved. Hand-in-hand with this
proper deployment and utilization of the Marines to assist the PNP in preventing or joint NCRPO-Philippine Marines visibility patrols, local Police Units are responsible
suppressing criminal or lawless violence.6 Finally, the President declared that the services of for the maintenance of peace and order in their locality.
the Marines in the anti-crime campaign are merely temporary in nature and for a reasonable
period only, until such time when the situation shall have improved.7
c. To ensure the effective implementation of this project, a provisional Task Force
"TULUNGAN" shall be organized to provide the mechanism, structure, and
The LOI explains the concept of the PNP-Philippine Marines joint visibility patrols as follows: procedures for the integrated planning, coordinating, monitoring and assessing the
security situation.
xxx
xxx.8
2. PURPOSE:
The selected areas of deployment under the LOI are: Monumento Circle, North Edsa (SM The issues raised in the present petition are: (1) Whether or not petitioner has legal standing;
City), Araneta Shopping Center, Greenhills, SM Megamall, Makati Commercial Center, (2) Whether or not the President’s factual determination of the necessity of calling the armed
LRT/MRT Stations and the NAIA and Domestic Airport.9 forces is subject to judicial review; and, (3) Whether or not the calling of the armed forces to
assist the PNP in joint visibility patrols violates the constitutional provisions on civilian
On 17 January 2000, the Integrated Bar of the Philippines (the "IBP") filed the instant petition supremacy over the military and the civilian character of the PNP.
to annul LOI 02/2000 and to declare the deployment of the Philippine Marines, null and void
and unconstitutional, arguing that: The petition has no merit.

I First, petitioner failed to sufficiently show that it is in possession of the requisites of standing
to raise the issues in the petition. Second, the President did not commit grave abuse of
THE DEPLOYMENT OF THE PHILIPPINE MARINES IN METRO MANILA IS VIOLATIVE OF THE discretion amounting to lack or excess of jurisdiction nor did he commit a violation of the
CONSTITUTION, IN THAT: civilian supremacy clause of the Constitution.

A) NO EMERGENCY SITUATION OBTAINS IN METRO MANILA AS WOULD JUSTIFY, The power of judicial review is set forth in Section 1, Article VIII of the Constitution, to wit:
EVEN ONLY REMOTELY, THE DEPLOYMENT OF SOLDIERS FOR LAW ENFORCEMENT
WORK; HENCE, SAID DEPLOYMENT IS IN DEROGATION OF ARTICLE II, SECTION 3 OF Section 1. The judicial power shall be vested in one Supreme Court and in such lower courts
THE CONSTITUTION; as may be established by law.

B) SAID DEPLOYMENT CONSTITUTES AN INSIDIOUS INCURSION BY THE MILITARY IN Judicial power includes the duty of the courts of justice to settle actual controversies
A CIVILIAN FUNCTION OF GOVERNMENT (LAW ENFORCEMENT) IN DEROGATION OF involving rights which are legally demandable and enforceable, and to determine whether or
ARTICLE XVI, SECTION 5 (4), OF THE CONSTITUTION; not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the Government.
C) SAID DEPLOYMENT CREATES A DANGEROUS TENDENCY TO RELY ON THE
MILITARY TO PERFORM THE CIVILIAN FUNCTIONS OF THE GOVERNMENT. When questions of constitutional significance are raised, the Court can exercise its power of
judicial review only if the following requisites are complied with, namely: (1) the existence of
II an actual and appropriate case; (2) a personal and substantial interest of the party raising the
constitutional question; (3) the exercise of judicial review is pleaded at the earliest
opportunity; and (4) the constitutional question is the lis mota of the case.12
IN MILITARIZING LAW ENFORCEMENT IN METRO MANILA, THE ADMINISTRATION IS
UNWITTINGLY MAKING THE MILITARY MORE POWERFUL THAN WHAT IT SHOULD REALLY BE
UNDER THE CONSTITUTION.10 The IBP has not sufficiently complied with the requisites of standing in this case.

Asserting itself as the official organization of Filipino lawyers tasked with the bounden duty "Legal standing" or locus standi has been defined as a personal and substantial interest in the
to uphold the rule of law and the Constitution, the IBP questions the validity of the case such that the party has sustained or will sustain direct injury as a result of the
deployment and utilization of the Marines to assist the PNP in law enforcement. governmental act that is being challenged.13 The term "interest" means a material interest,
an interest in issue affected by the decree, as distinguished from mere interest in the
question involved, or a mere incidental interest.14 The gist of the question of standing is
Without granting due course to the petition, the Court in a Resolution, 11 dated 25 January
whether a party alleges "such personal stake in the outcome of the controversy as to assure
2000, required the Solicitor General to file his Comment on the petition. On 8 February 2000,
that concrete adverseness which sharpens the presentation of issues upon which the court
the Solicitor General submitted his Comment.
depends for illumination of difficult constitutional questions."15

The Solicitor General vigorously defends the constitutionality of the act of the President in
In the case at bar, the IBP primarily anchors its standing on its alleged responsibility to uphold
deploying the Marines, contending, among others, that petitioner has no legal standing; that
the rule of law and the Constitution. Apart from this declaration, however, the IBP asserts no
the question of deployment of the Marines is not proper for judicial scrutiny since the same
other basis in support of its locus standi. The mere invocation by the IBP of its duty to
involves a political question; that the organization and conduct of police visibility patrols,
preserve the rule of law and nothing more, while undoubtedly true, is not sufficient to clothe
which feature the team-up of one police officer and one Philippine Marine soldier, does not
it with standing in this case. This is too general an interest which is shared by other groups
violate the civilian supremacy clause in the Constitution.
and the whole citizenry. Based on the standards above-stated, the IBP has failed to present a
specific and substantial interest in the resolution of the case. Its fundamental purpose which, the calling of the Marines. Thus, the IBP prays that this Court "review the sufficiency of the
under Section 2, Rule 139-A of the Rules of Court, is to elevate the standards of the law factual basis for said troop [Marine] deployment."19
profession and to improve the administration of justice is alien to, and cannot be affected by
the deployment of the Marines. It should also be noted that the interest of the National The Solicitor General, on the other hand, contends that the issue pertaining to the necessity
President of the IBP who signed the petition, is his alone, absent a formal board resolution of calling the armed forces is not proper for judicial scrutiny since it involves a political
authorizing him to file the present action. To be sure, members of the BAR, those in the question and the resolution of factual issues which are beyond the review powers of this
judiciary included, have varying opinions on the issue. Moreover, the IBP, assuming that it Court.
has duly authorized the National President to file the petition, has not shown any specific
injury which it has suffered or may suffer by virtue of the questioned governmental act.
As framed by the parties, the underlying issues are the scope of presidential powers and
Indeed, none of its members, whom the IBP purportedly represents, has sustained any form
limits, and the extent of judicial review. But, while this Court gives considerable weight to the
of injury as a result of the operation of the joint visibility patrols. Neither is it alleged that any
parties’ formulation of the issues, the resolution of the controversy may warrant a creative
of its members has been arrested or that their civil liberties have been violated by the
approach that goes beyond the narrow confines of the issues raised. Thus, while the parties
deployment of the Marines. What the IBP projects as injurious is the supposed
are in agreement that the power exercised by the President is the power to call out the
"militarization" of law enforcement which might threaten Philippine democratic institutions
armed forces, the Court is of the view that the power involved may be no more than the
and may cause more harm than good in the long run. Not only is the presumed "injury" not
maintenance of peace and order and promotion of the general welfare.20 For one, the
personal in character, it is likewise too vague, highly speculative and uncertain to satisfy the
realities on the ground do not show that there exist a state of warfare, widespread civil
requirement of standing. Since petitioner has not successfully established a direct and
unrest or anarchy. Secondly, the full brunt of the military is not brought upon the citizenry, a
personal injury as a consequence of the questioned act, it does not possess the personality to
point discussed in the latter part of this decision. In the words of the late Justice Irene Cortes
assail the validity of the deployment of the Marines. This Court, however, does not
in Marcos v. Manglapus:
categorically rule that the IBP has absolutely no standing to raise constitutional issues now or
in the future. The IBP must, by way of allegations and proof, satisfy this Court that it has
sufficient stake to obtain judicial resolution of the controversy. More particularly, this case calls for the exercise of the President’s powers as protector of the
peace. [Rossiter, The American Presidency]. The power of the President to keep the peace is
not limited merely to exercising the commander-in-chief powers in times of emergency or to
Having stated the foregoing, it must be emphasized that this Court has the discretion to take
leading the State against external and internal threats to its existence. The President is not
cognizance of a suit which does not satisfy the requirement of legal standing when
only clothed with extraordinary powers in times of emergency, but is also tasked with
paramount interest is involved.16 In not a few cases, the Court has adopted a liberal attitude
attending to the day-to-day problems of maintaining peace and order and ensuring domestic
on the locus standi of a petitioner where the petitioner is able to craft an issue of
tranquility in times when no foreign foe appears on the horizon. Wide discretion, within the
transcendental significance to the people.17 Thus, when the issues raised are of paramount
bounds of law, in fulfilling presidential duties in times of peace is not in any way diminished
importance to the public, the Court may brush aside technicalities of procedure.18 In this
by the relative want of an emergency specified in the commander-in-chief provision. For in
case, a reading of the petition shows that the IBP has advanced constitutional issues which
making the President commander-in-chief the enumeration of powers that follow cannot be
deserve the attention of this Court in view of their seriousness, novelty and weight as
said to exclude the President’s exercising as Commander-in-Chief powers short of the calling
precedents. Moreover, because peace and order are under constant threat and lawless
of the armed forces, or suspending the privilege of the writ of habeas corpus or declaring
violence occurs in increasing tempo, undoubtedly aggravated by the Mindanao insurgency
martial law, in order to keep the peace, and maintain public order and security.
problem, the legal controversy raised in the petition almost certainly will not go away. It will
stare us in the face again. It, therefore, behooves the Court to relax the rules on standing and
to resolve the issue now, rather than later. xxx21

The President did not commit grave abuse of discretion in calling out the Marines. Nonetheless, even if it is conceded that the power involved is the President’s power to call
out the armed forces to prevent or suppress lawless violence, invasion or rebellion, the
resolution of the controversy will reach a similar result.
In the case at bar, the bone of contention concerns the factual determination of the
President of the necessity of calling the armed forces, particularly the Marines, to aid the PNP
in visibility patrols. In this regard, the IBP admits that the deployment of the military We now address the Solicitor General’s argument that the issue involved is not susceptible to
personnel falls under the Commander-in-Chief powers of the President as stated in Section review by the judiciary because it involves a political question, and thus, not justiciable.
18, Article VII of the Constitution, specifically, the power to call out the armed forces to
prevent or suppress lawless violence, invasion or rebellion. What the IBP questions, however, As a general proposition, a controversy is justiciable if it refers to a matter which is
is the basis for the calling of the Marines under the aforestated provision. According to the appropriate for court review.22 It pertains to issues which are inherently susceptible of being
IBP, no emergency exists that would justify the need for the calling of the military to assist decided on grounds recognized by law. Nevertheless, the Court does not automatically
the police force. It contends that no lawless violence, invasion or rebellion exist to warrant assume jurisdiction over actual constitutional cases brought before it even in instances that
are ripe for resolution. One class of cases wherein the Court hesitates to rule on are "political granted either department of government, may not be an obstacle to judicial inquiry, for the
questions." The reason is that political questions are concerned with issues dependent upon improvident exercise or abuse thereof may give rise to justiciable controversy.31
the wisdom, not the legality, of a particular act or measure being assailed. Moreover, the
political question being a function of the separation of powers, the courts will not normally When the President calls the armed forces to prevent or suppress lawless violence, invasion
interfere with the workings of another co-equal branch unless the case shows a clear need or rebellion, he necessarily exercises a discretionary power solely vested in his wisdom. This
for the courts to step in to uphold the law and the Constitution. is clear from the intent of the framers and from the text of the Constitution itself. The Court,
thus, cannot be called upon to overrule the President’s wisdom or substitute its own.
As Tañada v. Cuenco23 puts it, political questions refer "to those questions which, under the However, this does not prevent an examination of whether such power was exercised within
Constitution, are to be decided by the people in their sovereign capacity, or in regard to permissible constitutional limits or whether it was exercised in a manner constituting grave
which full discretionary authority has been delegated to the legislative or executive branch of abuse of discretion. In view of the constitutional intent to give the President full discretionary
government." Thus, if an issue is clearly identified by the text of the Constitution as matters power to determine the necessity of calling out the armed forces, it is incumbent upon the
for discretionary action by a particular branch of government or to the people themselves petitioner to show that the President’s decision is totally bereft of factual basis. The present
then it is held to be a political question. In the classic formulation of Justice Brennan in Baker petition fails to discharge such heavy burden as there is no evidence to support the assertion
v. Carr,24 "[p]rominent on the surface of any case held to involve a political question is found that there exist no justification for calling out the armed forces. There is, likewise, no
a textually demonstrable constitutional commitment of the issue to a coordinate political evidence to support the proposition that grave abuse was committed because the power to
department; or a lack of judicially discoverable and manageable standards for resolving it; or call was exercised in such a manner as to violate the constitutional provision on civilian
the impossibility of deciding without an initial policy determination of a kind clearly for supremacy over the military. In the performance of this Court’s duty of "purposeful
nonjudicial discretion; or the impossibility of a court’s undertaking independent resolution hesitation"32 before declaring an act of another branch as unconstitutional, only where such
without expressing lack of the respect due coordinate branches of government; or an grave abuse of discretion is clearly shown shall the Court interfere with the President’s
unusual need for unquestioning adherence to a political decision already made; or the judgment. To doubt is to sustain.
potentiality of embarassment from multifarious pronouncements by various departments on
the one question." There is a clear textual commitment under the Constitution to bestow on the President full
discretionary power to call out the armed forces and to determine the necessity for the
The 1987 Constitution expands the concept of judicial review by providing that "(T)he Judicial exercise of such power. Section 18, Article VII of the Constitution, which embodies the
power shall be vested in one Supreme Court and in such lower courts as may be established powers of the President as Commander-in-Chief, provides in part:
by law. 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 The President shall be the Commander-in-Chief of all armed forces of the Philippines and
not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on whenever it becomes necessary, he may call out such armed forces to prevent or suppress
the part of any branch or instrumentality of the Government."25 Under this definition, the lawless violence, invasion or rebellion. In case of invasion or rebellion, when the public safety
Court cannot agree with the Solicitor General that the issue involved is a political question requires it, he may, for a period not exceeding sixty days, suspend the privilege of the writ
beyond the jurisdiction of this Court to review. When the grant of power is qualified, of habeas corpus, or place the Philippines or any part thereof under martial law.
conditional or subject to limitations, the issue of whether the prescribed qualifications or
conditions have been met or the limitations respected, is justiciable - the problem being one
xxx
of legality or validity, not its wisdom.26 Moreover, the jurisdiction to delimit constitutional
boundaries has been given to this Court.27 When political questions are involved, the
Constitution limits the determination as to whether or not there has been a grave abuse of The full discretionary power of the President to determine the factual basis for the exercise
discretion amounting to lack or excess of jurisdiction on the part of the official whose action of the calling out power is also implied and further reinforced in the rest of Section 18, Article
is being questioned.28 VII which reads, thus:

By grave abuse of discretion is meant simply capricious or whimsical exercise of judgment xxx
that is patent and gross as to amount to an evasion of positive duty or a virtual refusal to
perform a duty enjoined by law, or to act at all in contemplation of law, as where the power Within forty-eight hours from the proclamation of martial law or the suspension of the
is exercised in an arbitrary and despotic manner by reason of passion or hostility.29 Under this privilege of the writ of habeas corpus, the President shall submit a report in person or in
definition, a court is without power to directly decide matters over which full discretionary writing to the Congress. The Congress, voting jointly, by a vote of at least a majority of all its
authority has been delegated. But while this Court has no power to substitute its judgment Members in regular or special session, may revoke such proclamation or suspension, which
for that of Congress or of the President, it may look into the question of whether such revocation shall not be set aside by the President. Upon the initiative of the President, the
exercise has been made in grave abuse of discretion.30A showing that plenary power is Congress may, in the same manner, extend such proclamation or suspension for a period to
be determined by the Congress, if the invasion or rebellion shall persist and public safety xxx
requires it.
FR. BERNAS. Let me just add that when we only have imminent danger, the matter can be
The Congress, if not in session, shall within twenty-four hours following such proclamation or handled by the first sentence: "The President may call out such armed forces to prevent or
suspension, convene in accordance with its rules without need of a call. suppress lawless violence, invasion or rebellion." So we feel that that is sufficient for handling
imminent danger.
The Supreme Court may review, in an appropriate proceeding filed by any citizen, the
sufficiency of the factual basis of the proclamation of martial law or the suspension of the MR. DE LOS REYES. So actually, if a President feels that there is imminent danger, the matter
privilege of the writ or the extension thereof, and must promulgate its decision thereon can be handled by the First Sentence: "The President....may call out such Armed Forces to
within thirty days from its filing. prevent or suppress lawless violence, invasion or rebellion." So we feel that that is sufficient
for handling imminent danger, of invasion or rebellion, instead of imposing martial law or
A state of martial law does not suspend the operation of the Constitution, nor supplant the suspending the writ of habeas corpus, he must necessarily have to call the Armed Forces of
functioning of the civil courts or legislative assemblies, nor authorize the conferment of the Philippines as their Commander-in-Chief. Is that the idea?
jurisdiction on military courts and agencies over civilians where civil courts are able to
function, nor automatically suspend the privilege of the writ. MR. REGALADO. That does not require any concurrence by the legislature nor is it subject to
judicial review.34
The suspension of the privilege of the writ shall apply only to persons judicially charged for
rebellion or offenses inherent in or directly connected with invasion. The reason for the difference in the treatment of the aforementioned powers highlights the
intent to grant the President the widest leeway and broadest discretion in using the power to
During the suspension of the privilege of the writ, any person thus arrested or detained shall call out because it is considered as the lesser and more benign power compared to the power
be judicially charged within three days, otherwise he shall be released. to suspend the privilege of the writ of habeas corpus and the power to impose martial law,
both of which involve the curtailment and suppression of certain basic civil rights and
individual freedoms, and thus necessitating safeguards by Congress and review by this Court.
Under the foregoing provisions, Congress may revoke such proclamation or suspension and
the Court may review the sufficiency of the factual basis thereof. However, there is no such
equivalent provision dealing with the revocation or review of the President’s action to call Moreover, under Section 18, Article VII of the Constitution, in the exercise of the power to
out the armed forces. The distinction places the calling out power in a different category suspend the privilege of the writ of habeas corpus or to impose martial law, two conditions
from the power to declare martial law and the power to suspend the privilege of the writ must concur: (1) there must be an actual invasion or rebellion and, (2) public safety must
of habeas corpus, otherwise, the framers of the Constitution would have simply lumped require it. These conditions are not required in the case of the power to call out the armed
together the three powers and provided for their revocation and review without any forces. The only criterion is that "whenever it becomes necessary," the President may call the
qualification. Expressio unius est exclusio alterius. Where the terms are expressly limited to armed forces "to prevent or suppress lawless violence, invasion or rebellion." The implication
certain matters, it may not, by interpretation or construction, be extended to other is that the President is given full discretion and wide latitude in the exercise of the power to
matters.33 That the intent of the Constitution is exactly what its letter says, i.e., that the call as compared to the two other powers.
power to call is fully discretionary to the President, is extant in the deliberation of the
Constitutional Commission, to wit: If the petitioner fails, by way of proof, to support the assertion that the President acted
without factual basis, then this Court cannot undertake an independent investigation beyond
FR. BERNAS. It will not make any difference. I may add that there is a graduated power of the the pleadings. The factual necessity of calling out the armed forces is not easily quantifiable
President as Commander-in-Chief. First, he can call out such Armed Forces as may be and cannot be objectively established since matters considered for satisfying the same is a
necessary to suppress lawless violence; then he can suspend the privilege of the writ combination of several factors which are not always accessible to the courts. Besides the
of habeas corpus, then he can impose martial law. This is a graduated sequence. absence of textual standards that the court may use to judge necessity, information
necessary to arrive at such judgment might also prove unmanageable for the courts. Certain
pertinent information might be difficult to verify, or wholly unavailable to the courts. In many
When he judges that it is necessary to impose martial law or suspend the privilege of the writ
instances, the evidence upon which the President might decide that there is a need to call
of habeas corpus, his judgment is subject to review. We are making it subject to review by
out the armed forces may be of a nature not constituting technical proof.
the Supreme Court and subject to concurrence by the National Assembly. But when he
exercises this lesser power of calling on the Armed Forces, when he says it is necessary, it is
my opinion that his judgment cannot be reviewed by anybody. On the other hand, the President as Commander-in-Chief has a vast intelligence network to
gather information, some of which may be classified as highly confidential or affecting the
security of the state. In the exercise of the power to call, on-the-spot decisions may be
imperatively necessary in emergency situations to avert great loss of human lives and mass police force. Neither does it amount to an "insidious incursion" of the military in the task of
destruction of property. Indeed, the decision to call out the military to prevent or suppress law enforcement in violation of Section 5(4), Article XVI of the Constitution.41
lawless violence must be done swiftly and decisively if it were to have any effect at all. Such a
scenario is not farfetched when we consider the present situation in Mindanao, where the In this regard, it is not correct to say that General Angelo Reyes, Chief of Staff of the AFP, by
insurgency problem could spill over the other parts of the country. The determination of the his alleged involvement in civilian law enforcement, has been virtually appointed to a civilian
necessity for the calling out power if subjected to unfettered judicial scrutiny could be a post in derogation of the aforecited provision. The real authority in these operations, as
veritable prescription for disaster, as such power may be unduly straitjacketed by an stated in the LOI, is lodged with the head of a civilian institution, the PNP, and not with the
injunction or a temporary restraining order every time it is exercised. military. Such being the case, it does not matter whether the AFP Chief actually participates
in the Task Force Tulungan since he does not exercise any authority or control over the same.
Thus, it is the unclouded intent of the Constitution to vest upon the President, as Since none of the Marines was incorporated or enlisted as members of the PNP, there can be
Commander-in-Chief of the Armed Forces, full discretion to call forth the military when in his no appointment to civilian position to speak of. Hence, the deployment of the Marines in the
judgment it is necessary to do so in order to prevent or suppress lawless violence, invasion or joint visibility patrols does not destroy the civilian character of the PNP.
rebellion. Unless the petitioner can show that the exercise of such discretion was gravely
abused, the President’s exercise of judgment deserves to be accorded respect from this Considering the above circumstances, the Marines render nothing more than assistance
Court. required in conducting the patrols. As such, there can be no "insidious incursion" of the
military in civilian affairs nor can there be a violation of the civilian supremacy clause in the
The President has already determined the necessity and factual basis for calling the armed Constitution.
forces. In his Memorandum, he categorically asserted that, "[V]iolent crimes like bank/store
robberies, holdups, kidnappings and carnappings continue to occur in Metro Manila..."35 We It is worth mentioning that military assistance to civilian authorities in various forms persists
do not doubt the veracity of the President’s assessment of the situation, especially in the in Philippine jurisdiction. The Philippine experience reveals that it is not averse to requesting
light of present developments. The Court takes judicial notice of the recent bombings the assistance of the military in the implementation and execution of certain traditionally
perpetrated by lawless elements in the shopping malls, public utilities, and other public "civil" functions. As correctly pointed out by the Solicitor General, some of the multifarious
places. These are among the areas of deployment described in the LOI 2000. Considering all activities wherein military aid has been rendered, exemplifying the activities that bring both
these facts, we hold that the President has sufficient factual basis to call for military aid in the civilian and the military together in a relationship of cooperation, are:
law enforcement and in the exercise of this constitutional power.
1. Elections;42
The deployment of the Marines does not violate the civilian supremacy clause nor does it
infringe the civilian character of the police force.
2. Administration of the Philippine National Red Cross;43

Prescinding from its argument that no emergency situation exists to justify the calling of the
3. Relief and rescue operations during calamities and disasters;44
Marines, the IBP asserts that by the deployment of the Marines, the civilian task of law
enforcement is "militarized" in violation of Section 3, Article II36 of the Constitution.
4. Amateur sports promotion and development;45
We disagree. The deployment of the Marines does not constitute a breach of the civilian
supremacy clause. The calling of the Marines in this case constitutes permissible use of 5. Development of the culture and the arts;46
military assets for civilian law enforcement. The participation of the Marines in the conduct
of joint visibility patrols is appropriately circumscribed. The limited participation of the 6. Conservation of natural resources;47
Marines is evident in the provisions of the LOI itself, which sufficiently provides the metes
and bounds of the Marines’ authority. It is noteworthy that the local police forces are the 7. Implementation of the agrarian reform program;48
ones in charge of the visibility patrols at all times, the real authority belonging to the PNP. In
fact, the Metro Manila Police Chief is the overall leader of the PNP-Philippine Marines joint
visibility patrols.37 Under the LOI, the police forces are tasked to brief or orient the soldiers 8. Enforcement of customs laws;49
on police patrol procedures.38 It is their responsibility to direct and manage the deployment
of the Marines.39 It is, likewise, their duty to provide the necessary equipment to the Marines 9. Composite civilian-military law enforcement activities;50
and render logistical support to these soldiers.40 In view of the foregoing, it cannot be
properly argued that military authority is supreme over civilian authority. Moreover, the 10. Conduct of licensure examinations;51
deployment of the Marines to assist the PNP does not unmake the civilian character of the
11. Conduct of nationwide tests for elementary and high school students;52 xxx

12. Anti-drug enforcement activities;53 When this concept is transplanted into the present legal context, we take it to mean
that military involvement, even when not expressly authorized by the Constitution or a
13. Sanitary inspections;54 statute, does not violate the Posse Comitatus Act unless it actually regulates, forbids or
compels some conduct on the part of those claiming relief.1âwphi1 A mere threat of some
future injury would be insufficient. (emphasis supplied)
14. Conduct of census work;55

Even if the Court were to apply the above rigid standards to the present case to determine
15. Administration of the Civil Aeronautics Board;56
whether there is permissible use of the military in civilian law enforcement, the conclusion is
inevitable that no violation of the civilian supremacy clause in the Constitution is committed.
16. Assistance in installation of weather forecasting devices;57 On this point, the Court agrees with the observation of the Solicitor General:

17. Peace and order policy formulation in local government units. 58 3. The designation of tasks in Annex A65 does not constitute the exercise of regulatory,
proscriptive, or compulsory military power. First, the soldiers do not control or direct the
This unquestionably constitutes a gloss on executive power resulting from a systematic, operation. This is evident from Nos. 6,66 8(k)67 and 9(a)68of Annex A. These soldiers, second,
unbroken, executive practice, long pursued to the knowledge of Congress and, yet, never also have no power to prohibit or condemn. In No. 9(d)69 of Annex A, all arrested persons are
before questioned.59 What we have here is mutual support and cooperation between the brought to the nearest police stations for proper disposition. And last, these soldiers apply no
military and civilian authorities, not derogation of civilian supremacy. coercive force. The materials or equipment issued to them, as shown in No. 8(c)70 of Annex A,
are all low impact and defensive in character. The conclusion is that there being no exercise
In the United States, where a long tradition of suspicion and hostility towards the use of of regulatory, proscriptive or compulsory military power, the deployment of a handful of
military force for domestic purposes has persisted,60 and whose Constitution, unlike ours, Philippine Marines constitutes no impermissible use of military power for civilian law
does not expressly provide for the power to call, the use of military personnel by civilian law enforcement.71
enforcement officers is allowed under circumstances similar to those surrounding the
present deployment of the Philippine Marines. Under the Posse Comitatus Act61 of the US, It appears that the present petition is anchored on fear that once the armed forces are
the use of the military in civilian law enforcement is generally prohibited, except in certain deployed, the military will gain ascendancy, and thus place in peril our cherished liberties.
allowable circumstances. A provision of the Act states: Such apprehensions, however, are unfounded. The power to call the armed forces is just that
- calling out the armed forces. Unless, petitioner IBP can show, which it has not, that in the
§ 1385. Use of Army and Air Force as posse comitatus deployment of the Marines, the President has violated the fundamental law, exceeded his
authority or jeopardized the civil liberties of the people, this Court is not inclined to overrule
the President’s determination of the factual basis for the calling of the Marines to prevent or
Whoever, except in cases and under circumstances expressly authorized by the Constitution suppress lawless violence.
or Act of Congress, willfully uses any part of the Army or the Air Force as posse comitatus or
otherwise to execute the laws shall be fined not more than $10,000 or imprisoned not more
than two years, or both.62 One last point. Since the institution of the joint visibility patrol in January, 2000, not a single
citizen has complained that his political or civil rights have been violated as a result of the
deployment of the Marines. It was precisely to safeguard peace, tranquility and the civil
To determine whether there is a violation of the Posse Comitatus Act in the use of military liberties of the people that the joint visibility patrol was conceived. Freedom and democracy
personnel, the US courts63 apply the following standards, to wit: will be in full bloom only when people feel secure in their homes and in the streets, not when
the shadows of violence and anarchy constantly lurk in their midst.
Were Army or Air Force personnel used by the civilian law enforcement officers at Wounded
Knee in such a manner that the military personnel subjected the citizens to the exercise of WHEREFORE, premises considered, the petition is hereby DISMISSED.
military power which was regulatory, proscriptive, or compulsory64 George Washington Law
Review, pp. 404-433 (1986), which discusses the four divergent standards for assessing
acceptable involvement of military personnel in civil law enforcement. See likewise SO ORDERED.
HONORED IN THE BREECH: PRESIDENTIAL AUTHORITY TO EXECUTE THE LAWS WITH
MILITARY FORCE, 83 Yale Law Journal, pp. 130-152, 1973. 64 in nature, either presently or
prospectively?
SEPARATE OPINION SEPARATE OPINION

VITUG, J.: PUNO, J.:

In the equation of judicial power, neither of two extremes - one totalistic and the other If the case at bar is significant, it is because of the government attempt to foist
bounded - is acceptable nor ideal. The 1987 Constitution has introduced its definition of the the political question doctrine to shield an executive act done in the exercise of the
term "judicial power" to be that which - commander-in-chief powers from judicial scrutiny. If the attempt succeeded, it would
have diminished the power of judicial review and weakened the checking
authority of this Court over the Chief Executive when he exercises his
"x x x includes the duty of the courts of justice to settle actual controversies involving rights commander-in-chief powers. The attempt should remind us of the tragedy that
which are legally demandable and enforceable, and to determine whether or not there has befell the country when this Court sought refuge in the political question doctrine
been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any and forfeited its most important role as protector of the civil and political rights
branch or instrumentality of the Government."1 of our people. The ongoing conflict in Mindanao may worsen and can force the
Chief Executive to resort to the use of his greater commander-in-chief powers,
It is not meant that the Supreme Court must be deemed vested with the awesome power of hence, this Court should be extra cautious in assaying similar attempts. A laid
overseeing the entire bureaucracy, let alone of institutionalizing judicial absolutism, under its back posture may not sit well with our people considering that the 1987
mandate. But while this Court does not wield unlimited authority to strike down an act of its Constitution strengthened the checking powers of this Court and expanded its
jurisdiction precisely to stop any act constituting "xxx grave abuse of jurisdiction
two co-equal branches of government, it must not wither under technical guise on its
xxx on the part of any branch or instrumentality of the Government." 1
constitutionally ordained task to intervene, and to nullify if need be, any such act as and when
it is attended by grave abuse of discretion amounting to lack or excess of jurisdiction. The
proscription then against an interposition by the Court into purely political questions, The importance of the issue at bar includes this humble separate opinion. We can best
heretofore known, no longer holds within that context. perceive the different intersecting dimensions of the political question doctrine by
viewing them from the broader canvass of history. Political questions are defined as
"those questions which under the Constitution, are to be decided by the people in their
Justice Feria, in the case of Avelino vs. Cuenco,2 has aptly elucidated in his concurring opinion: sovereign capacity, or in regard to which full discretionary authority has been delegated
to the legislative or executive branch of government." 2 They have two aspects: (1) those
"x x x [I] concur with the majority that this Court has jurisdiction over cases like the present x matters that are to be exercised by the people in their primary political capacity and (2)
x x so as to establish in this country the judicial supremacy, with the Supreme Court as the final matters which have been specifically delegated to some other department or particular
arbiter, to see that no one branch or agency of the government transcends the Constitution, office of the government, with discretionary power to act. 3 The exercise of the
not only in justiceable but political questions as well."3 discretionary power of the legislative or executive branch of government was often the
area where the Court had to wrestle with the political question doctrine. 4

It is here when the Court must have to depart from the broad principle of separation of powers
A brief review of some of our case law will thus give us a sharper perspective of the
that disallows an intrusion by it in respect to the purely political decisions of its independent
political question doctrine. This question confronted the Court as early as 1905 in the
and coordinate agencies of government. case of Barcelon v. Baker.5 The Governor-General of the Philippine Islands, pursuant
to a resolution of the Philippine Commission, suspended the privilege of the writ of
The term grave abuse of discretion is long understood in our jurisprudence as being, and habeas corpus in Cavite and Batangas based on a finding of open insurrection in said
confined to, a capricious and whimsical or despotic exercise of judgment amounting to lack or provinces. Felix Barcelon, who was detained by constabulary officers in Batangas, filed
excess of jurisdiction. Minus the not-so-unusual exaggerations often invoked by litigants in the a petition for the issuance of a writ of habeas corpus alleging that there was no open
duel of views, the act of the President in simply calling on the Armed Forces of the Philippines, insurrection in Batangas. The issue to resolve was whether or not the judicial
an executive prerogative, to assist the Philippine National Police in "joint visibility patrols" in department may investigate the facts upon which the legislative (the Philippine
the metropolis does not, I believe, constitute grave abuse of discretion that would now warrant Commission) and executive (the Governor-General) branches of government acted in
an exercise by the Supreme Court of its extraordinary power as so envisioned by the suspending the privilege of the writ.
fundamental law.
The Court ruled that under our form of government, one department has no authority
to inquire into the acts of another, which acts are performed within the discretion of the
Accordingly, I vote for the dismissal of the petition.
other department.6 Surveying American law and jurisprudence, it held that whenever a
statute gives discretionary power to any person, to be exercised by him upon his own
opinion of certain facts, the statute constitutes him the sole judge of the existence of
those facts.7 Since the Philippine Bill of 1902 empowered the Philippine Commission
and the Governor-General to suspend the privilege of the writ of habeas corpus, this his release holding that the process by which a contumacious witness is dealt with by
power is exclusively within the discretion of the legislative and executive branches of the legislature is a necessary concomitant of the legislative process and the
government. The exercise of this discretion is conclusive upon the courts.8 legislature's exercise of its discretionary authority is not subject to judicial interference.

The Court further held that once a determination is made by the executive and In the 1960 case of Osmena v. Pendatun,17 the Court followed the traditional line.
legislative departments that the conditions justifying the assailed acts exists, it will Congressman Sergio Osmena, Jr. was suspended by the House of Representatives
presume that the conditions continue until the same authority decide that they no longer for serious disorderly behavior for making a privilege speech imputing "malicious
exist.9 It adopted the rationale that the executive branch, thru its civil and military charges" against the President of the Philippines. Osmena, Jr. invoked the power of
branches, are better situated to obtain information about peace and order from every review of this Court but the Court once more did not interfere with Congress' power to
corner of the nation, in contrast with the judicial department, with its very limited discipline its members.
machinery.10 The seed of the political question doctrine was thus planted in
Philippine soil. The contours of the political question doctrine have always been tricky. To be sure, the
Court did not always stay its hand whenever the doctrine is invoked. In the 1949 case
The doctrine barring judicial review because of the political question doctrine of Avelino v. Cuenco,18 Senate President Jose Avelino, who was deposed and
was next applied to the internal affairs of the legislature. The Court refused to replaced, questioned his successor's title claiming that the latter had been elected
interfere in the legislative exercise of disciplinary power over its own members. In the without a quorum. The petition was initially dismissed on the ground that the selection
1924 case of Alejandrino v. Quezon,11 Alejandrino, who was appointed Senator by of Senate President was an internal matter and not subject to judicial review. 19 On
the Governor-General, was declared by Senate Resolution as guilty of disorderly reconsideration, however, the Court ruled that it could assume jurisdiction over the
conduct for assaulting another Senator in the course of a debate, and was suspended controversy in light of subsequent events justifying intervention among which was the
from office for one year. Senator Alejandrino filed a petition for mandamus and existence of a quorum.20 Though the petition was ultimately dismissed, the Court
injunction to compel the Senate to reinstate him. The Court held that under the Jones declared respondent Cuenco as the legally elected Senate President.
Law, the power of the Senate to punish its members for disorderly behavior does not
authorize it to suspend an appointive member from the exercise of his office. While the In the 1957 case of Tanada v. Cuenco,21 the Court assumed jurisdiction over a dispute
Court found that the suspension was illegal, it refused to issue the writ of mandamus involving the formation and composition of the Senate Electoral Tribunal. It rejected the
on the ground that "the Supreme Court does not possess the power of coercion to make Solicitor General's claim that the dispute involved a political question. Instead, it
the Philippine Senate take any particular action. [T]he Philippine Legislature or any declared that the Senate is not clothed with "full discretionary authority" in the choice
branch thereof cannot be directly controlled in the exercise of their legislative powers of members of the Senate Electoral Tribunal and the exercise of its power thereon is
by any judicial process."12 subject to constitutional limitations which are mandatory in nature. 22 It held that under
the Constitution, the membership of the Senate Electoral Tribunal was designed to
The issue revisited the Court twenty-two (22) years later. In 1946, in Vera v. insure the exercise of judicial impartiality in the disposition of election contests affecting
Avelino,13 three senators-elect who had been prevented from taking their oaths of members of the lawmaking body.23 The Court then nullified the election to the Senate
office by a Senate resolution repaired to this Court to compel their colleagues to allow Electoral Tribunal made by Senators belonging to the party having the largest number
them to occupy their seats contending that only the Electoral Tribunal had jurisdiction of votes of two of their party members but purporting to act on behalf of the party having
over contests relating to their election, returns and qualifications. Again, the Court the second highest number of votes.
refused to intervene citing Alejandrino and affirmed the inherent right of the legislature
to determine who shall be admitted to its membership. In the 1962 case of Cunanan v. Tan, Jr.,24 the Court passed judgment on whether
Congress had formed the Commission on Appointments in accordance with the
In the 1947 case of Mabanag v. Lopez-Vito,14 three Senators and eight Constitution and found that it did not. It declared that the Commission on Appointments
representatives who were proclaimed elected by Comelec were not allowed by is a creature of the Constitution and its power does not come from Congress but from
Congress to take part in the voting for the passage of the Parity amendment to the the Constitution.
Constitution. If their votes had been counted, the affirmative votes in favor of the
proposed amendment would have been short of the necessary three-fourths vote in The 1967 case of Gonzales v. Comelec25 and the 1971 case of Tolentino v.
either House of Congress to pass the amendment. The amendment was eventually Comelec26 abandoned Mabanag v. Lopez-Vito. The question of whether or not
submitted to the people for ratification. The Court declined to intervene and held that a Congress, acting as a constituent assembly in proposing amendments to the
proposal to amend the Constitution is a highly political function performed by Congress Constitution violates the Constitution was held to be a justiciable and not a political
in its sovereign legislative capacity.15 issue. In Gonzales, the Court ruled:

In the 1955 case of Arnault v. Balagtas,16 petitioner, a private citizen, assailed the "It is true that in Mabanag v. Lopez-Vito, this Court characterizing the issue submitted
legality of his detention ordered by the Senate for his refusal to answer questions put thereto as a political one, declined to pass upon the question whether or not a given
to him by members of one of its investigating committees. This Court refused to order number of votes cast in Congress in favor of a proposed amendment to the
Constitution-which was being submitted to the people for ratification-satisfied the three- the judicial department of government has no intervention. In all such questions, the
fourths vote requirement of the fundamental law. The force of this precedent has been courts uniformly refused to intervene for the purpose of directing or controlling the
weakened, however, by Suanes v. Chief Accountant of the Senate, Avelino v. Cuenco, actions of the other department; such questions being many times reserved to those
Tanada v. Cuenco, and Macias v. Commission on Elections. In the first, we held that departments in the organic law of the state."35
the officers and employees of the Senate Electoral Tribunal are under its supervision
and control, not of that of the Senate President, as claimed by the latter; in the second, In Forties v. Tiaco,36 the Court also refused to take cognizance of a case enjoining the
this Court proceeded to determine the number of Senators necessary for a quorum in Chief Executive from deporting an obnoxious alien whose continued presence in the
the Senate; in the third, we nullified the election, by Senators belonging to the party Philippines was found by him to be injurious to the public interest. It noted that sudden
having the largest number of votes in said chamber, purporting to act on behalf of the and unexpected conditions may arise, growing out of the presence of untrustworthy
party having the second largest number of votes therein, of two (2) Senators belonging aliens, which demand immediate action. The President's inherent power to deport
to the first party, as members, for the second party, of the Senate Electoral Tribunal; undesirable aliens is universally denominated as political, and this power continues to
and in the fourth, we declared unconstitutional an act of Congress purporting to exist for the preservation of the peace and domestic tranquility of the nation. 37
apportion the representative districts for the House of Representatives upon the ground
that the apportionment had not been made as may be possible according to the number
of inhabitants of each province. Thus, we rejected the theory, advanced in these four In Manalang v. Quitoriano,38 the Court also declined to interfere in the exercise of the
cases, that the issues therein raised were political questions the determination of which President's appointing power. It held that the appointing power is the exclusive
is beyond judicial review."27 prerogative of the President, upon which no limitations may be imposed by Congress,
except those resulting from the need of securing concurrence of the Commission on
Appointments and from the exercise of the limited legislative power to prescribe
The Court explained that the power to amend the Constitution or to propose qualifications to a given appointive office.
amendments thereto is not included in the general grant of legislative powers to
Congress. As a constituent assembly, the members of Congress derive their authority
from the fundamental law and they do not have the final say on whether their acts are We now come to the exercise by the President of his powers as Commander-in-
within or beyond constitutional limits.28 This ruling was reiterated in Tolentino which Chief vis-a-vis the political question doctrine. In the 1940's, this Court has held that as
held that acts of a constitutional convention called for the purpose of proposing Commander-in-Chief of the Armed Forces, the President has the power to determine
amendments to the Constitution are at par with acts of Congress acting as a constituent whether war, in the legal sense, still continues or has terminated. It ruled that it is within
assembly.29 the province of the political department and not of the judicial department of government
to determine when war is at end.39
In sum, this Court brushed aside the political question doctrine and assumed
jurisdiction whenever it found constitutionally-imposed limits on the exercise of In 1952, the Court decided the landmark case of Montenegro v.
powers conferred upon the Legislature.30 Castaneda.40 President Quirino suspended the privilege of the writ of habeas corpus
for persons detained or to be detained for crimes of sedition, insurrection or rebellion.
The Court, citing Barcelon, declared that the authority to decide whether the exigency
The Court hewed to the same line as regards the exercise of Executive has arisen requiring the suspension of the privilege belongs to the President and his
power. Thus, the respect accorded executive discretion was observed in Severino v. decision is final and conclusive on the courts.41
Governor-General,31 where it was held that the Governor-General, as head of the
executive department, could not be compelled by mandamus to call a special election
in the town of Silay for the purpose of electing a municipal president. Mandamus and Barcelon was the ruling case law until the 1971 case of Lansang v.
injunction could not lie to enforce or restrain a duty which is discretionary. It was held Garcia came.42 Lansang reversed the previous cases and held that the suspension
that when the Legislature conferred upon the Governor-General powers and duties, it of the privilege of the writ of habeas corpus was not a political question. According to
did so for the reason that he was in a better position to know the needs of the country the Court, the weight of Barcelon was diluted by two factors: (1) it relied heavily
than any other member of the executive department, and with full confidence that he on Martin v. Mott, which involved the U.S. President's power to call out the militia which
will perform such duties as his best judgment dictates. 32 is a much broader power than suspension of the privilege of the writ; and (2) the
privilege was suspended by the American Governor-General whose act, as
representative of the sovereign affecting the freedom of its subjects, could not be
Similarly, in Abueva v. Wood,33 the Court held that the Governor-General could not be equated with that of the President of the Philippines dealing with the freedom of the
compelled by mandamus to produce certain vouchers showing the various sovereign Filipino people.
expenditures of the Independence Commission. Under the principle of separation of
powers, it ruled that it was not intended by the Constitution that one branch of
government could encroach upon the field of duty of the other. Each department has The Court declared that the power to suspend the privilege of the writ of habeas
an exclusive field within which it can perform its part within certain discretionary corpus is neither absolute nor unqualified because the Constitution sets limits
limits.34 It observed that "the executive and legislative departments of government are on the exercise of executive discretion on the matter.These limits are: (1) that the
frequently called upon to deal with what are known as political questions, with which privilege must not be suspended except only in cases of invasion, insurrection or
rebellion or imminent danger thereof; and (2) when the public safety requires it, in any
of which events the same may be suspended wherever during such period the violations against human rights. The refusal of courts to be pro-active in the
necessity for the suspension shall exist. The extent of the power which may be inquired exercise of its checking power drove the people to the streets to resort to
into by courts is defined by these limitations.43 extralegal remedies. They gave birth to EDSA.

On the vital issue of how the Court may inquire into the President's exercise of power, Two lessons were not lost to the members of the Constitutional Commission that
it ruled that the function of the Court is not to supplant but merely to check the drafted the 1987 Constitution. The first was the need to grant this Court the express
Executive; to ascertain whether the President has gone beyond the constitutional limits power to review the exercise of the powers as commander-in-chief by the President
of his jurisdiction, not to exercise the power vested in him or to determine the wisdom and deny it of any discretion to decline its exercise. The second was the need to
of his act. Judicial inquiry is confined to the question of whether the President did not compel the Court to be pro-active by expanding its jurisdiction and, thus, reject its laid
act arbitrarily.44 Using this yardstick, the Court found that the President did not. back stance against acts constituting grave abuse of discretion on the part of any
branch or instrumentality of government. Then Chief Justice Roberto Concepcion, a
The emergency period of the 1970's flooded the Court with cases which raised the member of the Constitutional Commission, worked for the insertion of the second
political question defense. The issue divided the Court down the middle. Javellana v. paragraph of Section 1, Article VIII in the draft Constitution,54 which reads:
Executive Secretary45 showed that while a majority of the Court held that the issue of
whether or not the 1973 Constitution had been ratified in accordance with the 1935 "Sec. 1. x x x.
Constitution was justiciable, a majority also ruled that the decisive issue of whether the
1973 Constitution had come into force and effect, with or without constitutional Judicial power includes the duty of the courts of justice to settle actual controversies
ratification, was a political question.46 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
The validity of the declaration of martial law by then President Marcos was next litigated excess of jurisdiction on the part of any branch or instrumentality of the
before the Court. In Aquino, Jr. v. Enrile,47 it upheld the President's declaration of Government."
martial law. On whether the validity of the imposition of martial law was a political or
justiciable question, the Court was almost evenly divided. One-half embraced the The language of the provision clearly gives the Court the power to strike down acts
political question position and the other half subscribed to the justiciable position in amounting to grave abuse of discretion of both the legislative and executive branches
Lansang. Those adhering to the political question doctrine used different methods of of government.
approach to it.48
We should interpret Section 18, Article VII of the 1987 Constitution in light of our
In 1983, the Lansang ruling was weakened by the Court in Garcia-Padilla v. constitutional history. The provision states:
Enrile.49 The petitioners therein were arrested and detained by the Philippine
Constabulary by virtue of a Presidential Commitment Order (PCO). Petitioners sought
the issuance of a writ of habeas corpus. The Court found that the PCO had the function "Sec. 18. The President shall be the Commander-in-Chief of all armed forces of
of validating a person's detention for any of the offenses covered in Proclamation No. the Philippines and whenever it becomes necessary, he may call out such armed
2045 which continued in force the suspension of the privilege of the writ of habeas forces to prevent or suppress lawless violence, invasion or rebellion. In case of
corpus. It held that the issuance of the PCO by the President was not subject to judicial invasion or rebellion, when the public safety requires it, he may, for a period not
inquiry.50 It went further by declaring that there was a need to re-examine Lansang with exceeding sixty days, suspend the privilege of the writ of habeas corpus or place
a view to reverting to Barcelon and Montenegro. It observed that in times of war or the Philippines or any part thereof under martial law. Within forty-eight hours from
national emergency, the President must be given absolute control for the very life of the proclamation of martial law or the suspension of the privilege of the writ of habeas
the nation and government is in great peril. The President, it intoned, is answerable corpus, the President shall submit a report in person or in writing to Congress. The
only to his conscience, the people, and God.51 Congress, voting jointly, by a vote of at least a majority of all its Members in regular or
special session, may revoke such proclamation or suspension, which revocation shall
not be set aside by the President. Upon the initiative of the President, the Congress
But barely six (6) days after Garcia-Padilla, the Court promulgated Morales, Jr. v. may, in the same manner, extend such proclamation or suspension for a period to be
Enrile52 reiterating Lansang. It held that by the power of judicial review, the Court must determined by Congress, if the invasion or rebellion shall persist and public safety
inquire into every phase and aspect of a person's detention from the moment he was requires it.
taken into custody up to the moment the court passes upon the merits of the petition.
Only after such a scrutiny can the court satisfy itself that the due process clause of the
Constitution has been met.53 The Congress, if not in session, shall, within twenty-four hours following such
proclamation or suspension, convene in accordance with its rules without need of a
call.
It is now history that the improper reliance by the Court on the political question
doctrine eroded the people's faith in its capacity to check abuses committed by
the then Executive in the exercise of his commander-in-chief powers, particularly
The Supreme Court may review, in an appropriate proceeding filed by any citizen, It may be conceded that the calling out power may be a "lesser power" compared to
the sufficiency of the factual basis of the proclamation of martial law or the the power to suspend the privilege of the writ of habeas corpus and the power to declare
suspension of the privilege of the writ or the extension thereof, and must martial law. Even then, its exercise cannot be left to the absolute discretion of the Chief
promulgate its decision thereon within thirty days from its filing. Executive as Commander-in-Chief of the armed forces, as its impact on the rights of
our people protected by the Constitution cannot be downgraded. We cannot hold that
x x x." acts of the commander-in-chief cannot be reviewed on the ground that they have lesser
impact on the civil and political rights of our people. The exercise of the calling out
power may be "benign" in the case at bar but may not be so in future cases.
It is clear from the foregoing that the President, as Commander-in-Chief of the
armed forces of thePhilippines, may call out the armed forces subject to two
conditions: (1) whenever it becomes necessary; and (2) to prevent or suppress The counsel of Mr. Chief Justice Enrique M. Fernando, in his Dissenting and Concurring
lawless violence, invasion or rebellion. Undeniably, these conditions lay down Opinion in Lansang that it would be dangerous and misleading to push the political
the sine qua requirement for the exercise of the power and the objective sought question doctrine too far, is apropos. It will not be complementary to the Court if it
to be attained by the exercise of the power. They define the constitutional handcuffs itself to helplessness when a grievously injured citizen seeks relief from a
parameters of the calling out power. Whether or not there is compliance with palpably unwarranted use of presidential or military power, especially when the
these parameters is a justiciable issue and is not a political question. question at issue falls in the penumbra between the "political" and the "justiciable. " 58

I am not unaware that in the deliberations of the Constitutional Commission, We should not water down the ruling that deciding whether a matter has been
Commissioner Bernas opined that the President's exercise of the "calling out power," committed by the Constitution to another branch of government, or whether the action
unlike the suspension of the privilege of the writ of habeas corpus and the declaration of that branch exceeds whatever authority has been committed, is a delicate exercise
of martial law, is not a justiciable issue but a political question and therefore not subject in constitutional interpretation, and is a responsibility of the Court as ultimate
to judicial review. interpreter of the fundamental law.59 When private justiciable rights are involved in a
suit, the Court must not refuse to assume jurisdiction even though questions of
extreme political importance are necessarily involved.60Every officer under a
It must be borne in mind, however, that while a member's opinion expressed on the constitutional government must act according to law and subject to the controlling
floor of the Constitutional Convention is valuable, it is not necessarily expressive of the power of the people, acting through the courts, as well as through the executive and
people's intent.55 The proceedings of the Convention are less conclusive on the proper legislative. One department is just as representative of the other, and the judiciary is
construction of the fundamental law than are legislative proceedings of the proper the department which is charged with the special duty of determining the limitations
construction of a statute, for in the latter case it is the intent of the legislature the courts which the law places upon all official action.61 This historic role of the Court is the
seek, while in the former, courts seek to arrive at the intent of the people through the foundation stone of a government of laws and not of men.62
discussions and deliberations of their representatives. 56The conventional wisdom is
that the Constitution does not derive its force from the convention which framed it, but
from the people who ratified it, the intent to be arrived at is that of the people. 57 I join the Decision in its result.

It is true that the third paragraph of Section 18, Article VII of the 1987 Constitution
expressly gives the Court the power to review the sufficiency of the factual bases
used by the President in the suspension of the privilege of the writ of habeas
corpus and the declaration of martial law. It does not follow, however, that just
because the same provision did not grant to this Court the power to review the
exercise of the calling out power by the President, ergo, this Court cannot pass
upon the validity of its exercise.

Given the light of our constitutional history, this express grant of power merely
means that the Court cannot decline the exercise of its power because of the
political question doctrine as it did in the past. In fine, the express grant simply
stresses the mandatory duty of this Court to check the exercise of the
commander-in-chief powers of the President. It eliminated the discretion of the
Court not to wield its power of review thru the use of the political question
doctrine.
G.R. No. 131719 | May 25, 2004 Viewed in the light of the foregoing discussions, there appears to be urgent an
imperative need for this Honorable Court to maintain the status quo by enjoining the
THE EXECUTIVE SECRETARY, THE SECRETARY OF JUSTICE, THE SECRETARY OF LABOR AND implementation or effectivity of the questioned provisions of RA 8042, by way of a
EMPLOYMENT, AND THE SECRETARY OF FOREIGN AFFAIRS, OWWA PUNO, restraining order otherwise, the member recruitment agencies of the petitioner will
ADMINISTRATOR, and POEA ADMINISTRATOR, petitioners, suffer grave or irreparable damage or injury. With the effectivity of RA 8042, a great
vs. majority of the duly licensed recruitment agencies have stopped or suspended their
THE HON. COURT OF APPEALS and ASIAN RECRUITMENT COUNCIL PHILIPPINE CHAPTER operations for fear of being prosecuted under the provisions of a law that are unjust
(ARCO-PHIL.), INC., representing its members: Worldcare Services Internationale, Inc., and unconstitutional. This Honorable Court may take judicial notice of the fact that
Steadfast processing of deployment papers of overseas workers for the past weeks have come
International Recruitment Corporation, Dragon International Manpower Services to a standstill at the POEA and this has affected thousands of workers everyday just
Corporation, Verdant Manpower Mobilization Corporation, Brent Overseas Personnel, Inc., because of the enactment of RA 8042. Indeed, this has far reaching effects not only
ARL Manpower Services, Inc., Dahlzhen International Services, Inc., Interworld Placement to survival of the overseas manpower supply industry and the active participating
Center, Inc., Lakas Tao Contract Services, Ltd. Co., and SSC Multiservices, respondents. recruitment agencies, the country’s economy which has survived mainly due to the
dollar remittances of the overseas workers but more importantly, to the poor and
the needy who are in dire need of income-generating jobs which can only be
DECISION
obtained from abroad. The loss or injury that the recruitment agencies will suffer will
then be immeasurable and irreparable. As of now, even foreign employers have
CALLEJO, SR., J.: already reduced their manpower requirements from the Philippines due to their
knowledge that RA 8042 prejudiced and adversely affected the local recruitment
In this petition for review on certiorari, the Executive Secretary of the President of the agencies.3
Philippines, the Secretary of Justice, the Secretary of Foreign Affairs, the Secretary of Labor
and Employment, the POEA Administrator and the OWWA Administrator, through the Office On August 1, 1995, the trial court issued a temporary restraining order effective for a period
of the Solicitor General, assail the Decision1 of the Court of Appeals in CA-G.R. SP No. 38815 of only twenty (20) days therefrom.
affirming the Order2 of the Regional Trial Court of Quezon City dated August 21, 1995 in Civil
Case No. Q-95-24401, granting the plea of the petitioners therein for a writ of preliminary
After the petitioners filed their comment on the petition, the ARCO-Phil. filed an amended
injunction and of the writ of preliminary injunction issued by the trial court on August 24, 1995.
petition, the amendments consisting in the inclusion in the caption thereof eleven (11) other
corporations which it alleged were its members and which it represented in the suit, and a plea
The Antecedents for a temporary restraining order enjoining the respondents from enforcing Section 6
subsection (i), Section 6 subsection (k) and paragraphs 15 and 16 thereof, Section 8, Section
Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 10, paragraphs 1 and 2, and Sections 11 and 40 of Rep. Act No. 8042.
1995, took effect on July 15, 1995. The Omnibus Rules and Regulations Implementing the
Migrant Workers and Overseas Filipino Act of 1995 was, thereafter, published in the April 7, The respondent ARCO-Phil. assailed Section 2(g) and (i), Section 6 subsection (a) to (m), Section
1996 issue of the Manila Bulletin. However, even before the law took effect, the Asian 7(a) to (b), and Section 10 paragraphs (1) and (2), quoted as follows:
Recruitment Council Philippine Chapter, Inc. (ARCO-Phil.) filed, on July 17, 1995, a petition for
declaratory relief under Rule 63 of the Rules of Court with the Regional Trial Court of Quezon
(g) THE STATE RECOGNIZES THAT THE ULTIMATE PROTECTION TO ALL MIGRANT
City to declare as unconstitutional Section 2, paragraph (g), Section 6, paragraphs (a) to (j), (l)
WORKERS IS THE POSSESSION OF SKILLS. PURSUANT TO THIS AND AS SOON AS
and (m), Section 7, paragraphs (a) and (b), and Sections 9 and 10 of the law, with a plea for the
PRACTICABLE, THE GOVERNMENT SHALL DEPLOY AND/OR ALLOW THE
issuance of a temporary restraining order and/or writ of preliminary injunction enjoining the
DEPLOYMENT ONLY OF SKILLED FILIPINO WORKERS.4
respondents therein from enforcing the assailed provisions of the law.

Sec. 2 subsection (i, 2nd par.)


In a supplement to its petition, the ARCO-Phil. alleged that Rep. Act No. 8042 was self-
executory and that no implementing rules were needed. It prayed that the court issue a
temporary restraining order to enjoin the enforcement of Section 6, paragraphs (a) to (m) on Nonetheless, the deployment of Filipino overseas workers, whether land-based or
illegal recruitment, Section 7 on penalties for illegal recruitment, and Section 9 on venue of sea-based, by local service contractors and manning agents employing them shall be
criminal actions for illegal recruitments, viz: encourages (sic). Appropriate incentives may be extended to them.


II. ILLEGAL RECRUITMENT Employment from the time of actual signing thereof by the parties up to
and including the period of the expiration of the same without the
SEC. 6. Definition. – For purposes of this Act, illegal recruitment shall mean any act approval of the Department of Labor and Employment;
of canvassing, enlisting, contracting, transporting, utilizing, hiring, or procuring
workers and includes referring, contract services, promising or advertising for (j) For an officer or agent of a recruitment or placement agency to become
employment abroad, whether for profit or not, when undertaken by a non-licensee an officer or member of the Board of any corporation engaged in travel
or non-holder of authority contemplated under Article 13(f) of Presidential Decree agency or to be engaged directly or indirectly in the management of a
No. 442, as amended, otherwise known as the Labor Code of the Philippines: travel agency;
Provided, That any such non-licensee or non-holder who, in any manner, offers or
promises for a fee employment abroad to two or more persons shall be deemed so (k) To withhold or deny travel documents from applicant workers before
engaged. It shall, likewise, include the following acts, whether committed by any departure for monetary or financial considerations other than those
person, whether a non-licensee, non-holder, licensee or holder of authority: authorized under the Labor Code and its implementing rules and
regulations;
(a) To charge or accept directly or indirectly any amount greater than that
specified in the schedule of allowable fees prescribed by the Secretary of (l) Failure to actually deploy without valid reason as determined by the
Labor and Employment, or to make a worker pay any amount greater than Department of Labor and Employment; and
that actually received by him as a loan or advance;
(m) Failure to reimburse expenses incurred by the worker in connection
(b) To furnish or publish any false notice or information or document in with his documentation and processing for purposes of deployment, in
relation to recruitment or employment; cases where the deployment does not actually take place without the
worker’s fault. Illegal recruitment when committed by a syndicate or in
(c) To give any false notice, testimony, information or document or commit large scale shall be considered an offense involving economic sabotage.
any act of misrepresentation for the purpose of securing a license or
authority under the Labor Code; Illegal recruitment is deemed committed by a syndicate if carried out by a group of
three (3) or more persons conspiring or confederating with one another. It is deemed
(d) To induce or attempt to induce a worker already employed to quit his committed in large scale if committed against three (3) or more persons individually
employment in order to offer him another unless the transfer is designed or as a group.
to liberate a worker from oppressive terms and conditions of employment;
The persons criminally liable for the above offenses are the principals, accomplices
(e) To influence or attempt to influence any person or entity not to employ and accessories. In case of juridical persons, the officers having control, management
any worker who has not applied for employment through his agency; or direction of their business shall be liable.

(f) To engage in the recruitment or placement of workers in jobs harmful …


to public health or morality or to the dignity of the Republic of the
Philippines; SEC. 7. Penalties. –

(g) To obstruct or attempt to obstruct inspection by the Secretary of Labor (a) Any person found guilty of illegal recruitment shall suffer the penalty of
and Employment or by his duly authorized representative; imprisonment of not less than six (6) years and one (1) day but not more than twelve
(12) years and a fine of not less than two hundred thousand pesos (₱200,000.00) nor
(h) To fail to submit reports on the status of employment, placement more than five hundred thousand pesos (₱500,000.00).
vacancies, remittance of foreign exchange earnings, separation from jobs,
departures and such other matters or information as may be required by (b) The penalty of life imprisonment and a fine of not less than five hundred thousand
the Secretary of Labor and Employment; pesos (₱500,000.00) nor more than one million pesos (₱1,000,000.00) shall be
imposed if illegal recruitment constitutes economic sabotage as defined herein.
(i) To substitute or alter to the prejudice of the worker, employment
contracts approved and verified by the Department of Labor and
Provided, however, That the maximum penalty shall be imposed if the person is conducted by a judge and a prima facie case is found to exist, the corresponding
illegally recruited is less than eighteen (18) years of age or committed by a non- information shall be filed by the proper prosecution officer within forty-eight (48)
licensee or non-holder of authority. hours from the date of receipt of the records of the case.

Sec. 8. The respondent averred that the aforequoted provisions of Rep. Act No. 8042 violate Section
1, Article III of the Constitution.5 According to the respondent, Section 6(g) and (i)
Prohibition on Officials and Employees. – It shall be unlawful for any official or discriminated against unskilled workers and their families and, as such, violated the equal
employee of the Department of Labor and Employment, the Philippine Overseas protection clause, as well as Article II, Section 126 and Article XV, Sections 17 and 3(3) of the
Employment Administration (POEA), or the Overseas Workers Welfare Constitution.8 As the law encouraged the deployment of skilled Filipino workers, only overseas
Administration (OWWA), or the Department of Foreign Affairs, or other government skilled workers are granted rights. The respondent stressed that unskilled workers also have
agencies involved in the implementation of this Act, or their relatives within the the right to seek employment abroad. According to the respondent, the right of unskilled
fourth civil degree of consanguinity or affinity, to engage, directly or indirectly, in the workers to due process is violated because they are prevented from finding employment and
business of recruiting migrant workers as defined in this Act. The penalties provided earning a living abroad. It cannot be argued that skilled workers are immune from abuses by
in the immediate preceding paragraph shall be imposed upon them. (underscoring employers, while unskilled workers are merely prone to such abuses. It was pointed out that
supplied) both skilled and unskilled workers are subjected to abuses by foreign employers. Furthermore,
the prohibition of the deployment of unskilled workers abroad would only encourage fly-by-
night illegal recruiters.

According to the respondent, the grant of incentives to service contractors and manning
Sec. 10, pars. 1 & 2.
agencies to the exclusion of all other licensed and authorized recruiters is an invalid
classification. Licensed and authorized recruiters are thus deprived of their right to property
Money Claims. – Notwithstanding any provision of law to the contrary, the Labor and due process and to the "equality of the person." It is understandable for the law to prohibit
Arbiters of the National Labor Relations Commission (NLRC) shall have the original illegal recruiters, but to discriminate against licensed and registered recruiters is
and exclusive jurisdiction to hear and decide, within ninety (90) calendar days after unconstitutional.
the filing of the complaint, the claims arising out of an employer-employee
relationship or by virtue of any law or contract involving Filipino workers for overseas
The respondent, likewise, alleged that Section 6, subsections (a) to (m) is unconstitutional
deployment including claims for actual, moral, exemplary and other forms of
because licensed and authorized recruitment agencies are placed on equal footing with illegal
damages.
recruiters. It contended that while the Labor Code distinguished between recruiters who are
holders of licenses and non-holders thereof in the imposition of penalties, Rep. Act No. 8042
The liability of the principal/employer and the recruitment/placement agency for does not make any distinction. The penalties in Section 7(a) and (b) being based on an invalid
any and all claims under this section shall be joint and several. This provision shall be classification are, therefore, repugnant to the equal protection clause, besides being excessive;
incorporated in the contract for overseas employment and shall be a condition hence, such penalties are violative of Section 19(1), Article III of the Constitution. 9 It was also
precedent for its approval. The performance bond to be filed by the pointed out that the penalty for officers/officials/employees of recruitment agencies who are
recruitment/placement agency, as provided by law, shall be answerable for all found guilty of economic sabotage or large-scale illegal recruitment under Rep. Act No. 8042
money claims or damages that may be awarded to the workers. If the is life imprisonment. Since recruitment agencies usually operate with a manpower of more
recruitment/placement agency is a juridical being, the corporate officers and than three persons, such agencies are forced to shut down, lest their officers and/or
directors and partners as the case may be, shall themselves be jointly and solidarily employees be charged with large scale illegal recruitment or economic sabotage and
liable with the corporation or partnership for the aforesaid claims and damages. sentenced to life imprisonment. Thus, the penalty imposed by law, being disproportionate to
the prohibited acts, discourages the business of licensed and registered recruitment agencies.

The respondent also posited that Section 6(m) and paragraphs (15) and (16), Sections 8, 9 and
SEC. 11. Mandatory Periods for Resolution of Illegal Recruitment Cases. – The 10, paragraph 2 of the law violate Section 22, Article III of the Constitution10 prohibiting ex-
preliminary investigations of cases under this Act shall be terminated within a period post facto laws and bills of attainder. This is because the provisions presume that a licensed
of thirty (30) calendar days from the date of their filing. Where the preliminary and registered recruitment agency is guilty of illegal recruitment involving economic sabotage,
investigation is conducted by a prosecution officer and a prima facie case is upon a finding that it committed any of the prohibited acts under the law. Furthermore,
established, the corresponding information shall be filed in court within twenty-four officials, employees and their relatives are presumed guilty of illegal recruitment involving
(24) hours from the termination of the investigation. If the preliminary investigation economic sabotage upon such finding that they committed any of the said prohibited acts.
The respondent further argued that the 90-day period in Section 10, paragraph (1) within not violate any provisions of the Constitution; and, (d) the law was approved by Congress in
which a labor arbiter should decide a money claim is relatively short, and could deprive the exercise of the police power of the State. In opposition to the respondent’s plea for
licensed and registered recruiters of their right to due process. The period within which the injunctive relief, the petitioners averred that:
summons and the complaint would be served on foreign employees and, thereafter, the filing
of the answer to the complaint would take more than 90 days. This would thereby shift on As earlier shown, the amended petition for declaratory relief is devoid of merit for failure of
local licensed and authorized recruiters the burden of proving the defense of foreign petitioner to demonstrate convincingly that the assailed law is unconstitutional, apart from
employers. Furthermore, the respondent asserted, Section 10, paragraph 2 of the law, which the defect and impropriety of the petition. One who attacks a statute, alleging
provides for the joint and several liability of the officers and employees, is a bill of attainder unconstitutionality must prove its invalidity beyond reasonable doubt (Caleon v. Agus
and a violation of the right of the said corporate officers and employees to due process. Development Corporation, 207 SCRA 748). All reasonable doubts should be resolved in favor
Considering that such corporate officers and employees act with prior approval of the board of the constitutionality of a statute (People v. Vera, 65 Phil. 56). This presumption of
of directors of such corporation, they should not be liable, jointly and severally, for such constitutionality is based on the doctrine of separation of powers which enjoin upon each
corporate acts. department a becoming respect for the acts of the other departments (Garcia vs. Executive
Secretary, 204 SCRA 516 [1991]). Necessarily, the ancillary remedy of a temporary restraining
The respondent asserted that the following provisions of the law are unconstitutional: order and/or a writ of preliminary injunction prayed for must fall. Besides, an act of legislature
approved by the executive is presumed to be within constitutional bounds (National Press Club
SEC. 9. Venue. – A criminal action arising from illegal recruitment as defined herein v. Commission on Elections, 207 SCRA 1).12
shall be filed with the Regional Trial Court of the province or city where the offense
was committed or where the offended party actually resides at the time of the After the respective counsels of the parties were heard on oral arguments, the trial court
commission of the offense: Provided, That the court where the criminal action is first issued on August 21, 1995, an order granting the petitioner’s plea for a writ of preliminary
filed shall acquire jurisdiction to the exclusion of other courts: Provided, however, injunction upon a bond of ₱50,000. The petitioner posted the requisite bond and on August
That the aforestated provisions shall also apply to those criminal actions that have 24, 1995, the trial court issued a writ of preliminary injunction enjoining the enforcement of
already been filed in court at the time of the effectivity of this Act. the following provisions of Rep. Act No. 8042 pending the termination of the proceedings:

… … Section 2, subsections (g) and (i, 2nd par.); Section 6, subsections (a) to (m), and
pars. 15 & 16; Section 7, subsections (a) & (b); Section 8; Section 9; Section 10; pars.
SEC. 10. Money Claims. – Notwithstanding any provision of law to the contrary, the 1 & 2; Section 11; and Section 40 of Republic Act No. 8042, otherwise known as the
Labor Arbiters of the National Labor Relations Commission (NLRC) shall have the Migrant Workers and Overseas Filipinos Act of 1995. …13
original and exclusive jurisdiction to hear and decide, within ninety (90) calendar
days after the filing of the complaint, the claims arising out of an employer-employee The petitioners filed a petition for certiorari with the Court of Appeals assailing the order and
relationship or by virtue of any law or contract involving Filipino workers for overseas the writ of preliminary injunction issued by the trial court on the following grounds:
deployment including claims for actual, moral, exemplary and other forms of
damages. 1. Respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its
member-agencies to be protected by the injunctive relief and/or violation of said
Sec. 40. rights by the enforcement of the assailed sections of R.A. 8042;

The departments and agencies charged with carrying out the provisions of this Act 2. Respondent Judge fixed a ₱50,000 injunction bond which is grossly inadequate to
shall, within ninety (90) days after the effectiviy of this Act, formulate the necessary answer for the damage which petitioner-officials may sustain, should respondent
rules and regulations for its effective implementation. ARCO-PHIL. be finally adjudged as not being entitled thereto.14

According to the respondent, the said provisions violate Section 5(5), Article VIII of the The petitioners asserted that the respondent is not the real party-in-interest as petitioner in
Constitution11 because they impair the power of the Supreme Court to promulgate rules of the trial court. It is inconceivable how the respondent, a non-stock and non-profit corporation,
procedure. could sustain direct injury as a result of the enforcement of the law. They argued that if, at all,
any damage would result in the implementation of the law, it is the licensed and registered
In their answer to the petition, the petitioners alleged, inter alia, that (a) the respondent has recruitment agencies and/or the unskilled Filipino migrant workers discriminated against who
no cause of action for a declaratory relief; (b) the petition was premature as the rules would sustain the said injury or damage, not the respondent. The respondent, as petitioner in
implementing Rep. Act No. 8042 not having been released as yet; (c) the assailed provisions do the trial court, was burdened to adduce preponderant evidence of such irreparable injury, but
failed to do so. The petitioners further insisted that the petition a quo was premature since
the rules and regulations implementing the law had yet to be promulgated when such petition the non-enforcement of the assailed provisions of the law. The trial court committed a grave
was filed. Finally, the petitioners averred that the respondent failed to establish the requisites abuse of its discretion in granting the respondent’s plea for injunctive relief, and the appellate
for the issuance of a writ of preliminary injunction against the enforcement of the law and the court erred in affirming the order and the writ of preliminary injunction issued by the trial
rules and regulations issued implementing the same. court.

On December 5, 1997, the appellate court came out with a four-page decision dismissing the The respondent, for its part, asserts that it has duly established its locus standi and its right to
petition and affirming the assailed order and writ of preliminary injunction issued by the trial injunctive relief as gleaned from its pleadings and the appendages thereto. Under Section 5,
court. The appellate court, likewise, denied the petitioners’ motion for reconsideration of the Rule 58 of the Rules of Court, it was incumbent on the petitioners, as respondents in the RTC,
said decision. to show cause why no injunction should issue. It avers that the injunction bond posted by the
respondent was more than adequate to answer for any injury or damage the petitioners may
The petitioners now come to this Court in a petition for review on certiorari on the following suffer, if any, by reason of the writ of preliminary injunction issued by the RTC. In any event,
grounds: the assailed provisions of Rep. Act No. 8042 exposed its members to the immediate and
irreparable damage of being deprived of their right to a livelihood without due process, a
property right protected under the Constitution.
1. Private respondent ARCO-PHIL. had utterly failed to show its clear right/s or that
of its member-agencies to be protected by the injunctive relief and/or violation of
said rights by the enforcement of the assailed sections of R.A. 8042; The respondent contends that the commendable purpose of the law to eradicate illegal
recruiters should not be done at the expense and to the prejudice of licensed and authorized
recruitment agencies. The writ of preliminary injunction was necessitated by the great number
2. The ₱50,000 injunction bond fixed by the court a quo and sustained by the Court
of duly licensed recruitment agencies that had stopped or suspended their business operations
of Appeals is grossly inadequate to answer for the damage which petitioners-officials
for fear that their officers and employees would be indicted and prosecuted under the assailed
may sustain, should private respondent ARCO-PHIL. be finally adjudged as not being
oppressive penal provisions of the law, and meted excessive penalties. The respondent,
entitled thereto.15
likewise, urges that the Court should take judicial notice that the processing of deployment
papers of overseas workers have come to a virtual standstill at the POEA.
On February 16, 1998, this Court issued a temporary restraining order enjoining the
respondents from enforcing the assailed order and writ of preliminary injunction.
The Court’s Ruling

The Issues
The petition is meritorious.

The core issue in this case is whether or not the trial court committed grave abuse of its
The Respondent Has Locus Standi
discretion amounting to excess or lack of jurisdiction in issuing the assailed order and the writ
of preliminary injunction on a bond of only ₱50,000 and whether or not the appellate court
erred in affirming the trial court’s order and the writ of preliminary injunction issued by it. To File the Petition in the RTC in Representation of the Eleven Licensed and Registered
Recruitment Agencies Impleaded in the Amended Petition
The petitioners contend that the respondent has no locus standi. It is a non-stock, non-profit
organization; hence, not the real party-in-interest as petitioner in the action. Although the The modern view is that an association has standing to complain of injuries to its members.
respondent filed the petition in the Regional Trial Court in behalf of licensed and registered This view fuses the legal identity of an association with that of its members. 16 An association
recruitment agencies, it failed to adduce in evidence a certified copy of its Articles of has standing to file suit for its workers despite its lack of direct interest if its members are
Incorporation and the resolutions of the said members authorizing it to represent the said affected by the action. An organization has standing to assert the concerns of its constituents.17
agencies in the proceedings. Neither is the suit of the respondent a class suit so as to vest in it
a personality to assail Rep. Act No. 8042; the respondent is service-oriented while the In Telecommunications and Broadcast Attorneys of the Philippines v. Commission on
recruitment agencies it purports to represent are profit-oriented. The petitioners assert that Elections,18 we held that standing jus tertii would be recognized only if it can be shown that
the law is presumed constitutional and, as such, the respondent was burdened to make a case the party suing has some substantial relation to the third party, or that the right of the third
strong enough to overcome such presumption and establish a clear right to injunctive relief. party would be diluted unless the party in court is allowed to espouse the third party’s
constitutional claims.
The petitioners bewail the ₱50,000 bond fixed by the trial court for the issuance of a writ of
preliminary injunction and affirmed by the appellate court. They assert that the amount is In this case, the respondent filed the petition for declaratory relief under Rule 64 of the Rules
grossly inadequate to answer for any damages that the general public may suffer by reason of of Court for and in behalf of its eleven (11) licensed and registered recruitment agencies which
are its members, and which approved separate resolutions expressly authorizing the officers and/or employees of recruitment agencies by themselves and in connivance with
respondent to file the said suit for and in their behalf. We note that, under its Articles of private individuals, and imposed the penalties provided in Section 7 thereof, including the
Incorporation, the respondent was organized for the purposes inter alia of promoting and penalty of life imprisonment.22 The Informations therein were filed after preliminary
supporting the growth and development of the manpower recruitment industry, both in the investigations as provided for in Section 11 of Rep. Act No. 8042 and in venues as provided for
local and international levels; providing, creating and exploring employment opportunities for in Section 9 of the said act. In People v. Chowdury,23 we held that illegal recruitment is a crime
the exclusive benefit of its general membership; enhancing and promoting the general welfare of economic sabotage and must be enforced.
and protection of Filipino workers; and, to act as the representative of any individual,
company, entity or association on matters related to the manpower recruitment industry, and In People v. Diaz,24 we held that Rep. Act No. 8042 is but an amendment of the Labor Code of
to perform other acts and activities necessary to accomplish the purposes embodied therein. the Philippines and is not an ex-post facto law because it is not applied retroactively. In JMM
The respondent is, thus, the appropriate party to assert the rights of its members, because it Promotion and Management, Inc. v. Court of Appeals,25 the issue of the extent of the police
and its members are in every practical sense identical. The respondent asserts that the assailed power of the State to regulate a business, profession or calling vis-à-vis the equal protection
provisions violate the constitutional rights of its members and the officers and employees clause and the non-impairment clause of the Constitution were raised and we held, thus:
thereof. The respondent is but the medium through which its individual members seek to make
more effective the expression of their voices and the redress of their grievances.19
A profession, trade or calling is a property right within the meaning of our
constitutional guarantees. One cannot be deprived of the right to work and the right
However, the respondent has no locus standi to file the petition for and in behalf of unskilled to make a living because these rights are property rights, the arbitrary and
workers. We note that it even failed to implead any unskilled workers in its petition. unwarranted deprivation of which normally constitutes an actionable wrong.
Furthermore, in failing to implead, as parties-petitioners, the eleven licensed and registered
recruitment agencies it claimed to represent, the respondent failed to comply with Section 2
Nevertheless, no right is absolute, and the proper regulation of a profession, calling,
of Rule 6320 of the Rules of Court. Nevertheless, since the eleven licensed and registered
business or trade has always been upheld as a legitimate subject of a valid exercise
recruitment agencies for which the respondent filed the suit are specifically named in the
of the police power by the state particularly when their conduct affects either the
petition, the amended petition is deemed amended to avoid multiplicity of suits.21
execution of legitimate governmental functions, the preservation of the State, the
public health and welfare and public morals. According to the maxim, sic utere tuo
The Assailed Order and Writ of ut alienum non laedas, it must of course be within the legitimate range of legislative
action to define the mode and manner in which every one may so use his own
Preliminary Injunction Is Mooted property so as not to pose injury to himself or others.

By Case Law In any case, where the liberty curtailed affects at most the rights of property, the
permissible scope of regulatory measures is certainly much wider. To pretend that
The respondent justified its plea for injunctive relief on the allegation in its amended petition licensing or accreditation requirements violates the due process clause is to ignore
that its members are exposed to the immediate and irreparable danger of being deprived of the settled practice, under the mantle of the police power, of regulating entry to the
their right to a livelihood and other constitutional rights without due process, on its claim that practice of various trades or professions. Professionals leaving for abroad are
a great number of duly licensed recruitment agencies have stopped or suspended their required to pass rigid written and practical exams before they are deemed fit to
operations for fear that (a) their officers and employees would be prosecuted under the unjust practice their trade. Seamen are required to take tests determining their
and unconstitutional penal provisions of Rep. Act No. 8042 and meted equally unjust and seamanship. Locally, the Professional Regulation Commission has begun to require
excessive penalties, including life imprisonment, for illegal recruitment and large scale illegal previously licensed doctors and other professionals to furnish documentary proof
recruitment without regard to whether the recruitment agencies involved are licensed and/or that they had either re-trained or had undertaken continuing education courses as a
authorized; and, (b) if the members of the respondent, which are licensed and authorized, requirement for renewal of their licenses. It is not claimed that these requirements
decide to continue with their businesses, they face the stigma and the curse of being labeled pose an unwarranted deprivation of a property right under the due process clause.
"illegal recruiters." In granting the respondent’s plea for a writ of preliminary injunction, the So long as professionals and other workers meet reasonable regulatory standards no
trial court held, without stating the factual and legal basis therefor, that the enforcement of such deprivation exists.
Rep. Act No. 8042, pendente lite, would cause grave and irreparable injury to the respondent
until the case is decided on its merits. Finally, it is a futile gesture on the part of petitioners to invoke the non-impairment
clause of the Constitution to support their argument that the government cannot
We note, however, that since Rep. Act No. 8042 took effect on July 15, 1995, the Court had, in enact the assailed regulatory measures because they abridge the freedom to
a catena of cases, applied the penal provisions in Section 6, including paragraph (m) thereof, contract. In Philippine Association of Service Exporters, Inc. vs. Drilon, we held that
and the last two paragraphs therein defining large scale illegal recruitment committed by "[t]he non-impairment clause of the Constitution … must yield to the loftier purposes
targeted by the government." Equally important, into every contract is read The matter of whether to issue a writ of preliminary injunction or not is addressed to the sound
provisions of existing law, and always, a reservation of the police power for so long discretion of the trial court. However, if the court commits grave abuse of its discretion in
as the agreement deals with a subject impressed with the public welfare. issuing the said writ amounting to excess or lack of jurisdiction, the same may be nullified via
a writ of certiorari and prohibition.
A last point. Petitioners suggest that the singling out of entertainers and performing
artists under the assailed department orders constitutes class legislation which In Social Security Commission v. Judge Bayona,29 we ruled that a law is presumed constitutional
violates the equal protection clause of the Constitution. We do not agree. until otherwise declared by judicial interpretation. The suspension of the operation of the law
is a matter of extreme delicacy because it is an interference with the official acts not only of
The equal protection clause is directed principally against undue favor and individual the duly elected representatives of the people but also of the highest magistrate of the land.
or class privilege. It is not intended to prohibit legislation which is limited to the
object to which it is directed or by the territory in which it is to operate. It does not In Younger v. Harris, Jr.,30 the Supreme Court of the United States emphasized, thus:
require absolute equality, but merely that all persons be treated alike under like
conditions both as to privileges conferred and liabilities imposed. We have held, time Federal injunctions against state criminal statutes, either in their entirety or with
and again, that the equal protection clause of the Constitution does not forbid respect to their separate and distinct prohibitions, are not to be granted as a matter
classification for so long as such classification is based on real and substantial of course, even if such statutes are unconstitutional. No citizen or member of the
differences having a reasonable relation to the subject of the particular legislation. community is immune from prosecution, in good faith, for his alleged criminal acts.
If classification is germane to the purpose of the law, concerns all members of the The imminence of such a prosecution even though alleged to be unauthorized and,
class, and applies equally to present and future conditions, the classification does hence, unlawful is not alone ground for relief in equity which exerts its extraordinary
not violate the equal protection guarantee.26 powers only to prevent irreparable injury to the plaintiff who seeks its aid. 752 Beal
v. Missouri Pacific Railroad Corp., 312 U.S. 45, 49, 61 S.Ct. 418, 420, 85 L.Ed. 577.
The validity of Section 6 of R.A. No. 8042 which provides that employees of recruitment
agencies may be criminally liable for illegal recruitment has been upheld in People v. And similarly, in Douglas, supra, we made clear, after reaffirming this rule, that:
Chowdury:27
"It does not appear from the record that petitioners have been threatened with any
As stated in the first sentence of Section 6 of RA 8042, the persons who may be held injury other than that incidental to every criminal proceeding brought lawfully and
liable for illegal recruitment are the principals, accomplices and accessories. An in good faith …" 319 U.S., at 164, 63 S.Ct., at 881.31
employee of a company or corporation engaged in illegal recruitment may be held
liable as principal, together with his employer, if it is shown that he actively and
The possible unconstitutionality of a statute, on its face, does not of itself justify an injunction
consciously participated in illegal recruitment. It has been held that the existence of
against good faith attempts to enforce it, unless there is a showing of bad faith, harassment,
the corporate entity does not shield from prosecution the corporate agent who
or any other unusual circumstance that would call for equitable relief. 32 The "on its face"
knowingly and intentionally causes the corporation to commit a crime. The
invalidation of statutes has been described as "manifestly strong medicine," to be employed
corporation obviously acts, and can act, only by and through its human agents, and
"sparingly and only as a last resort," and is generally disfavored.33
it is their conduct which the law must deter. The employee or agent of a corporation
engaged in unlawful business naturally aids and abets in the carrying on of such
business and will be prosecuted as principal if, with knowledge of the business, its To be entitled to a preliminary injunction to enjoin the enforcement of a law assailed to be
purpose and effect, he consciously contributes his efforts to its conduct and unconstitutional, the party must establish that it will suffer irreparable harm in the absence of
promotion, however slight his contribution may be. …28 injunctive relief and must demonstrate that it is likely to succeed on the merits, or that there
are sufficiently serious questions going to the merits and the balance of hardships tips
decidedly in its favor.34 The higher standard reflects judicial deference toward "legislation or
By its rulings, the Court thereby affirmed the validity of the assailed penal and procedural
regulations developed through presumptively reasoned democratic processes." Moreover, an
provisions of Rep. Act No. 8042, including the imposable penalties therefor. Until the Court, by
injunction will alter, rather than maintain, the status quo, or will provide the movant with
final judgment, declares that the said provisions are unconstitutional, the enforcement of the
substantially all the relief sought and that relief cannot be undone even if the defendant
said provisions cannot be enjoined.
prevails at a trial on the merits.35 Considering that injunction is an exercise of equitable relief
and authority, in assessing whether to issue a preliminary injunction, the courts must
The RTC Committed Grave Abuse of Its Discretion Amounting to Excess or Lack of Jurisdiction sensitively assess all the equities of the situation, including the public interest.36 In litigations
in Issuing the Assailed Order and the Writ of Preliminary Injunction between governmental and private parties, courts go much further both to give and withhold
relief in furtherance of public interest than they are accustomed to go when only private
interests are involved.37 Before the plaintiff may be entitled to injunction against future There is no allegation in the amended petition or evidence adduced by the respondent that
enforcement, he is burdened to show some substantial hardship. 38 the officers and/or employees of its members had been threatened with any indictments for
violations of the penal provisions of Rep. Act No. 8042. Neither is there any allegation therein
The fear or chilling-effect of the assailed penal provisions of the law on the members of the that any of its members and/or their officers and employees committed any of the acts
respondent does not by itself justify prohibiting the State from enforcing them against those enumerated in Section 6(a) to (m) of the law for which they could be indicted. Neither did the
whom the State believes in good faith to be punishable under the laws: respondent adduce any evidence in the RTC that any or all of its members or a great number
of other duly licensed and registered recruitment agencies had to stop their business
operations because of fear of indictments under Sections 6 and 7 of Rep. Act No. 8042. The
… Just as the incidental "chilling effect" of such statutes does not automatically
respondent merely speculated and surmised that licensed and registered recruitment agencies
render them unconstitutional, so the chilling effect that admittedly can result from
would close shop and stop business operations because of the assailed penal provisions of the
the very existence of certain laws on the statute books does not in itself justify
law. A writ of preliminary injunction to enjoin the enforcement of penal laws cannot be based
prohibiting the State from carrying out the important and necessary task of enforcing
on such conjectures or speculations. The Court cannot take judicial notice that the processing
these laws against socially harmful conduct that the State believes in good faith to
of deployment papers of overseas workers have come to a virtual standstill at the POEA
be punishable under its laws and the Constitution. 39
because of the assailed provisions of Rep. Act No. 8042. The respondent must adduce evidence
to prove its allegation, and the petitioners accorded a chance to adduce controverting
It must be borne in mind that subject to constitutional limitations, Congress is empowered to evidence.
define what acts or omissions shall constitute a crime and to prescribe punishments
therefor.40 The power is inherent in Congress and is part of the sovereign power of the State
The respondent even failed to adduce any evidence to prove irreparable injury because of the
to maintain peace and order. Whatever views may be entertained regarding the severity of
enforcement of Section 10(1)(2) of Rep. Act No. 8042. Its fear or apprehension that, because
punishment, whether one believes in its efficiency or its futility, these are peculiarly questions
of time constraints, its members would have to defend foreign employees in cases before the
of legislative policy.41 The comparative gravity of crimes and whether their consequences are
Labor Arbiter is based on speculations. Even if true, such inconvenience or difficulty is hardly
more or less injurious are matters for the State and Congress itself to
irreparable injury.
determine.42 Specification of penalties involves questions of legislative policy.43

The trial court even ignored the public interest involved in suspending the enforcement of Rep.
Due process prohibits criminal stability from shifting the burden of proof to the accused,
Act No. 8042 vis-à-vis the eleven licensed and registered recruitment agencies represented by
punishing wholly passive conduct, defining crimes in vague or overbroad language and failing
the respondent. In People v. Gamboa,50we emphasized the primary aim of Rep. Act No. 8042:
to grant fair warning of illegal conduct.44 Class legislation is such legislation which denies rights
to one which are accorded to others, or inflicts upon one individual a more severe penalty than
is imposed upon another in like case offending.45 Bills of attainder are legislative acts which Preliminarily, the proliferation of illegal job recruiters and syndicates preying on
inflict punishment on individuals or members of a particular group without a judicial trial. innocent people anxious to obtain employment abroad is one of the primary
Essential to a bill of attainder are a specification of certain individuals or a group of individuals, considerations that led to the enactment of The Migrant Workers and Overseas
the imposition of a punishment, penal or otherwise, and the lack of judicial trial.46 Filipinos Act of 1995. Aimed at affording greater protection to overseas Filipino
workers, it is a significant improvement on existing laws in the recruitment and
placement of workers for overseas employment. Otherwise known as the Magna
Penalizing unlicensed and licensed recruitment agencies and their officers and employees and
Carta of OFWs, it broadened the concept of illegal recruitment under the Labor Code
their relatives employed in government agencies charged with the enforcement of the law for
and provided stiffer penalties thereto, especially those that constitute economic
illegal recruitment and imposing life imprisonment for those who commit large scale illegal
sabotage, i.e., Illegal Recruitment in Large Scale and Illegal Recruitment Committed
recruitment is not offensive to the Constitution. The accused may be convicted of illegal
by a Syndicate.51
recruitment and large scale illegal recruitment only if, after trial, the prosecution is able to
prove all the elements of the crime charged.47
By issuing the writ of preliminary injunction against the petitioners sans any evidence, the trial
court frustrated, albeit temporarily, the prosecution of illegal recruiters and allowed them to
The possibility that the officers and employees of the recruitment agencies, which are
continue victimizing hapless and innocent people desiring to obtain employment abroad as
members of the respondent, and their relatives who are employed in the government agencies
overseas workers, and blocked the attainment of the salutary policies52 embedded in Rep. Act
charged in the enforcement of the law, would be indicted for illegal recruitment and, if
No. 8042. It bears stressing that overseas workers, land-based and sea-based, had been
convicted sentenced to life imprisonment for large scale illegal recruitment, absent proof of
remitting to the Philippines billions of dollars which over the years had propped the economy.
irreparable injury, is not sufficient on which to base the issuance of a writ of preliminary
injunction to suspend the enforcement of the penal provisions of Rep. Act No. 8042 and avert
any indictments under the law.48The normal course of criminal prosecutions cannot be blocked In issuing the writ of preliminary injunction, the trial court considered paramount the interests
on the basis of allegations which amount to speculations about the future.49 of the eleven licensed and registered recruitment agencies represented by the respondent,
and capriciously overturned the presumption of the constitutionality of the assailed provisions
on the barefaced claim of the respondent that the assailed provisions of Rep. Act No. 8042 are
unconstitutional. The trial court committed a grave abuse of its discretion amounting to excess
or lack of jurisdiction in issuing the assailed order and writ of preliminary injunction. It is for
this reason that the Court issued a temporary restraining order enjoining the enforcement of
the writ of preliminary injunction issued by the trial court.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed decision of the
appellate court is REVERSED AND SET ASIDE. The Order of the Regional Trial Court dated
August 21, 1995 in Civil Case No. Q-95-24401 and the Writ of Preliminary Injunction issued by
it in the said case on August 24, 1995 are NULLIFIED. No costs.

SO ORDERED.
G.R. No. 113375 May 5, 1994 Philippine Gaming Management Corporation (PGMC), which "was intended to be the medium
through which the technical and management services required for the project would be
KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, offered and delivered to PCSO." 1
EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO,
JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. Before August 1993, the PCSO formally issued a Request for Proposal (RFP) for the Lease
VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO Contract of an on-line lottery system for the PCSO. 2 Relevant provisions of the RFP are the
TAÑADA, and REP. JOKER P. ARROYO, petitioners, following:
vs.
TEOFISTO GUINGONA, JR., in his capacity as Executive Secretary, Office of the President; 1. EXECUTIVE SUMMARY
RENATO CORONA, in his capacity as Assistant Executive Secretary and Chairman of the
Presidential review Committee on the Lotto, Office of the President; PHILIPPINE CHARITY
xxx xxx xxx
SWEEPSTAKES OFFICE; and PHILIPPINE GAMING MANAGEMENT CORPORATION,
respondents.
1.2. PCSO is seeking a suitable contractor which shall build, at its own
expense, all the facilities ('Facilities') needed to operate and maintain a
DAVIDE, JR., J.:
nationwide on-line lottery system. PCSO shall lease the Facilities for a fixed
percentage ofquarterly gross receipts. All receipts from ticket sales shall be
This is a special civil action for prohibition and injunction, with a prayer for a temporary turned over directly to PCSO. All capital, operating expenses and expansion
restraining order and preliminary injunction, which seeks to prohibit and restrain the expenses and risks shall be for the exclusive account of the Lessor.
implementation of the "Contract of Lease" executed by the Philippine Charity Sweepstakes
Office (PCSO) and the Philippine Gaming Management Corporation (PGMC) in connection with
xxx xxx xxx
the on- line lottery system, also known as "lotto."

1.4. The lease shall be for a period not exceeding fifteen (15) years.
Petitioner Kilosbayan, Incorporated (KILOSBAYAN) avers that it is a non-stock domestic
corporation composed of civic-spirited citizens, pastors, priests, nuns, and lay leaders who are
committed to the cause of truth, justice, and national renewal. The rest of the petitioners, 1.5. The Lessor is expected to submit a comprehensive nationwide lottery
except Senators Freddie Webb and Wigberto Tañada and Representative Joker P. Arroyo, are development plan ("Development Plan") which will include the game, the
suing in their capacities as members of the Board of Trustees of KILOSBAYAN and as taxpayers marketing of the games, and the logistics to introduce the games to all the
and concerned citizens. Senators Webb and Tañada and Representative Arroyo are suing in cities and municipalities of the country within five (5) years.
their capacities as members of Congress and as taxpayers and concerned citizens of the
Philippines. xxx xxx xxx

The pleadings of the parties disclose the factual antecedents which triggered off the filing of 1.7. The Lessor shall be selected based on its technical expertise, hardware
this petition. and software capability, maintenance support, and financial resources.
The Development Plan shall have a substantial bearing on the choice of the
Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P. Blg. 42) Lessor. The Lessor shall be a domestic corporation, with at least sixty
which grants it the authority to hold and conduct "charity sweepstakes races, lotteries and percent (60%) of its shares owned by Filipino shareholders.
other similar activities," the PCSO decided to establish an on- line lottery system for the
purpose of increasing its revenue base and diversifying its sources of funds. Sometime before xxx xxx xxx
March 1993, after learning that the PCSO was interested in operating an on-line lottery system,
the Berjaya Group Berhad, "a multinational company and one of the ten largest public The Office of the President, the National Disaster Control Coordinating
companies in Malaysia," long "engaged in, among others, successful lottery operations in Asia, Council, the Philippine National Police, and the National Bureau of
running both Lotto and Digit games, thru its subsidiary, Sports Toto Malaysia," with its Investigation shall be authorized to use the nationwide
"affiliate, the International Totalizator Systems, Inc., . . . an American public company engaged telecommunications system of the Facilities Free of Charge.
in the international sale or provision of computer systems, softwares, terminals, training and
other technical services to the gaming industry," "became interested to offer its services and
resources to PCSO." As an initial step, Berjaya Group Berhad (through its individual nominees) 1.8. Upon expiration of the lease, the Facilities shall be owned by PCSO
organized with some Filipino investors in March 1993 a Philippine corporation known as the without any additional consideration. 3
xxx xxx xxx Finally, the Proponent must be able to stand the acid test of proving that
it is an entity able to take on the role of responsible maintainer of the on-
2.2. OBJECTIVES line lottery system, and able to achieve PSCO's goal of formalizing an on-
line lottery system to achieve its mandated objective. 5
The objectives of PCSO in leasing the Facilities from a private entity are as
follows: xxx xxx xxx

xxx xxx xxx 16. DEFINITION OF TERMS

2.2.2. Enable PCSO to operate a nationwide on-line Lottery system at no Facilities: All capital equipment, computers, terminals, software,
expense or risk to the government. nationwide telecommunication network, ticket sales offices, furnishings,
and fixtures; printing costs; cost of salaries and wages; advertising and
promotion expenses; maintenance costs; expansion and replacement
xxx xxx xxx
costs; security and insurance, and all other related expenses needed to
operate nationwide on-line lottery system.6
2.4. DUTIES AND RESPONSIBILITIES OF THE LESSOR
Considering the above citizenship requirement, the PGMC claims that the Berjaya Group
xxx xxx xxx "undertook to reduce its equity stakes in PGMC to 40%," by selling 35% out of the original 75%
foreign stockholdings to local investors.
2.4.2. THE LESSOR
On 15 August 1993, PGMC submitted its bid to the PCSO.7
The Proponent is expected to furnish and maintain the Facilities, including
the personnel needed to operate the computers, the communications The bids were evaluated by the Special Pre-Qualification Bids and Awards Committee (SPBAC)
network and sales offices under a build-lease basis. The printing of tickets for the on-line lottery and its Bid Report was thereafter submitted to the Office of the
shall be undertaken under the supervision and control of PCSO. The President. 8 The submission was preceded by complaints by the Committee's Chairperson, Dr.
Facilities shall enable PCSO to computerize the entire gaming system. Mita Pardo de Tavera. 9

The Proponent is expected to formulate and design consumer-oriented On 21 October 1993, the Office of the President announced that it had given the respondent
Master Games Plan suited to the marketplace, especially geared to Filipino PGMC the go-signal to operate the country's on-line lottery system and that the corresponding
gaming habits and preferences. In addition, the Master Games Plan is implementing contract would be submitted not later than 8 November 1993 "for final
expected to include a Product Plan for each game and explain how each clearance and approval by the Chief Executive." 10 This announcement was published in the
will be introduced into the market. This will be an integral part of the Manila Standard, Philippine Daily Inquirer, and the Manila Times on 29 October 1993. 11
Development Plan which PCSO will require from the Proponent.
On 4 November 1993, KILOSBAYAN sent an open letter to Presidential Fidel V. Ramos strongly
xxx xxx xxx opposing the setting up to the on-line lottery system on the basis of serious moral and ethical
considerations. 12
The Proponent is expected to provide upgrades to modernize the entire
gaming system over the life ofthe lease contract. At the meeting of the Committee on Games and Amusements of the Senate on 12 November
1993, KILOSBAYAN reiterated its vigorous opposition to the on-line lottery on account of its
The Proponent is expected to provide technology transfer to PCSO immorality and illegality. 13
technical personnel. 4
On 19 November 1993, the media reported that despite the opposition, "Malacañang will push
7. GENERAL GUIDELINES FOR PROPONENTS through with the operation of an on-line lottery system nationwide" and that it is actually the
respondent PCSO which will operate the lottery while the winning corporate bidders are
xxx xxx xxx merely "lessors." 14
On 1 December 1993, KILOSBAYAN requested copies of all documents pertaining to the lottery 1.8 Escrow Deposit — The proposal deposit in the sum of Three Hundred
award from Executive Secretary Teofisto Guingona, Jr. In his answer of 17 December 1993, the Million Pesos (P300,000,000.00) submitted by the LESSOR to PCSO
Executive Secretary informed KILOSBAYAN that the requested documents would be duly pursuant to the requirements of the Request for Proposals.
transmitted before the end of the month. 15. However, on that same date, an agreement
denominated as "Contract of Lease" was finally executed by respondent PCSO and respondent 2. SUBJECT MATTER OF THE LEASE
PGMC. 16 The President, per the press statement issued by the Office of the President,
approved it on 20 December 1993.17
The LESSOR shall build, furnish and maintain at its own expense and risk
the Facilities for the On-Line Lottery System of PCSO in the Territory on an
In view of their materiality and relevance, we quote the following salient provisions of the exclusive basis. The LESSOR shall bear all Maintenance and Other Costs as
Contract of Lease: defined herein.

1. DEFINITIONS xxx xxx xxx

The following words and terms shall have the following respective 3. RENTAL FEE
meanings:
For and in consideration of the performance by the LESSOR of its
1.1 Rental Fee — Amount to be paid by PCSO to the LESSOR as obligations herein, PCSO shall pay LESSOR a fixed Rental Fee equal to four
compensation for the fulfillment of the obligations of the LESSOR under point nine percent (4.9%) of gross receipts from ticket sales, payable net
this Contract, including, but not limited to the lease of the Facilities. of taxes required by law to be withheld, on a semi-monthly basis. Goodwill,
franchise and similar fees shall belong to PCSO.
xxx xxx xxx
4. LEASE PERIOD
1.3 Facilities — All capital equipment, computers, terminals, software
(including source codes for the On-Line Lottery application software for the The period of the lease shall commence ninety (90) days from the date of
terminals, telecommunications and central systems), technology, effectivity of this Contract and shall run for a period of eight (8) years
intellectual property rights, telecommunications network, and furnishings thereafter, unless sooner terminated in accordance with this Contract.
and fixtures.
5. RIGHTS AND OBLIGATIONS OF PCSO AS OPERATOR OF THE ON-LINE
1.4 Maintenance and Other Costs — All costs and expenses relating to LOTTERY SYSTEM
printing, manpower, salaries and wages, advertising and promotion,
maintenance, expansion and replacement, security and insurance, and all
PCSO shall be the sole and individual operator of the On-Line Lottery
other related expenses needed to operate an On-Line Lottery System,
System. Consequently:
which shall be for the account of the LESSOR. All expenses relating to the
setting-up, operation and maintenance of ticket sales offices of dealers and
retailers shall be borne by PCSO's dealers and retailers. 5.1 PCSO shall have sole responsibility to decide whether to implement,
fully or partially, the Master Games Plan of the LESSOR. PCSO shall have
the sole responsibility to determine the time for introducing new games to
1.5 Development Plan — The detailed plan of all games, the marketing
the market. The Master Games Plan included in Annex "A" hereof is hereby
thereof, number of players, value of winnings and the logistics required to
approved by PCSO.
introduce the games, including the Master Games Plan as approved by
PCSO, attached hereto as Annex "A", modified as necessary by the
provisions of this Contract. 5.2 PCSO shall have control over revenues and receipts of whatever nature
from the On-Line Lottery System. After paying the Rental Fee to the
LESSOR, PCSO shall have exclusive responsibility to determine the Revenue
xxx xxx xxx
Allocation Plan; Provided, that the same shall be consistent with the
requirement of R.A. No. 1169, as amended, which fixes a prize fund of fifty
five percent (55%) on the average.
5.3 PCSO shall have exclusive control over the printing of tickets, including not limited to the cost of the Facilities, and further compensate the LESSOR
but not limited to the design, text, and contents thereof. for loss of expected net profit after tax, computed over the unexpired term
of the lease.
5.4 PCSO shall have sole responsibility over the appointment of dealers or
retailers throughout the country. PCSO shall appoint the dealers and 6. DUTIES AND RESPONSIBILITIES OF THE LESSOR
retailers in a timely manner with due regard to the implementation
timetable of the On-Line Lottery System. Nothing herein shall preclude the The LESSOR is one of not more than three (3) lessors of similar facilities for
LESSOR from recommending dealers or retailers for appointment by PCSO, the nationwide On-Line Lottery System of PCSO. It is understood that the
which shall act on said recommendation within forty-eight (48) hours. rights of the LESSOR are primarily those of a lessor of the Facilities, and
consequently, all rights involving the business aspects of the use of the
5.5 PCSO shall designate the necessary personnel to monitor and audit the Facilities are within the jurisdiction of PCSO. During the term of the lease,
daily performance of the On-Line Lottery System. For this purpose, PCSO the LESSOR shall.
designees shall be given, free of charge, suitable and adequate space,
furniture and fixtures, in all offices of the LESSOR, including but not limited 6.1 Maintain and preserve its corporate existence, rights and privileges,
to its headquarters, alternate site, regional and area offices. and conduct its business in an orderly, efficient, and customary manner.

5.6 PCSO shall have the responsibility to resolve, and exclusive jurisdiction 6.2 Maintain insurance coverage with insurers acceptable to PCSO on all
over, all matters involving the operation of the On-Line Lottery System not Facilities.
otherwise provided in this Contract.
6.3 Comply with all laws, statues, rules and regulations, orders and
5.7 PCSO shall promulgate procedural and coordinating rules governing all directives, obligations and duties by which it is legally bound.
activities relating to the On-Line Lottery System.
6.4 Duly pay and discharge all taxes, assessments and government charges
5.8 PCSO will be responsible for the payment of prize monies, commissions now and hereafter imposed of whatever nature that may be legally levied
to agents and dealers, and taxes and levies (if any) chargeable to the upon it.
operator of the On-Line Lottery System. The LESSOR will bear all other
Maintenance and Other Costs, except as provided in Section 1.4.
6.5 Keep all the Facilities in fail safe condition and, if necessary, upgrade,
replace and improve the Facilities from time to time as new technology
5.9 PCSO shall assist the LESSOR in the following: develops, in order to make the On-Line Lottery System more cost-effective
and/or competitive, and as may be required by PCSO shall not impose such
5.9.1 Work permits for the LESSOR's staff; requirements unreasonably nor arbitrarily.

5.9.2 Approvals for importation of the Facilities; 6.6 Provide PCSO with management terminals which will allow real-time
monitoring of the On-Line Lottery System.
5.9.3 Approvals and consents for the On-Line Lottery
System; and 6.7 Upon effectivity of this Contract, commence the training of PCSO and
other local personnel and the transfer of technology and expertise, such
5.9.4 Business and premises licenses for all offices of that at the end of the term of this Contract, PCSO will be able to effectively
the LESSOR and licenses for the telecommunications take-over the Facilities and efficiently operate the On-Line Lottery System.
network.
6.8 Undertake a positive advertising and promotions campaign for both
5.10 In the event that PCSO shall pre-terminate this Contract or suspend institutional and product lines without engaging in negative advertising
the operation of the On-Line Lottery System, in breach of this Contract and against other lessors.
through no fault of the LESSOR, PCSO shall promptly, and in any event not
later than sixty (60) days, reimburse the LESSOR the amount of its total 6.9 Bear all expenses and risks relating to the Facilities including, but not
investment cost associated with the On-Line Lottery System, including but limited to, Maintenance and Other Costs and:
xxx xxx xxx of both such proposals) attached hereto as Annex "B," and under the
following PCSO schedule:
6.10 Bear all risks if the revenues from ticket sales, on an annualized basis,
are insufficient to pay the entire prize money. xxx xxx xxx

6.11 Be, and is hereby, authorized to collect and retain for its own account, PCSO may, at its option, require the LESSOR to establish the
a security deposit from dealers and retailers, in an amount determined telecommunications network in accordance with the above Timetable in
with the approval of PCSO, in respect of equipment supplied by the provinces where the LESSOR has not yet installed terminals. Provided, that
LESSOR. PCSO's approval shall not be unreasonably withheld. such provinces have existing nodes. Once a municipality or city is serviced
by land lines of a licensed public telephone company, and such lines are
xxx xxx xxx connected to Metro Manila, then the obligation of the LESSOR to connect
such municipality or city through a telecommunications network shall
cease with respect to such municipality or city. The voice facility will cover
6.12 Comply with procedural and coordinating rules issued by PCSO.
the four offices of the Office of the President, National Disaster Control
Coordinating Council, Philippine National Police and the National Bureau
7. REPRESENTATIONS AND WARRANTIES of Investigation, and each city and municipality in the Territory except
Metro Manila, and those cities and municipalities which have easy
The LESSOR represents and warrants that: telephone access from these four offices. Voice calls from the four offices
shall be transmitted via radio or VSAT to the remote municipalities which
7.1 The LESSOR is corporation duly organized and existing under the laws will be connected to this voice facility through wired network or by radio.
of the Republic of the Philippines, at least sixty percent (60%) of the The facility shall be designed to handle four private conversations at any
outstanding capital stock of which is owned by Filipino shareholders. The one time.
minimum required Filipino equity participation shall not be impaired
through voluntary or involuntary transfer, disposition, or sale of shares of xxx xxx xxx
stock by the present stockholders.
13. STOCK DISPERSAL PLAN
7.2 The LESSOR and its Affiliates have the full corporate and legal power
and authority to own and operate their properties and to carry on their Within two (2) years from the effectivity of this Contract, the LESSOR shall
business in the place where such properties are now or may be conducted. cause itself to be listed in the local stock exchange and offer at least twenty
... five percent (25%) of its equity to the public.

7.3 The LESSOR has or has access to all the financing and funding 14. NON-COMPETITION
requirements to promptly and effectively carry out the terms of this
Contract. . . .
The LESSOR shall not, directly or indirectly, undertake any activity or
business in competition with or adverse to the On-Line Lottery System of
7.4 The LESSOR has or has access to all the managerial and technical PCSO unless it obtains the latter's prior written consent thereto.
expertise to promptly and effectively carry out the terms of this Contract.
...
15. HOLD HARMLESS CLAUSE

xxx xxx xxx


15.1 The LESSOR shall at all times protect and defend, at its cost and
expense, PCSO from and against any and all liabilities and claims for
10. TELECOMMUNICATIONS NETWORK damages and/or suits for or by reason of any deaths of, or any injury or
injuries to any person or persons, or damages to property of any kind
The LESSOR shall establish a telecommunications network that will whatsoever, caused by the LESSOR, its subcontractors, its authorized
connect all municipalities and cities in the Territory in accordance with, at agents or employees, from any cause or causes whatsoever.
the LESSOR's option, either of the LESSOR's proposals (or a combinations
15.2 The LESSOR hereby covenants and agrees to indemnify and hold PCSO xxx xxx xxx
harmless from all liabilities, charges, expenses (including reasonable
counsel fees) and costs on account of or by reason of any such death or 20. OWNERSHIP OF THE FACILITIES
deaths, injury or injuries, liabilities, claims, suits or losses caused by the
LESSOR's fault or negligence.
After expiration of the term of the lease as provided in Section 4, the
Facilities directly required for the On-Line Lottery System mentioned in
15.3 The LESSOR shall at all times protect and defend, at its own cost and Section 1.3 shall automatically belong in full ownership to PCSO without
expense, its title to the facilities and PCSO's interest therein from and any further consideration other than the Rental Fees already paid during
against any and all claims for the duration of the Contract until transfer to the effectivity of the lease.
PCSO of ownership of the serviceable Facilities.
21. TERMINATION OF THE LEASE
16. SECURITY
PCSO may terminate this Contract for any breach of the material provisions
16.1 To ensure faithful compliance by the LESSOR with the terms of the of this Contract, including the following:
Contract, the LESSOR shall secure a Performance Bond from a reputable
insurance company or companies acceptable to PCSO.
21.1 The LESSOR is insolvent or bankrupt or unable to pay its debts, stops
or suspends or threatens to stop or suspend payment of all or a material
16.2 The Performance Bond shall be in the initial amount of Three Hundred part of its debts, or proposes or makes a general assignment or an
Million Pesos (P300,000,000.00), to its U.S. dollar equivalent, and shall be arrangement or compositions with or for the benefit of its creditors; or
renewed to cover the duration of the Contract. However, the Performance
Bond shall be reduced proportionately to the percentage of
21.2 An order is made or an effective resolution passed for the winding up
unencumbered terminals installed; Provided, that the Performance Bond
or dissolution of the LESSOR or when it ceases or threatens to cease to
shall in no case be less than One Hundred Fifty Million Pesos
carry on all or a material part of its operations or business; or
(P150,000,000.00).

21.3 Any material statement, representation or warranty made or


16.3 The LESSOR may at its option maintain its Escrow Deposit as the
furnished by the LESSOR proved to be materially false or misleading;
Performance Bond. . . .

said termination to take effect upon receipt of written


17. PENALTIES
notice of termination by the LESSOR and failure to take
remedial action within seven (7) days and cure or
17.1 Except as may be provided in Section 17.2, should the LESSOR fail to remedy the same within thirty (30) days from notice.
take remedial measures within seven (7) days, and rectify the breach
within thirty (30) days, from written notice by PCSO of any wilfull or grossly
Any suspension, cancellation or termination of this
negligent violation of the material terms and conditions of this Contract,
Contract shall not relieve the LESSOR of any liability
all unencumbered Facilities shall automatically become the property of
that may have already accrued hereunder.
PCSO without consideration and without need for further notice or
demand by PCSO. The Performance Bond shall likewise be forfeited in
favor of PCSO. xxx xxx xxx

17.2 Should the LESSOR fail to comply with the terms of the Timetables Considering the denial by the Office of the President of its protest and the statement of
provided in Section 9 and 10, it shall be subject to an initial Penalty of Assistant Executive Secretary Renato Corona that "only a court injunction can stop
Twenty Thousand Pesos (P20,000.00), per city or municipality per every Malacañang," and the imminent implementation of the Contract of Lease in February 1994,
month of delay; Provided, that the Penalty shall increase, every ninety (90) KILOSBAYAN, with its co-petitioners, filed on 28 January 1994 this petition.
days, by the amount of Twenty Thousand Pesos (P20,000.00) per city or
municipality per month, whilst shall failure to comply persists. The penalty In support of the petition, the petitioners claim that:
shall be deducted by PCSO from the rental fee.
. . . X X THE OFFICE OF THE PRESIDENT, ACTING Congress to construct, install, establish, or operate the network pursuant to Section 1 of Act
THROUGH RESPONDENTS EXECUTIVE SECRETARY No. 3846, as amended. Moreover, PGMC is a 75% foreign-owned or controlled corporation
AND/OR ASSISTANT EXECUTIVE SECRETARY FOR LEGAL and cannot, therefore, be granted a franchise for that purpose because of Section 11, Article
AFFAIRS, AND THE PCSO GRAVELY ABUSE[D] THEIR XII of the 1987 Constitution. Furthermore, since "the subscribed foreign capital" of the PGMC
DISCRETION AND/OR FUNCTIONS TANTAMOUNT TO "comes to about 75%, as shown by paragraph EIGHT of its Articles of Incorporation," it cannot
LACK OF JURISDICTION AND/OR AUTHORITY IN lawfully enter into the contract in question because all forms of gambling — and lottery is one
RESPECTIVELY: (A) APPROVING THE AWARD OF THE of them — are included in the so-called foreign investments negative list under the Foreign
CONTRACT TO, AND (B) ENTERING INTO THE SO- Investments Act (R.A. No. 7042) where only up to 40% foreign capital is allowed. 20
CALLED "CONTRACT OF LEASE" WITH, RESPONDENT
PGMC FOR THE INSTALLATION, ESTABLISHMENT AND Finally, the petitioners insist that the Articles of Incorporation of PGMC do not authorize it to
OPERATION OF THE ON-LINE LOTTERY AND establish and operate an on-line lottery and telecommunications systems.21
TELECOMMUNICATION SYSTEMS REQUIRED AND/OR
AUTHORIZED UNDER THE SAID CONTRACT,
Accordingly, the petitioners pray that we issue a temporary restraining order and a writ of
CONSIDERING THAT:
preliminary injunction commanding the respondents or any person acting in their places or
upon their instructions to cease and desist from implementing the challenged Contract of
a) Under Section 1 of the Charter of the PCSO, the PCSO is prohibited from Lease and, after hearing the merits of the petition, that we render judgment declaring the
holding and conducting lotteries "in collaboration, association or joint Contract of Lease void and without effect and making the injunction permanent. 22
venture with any person, association, company or entity";
We required the respondents to comment on the petition.
b) Under Act No. 3846 and established jurisprudence, a Congressional
franchise is required before any person may be allowed to establish and
In its Comment filed on 1 March 1994, private respondent PGMC asserts that "(1) [it] is merely
operate said telecommunications system;
an independent contractor for a piece of work, (i.e., the building and maintenance of a lottery
system to be used by PCSO in the operation of its lottery franchise); and (2) as such
c) Under Section 11, Article XII of the Constitution, a less than 60% Filipino- independent contractor, PGMC is not a co-operator of the lottery franchise with PCSO, nor is
owned and/or controlled corporation, like the PGMC, is disqualified from PCSO sharing its franchise, 'in collaboration, association or joint venture' with PGMC — as such
operating a public service, like the said telecommunications system; and statutory limitation is viewed from the context, intent, and spirit of Republic Act 1169, as
amended by Batas Pambansa 42." It further claims that as an independent contractor for a
d) Respondent PGMC is not authorized by its charter and under the Foreign piece of work, it is neither engaged in "gambling" nor in "public service" relative to the
Investment Act (R.A. No. 7042) to install, establish and operate the on-line telecommunications network, which the petitioners even consider as an "indispensable
lotto and telecommunications systems.18 requirement" of an on-line lottery system. Finally, it states that the execution and
implementation of the contract does not violate the Constitution and the laws; that the issue
Petitioners submit that the PCSO cannot validly enter into the assailed Contract of Lease with on the "morality" of the lottery franchise granted to the PCSO is political and not judicial or
the PGMC because it is an arrangement wherein the PCSO would hold and conduct the on-line legal, which should be ventilated in another forum; and that the "petitioners do not appear to
lottery system in "collaboration" or "association" with the PGMC, in violation of Section 1(B) have the legal standing or real interest in the subject contract and in obtaining the reliefs
of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the PCSO from holding and sought." 23
conducting charity sweepstakes races, lotteries, and other similar activities "in collaboration,
association or joint venture with any person, association, company or entity, foreign or In their Comment filed by the Office of the Solicitor General, public respondents Executive
domestic." Even granting arguendo that a lease of facilities is not within the contemplation of Secretary Teofisto Guingona, Jr., Assistant Executive Secretary Renato Corona, and the PCSO
"collaboration" or "association," an analysis, however, of the Contract of Lease clearly shows maintain that the contract of lease in question does not violate Section 1 of R.A. No. 1169, as
that there is a "collaboration, association, or joint venture between respondents PCSO and amended by B.P. Blg. 42, and that the petitioner's interpretation of the phrase "in
PGMC in the holding of the On-Line Lottery System," and that there are terms and conditions collaboration, association or joint venture" in Section 1 is "much too narrow, strained and
of the Contract "showing that respondent PGMC is the actual lotto operator and not utterly devoid of logic" for it "ignores the reality that PCSO, as a corporate entity, is vested with
respondent PCSO."19 the basic and essential prerogative to enter into all kinds of transactions or contracts as may
be necessary for the attainment of its purposes and objectives." What the PCSO charter "seeks
The petitioners also point out that paragraph 10 of the Contract of Lease requires or authorizes to prohibit is that arrangement akin to a "joint venture" or partnership where there is
PGMC to establish a telecommunications network that will connect all the municipalities and "community of interest in the business, sharing of profits and losses, and a mutual right of
cities in the territory. However, PGMC cannot do that because it has no franchise from control," a characteristic which does not obtain in a contract of lease." With respect to the
challenged Contract of Lease, the "role of PGMC is limited to that of a lessor of the facilities" person, association, company or entity, whether domestic or foreign." On the first issue, seven
for the on-line lottery system; in "strict technical and legal sense," said contract "can be Justices voted to sustain the locus standi of the petitioners, while six voted not to. On the
categorized as a contract for a piece of work as defined in Articles 1467, 1713 and 1644 of the second issue, the seven Justices were of the opinion that the Contract of Lease violates the
Civil Code." exception to Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, and is, therefore, invalid
and contrary to law. The six Justices stated that they wished to express no opinion thereon in
They further claim that the establishment of the telecommunications system stipulated in the view of their stand on the first issue. The Chief Justice took no part because one of the Directors
Contract of Lease does not require a congressional franchise because PGMC will not operate a of the PCSO is his brother-in-law.
public utility; moreover, PGMC's "establishment of a telecommunications system is not
intended to establish a telecommunications business," and it has been held that where the This case was then assigned to this ponente for the writing of the opinion of the Court.
facilities are operated "not for business purposes but for its own use," a legislative franchise is
not required before a certificate of public convenience can be granted. 24 Even The preliminary issue on the locus standi of the petitioners should, indeed, be resolved in their
granting arguendo that PGMC is a public utility, pursuant to Albano S. favor. A party's standing before this Court is a procedural technicality which it may, in the
Reyes, 25 "it can establish a telecommunications system even without a legislative franchise exercise of its discretion, set aside in view of the importance of the issues raised. In the
because not every public utility is required to secure a legislative franchise before it could landmark Emergency Powers Cases, 29 this Court brushed aside this technicality because "the
establish, maintain, and operate the service"; and, in any case, "PGMC's establishment of the transcendental importance to the public of these cases demands that they be settled promptly
telecommunications system stipulated in its contract of lease with PCSO falls within the and definitely, brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R.
exceptions under Section 1 of Act No. 3846 where a legislative franchise is not necessary for No. L-2821)." Insofar as taxpayers' suits are concerned, this Court had declared that it "is not
the establishment of radio stations." devoid of discretion as to whether or not it should be entertained," 30 or that it "enjoys an open
discretion to entertain the same or not." 31 In De La Llana vs. Alba, 32 this Court declared:
They also argue that the contract does not violate the Foreign Investment Act of 1991; that the
Articles of Incorporation of PGMC authorize it to enter into the Contract of Lease; and that the 1. The argument as to the lack of standing of petitioners is easily resolved.
issues of "wisdom, morality and propriety of acts of the executive department are beyond the As far as Judge de la Llana is concerned, he certainly falls within the
ambit of judicial review." principle set forth in Justice Laurel's opinion in People vs. Vera [65 Phil. 56
(1937)]. Thus: "The unchallenged rule is that the person who impugns the
Finally, the public respondents allege that the petitioners have no standing to maintain the validity of a statute must have a personal and substantial interest in the
instant suit, citing our resolution in Valmonte vs. Philippine Charity Sweepstakes Office. 26 case such that he has sustained, or will sustain, direct injury as a result of
its enforcement [Ibid, 89]. The other petitioners as members of the bar and
Several parties filed motions to intervene as petitioners in this case, 27 but only the motion of officers of the court cannot be considered as devoid of "any personal and
Senators Alberto Romulo, Arturo Tolentino, Francisco Tatad, Gloria Macapagal-Arroyo, Vicente substantial interest" on the matter. There is relevance to this excerpt from
Sotto III, John Osmeña, Ramon Revilla, and Jose Lina 28 was granted, and the respondents were a separate opinion in Aquino, Jr. v. Commission on Elections [L-40004,
required to comment on their petition in intervention, which the public respondents and January 31, 1975, 62 SCRA 275]: "Then there is the attack on the standing
PGMC did. of petitioners, as vindicating at most what they consider a public right and
not protecting their rights as individuals. This is to conjure the specter of
the public right dogma as an inhibition to parties intent on keeping public
In the meantime, the petitioners filed with the Securities and Exchange Commission on 29
officials staying on the path of constitutionalism. As was so well put by
March 1994 a petition against PGMC for the nullification of the latter's General Information
Jaffe; "The protection of private rights is an essential constituent of public
Sheets. That case, however, has no bearing in this petition.
interest and, conversely, without a well-ordered state there could be no
enforcement of private rights. Private and public interests are, both in a
On 11 April 1994, we heard the parties in oral arguments. Thereafter, we resolved to consider substantive and procedural sense, aspects of the totality of the legal
the matter submitted for resolution and pending resolution of the major issues in this case, to order." Moreover, petitioners have convincingly shown that in their
issue a temporary restraining order commanding the respondents or any person acting in their capacity as taxpayers, their standing to sue has been amply demonstrated.
place or upon their instructions to cease and desist from implementing the challenged Contract There would be a retreat from the liberal approach followed in Pascual v.
of Lease. Secretary of Public Works, foreshadowed by the very decision of People v.
Vera where the doctrine was first fully discussed, if we act differently now.
In the deliberation on this case on 26 April 1994, we resolved to consider only these issues: (a) I do not think we are prepared to take that step. Respondents, however,
the locus standi of the petitioners, and (b) the legality and validity of the Contract of Lease in would hard back to the American Supreme Court doctrine in Mellon v.
the light of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the PCSO Frothingham, with their claim that what petitioners possess "is an interest
from holding and conducting lotteries "in collaboration, association or joint venture with any which is shared in common by other people and is comparatively so minute
and indeterminate as to afford any basis and assurance that the judicial procedure." The same policy has since then been consistently followed by
process can act on it." That is to speak in the language of a bygone era, the Court, as in Gonzales vs. Commission on Elections [21 SCRA 774] . . .
even in the United States. For as Chief Justice Warren clearly pointed out
in the later case of Flast v. Cohen, the barrier thus set up if not breached The Federal Supreme Court of the United States of America has also expressed its discretionary
has definitely been lowered. power to liberalize the rule on locus standi. In United States vs. Federal Power
Commission and Virginia Rea Association vs. Federal Power Commission,37 it held:
In Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, 33 reiterated
in Basco vs. Philippine Amusements and Gaming Corporation,34 this Court stated: We hold that petitioners have standing. Differences of view, however,
preclude a single opinion of the Court as to both petitioners. It would not
Objections to taxpayers' suits for lack of sufficient personality standing or further clarification of this complicated specialty of federal jurisdiction, the
interest are, however, in the main procedural matters. Considering the solution of whose problems is in any event more or less determined by the
importance to the public of the cases at bar, and in keeping with the specific circumstances of individual situations, to set out the divergent
Court's duty, under the 1987 Constitution, to determine whether or not grounds in support of standing in these cases.
the other branches of government have kept themselves within the limits
of the Constitution and the laws and that they have not abused the In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of
discretion given to them, this Court has brushed aside technicalities of Congress, and even association of planters, and non-profit civic organizations were allowed to
procedure and has taken cognizance of these petitions. 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.
and in Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Among such cases were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it
Reform,35 it declared: allows retirement gratuity and commutation of vacation and sick leave to Senators and
Representatives and to elective officials of both Houses of Congress;38 (b) Executive Order No.
With particular regard to the requirement of proper party as applied in the 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed members of the
cases before us, we hold that the same is satisfied by the petitioners and cabinet, their undersecretaries, and assistant secretaries to hold other government offices or
intervenors because each of them has sustained or is in danger of positions; 39 (c) the automatic appropriation for debt service in the General Appropriations
sustaining an immediate injury as a result of the acts or measures Act; 40 (d) R.A. No. 7056 on the holding of desynchronized elections; 41 (d) R.A. No. 1869 (the
complained of. [Ex ParteLevitt, 303 US 633]. And even if, strictly speaking, charter of the Philippine Amusement and Gaming Corporation) on the ground that it is contrary
they are not covered by the definition, it is still within the wide discretion of to morals, public policy, and order; 42 and (f) R.A. No. 6975, establishing the Philippine National
the Court to waive the requirement and so remove the impediment to its Police. 43
addressing and resolving the serious constitutional questions raised.
Other cases where we have followed a liberal policy regarding locus standi include those
In the first Emergency Powers Cases, ordinary citizens and taxpayers were attacking the validity or legality of (a) an order allowing the importation of rice in the light of
allowed to question the constitutionality of several executive orders issued the prohibition imposed by R.A. No. 3452; 44 (b) P.D. Nos. 991 and 1033 insofar as they
by President Quirino although they were invoking only an indirect and proposed amendments to the Constitution and P.D. No. 1031 insofar as it directed the
general interest shared in common with the public. The Court dismissed COMELEC to supervise, control, hold, and conduct the referendum-plebiscite on 16 October
the objective that they were not proper parties and ruled that the 1976; 45(c) the bidding for the sale of the 3,179 square meters of land at Roppongi, Minato-ku,
transcendental importance to the public of these cases demands that they Tokyo, Japan; 46 (d) the approval without hearing by the Board of Investments of the amended
be settled promptly and definitely, brushing aside, if we must, application of the Bataan Petrochemical Corporation to transfer the site of its plant from
technicalities of procedure. We have since then applied this exception in Bataan to Batangas and the validity of such transfer and the shift of feedstock from naphtha
many other cases. (Emphasis supplied) only to naphtha and/or liquefied petroleum gas; 47 (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
In Daza vs. Singson, 36 this Court once more said:
National Power Corporation from indirect tax and duties; 48 (f) the orders of the Energy
Regulatory Board of 5 and 6 December 1990 on the ground that the hearings conducted on
. . . For another, we have early as in the Emergency Powers Cases that the second provisional increase in oil prices did not allow the petitioner substantial cross-
where serious constitutional questions are involved, "the transcendental examination; 49 (g) Executive Order No. 478 which levied a special duty of P0.95 per liter or
importance to the public of these cases demands that they be settled P151.05 per barrel of imported crude oil and P1.00 per liter of imported oil products; 50 (h)
promptly and definitely, brushing aside, if we must, technicalities of resolutions of the Commission on Elections concerning the apportionment, by district, of the
number of elective members of Sanggunians; 51 and (i) memorandum orders issued by a foreign, except for the activities mentioned in the
Mayor affecting the Chief of Police of Pasay City.52 preceding paragraph (A), for the purpose of providing
for permanent and continuing sources of funds for
In the 1975 case of Aquino vs. Commission on Elections, 53 this Court, despite its unequivocal health programs, including the expansion of existing
ruling that the petitioners therein had no personality to file the petition, resolved nevertheless ones, medical assistance and services, and/or
to pass upon the issues raised because of the far-reaching implications of the petition. We did