345 Phil.
9 of ownership of and maintenance by CEPALCO of those
ROMERO, J.:
Offered for resolution in these consolidated petitions for review
on certiorari is the issue of whether or not the National Power
Corporation (NPC) has jurisdiction to determine whether it may
supply electric power directly to the facilities of an industrial
corporation in areas where there is an existing and operating
electric power franchisee.
On June 17, 1961, the Cagayan Electric and Power Light
Company (CEPALCO) was enfranchised by Republic Act No.
3247 "to construct, maintain and operate an electric light, heat
and power system for the purpose of generating and/or
distributing electric light, heat and/or power for sale within the
City of Cagayan de Oro and its suburbs" for fifty (50) years.
Republic Act No. 3570, approved on June 21, 1963, expanded
the area of coverage of the franchise to include the
municipalities of Tagoloan and Opol, both in the Province of
Misamis Oriental. On August 4, 1969, Republic Act No. 6020
further amended the same franchise to include in the areas of
CEPALCO's authority of "generating and distributing electric
light and power for sale," the municipalities of Villanueva and
Jasaan, also of the said province.
Presidential Decree No. 243, issued on July 12, 1973, created
a "body corporate and politic" to be known as the Philippine
Veterans Investment Development Corporation (PHIVIDEC)
vested with authority to engage in "commercial, industrial,
mining, agricultural and other enterprises" among other
powers[1] and "to allow the full and continued employment of
the productive capabilities of and investment of the veterans
and retirees of the Armed Forces of the Philippines." On
August 13, 1974, Presidential Decree No. 538 was
promulgated to create the PHIVIDEC Industrial Authority (PIA),
a subsidiary of PHIVIDEC, to carry out the government policy
"to encourage, promote and sustain the economic and social
growth of the country and that the establishment of
professionalized management of well-planned industrial areas
shall further this objective."[2] Under Sec. 3 of P.D. No. 538, the
first area for development shall be located in the municipalities
of Tagoloan and Villanueva.[3] This area forms part of the
PHIVIDEC Industrial Estate Misamis Oriental (PIE-MO).
As manager of PIE-MO, PIA granted the Ferrochrome
Philippines, Inc. (FPI) and Metal Alloys Corporation (MAC)
authority to operate in its area of development. On July 6,
1979, PIA granted CEPALCO a temporary authority to retail
electric power to the industries operating within the PIE-MO.
[4]
 The Agreement executed by PIA and CEPALCO authorized
CEPALCO "to operate, administer, construct and distribute
electric power within the PHIVIDEC Industrial Estate, Misamis
Oriental, such authority to be co-extensive with the territorial
jurisdiction of PHIVIDEC Industrial Estate, as defined in Sec. 3
of P.D. No. 538 and shall be for a period of five (5) years,
renewable for another five (5) years at the option of
CEPALCO." The parties provided further that:
9.      At the end of the fifth year, or at the end of the 10th year,
should this Agreement be thus renewed, PIA has the option to
take over the operation of the electric service and acquire by
purchase CEPALCO's assets within PIE-MO. This option shall
be communicated to CEPALCO in writing at least 24 months
before the date of acquistion of assets and takeover of
operation by PIA. Should PIA exercise its option to purchase
the assets of CEPALCO in PIE-MO, PIA shall respect the right
assets inside PIE-MO not covered by such purchase. x x x."
According to PIA,[5] CEPALCO proved no match to the power
demands of the industries in PIE-MO that most of these
companies operating therein closed shop.[6] Impelled by a
"desire to provide cheap power costs to power-intensive
industries operating within the Estate," PIA applied with the
National Power Corporation (NPC) for direct power connection
which the latter in due course approved.[7] One of the
companies which entered into an agreement with the NPC for
a direct sale and supply of power was the Ferrochrome Phils.,
Inc. (FPI).
Contending that the said agreement violated its right as the
authorized operator of an electric light and power system in the
area and the national electrification policy, CEPALCO filed Civil
Case No. Q-35945, a petition for prohibition, mandamus and
injunction before the Regional Trial Court of Quezon City
against the NPC. Notwithstanding NPC's claim that it was
authorized by its Charter to sell electric power "in bulk" to
industrial enterprises, the lower court rendered a decision on
May 2, 1984, restraining the NPC from supplying power
directly to FPI upon the ground that such direct sale, supply
and delivery of electric power by the NPC to FPI was violative
of the rights of CEPALCO under its legislative franchise.
Hence, the lower court ordered the NPC to "permanently
desist" from effecting direct supply of power to the FPI and
"from entering into and/or implementing any agreement or
arrangement for such direct power connection, unless coursed
through the power line" of CEPALCO.
Eventually, the case reached this Court through G.R. No.
72085.[8] On December 28, 1989, the Court denied the appeal
interposed by NPC on the ground that the statutory authority
given to the NPC as regards direct supply of power to BOI-
registered enterprises "should always be subordinate to the
'total-electrification-of-the-entire-country-on-an-area-coverage
basis policy' enunciated in P. D. No. 40."[9] We held further that:
Nor should we lose sight of the factual findings of the court a
quo that petitioner-appellee CEPALCO had not only been
authorized by the Phividec Industrial Authority to provide
electrical power to the Phividec Industrial Estate within which
the FPI plant is located, but that petitioner-appellee CEPALCO
had in fact, supplied the latter's power requirements for the
construction of its plant, upon FPI's application therefor as
early as October 17, 1980.
It bears emphasis then that 'it is only after a hearing (or an
opportunity for such a hearing) where it is established that the
affected private franchise holder is incapable or unwilling to
match the reliability and rates of NPC that a direct connection
with NPC may be granted.' Here, petitioner-appellee's reliability
as a power supplier and ability to match the NPC rates were
never put in issue.
It is immaterial that petitioner-appellee's franchise was not
exclusive. A privilege to sell within specified territory, even if
not exclusive, is a valuable property right entitled to protection
against unauthorized competition."[10]
Notwithstanding said decision, in September 1990, FPI filed a
new application for the direct supply of electric power from
NPC. The Hearing Committee of the NPC had started hearing
the application but CEPALCO filed with the Regional Trial
Court of Quezon City a petition for contempt against NPC
officials led by Ernesto Aboitiz. On August 10, 1992, the trial
court found the respondents in direct contempt of court and
accordingly imposed upon them a fine of 500.00 each.
The respondent NPC officials challenged before this Court the
judgment holding them in contempt of court through G.R. No.
107809, (Aboitiz v. Regino).[11] In the Decision of July 5, 1993,
the Court upheld the contempt ruling and, after quoting the
lower court's decision of May 2, 1984 which the Court upheld in
G.R. No. 72085, said:
These directives show that the lower court (and this Court)
intended the arrangment between FPI and CEPALCO to be
permanent and free from NAPOCOR's influence or
intervention. Any attempt on the part of NAPOCOR or its
officers and/or employees to strike a deal with FPI would be a
clear and direct disobedience to a lawful order and therefore
contemptuous.
The petitioners call the attention of the Court to the statement
of CEPALCO that 'NAPOCOR has already implemented in full'
the May 2, 1984 decision of the lower court as affirmed by this
Court. They suggest that in view of this, the decision no longer
has any binding effect upon the parties, or to put it another
way, has become functus officio. Consequently, when they
entertained the re-application of FPI for direct power
connection to NAPOCOR, they were not disobeying the May 2,
1984 order of the trial court and so should not be held in
contempt.
This argument must be rejected in view of our finding of the
permanence and comprehensiveness of the challenged order
of the trial court. 'Permanent' is not a difficult word to
understand. It means 'lasting or intended to last indefinitely
without change.' As for the scope of the order, NAPOCOR was
directed to 'desist from effecting, causing, and continuing the
direct supply, sale and delivery of electricity from its power line
to the plant of Ferrochrome Philippines, Inc., and from entering
into and/or implementing any agreement or arrangement for
such direct power connection, unless coursed through the
power line of petitioner." (Underscoring supplied.)
Meanwhile, the NPC Hearing Committee [12] proceeded with its
hearings. CEPALCO was duly notified thereof but it opted to
question the committee's jurisdiction. It did not submit any
evidence. Consequently, in its Report and Recommendation
dated September 27, 1991, the committee gave weight to the
evidence presented by FPI that CEPALCO charged higher
rates than what the NPC would if allowed to supply power
directly to FPI. Although the committee considered as
unfounded FPI's claim of CEPALCO's unreliability as a power
supplier,[13] it nonetheless held that:
Form (sic) the foregoing and on the basis of the decision of the
Supreme Court in the case of National Power Corporation and
Fine Chemicals (Phils.) Inc. v. The Court of Appeals and the
Manila Electric Company, G.R. No. 84695, May 8, 1990, FPI is
entitled to a direct connection to NPC as applied for
considering that CEPALCO is unwilling to match the rates of
NPC for directly serving FPI and that FPI is a duly registered
BOI registered enterprises (sic). The Supreme Court in the
aforestated case has ruled as follows:
'As consistently ruled by the Court pursuant to P.D. No. 380 as
amended by P.D. No. 395, NPC is statutorily empowered to
directly service all the requirements of a BOI registered
enterprise provided that, first, any affected private franchise
holder is afforded an opportunity to be heard on the application
therefor and second, from such a hearing, it is established that
said private franchise holder is incapable or unwilling to match
the reliability and rates of NPC for directly serving the latter
(National Power Corporation v. Jacinto, 134 SCRA 435 [1985].
National Power Corporation v. Court of Appeals, 161 SCRA
103 [1988]).'"[14]
However, considering the "better and priority right" of PIA, the
committee recommended that instead of a direct power
connection by the NPC to FPI, the connection should be made
to PIA "as a utility user for its industrial Estate at Tagoloan,
Misamis Oriental."[15]
For its part, on November 3, 1989, CEPALCO filed with the
Energy Regulatory Board (ERB) a petition praying that the
ERB "order the discontinuance of all existing direct supply of
power by the NPC within petitioner's franchise area" (ERB
Case No. 89-430). On July 17, 1992, the ERB ruled that
CEPALCO "is relatively efficient and reliable as manifested by
its very low system losses (far from the 14% standard) and
very high power factors" and therefore CEPALCO is technically
capable "to distribute power to its consumers within its
franchise area, particularly the industrial customers." It
disposed of the petition as follows:
WHEREFORE, in view of the foregoing premises, when the
petitioner has been proven to be capable of distributing power
to its industrial consumers and having passed the secondary
considerations with a passing mark of 85%, judgment is hereby
rendered granting the relief prayed for. Accordingly, it is hereby
declared that all direct connection of industries to NPC within
the franchise area of CEPALCO is no longer necessary.
Therefore, all existing NPC direct supply of power to industrial
consumers within the franchise area of CEPALCO is hereby
ordered discontinued. x x x."[16]
However, during the pendency of the Aboitiz case in this Court
or on August 3, 1992, PIA contracted the NPC for the
construction of a 138 kilovolt (KV) transmission line from
Namutulan substation to the receiving and/or substation of PIA.
[17]
As expected, on February 17, 1993, CEPALCO filed in the
Regional Trial Court of Pasig (Branch 68), a petition for
certiorari, prohibition, mandamus and injunction against the
NPC and some officials of both the NPC and PIA. [18] Docketed
as SCA No. 290, the petition specifically sought the issuance
of a temporary restraining order. However, after hearing, the
prayer for the temporary restraining order was denied by the
court in its order of March 12, 1993. [19] CEPALCO filed a
motion for the reconsideration of said order while NPC and PIA
moved for the dismissal of the petition.[20]
On June 23, 1993, noting the cases filed by CEPALCO all
seeking exclusivity in the distribution of electric power to areas
covered by its franchise, the court[21] ruled that "the right of
petitioner to supply electric power in the aforesaid area to the
exclusion of other entities had been settled once and for all by
the Regional Trial Court of Quezon City wherein petitioner
obtained a favorable judgment." Hence, the petition was
dismissed on the ground of res judicata. [22]
Forthwith, CEPALCO elevated the case to this Court through a
petition for certiorari, prohibition and injunction with prayer for
the issuance of a preliminary injunction or a temporary
restraining order. The petition was docketed as G.R. No.
110686 but on August 18, 1993, the Court referred it to the
Court of Appeals pursuant to Sec. 9, paragraph 1 of B.P. Blg.
129 conferring upon the appellate court original jurisdiction to
issue writs of prohibition and certiorari and auxiliary writs. [23] In
the Court of Appeals, the petition was docketed as CA-G.R.
No. 31935-SP.

On September 10, 1993, the Fifteenth Division of the Court of
Appeals issued a resolution[24] denying the prayer for the
issuance of a temporary restraining order on the strength of
Sec. 1 of P.D. No. 1818. It ruled that since the NPC is a public
utility, it "enjoys the protective mantle" of said decree
prohibiting courts from issuing restraining orders or preliminary
injunctions in cases involving infrastructure and natural
resource development projects of, and operated by, the
government.[25]
However, on September 17, 1993, upon a motion for
reconsideration filed by CEPALCO and a re-evaluation of the
provisions of P.D. No. 1818, the Court of Appeals set aside its
resolution of September 10, 1993 and held that:
x x x the project intended by respondent NPC, which is the
construction, completion and operation of the 138-kv line, is
not in consonance with the intendment of said Decree which is
to protect public utilities and their projects and activities
intended for public convenience and necessity. The project of
respondent NPC is intended to serve exclusively the needs of
private entities, Metal Alloys Corporation and Ferrochrome
Philippine in Tagoloan, Misamis Oriental."
Accordingly, the Court of Appeals issued a temporary
restraining order directing the private respondents therein "to
immediately cease and desist from proceeding with the
construction, completion and operation of the 138-kv line
subject of the petition." The NPC, PIA and the officers of both
were directed to explain why the preliminary injunction prayed
for should not issue.[26]
In due course, the Court of Appeals rendered the decision [27] of
November 15, 1993 assailed herein. After ruling that the lower
court gravely abused its discretion in dismissing the petition
below on the grounds of res judicata and litis pendentia, the
Court of Appeals confronted squarely the issue of whether or
not "the NPC itself has the power to determine the propriety of
direct power connection from its lines to any entity located
within the franchise area of another public utility."[28]
Elucidating that the ruling of this Court in both G.R. No. 78609
(NPC v. Court of Appeals)[29] and G.R. No. 87697 (Del Monte
[Philippines], Inc. v. Hon. Felix M. de Guzman, etc., et al.)
[30]
 categorically held that before a direct connection to the NPC
may be granted, a proper administrative body must conduct a
hearing "to determine which entity, the franchise holder or the
NPC, has the right to supply electric power to the entity
applying for direct connection," the Court of Appeals declared:
"We have no doubt that the ERB, and not the NPC, is the
administrative body referred to by the Supreme Court where
the hearing is to be conducted to determine the propriety of
direct connection. The charter of the ERB (PD 1206 in relation
to EO 172) is clear on this:
"The Board shall, after due notice and hearing, exercise the
following powers and functions, among others:
x x x                                             x x x                                     x
x x
e.            Issue Certificate of Public Convenience for the
operation of electric power utilities and services, ... including
the establishment and regulation of areas of operation of
particular operators of public power utilities and services, the
fixing of standards and specifications in all cases related to the
issued Certificate of Public Convenience ..."
Moreover, NPC is not an administrative body as
jurisprudentially defined, and that the NPC cannot usurp a
power it has never been conferred by its charter or by other
law -- the power to determine the validity of direct connection
agreement it enters into in violation of a power distributor's
franchise.
Thus, considering that PIA professes to be and intends to
engage in the business of a public power utility, it must first
apply for a public convenience and necessity (conferment of
operating authority) with the ERB. This may have been the
opportune time for ERB to determine whether to allow PIA to
directly connect with NPC, with notice and opportunity for
CEPALCO considering that, as the latter alleges, this new line
which NPC is installing duplicates that existing Cepalco 138 kv
line which NPC itself turned over to Cepalco and for which it
was paid in full."
Consequently, the Court of Appeals affirmed the dismissal of
the petition, annulled and set aside the decision of the Hearing
Committee of the NPC on direct connection with PIA, and
ordered the NPC "to desist from continuing the construction of
that NPC-Natumulan-Phividec 138 kv transmission line."[31]
Without filing a motion for the reconsideration of said Decision,
NPC filed in this Court on December 9, 1993, a motion for an
extension of time within which to file "the proper petition." The
motion which was docketed as G.R. No. 112702, was granted
on December 20, 1993 with warning that no further extension
would be granted. Thereafter, NPC filed a motion praying that
it be excused from filing the petition on account of the filing by
PIA in the Court of Appeals of a motion for the reconsideration
of the Decision of November 15, 1993. In the Resolution of
February 2, 1994, the Court noted and granted petitioner's
motion and considered the case "closed and
terminated."[32] This resolution was withdrawn in the Resolution
of February 8, 1995[33] in view of the "inadvertent clerical error"
terminating the case, after the NPC had mailed its petition for
review on certiorari on February 21, 1994.[34]
In the meantime, PIA filed a motion for reconsideration of the
appellate court's Decision of November 15, 1993 arguing in the
main that, not being a party to previous cases between
CEPALCO and NPC, it was not bound by decisions of this
Court. The Court of Appeals denied the motion on January 28,
1994 on the basis of stare decisis where once the court has
laid down a principle of law as applicable to a certain state of
facts, it will adhere to and apply the principle to all future cases
where the facts are substantially the same.[35] Hence, PIA filed
a petition for review on certiorari which was docketed as G.R.
No. 113613.
G.R. Nos. 112702 and 113613 were consolidated on June 15,
1994.[36]
In G.R. No. 112702, petitioner NPC contends that private
respondent CEPALCO is not entitled to relief because it has
been forum-shopping. Private respondent had filed Civil Case
No. Q-93-14597 in the Regional Trial Court of Quezon City
which had been forwarded to it by the Regional Trial Court of
Pasig. Said case and the instant case (SCA No. 290) deal with
the same issue of restoring CEPALCO's right to supply power
to FPI and MAC. Petitioner thus contends that because the
principle of litis pendentia applies, although other parties are
involved in the case before the Quezon City court, there is no
basis for granting relief to private respondent CEPALCO
"(s)ince the dismissal for lack of jurisdiction was affirmed by the
respondent court."[37] Corollarily, petitioner asserts that
because the main case herein was dismissed "without trial,"
the respondent appellate court should not have accorded
private respondent affirmative relief.[38]
Petitioner NPC's contention is based on the fact that on
October 6, 1992, private respondent CEPALCO filed against
the NPC in the Regional Trial Court of Pasig, Civil Case No.
62490, an action for specific performance and damages with
prayer for preliminary mandatory injunction directing the NPC
to immediately restore to CEPALCO the distribution of power
pertaining to MAC's consumption.[39] However, no summons
was served and the ex-parte writ prayed for was not issued.
Nevertheless, the case was forwarded to the Regional Trial
Court of Quezon City where it was docketed as Civil Case No.
93-14597. That case was pending when SCA No. 290 was
filed before the Regional Trial Court of Pasig.
The Court of Appeals affirmed the lower court's dismissal of
the case neither on the grounds of res judicata nor litis
pendentia but on the "only one unresolved issue, which is
whether the NPC itself has the power to determine the
propriety of direct power connection from its lines to any entity
located within the franchise area of another public
utility."[40] The Court of Appeals opined that the effects of litis
pendentia could not have resulted in the dismissal of SCA No.
290 because Civil Case No. Q-35945 which became G.R. No.
72085 was based on facts totally different from that of SCA No.
290.
In invoking litis pendentia, however, petitioner NPC refers to
this case, SCA No. 290, and Civil Case No. 93-14597. SCA
No. 290 and Civil Case No. 93-14597 may both have the same
objective, the restoration of CEPALCO's right to distribute
power to PIE-MO areas under its franchise aside from the fact
that the cases involve practically the same parties. However,
litis pendentia may not be successfully invoked to cause the
dismissal of SCA No. 290.
In order to constitute a ground for the abatement or dismissal
of an action, litis pendentia must exhibit the concurrence of the
following requisites: (a) identity of parties, or at least such as
representing the same interest in both actions; (b) identity of
rights asserted and relief prayed for, the relief being founded
on the same facts, and (c) identity in the two (2) cases should
be such that the judgment that may be rendered in the pending
case would, regardless of which party is successful, amount to
res judicata in the other.[41] As a rule, the second case filed
should be abated under the maxim qui prior est tempore, potior
est jure. However, this rule is not a hard and fast one. The
"priority-in-time rule" may give way to the criterion of "more
appropriate action." More recently, the criterion used was the
"interest of justice rule."[42]
We hold that the last criterion should be the basis for resolving
this case, although it was filed later than Civil Case No. 62490
which, upon its transfer, became Civil Case No. 93-14795. In
so doing, we shall avoid multiplicity of suits which is the matrix
upon which litis pendentia is anchored and eventually bring
about the final settlement of the recurring issue of whether or
not the NPC may supply power directly to the industries within
PIE-MO, notwithstanding the operation of franchisee
CEPALCO in the same area.
It should be noted that there is yet pending another case,
namely, Civil Case No. 91-383, instituted by PIA against
CEPALCO in the Regional Trial Court of Misamis Oriental
which apparently deals with a related issue - PIA's franchise or
authority to provide power to enterprises within the PIE-MO.
[43]
 Hence, the principle of litis pendentia which ordinarily
demands the dismissal of an action filed later than another,
should be considered under the primordial concept of "interest
of justice," in order that a recurrent issue common to all cases
may be definitively resolved.
The principal and common question raised in these
consolidated cases is: whether or not the NPC may supply
power directly to PIA in the PIE-MO area where CEPALCO has
a franchise. Petitioner PIA in G.R. No. 113613 asserts that it
may receive power directly from the NPC because it is a public
utility. It avers that P.D. No. 538, as amended, empowers PIA
"as and to be a public utility to operate and serve the power
needs within PIE-MO, i.e., a specific area constituting a small
portion of petitioner's franchise coverage," without, however,
specifying the particular provision which so empowers PIA.[44]
A "public utility" is a business or service engaged in regularly
supplying the public with some commodity or service of public
consequence such as electricity, gas, water, transportation,
telephone or telegraph service.[45] The term implies public use
and service.[46]
Petitioner PIA is a subsidiary of the PHIVIDEC with
"governmental and proprietary functions."[47] Sec. 4 of P.D. No.
538 specifically confers upon it the following powers:
a. To operate, administer and manage the PHIVIDEC Industrial
Areas and other areas which shall hereafter be proclaimed,
designated and specified in subsequent Presidential
Proclamation; to construct acquire, own, lease, operate and
maintain infrastructure facilities, factory buildings, warehouses,
dams, reservoirs, water distribution, electric light and power
systems, telecommunications and transportation networks, or
such other facilities and services necessary or useful in the
conduct of industry and commerce or in the attainment of the
purposes and objectives of this Decree;" (Underscoring
supplied.)
Clearly then, the PIA is authorized to render indirect service to
the public by its administration of the PHIVIDEC industrial
areas like the PIE-MO and may, therefore, be considered a
public utility. As it is expressly authorized by law to perform the
functions of a public utility, a certificate of public convenience,
as suggested by the Court of Appeals, is not necessary for it to
avail of a direct power connection from the NPC. However,
such authority to be a public utility may not be exercised in
such a manner as to prejudice the rights of existing
franchisees. In fact, by its actions, PIA recognized the rights of
the franchisees in the area.
Accordingly, in pursuit of its powers "to grant such franchise for
and to operate and maintain within the Areas electric light, heat
or power systems," etc. under Sec. 4 (i) of P.D. No. 538 and its
rule-making power under Sec. 4 (l) of the same law, on July
20, 1979, the PIA Board of Directors promulgated the "Rules
and Regulations To Implement the Intent and Provisions of
Presidential Decree No. 538."[48] Rule XI thereof on "Utilities
and Services" provides as follows:
SECTION 1. Utilities - It is the responsibility of the Authority to
provide all required utilities and services inside the Estate:
x x x                                             x x x                                     x
x x.
a) Contracts for the purchase of public utilities and/or services
shall be subject to the prior approval of the Authority; Provided,
however, that similar contract(s) existing prior to the effectivity
of this Rules and Regulations shall continue to be in full force
and effect.
x x x                                             x x x                                     x
x x.
(Underscoring
It should be noted that the Rules and Regulations took effect
thirty (30) days after its publication in the Official Gazette on
September 24, 1979 or more than three (3) months after the
July 6, 1979 contract between PIA and CEPALCO was entered
into. As such, the Rules and Regulations itself allowed the
continuance of the supply of electric power to PIE-MO by
CEPALCO.
That the contract of July 6, 1979 was not renewed by the
parties after the expiration of the five-year period stipulated
therein did not change the fact that within that five-year period,
in violation of both the contract and its Rules and Regulations,
PIA applied with the NPC for direct power connection. The
matter was aggravated by NPC's favorable action on the
application, totally unmindful of the extent of its powers under
the law which, in National Power Corporation v. Court of
Appeals,[49] the Court delimits as follows:
x x x. It is immaterial whether the direct connection is merely
an improvement or an increase in existing voltage, as alleged
by petitioner, or a totally new and separate electric service as
claimed by private respondent. The law on the matter is clear.
PD 40 promulgated on 7 November 1972 expressly provides
that the generation of electric power shall be undertaken solely
by the NPC. However, Section 3 of the same decree also
provides that the distribution of electric power shall be
undertaken by cooperatives, private utilities (such as the
CEPALCO), local governments and other entities duly
authorized, subject to state regulation. (Underscoring
supplied.)
The same case ruled that "(i)t is only after a hearing (or an
opportunity for such a hearing) where it is established that the
affected private franchise holder is incapable or unwilling to
match the reliability and rates of NPC that a direct connection
with NPC may be granted."[50] As earlier stated, the Court
arrived at the same ruling in the later cases of G.R. Nos.
72085, 84695 and 87697.
Petitioner NPC attempted to abide by these rulings when it
conducted a hearing to determine whether it may supply power
directly to PIA. While it notified CEPALCO of the hearing, the
NPC is not the proper authority referred to by this Court in the
aforementioned earlier decisions, not only because the subject
of the hearing is a matter involving the NPC itself, but also
because the law has created the proper administrative body
vested with authority to conduct a hearing.
CEPALCO shares the view of the Court of Appeals that the
Energy Regulatory Board (ERB) is the proper administrative
body for such hearings. However, a recent legislative
development has overtaken said view.
The ERB, which used to be the Board of Energy, is tasked with
the following powers and functions by Executive Order No. 172
which took effect immediately after its issuance on May 8,
1987:
SEC. 3. Jurisdiction, Powers and Functions of the Board. -
When warranted and only when public necessity requires, the
Board may regulate the business of importing, exporting, re-
exporting, shipping, transporting, processing, refining,
marketing and distributing energy resources. x x x.
The Board shall, upon prior notice and hearing, exercise the
following, among other powers and functions:
supplied.)
(a)           Fix and regulate the prices of petroleum products;
(b)           Fix and regulate the rate schedule or prices of piped
gas to be charged by duly franchised gas companies which
distribute gas by means of underground pipe system;
(c)            Fix and regulate the rates of pipeline
concessionaires under the provisions of Republic Act No. 387,
as amended, otherwise known as the 'Petroleum Act of 1949,'
as amended by Presidential Decree No. 1700;
(d)           Regulate the capacities of new refineries or
additional capacities of existing refineries and license refineries
that may be organized after the issuance of this Executive
Order, under such terms and conditions as are consistent with
the national interest;
(e)           Whenever the Board has determined that there is a
shortage or any petroleum product, or when public interest so
requires, it may take such steps as it may consider necessary,
including the temporary adjustment of the levels of prices of
petroleum products and the payment to the Oil Price
Stabilization Fund created under Presidential Decree No. 1956
by persons or entities engaged in the petroleum industry of
such amounts as may be determined by the Board, which will
enable the importer to recover its cost of importation."
As may be gleaned from said provisions, the ERB is basically a
price or rate-fixing agency. Apparently recognizing this basic
function, Republic Act No. 7638 (An Act Creating the
Department of Energy, Rationalizing the Organization and
Functions of Government Agencies Related to Energy, and for
Other Purposes),[51] which was approved on December 9, 1992
and which took effect fifteen days after its complete publication
in at least two (2) national newspapers of general circulation,
specifically provides as follows:
SEC. 18. Rationalization or Transfer of Functions of Attached
or Related Agencies.- The non-price regulatory jurisdiction,
powers, and functions of the Energy Regulatory Board as
provided for in Section 3 of Executive Order No. 172 are
hereby transferred to the Department.
The foregoing transfer of powers and functions shall include all
applicable funds and appropriations, records, equipment,
property, and such personnel as may be necessary. Provided,
That only such amount of funds and appropriations of the
Board as well as only the personnel thereof which are
completely or primarily involved in the exercise by said Board
of its non-price regulatory powers and functions shall be
affected by such transfer.
The power of the NPC to determine, fix, and prescribe the
rates being charged to its customers under Section 4 of
Republic Act No. 6395, as amended, as well as the power of
electric cooperatives to fix rates under Section 16 (o), Chapter
II of Presidential Decree No. 269, as amended, are hereby
transferred to the Energy Regulatory Board. The Board shall
exercise its new powers only after due notice and hearing and
under the same procedure provided for in Executive Order No.
172."
Upon the effectivity of Republic Act No. 7638, then Acting
Chairman of the Energy Coordinating Council Delfin Lazaro
transmitted to the Department of Justice the query of whether
or not the "non-power rate powers and functions" of the ERB
are included in the "jurisdiction, powers and functions
transferred to the Department of Energy." Answering the query
in the affirmative, the Department of Justice rendered Opinion
No. 22 dated February 12, 1993 the pertinent portion of which
states:
x x x we believe that since the provision of Section 18 on the
transfer of certain powers and functions from ERB to DOE is
clear and unequivocal, and devoid of any ambiguity, in the
sense that it categorically refers to 'non-price jurisdiction,
powers and functions' of ERB under Section 3 of E.O. No. 172,
there is no room for interpretation, but only for application, of
the law. This is a cardinal rule of statutory construction.
Clearly, the parameters of the transfer of functions from ERB to
DOE pursuant to Section 18, are circumscribed by the
provision of Section 3 of E.O. No. 172 alone, so that, if there
are other 'related' functions of ERB under other provisions of
E.O. No. 172 or other energy laws, these 'related' functions,
which may conceivably refer to what you call 'non-power rate
powers and functions' of ERB, are clearly not contemplated by
Section 18 and are, therefore, not to be deemed included in
the transfer of functions from ERB to DOE under the said
provision.
It may be argued that Section 26 of R.A. No. 7638 contains a
repealing clause which provides that:
'All laws, presidential decrees, executive orders, rules and
regulations or parts thereof, inconsistent with the provisions of
this Act, are hereby repealed or modified accordingly. x x x.'
and, therefore, all provisions of E.O. No. 172 and related laws
which are inconsistent with the policy, purpose and intent of
R.A. No. 7638 are deemed repealed. It has been said,
however, that a general repealing clause of such nature does
not operate as an express repeal because it fails to identify or
designate the act or acts that are intended to be repealed.
Rather, it is a clause which predicates the intended repeal
upon the condition that a substantial conflict must be found on
existing and prior acts of the same subject matter. Such being
the case, the presumption against implied repeals and the rule
on strict construction regarding implied repeals shall apply ex
propio vigore. For the legislature is presumed to know the
existing laws so that, if repeal of particular or specific laws is
intended, the proper step is to so express it. The failure to add
a specific repealing clause particularly mentioning the statute
to be repealed indicates that the intent was not to repeal any
existing law on the matter, unless an irreconcilable
inconsistency and repugnancy exists in the terms of the new
and the old laws (Iloilo Palay and Corn Planters Association,
Inc. vs. Feliciano, 13 SCRA 377; City of Naga vs. Agna, 71
SCRA 176, cited in Agpalo, Statutory Construction, 1990
Edition, pp. 191-192).
In view of the foregoing, it is our opinion that only the non-price
regulatory functions of ERB under Section 3 of E.O. 172 are
transferred to the DOE. All other powers of ERB which are not
within the purview of its 'non-price regulatory jurisdiction,
powers and functions' as defined in Section 3 are not so
transferred to DOE and accordingly remain vested in ERB."
The determination of which of two public utilities has the right
to supply electric power to an area which is within the coverage
of both is certainly not a rate-fixing function which should
remain with the ERB. It deals with the regulation of the
distribution of energy resources which, under Executive Order
No. 172, was expressly a function of ERB. However, with the
enactment of Republic Act No. 7638, the Department of
Energy took over such function. Hence, it is this Department
which shall then determine whether CEPALCO or PIA should
supply power to PIE-MO.
Clearly, petitioner NPC's assertion that its "authority to
entertain and hear direct connection applications is a
necessary incident of its express authority to sell electric power
in bulk" is now baseless.[52] Even without the new legislation
affecting its power to conduct hearings, it is certainly irregular,
if not downright anomalous for the NPC itself to determine
whether it should supply power directly to the PIA or the
industries within the PIE-MO. It simply cannot arrogate unto
itself the authority to exercise non-rate fixing powers which
now devolves upon the Department of Energy and to hear and
eventually grant itself the right to supply power in bulk. [53]
On the other hand, ventilating the issue in a public hearing
would not unduly prejudice CEPALCO although it was
enfranchised by law earlier than the PIA. Exclusivity of any
public franchise has not been favored by this Court such that in
most, if not all, grants by the government to private
corporations, the interpretation of rights, privileges or
franchises is taken against the grantee. Thus in Alger Electric,
Inc. v. Court of Appeals,[54] the Court said:
x x x Exclusivity is given by law with the understanding that the
company enjoying it is self-sufficient and capable of supplying
the needed service or product at moderate or reasonable
prices. It would be against public interest where the firm
granted a monopoly is merely an unnecessary conduit of
electric power, jacking up prices as a superfluous middleman
or an inefficient producer which cannot supply cheap electricity
to power intensive industries. It is in the public interest when
industries dependent on heavy use of electricity are given
reliable and direct power at the lower costs thus enabling the
sale of nationally marketed products at prices within the reach
of the masses. x x x."
WHEREFORE, both petitions in G.R. No. 112702 and 113613
are hereby DENIED. The Department of Energy is directed to
conduct a hearing with utmost dispatch to determine whether it
is the Cagayan Electric Power and Light Co., Inc. or the
National Power Corporation, through the PHIVIDEC Industrial
Authority, which should supply electric power to the industries
in the PHIVIDEC Industrial Estate-Misamis Oriental. This
Decision is immediately executory.
SO ORDERED
G.R. No. 83551 July 11, 1989
RODOLFO B. ALBANO, petitioner,
vs.
HON. RAINERIO O. REYES, PHILIPPINE PORTS
AUTHORITY, INTERNATIONAL CONTAINER TERMINAL
SERVICES, INC., E. RAZON, INC., ANSCOR CONTAINER
CORPORATION, and SEALAND SERVICES.
LTD., respondents.
PARAS, J.:
This is a Petition for Prohibition with prayer for Preliminary
Injunction or Restraining Order seeking to restrain the
respondents Philippine Ports Authority (PPA) and the
Secretary of the Department of Transportation and
Communications Rainerio O. Reyes from awarding to the
International Container Terminal Services, Inc. (ICTSI) the
contract for the development, management and operation of
the Manila International Container Terminal (MICT).
On April 20, 1987, the PPA Board adopted its Resolution No.
850 directing PPA management to prepare the Invitation to Bid
and all relevant bidding documents and technical requirements
necessary for the public bidding of the development,
management and operation of the MICT at the Port of Manila,
and authorizing the Board Chairman, Secretary Rainerio O.
Reyes, to oversee the preparation of the technical and the
documentation requirements for the MICT leasing as well as to
implement this project.
Accordingly, respondent Secretary Reyes, by DOTC Special
Order 87-346, created a seven (7) man "Special MICT Bidding
Committee" charged with evaluating all bid proposals,
recommending to the Board the best bid, and preparing the
corresponding contract between the PPA and the winning
bidder or contractor. The Bidding Committee consisted of three
(3) PPA representatives, two (2) Department of Transportation
and Communications (DOTC) representatives, one (1)
Department of Trade and Industry (DTI) representative and
one (1) private sector representative. The PPA management
prepared the terms of reference, bid documents and draft
contract which materials were approved by the PPA Board.
The PPA published the Invitation to Bid several times in a
newspaper of general circulation which publication included the
reservation by the PPA of "the right to reject any or all bids and
to waive any informality in the bids or to accept such bids
which may be considered most advantageous to the
government."
Seven (7) consortia of companies actually submitted bids,
which bids were opened on July 17, 1987 at the PPA Head
Office. After evaluation of the several bids, the Bidding
Committee recommended the award of the contract to develop,
manage and operate the MICT to respondent International
Container Terminal Services, Inc. (ICTSI) as having offered the
best Technical and Financial Proposal. Accordingly,
respondent Secretary declared the ICTSI consortium as the
winning bidder.
Before the corresponding MICT contract could be signed, two
successive cases were filed against the respondents which
assailed the legality or regularity of the MICT bidding.
The first was Special Civil Action 55489 for "Prohibition with
Preliminary Injunction" filed with the RTC of Pasig by Basilio H.
Alo, an alleged "concerned taxpayer", and, the second was
Civil Case 88-43616 for "Prohibition with Prayer for Temporary
Restraining Order (TRO)" filed with the RTC of Manila by C.F.
Sharp Co., Inc., a member of the nine (9) firm consortium —
"Manila Container Terminals, Inc." which had actively
participated in the MICT Bidding.
Restraining Orders were issued in Civil Case 88-43616 but
these were subsequently lifted by this Court in Resolutions
dated March 17, 1988 (in G.R. No. 82218 captioned "Hon.
Rainerio O. Reyes etc., et al. vs. Hon. Doroteo N. Caneba,
etc., et al.) and April 14, 1988 (in G.R. No. 81947 captioned
"Hon. Rainerio O. Reyes etc., et al. vs. Court of Appeals, et
al.")
On May 18, 1988, the President of the Philippines approved
the proposed MICT Contract, with directives that "the
responsibility for planning, detailed engineering, construction,
expansion, rehabilitation and capital dredging of the port, as
well as the determination of how the revenues of the port
system shall be allocated for future port works, shall remain
with the PPA; and the contractor shall not collect taxes and
duties except that in the case of wharfage or tonnage dues and
harbor and berthing fees, payment to the Government may be
made through the contractor who shall issue provisional
receipts and turn over the payments to the Government which
will issue the official receipts." (Annex "I").
The next day, the PPA and the ICTSI perfected the MICT
Contract (Annex "3") incorporating therein by "clarificatory
guidelines" the aforementioned presidential directives. (Annex
"4").
Meanwhile, the petitioner, Rodolfo A. Albano filed the present
petition as citizen and taxpayer and as a member of the House
of Representatives, assailing the award of the MICT contract to
the ICTSI by the PPA. The petitioner claims that since the
MICT is a public utility, it needs a legislative franchise before it
can legally operate as a public utility, pursuant to Article 12,
Section 11 of the 1987 Constitution.
The petition is devoid of merit.
A review of the applicable provisions of law indicates that a
franchise specially granted by Congress is not necessary for
the operation of the Manila International Container Port (MICP)
by a private entity, a contract entered into by the PPA and such
entity constituting substantial compliance with the law.
1. Executive Order No. 30, dated July 16, 1986, provides:
WHEREFORE, I, CORAZON C. AQUINO,
President of the Republic of the Philippines,
by virtue of the powers vested in me by the
Constitution and the law, do hereby order the
immediate recall of the franchise granted to
the Manila International Port Terminals, Inc.
(MIPTI) and authorize the Philippine Ports
Authority (PPA) to take over, manage and
operate the Manila International Port
Complex at North Harbor, Manila and
undertake the provision of cargo handling
and port related services thereat, in
 accordance with P.D. 857 and other
applicable laws and regulations.
Section 6 of Presidential Decree No. 857 (the Revised Charter
of the Philippine Ports Authority) states:
a) The corporate duties of
the Authority shall be:
xxx xxx xxx
(ii) To supervise, control,
regulate, construct,
maintain, operate, and
provide such facilities or
services as are necessary
in the ports vested in, or
belonging to the Authority.
xxx xxx xxx
(v) To provide services
(whether on its own, by
contract, or otherwise)
within the Port Districts
and the approaches
thereof, including but not
limited to —
— berthing, towing,
mooring, moving, slipping,
or docking of any vessel;
— loading or discharging
any vessel;
— sorting, weighing,
measuring, storing,
warehousing, or otherwise
handling goods.
xxx xxx xxx
b) The corporate powers
of the Authority shall be as
follows:
xxx xxx xxx
(vi) To make or enter into
contracts of any kind or
nature to enable it to
discharge its functions
under this Decree.
xxx xxx xxx
[Emphasis supplied.]
Thus, while the PPA has been tasked, under E.O. No. 30, with
the management and operation of the Manila International Port
Complex and to undertake the providing of cargo handling and
port related services thereat, the law provides that such shall
be "in accordance with P.D. 857 and other applicable laws and
regulations." On the other hand, P.D. No. 857 expressly
empowers the PPA to provide services within Port Districts
"whether on its own, by contract, or otherwise" [See. 6(a) (v)].
Therefore, under the terms of E.O. No. 30 and P.D. No. 857,
the PPA may contract with the International Container Terminal
Services, Inc. (ICTSI) for the management, operation and
development of the MICP.
2. Even if the MICP be considered a public utility, 1 or a public
service 2 on the theory that it is a "wharf' or a "dock" 3 as
contemplated under the Public Service Act, its operation would
not necessarily call for a franchise from the Legislative Branch.
Franchises issued by Congress are not required before each
and every public utility may operate. Thus, the law has granted
certain administrative agencies the power to grant licenses for
or to authorize the operation of certain public utilities. (See
E.O. Nos. 172 and 202)
That the Constitution provides in Art. XII, Sec. 11 that the
issuance of a franchise, certificate or other form of
authorization for the operation of a public utility shall be subject
to amendment, alteration or repeal by Congress does not
necessarily, imply, as petitioner posits that only Congress has
the power to grant such authorization. Our statute books are
replete with laws granting specified agencies in the Executive
Branch the power to issue such authorization for certain
classes of public utilities. 4
As stated earlier, E.O. No. 30 has tasked the PPA with the
operation and management of the MICP, in accordance with
P.D. 857 and other applicable laws and regulations. However,
P.D. 857 itself authorizes the PPA to perform the service by
itself, by contracting it out, or through other means. Reading
E.O. No. 30 and P.D. No. 857 together, the inescapable
conclusion is that the lawmaker has empowered the PPA to
undertake by itself the operation and management of the MICP
or to authorize its operation and management by another by
contract or other means, at its option. The latter power having
been delegated to the PPA, a franchise from Congress to
authorize an entity other than the PPA to operate and manage
the MICP becomes unnecessary.
In the instant case, the PPA, in the exercise of the option
granted it by P.D. No. 857, chose to contract out the operation
and management of the MICP to a private corporation. This is
clearly within its power to do. Thus, PPA's acts of privatizing
the MICT and awarding the MICT contract to ICTSI are wholly
within the jurisdiction of the PPA under its Charter which
empowers the PPA to "supervise, control, regulate, construct,
maintain, operate and provide such facilities or services as are
necessary in the ports vested in, or belonging to the PPA."
(Section 6(a) ii, P.D. 857)
The contract between the PPA and ICTSI, coupled with the
President's written approval, constitute the necessary
authorization for ICTSI's operation and management of the
MICP. The award of the MICT contract approved by no less
than the President of the Philippines herself enjoys the legal
presumption of validity and regularity of official action. In the
case at bar, there is no evidence which clearly shows the
constitutional infirmity of the questioned act of government.
For these reasons the contention that the contract between the
PPA and ICTSI is illegal in the absence of a franchise from
Congress appears bereft of any legal basis.
3. On the peripheral issues raised by the party, the following excess of jurisdiction as to warrant the issuance of the writ of
observations may be made: prohibition.

A. That petitioner herein is suing as a citizen and taxpayer and WHEREFORE, the petition is hereby DISMISSED.
as a Member of the House of Representatives, sufficiently
clothes him with the standing to institute the instant suit SO ORDERED.
questioning the validity of the assailed contract. While the
expenditure of public funds may not be involved under the
contract, public interest is definitely involved considering the
important role of the MICP in the economic development of the
country and the magnitude of the financial consideration
involved. Consequently, the disclosure provision in the
Constitution 5 would constitute sufficient authority for upholding
petitioner's standing. [Cf. Tañada v. Tuvera, G.R. No. 63915,
April 24, 1985,136 SCRA 27, citing Severino v. Governor
General, 16 Phil. 366 (1910), where the Court considered the
petitioners with sufficient standing to institute an action where a
public right is sought to be enforced.]

B. That certain committees in the Senate and the House of

Representatives have, in their respective reports, and the latter
in a resolution as well, declared their opinion that a franchise
from Congress is necessary for the operation of the MICP by a
private individual or entity, does not necessarily create a
conflict between the Executive and the Legislative Branches
needing the intervention of the Judicial Branch. The court is not
faced with a situation where the Executive Branch has
contravened an enactment of Congress. As discussed earlier,
neither is the Court confronted with a case of one branch
usurping a power pertaining to another.

C. Petitioner's contention that what was bid out, i.e., the

development, management and operation of the MICP, was
not what was subsequently contracted, considering the
conditions imposed by the President in her letter of approval,
thus rendering the bids and projections immaterial and the
procedure taken ineffectual, is not supported by the
established facts. The conditions imposed by the President did
not materially alter the substance of the contract, but merely
dealt on the details of its implementation.

D. The determination of whether or not the winning bidder is

qualified to undertake the contracted service should be left to
the sound judgment of the PPA. The PPA, having been tasked
with the formulation of a plan for the development of port
facilities and its implementation [Sec. 6(a) (i)], is the agency in
the best position to evaluate the feasibility of the projections of
the bidders and to decide which bid is compatible with the
development plan. Neither the Court, nor Congress, has the
time and the technical expertise to look into this matter.

Thus, the Court in Manuel v. Villena (G.R. No. L-28218,

February 27, 1971, 37 SCRA 745] stated:

[C]ourts, as a rule, refuse to interfere with

proceedings undertaken by administrative
bodies or officials in the exercise of
administrative functions. This is so because
such bodies are generally better equipped
technically to decide administrative
questions and that non-legal factors, such as
government policy on the matter, are usually
involved in the decisions. [at p. 750.]

In conclusion, it is evident that petitioner has failed to show a

clear case of grave abuse of discretion amounting to lack or
G.R. No. 155001            May 5, 2003 PUNO, J.:

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, Petitioners and petitioners-in-intervention filed the instant
JOSE MARI B. REUNILLA, MANUEL ANTONIO B. BOÑE, petitions for prohibition under Rule 65 of the Revised Rules of
MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. Court seeking to prohibit the Manila International Airport
DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON, Authority (MIAA) and the Department of Transportation and
REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, Communications (DOTC) and its Secretary from implementing
MIASCOR WORKERS UNION - NATIONAL LABOR UNION the following agreements executed by the Philippine
(MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES Government through the DOTC and the MIAA and the
ASSOCIATION (PALEA), petitioners, Philippine International Air Terminals Co., Inc. (PIATCO): (1)
vs. the Concession Agreement signed on July 12, 1997, (2) the
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., Amended and Restated Concession Agreement dated
MANILA INTERNATIONAL AIRPORT AUTHORITY, November 26, 1999, (3) the First Supplement to the Amended
DEPARTMENT OF TRANSPORTATION AND and Restated Concession Agreement dated August 27, 1999,
COMMUNICATIONS and SECRETARY LEANDRO M. (4) the Second Supplement to the Amended and Restated
MENDOZA, in his capacity as Head of the Department of Concession Agreement dated September 4, 2000, and (5) the
Transportation and Communications, respondents, Third Supplement to the Amended and Restated Concession
MIASCOR GROUNDHANDLING CORPORATION, DNATA- Agreement dated June 22, 2001 (collectively, the PIATCO
WINGS AVIATION SYSTEMS CORPORATION, Contracts).
MACROASIA-EUREST SERVICES, INC., MACROASIA-
MENZIES AIRPORT SERVICES CORPORATION, MIASCOR The facts are as follows:
CATERING SERVICES CORPORATION, MIASCOR
AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR
LOGISTICS CORPORATION, petitioners-in-intervention, In August 1989, the DOTC engaged the services of
Aeroport de Paris (ADP) to conduct a comprehensive
study of the Ninoy Aquino International Airport (NAIA)
x---------------------------------------------------------x and determine whether the present airport can cope
with the traffic development up to the year 2010. The
G.R. No. 155547 May 5, 2003 study consisted of two parts: first, traffic forecasts,
capacity of existing facilities, NAIA future
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and requirements, proposed master plans and
CONSTANTINO G. JARAULA, petitioners, development plans; and second, presentation of the
vs. preliminary design of the passenger terminal building.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., The ADP submitted a Draft Final Report to the DOTC
MANILA INTERNATIONAL AIRPORT AUTHORITY, in December 1989.
DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS Some time in 1993, six business leaders consisting of
AND HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, John Gokongwei, Andrew Gotianun, Henry Sy, Sr.,
in his capacity as Head of the Department of Lucio Tan, George Ty and Alfonso Yuchengco met
Transportation and Communications, and SECRETARY with then President Fidel V. Ramos to explore the
SIMEON A. DATUMANONG, in his capacity as Head of the possibility of investing in the construction and
Department of Public Works and Highways, respondents, operation of a new international airport terminal. To
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. signify their commitment to pursue the project, they
ZIALCITA, WILLY BUYSON VILLARAMA, PROSPERO C. formed the Asia's Emerging Dragon Corp. (AEDC)
NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST which was registered with the Securities and
ABAYON, and BENASING O. MACARANBON, respondents- Exchange Commission (SEC) on September 15,
intervenors, 1993.

x---------------------------------------------------------x On October 5, 1994, AEDC submitted an unsolicited

proposal to the Government through the DOTC/MIAA
G.R. No. 155661 May 5, 2003 for the development of NAIA International Passenger
Terminal III (NAIA IPT III) under a build-operate-and-
transfer arrangement pursuant to RA 6957 as
CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. amended by RA 7718 (BOT Law).1
VALENCIA, MA. TERESA V. GAERLAN, LEONARDO DE LA
ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD
SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON On December 2, 1994, the DOTC issued Dept. Order No. 94-
and SAMAHANG MANGGAGAWA SA PALIPARAN NG 832 constituting the Prequalification Bids and Awards
PILIPINAS (SMPP), petitioners, Committee (PBAC) for the implementation of the NAIA IPT III
vs. project.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC.,
MANILA INTERNATIONAL AIRPORT AUTHORITY, On March 27, 1995, then DOTC Secretary Jose Garcia
DEPARTMENT OF TRANSPORTATION AND endorsed the proposal of AEDC to the National Economic and
COMMUNICATIONS, SECRETARY LEANDRO M. Development Authority (NEDA). A revised proposal, however,
MENDOZA, in his capacity as Head of the Department of was forwarded by the DOTC to NEDA on December 13, 1995.
Transportation and Communications, respondents. On January 5, 1996, the NEDA 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 January 19, 1996. On
February 13, 1996, the NEDA passed Board Resolution No. 2
which approved the NAIA IPT III project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the
publication in two daily newspapers of an invitation for
competitive or comparative proposals on AEDC's unsolicited
proposal, in accordance with Sec. 4-A of RA 6957, as
amended. The alternative bidders were required to submit
three (3) sealed envelopes on or before 5:00 p.m. of
September 20, 1996. The first envelope should contain the
Prequalification Documents, the second envelope the
Technical Proposal, and the third envelope the Financial
Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued,
postponing the availment of the Bid Documents and the
submission of the comparative bid proposals. Interested firms
were 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
(US$2,000).
The Bid Documents issued by the PBAC provided among
others that the proponent must have adequate capability to
sustain the financing requirement for the detailed engineering,
design, construction, operation, and maintenance phases of
the project. The proponent would be evaluated based on its
ability to provide a minimum amount of equity to the project,
and its capacity to secure external financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2
inviting all bidders to a pre-bid conference on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3
amending the Bid Documents. The following amendments
were made on the Bid Documents:
a. Aside from the fixed Annual Guaranteed Payment,
the proponent shall include in its financial proposal an
additional percentage of gross revenue share of the
Government, as follows:
i. First 5 years 5.0%
ii. Next 10 years 7.5%
iii. Next 10 years 10.0%
b. The amount of the fixed Annual Guaranteed
Payment shall be subject of the price challenge.
Proponent may offer an Annual Guaranteed Payment
which need not be of equal amount, but payment of
which shall start upon site possession.
c. The project proponent must have adequate
capability to sustain the financing requirement for the
detailed engineering, design, construction, and/or
operation and maintenance phases of the project as
the case may be. For purposes of pre-qualification,
this capability shall be measured in terms of:
i. Proof of the availability of the project
proponent and/or the consortium to provide
the minimum amount of equity for the
project; and
ii. a letter testimonial from reputable banks
attesting that the project proponent and/or
the members of the consortium are banking
with them, that the project proponent and/or
the members are of good financial standing,
and have adequate resources.
d. The basis for the prequalification shall be the
proponent's compliance with the minimum technical
and financial requirements provided in the Bid
Documents and the IRR of the BOT Law. The
minimum amount of equity shall be 30% of the Project
Cost.
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 preparation of the proponent's proposal.
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
(Paircargo), the PBAC warranted that based on Sec. 11.6,
Rule 11 of the Implementing Rules and Regulations of the BOT
Law, only the proposed Annual Guaranteed Payment
submitted by 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 contained in Annex 4.2a of the Bid
Documents was merely indicative and that other revenue
sources may be included by the proponent, subject to approval
by DOTC/MIAA. Furthermore, the PBAC clarified that only
those fees and charges denominated as Public Utility Fees
would be subject to regulation, and those charges which would
be actually deemed Public Utility Fees could still be revised,
depending on the outcome of PBAC's query on the matter with
the Department of Justice.
In September 1996, the PBAC issued Bid Bulletin No. 5,
entitled "Answers to the Queries of PAIRCARGO as Per Letter
Dated September 3 and 10, 1996." Paircargo's queries and the
PBAC's responses were as follows:
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
and needs of their current respective business
undertaking/activities. In order to comply with this
equity requirement, Paircargo is requesting PBAC to
just allow each 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 to the Joint Venture
instead of increasing each corporation's current
authorized capital stock just for prequalification
purposes.
In prequalification, the agency is interested in one's
financial capability at the time of prequalification, not
future or potential capability.
 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 companies of the Consortium, to be
established by submitting the respective companies'
audited financial statements, shall be acceptable.
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
Concessions Agreement (sic) is awarded to them.
However, Paircargo is being required to submit a
copy of the draft concession as one of the
documentary requirements. Therefore, Paircargo is
requesting that they'd (sic) be furnished copy of the
approved negotiated agreement between the PBAC
and the AEDC at the soonest possible time.
A copy of the draft Concession Agreement is included
in the Bid Documents. Any material changes would be
made known to prospective challengers through bid
bulletins. However, a final version will be issued
before the award of contract.
The PBAC also stated that it would require AEDC to sign
Supplement C of the Bid Documents (Acceptance of Criteria
and Waiver of Rights to Enjoin Project) and to submit the same
with the required Bid Security.
On September 20, 1996, the consortium composed of People's
Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and
Grounds Services, Inc. (PAGS) and Security Bank Corp.
(Security Bank) (collectively, Paircargo Consortium) submitted
their competitive proposal to the PBAC. On September 23,
1996, the PBAC opened the first envelope containing the
prequalification documents of the Paircargo Consortium. On
the following day, September 24, 1996, the PBAC prequalified
the Paircargo Consortium.
On September 26, 1996, AEDC informed the PBAC in writing
of its reservations as regards the Paircargo Consortium, which
include:
a. The lack of corporate approvals and financial
capability of PAIRCARGO;
b. The lack of corporate approvals and financial
capability of PAGS;
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;
d. The inclusion of Siemens as a contractor of the
PAIRCARGO Joint Venture, for prequalification
purposes; and
e. The appointment of Lufthansa as the facility
operator, in view of the Philippine requirement in the
operation of a public utility.
The PBAC gave its reply on October 2, 1996, informing AEDC
that it had considered the issues 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
PBAC.
The PBAC then proceeded with the opening of the second
envelope of the Paircargo Consortium which contained its
Technical Proposal.
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 Act and Sections 1380 and 1381 of the Manual
Regulations for Banks and Other Financial Intermediaries. On
October 7, 1996, AEDC again manifested its objections and
requested that it be furnished with excerpts of the PBAC
meeting and the accompanying technical evaluation report
where each of the issues they raised were addressed.
On October 16, 1996, the PBAC opened the third envelope
submitted by AEDC and the Paircargo Consortium containing
their respective financial proposals. Both proponents offered to
build the NAIA Passenger Terminal III for at least $350 million
at no cost to the government 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, in addition to the foregoing, AEDC offered to pay the
government a total of P135 million as guaranteed payment for
27 years while Paircargo Consortium offered to pay the
government a total of P17.75 billion for the same period.
Thus, the PBAC formally informed AEDC that it had accepted
the price proposal submitted by 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.
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 failure to match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into
Philippine International Airport Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue preference
given to PIATCO and reiterated its objections as regards the
prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession
agreement for the second-pass approval of the NEDA-ICC.
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 capacity as Chairman of the
PBAC Technical Committee.
On April 17, 1997, the NEDA-ICC conducted an ad
referendum to facilitate the approval, on a 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.
On July 9, 1997, the DOTC issued the notice of award for the
project to PIATCO.
On July 12, 1997, the Government, through then DOTC
Secretary Arturo T. Enrile, and PIATCO, through its President,
Henry T. Go, signed the "Concession Agreement for the Build-
Operate-and-Transfer Arrangement of the Ninoy Aquino
International Airport Passenger Terminal III" (1997 Concession
Agreement). The Government granted PIATCO the franchise
to operate and 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) years
commencing from the in-service date, and may be renewed at
the option of the Government for a period not exceeding
twenty-five (25) years. At the end of the concession period,
PIATCO shall transfer the development facility to MIAA.
On November 26, 1998, the Government and PIATCO signed
an Amended and Restated Concession Agreement (ARCA).
Among the provisions of the 1997 Concession Agreement that
were amended by the ARCA were: Sec. 1.11 pertaining to the
definition of "certificate of 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-over of operations by GRP; Sec.
5.16 pertaining to the taxes, duties and other imposts that may
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
contract; and Sec. 10.02 providing for the venue of the
arbitration proceedings in case a dispute or controversy arises
between the parties to the agreement.
Subsequently, the Government and PIATCO signed three
Supplements to the ARCA. The First Supplement was signed
on August 27, 1999; the Second Supplement on September 4,
2000; and the Third Supplement on June 22, 2001
(collectively, Supplements).
The 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
sufficient funds for the upkeep, maintenance, repair and/or
replacement of all airport facilities and equipment which are
owned or operated by MIAA; and further providing additional
special obligations on the part of GRP aside from those
already enumerated in Sec. 2.05 of the ARCA. The First
Supplement also provided a stipulation as regards the
construction of a surface road 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 the
ARCA pertaining to the Disposition of Terminal Fees; Sec. 6.02
of the ARCA by inserting an introductory paragraph; and Sec.
6.02 (a) (iii) of the ARCA referring to the Payments of
Percentage Share in Gross Revenues.
The Second Supplement to the ARCA contained provisions
concerning the clearing, removal, demolition or disposal of
subterranean structures uncovered or discovered at the site of
the construction of the terminal by the Concessionaire. It
defined the scope of works; it provided 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 consequential costs and
losses consequent to the existence of such structures; and it
provided for some additional obligations on the part of PIATCO
as regards the said structures.
Finally, the Third Supplement provided for the obligations of
the Concessionaire as regards the construction of the surface
road connecting Terminals II and III.
Meanwhile, the MIAA which is charged with the maintenance
and operation of the NAIA Terminals I and II, had existing
concession contracts with various service providers to offer
international airline airport services, such as in-flight catering,
passenger handling, ramp and ground support, aircraft
maintenance and provisions, cargo handling and warehousing,
and 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. Miascor, DNATA and MacroAsia, together with
Philippine Airlines (PAL), are the dominant players in the
industry with an aggregate market share of 70%.
On September 17, 2002, the workers of the international airline
service providers, claiming that they stand to lose their
employment upon the implementation of the questioned
agreements, filed before this Court a petition for prohibition to
enjoin the enforcement of said agreements.2
On October 15, 2002, the service providers, joining the cause
of the petitioning workers, filed a motion for intervention and a
petition-in-intervention.
On October 24, 2002, Congressmen Salacnib Baterina, Clavel
Martinez and Constantino Jaraula filed a similar petition with
this Court.3
On November 6, 2002, several employees of the MIAA
likewise filed a petition assailing the legality of the various
agreements.4
On December 11, 2002. another group of Congressmen, Hon.
Jacinto V. Paras, Rafael P. Nantes, Eduardo C. Zialcita, Willie
B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr.,
Harlin Cast Abayon and Benasing O. Macaranbon, moved to
intervene in the case as Respondents-Intervenors. They filed
their Comment-In-Intervention defending the validity of the
assailed agreements and praying for the dismissal of the
petitions.
During the pendency of the case before this Court, President
Gloria Macapagal Arroyo, on November 29, 2002, in her
speech at the 2002 Golden Shell Export Awards at
Malacañang Palace, stated that she will not "honor (PIATCO)
contracts which the Executive Branch's legal offices have
concluded (as) null and void."5
Respondent PIATCO filed its Comments to the present
petitions on November 7 and 27, 2002. The Office of the
Solicitor General and the Office of the Government Corporate
Counsel filed their respective Comments in behalf of the public
respondents.
On December 10, 2002, the Court heard the case on oral
argument. After the oral argument, the Court then resolved in
open court to require the parties to file simultaneously their
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
contracts.
In their consolidated Memorandum, the Office of the Solicitor
General and the Office of the Government Corporate Counsel
prayed that the present petitions be given due course and that
judgment be rendered declaring the 1997 Concession
Agreement, the ARCA and the Supplements thereto void for
being contrary to the Constitution, the BOT Law and its
Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the Court
that on March 4, 2003 PIATCO commenced arbitration
proceedings before the International Chamber of Commerce,
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 and MIAA.
In the present cases, the Court is again faced with the task of
resolving complicated issues made difficult by their intersecting
legal and economic implications. The Court is aware of the far
reaching fall out effects of the ruling which it makes today. For
more than a century and whenever the exigencies of the times
demand it, this Court has never shirked from its solemn 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
discretion amounting to lack or excess of jurisdiction." 6 To be
sure, this Court will not begin to do otherwise today.
We shall first dispose of the procedural issues raised by
respondent PIATCO which they allege will bar the resolution of
the instant controversy.
Petitioners' Legal Standing to File
the present Petitions
a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are employees of
various service providers7 having separate concession
contracts with MIAA and continuing service agreements with
various international airlines to provide in-flight catering,
passenger handling, ramp and ground support, aircraft
maintenance and provisions, cargo handling and warehousing
and other services. Also included as petitioners are labor
unions MIASCOR Workers Union-National Labor Union and
Philippine Airlines Employees Association. These petitioners
filed the instant action for prohibition as taxpayers and as
parties whose rights and interests stand to be violated by the
implementation of the PIATCO Contracts.
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,
ramp and ground support, aircraft maintenance and provisions,
cargo handling and warehousing and other services to several
international airlines at the Ninoy Aquino 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 implementation of the
PIATCO Contracts. Each of the petitioners-intervenors have
separate and subsisting concession agreements with MIAA
and with various international airlines which they allege are
being interfered with and violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees of MIAA
and Samahang Manggagawa sa Paliparan ng Pilipinas - a
legitimate labor union and accredited as the sole and exclusive
bargaining agent of all the employees in MIAA. Petitioners
anchor their petition for prohibition on the nullity of the
contracts entered into by the Government and PIATCO
regarding the build-operate-and-transfer of the NAIA IPT III.
They filed the petition as taxpayers and persons who have a
legitimate interest to protect in the implementation of the
PIATCO Contracts.
Petitioners in both cases raise the argument that the PIATCO
Contracts contain stipulations which directly contravene
numerous provisions of the Constitution, specific provisions of
the BOT Law and its Implementing Rules and Regulations, and
public policy. Petitioners contend that the DOTC and the MIAA,
by entering into said contracts, have committed grave abuse of
discretion amounting to lack or excess of jurisdiction which can
be remedied only by a writ of prohibition, there being no plain,
speedy or adequate remedy in the ordinary course of law.
In particular, petitioners assail the provisions in the 1997
Concession Agreement and the ARCA which grant PIATCO
the exclusive right to operate a commercial international
passenger 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 commencement of operations at the NAIA IPT III, the
Government shall cause the closure of Ninoy Aquino
International Airport Passenger Terminals I and II as
international passenger terminals. With respect to existing
concession agreements between MIAA and international
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 through a separate
agreement duly entered into with PIATCO.8
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
from providing international airline airport services at the NAIA
Terminals I and II as all international airlines and passengers
will be diverted to the NAIA IPT III. The petitioning service
providers will thus be compelled to contract with PIATCO alone
for such services, with no assurance that subsisting contracts
with MIAA and other international airlines will be respected.
Petitioning service providers stress that despite the very
competitive market, the substantial capital investments
required and the high rate of fees, they entered into their
respective contracts with the MIAA with the understanding that
the said contracts will be in 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.
Petitioning employees of various service providers at the NAIA
Terminals I and II and of MIAA on the other hand allege that
with the closure of the NAIA Terminals I and II as international
passenger terminals under the PIATCO Contracts, they stand
to lose employment.
The question on legal standing is whether such parties have
"alleged such a personal stake in the outcome of the
controversy as to assure that concrete adverseness which
sharpens the presentation of issues upon which the court so
largely depends for illumination of difficult 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 only that the law or
any government act is invalid, but also that he sustained or is
in imminent danger of sustaining some direct injury as a result
of its enforcement, and not merely that he suffers thereby in
some indefinite way. It must appear that the person
complaining has been or is about to be denied some right or
privilege to which he is lawfully entitled or that he is about to be
subjected to some burdens or penalties by reason of the
statute or act complained of.10
We hold that petitioners have the requisite standing. In the
above-mentioned cases, 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 is zealously protected by the
Constitution. Moreover, subsisting concession agreements
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 NAIA IPT III under the PIATCO Contracts. The financial
prejudice brought about by the PIATCO Contracts on
petitioners and petitioners-intervenors in these cases are
legitimate interests sufficient to confer on them the requisite
standing to file the instant petitions.
b. G.R. No. 155547
In G.R. No. 155547, petitioners filed the petition for prohibition
as members of the House of Representatives, citizens and
taxpayers. They allege that as members of the House of
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 to comply with the provisions therein. 11 They cite
provisions of the PIATCO Contracts which require
disbursement of unappropriated amounts in compliance with
the contractual obligations of the Government. They allege that
the Government obligations in the PIATCO Contracts which
compel government expenditure without appropriation is a
curtailment of their prerogatives as legislators, contrary to the
mandate of the Constitution that "[n]o money shall be paid out
of the treasury except in pursuance of an appropriation made
by law."12
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
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
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 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, members of
Congress, and even association of planters, and non-profit
civic organizations were allowed to initiate and prosecute
actions before this Court to question the constitutionality or
validity of laws, acts, decisions, rulings, or orders of various
government agencies or instrumentalities."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 ". . . even if, strictly speaking, they [the
petitioners] are not covered by the definition, it is still within the
wide discretion of the Court to waive the requirement and so
remove the impediment to its addressing and resolving the
serious constitutional questions raised."18 In view of the serious
legal questions involved and their impact on public interest, we
resolve to grant standing to the petitioners.
Other Procedural Matters
Respondent PIATCO further alleges that this Court is without
jurisdiction to review the instant cases as factual issues are
involved which this Court is ill-equipped to resolve. Moreover,
PIATCO alleges that submission of this controversy to this
Court at the first instance is a violation of the rule on hierarchy
of courts. They contend that trial courts have concurrent
jurisdiction with this Court with respect to a special civil action
for prohibition and hence, following the rule on hierarchy of
courts, resort must first be had before the trial courts.
After a thorough study and careful evaluation of the issues
involved, this Court is of the view that the crux of the instant
controversy involves significant legal questions. The facts
necessary to resolve these legal questions are well established
and, hence, need not be determined by a trial court.
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 the appropriate courts or where exceptional and compelling
circumstances justify availment of a remedy within and calling
for the exercise of this Court's primary jurisdiction.19
It is easy to discern that exceptional circumstances exist in
the cases at bar that call for the relaxation of the rule. Both
petitioners and respondents agree that these cases are
of transcendental importance as they involve the
construction and operation of the country's premier
international airport. Moreover, the crucial issues submitted for
resolution are of first impression and they entail the proper
legal interpretation of key provisions of the Constitution, the
BOT Law and its Implementing Rules and Regulations. Thus,
considering the nature of the controversy before the Court,
procedural bars may be lowered to give way for the speedy
disposition of the instant cases.
Legal Effect of the Commencement
of Arbitration Proceedings by
PIATCO
There is one more procedural obstacle which must be
overcome. The Court is aware that arbitration proceedings
pursuant to Section 10.02 of the ARCA have been filed at the
instance of respondent PIATCO. Again, we hold that the
arbitration step taken by PIATCO will not oust this Court of its
jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of Appeals,20 even after
finding that the arbitration clause in the Distributorship
Agreement in question is valid and the dispute between the
parties is arbitrable, this Court affirmed the trial court's decision
denying petitioner's Motion to Suspend Proceedings pursuant
to the arbitration clause under the contract. In so ruling, this
Court held that as contracts produce legal effect between the
parties, their assigns and heirs, 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 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 heirs or assigns of the parties
thereto, this Court, citing its previous ruling in Salas, Jr. v.
Laperal Realty Corporation,21 held that to tolerate the splitting
of proceedings by allowing arbitration as to some of the parties
on the one hand and trial for the others on the other hand
would, in 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 case in a single and complete
proceeding.
It is established that petitioners in the present cases who
have presented legitimate interests 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 compelled to
submit to arbitration proceedings. A speedy and decisive
resolution of all the critical issues in the present
controversy, including those raised by petitioners, cannot
be made before an arbitral tribunal. The object of arbitration
is precisely to allow an expeditious determination of a dispute.
This objective would not be met if this Court were to allow the
parties to settle the cases by arbitration as there are certain
issues involving non-parties to the PIATCO Contracts which
the arbitral tribunal will not be equipped to resolve.
Now, to the merits of the instant controversy.
I project.24 Further, the 1994 Implementing Rules and
Is PIATCO a qualified bidder?
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 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 member of the consortium,
should not be considered.
PIATCO relies, on the other hand, on the strength of the
Memorandum dated October 14, 1996 issued by the DOTC
Undersecretary Primitivo C. Cal stating that the Paircargo
Consortium is found to have a combined net worth of
P3,900,000,000.00, sufficient to meet the equity requirements
of the project. The said Memorandum was in response to a
letter from Mr. Antonio Henson of AEDC to President Fidel V.
Ramos questioning the financial capability of the Paircargo
Consortium on the ground that it does not have the financial
resources to put up the required minimum equity of
P2,700,000,000.00. This contention is based on the restriction
under R.A. No. 337, as amended or the General Banking Act
that a commercial bank cannot invest in any single enterprise
in an amount more than 15% of its net worth. In the said
Memorandum, Undersecretary Cal opined:
The Bid Documents, as clarified through Bid Bulletin
Nos. 3 and 5, require that financial capability will be
evaluated based on total financial capability of all the
member companies of the [Paircargo] Consortium. In
this connection, the Challenger was found to have a
combined net worth of P3,926,421,242.00 that could
support a project costing approximately P13 Billion.
It is not a requirement that the net worth must be
"unrestricted." To impose that as a requirement now
will be nothing less than unfair.
The financial statement or the net worth is not the
sole basis in establishing financial 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
this requirement.
To recap, net worth reflected in the Financial
Statement should not be taken as the amount of the
money to be used to answer the required thirty
percent (30%) equity of the challenger but rather to be
used in establishing if there is enough basis to believe
that the 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 (Section
12.1 IRR of the BOT Law) but not for pre-qualification
(Section 5.4 of the same document).23
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
financial, technical, organizational and legal
standards" required by the law, has submitted the
lowest bid and most favorable terms of the
Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
xxx           xxx           xxx
c. Financial Capability: The project proponent must
have adequate capability to 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
purposes of pre-qualification, 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 attesting that the project proponent and/or
members of the consortium are banking with
them, that they are in good financial standing, and
that they have adequate resources. The
government agency/LGU concerned shall determine
on a project-to-project basis and before pre-
qualification, the minimum amount of equity needed.
(emphasis supplied)
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 as
follows:
6. Basis of Pre-qualification
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 and in the IRR of the BOT Law, R.A. No.
6957, as amended by R.A. 7718.
The minimum amount of equity to which the
proponent's financial capability will be based shall
be thirty percent (30%) of the project cost instead
of the twenty percent (20%) specified in Section
3.6.4 of the Bid Documents. This is to correlate with
the required debt-to-equity ratio of 70:30 in Section
2.01a of the draft concession agreement. The debt
portion of the project financing should not exceed
70% of the actual project cost.
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 capability to undertake the project in the
minimum amount of 30% of the project 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 they have adequate resources.
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 that it had the ability to provide the minimum equity for
the project in the amount of at least P2,755,095,000.00.
Paircargo's Audited Financial Statements as of 1993 and 1994
indicated that it had a net worth 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 equivalent to its capital funds in the amount of
P3,523,504,377.00.28
We agree with public respondents that with respect to Security
Bank, the entire amount of its net worth could not be invested
in a single undertaking or enterprise, whether allied or non-
allied in accordance with the provisions of R.A. No. 337, as
amended or the General Banking Act:
Sec. 21-B. The provisions in this or in any other Act to
the contrary notwithstanding, the Monetary Board,
whenever it shall deem appropriate and necessary to
further national development objectives or support
national priority projects, may authorize a Documents. Thus, in the case of Paircargo Consortium, the
commercial bank, a bank authorized to provide
commercial banking services, as well as a
government-owned and controlled bank, to
operate under an expanded commercial banking
authority and by virtue thereof exercise, in
addition to powers authorized for commercial
banks, the powers of an Investment House as
provided in Presidential Decree No. 129, invest in
the equity of a non-allied undertaking, or own a
majority or all of the equity in a financial intermediary
other than a commercial bank or a bank authorized to
provide commercial banking 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 the net worth of
the bank; (c) the equity investment of the bank, or of
its wholly or majority-owned subsidiary, in a single
non-allied undertaking shall not exceed thirty-five
percent (35%) of the total equity in the enterprise nor
shall it exceed thirty-five percent (35%) of the voting
stock in that enterprise; and (d) the equity investment
in other banks shall be deducted from the investing
bank's net worth for purposes of computing the
prescribed ratio of net worth to risk assets.
xxx           xxx           xxx
Further, the 1993 Manual of Regulations for Banks provides:
SECTION X383. Other Limitations and Restrictions.
— The following limitations and restrictions shall also
apply regarding equity investments of banks.
a. In any single enterprise. — The equity investments
of banks in any single 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.
Thus, the maximum amount that Security Bank could validly
invest in the Paircargo Consortium is only P528,525,656.55,
representing 15% of its entire net worth. The total net worth
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 for the project
in the amount of P2,755,095,000.00 or 30% of the project cost.
The purpose of pre-qualification in any public bidding is to
determine, at the earliest 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 project by
considering the maximum amounts that each bidder may
invest in the project at the time of pre-qualification.
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
the minimum amount of 30% of the project cost, in accordance
with the 70:30 debt-to-equity ratio prescribed in the Bid
PBAC should determine the maximum amounts that each
member of the consortium may commit for the construction,
operation and maintenance of the NAIA IPT III project at the
time of pre-qualification. With respect to Security Bank,
the maximum amount which may be invested by it would only
be 15% of its net worth in view of the restrictions imposed by
the General Banking Act. Disregarding the investment ceilings
provided by applicable law would not result in a proper
evaluation of whether or not a bidder is pre-qualified to
undertake the project as for all intents and purposes, such
ceiling or legal restriction determines the true maximum
amount which a bidder may invest in the project.
Further, the determination of whether or not a bidder is pre-
qualified to undertake the project requires an evaluation of the
financial capacity of the said bidder at the time the bid is
submitted based on the required documents presented by the
bidder. The PBAC should not 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 purpose of a public bidding.
This is especially true in the case at bar which involves the
investment of billions of pesos by the project proponent. The
relevant government authority 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 financial capability would not
secure the viability and integrity of the project. A restrictive and
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 technical reliability of the project. It has been held that:
The basic rule in public bidding is that bids should be
evaluated based on the required documents
submitted before and not after the opening of bids.
Otherwise, the 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 only safeguard to a fair,
honest and competitive public bidding.30
Thus, if the maximum amount of equity that a bidder may
invest in the project at the time the bids are submitted falls
short of the minimum amounts required to be put up by the
bidder, said bidder should be properly disqualified. Considering
that at the pre-qualification stage, the maximum amounts
which the Paircargo Consortium may invest in the project fell
short of the minimum amounts prescribed by the PBAC, we
hold that Paircargo Consortium was not a qualified bidder.
Thus the award of the contract by the PBAC to the Paircargo
Consortium, a disqualified bidder, is null and void.
While it would be proper at this juncture to end the resolution of
the instant controversy, as the legal effects of the
disqualification of respondent PIATCO's predecessor would
come into play and necessarily result in the nullity of all the
subsequent contracts entered by it in 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.
II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the 1997
Concession Agreement is invalid as it contains provisions that
substantially depart from the draft Concession Agreement
included 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 void.
PIATCO maintains, however, that the Concession Agreement
attached to the Bid Documents is 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 said intention is expressed
in Part C (6) of Bid Bulletin No. 3 issued by the PBAC which
states:
6. Amendments to the Draft Concessions Agreement
Amendments to the Draft Concessions Agreement
shall be issued from time to time. Said amendments
shall only cover items that would not materially affect
the preparation of the proponent's proposal.
By its very nature, public bidding aims to protect the public
interest by giving the public the best possible advantages
through open competition. Thus:
Competition must be legitimate, fair and honest. In the
field of government contract 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 that
it be legitimate, fair and honest; and not designed
to injure or defraud the government.31
An essential element of a publicly bidded contract is that all
bidders must be on equal footing. 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 must be able to bid on the
same thing. The rationale is obvious. If the winning bidder is
allowed to later include or modify certain provisions in the
contract awarded such that the contract is altered in any
material respect, then the essence of fair competition in the
public bidding is destroyed. A public bidding would indeed be a
farce if after the contract is awarded, the winning bidder may
modify the contract and include provisions which are favorable
to it that were not previously made available to the other
bidders. Thus:
It is inherent in public biddings that there shall be a
fair competition among the bidders. The specifications
in such biddings provide the common ground or basis
for the bidders. The specifications should,
accordingly, operate equally or indiscriminately upon
all bidders.32
The same rule was restated by Chief Justice Stuart of the
Supreme Court of Minnesota:
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 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 provisions beneficial to him, not
included or contemplated in the terms and
specifications upon which the bids were invited.33
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to
support its argument that the draft 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
materially affect the preparation of the proponent's
proposal."
While we concede that a winning bidder is not precluded from
modifying or amending certain 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 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 constitutes
a substantial amendment rests on whether the contract, when
taken as a whole, would contain substantially different terms
and conditions that would have the effect of altering the
technical and/or financial proposals previously submitted by
other bidders. The alterations and modifications in the contract
executed between the government and the winning bidder
must be such as to render such executed contract to be an
entirely different contract from the one that was bidded
upon.
In the case of Caltex (Philippines), Inc. v. Delgado Brothers,
Inc.,34 this Court quoted with 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 and void:
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
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 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
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 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
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 Bid Documents
and the 1997 Concession Agreement reveals that the
documents differ in at least two material respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be imposed and collected by PIATCO under
the draft Concession Agreement and the 1997 Concession
Agreement may be classified into three distinct categories: (1)
fees which are subject to periodic adjustment of once every
two years in accordance with a 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 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 I, pursuant to
Administrative Order No. 1, Series of 1993, as amended. The
glaring distinctions between the draft Concession Agreement
and the 1997 Concession Agreement lie in the types of fees
included in each category and the extent of the supervision
and regulation which MIAA is allowed to exercise in relation
thereto.
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
MIAA, the draft Concession Agreement includes the
following:36
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.
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
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
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
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 Terminal and the
Terminal Complex."38 Thus, under the 1997 Concession
Agreement, ground handling fees, rentals from airline offices
and porterage fees are no longer subject to MIAA regulation.
Further, under Section 6.03 of the draft Concession
Agreement, MIAA reserves the right to 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 upon written approval
of MIAA. The full text of said provision is quoted below:
 Section 6.03. Periodic Adjustment in Fees and
Charges. Adjustments in the aircraft parking fees,
aircraft tacking fees, groundhandling fees, rentals and
airline offices, check-in-counter rentals and porterage
fees shall be allowed only once every two years and
in accordance with the Parametric Formula attached
hereto as Annex F. Provided that adjustments shall
be made effective only after the written express
approval of the MIAA. Provided, further, that such
approval of the MIAA, shall be contingent only on the
conformity of the adjustments with the above said
parametric formula. The first adjustment shall be
made prior to the In-Service Date of the Terminal.
The MIAA reserves the right to regulate under the
foregoing terms and conditions the lobby and
vehicular parking fees and other new fees and
charges as contemplated in paragraph 2 of
Section 6.01 if in its judgment the users of the
airport shall be deprived of a free option for the
services they cover.39
On the other hand, the equivalent provision under the 1997
Concession Agreement reads:
Section 6.03 Periodic Adjustment in Fees and
Charges.
xxx           xxx           xxx
(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/well wisher fee constitute Non-Public
Utility Revenues of Concessionaire, GRP may
intervene and require Concessionaire to explain
and justify the fee it may 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.40
Thus, under the 1997 Concession Agreement, with respect to
(1) vehicular parking fee, (2) porterage fee and (3) greeter/well
wisher fee, all that MIAA can do is to require PIATCO
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 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 particular fees that may be charged by PIATCO.
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 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 category, i.e., periodic
adjustment of once every two years in accordance with a
prescribed parametric formula and effective only upon written
approval by MIAA. However, under the 1997 Concession
Agreement, adjustment of fees under the third category is not
subject to MIAA regulation.
With respect to terminal fees that may be charged by
PIATCO,41 as shown earlier, this was included within the
category of "Public Utility Revenues" under the 1997
Concession Agreement. This classification is significant
because under the 1997 Concession Agreement, "Public
Utility Revenues" are subject to an "Interim Adjustment" of fees
upon the occurrence of certain extraordinary events specified
in the agreement.42 However, under the draft Concession
Agreement, terminal fees are not included in the types of fees
that may be subject to "Interim Adjustment."43
Finally, under the 1997 Concession Agreement, "Public Utility
Revenues," except terminal fees, are denominated in US
Dollars44 while payments to the Government are in Philippine
Pesos. In the draft Concession Agreement, no such
stipulation was included. By stipulating that "Public Utility
Revenues" will be paid to PIATCO in US Dollars while
payments by PIATCO to the 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 from the detrimental
effects of exchange rate fluctuations.
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 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 available to
other bidders at the time the contract was bidded out. It is
not very difficult to see that the changes in the 1997
Concession Agreement translate to direct and concrete
financial advantages for PIATCO which were not available at
the time the contract was offered for bidding. It cannot be
denied that under the 1997 Concession Agreement only
"Public Utility Revenues" are subject to MIAA regulation.
Adjustments of all other fees imposed and collected by
PIATCO are entirely within its control. Moreover, with respect
to terminal fees, under the 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 stipulated for "Public Utility Revenues"
under the 1997 Concession Agreement, except terminal fees,
gives PIATCO an added benefit which was not available at the
time of bidding.
b. Assumption by the
Government of the liabilities of
PIATCO in the event of the latter's
default thereof
Under the draft Concession Agreement, default by PIATCO
of any of its obligations to creditors 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 default of PIATCO's
loans figure in the agreement. Such default does not directly
result in any concomitant right or obligation in favor of the
Government.
However, the 1997 Concession Agreement provides:
 Section 4.04 Assignment.
xxx           xxx           xxx
(b) In the event Concessionaire should default in the
payment of an Attendant Liability, and the default has
resulted in the acceleration of the payment due date
of the Attendant Liability prior to its stated date of
maturity, the Unpaid Creditors and Concessionaire
shall immediately inform GRP in writing of such
default. GRP shall, within one hundred eighty (180)
Days from receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either (i) take
over the Development Facility and assume the
Attendant Liabilities, or (ii) allow the Unpaid Creditors,
if qualified, to be substituted as concessionaire and
operator of the Development Facility in accordance
with the terms and conditions hereof, or designate a
qualified operator acceptable to GRP to operate the
Development Facility, likewise under the terms and
conditions of this Agreement; Provided that if at the
end of the 180-day period GRP shall not have served
the Unpaid Creditors and Concessionaire written
notice of its choice, GRP shall be deemed to have
elected to take over the Development Facility with the
concomitant assumption of Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid
Creditors to be substituted as concessionaire, the
latter shall form and organize a concession company
qualified to take over the operation of the
Development Facility. If the concession company
should elect to designate an operator for the
Development Facility, the concession company shall
in good faith identify and designate a qualified
operator acceptable to GRP within one hundred
eighty (180) days from receipt of GRP's written notice.
If the concession company, acting in good faith and
with due diligence, is unable to designate a qualified
operator within the aforesaid period, then GRP shall
at the end of the 180-day period take over the
Development Facility and assume Attendant
Liabilities.
The term "Attendant Liabilities" under the 1997 Concession
Agreement is defined as:
Attendant Liabilities refer to all amounts recorded and
from time to time outstanding in the books of the
Concessionaire as owing to Unpaid Creditors who
have provided, loaned or advanced funds actually
used for the Project, including all interests,
penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related
expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-
contractors.
Under the above quoted portions of Section 4.04 in relation to
the definition of "Attendant Liabilities," default by PIATCO of
its loans used to finance the NAIA IPT III project triggers
the 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 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 the contract, a circumstance that is not
entirely within the control of the Government.
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
PIATCO has obtained to finance the project, an option that was
not made available in the draft Concession Agreement. Section
4.04 is an important amendment to the 1997 Concession
Agreement because it grants PIATCO a financial advantage
or benefit which was not previously made available during
the bidding process. This financial advantage is a significant
modification that translates to better terms and conditions for
PIATCO.
PIATCO, however, argues that the parties to the bidding
procedure acknowledge that the draft Concession Agreement
is subject to amendment because the Bid Documents permit
financing or borrowing. They claim that it was the lenders who
proposed the amendments to the draft Concession Agreement
which resulted in the 1997 Concession Agreement.
We agree that it is not inconsistent with the rationale and
purpose of the BOT Law to allow the 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 substantial amount of investment. It is therefore inevitable for
the awardee of the contract to seek alternate sources of funds
to support the project. Be that as it may, this Court maintains
that amendments to the contract bidded upon should always
conform to the general policy on public bidding if such
procedure is to be faithful to its real nature and purpose. By its
very nature and characteristic, competitive public bidding aims
to protect the public interest by giving the public the best
possible advantages through open competition.45 It has been
held that the three principles in public bidding are (1) the offer
to the public; (2) opportunity for competition; and (3) a basis for
the exact comparison of bids. A regulation of the matter which
excludes any of these factors destroys the distinctive character
of the system and thwarts the 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, 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 hesitate to strike down
said contract in its entirety for violation of public policy on
public bidding. A strict adherence on the principles, rules and
regulations on public bidding must be sustained if only to
preserve the integrity and the faith of the general public on the
procedure.
Public bidding is a standard practice for procuring government
contracts for public service and 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 thereof is a grave abuse of discretion amounting to
lack or excess of jurisdiction which warrants proper
judicial action.
In view of the above discussion, the fact that the foregoing
substantial amendments were made on the 1997 Concession
Agreement renders the same null and void for being contrary
to public policy. These amendments convert the 1997
Concession Agreement to an entirely different
agreement from the contract bidded out or the draft
Concession Agreement. It is not 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
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 new terms and conditions which provide financial
benefit to PIATCO which may have altered the technical and
financial parameters of other bidders had they known that such
terms were available.
III
Direct Government Guarantee
Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of
the 1997 Concession Agreement provides:
Section 4.04 Assignment
xxx           xxx           xxx
(b) In the event Concessionaire should default in the
payment of an Attendant Liability, and the default
resulted in the acceleration of the payment due date
of the Attendant Liability prior to its stated date of
maturity, the Unpaid Creditors and Concessionaire
shall immediately inform GRP in writing of such
default. GRP shall within one hundred eighty (180)
days from receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either (i) take
over the Development Facility and assume the
Attendant Liabilities, or (ii) allow the Unpaid
Creditors, if qualified to be substituted as
concessionaire and operator of the Development
facility in accordance with the terms and conditions
hereof, or designate a qualified operator acceptable to
GRP to operate the Development Facility, likewise
under the terms and conditions of this Agreement;
Provided, that if at the end of the 180-day period GRP
shall not have served the Unpaid Creditors and
Concessionaire written notice of its choice, GRP shall
be deemed to have elected to take over the
Development Facility with the concomitant
assumption of Attendant Liabilities.
(c) If GRP, by written notice, allow the Unpaid
Creditors to be substituted as concessionaire, the
latter shall form and organize a concession company
qualified to takeover the operation of the
Development Facility. If the concession company
should elect to designate an operator for the
Development Facility, the concession company shall
in good faith identify and designate a qualified
operator acceptable to GRP within one hundred
eighty (180) days from receipt of GRP's written notice.
If the concession company, acting in good faith and
with due diligence, is unable to designate a qualified
operator within the aforesaid period, then GRP shall
at the end of the 180-day period take over the
Development Facility and assume Attendant
Liabilities.
….
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded
and from time to time outstanding in the books of
the Concessionaire as owing to Unpaid
Creditors who have provided, loaned or advanced
funds actually used for the Project, including all
interests, penalties, associated fees, charges,
surcharges, indemnities, reimbursements and other
related expenses, and further including amounts
owed by Concessionaire to its suppliers, contractors
and sub-contractors.48
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 time
outstanding from the books" of PIATCO which the latter owes
to its creditors.49 These amounts include "all interests,
penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses."50 This obligation
of the Government to pay 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 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 to take in the event of
PIATCO's failure to fulfill its loan obligations, the
Government is still at a risk of assuming PIATCO's
outstanding loans. This is due to the fact that the
Government would only be free from assuming PIATCO's
debts if the unpaid creditors would be able to designate a
qualified operator within the period provided for in the contract.
Thus, the Government's assumption of liability is virtually
out of its control. The Government under the circumstances
provided for in the 1997 Concession Agreement is at the mercy
of the existence, availability and willingness of a qualified
operator. The above contractual provisions constitute a direct
government guarantee which is prohibited by law.
One of the main impetus for the enactment of the BOT Law is
the lack of government funds to construct the infrastructure
and development projects necessary for economic growth and
development. This is why private sector resources are being
tapped in order to finance these projects. The BOT law allows
the private sector to participate, and is in fact encouraged to do
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
itself. As such, direct guarantee, subsidy and equity by the
government in these projects are 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 the law is
subverted.
Section 2(n) of the BOT Law defines direct guarantee as
follows:
(n) Direct government guarantee — An agreement
whereby the government or any of its agencies or
local government units assume responsibility for
the repayment of debt directly incurred by the
project proponent in implementing the project in
case of a loan default.
Clearly by providing that the Government "assumes" the
attendant liabilities, which consists of PIATCO's unpaid debts,
the 1997 Concession Agreement provided for a direct
government guarantee for the debts incurred by PIATCO in the
implementation of the NAIA IPT III project. It is of no moment
that the relevant sections are subsumed under the title of
"assignment". The provisions providing for direct government
guarantee which is prohibited by law is clear from the terms
thereof.
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:
Section 4.04 Security
xxx           xxx           xxx
(c) GRP agrees with Concessionaire (PIATCO) that it
shall negotiate in good faith and enter into direct
agreement with the Senior Lenders, or with an
agent of such Senior Lenders (which agreement shall
be subject to the approval of the Bangko Sentral ng
Pilipinas), in such form as may be reasonably
acceptable to both GRP and Senior Lenders, with
regard, inter alia, to the following parameters:
xxx           xxx           xxx
(iv) If the Concessionaire [PIATCO] is in
default under a payment obligation owed
to the Senior Lenders, and as a result
thereof the Senior Lenders have become
entitled to accelerate the Senior Loans, the
Senior Lenders shall have the right to notify
GRP of the same, and without prejudice to
any other rights of the Senior Lenders or any
Senior Lenders' agent may have (including
without limitation under security interests
granted in favor of the Senior Lenders), to
either in good faith identify and designate a
nominee which is qualified under sub-clause
(viii)(y) below to operate the Development
Facility [NAIA Terminal 3] or transfer the
Concessionaire's [PIATCO] rights and
obligations under this Agreement to a
transferee which is qualified under sub-
clause (viii) below;
xxx           xxx           xxx
(vi) if the Senior Lenders, acting in good faith
and using reasonable efforts, are unable to
designate a nominee or effect a transfer in
terms and conditions satisfactory to the
Senior Lenders within one hundred eighty
(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 [NAIA Terminal 3] (other than a
turnover of the Development Facility [NAIA
Terminal 3] to GRP) within the following one
hundred eighty (180) days. If no
agreement relating to the Development
Facility [NAIA Terminal 3] is 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 be transferred by the
Concessionaire [PIATCO] to GRP or its
designee and GRP shall make a
termination payment to Concessionaire
[PIATCO] equal to the Appraised Value
(as hereinafter defined) of the
Development Facility [NAIA Terminal 3] or
the sum of the Attendant Liabilities, if
greater. Notwithstanding Section 8.01(c)
hereof, this Agreement shall be deemed
terminated upon the transfer of the
Development Facility [NAIA Terminal 3] to
GRP pursuant hereto;
xxx           xxx           xxx
Section 1.06. Attendant Liabilities
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 [PIATCO] to Senior Lenders or
any other persons or entities who have provided,
loaned, or advanced funds or provided financial
facilities to Concessionaire [PIATCO] for the
Project [NAIA Terminal 3], including, without
limitation, all principal, interest, associated fees,
charges, reimbursements, and other related
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 further including amounts owed by
Concessionaire [PIATCO] to its professional
consultants and advisers, suppliers, contractors and
sub-contractors.54
It is clear from the foregoing contractual provisions that in the
event that PIATCO fails to fulfill its loan obligations to its Senior
Lenders, the Government is obligated to directly negotiate and
enter into an agreement relating to NAIA IPT III with the Senior
Lenders, should the latter fail to appoint a qualified nominee or
transferee who will take the place of PIATCO. If the Senior
Lenders and the Government are unable to enter into an
agreement after the prescribed period, the Government must
then pay PIATCO, upon transfer of NAIA IPT III to the
Government, termination payment equal to the appraised value
of the project or the value of the attendant liabilities
whichever is greater. Attendant liabilities as defined in the
ARCA includes all amounts owed or thereafter may be owed
by PIATCO not only to the Senior 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 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 principal, interest,
associated fees, charges, reimbursements, and other related
expenses . . . whether payable at maturity, by acceleration or
otherwise."55
It is clear from the foregoing that the ARCA provides for a
direct guarantee by the government to pay PIATCO's loans
not only to its Senior Lenders but all other entities who
provided PIATCO funds or services upon PIATCO's default
in its loan obligation with its Senior Lenders. The fact that
the Government's obligation to pay PIATCO's lenders for the
latter's obligation would only arise after the Senior Lenders fail
to appoint a qualified nominee or 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 its lenders in
connection with NAIA IPT III. Worse, the conditions that would
make the Government liable for PIATCO's debts is triggered by
PIATCO's own default of its loan obligations to its Senior
Lenders to which loan contracts the Government was never a
party to. The Government was not even given an option as to
what course of action it should take in case PIATCO defaulted
in the payment of its senior loans. The Government, upon
PIATCO's default, would be merely notified by the Senior
Lenders of the same and it is the Senior Lenders who are
authorized to appoint a qualified nominee or transferee. Should
the Senior Lenders fail to make such an appointment, the
Government is then automatically obligated to "directly deal
and negotiate" with the Senior Lenders regarding NAIA IPT III.
The only way the 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 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 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 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.
The proscription against government guarantee in any
form is one of the policy considerations behind the BOT
Law. Clearly, in the present case, the ARCA obligates the
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 in its loan obligations to its Senior Lenders and the
latter fails to appoint a qualified nominee or transferee. This in
effect would make the Government liable for PIATCO's loans
should the conditions as set forth in the ARCA arise. This is a
form of direct government guarantee.
The BOT Law and its implementing rules provide that in order
for an unsolicited proposal for a BOT project may be accepted,
the following conditions must first be met: (1) the project
involves a new concept in technology and/or is not part of the
list of priority projects, (2) no direct government guarantee,
subsidy or equity is required, and (3) the government
agency or local government unit has invited by publication
other interested parties to a public bidding and conducted the
same.56 The failure to meet any of the above conditions will
result in the denial of the proposal. It is further provided that
the presence of direct government guarantee, subsidy or
equity will "necessarily disqualify a proposal from being treated
and accepted as an 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 to that effect is fatal and is sufficient to
deny the proposal. It stands to reason therefore that if a
proposal can be denied by reason of the existence of direct
government guarantee, then 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 result in the denial of a proposal
cannot, and should not, be allowed to later on be inserted in
the contract resulting from the said proposal. The basic rules of
justice and fair play alone militate against such an occurrence
and must not, therefore, be countenanced particularly in this
instance where the government is exposed to the risk of
shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to the legal
maxim that those that cannot be done directly cannot be done
indirectly.58 To declare the PIATCO contracts valid despite
the clear statutory prohibition against a direct government
guarantee would not only make a mockery of what the
BOT Law seeks to prevent -- which is to expose the
government to the risk of incurring a monetary obligation
resulting from a contract of loan between the project
proponent and its lenders and to which the Government is
not a party to -- but would also render the BOT Law
useless for what it seeks to achieve –- to make use of the
resources of the private sector in the "financing, operation
and maintenance of infrastructure and development
projects"59 which are necessary for national growth and
development but which the government, unfortunately,
could ill-afford to finance at this point in time.
IV
Temporary takeover of business affected with public
interest
Article XII, Section 17 of the 1987 Constitution provides:
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, temporarily take over or direct the operation of
any privately owned public utility or business affected
with public interest.
The above provision pertains to the right of the State in times
of national emergency, and in the exercise of its police power,
to temporarily take over the operation of any business affected
with public interest. In the 1986 Constitutional Commission, the
term "national emergency" 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 duration of the emergency itself is
the determining factor as to how long the temporary takeover
by the government would last.61 The temporary takeover by the
government extends only to the operation of the business and
not to the ownership thereof. As such the government is not
required to compensate the private entity-owner of the
said business as there is no transfer of ownership, whether
permanent or temporary. The private entity-owner affected by
the temporary takeover cannot, likewise, claim just
compensation for the use of the said business and its
properties as the temporary takeover by the government is in
exercise of its police power and not of its power of eminent
domain.
Article V, Section 5.10 (c) of the 1997 Concession Agreement
provides:
Section 5.10 Temporary Take-over of operations by
GRP.
….
(c) In the event the development Facility or any part
thereof and/or the operations of Concessionaire or
any part thereof, become the subject matter of or be
included 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 written notice to
Concessionaire, immediately take over the operations
of the Terminal and/or the Terminal Complex. During
such take over by GRP, the Concession Period shall
be suspended; provided, that upon termination of war,
hostilities or national emergency, the operations shall
be returned to Concessionaire, at which time, the
Concession period shall commence to run
again. Concessionaire shall be entitled to
reasonable compensation for the duration of the
temporary take over by GRP, which compensation
shall take into account the reasonable cost for the
use of the Terminal and/or Terminal Complex,
(which is in the amount at least equal to the debt
service requirements of Concessionaire, if the
temporary take over should occur at the time when
Concessionaire is still servicing debts owed to project
lenders), any loss or damage to the Development
Facility, and other consequential damages. If the
parties cannot agree on the reasonable compensation
of Concessionaire, or on the liability of GRP as
aforesaid, the matter shall be resolved in accordance
with Section 10.01 [Arbitration]. Any amount
determined to be payable by GRP to Concessionaire
shall be offset from the amount next payable by
Concessionaire to GRP.62
PIATCO cannot, by mere contractual stipulation,
contravene the Constitutional provision on temporary
government takeover and obligate the government to pay
"reasonable cost for the use of the Terminal and/or
Terminal Complex."63 Article XII, section 17 of the 1987
Constitution envisions a situation wherein the exigencies of the
times necessitate the government to "temporarily take over or
direct the operation of any privately owned public utility or
business affected with public interest." It is the welfare and
interest of the public 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 police power. Police power is the "most
essential, insistent, and illimitable of powers."64 Its exercise
therefore must not be unreasonably hampered nor its exercise
be a source of obligation by the government in the absence of
damage due to arbitrariness of its exercise.65 Thus, requiring
the government to pay reasonable compensation for the
reasonable use of the property pursuant to the operation of the
business contravenes the Constitution.
V
Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage vested in one
or more persons or companies, consisting in the exclusive right
(or power) to carry on a particular business or trade,
manufacture a particular article, or control the sale of a
particular commodity."66 The 1987 Constitution strictly
regulates monopolies, whether private or public, and even
provides 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 requires. No
combinations in restraint of trade or unfair competition
shall be allowed.
Clearly, monopolies are not per se prohibited by the
Constitution but may be permitted to exist to aid the
government in carrying on an enterprise or to aid in the
performance of various services and functions in the interest
of the public.67 Nonetheless, a determination must first be
made as to whether public interest requires a monopoly. As
monopolies are subject to abuses that can inflict severe
prejudice to the public, they are subject to a higher level of
State regulation than an ordinary business undertaking.
In the cases at bar, PIATCO, under the 1997 Concession
Agreement and the ARCA, is granted the "exclusive right to
operate a commercial international passenger terminal within
the Island of Luzon" at the NAIA IPT III. 68 This is with the
exception of already existing international airports in Luzon
such as those located in the Subic Bay Freeport Special
Economic Zone ("SBFSEZ"), Clark Special Economic Zone
("CSEZ") and in Laoag City.69 As such, upon commencement
of PIATCO's operation of NAIA IPT III, Terminals 1 and 2 of
NAIA would cease to function as international passenger
terminals. This, however, does not prevent MIAA to use
Terminals 1 and 2 as domestic passenger terminals or in any
other manner as it may deem appropriate except those
activities that would compete with NAIA IPT III in the latter's
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
Date71 and renewable for another twenty-five (25) years at the
option of the government.72 Both the 1997 Concession
Agreement and the ARCA further provide that, in view of
the exclusive right granted to PIATCO, the concession
contracts of the service providers currently servicing
Terminals 1 and 2 would no longer be renewed and those
concession contracts whose expiration are subsequent to
the In-Service Date would cease to be effective on the said
date.73
The operation of an international passenger airport terminal is
no doubt an undertaking imbued with public interest. In
entering into a Build–Operate-and-Transfer contract for the
construction, operation and maintenance of NAIA IPT III, the
government has determined that public interest would be
served better if private sector resources were used in its
construction and an exclusive right to operate be granted to the
private entity undertaking the said project, 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
agency authorized to operate the NAIA complex, as well as
DOTC, the department to which MIAA is attached.74
This is in accord with the Constitutional mandate that a
monopoly which is not prohibited must be regulated.75 While it
is the declared policy of the BOT Law to encourage private
sector participation by "providing a climate of minimum
government regulations,"76 the same does not mean that
Government must completely surrender its sovereign power to
protect public 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. The right granted to the public utility may be
exclusive but the exercise of the right cannot run riot. Thus,
while PIATCO may be authorized to exclusively operate NAIA
IPT III as an international passenger terminal, the Government,
through the MIAA, has the right and the duty to ensure that it is
done in accord with public interest. PIATCO's right to operate
NAIA IPT III cannot also violate the rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement and the
ARCA provide:
3.01 Concession Period
xxx           xxx           xxx
(e) GRP confirms that certain concession
agreements relative to certain services and
operations currently being undertaken at the Ninoy
Aquino International Airport passenger Terminal
I have a validity period extending beyond the In-
Service Date. GRP through
DOTC/MIAA, confirms that these services and
operations shall not be carried over to the Terminal
and the Concessionaire is under no legal obligation
to permit such carry-over except through a separate
agreement duly entered into with Concessionaire. In
the event Concessionaire becomes involved in any
litigation initiated by any such concessionaire or
operator, GRP undertakes and hereby holds
Concessionaire free and harmless on full indemnity
basis from and against any loss 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 such amounts
shall be fully deductible by way of an offset from any
amount which the Concessionaire is bound to pay
GRP under this Agreement.
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 contracts are still existing and whose validity
extends beyond the In-Service Date. One contract
remains valid until 2008 and the other until 2010.77
We hold that while the service providers presently operating at
NAIA Terminal 1 do not have an absolute right for the renewal
or the extension of their respective contracts, those contracts
whose duration extends beyond NAIA IPT III's In-Service-Date
should not be unduly prejudiced. These contracts must be
respected not just by the parties thereto but also by third
parties. 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 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 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.
In fine, the efficient functioning of NAIA IPT III is imbued with
public interest. The provisions of the 1997 Concession
Agreement and the ARCA did not strip government, thru the
MIAA, of its right to supervise the operation of the whole NAIA
complex, including NAIA IPT III. As the primary government
agency tasked with the job,79 it is MIAA's responsibility to
ensure that whoever by contract is given the right to operate
NAIA IPT III will do so within the bounds of the law and with
due regard to the rights of third parties and above all, the
interest of the public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence of the
requisite financial capacity of the 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. Further, considering that the
1997 Concession Agreement contains material and substantial
amendments, which amendments had the effect of converting
the 1997 Concession Agreement into an entirely different
agreement from the contract bidded upon, the 1997
Concession Agreement is similarly null and void for being
contrary to public policy. The provisions under Sections 4.04(b)
and (c) in relation to Section 1.06 of the 1997 Concession
Agreement and Section 4.04(c) in relation to Section 1.06 of
the ARCA, which constitute a direct government guarantee
expressly prohibited by, among others, the BOT Law and its
Implementing Rules and Regulations are also null and void.
The Supplements, being accessory contracts to the ARCA, are
likewise null and void.
WHEREFORE, the 1997 Concession Agreement, the
Amended and Restated Concession Agreement and the
Supplements thereto are set aside for being null and void.
G.R. No. L-19857             March 2, 1923
THE ILOILO ICE AND COLD STORAGE
COMPANY, petitioner,
vs.
PUBLIC UTILITY BOARD, respondent.
John Bordman for petitioner.
Attorney-General Villa-Real for respondent.
MALCOLM, J.:
This action in certiorari is for the purpose of reviewing a
decision of the Public Utility Commissioner, affirmed by the
Public Utility Board, holding that the petitioner, the Iloilo Ice
and Cold Storage Company, is a public utility and, as such,
subject to the control and jurisdiction of the Public Utility
Commissioner.
The case can be best understood by a consideration of its
various phases, under the following topic: Statement of the
issue, statement of the case, statement of the facts, statement
of the law, statement of the authorities, statement of the
petitioner's case, and of the government's case, and judgment.
STATEMENT OF THE ISSUE
The issue is whether the Iloilo Ice and Cold Storage Company
is a public utility, as that term is defined by section 9 of Act No.
2694.
STATEMENT OF THE CASE
Francisco Villanueva, Jr., secretary of the Public Utility
Commission, investigated the operation of ice plants in Iloilo
early in November, 1921. He reported to the Public Utility
Commissioner that the Iloilo Ice and Cold Storage Company
should be considered a public utility, and that, accordingly, the
proper order should issue.
Agreeable to the recommendation of Secretary Villanueva, the
Public Utility Commissioner promulgated an order on
December 19, 1921, reciting the facts abovementioned, and
directing the Iloilo Ice and Cold Storage Company to show
cause why it should not be considered a public utility and as
such required to comply with each and every duty of public
utilities provided in Act No. 2307, as amended by Act No.
2694. To this order, John Bordman, treasurer of the Iloilo Ice
and Cold Storage Company, interposed a special answer, in
which it was alleged that the company is, and always has been
operated as a private enterprise.
Hearing was then had, at which the testimonies of Francisco
Villanueva, Jr., and of John Bordman were received. Various
exhibits were presented and received in evidence. Mr.
Bordman, as the managing director and treasurer of the
company, later submitted an affidavit.
The Public Utility Commissioner rendered a decision holding in
effect that the Iloilo Ice and Cold Storage Company was a
public utility, and that, accordingly, it should file in the office of
the Public Utility Commissioner, a statement of its charges for
ice. This decision was affirmed on appeal to the Public Utility
Board. From this last decision, petitioner has come before this
court, asking that the proceeding below be reviewed, and the
decisions set aside.
STATEMENT OF THE FACTS
The petitioner, the Iloilo Ice and Cold Storage Company, is a
corporation organized under the laws of the Philippine Islands
in 1908, with a capital stock of P60,000. Continuously since
that date, the company has maintained and operated a plant
for the manufacture and sale of ice in the City of Iloilo. It also
does business to a certain extent in the Provinces of Negros,
Capiz, and Antique, and with boats which stop at the port of
Iloilo. At the time its operation were started, two additional ice
plants were operating in Iloilo. Subsequently, however, the
other plants ceased to operate, so that the petitioner now has
no competitor in the field.
The normal production of ice of the Iloilo Ice and Cold Storage
Company is about 3 tons per day. In the month of January,
1922, a total of 83,837 kilos of ice were sold, of which 56,400
kilos were on written contracts in the City of Iloilo and adjoining
territory, 14,214 kilos, also on written contracts, to steamers
calling at the port of Iloilo, and 13,233 kilos on verbal contracts.
Although new machinery has been installed in the plant, this
was merely for replacement purposes, and did not add to its
capacity. The demand for ice has usually been much more
than the plant could produce and no effort has been made to
provide sufficient ice to supply all who might apply.
Since 1908, the business of the Iloilo Ice and Cold Storage
Company, accordingly to its managing director and treasurer,
has been carried on with selected customers only. Preference,
however, is always given to hospitals, the request of practicing
physicians, and the needs of sick persons. The larger part of
the company's business is perfected by written contracts
signed by the parties served, which, in the present form,
includes an agreement that no right to future service is
involved.
The coupon books of the company contain on the outside the
following:
This agreement witnesseth, that The Iloilo Ice and
Cold Storage Co. will furnish the undersigned with ice
as indicated herein at the rate of one coupon per day.
These coupons are not transferable. It is further
agreed that the company is not obligated to similar
service in future except by special agreement.
Iloilo, ............................................................................
..........., 192 ......
(Signed) .......................................................................
No. ..................
Cash sales of ice are accomplished on forms reading: "In
receiving the ice represented by this ticket I hereby agree that
the Iloilo Ice and Cold Storage Co. is not bound in future to
extend to me further service." A notice posted in the Iloilo store
reads: "No ice is sold to the public by this plant. Purchases can
only be made by private contract." In August, 1918, all storage
facilities were abolished, and resumed in 1920 only with
contracts, a copy of the form at present in use waiving any
right to continued service.
On only one point of fact is there any divergence, and this is
relatively unimportant. Secretary Villanueva reported, and the
Public Utility Commissioner found, that the Iloilo Ice and Cold
Storage Company sold ice to the public, and advertised its sale
through the papers; while managing director Bordman claims
that only once have the instructions of the board of directors
prohibiting public advertising been violated.
STATEMENT OF THE LAW
The original public utility law, Act No. 2307, in its section 14, 1n
speaking of the jurisdiction of the Board of Public Utility
Commissioner, and in defining the term "public utility," failed to
include ice, refrigeration, and cold storage plants. This
deficiency was, however, remedied by Act No. 2694, enacted
in 1917, which amended section 14 of Act No. 2307, to read as
follows:
* * * The term "public utility" is hereby defined to
include every individual, copartnership, association,
corporation or joint stock company, whether domestic
or foreign, their lessee, trustees or receivers
appointed by any court whatsoever, or any
municipality, province or other department of the
Government of the Philippine Islands, that now or
hereafter may own, operate, manage or control within
the Philippine Islands any common carrier, railroad,
street railway, traction railway, steamboat or
steamship line, small water craft, such
as bancas, virais, lorchas, and others, engaged in the
transportation of passengers and cargo, line of freight
and passenger automobiles, shipyard, marine railway,
marine repair shop, ferry, freight or any other car
services, public warehouse, public wharf or dock not
under the jurisdiction of the Insular Collector of
Customs, ice, refrigeration, cold storage, canal,
irrigation, express, subway, pipe line, gas, electric
light, heat, power, water, oil sewer, telephone, wire or
wireless telegraph system, plant or equipment, for
public use: Provided, That the Commission or
Commissioner shall have no jurisdiction over ice
plants, cold storage plants, or any other kind of public
utilities operated by the Federal Government
exclusively for its own and not for public use. . . .
It will thus be noted that the term "public utility," in this
jurisdiction, includes every individual, copartnership,
association, corporation, or joint stock company that now or
hereafter may own, operate, manage, or control, within the
Philippine Islands, any ice, refrigeration, cold storage system,
plant, or equipment, for public use. Particular attention is
invited to the last phrase, "for public use."
STATEMENT OF THE AUTHORITIES
The authorities are abundant, although some of them are not
overly instructive. Selection is made of the pertinent decisions
coming from our own Supreme Court, the Supreme Court of
the United States, and the Supreme Court of California.
In the case of United States vs. Tan Piaco ([1920], 40 Phil.,
853), the facts were that the trucks of the defendant furnished
service under special agreements to carry particular persons
and property. Following the case of Terminal Taxicab
Co. vs. Kutz ([1916], 241 U. S., 252), it was held that since the
defendant did not hold himself out to carry all passengers and
freight for all persons who might offer, he was not a public
utility and, therefore, was not criminally liable for his failure to
obtain a license from the Public Utility Commissioner. It was
said:
Under the provisions of said section, two things are
necessary: (a) The individual, copartnership, etc.,
etc., must be a public utility; and (b) the business in
which such individual, copartnership, etc., etc., is
engaged must be for public use. So long as the
individual or copartnership, etc., etc., is engaged in a
purely private enterprise, without attempting to render
service to all who may apply, he can in no sense be
considered a public utility, for public use.
"Public use" means the same as "use by the public."
The essential feature of the public use is that it is not
confined to privileged individuals, but is open to the
indefinite public. It is this indefinite or unrestricted
quality that gives it its public character. In determining
whether a use is public, we must look not only to the
character of the business to be done, but also to the
proposed mode of doing it. If the use is merely
optional with the owners, or the public benefit is
merely incidental, it is not a public use, authorizing the
exercise of the jurisdiction of the public utility
commission. There must be, in general, a right which
the law compels the owner to give to the general
public. It is not enough that the general prosperity of
the public is promoted. Public use is not synonymous
with public interest. The true criterion by which to
judge of the character of the use is whether the public
may enjoy it by right or only by permission.
In the decision of the Supreme Court of the United States in
Terminal Taxicab Company vs. Kutz, supra, it was held: "A
taxicab company is a common carrier within the meaning of the
Act of March 4, 1913 (37 Stat. at L., 938, chap. 150), sec. 8,
and hence subject to the jurisdiction of the Public Utilities
Commission of the District of Columbia as a "public utility" in
respect of its exercise of its exclusive right under lease from
the Washington Terminal Company, the owner of the
Washington Union Railway Station, to solicit livery and taxicab
business from persons passing to or from trains, and of its
exclusive right under contracts with certain Washington hotels
to solicit taxicab business from guest, but that part of its
business which consists in furnishing automobiles from its
central garage on individual orders, generally by telephone,
cannot be regarded as a public utility, and the rates charged
for such service are therefore not open to inquiry by the
Commission." Mr. Justice Holmes, delivering the opinion of the
court, in part said:
The rest of the plaintiff's business, amounting to four
tenths, consists mainly in furnishing automobiles from
its central garage on orders, generally by telephone. It
asserts the right to refuse the service, and no doubt
would do so it the pay was uncertain, but it advertises
extensively, and, we must assume, generally accepts
any seemingly solvent customer. Still, the bargains
are individual, and however much they may tend
towards uniformity in price, probably have not quite
the mechanical fixity of charges that attends the use
of taxicabs from the station and hotels. There is no
contract with a third person to serve the public
generally. The question whether, as to this part of its
business, it is an agency for public use within the
meaning of the statute, is more difficult. . . . Although I
have not been able to free my mind from doubt, the
 court is of opinion that this part of the business is not
to be regarded as a public utility. It is true that all
business, and, for the matter of that, every life in all its
details, has a public aspect, some bearing upon the
welfare of the community in which it is passed. But,
however it may have been in earlier days as to the
common callings, it is assumed in our time that an
invitation to the public to buy does not necessarily
entail an obligation to sell. It is assumed an ordinary
shopkeeper may refuse his wares arbitrary to a
customer whom he dislikes, and although that
consideration is not conclusive (233 U. S., 407), it is
assumed that such a calling is not public as the word
is used. In the absence of clear language to the
contrary it would be assumed that an ordinary livery
stable stood on the same footing as a common shop,
and there seems to be no difference between the
plaintiff's service from its garage and that of a livery
stable. It follows that the plaintiff is not bound to give
information as to its garage rates.
The Supreme Court of California in the case of Thayer and
Thayer vs. California Development Company ([1912], 164 Cal.,
117), announced, among other things, that the essential
feature of a public use is that "it is not confined to privileged
individuals, but is open to the indefinite public. It is this
indefiniteness or unrestricted quality that gives it its public
character." Continuing, reference was made to the decision of
the United States Supreme Court in Fallbrook Irrigation
District vs. Bradley ([1896], 164 U. S., 161), where the United
States Supreme Court considered the question of whether or
not the water belonging to an irrigation district organized under
the California statute of 1887, and acquired for and applied to
its authorized uses and purposes, was water dedicated to a
public use. Upon this question, the Supreme Court on appeal
said:
The fact that the use of the water is limited to the
landowner is not therefore a fatal objection to this
legislation. It is not essential that the entire
community, or even any considerable portion thereof,
should directly enjoy or participate in an improvement
in order to constitute a public use. All landowners in
the district have the right to a proportionate share of
the water, and no one landowner is favored above his
fellow in his right to the use of the water. It is not
necessary, in order that the use should be public,
that every resident  in the district should have the right
to the use of the water. The water is not used for
general, domestic, or for drinking purposes, and it is
plain from the scene of the act that the water is
intended for the use of those who will have occasion
to use it on their lands. . . . We think it clearly appears
that all who by reason of their ownership of or
connection with any portion of the lands would have
occasion to use the water, would in truth have the
opportunity to use it upon the same terms as all
others similarly situated. In this away the use, so far
as this point is concerned, is public because all
persons have the right to use the water under the
same circumstances. This is sufficient.
The latest pronouncement of the United States Supreme Court
here available is found in the case of Producers Transportation
Company vs. Railroad Commission of the State of California
([1920], 251 U. S., 228). Mr. Justice Van Devander, delivering
the opinion of the court, in part said:
It is, of course, true that if the pipe line was
constructed solely to carry oil for particular
procedures under strictly private contracts and never
was devoted by its owner to public use, that is, to
carrying for the public, the State could not by mere
legislative fiat or by any regulating order of a
commission convert it into a public utility or make its
owner a common carrier; for that would be taking
private property for public use without just
compensation, which no State can do consistently
with the due process of law clause of the Fourteenth
Amendment. . . . On the other hand, if in the
beginning or during its subsequent operation the pipe
line was devoted by its owner to public use, and if the
right thus extended to the public has not been
withdrawn, there can be no doubt that the pipe line is
a public utility and its owner a common carrier whose
rates and practices are subject to public regulation.
Munn vs. Illinois, supra.
The state court, upon examining the evidence,
concluded that the company voluntarily had devoted
the pipe line to the use of the public in transporting oil,
and it rested this conclusion upon the grounds . . .
that, looking through the maze of contracts, agency
agreements and the like, under which the
transportation was effected, subordinating form to
substance, and having due regard to the agency's
ready admission of new members and its exclusion of
none, it was apparent that the company did in truth
carry oil for all producers seeking its service, in other
words, for the public. (See Pipe Line Cases, 234 U.
S., 548.)
Lastly, we take note of the case of Allen vs. Railroad
Commission of the State of California ([1918], 179 Cal., 68; 8
A. L. R., 249). It was here held that a water company does not,
by undertaking to furnish a water supply to a municipality which
will require only a small percentage of its product, become a
public utility as to the remainder, which it sells under private
contracts. The court observed that its decision fully recognized
that a private water company may be organized to sell water
for purposes of private gain, and that in doing, it does not
become a public utility. "To hold that property has been
dedicated to a public use," reads the opinion, "is not a trivial
thing, and such dedication is never presumed without evidence
of unequivocal intention." Continuing, the court discusses what
is a public utility in the following language:
What is a public utility, over which the state may
exercise its regulatory control without regard to the
private interest which may be affected thereby? It its
broadest sense everything upon which man bestows
labor for purpose other than those for the benefits of
his immediate family is impressed with a public use.
No occupation escapes it, no merchant can avoid it,
no professional man can deny it. As an illustrative
type one may instance the butcher. He deals with the
public; he invites and is urgent that the public should
deal with him. The character of his business is such
that, under the police power of the state, it may well
be subject to regulation, and in many places and
instances is so regulated. The preservation of
cleanliness, the inspection of meats to see that they
are wholesome, all such matters are within the due
and reasonable regulatory powers of the state or
nation. But these regulatory powers are not called into
exercise because the butcher has devoted his
 property to public service so as to make it a public The argument for the Government, nevertheless, merits
utility. He still has the unquestionable right to fix his serious consideration. The attempt of the Public Utility
prices; he still has the questioned right to say that he Commissioner to intervene in corporate affairs, to protect the
will or will not contract with any member of the public. public, is commendable. Sympathetic thought should always
What differentiates all such activities from a true be given to the facts laid before the Commissioner, with
public utility is this and this only: That the devotion to reference to the law under which he is acting.
public use must be of such character that the public
generally, or that part of it which has been served and Aware of the foregoing situation, the members of the Court are
which has accepted the services, has the right to of the opinion that the present case is governed by the
demand that that service shall be conducted, so long authorities mentioned in this decision, which means, of course,
as it is continued, with reasonable efficiency under that, upon the facts shown in the record, the Iloilo Ice and
reasonable charges. Public use, then, means the use Storage Company is not a public utility within the meaning of
by the public and be every individual member of it, as the law. Like Mr. Justice Holmes, in his opinion in Terminal
a legal right. Taxicab Company vs. Kutz, supra, when, in speaking for
himself personally, he admitted that he had not been able to
STATEMENT OF THE PETITIONER'S CASE AND OF THE free his mind from doubt, so has the writer not been able to
GOVERNMENT'S CASE free his mind from doubt, but is finally led to accept the
authorities as controlling.
Petitioner contends on the facts, that the evidence shows that
the petitioner is operating a small ice plant in Iloilo; that no
attempt has been made to supply the needs of all who may
apply for accommodation or to expand the plant to meet all
demands; that sales have been made to selected customers
only, and that the right has been freely exercised to refuse
sales not only to whole districts, but constantly to individuals as
wells; that the greater portion of the business is conducted
through signed contracts with selected individuals, and on
occasions, when there is a surplus, the same is sold for cash
to selected applicants; that no sales are made except to
persons who have waived all claim of right to similar
accommodation in the future; and that no offer, agreement, or
tender of service to the public has ever been made. Petitioner
contends, as to the law, that the decisions heretofore referred
to are controlling.

The Government has no quarrel with the petitioner as to the

facts. But the Attorney-General attempts to differentiate the
authorities from the instant situation. The Attorney-General
also argues that to sanction special contracts would "open a
means of escape from the application of the law."

The result is, therefore, that we have substantial agreement

between the petitioner and the government as to the issue, as
to the facts, as to the law, and as to the applicable authorities.
The question, however, remains as puzzling as before.

Planting ourselves of the authorities, which discuss the subject

of public use, the criterion by which to judge of the character of
the use is whether the public may enjoy it by right or only by
permission. (U. S. vs. Tan Piaco, supra.) The essential feature
of a public use is that it is not confined to privileged individuals,
but is open to the indefinite public. (Thayler and
Thayler vs. California Development Company, supra.) The use
is public if all persons have the right to the use under the same
circumstances. (Fall brook Irrigation
District vs. Bradley, supra.) If the company did in truth sell ice
to all persons seeking its service, it would be a public utility.
But if on the other hand, it was organized solely for particular
persons under strictly private contracts, and never was
devoted by its owners to public use, it could not be held to be a
public utility without violating the due process of law clause of
the Constitution. (Producers Transportation Co. vs. Railroad
Commission, supra.) And the apparent and continued purpose
of the Iloilo Ice and Storage Company has been, and is, to
remain a private enterprise and to avoid submitting to the
Public Utility law.
G.R. No. 114222 April 6, 1995
FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO
G. BIAZON, petitioners,
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the
Secretary of the Department of Transportation and
Communications, and EDSA LRT CORPORATION,
LTD., respondents.
QUIASON, J.:
This is a petition under Rule 65 of the Revised Rules of Court
to prohibit respondents from further implementing and
enforcing the "Revised and Restated Agreement to Build,
Lease and Transfer a Light Rail Transit System for EDSA"
dated April 22, 1992, and the "Supplemental Agreement to the
22 April 1992 Revised and Restated Agreement To Build,
Lease and Transfer a Light Rail Transit System for EDSA"
dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo
G. Biazon are members of the Philippine Senate and are suing
in their capacities as Senators and as taxpayers. Respondent
Jesus B. Garcia, Jr. is the incumbent Secretary of the
Department of Transportation and Communications (DOTC),
while private respondent EDSA LRT Corporation, Ltd. is a
private corporation organized under the laws of Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line
along EDSA, a major thoroughfare in Metropolitan Manila,
which shall traverse the cities of Pasay, Quezon, Mandaluyong
and Makati. The plan, referred to as EDSA Light Rail Transit III
(EDSA LRT III), was intended to provide a mass transit system
along EDSA and alleviate the congestion and growing
transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin
Enterprises, Inc., represented by Elijahu Levin to DOTC
Secretary Oscar Orbos, proposing to construct the EDSA LRT
III on a Build-Operate-Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a
technical team to discuss the project with DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act
Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector,
and For Other Purposes," was signed by President Corazon C.
Aquino. Referred to as the Build-Operate-Transfer (BOT) Law,
it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the
financing, construction and operation of government projects
through private initiative and investment: Build-Operate-
Transfer (BOT) or Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set
the EDSA LRT III project underway, DOTC, on January 22,
1991 and March 14, 1991, issued Department Orders Nos. 91-
494 and 91-496, respectively creating the Prequalification Bids
and Awards Committee (PBAC) and the Technical Committee.
After its constitution, the PBAC issued guidelines for the
prequalification of contractors for the financing and
implementation of the project The notice, advertising the
prequalification of bidders, was published in three newspapers
of general circulation once a week for three consecutive weeks
starting February 21, 1991.
The deadline set for submission of prequalification documents
was March 21, 1991, later extended to April 1, 1991. Five
groups responded to the invitation namely, ABB Trazione of
Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel
International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan,
and EDSA LRT Consortium, composed of ten foreign and
domestic corporations: namely, Kaiser Engineers International,
Inc., ACER Consultants (Far East) Ltd. and Freeman Fox,
Tradeinvest/CKD Tatra of the Czech and Slovak Federal
Republics, TCGI Engineering All Asia Capital and Leasing
Corporation, The Salim Group of Jakarta, E. L. Enterprises,
Inc., A.M. Oreta & Co. Capitol Industrial Construction Group,
Inc, and F. F. Cruz & co., Inc.
On the last day for submission of prequalification documents,
the prequalification criteria proposed by the Technical
Committee were adopted by the PBAC. The criteria totalling
100 percent, are as follows: (a) Legal aspects — 10 percent;
(b) Management/Organizational capability — 30 percent; and
(c) Financial capability — 30 percent; and (d) Technical
capability — 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law
with the formulation of the Implementation Rules and
Regulations thereof, approved the same.
After evaluating the prequalification, bids, the PBAC issued a
Resolution on May 9, 1991 declaring that of the five applicants,
only the EDSA LRT Consortium "met the requirements of
garnering at least 21 points per criteria [sic], except for Legal
Aspects, and obtaining an over-all passing mark of at least 82
points" (Rollo, p. 146). The Legal Aspects referred to provided
that the BOT/BT contractor-applicant meet the requirements
specified in the Constitution and other pertinent laws (Rollo, p.
114).
Subsequently, Secretary Orbos was appointed Executive
Secretary to the President of the Philippines and was replaced
by Secretary Pete Nicomedes Prado. The latter sent to
President Aquino two letters dated May 31, 1991 and June 14,
1991, respectively recommending the award of the EDSA LRT
III project to the sole complying bidder, the EDSA LRT
Consortium, and requesting for authority to negotiate with the
said firm for the contract pursuant to paragraph 14(b) of the
Implementing Rules and Regulations of the BOT Law (Rollo,
pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions
of the President, issued a directive to the DOTC to proceed
with the negotiations. On July 16, 1991, the EDSA LRT
Consortium submitted its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid
requirements, DOTC and respondent EDSA LRT Corporation,
Ltd., in substitution of the EDSA LRT Consortium, entered into inclusive of mobilization, site works, initial and final testing of
an "Agreement to Build, Lease and Transfer a Light Rail the system (Supplemental Agreement, Sec. 5; Rollo, p. 83).
Transit System for EDSA" under the terms of the BOT Law Upon full or partial completion and viability thereof, private
(Rollo, pp. 147-177). respondent shall deliver the use and possession of the
completed portion to DOTC which shall operate the same
Secretary Prado, thereafter, requested presidential approval of (Supplemental Agreement, Sec. 5; Revised and Restated
the contract. Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay
private respondent rentals on a monthly basis through an
Irrevocable Letter of Credit. The rentals shall be determined by
In a letter dated March 13, 1992, Executive Secretary Franklin an independent and internationally accredited inspection firm
Drilon, who replaced Executive Secretary Orbos, informed to be appointed by the parties (Supplemental Agreement, Sec.
Secretary Prado that the President could not grant the 6; Rollo, pp. 85-86) As agreed upon, private respondent's
requested approval for the following reasons: (1) that DOTC capital shall be recovered from the rentals to be paid by the
failed to conduct actual public bidding in compliance with DOTC which, in turn, shall come from the earnings of the
Section 5 of the BOT Law; (2) that the law authorized public EDSA LRT III (Revised and Restated Agreement, Sec. 1, p.
bidding as the only mode to award BOT projects, and the 5; Rollo, p. 54). After 25 years and DOTC shall have
prequalification proceedings was not the public bidding completed payment of the rentals, ownership of the project
contemplated under the law; (3) that Item 14 of the shall be transferred to the latter for a consideration of only U.S.
Implementing Rules and Regulations of the BOT Law which $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p.
authorized negotiated award of contract in addition to public 67).
bidding was of doubtful legality; and (4) that congressional
approval of the list of priority projects under the BOT or BT
Scheme provided in the law had not yet been granted at the On May 5, 1994, R.A. No. 7718, an "Act Amending Certain
time the contract was awarded (Rollo, pp. 178-179). Sections of Republic Act No. 6957, Entitled "An Act Authorizing
the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and for Other
In view of the comments of Executive Secretary Drilon, the Purposes" was signed into law by the President. The law was
DOTC and private respondents re-negotiated the agreement. published in two newspapers of general circulation on May 12,
On April 22, 1992, the parties entered into a "Revised and 1994, and took effect 15 days thereafter or on May 28, 1994.
Restated Agreement to Build, Lease and Transfer a Light Rail The law expressly recognizes BLT scheme and allows direct
Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the negotiation of BLT contracts.
parties [are] cognizant of the fact the DOTC has full authority to
sign the Agreement without need of approval by the President
pursuant to the provisions of Executive Order No. 380 and that II
certain events [had] supervened since November 7, 1991
which necessitate[d] the revision of the Agreement" (Rollo, p. In their petition, petitioners argued that:
51). On May 6, 1992, DOTC, represented by Secretary Jesus
Garcia vice  Secretary Prado, and private respondent entered (1) THE AGREEMENT OF APRIL 22, 1992,
into a "Supplemental Agreement to the 22 April 1992 Revised AS AMENDED BY THE SUPPLEMENTAL
and Restated Agreement to Build, Lease and Transfer a Light AGREEMENT OF MAY 6, 1993, INSOFAR
Rail Transit System for EDSA" so as to "clarify their respective AS IT GRANTS EDSA LRT
rights and responsibilities" and to submit [the] Supplemental CORPORATION, LTD., A FOREIGN
Agreement to the President, of the Philippines for his approval" CORPORATION, THE OWNERSHIP OF
(Rollo, pp. 79-80). EDSA LRT III, A PUBLIC UTILITY,
VIOLATES THE CONSTITUTION AND,
Secretary Garcia submitted the two Agreements to President HENCE, IS UNCONSTITUTIONAL;
Fidel V. Ramos for his consideration and approval. In a
Memorandum to Secretary Garcia on May 6, 1993, approved (2) THE BUILD-LEASE-TRANSFER
the said Agreements, (Rollo, p. 194). SCHEME PROVIDED IN THE
AGREEMENTS IS NOT DEFINED NOR
According to the agreements, the EDSA LRT III will use light RECOGNIZED IN R.A. NO. 6957 OR ITS
rail vehicles from the Czech and Slovak Federal Republics and IMPLEMENTING RULES AND
will have a maximum carrying capacity of 450,000 passengers REGULATIONS AND, HENCE, IS ILLEGAL;
a day, or 150 million a year to be achieved-through 54 such
vehicles operating simultaneously. The EDSA LRT III will run (3) THE AWARD OF THE CONTRACT ON A
at grade, or street level, on the mid-section of EDSA for a NEGOTIATED BASIS VIOLATES R; A. NO.
distance of 17.8 kilometers from F.B. Harrison, Pasay City to 6957 AND, HENCE, IS UNLAWFUL;
North Avenue, Quezon City. The system will have its own
power facility (Revised and Restated Agreement, Sec. 2.3
(ii); Rollo p. 55). It will also have thirteen (13) passenger (4) THE AWARD OF THE CONTRACT IN
stations and one depot in 16-hectare government property at FAVOR OF RESPONDENT EDSA LRT
North Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. CORPORATION, LTD. VIOLATES THE
91-92). REQUIREMENTS PROVIDED IN THE
IMPLEMENTING RULES AND
REGULATIONS OF THE BOT LAW AND,
Private respondents shall undertake and finance the entire HENCE, IS ILLEGAL;
project required for a complete operational light rail transit
system (Revised and Restated Agreement, Sec. 4.1; Rollo, p.
58). Target completion date is 1,080 days or approximately (5) THE AGREEMENTS VIOLATE
three years from the implementation date of the contract EXECUTIVE ORDER NO 380 FOR THEIR
 FAILURE TO BEAR PRESIDENTIAL
APPROVAL AND, HENCE, ARE ILLEGAL
AND INEFFECTIVE; AND
(6) THE AGREEMENTS ARE GROSSLY
DISADVANTAGEOUS TO THE
GOVERNMENT (Rollo, pp. 15-16).
Secretary Garcia and private respondent filed their comments
separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no
legal standing to institute the present petition;
(2) The writ of prohibition is not the proper remedy and the
petition requires ascertainment of facts;
(3) The scheme adopted in the Agreements is actually a build-
transfer scheme allowed by the BOT Law;
(4) The nationality requirement for public utilities mandated by
the Constitution does not apply to private respondent;
(5) The Agreements executed by and between respondents
have been approved by President Ramos and are not
disadvantageous to the government;
(6) The award of the contract to private respondent through
negotiation and not public bidding is allowed by the BOT Law;
and
(7) Granting that the BOT Law requires public bidding, this has
been amended by R.A No. 7718 passed by the Legislature On
May 12, 1994, which provides for direct negotiation as a mode
of award of infrastructure projects.
III
Respondents claimed that petitioners had no legal standing to
initiate the instant action. Petitioners, however, countered that
the action was filed by them in their capacity as Senators and
as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow
taxpayers to question contracts entered into by the national
government or government-owned or controlled corporations
allegedly in contravention of the law (Kilosbayan, Inc. v.
Guingona, 232 SCRA 110 [1994]) and to disallow the same
when only municipal contracts are involved (Bugnay
Construction and Development Corporation v. Laron, 176
SCRA. 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not
reversed, we have no choice but to follow it and uphold the
legal standing of petitioners as taxpayers to institute the
present action.
IV
In the main, petitioners asserted that the Revised and Restated
Agreement of April 22, 1992 and the Supplemental Agreement
of May 6, 1993 are unconstitutional and invalid for the following
reasons:
(1) the EDSA LRT III is a public utility, and
the ownership and operation thereof is
limited by the Constitution to Filipino citizens
and domestic corporations, not foreign
corporations like private respondent;
(2) the Build-Lease-Transfer (BLT) scheme
provided in the agreements is not the BOT or
BT Scheme under the law;
(3) the contract to construct the EDSA LRT
III was awarded to private respondent not
through public bidding which is the only
mode of awarding infrastructure projects
under the BOT law; and
(4) the agreements are grossly
disadvantageous to the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom
the contract to construct the EDSA LRT III was awarded by
public respondent, is admittedly a foreign corporation "duly
incorporated and existing under the laws of Hongkong" (Rollo,
pp. 50, 79). There is also no dispute that once the EDSA LRT
III is constructed, private respondent, as lessor, will turn it over
to DOTC, as lessee, for the latter to operate the system and
pay rentals for said use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation,
Ltd., a foreign corporation own EDSA LRT
III; a public utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What
private respondent owns are the rail tracks, rolling stocks like
the coaches, rail stations, terminals and the power plant, not a
public utility. While a franchise is needed to operate these
facilities to serve the public, they do not by themselves
constitute a public utility. What constitutes a public utility is not
their ownership but their use to serve the public (Iloilo Ice &
Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557
558 [1923]).
The Constitution, in no uncertain terms, requires a franchise for
the operation of a public utility. However, it does not require a
franchise before one can own the facilities needed to operate a
public utility so long as it does not operate them to serve the
public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of
authorization for the operation of a public
utility  shall be granted except to citizens of
the Philippines or to corporations or
associations organized under the laws of the
Philippines at least sixty  per centum of
whose capital is owned by such citizens, nor
shall such franchise, certificate or
authorization be exclusive character or for a
longer period than fifty years . . . (Emphasis
supplied).
In law, there is a clear distinction between the "operation" of a
public utility and the ownership of the facilities and equipment
used to serve the public.
Ownership is defined as a relation in law by virtue of which a
thing pertaining to one person is completely subjected to his
will in everything not prohibited by law or the concurrence with
the rights of another (Tolentino, II Commentaries and
Jurisprudence on the Civil Code of the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited
by law so that a property cannot be operated and used to
serve the public as a public utility unless the operator has a
franchise. The operation of a rail system as a public utility
includes the transportation of passengers from one point to
another point, their loading and unloading at designated places
and the movement of the trains at pre-scheduled times
(cf.  Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282,
180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v.
Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R.
2d 1065 [1948]).
The right to operate a public utility may exist independently and
separately from the ownership of the facilities thereof. One can
own said facilities without operating them as a public utility, or
conversely, one may operate a public utility without owning the
facilities used to serve the public. The devotion of property to
serve the public may be done by the owner or by the person in
control thereof who may not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the
ownership of the facilities used to serve the public can be very
well appreciated when we consider the transportation industry.
Enfranchised airline and shipping companies may lease their
aircraft and vessels instead of owning them themselves.
While private respondent is the owner of the facilities
necessary to operate the EDSA. LRT III, it admits that it is not
enfranchised to operate a public utility (Revised and Restated
Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity,
private respondent and DOTC agreed that on completion date,
private respondent will immediately deliver possession of the
LRT system by way of lease for 25 years, during which period
DOTC shall operate the same as a common carrier and private
respondent shall provide technical maintenance and repair
services to DOTC (Revised and Restated Agreement, Secs.
3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical
maintenance consists of providing (1) repair and maintenance
facilities for the depot and rail lines, services for routine
clearing and security; and (2) producing and distributing
maintenance manuals and drawings for the entire system
(Revised and Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for
familiarization with the operation, use, maintenance and repair
of the rolling stock, power plant, substations, electrical,
signaling, communications and all other equipment as supplied
in the agreement (Revised and Restated Agreement, Sec.
10; Rollo, pp. 66-67). Training consists of theoretical and live
training of DOTC operational personnel which includes actual
driving of light rail vehicles under simulated operating
conditions, control of operations, dealing with emergencies,
collection, counting and securing cash from the fare collection
system (Revised and Restated Agreement, Annex E, Secs. 2-
3). Personnel of DOTC will work under the direction and
control of private respondent only during training (Revised and
Restated Agreement, Annex E, Sec. 3.1). The training
objectives, however, shall be such that upon completion of the
EDSA LRT III and upon opening of normal revenue operation,
DOTC shall have in their employ personnel capable of
undertaking training of all new and replacement personnel
(Revised and Restated Agreement, Annex E Sec. 5.1). In other
words, by the end of the three-year construction period and
upon commencement of normal revenue operation, DOTC
shall be able to operate the EDSA LRT III on its own and train
all new personnel by itself.
Fees for private respondent' s services shall be included in the
rent, which likewise includes the project cost, cost of
replacement of plant equipment and spare parts, investment
and financing cost, plus a reasonable rate of return thereon
(Revised and Restated Agreement, Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume
all the obligations and liabilities of a common carrier. For this
purpose, DOTC shall indemnify and hold harmless private
respondent from any losses, damages, injuries or death which
may be claimed in the operation or implementation of the
system, except losses, damages, injury or death due to defects
in the EDSA LRT III on account of the defective condition of
equipment or facilities or the defective maintenance of such
equipment facilities (Revised and Restated Agreement, Secs.
12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles
and collect fees from the riding public. It will have no dealings
with the public and the public will have no right to demand any
services from it.
It is well to point out that the role of private respondent as
lessor during the lease period must be distinguished from the
role of the Philippine Gaming Management Corporation
(PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA
110 (1994). Therein, the Contract of Lease between PGMC
and the Philippine Charity Sweepstakes Office (PCSO) was
actually a collaboration or joint venture agreement prescribed
under the charter of the PCSO. In the Contract of Lease;
PGMC, the lessor obligated itself to build, at its own expense,
all the facilities necessary to operate and maintain a
nationwide on-line lottery system from whom PCSO was to
lease the facilities and operate the same. Upon due
examination of the contract, the Court found that PGMC's
participation was not confined to the construction and setting
up of the on-line lottery system. It spilled over to the actual
operation thereof, becoming indispensable to the pursuit,
conduct, administration and control of the highly technical and
sophisticated lottery system. In effect, the PCSO leased out its
franchise to PGMC which actually operated and managed the
same.
Indeed, a mere owner and lessor of the facilities used by a
public utility is not a public utility (Providence and W.R. Co. v.
United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co.
v. Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188
Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill
35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]).
Neither are owners of tank, refrigerator, wine, poultry and beer
cars who supply cars under contract to railroad companies
considered as public utilities (Crystal Car Line v. State Tax
Commission, 174 p. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does
not ipso facto characterize the corporation as one operating a
public utility. The moment for determining the requisite Filipino
nationality is when the entity applies for a franchise, certificate
or any other form of authorization for that purpose (People v.
Quasha, 93 Phil. 333 [1953]).
2. Petitioners further assert that the BLT scheme under the
Agreements in question is not recognized in the BOT Law and
its Implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes
as follows:
(a) Build-operate-and-transfer scheme — A
contractual arrangement whereby the
contractor undertakes the construction
including financing, of a given infrastructure
facility, and the operation and maintenance
thereof. The contractor operates the facility
over a fixed term during which it is allowed to
charge facility users appropriate tolls, fees,
rentals and charges sufficient to enable the
contractor to recover its operating and
maintenance expenses and its investment in
the project plus a reasonable rate of return
thereon. The contractor transfers the facility
to the government agency or local
government unit concerned at the end of the
fixed term which shall not exceed fifty (50)
years. For the construction stage, the
contractor may obtain financing from foreign
and/or domestic sources and/or engage the
services of a foreign and/or Filipino
constructor [sic]: Provided, That the
ownership structure of the contractor of an
infrastructure facility whose operation
requires a public utility franchise must be in
accordance with the Constitution: Provided,
however, That in the case of corporate
investors in the build-operate-and-transfer
corporation, the citizenship of each
stockholder in the corporate investors shall
be the basis for the computation of Filipino
equity in the said corporation: Provided,
further, That, in the case of foreign
constructors [sic], Filipino labor shall be
employed or hired in the different phases of
the construction where Filipino skills are
available: Provided, furthermore, that the
financing of a foreign or foreign-controlled
contractor from Philippine government
financing institutions shall not exceed twenty
percent (20%) of the total cost of the
infrastructure facility or project: Provided,
finally, That financing from foreign sources
shall not require a guarantee by the
Government or by government-owned or
controlled corporations. The build-operate-
and-transfer scheme shall include a supply-
and-operate situation which is a contractual
agreement whereby the supplier of
equipment and machinery for a given
infrastructure facility, if the interest of the
Government so requires, operates the facility
providing in the process technology transfer
and training to Filipino nationals.
(b) Build-and-transfer scheme — "A
contractual arrangement whereby the
contractor undertakes the construction
including financing, of a given infrastructure
facility, and its turnover after completion to
the government agency or local government
unit concerned which shall pay the
contractor its total investment expended on
the project, plus a reasonable rate of return
thereon. This arrangement may be employed
in the construction of any infrastructure
project including critical facilities which for
security or strategic reasons, must be
operated directly by the government
(Emphasis supplied).
The BOT scheme is expressly defined as one where the
contractor undertakes the construction and financing in
infrastructure facility, and operates and maintains the same.
The contractor operates the facility for a fixed period during
which it may recover its expenses and investment in the
project plus a reasonable rate of return thereon. After the
expiration of the agreed term, the contractor transfers the
ownership and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction
and financing of the facility, but after completion, the ownership
and operation thereof are turned over to the government. The
government, in turn, shall pay the contractor its total
investment on the project in addition to a reasonable rate of
return. If payment is to be effected through amortization
payments by the government infrastructure agency or local
government unit concerned, this shall be made in accordance
with a scheme proposed in the bid and incorporated in the
contract (R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the
owner of the infrastructure facility must comply with the
citizenship requirement of the Constitution on the operation of
a public utility. No such a requirement is imposed in the BT
scheme.
There is no mention in the BOT Law that the BOT and BT
schemes bar any other arrangement for the payment by the
government of the project cost. The law must not be read in
such a way as to rule out or unduly restrict any variation within
the context of the two schemes. Indeed, no statute can be
enacted to anticipate and provide all the fine points and details
for the multifarious and complex situations that may be
encountered in enforcing the law (Director of Forestry v.
Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil.
1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119
[1914]).
The BLT scheme in the challenged agreements is but a
variation of the BT scheme under the law.
As a matter of fact, the burden on the government in raising
funds to pay for the project is made lighter by allowing it to
amortize payments out of the income from the operation of the
LRT System.
In form and substance, the challenged agreements provide
that rentals are to be paid on a monthly basis according to a
schedule of rates through and under the terms of a confirmed
Irrevocable Revolving Letter of Credit (Supplemental
Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and
when full payment shall have been made to and received by
private respondent, it shall transfer to DOTC, free from any lien
or encumbrances, all its title to, rights and interest in, the
project for only U.S. $1.00 (Revised and Restated Agreement,
Sec. 11.1; Supplemental Agreement, Sec; 7; Rollo, pp. 67, .
87).
A lease is a contract where one of the parties binds himself to
give to another the enjoyment or use of a thing for a certain
price and for a period which may be definite or indefinite but
not longer than 99 years (Civil Code of the Philippines, Art.
1643). There is no transfer of ownership at the end of the lease
period. But if the parties stipulate that title to the leased
premises shall be transferred to the lessee at the end of the
lease period upon the payment of an agreed sum, the lease
becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid
in United States currency, not Philippine pesos. The EDSA
LRT III Project is a high priority project certified by Congress
and the National Economic and Development Authority as
falling under the Investment Priorities Plan of Government
(Rollo, pp. 310-311). It is, therefore, outside the application of
the Uniform Currency Act (R.A. No. 529), which reads as
follows:
Sec. 1. — Every provision contained in, or
made with respect to, any domestic
obligation to wit, any obligation contracted in
the Philippines which provisions purports to
give the obligee the right to require payment
in gold or in a particular kind of coin or
currency other than Philippine currency or in
an amount of money of the Philippines
measured thereby, be as it is hereby
declared against public policy, and null, void,
and of no effect, and no such provision shall
be contained in, or made with respect to, any
obligation hereafter incurred. The above
prohibition shall not apply to (a) . . .; (b)
transactions affecting high-priority economic
projects for agricultural, industrial and power
development as may be determined by
the National Economic Council which are
financed by or through foreign funds; . . . .
3. The fact that the contract for the construction of the EDSA
LRT III was awarded through negotiation and before
congressional approval on January 22 and 23, 1992 of the List
of National Projects to be undertaken by the private sector
pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice
to invalidate the award.
Subsequent congressional approval of the list including "rail-
based projects packaged with commercial development
opportunities" (Rollo, p. 310) under which the EDSA LRT III
projects falls, amounts to a ratification of the prior award of the
EDSA LRT III contract under the BOT Law.
Petitioners insist that the prequalifications process which led to
the negotiated award of the contract appears to have been
rigged from the very beginning to do away with the usual open
international public bidding where qualified internationally
known applicants could fairly participate.
The records show that only one applicant passed the
prequalification process. Since only one was left, to conduct a
public bidding in accordance with Section 5 of the BOT Law for
that lone participant will be an absurb and pointless exercise
(cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).
Contrary to the comments of the Executive Secretary Drilon,
Section 5 of the BOT Law in relation to Presidential Decree No.
1594 allows the negotiated award of government infrastructure
projects.
Presidential Decree No. 1594, "Prescribing Policies,
Guidelines, Rules and Regulations for Government
Infrastructure Contracts," allows the negotiated award of
government projects in exceptional cases. Sections 4 of the
said law reads as follows:
Bidding. — Construction projects shall
generally be undertaken by contract after
competitive public bidding. Projects may be
undertaken by administration or force
account or by negotiated contract only in
exceptional cases where time is of the
essence, or where there is lack of qualified
bidders or contractors, or where there is
conclusive evidence that greater economy
and efficiency would be achieved through
this arrangement, and in accordance with
provision of laws and acts on the matter,
subject to the approval of the Minister of
Public Works and Transportation and
Communications, the Minister of Public
Highways, or the Minister of Energy, as the
case may be, if the project cost is less than
P1 Million, and the President of the
Philippines, upon recommendation of the
Minister, if the project cost is P1 Million or
more (Emphasis supplied).
xxx xxx xxx
Indeed, where there is a lack of qualified bidders or
contractors, the award of government infrastructure contracts
may he made by negotiation. Presidential Decree No. 1594 is
the general law on government infrastructure contracts while
the BOT Law governs particular arrangements or schemes
aimed at encouraging private sector participation in
government infrastructure projects. The two laws are not
inconsistent with each other but are in  pari materia  and should
be read together accordingly.
In the instant case, if the prequalification process was actually
tainted by foul play, one wonders why none of the competing
firms ever brought the matter before the PBAC, or intervened
in this case before us (cf. Malayan Integrated Industries Corp.
v. Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v.
Office of the President, 205 SCRA 705 [1992]).
The challenged agreements have been approved by President
Ramos himself. Although then Executive Secretary Drilon may
have disapproved the "Agreement to Build, Lease and Transfer
a Light Rail Transit System for EDSA," there is nothing in our
laws that prohibits parties to a contract from renegotiating and
modifying in good faith the terms and conditions thereof so as
to meet legal, statutory and constitutional requirements. Under
the circumstances, to require the parties to go back to step one
of the prequalification process would just be an idle ceremony.
Useless bureaucratic "red tape" should be eschewed because
it discourages private sector participation, the "main engine" for
national growth and development (R.A. No. 6957, Sec. 1), and
renders the BOT Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme
in Section 2 thereof as:
(e) Build-lease-and-transfer — A contractual
arrangement whereby a project proponent is
authorized to finance and construct an
infrastructure or development facility and
upon its completion turns it over to the
government agency or local government unit
concerned on a lease arrangement for a
fixed period after which ownership of the
facility is automatically transferred to the
government unit concerned.
Section 5-A of the law, which expressly allows direct
negotiation of contracts, provides:
Direct Negotiation of Contracts. — Direct
negotiation shall be resorted to when there is
only one complying bidder left as defined
hereunder.
(a) If, after advertisement, only one
contractor applies for prequalification and it
meets the prequalification requirements,
after which it is required to submit a bid
proposal which is subsequently found by the
agency/local government unit (LGU) to be
complying.
(b) If, after advertisement, more than one
contractor applied for prequalification but
only one meets the prequalification
requirements, after which it submits
bid/proposal which is found by the
agency/local government unit (LGU) to be
complying.
(c) If, after prequalification of more than one
contractor only one submits a bid which is
found by the agency/LGU to be complying.
(d) If, after prequalification, more than one
contractor submit bids but only one is found
by the agency/LGU to be complying.
Provided, That, any of the disqualified
prospective bidder [sic] may appeal the
decision of the implementing agency,
agency/LGUs prequalification bids and
awards committee within fifteen (15) working
days to the head of the agency, in case of
national projects or to the Department of the
Interior and Local Government, in case of
local projects from the date the
disqualification was made known to the
disqualified bidder: Provided, furthermore,
That the implementing agency/LGUs
concerned should act on the appeal within
forty-five (45) working days from receipt
thereof.
Petitioners' claim that the BLT scheme and direct negotiation of
contracts are not contemplated by the BOT Law has now been
rendered moot and academic by R.A. No. 7718. Section 3 of
this law authorizes all government infrastructure agencies,
government-owned and controlled corporations and local
government units to enter into contract with any duly
prequalified proponent for the financing, construction,
operation and maintenance of any financially viable
infrastructure or development facility through a BOT, BT, BLT,
BOO (Build-own-and-operate), CAO (Contract-add-operate),
DOT (Develop-operate-and-transfer), ROT (Rehabilitate-
operate-and-transfer), and ROO (Rehabilitate-own-operate)
(R.A. No. 7718, Sec. 2 [b-j]).
From the law itself, once and applicant has prequalified, it can
enter into any of the schemes enumerated in Section 2 thereof,
including a BLT arrangement, enumerated and defined therein
(Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to
provide financial incentives and "a climate of minimum
government regulations and procedures and specific
government undertakings in support of the private sector" (Sec.
1). A curative statute makes valid that which before enactment
of the statute was invalid. Thus, whatever doubts and alleged
procedural lapses private respondent and DOTC may have
engendered and committed in entering into the questioned
contracts, these have now been cured by R.A. No. 7718
(cf. Development Bank of the Philippines v. Court of Appeals,
96 SCRA 342 [1980]; Santos V. Duata, 14 SCRA 1041 [1965];
Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].
4. Lastly, petitioners claim that the agreements are grossly
disadvantageous to the government because the rental rates
are excessive and private respondent's development rights
over the 13 stations and the depot will rob DOTC of the best
terms during the most productive years of the project.
It must be noted that as part of the EDSA LRT III project,
private respondent has been granted, for a period of 25 years,
exclusive rights over the depot and the air space above the
stations for development into commercial premises for lease,
sublease, transfer, or advertising (Supplemental Agreement,
Sec. 11; Rollo, pp. 91-92). For and in consideration of these
development rights, private respondent shall pay DOTC in
Philippine currency guaranteed revenues generated therefrom
in the amounts set forth in the Supplemental Agreement (Sec.
11; Rollo, p. 93). In the event that DOTC shall be unable to
collect the guaranteed revenues, DOTC shall be allowed to
deduct any shortfalls from the monthly rent due private
respondent for the construction of the EDSA LRT III
(Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All
rights, titles, interests and income over all contracts on the
commercial spaces shall revert to DOTC upon expiration of the
25-year period. (Supplemental Agreement, Sec. 11; Rollo, pp.
91-92).
The terms of the agreements were arrived at after a
painstaking study by DOTC. The determination by the proper
administrative agencies and officials who have acquired
expertise, specialized skills and knowledge in the performance
of their functions should be accorded respect absent any
showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co.
v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board
of Medical Education v. Alfonso, 176 SCRA 304 [1989]).
Government officials are presumed to perform their functions
with regularity and strong evidence is necessary to rebut this
presumption. Petitioners have not presented evidence on the
reasonable rentals to be paid by the parties to each other. The
matter of valuation is an esoteric field which is better left to the
experts and which this Court is not eager to undertake.
That the grantee of a government contract will profit therefrom
and to that extent the government is deprived of the profits if it
engages in the business itself, is not worthy of being raised as
an issue. In all cases where a party enters into a contract with
the government, he does so, not out of charity and not to lose
money, but to gain pecuniarily.

5. Definitely, the agreements in question have been entered

into by DOTC in the exercise of its governmental function.
DOTC is the primary policy, planning, programming, regulating
and administrative entity of the Executive branch of
government in the promotion, development and regulation of
dependable and coordinated networks of transportation and
communications systems as well as in the fast, safe, efficient
and reliable postal, transportation and communications
services (Administrative Code of 1987, Book IV, Title XV, Sec.
2). It is the Executive department, DOTC in particular that has
the power, authority and technical expertise determine whether
or not a specific transportation or communication project is
necessary, viable and beneficial to the people. The discretion
to award a contract is vested in the government agencies
entrusted with that function (Bureau Veritas v. Office of the
President, 205 SCRA 705 [1992]).
G.R. No. 47065             June 26, 1940
PANGASINAN TRANSPORTATION CO., INC., petitioner,
vs.
THE PUBLIC SERVICE COMMISSION, respondent.
LAUREL, J.:
The petitioner has been engaged for the past twenty years in
the business of transporting passengers in the Province of
Pangasinan and Tarlac and, to a certain extent, in the Province
of Nueva Ecija and Zambales, by means of motor vehicles
commonly known as TPU buses, in accordance with the terms
and conditions of the certificates of public convenience issued
in its favor by the former Public Utility Commission in cases
Nos. 24948, 30973, 36830, 32014 and 53090. On August 26,
1939, the petitioner filed with the Public Service Commission
an application for authorization to operate ten additional new
Brockway trucks (case No. 56641), on the ground that they
were needed to comply with the terms and conditions of its
existing certificates and as a result of the application of the
Eight Hour Labor Law. In the decision of September 26, 1939,
granting the petitioner's application for increase of equipment,
the Public Service Commission ordered:
Y de acuerdo con que se provee por el articulo 15 de
la ley No. 146 del Commonwealth, tal como ha sido
enmendada por el articulo 1 de la Ley No. 454, por la
presente se enmienda las condiciones de los
certificados de convenciencia publica expedidos en
los expedientes Nos. 24948, 30973, 36831, 32014 y
la authorizacion el el expediente No. 53090, asi que
se consideran incorporadas en los mismos las dos
siguientes condiciones:
Que los certificados de conveniencia publica y
authorizacion arriba mencionados seran validos y
subsistentes solamente durante de veinticinco (25)
anos, contados desde la fecha de la promulgacion de
esta decision.
Que la empresa de la solicitante porda ser adquirida
por el Commonwealth de Filipinas o por alguna
dependencia del mismo en cualquier tiempo que lo
deseare previo pago del precio d costo de su equipo
util, menos una depreciacion razonable que se ha fijar
por la Comision al tiempo de su adquisicion.
Not being agreeable to the two new conditions thus
incorporated in its existing certificates, the petitioner filed on
October 9, 1939 a motion for reconsideration which was
denied by the Public Service Commission on November 14,
1939. Whereupon, on November 20, 1939, the present petition
for a writ of certiorari was instituted in this court praying that an
order be issued directing the secretary of the Public Service
Commission to certify forthwith to this court the records of all
proceedings in case No. 56641; that this court, after hearing,
render a decision declaring section 1 of Commonwealth Act
No. 454 unconstitutional and void; that, if this court should be
of the opinion that section 1 of Commonwealth Act No. 454 is
constitutional, a decision be rendered declaring that the
provisions thereof are not applicable to valid and subsisting
certificates issued prior to June 8, 1939. Stated in the language
of the petitioner, it is contended:
1. That the legislative powers granted to the Public
Service Commission by section 1 of Commonwealth
Act No. 454, without limitation, guide or rule except
the unfettered discretion and judgment of the
Commission, constitute a complete and total
abdication by the Legislature of its functions in the
premises, and for that reason, the Act, in so far as
those powers are concerned, is unconstitutional and
void.
2. That even if it be assumed that section 1 of
Commonwealth Act No. 454, is valid delegation of
legislative powers, the Public Service Commission
has exceeded its authority because: (a) The Act
applies only to future certificates and not to valid and
subsisting certificates issued prior to June 8, 1939,
when said Act took effect, and (b) the Act, as applied
by the Commission, violates constitutional
guarantees.
Section 15 of Commonwealth Act No. 146, as amended by
section 1 of Commonwealth Act No. 454, invoked by the
respondent Public Service Commission in the decision
complained of in the present proceedings, reads as follows:
With the exception to those enumerated in the
preceding section, no public service shall operate in
the Philippines without possessing a valid and
subsisting certificate from the Public Service
Commission, known as "certificate of public
convenience," or "certificate of convenience and
public necessity," as the case may be, to the effect
that the operation of said service and the
authorization to do business will promote the public
interests in a proper and suitable manner.
The Commission may prescribed as a condition for
the issuance of the certificate provided in the
preceding paragraph that the service can be acquired
by the Commonwealth of the Philippines or by any
instrumentality thereof upon payment of the cost price
of its useful equipment, less reasonable depreciation;
and likewise, that the certificate shall valid only for a
definite period of time; and that the violation of any of
these conditions shall produce the immediate
cancellation of the certificate without the necessity of
any express action on the part of the Commission.
In estimating the depreciation, the effect of the use of
the equipment, its actual condition, the age of the
model, or other circumstances affecting its value in
the market shall be taken into consideration.
The foregoing is likewise applicable to any extension
or amendment of certificates actually force and to
those which may hereafter be issued, to permits to
modify itineraries and time schedules of public
services and to authorization to renew and increase
equipment and properties.
Under the first paragraph of the aforequoted section 15 of Act
No. 146, as amended, no public service can operate without a
certificate of public convenience or certificate of convenience
and public necessity to the effect that the operation of said
service and the authorization to do business will "public
interests in a proper and suitable manner." Under the second
paragraph, one of the conditions which the Public Service
Commission may prescribed the issuance of the certificate
provided for in the first paragraph is that "the service can be
acquired by the Commonwealth of the Philippines or by any
instrumental thereof upon payment of the cost price of its
useful equipment, less reasonable depreciation," a condition
which is virtually a restatement of the principle already
embodied in the Constitution, section 6 of Article XII, which
provides that "the State may, in the interest of national welfare
and defense, establish and operate industries and means of
transportation and communication, and, upon payment of just
compensation, transfer to public ownership utilities and other
private enterprises to be operated by the Government.
"Another condition which the Commission may prescribed, and
which is assailed by the petitioner, is that the certificate "shall
be valid only for a definite period of time." As there is a relation
between the first and second paragraphs of said section 15,
the two provisions must be read and interpreted together. That
is to say, in issuing a certificate, the Commission must
necessarily be satisfied that the operation of the service under
said certificate during a definite period fixed therein "will
promote the public interests in a proper and suitable manner."
Under section 16 (a) of Commonwealth Act. No. 146 which is a
complement of section 15, the Commission is empowered to
issue certificates of public convenience whenever it "finds that
the operation of the public service proposed and the
authorization to do business will promote the public interests in
a proper and suitable manner." Inasmuch as the period to be
fixed by the Commission under section 15 is inseparable from
the certificate itself, said period cannot be disregarded by the
Commission in determining the question whether the issuance
of the certificate will promote the public interests in a proper
and suitable manner. Conversely, in determining "a definite
period of time," the Commission will be guided by "public
interests," the only limitation to its power being that said period
shall not exceed fifty years (sec. 16 (a), Commonwealth Act
No. 146; Constitution, Art. XIII, sec. 8.) We have already ruled
that "public interest" furnishes a sufficient standard.
(People vs. Fernandez and Trinidad, G. R. No. 45655,
promulgated June 15, 1938; People vs. Rosenthal and
Osmeña, G. R. Nos. 46076 and 46077, promulgated June 12,
1939, citing New York Central Securities
Corporation vs. U.S.A., 287 U.S. 12, 24, 25, 77 Law. ed. 138,
145, 146; Schenchter Poultry Corporation vs. I.S., 295, 540, 79
Law. ed. 1570, 1585; Ferrazzini vs. Gsell, 34 Phil., 697, 711-
712.)
Section 8 of Article XIII of the Constitution provides, among
other things, that no franchise, certificate, or any other form of
authorization for the operation of a public utility shall be "for a
longer period than fifty years," and when it was ordained, in
section 15 of Commonwealth Act No. 146, as amended by
Commonwealth Act No. 454, that the Public Service
Commission may prescribed as a condition for the issuance of
a certificate that it "shall be valid only for a definite period of
time" and, in section 16 (a) that "no such certificates shall be
issued for a period of more than fifty years," the National
Assembly meant to give effect to the aforesaid constitutional
mandate. More than this, it has thereby also declared its will
that the period to be fixed by the Public Service Commission
shall not be longer than fifty years. All that has been delegated
to the Commission, therefore, is the administrative function,
involving the use discretion, to carry out the will of the National
Assembly having in view, in addition, the promotion of "public
interests in a proper and suitable manner." The fact that the
National Assembly may itself exercise the function and
authority thus conferred upon the Public Service Commission
does not make the provision in question constitutionally
objectionable.
The theory of the separation of powers is designed by its
originators to secure action and at the same time to forestall
overaction which necessarily results from undue concentration
of powers, and thereby obtain efficiency and prevent
deposition. Thereby, the "rule of law" was established which
narrows the range of governmental action and makes it subject
to control by certain devices. As a corollary, we find the rule
prohibiting delegation of legislative authority, and from the
earliest time American legal authorities have proceeded on the
theory that legislative power must be exercised by the
legislature alone. It is frankness, however, to confess that as
one delves into the mass of judicial pronouncement, he finds a
great deal of confusion. One thing, however, is apparent in the
development of the principle of separation of powers and that
is that the maxim of delegatus non potest delegari  or delegata
potestas non potest delegari, attributed to Bracton (De Legius
et Consuetedinious Angliae, edited by G. E. Woodbine, Yale
University Press, 1922, vol. 2, p. 167) but which is also
recognized in principle in the Roman Law (D. 17.18.3), has
been made to adapt itself to the complexities of modern
governments, giving rise to the adoption, within certain limits,
of the principle of "subordinate legislation," not only in the
United States and England but in practically all modern
governments. (People vs. Rosenthal and Osmeña, G. R. Nos.
46076 and 46077, promulgated June 12, 1939.) Accordingly,
with the growing complexity of modern life, the multiplication of
the subjects of governmental regulation, and the increased
difficulty of administering the laws, there is a constantly
growing tendency toward the delegation of greater powers by
the legislature, and toward the approval of the practice by the
court. (Dillon Catfish Drainage Dist, v. Bank of Dillon, 141 S. E.
274, 275, 143 S. Ct. 178; State vs. Knox County, 54 S. W. 2d.
973, 976, 165 Tenn. 319.) In harmony with such growing
tendency, this Court, since the decision in the case
of Compañia General de Tabacos de Filipinas vs. Board of
Public Utility Commissioner (34 Phil., 136), relied upon by the
petitioner, has, in instances, extended its seal of approval to
the "delegation of greater powers by the legislature." (Inchausti
Steamship Co. vs. Public Utility Commissioner, 44 Phil.,
Autobus Co. vs. De Jesus, 56 Phil., 446; People vs. Fernandez
& Trinidad, G. R. No. 45655, promulgated June 15, 1938;
People vs. Rosenthal & Osmeña, G. R. Nos. 46076, 46077,
promulgated June 12, 1939; and Robb and
Hilscher vs. People, G. R. No. 45866, promulgated June 12,
1939.).
Under the fourth paragraph of section 15 of Commonwealth
Act No. 146, as amended by Commonwealth Act No. 454, the
power of the Public Service Commission to prescribed the
conditions "that the service can be acquired by the
Commonwealth of the Philippines or by any instrumentality
thereof upon payment of the cost price of its useful equipment,
less reasonable," and "that the certificate shall be valid only for
a definite period of time" is expressly made applicable "to any
extension or amendment of certificates actually in force" and
"to authorizations to renew and increase equipment and
properties." We have examined the legislative proceedings on
the subject and have found that these conditions were
purposely made applicable to existing certificates of public
convenience. The history of Commonwealth Act No. 454
reveals that there was an attempt to suppress, by way of
amendment, the sentence "and likewise, that the certificate
shall be valid only for a definite period of time," but the attempt
failed:
 xxx     xxx     xxx
Sr. CUENCO. Señor Presidente, para otra enmienda.
En la misma pagina, lineas 23 y 24, pido que se
supriman las palabras 'and likewise, that the
certificate shall be valid only for a definite period time.'
Esta disposicion del proyecto autoriza a la Comision
de Servicios Publicos a fijar un plazo de vigencia
certificado de conveniencia publica. Todo el mundo
sabe que bo se puede determinar cuando los
intereses del servicio publico requiren la explotacion
de un servicio publico y ha de saber la Comision de
Servisios, si en un tiempo determinado, la explotacion
de algunos buses en cierta ruta ya no tiene de ser,
sobre todo, si tiene en cuenta; que la explotacion de
los servicios publicos depende de condiciones
flutuantes, asi como del volumen como trafico y de
otras condiciones. Ademas, el servicio publico se
concede por la Comision de Servicios Publicos el
interes publico asi lo exige. El interes publico no tiene
duracion fija, no es permanente; es un proceso mas o
menos indefinido en cuanto al tiempo. Se ha
acordado eso en el caucus de anoche.
EL PRESIDENTE PRO TEMPORE. ¿Que dice el
Comite?
Sr. ALANO. El Comite siente tener que rechazar esa
enmienda, en vista de que esto certificados de
conveniencia publica es igual que la franquicia:
sepuede extender. Si los servicios presentados por la
compañia durante el tiempo de su certificado lo
require, puede pedir la extension y se le extendera;
pero no creo conveniente el que nosotros demos un
certificado de conveniencia publica de una manera
que podria pasar de cincuenta anos, porque seria
anticonstitucional.
xxx     xxx     xxx
By a majority vote the proposed amendment was defeated.
(Sesion de 17 de mayo de 1939, Asamblea Nacional.)
The petitioner is mistaken in the suggestion that, simply
because its existing certificates had been granted before June
8, 1939, the date when Commonwealth Act No. 454,
amendatory of section 15 of Commonwealth Act No. 146, was
approved, it must be deemed to have the right of holding them
in perpetuity. Section 74 of the Philippine Bill provided that "no
franchise, privilege, or concession shall be granted to any
corporation except under the conditions that it shall be subject
to amendment, alteration, or repeal by the Congress of the
United States." The Jones Law, incorporating a similar
mandate, provided, in section 28, that "no franchise or right
shall be granted to any individual, firm, or corporation except
under the conditions that it shall be subject to amendment,
alteration, or repeal by the Congress of the United States."
Lastly, the Constitution of the Philippines provided, in section 8
of Article XIII, that "no franchise or right shall be granted to any
individual, firm, or corporation, except under the condition that
it shall be subject to amendment, alteration, or repeal by the
National Assembly when the public interest so requires." The
National Assembly, by virtue of the Constitution, logically
succeeded to the Congress of the United States in the power
to amend, alter or repeal any franchise or right granted prior to
or after the approval of the Constitution; and when
Commonwealth Acts Nos. 146 and 454 were enacted, the
National Assembly, to the extent therein provided, has
declared its will and purpose to amend or alter existing
certificates of public convenience.
Upon the other hand, statutes enacted for the regulation of
public utilities, being a proper exercise by the state of its police
power, are applicable not only to those public utilities coming
into existence after its passage, but likewise to those already
established and in operation.
Nor is there any merit in petitioner's contention, that,
because of the establishment of petitioner's
operations prior to May 1, 1917, they are not subject
to the regulations of the Commission. Statutes for the
regulation of public utilities are a proper exercise by
the state of its police power. As soon as the power is
exercised, all phases of operation of established
utilities, become at once subject to the police power
thus called into operation. Procedures' Transportation
Co. v. Railroad Commission, 251 U. S. 228, 40 Sup.
Ct. 131, 64 Law. ed. 239, Law v. Railroad
Commission, 184 Cal. 737, 195 Pac. 423, 14 A. L. R.
249. The statute is applicable not only to those public
utilities coming into existence after its passage, but
likewise to those already established and in operation.
The 'Auto Stage and Truck Transportation Act' (Stats.
1917, c. 213) is a statute passed in pursuance of the
police power. The only distinction recognized in the
statute between those established before and those
established after the passage of the act is in the
method of the creation of their operative rights. A
certificate of public convenience and necessity it
required for any new operation, but no such certificate
is required of any transportation company for the
operation which was actually carried on in good faith
on May 1, 1917, This distinction in the creation of their
operative rights in no way affects the power of the
Commission to supervise and regulate them.
Obviously the power of the Commission to hear and
dispose of complaints is as effective against
companies securing their operative rights prior to May
1, 1917, as against those subsequently securing such
right under a certificate of public convenience and
necessity. (Motor Transit Co. et al. v. Railroad
Commission of California et al., 209 Pac. 586.)
Moreover, Commonwealth Acts Nos. 146 and 454 are not only
the organic acts of the Public Service Commission but are "a
part of the charter of every utility company operating or seeking
to operate a franchise" in the Philippines. (Streator Aqueduct
Co. v. et al., 295 Fed. 385.) The business of a common carrier
holds such a peculiar relation to the public interest that there is
superinduced upon it the right of public regulation. When
private property is "affected with a public interest it ceased to
be  juris privati only." When, therefore, one devotes his property
to a use in which the public has an interest, he, in effect, grants
to the public an interest in that use, and must submit to be
controlled by the public for the common good, to the extent of
the interest he has thus created. He may withdraw his grant by
discounting the use, but so long as he maintains the use he
must submit to control. Indeed, this right of regulation is so far
beyond question that it is well settled that the power of the
state to exercise legislative control over public utilities may be
exercised through boards of commissioners.
(Fisher vs. Yangco Steamship Company, 31 Phil., 1, citing
Munn vs. Illinois, 94 U.S. 113; Georgia R. & Bkg.
Co. vs. Smith, 128 U.S. 174; Budd vs. New York, 143 U.S.
517; New York etc. R. Co. vs. Bristol 151 U.S. 556, 571;
Connecticut etc. R. Co. vs. Woodruff, 153 U.S. 689; Louisville (Edwards vs. McCoy, supra.) This principle emanates from the
etc. Ry Co. vs. Kentucky, 161 U.S. 677, 695.) This right of the more fundamental principle that the genius of constitutional
state to regulate public utilities is founded upon the police government is contrary to the vesting of unlimited power
power, and statutes for the control and regulation of utilities are anywhere. Law is both a grant and a limitation upon power.
a legitimate exercise thereof, for the protection of the public as
well as of the utilities themselves. Such statutes are, therefore, The decision appealed from is hereby reversed and the case
not unconstitutional, either impairing the obligation of contracts, remanded to the Public Service Commission for further
taking property without due process, or denying the equal proceedings in accordance with law and this decision, without
protection of the laws, especially inasmuch as the question any pronouncement regarding costs. So ordered
whether or not private property shall be devoted to a public and
the consequent burdens assumed is ordinarily for the owner to
decide; and if he voluntarily places his property in public
service he cannot complain that it becomes subject to the
regulatory powers of the state. (51 C. J., sec. 21, pp. 9-10.) in
the light of authorities which hold that a certificate of public
convenience constitutes neither a franchise nor contract,
confers no property right, and is mere license or privilege.
(Burgess vs. Mayor & Alderman of Brockton, 235 Mass. 95,
100, 126 N. E. 456; Roberto vs. Commisioners of Department
of Public Utilities, 262 Mass. 583, 160 N. E. 321;
Scheible vs. Hogan, 113 Ohio St. 83, 148 N. E. 581;
Martz vs. Curtis [J. L.] Cartage Co. [1937], 132 Ohio St. 271, 7
N. E. [d] 220; Manila Yellow Taxicab Co. vs. Sabellano, 59
Phil., 773.)

Whilst the challenged provisions of Commonwealth Act No.

454 are valid and constitutional, we are, however, of the
opinion that the decision of the Public Service Commission
should be reversed and the case remanded thereto for further
proceedings for the reason now to be stated. The Public
Service Commission has power, upon proper notice and
hearing, "to amend, modify or revoke at any time any certificate
issued under the provisions of this Act, whenever the facts and
circumstances on the strength of which said certificate was
issued have been misrepresented or materially changed."
(Section 16, par. [m], Commonwealth Act No. 146.) The
petitioner's application here was for an increase of its
equipment to enable it to comply with the conditions of its
certificates of public convenience. On the matter of limitation to
twenty five (25) years of the life of its certificates of public
convenience, there had been neither notice nor opportunity
given the petitioner to be heard or present evidence. The
Commission appears to have taken advantage of the petitioner
to augment petitioner's equipment in imposing the limitation of
twenty-five (25) years which might as well be twenty or fifteen
or any number of years. This is, to say the least, irregular and
should not be sanctioned. There are cardinal primary rights
which must be respected even in proceedings of this character.
The first of these rights is the right to a hearing, which includes
the right of the party interested or affected to present his own
case and submit evidence in support thereof. In the language
of Chief Justice Hughes, in Morgan v. U.S., (304 U.S. 1, 58 S.
Ct. 773, 999, 82 Law. ed. 1129), "the liberty and property of the
citizen shall be protected by the rudimentary requirements of
fair play." Not only must the party be given an opportunity to
present his case and to adduce evidence tending to establish
the rights which he asserts but the tribunal must consider the
evidence presented. (Chief Justice Hughes in Morgan vs. U.S.,
298 U.S. 468, 56 S. Ct. 906, 80 :Law. ed. 1288.) In the
language of this Court in Edwards vs. McCoy (22 Phil., 598),
"the right to adduce evidence, without the corresponding duty
on the part of the board to consider it, is vain. Such right is
conspicuously futile if the person or persons to whom the
evidence is presented can thrust it aside without or
consideration." While the duty to deliberate does not impose
the obligation to decide right, it does imply a necessity which
cannot be disregarded, namely, that of having something to
support its decision. A decision with absolutely nothing to
support it is a nullity, at least when directly attacked.
G.R. No. 119528 March 26, 1997 1. The application does
not indicate a route
PHILIPPINE AIRLINES, INC., petitioner, structure including a
vs. computation of trunkline,
CIVIL AERONAUTICS BOARD and GRAND secondary and rural
INTERNATIONAL AIRWAYS, INC., respondents. available seat kilometers
(ASK) which shall always
be maintained at a
monthly level at least 5%
and 20% of the ASK
TORRES, JR., J.: offered into and out of the
proposed base of
This Special Civil Action for Certiorari and Prohibition under operations for rural and
Rule 65 of the Rules of Court seeks to prohibit respondent Civil secondary, respectively.
Aeronautics Board from exercising jurisdiction over private
respondent's Application for the issuance of a Certificate of 2. It does not contain a
Public Convenience and Necessity, and to annul and set aside project/feasibility study,
a temporary operating permit issued by the Civil Aeronautics projected profit and loss
Board in favor of Grand International Airways (GrandAir, for statements, projected
brevity) allowing the same to engage in scheduled domestic air balance sheet, insurance
transportation services, particularly the Manila-Cebu, Manila- coverage, list of personnel,
Davao, and converse routes. list of spare parts
inventory, tariff structure,
The main reason submitted by petitioner Philippine Airlines, documents supportive of
Inc. (PAL) to support its petition is the fact that GrandAir does financial capacity, route
not possess a legislative franchise authorizing it to engage in flight schedule, contracts
air transportation service within the Philippines or elsewhere. on facilities (hangars,
Such franchise is, allegedly, a requisite for the issuance of a maintenance, lot) etc.
Certificate of Public Convenience or Necessity by the
respondent Board, as mandated under Section 11, Article XII C. Approval of petitioner's application would
of the Constitution. violate the equal protection clause of the
constitution.
Respondent GrandAir, on the other hand, posits that a
legislative franchise is no longer a requirement for the issuance D. There is no urgent need and demand for
of a Certificate of Public Convenience and Necessity or a the services applied for.
Temporary Operating Permit, following the Court's
pronouncements in the case of Albano vs. Reyes,1 as restated E. To grant petitioner's application would
by the Court of Appeals in Avia Filipinas International vs. Civil only result in ruinous competition contrary to
Aeronautics Board2 and Silangan Airways, Inc. vs. Grand Section 4(d) of R.A. 776. 5
International Airways, Inc., and the Hon. Civil Aeronautics
Board.3
At the initial hearing for the application, petitioner raised the
issue of lack of jurisdiction of the Board to hear the application
On November 24, 1994, private respondent GrandAir applied because GrandAir did not possess a legislative franchise.
for a Certificate of Public Convenience and Necessity with the
Board, which application was docketed as CAB Case No. EP-
12711.4 Accordingly, the Chief Hearing Officer of the CAB On December 20, 1994, the Chief Hearing Officer of CAB
issued a Notice of Hearing setting the application for initial issued an Order denying petitioner's Opposition. Pertinent
hearing on December 16, 1994, and directing GrandAir to portions of the Order read:
serve a copy of the application and corresponding notice to all
scheduled Philippine Domestic operators. On December 14, PAL alleges that the CAB has no jurisdiction
1994, GrandAir filed its Compliance, and requested for the to hear the petitioner's application until the
issuance of a Temporary Operating Permit. Petitioner, itself the latter has first obtained a franchise to
holder of a legislative franchise to operate air transport operate from Congress.
services, filed an Opposition to the application for a Certificate
of Public Convenience and Necessity on December 16, 1995 The Civil Aeronautics Board has jurisdiction
on the following grounds: to hear and resolve the application. In Avia
Filipina vs. CAB, CA G.R. No. 23365, it has
A. The CAB has no jurisdiction to hear the been ruled that under Section 10 (c) (I) of
petitioner's application until the latter has first R.A. 776, the Board possesses this specific
obtained a franchise to operate from power and duty.
Congress.
In view thereof, the opposition of PAL on this
B. The petitioner's application is deficient in ground is hereby denied.
form and substance in that:
SO ORDERED.
Meantime, on December 22, 1994, petitioner this time,
opposed private respondent's application for a temporary
permit maintaining that:
1. The applicant does not possess the
required fitness and capability of operating
the services applied for under RA 776; and,
2. Applicant has failed to prove that there is
clear and urgent public need for the services
applied for.6
On December 23, 1994, the Board promulgated Resolution No.
119(92) approving the issuance of a Temporary Operating
Permit in favor of Grand Air 7 for a period of three months, i.e.,
from December 22, 1994 to March 22, 1994. Petitioner moved
for the reconsideration of the issuance of the Temporary
Operating Permit on January 11, 1995, but the same was
denied in CAB Resolution No. 02 (95) on February 2, 1995. 8 In
the said Resolution, the Board justified its assumption of
jurisdiction over GrandAir's application.
WHEREAS , the CAB is specifically
authorized under Section 10-C (1) of
Republic Act No. 776 as follows:
(c) The Board shall have the following
specific powers and duties:
(1) In accordance with the provision of
Chapter IV of this Act, to issue, deny, amend
revise, alter, modify, cancel, suspend or
revoke, in whole or in part, upon petitioner-
complaint, or upon its own initiative, any
temporary operating permit or Certificate of
Public Convenience and Necessity;
Provided, however; that in the case of
foreign air carriers, the permit shall be issued
with the approval of the President of the
Republic of the Philippines.
WHEREAS, such authority was affirmed
in PAL vs. CAB, (23 SCRA 992), wherein the
Supreme Court held that the CAB can even
on its own initiative, grant a TOP even before
the presentation of evidence;
WHEREAS, more recently, Avia Filipinas
vs. CAB, (CA-GR No. 23365), promulgated
on October 30, 1991, held that in
accordance with its mandate, the CAB can
issue not only a TOP but also a Certificate of
Public Convenience and Necessity (CPCN)
to a qualified applicant therefor in the
absence of a legislative franchise, citing
therein as basis the decision of Albano
vs. Reyes (175 SCRA 264) which provides
(inter alia) that:
a) Franchises by Congress are not required
before each and every public utility may
operate when the law has granted certain
administrative agencies the power to grant
licenses for or to authorize the operation of
certain public utilities;
b) The Constitutional provision in Article XII,
Section 11 that the issuance of a franchise,
certificate or other form of authorization for
the operation of a public utility does not
necessarily imply that only Congress has the
power to grant such authorization since our
statute books are replete with laws granting
specified agencies in the Executive Branch
the power to issue such authorization for
certain classes of public utilities.
WHEREAS, Executive Order No. 219 which
took effect on 22 January 1995, provides in
Section 2.1 that a minimum of two (2)
operators in each route/link shall be
encouraged and that routes/links presently
serviced by only one (1) operator shall be
open for entry to additional operators.
RESOLVED, (T)HEREFORE, that the
Motion for Reconsideration filed by
Philippine Airlines on January 05, 1995 on
the Grant by this Board of a Temporary
Operating Permit (TOP) to Grand
International Airways, Inc. alleging among
others that the CAB has no such jurisdiction,
is hereby DENIED, as it hereby denied, in
view of the foregoing and considering that
the grounds relied upon by the movant are
not indubitable.
On March 21, 1995, upon motion by private respondent, the
temporary permit was extended for a period of six (6) months
or up to September 22, 1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its
powers and jurisdiction in taking cognizance of GrandAir's
application for the issuance of a Certificate of Public
Convenience and Necessity, and in issuing a temporary
operating permit in the meantime, since GrandAir has not been
granted and does not possess a legislative franchise to engage
in scheduled domestic air transportation. A legislative franchise
is necessary before anyone may engage in air transport
services, and a franchise may only be granted by Congress.
This is the meaning given by the petitioner upon a reading of
Section 11, Article XII,9 and Section 1, Article VI, 10 of the
Constitution.
To support its theory, PAL submits Opinion No. 163, S. 1989 of
the Department of Justice, which reads:
Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:
This has reference to your request for
opinion on the necessity of a legislative
franchise before the Civil Aeronautics Board
("CAB") may issue a Certificate of Public
Convenience and Necessity and/or permit to
engage in air commerce or air transportation
to an individual or entity.
You state that during the hearing on the
application of Cebu Air for a congressional
franchise, the House Committee on
Corporations and Franchises contended that
under the present Constitution, the CAB may
not issue the abovestated certificate or
permit, unless the individual or entity
concerned possesses a legislative franchise.
You believe otherwise, however, for the
reason that under R.A. No. 776, as
amended, the CAB is explicitly empowered
to issue operating permits or certificates of
public convenience and necessity and that
this statutory provision is not inconsistent
with the current charter.
We concur with the view expressed by the
House Committee on Corporations and
Franchises. In an opinion rendered in favor
of your predecessor-in-office, this
Department observed that, —
. . . it is useful to note the distinction between
the franchise to operate and a permit to
commence operation. The former is
sovereign and legislative in nature; it can be
conferred only by the lawmaking authority
(17 W and P, pp. 691-697). The latter is
administrative and regulatory in character (In
re Application of Fort Crook-Bellevue
Boulevard Line, 283 NW 223); it is granted
by an administrative agency, such as the
Public Service Commission [now Board of
Transportation], in the case of land
transportation, and the Civil Aeronautics
Board, in case of air services. While a
legislative franchise is a pre-requisite to a
grant of a certificate of public convenience
and necessity to an airline company, such
franchise alone cannot constitute the
authority to commence operations, inasmuch
as there are still matters relevant to such
operations which are not determined in the
franchise, like rates, schedules and routes,
and which matters are resolved in the
process of issuance of permit by the
administrative. (Secretary of Justice opn No.
45, s. 1981)
Indeed, authorities are agreed that a
certificate of public convenience and
necessity is an authorization issued by the
appropriate governmental agency for the
operation of public services for which a
franchise is required by law (Almario,
Transportation and Public Service Law, 1977
Ed., p. 293; Agbayani, Commercial Law of
the Phil., Vol. 4, 1979 Ed., pp. 380-381).
Based on the foregoing, it is clear that
franchise is the legislative authorization
engage in a business activity or enterprise
a public nature, whereas a certificate
public convenience and necessity is
regulatory measure which constitutes the
franchise's authority to commence
operations. It is thus logical that the grant of
the former should precede the latter.
Please be guided accordingly.
(SGD.)
Secretary
Respondent GrandAir, on the other hand, relies on its
interpretation of the provisions of Republic Act 776, which
follows the pronouncements of the Court of Appeals in the
cases of Avia Filipinas vs. Civil Aeronautics Board,
and Silangan Airways, Inc. vs. Grand International
Airways (supra).
In both cases, the issue resolved was whether or not the Civil
Aeronautics Board can issue the Certificate of Public
Convenience and Necessity or Temporary Operating Permit to
a prospective domestic air transport operator who does not
possess a legislative franchise to operate as such. Relying on
the Court's pronouncement in Albano vs. Reyes (supra), the
Court of Appeals upheld the authority of the Board to issue
such authority, even in the absence of a legislative franchise,
which authority is derived from Section 10 of Republic Act 776,
as amended by P.D. 1462. 11
The Civil Aeronautics Board has jurisdiction over GrandAir's
Application for a Temporary Operating Permit. This rule has
been established in the case of Philippine Air Lines
Inc., vs. Civil Aeronautics Board, promulgated on June 13,
1968. 12 The Board is expressly authorized by Republic Act
776 to issue a temporary operating permit or Certificate of
Public Convenience and Necessity, and nothing contained in
the said law negates the power to issue said permit before the
completion of the applicant's evidence and that of the oppositor
thereto on the main petition. Indeed, the CAB's authority to
grant a temporary permit "upon its own initiative" strongly
suggests the power to exercise said authority, even before the
presentation of said evidence has begun.
Assuming arguendo that a legislative franchise is prerequisite
to the issuance of a permit, the absence of the same does not
affect the jurisdiction of the Board to hear the application, but
tolls only upon the ultimate issuance of the requested permit.
The power to authorize and control the operation of a public
utility is admittedly a prerogative of the legislature, since
Congress is that branch of government vested with plenary
powers of legislation.
The franchise is a legislative grant, whether
made directly by the legislature itself, or by
any one of its properly constituted
instrumentalities. The grant, when made,
binds the public, and is, directly or indirectly,
the act of the state. 13
The issue in this petition is whether or not Congress, in
enacting Republic Act 776, has delegated the authority to
authorize the operation of domestic air transport services to the
a respondent Board, such that Congressional mandate for the
to approval of such authority is no longer necessary.
of
of Congress has granted certain administrative agencies the
a power to grant licenses for, or to authorize the operation of
certain public utilities. With the growing complexity of modern
life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the
laws, there is a constantly growing tendency towards the
delegation of greater powers by the legislature, and towards
the approval of the practice by the courts. 14 It is generally
recognized that a franchise may be derived indirectly from the
state through a duly designated agency, and to this extent, the
power to grant franchises has frequently been delegated, even
to agencies other than those of a legislative nature. 15 In
pursuance of this, it has been held that privileges conferred by
grant by local authorities as agents for the state constitute as
much a legislative franchise as though the grant had been
made by an act of the Legislature. 16
The trend of modern legislation is to vest the Public Service
Commissioner with the power to regulate and control the
operation of public services under reasonable rules and
regulations, and as a general rule, courts will not interfere with
the exercise of that discretion when it is just and reasonable
and founded upon a legal right. 17
It is this policy which was pursued by the Court in Albano
vs. Reyes. Thus, a reading of the pertinent issuances
governing the Philippine Ports Authority, 18 proves that the PPA
is empowered to undertake by itself the operation and
management of the Manila International Container Terminal, or
to authorize its operation and management by another by
contract or other means, at its option. The latter power having
been delegated to the to PPA, a franchise from Congress to
authorize an entity other than the PPA to operate and manage
the MICP becomes unnecessary.
Given the foregoing postulates, we find that the Civil
Aeronautics Board has the authority to issue a Certificate of
Public Convenience and Necessity, or Temporary Operating
Permit to a domestic air transport operator, who, though not
possessing a legislative franchise, meets all the other
requirements prescribed by the law. Such requirements were
enumerated in Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which
indicates that a legislative franchise is an indispensable
requirement for an entity to operate as a domestic air transport
operator. Although Section 11 of Article XII recognizes
Congress' control over any franchise, certificate or authority to
operate a public utility, it does not mean Congress has
exclusive authority to issue the same. Franchises issued by
Congress are not required before each and every public utility
may operate. 19 In many instances, Congress has seen it fit to
delegate this function to government agencies, specialized
particularly in their respective areas of public service.
A reading of Section 10 of the same reveals the clear intent of
Congress to delegate the authority to regulate the issuance of
a license to operate domestic air transport services:
Sec. 10. Powers and Duties of the Board. (A)
Except as otherwise provided herein, the
Board shall have the power to regulate the
economic aspect of air transportation, and
shall have general supervision and
regulation of, the jurisdiction and control over
air carriers, general sales agents, cargo
sales agents, and air freight forwarders as
well as their property rights, equipment,
facilities and franchise, insofar as may be
necessary for the purpose of carrying out the
provision of this Act.
In support of the Board's authority as stated above, it is given
the following specific powers and duties:
(C) The Board shall have the following
specific powers and duties:
(1) In accordance with the provisions of
Chapter IV of this Act, to issue, deny,
amend, revise, alter, modify, cancel,
suspend or revoke in whole or in part upon
petition or complaint or upon its own initiative
any Temporary Operating Permit or
Certificate of Public Convenience and
Necessity: Provided however, That in the
case of foreign air carriers, the permit shall
be issued with the approval of the President
of the Republic of the Philippines.
Petitioner argues that since R.A. 776 gives the Board the
authority to issue "Certificates of Public Convenience and
Necessity", this, according to petitioner, means that a
legislative franchise is an absolute requirement. It cites a
number of authorities supporting the view that a Certificate of
Public Convenience and Necessity is issued to a public service
for which a franchise is required by law, as distinguished from
a "Certificate of Public Convenience" which is an authorization
issued for the operation of public services for which no
franchise, either municipal or legislative, is required by law. 20
This submission relies on the premise that the authority to
issue a certificate of public convenience and necessity is a
regulatory measure separate and distinct from the authority to
grant a franchise for the operation of the public utility subject of
this particular case, which is exclusively lodged by petitioner in
Congress.
We do not agree with the petitioner.
Many and varied are the definitions of certificates of public
convenience which courts and legal writers have drafted.
Some statutes use the terms "convenience and necessity"
while others use only the words "public convenience." The
terms "convenience and necessity", if used together in a
statute, are usually held not to be separable, but are construed
together. Both words modify each other and must be construed
together. The word 'necessity' is so connected, not as an
additional requirement but to modify and qualify what might
otherwise be taken as the strict significance of the word
necessity. Public convenience and necessity exists when the
proposed facility will meet a reasonable want of the public and
supply a need which the existing facilities do not adequately
afford. It does not mean or require an actual physical necessity
or an indispensable thing. 21
The terms "convenience" and "necessity" are
to be construed together, although they are
not synonymous, and effect must be given
both. The convenience of the public must not
be circumscribed by according to the word
"necessity" its strict meaning or an essential
requisites. 22
The use of the word "necessity", in conjunction with "public
convenience" in a certificate of authorization to a public service
entity to operate, does not in any way modify the nature of
such certification, or the requirements for the issuance of the
same. It is the law which determines the requisites for the
issuance of such certification, and not the title indicating the
certificate.
Congress, by giving the respondent Board the power to issue
permits for the operation of domestic transport services, has
delegated to the said body the authority to determine the
capability and competence of a prospective domestic air
transport operator to engage in such venture. This is not an
instance of transforming the respondent Board into a mini-
legislative body, with unbridled authority to choose who should
be given authority to operate domestic air transport services.
To be valid, the delegation itself must be
circumscribed by legislative restrictions, not
a "roving commission" that will give the
delegate unlimited legislative authority. It
must not be a delegation "running riot" and
"not canalized with banks that keep it from
overflowing." Otherwise, the delegation is in
legal effect an abdication of legislative
authority, a total surrender by the legislature
of its prerogatives in favor of the delegate. 23
Congress, in this instance, has set specific limitations on how
such authority should be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the
following guidelines or policies:
Sec. 4. Declaration of policies. In the
exercise and performance of its powers and
duties under this Act, the Civil Aeronautics
Board and the Civil Aeronautics
Administrator shall consider the following,
among other things, as being in the public
interest, and in accordance with the public
convenience and necessity:
(a) The development and utilization of the air
potential of the Philippines;
(b) The encouragement and development of
an air transportation system properly
adapted to the present and future of foreign
and domestic commerce of the Philippines,
of the Postal Service and of the National
Defense;
(c) The regulation of air transportation in
such manner as to recognize and preserve
the inherent advantages of, assure the
highest degree of safety in, and foster sound
economic condition in, such transportation,
and to improve the relations between, and
coordinate transportation by, air carriers;
(d) The promotion of adequate, economical
and efficient service by air carriers at
reasonable charges, without unjust
discriminations, undue preferences or
advantages, or unfair or destructive
competitive practices;
(e) Competition between air carriers to the
extent necessary to assure the sound
development of an air transportation system
properly adapted to the need of the foreign
and domestic commerce of the Philippines,
of the Postal Service, and of the National
Defense;
(f) To promote safety of flight in air
commerce in the Philippines; and,
(g) The encouragement and development of
civil aeronautics.
More importantly, the said law has enumerated the
requirements to determine the competency of a prospective
operator to engage in the public service of air transportation.
Sec. 12. Citizenship requirement. Except as
otherwise provided in the Constitution and
existing treaty or treaties, a permit
authorizing a person to engage in domestic
air commerce and/or air transportation shall
be issued only to citizens of the Philippines 24
Sec. 21. Issuance of permit. The Board shall
issue a permit authorizing the whole or any
part of the service covered by the
application, if it finds: (1) that the applicant is
fit, willing and able to perform such service
properly in conformity with the provisions of
this Act and the rules, regulations, and
requirements issued thereunder; and (2) that
such service is required by the public
convenience and necessity; otherwise the
application shall be denied.
Furthermore, the procedure for the processing of the
application of a Certificate of Public Convenience and
Necessity had been established to ensure the weeding out of
those entities that are not deserving of public service. 25
In sum, respondent Board should now be allowed to continue
hearing the application of GrandAir for the issuance of a
Certificate of Public Convenience and Necessity, there being
no legal obstacle to the exercise of its jurisdiction.
ACCORDINGLY, in view of the foregoing considerations, the
Court RESOLVED to DISMISS the instant petition for lack of
merit. The respondent Civil Aeronautics Board is hereby
DIRECTED to CONTINUE hearing the application of
respondent Grand International Airways, Inc. for the issuance
of a Certificate of Public Convenience and Necessity.
SO ORDERED.
G.R. No. L-21438             September 28, 1966
AIR FRANCE, petitioner,
vs.
RAFAEL CARRASCOSO and the HONORABLE COURT OF
APPEALS, respondents.
SANCHEZ, J.:
 1 
The Court of First Instance of Manila sentenced petitioner to
pay respondent Rafael Carrascoso P25,000.00 by way of
moral damages; P10,000.00 as exemplary damages; P393.20
representing the difference in fare between first class and
tourist class for the portion of the trip Bangkok-Rome, these
various amounts with interest at the legal rate, from the date of
the filing of the complaint until paid; plus P3,000.00 for
attorneys' fees; and the costs of suit.
On appeal,2 the Court of Appeals slightly reduced the amount
of refund on Carrascoso's plane ticket from P393.20 to
P383.10, and voted to affirm the appealed decision "in all other
respects", with costs against petitioner.
The case is now before us for review on certiorari.
The facts declared by the Court of Appeals as " fully supported
by the evidence of record", are:
Plaintiff, a civil engineer, was a member of a group of
48 Filipino pilgrims that left Manila for Lourdes on
March 30, 1958.
On March 28, 1958, the defendant, Air France,
through its authorized agent, Philippine Air Lines, Inc.,
issued to plaintiff a "first class" round trip airplane
ticket from Manila to Rome. From Manila to Bangkok,
plaintiff travelled in "first class", but at Bangkok, the
Manager of the defendant airline forced plaintiff to
vacate the "first class" seat that he was occupying
because, in the words of the witness Ernesto G.
Cuento, there was a "white man", who, the Manager
alleged, had a "better right" to the seat. When asked
to vacate his "first class" seat, the plaintiff, as was to
be expected, refused, and told defendant's Manager
that his seat would be taken over his dead body; a
commotion ensued, and, according to said Ernesto G.
Cuento, "many of the Filipino passengers got nervous
in the tourist class; when they found out that Mr.
Carrascoso was having a hot discussion with the
white man [manager], they came all across to Mr.
Carrascoso and pacified Mr. Carrascoso to give his
seat to the white man" (Transcript, p. 12, Hearing of
May 26, 1959); and plaintiff reluctantly gave his "first
class" seat in the plane.3
1. The trust of the relief petitioner now seeks is that we review
"all the findings" 4 of respondent Court of Appeals. Petitioner
charges that respondent court failed to make complete findings
of fact on all the issues properly laid before it. We are asked to
consider facts favorable to petitioner, and then, to overturn the
appellate court's decision.
Coming into focus is the constitutional mandate that "No
decision shall be rendered by any court of record without
expressing therein clearly and distinctly the facts and the law
on which it is based". 5 This is echoed in the statutory demand
that a judgment determining the merits of the case shall state
"clearly and distinctly the facts and the law on which it is
based"; 6 and that "Every decision of the Court of Appeals shall
contain complete findings of fact on all issues properly raised
before it". 7
A decision with absolutely nothing to support it is a nullity. It is
open to direct attack. 8 The law, however, solely insists that a
decision state the "essential ultimate facts" upon which the
court's conclusion is drawn. 9 A court of justice is not hidebound
to write in its decision every bit and piece of
evidence 10 presented by one party and the other upon the
issues raised. Neither is it to be burdened with the obligation
"to specify in the sentence the facts" which a party "considered
as proved". 11 This is but a part of the mental process from
which the Court draws the essential ultimate facts. A decision
is not to be so clogged with details such that prolixity, if not
confusion, may result. So long as the decision of the Court of
Appeals contains the necessary facts to warrant its
conclusions, it is no error for said court to withhold therefrom
"any specific finding of facts with respect to the evidence for
the defense". Because as this Court well observed, "There is
no law that so requires". 12 Indeed, "the mere failure to specify
(in the decision) the contentions of the appellant and the
reasons for refusing to believe them is not sufficient to hold the
same contrary to the requirements of the provisions of law and
the Constitution". It is in this setting that in Manigque, it was
held that the mere fact that the findings "were based entirely on
the evidence for the prosecution without taking into
consideration or even mentioning the appellant's side in the
controversy as shown by his own testimony", would not vitiate
the judgment. 13 If the court did not recite in the decision the
testimony of each witness for, or each item of evidence
presented by, the defeated party, it does not mean that the
court has overlooked such testimony or such item of
evidence. 14 At any rate, the legal presumptions are that official
duty has been regularly performed, and that all the matters
within an issue in a case were laid before the court and passed
upon by it. 15
Findings of fact, which the Court of Appeals is required to
make, maybe defined as "the written statement of the ultimate
facts as found by the court ... and essential to support the
decision and judgment rendered thereon". 16 They consist of
the court's "conclusions" with respect to the determinative facts
in issue". 17 A question of law, upon the other hand, has been
declared as "one which does not call for an examination of the
probative value of the evidence presented by the parties." 18
2. By statute, "only questions of law may be raised" in an
appeal by certiorari from a judgment of the Court of
Appeals. 19 That judgment is conclusive as to the facts. It is not
appropriately the business of this Court to alter the facts or to
review the questions of fact. 20
With these guideposts, we now face the problem of whether
the findings of fact of the Court of Appeals support its
judgment.
3. Was Carrascoso entitled to the first class seat he claims?
It is conceded in all quarters that on March 28, 1958 he paid to
and received from petitioner a first class ticket. But petitioner
asserts that said ticket did not represent the true and complete
intent and agreement of the parties; that said respondent knew
that he did not have confirmed reservations for first class on
any specific flight, although he had tourist class protection;
that, accordingly, the issuance of a first class ticket was no
guarantee that he would have a first class ride, but that such
would depend upon the availability of first class seats.
These are matters which petitioner has thoroughly presented
and discussed in its brief before the Court of Appeals under its
third assignment of error, which reads: "The trial court erred in
finding that plaintiff had confirmed reservations for, and a right
to, first class seats on the "definite" segments of his journey,
particularly that from Saigon to Beirut". 21
And, the Court of Appeals disposed of this contention thus:
Defendant seems to capitalize on the argument that
the issuance of a first-class ticket was no guarantee
that the passenger to whom the same had been
issued, would be accommodated in the first-class
compartment, for as in the case of plaintiff he had yet
to make arrangements upon arrival at every station
for the necessary first-class reservation. We are not
impressed by such a reasoning. We cannot
understand how a reputable firm like defendant
airplane company could have the indiscretion to give
out tickets it never meant to honor at all. It received
the corresponding amount in payment of first-class
tickets and yet it allowed the passenger to be at the
mercy of its employees. It is more in keeping with the
ordinary course of business that the company should
know whether or riot the tickets it issues are to be
honored or not.22
Not that the Court of Appeals is alone. The trial court similarly
disposed of petitioner's contention, thus:
On the fact that plaintiff paid for, and was issued a "First class"
ticket, there can be no question. Apart from his testimony, see
plaintiff's Exhibits "A", "A-1", "B", "B-1," "B-2", "C" and "C-1",
and defendant's own witness, Rafael Altonaga, confirmed
plaintiff's testimony and testified as follows:
Q. In these tickets there are marks "O.K." From what
you know, what does this OK mean?
A. That the space is confirmed.
Q. Confirmed for first class?
A. Yes, "first class". (Transcript, p. 169)
xxx     xxx     xxx
Defendant tried to prove by the testimony of its witnesses Luis
Zaldariaga and Rafael Altonaga that although plaintiff paid for,
and was issued a "first class" airplane ticket, the ticket was
subject to confirmation in Hongkong. The court cannot give
credit to the testimony of said witnesses. Oral evidence cannot
prevail over written evidence, and plaintiff's Exhibits "A", "A-l",
"B", "B-l", "C" and "C-1" belie the testimony of said witnesses,
and clearly show that the plaintiff was issued, and paid for, a
first class ticket without any reservation whatever.
Furthermore, as hereinabove shown, defendant's own witness
Rafael Altonaga testified that the reservation for a "first class"
accommodation for the plaintiff was confirmed. The court
cannot believe that after such confirmation defendant had a
verbal understanding with plaintiff that the "first class" ticket
issued to him by defendant would be subject to confirmation in
Hongkong. 23
We have heretofore adverted to the fact that except for a slight
difference of a few pesos in the amount refunded on
Carrascoso's ticket, the decision of the Court of First Instance
was affirmed by the Court of Appeals in all other respects. We
hold the view that such a judgment of affirmance has merged
the judgment of the lower court. 24 Implicit in that affirmance is
a determination by the Court of Appeals that the proceeding in
the Court of First Instance was free from prejudicial error and
"all questions raised by the assignments of error and all
questions that might have been raised are to be regarded as
finally adjudicated against the appellant". So also, the
judgment affirmed "must be regarded as free from all
error". 25 We reached this policy construction because nothing
in the decision of the Court of Appeals on this point would
suggest that its findings of fact are in any way at war with those
of the trial court. Nor was said affirmance by the Court of
Appeals upon a ground or grounds different from those which
were made the basis of the conclusions of the trial court. 26
If, as petitioner underscores, a first-class-ticket holder is not
entitled to a first class seat, notwithstanding the fact that seat
availability in specific flights is therein confirmed, then an air
passenger is placed in the hollow of the hands of an airline.
What security then can a passenger have? It will always be an
easy matter for an airline aided by its employees, to strike out
the very stipulations in the ticket, and say that there was a
verbal agreement to the contrary. What if the passenger had a
schedule to fulfill? We have long learned that, as a rule, a
written document speaks a uniform language; that spoken
word could be notoriously unreliable. If only to achieve stability
in the relations between passenger and air carrier, adherence
to the ticket so issued is desirable. Such is the case here. The
lower courts refused to believe the oral evidence intended to
defeat the covenants in the ticket.
The foregoing are the considerations which point to the
conclusion that there are facts upon which the Court of
Appeals predicated the finding that respondent Carrascoso
had a first class ticket and was entitled to a first class seat at
Bangkok, which is a stopover in the Saigon to Beirut leg of the
flight. 27 We perceive no "welter of distortions by the Court of
Appeals of petitioner's statement of its position", as charged by
petitioner. 28 Nor do we subscribe to petitioner's accusation that
respondent Carrascoso "surreptitiously took a first class seat to
provoke an issue". 29 And this because, as petitioner states,
Carrascoso went to see the Manager at his office in Bangkok
"to confirm my seat and because from Saigon I was told again
to see the Manager". 30 Why, then, was he allowed to take a
first class seat in the plane at Bangkok, if he had no seat? Or,
if another had a better right to the seat?
4. Petitioner assails respondent court's award of moral
damages. Petitioner's trenchant claim is that Carrascoso's
action is planted upon breach of contract; that to authorize an
award for moral damages there must be an averment of fraud
or bad faith;31 and that the decision of the Court of Appeals
fails to make a finding of bad faith. The pivotal allegations in
the complaint bearing on this issue are:
 3. That ... plaintiff entered into a contract of air
carriage with the Philippine Air Lines for a valuable
consideration, the latter acting as general agents for
and in behalf of the defendant, under which said
contract, plaintiff was entitled to, as defendant agreed
to furnish plaintiff, First Class passage on defendant's
plane during the entire duration of plaintiff's tour of
Europe with Hongkong as starting point up to and
until plaintiff's return trip to Manila, ... .
4. That, during the first two legs of the trip from
Hongkong to Saigon and from Saigon to Bangkok,
defendant furnished to the plaintiff First Class
accommodation but only after protestations,
arguments and/or insistence were made by the
plaintiff with defendant's employees.
5. That finally, defendant  failed to provide First Class
passage, but instead furnished plaintiff
only Tourist  Class accommodations from Bangkok to
Teheran and/or Casablanca, ... the plaintiff has
been compelled  by defendant's employees to leave
the First Class accommodation berths at
Bangkok after he was already seated.
6. That consequently, the plaintiff, desiring no
repetition of the inconvenience and embarrassments
brought by defendant's breach of contract was forced
to take a Pan American World Airways plane on his
return trip from Madrid to Manila.32
xxx     xxx     xxx
2. That likewise, as a result of defendant's failure to furnish
First Class accommodations aforesaid, plaintiff suffered
inconveniences, embarrassments, and humiliations, thereby
causing plaintiff mental anguish, serious anxiety, wounded
feelings, social humiliation, and the like injury, resulting in
moral damages in the amount of P30,000.00. 33
xxx     xxx     xxx
The foregoing, in our opinion, substantially aver: First, That
there was a contract to furnish plaintiff a first class passage
covering, amongst others, the Bangkok-Teheran leg; Second,
That said contract was breached when petitioner failed to
furnish first class transportation at Bangkok; and Third, that
there was bad faith when petitioner's employee compelled
Carrascoso to leave his first class accommodation berth "after
he was already, seated" and to take a seat in the tourist class,
by reason of which he suffered inconvenience,
embarrassments and humiliations, thereby causing him mental
anguish, serious anxiety, wounded feelings and social
humiliation, resulting in moral damages. It is true that there is
no specific mention of the term bad faith in the complaint. But,
the inference of bad faith is there, it may be drawn from the
facts and circumstances set forth therein. 34 The contract was
averred to establish the relation between the parties. But the
stress of the action is put on wrongful expulsion.
Quite apart from the foregoing is that (a) right the start of the
trial, respondent's counsel placed petitioner on guard on what
Carrascoso intended to prove: That while sitting in the plane in
Bangkok, Carrascoso was ousted  by petitioner's manager who
gave his seat to a white man; 35 and (b) evidence of bad faith in
the fulfillment of the contract was presented without objection
on the part of the petitioner. It is, therefore, unnecessary to
inquire as to whether or not there is sufficient averment in the
complaint to justify an award for moral damages. Deficiency in
the complaint, if any, was cured by the evidence. An
amendment thereof to conform to the evidence is not even
required. 36 On the question of bad faith, the Court of Appeals
declared:
That the plaintiff was forced out of his seat in the first
class compartment of the plane belonging to the
defendant Air France while at Bangkok, and was
transferred to the tourist class not only without his
consent but against his will, has been sufficiently
established by plaintiff in his testimony before the
court, corroborated by the corresponding entry made
by the purser of the plane in his notebook which
notation reads as follows:
"First-class passenger was forced to go to
the tourist class against his will, and that the
captain refused to intervene",
and by the testimony of an eye-witness, Ernesto G.
Cuento, who was a co-passenger. The captain of the
plane who was asked by the manager of defendant
company at Bangkok to intervene even refused to do
so. It is noteworthy that no one on behalf of defendant
ever contradicted or denied this evidence for the
plaintiff. It could have been easy for defendant to
present its manager at Bangkok to testify at the trial of
the case, or yet to secure his disposition; but
defendant did neither. 37
The Court of appeals further stated —
Neither is there evidence as to whether or not a prior
reservation was made by the white man. Hence, if the
employees of the defendant at Bangkok sold a first-
class ticket to him when all the seats had already
been taken, surely the plaintiff should not have been
picked out as the one to suffer the consequences and
to be subjected to the humiliation and indignity of
being ejected from his seat in the presence of others.
Instead of explaining to the white man the
improvidence committed by defendant's employees,
the manager adopted the more drastic step of ousting
the plaintiff who was then safely ensconsced in his
rightful seat. We are strengthened in our belief that
this probably was what happened there, by the
testimony of defendant's witness Rafael Altonaga
who, when asked to explain the meaning of the letters
"O.K." appearing on the tickets of plaintiff, said "that
the space is confirmed for first class. Likewise,
Zenaida Faustino, another witness for defendant, who
was the chief of the Reservation Office of defendant,
testified as follows:
"Q How does the person in the ticket-issuing
office know what reservation the passenger
has arranged with you?
A They call us up by phone and ask for the
confirmation." (t.s.n., p. 247, June 19, 1959)
In this connection, we quote with approval what the
trial Judge has said on this point:
 Why did the, using the words of witness
Ernesto G. Cuento, "white man" have a
"better right" to the seat occupied by Mr.
Carrascoso? The record is silent. The
defendant airline did not prove "any better",
nay, any right on the part of the "white man"
to the "First class" seat that the plaintiff was
occupying and for which he paid and was
issued a corresponding "first class" ticket.
If there was a justified reason for the action
of the defendant's Manager in Bangkok, the
defendant could have easily proven it by
having taken the testimony of the said
Manager by deposition, but defendant did
not do so; the presumption is that evidence
willfully suppressed would be adverse if
produced [Sec. 69, par (e), Rules of Court];
and, under the circumstances, the Court is
constrained to find, as it does find, that the
Manager of the defendant airline in Bangkok
not merely asked but threatened the plaintiff
to throw him out of the plane if he did not
give up his "first class" seat because the said
Manager wanted to accommodate, using the
words of the witness Ernesto G. Cuento, the
"white man".38
It is really correct to say that the Court of Appeals in
the quoted portion first transcribed did not use the
term "bad faith". But can it be doubted that the recital
of facts therein points to bad faith? The manager not
only prevented Carrascoso from enjoying his right to a
first class seat; worse, he imposed his arbitrary will;
he forcibly ejected him from his seat, made him suffer
the humiliation of having to go to the tourist class
compartment - just to give way to another passenger
whose right thereto has not been established.
Certainly, this is bad faith. Unless, of course, bad faith
has assumed a meaning different from what is
understood in law. For, "bad faith" contemplates a
"state of mind affirmatively operating with furtive
design or with some motive of self-interest or will or
for ulterior purpose." 39
And if the foregoing were not yet sufficient, there is
the express finding of bad faith  in the judgment of the
Court of First Instance, thus:
The evidence shows that the defendant
violated its contract of transportation with
plaintiff in bad faith, with the aggravating
circumstances that defendant's Manager in
Bangkok went to the extent of threatening
the plaintiff in the presence of many
passengers to have him thrown out of the
airplane to give the "first class" seat that he
was occupying to, again using the words of
the witness Ernesto G. Cuento, a "white
man" whom he (defendant's Manager)
wished to accommodate, and the defendant
has not proven that this "white man" had any
"better right" to occupy the "first class" seat
that the plaintiff was occupying, duly paid for,
and for which the corresponding "first class"
ticket was issued by the defendant to him.40
5. The responsibility of an employer for the tortious act of its
employees need not be essayed. It is well settled in law. 41 For
the willful malevolent act of petitioner's manager, petitioner, his
employer, must answer. Article 21 of the Civil Code says:
ART. 21. Any person who willfully causes loss or
injury to another in a manner that is contrary to
morals, good customs or public policy shall
compensate the latter for the damage.
In parallel circumstances, we applied the foregoing legal
precept; and, we held that upon the provisions of Article 2219
(10), Civil Code, moral damages are recoverable. 42
6. A contract to transport passengers is quite different in kind
and degree from any other contractual relation. 43 And this,
because of the relation which an air-carrier sustains with the
public. Its business is mainly with the travelling public. It invites
people to avail of the comforts and advantages it offers. The
contract of air carriage, therefore, generates a relation
attended with a public duty. Neglect or malfeasance of the
carrier's employees, naturally, could give ground for an action
for damages.
Passengers do not contract merely for transportation. They
have a right to be treated by the carrier's employees with
kindness, respect, courtesy and due consideration. They are
entitled to be protected against personal misconduct, injurious
language, indignities and abuses from such employees. So it
is, that any rule or discourteous conduct on the part of
employees towards a passenger gives the latter an action for
damages against the carrier. 44
Thus, "Where a steamship company 45 had accepted a
passenger's check, it was a breach of contract and a tort,
giving a right of action for its agent in the presence of third
persons to falsely notify her that the check was worthless and
demand payment under threat of ejection, though the language
used was not insulting and she was not ejected." 46 And this,
because, although the relation of passenger and carrier is
"contractual both in origin and nature" nevertheless "the act
that breaks the contract may be also a tort". 47 And in another
case, "Where a passenger on a railroad train, when the
conductor came to collect his fare tendered him the cash fare
to a point where the train was scheduled not to stop, and told
him that as soon as the train reached such point he would pay
the cash fare from that point to destination, there was nothing
in the conduct of the passenger which justified the conductor in
using insulting language to him, as by calling him a
lunatic," 48 and the Supreme Court of South Carolina there held
the carrier liable for the mental suffering of said
passenger.1awphîl.nèt
Petitioner's contract with Carrascoso is one attended with
public duty. The stress of Carrascoso's action as we have said,
is placed upon his wrongful expulsion. This is a violation of
public duty by the petitioner air carrier — a case of quasi-delict.
Damages are proper.
7. Petitioner draws our attention to respondent Carrascoso's
testimony, thus —
Q You mentioned about an attendant. Who is that
attendant and purser?
 A When we left already — that was already in the trip
— I could not help it. So one of the flight attendants
approached me and requested from me my ticket and
I said, What for? and she said, "We will note that you
transferred to the tourist class". I said, "Nothing of that
kind. That is tantamount to accepting my transfer."
And I also said, "You are not going to note anything
there because I am protesting to this transfer".
8. Exemplary damages are well awarded. The Civil Code gives
the court ample power to grant exemplary damages — in
contracts and quasi- contracts. The only condition is that
defendant should have "acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner." 53 The manner of
ejectment of respondent Carrascoso from his first class seat
fits into this legal precept. And this, in addition to moral
damages.54

Q Was she able to note it? 9. The right to attorney's fees is fully established. The grant of
exemplary damages justifies a similar judgment for attorneys'
A No, because I did not give my ticket. fees. The least that can be said is that the courts below felt that
it is but just and equitable that attorneys' fees be given. 55 We
do not intend to break faith with the tradition that discretion well
Q About that purser? exercised — as it was here — should not be disturbed.

A Well, the seats there are so close that you feel
uncomfortable and you don't have enough leg room, I
stood up and I went to the pantry that was next to me
and the purser was there. He told me, "I have
recorded the incident in my notebook." He read it and
translated it to me — because it was recorded in
French — "First class passenger was forced to go to
the tourist class against his will, and that the captain
refused to intervene."
Mr. VALTE —
I move to strike out the last part of the testimony of
the witness because the best evidence would be the
notes. Your Honor.
10. Questioned as excessive are the amounts decreed by both
the trial court and the Court of Appeals, thus: P25,000.00 as
moral damages; P10,000.00, by way of exemplary damages,
and P3,000.00 as attorneys' fees. The task of fixing these
amounts is primarily with the trial court.  56 The Court of Appeals
did not interfere with the same. The dictates of good sense
suggest that we give our imprimatur thereto. Because, the
facts and circumstances point to the reasonableness thereof.57
On balance, we say that the judgment of the Court of Appeals
does not suffer from reversible error. We accordingly vote to
affirm the same. Costs against petitioner. So ordered.

COURT —

I will allow that as part of his testimony. 49

Petitioner charges that the finding of the Court of Appeals that

the purser made an entry in his notebook reading "First class
passenger was forced to go to the tourist class against his will,
and that the captain refused to intervene" is predicated upon
evidence [Carrascoso's testimony above] which is
incompetent. We do not think so. The subject of inquiry is not
the entry, but the ouster incident. Testimony on the entry does
not come within the proscription of the best evidence rule.
Such testimony is admissible. 49a

Besides, from a reading of the transcript just quoted, when the

dialogue happened, the impact of the startling occurrence was
still fresh and continued to be felt. The excitement had not as
yet died down. Statements then, in this environment, are
admissible as part of the res gestae. 50 For, they grow "out of
the nervous excitement and mental and physical condition of
the declarant". 51 The utterance of the purser regarding his
entry in the notebook was spontaneous, and related to the
circumstances of the ouster incident. Its trustworthiness has
been guaranteed. 52 It thus escapes the operation of the
hearsay rule. It forms part of the res gestae.

At all events, the entry was made outside the Philippines. And,
by an employee of petitioner. It would have been an easy
matter for petitioner to have contradicted Carrascoso's
testimony. If it were really true that no such entry was made,
the deposition of the purser could have cleared up the matter.

We, therefore, hold that the transcribed testimony of

Carrascoso is admissible in evidence.
G.R. No. 119995 November 18, 1997
CARLOS SINGSON, petitioner,
vs.
COURT OF APPEALS and CATHAY PACIFIC AIRWAY,
INC., respondents.
BELLOSILLO, J.:
A contract of air carriage is a peculiar one. Imbued with public
interest, common carriers are required by law to carry
passengers safely as far a human care and foresight can
provide, using the utmost diligence of a very cautious person,
with due regard for all the circumstances. 1 A contract to
transport passengers is quite different in kind and degree from
any other contractual relation. And this because its business is
mainly with the traveling public. In invites people to avail of the
comforts and advantages it offers. The contract of carriage,
therefore, generates a relation attended with a public
duty.2 Failure of the carrier to observe this high degree of care
and extraordinary diligence renders it liable for any damage
that may be sustained by its passengers.
The instant case is an illustration of the exacting standard
demanded by the law of common carriers: On 24 May 1988
CARLOS SINGSON and his cousin Crescentino Tiongson
bought from Cathay Pacific Airways, Ltd. (CATHAY), at its
Metro Manila ticket outlet two (2) open-dated, identically
routed, round trip plane tickets for the purpose of spending
their vacation in the United States. Each ticket consisted of six
(6) flight coupons corresponding to this itinerary: flight coupon
no. 1 — Manila to Hongkong; flight coupon no. 2 — Hongkong
to San Francisco; flight coupon no. 3 — San Francisco to Los
Angeles; flight coupon no. 4 — Los Angeles back to San
Francisco; flight coupon no. 5 — San Francisco to Hongkong;
and, finally, flight coupon no. 6 — Hongkong to Manila. The
procedure was that at the start of each leg of the trip a flight
coupon corresponding to the particular sector of the travel
would be removed from the ticket booklet so that at the end of
the trip no more coupon would be left in the ticket booklet.
On 6 June 1988 CARLOS SINGSON and Crescentino
Tiongson left Manila on board CATHAY's Flight No. 902. They
arrived safely in Los Angeles and after staying there for about
three (3) weeks they decided to return to the Philippines. On
30 June 1988 they arranged for their return flight at CATHAY's
Los Angeles Office and chose 1 July 1988, a Friday, for their
departure. While Tiongson easily got a booking for the flight,
SINGSON was not as lucky. It was discovered that his ticket
booklet did not have flight coupon no. 5 corresponding to the
San Francisco-Hongkong leg of the trip. Instead, what was in
his ticket was flight coupon no. 3 — San Francisco to Los
Angeles — which was supposed to have been used and
removed from the ticket booklet. It was not until 6 July 1988
that CATHAY was finally able to arrange for his return flight to
Manila.
On 26 August 1988 SINGSON commenced an action for
damages against CATHAY before the Regional Trial Court of
Vigan, Ilocos Sur.3 He claimed that he insisted on CATHAY's
confirmation of his return flight reservation because of very
important and urgent business engagements in the Philippines.
But CATHAY allegedly shrugged off his protestations and
arrogantly directed him to go to San Francisco himself and do
some investigations on the matter or purchase a new ticket
subject to refund if it turned out that the missing coupon was
still unused or subsisting. He remonstrated that it was the
airline's agent/representative who must have committed the
mistake of tearing off the wrong flight coupon; that he did not
have enough money to buy new tickets; and, CATHAY could
conclude the investigation in a matter of minutes because of its
facilities. CATHAY, allegedly in scornful insolence, simply
dismissed him like an impertinent "brown pest." Thus he and
his cousin Tiongson, who deferred his own flight to accompany
him, were forced to leave for San Francisco on the night of 1
July 1988 to verify the missing ticket.
CATHAY denied these allegations and averred that since
petitioner was holding an "open-dated" ticket, which meant that
he was not booked on a specific flight on a particular date,
there was no contract of carriage yet existing such that
CATHAY's refusal to immediately book him could not be
construed as breach of contract of carriage. Moreover, the
coupon had been missing for almost a month hence CATHAY
must first verify its status, i.e., whether the ticket was still valid
and outstanding, before it could issue a replacement ticket to
petitioner. For that purpose, it sent a request by telex on the
same day, 1 July 1988, to its Hongkong Headquarters where
such information could be
retrieved.4 However, due to the time difference between Los
Angeles and Hongkong, no response from the Hongkong office
was immediately received. Besides, since 2 and 3 July 1988
were a Saturday and a Sunday, respectively, and 4 July 1988
was an official holiday being U.S. Independence Day, the telex
response of CATHAY Hongkong was not read until 5 July
1988. Lastly, CATHAY denied having required SINGSON to
make a trip back to San Francisco; on the other hand, it was
the latter who informed CATHAY that he was making a side
trip to San Francisco. Hence, CATHAY advised him that the
response of Hongkong would be copied in San Francisco so
that he could conveniently verify thereat should he wish to.
The trial court rendered a decision in favor of petitioner herein
holding that CATHAY was guilty of gross negligence
amounting to malice and bad faith for which it was adjudged to
pay petitioner P20,000.00 for actual damages with interest at
the legal rate of twelve percent (12%)  per annum from 26
August 1988 when the complaint was filed until fully paid,
P500,000.00 for moral damages, P400,000.00 for exemplary
damages, P100,000.00 for attorney's fees, and, to pay the
costs.
On appeal by CATHAY, the Court of Appeals reversed the trial
court's finding that there was gross negligence amounting to
bad faith or fraud and, accordingly, modified its judgment by
deleting the awards for moral and exemplary damages, and
the attorney's fees as well. Reproduced hereunder are the
pertinent portions of the decision of the appellate court5 —
There is enough merit in this appeal to strike down
the trial court's award of moral and exemplary
damages and attorney's fees . . . . In this material
respect, the appellant correctly underscores the fact
that the appellee held an open dated ticket for his
return flight from San Francisco to manila via
Hongkong and that, as a consequence, the latter was
not actually confirmed on the July 1, 1988 flight or, for
that matter, any of the appellant's flight . . . . . The
appellant certainly committed no breach of contract of
 carriage when it refused the appellee the booking he
requested on the said July 1, 1988 flight. As a
"chance passenger," the latter had no automatic right
to fly on that flight and on that date.
Even assuming arguendo that a breach of contract of
carriage may be attributed the appellant, the
appellee's travails were directly traceable to the
mistake in detaching the San Francisco-Hongkong
flight coupon of his plane ticket which led to the
appellant's refusal to honor his plane ticket. While that
may constitute negligence on the part of the air
carrier, the same cannot serve as basis for an award
of moral damages. The rule is that moral damages
are recoverable in a damage suit predicated upon a
breach of contract of carriage only where (a) the
mishap results in the death of a passenger and (b) it
is proved that the carrier was guilty of fraud and bad
faith even if death does not result . . . . In disallowing
the trial court's award of moral damages, the Court
takes appropriate note of the necessity for the
appellant's verification of the status of the missing
flight coupon as well as the justifiable delay thereto
attendant . . . . Contrary to the appellee's allegation
that he was peremptorily refused confirmation of his
flight, and arrogantly told to verify the missing flight
coupon on his own, the record shows that the
appellant adopted such measures as were reasonably
required under the circumstances. Even the
testimonies offered by the appellee and his witnesses
collectively show no trace of fraud or bad faith as
would justify the trial court's award of moral damages.
The basis for the award of moral damages
discounted, there exists little or no reason to allow the
exemplary damages and attorney's fees adjudicated
in favor of the appellee.
Petitioner's subsequent motion for reconsideration having been
denied for lack of merit and for being  pro forma he came to
use for review. He claims that the trial court found CATHAY
guilty of gross negligence amounting to malice and bad faith in:
(a) detaching the wrong coupon; (b) using that error to deny
confirmation of his return flight; and, (c) directing petitioner to
prematurely return to San Francisco to verify his missing
coupon. He also underscores the scornful and demeaning
posture of CATHAY's employees toward him. He argues that
since findings of fact of the trial court are entitled to the highest
degree of respect from the appellate courts, especially when
they were supported by evidence, it was erroneous for the
Court of Appeals to strike out the award of moral and
exemplary damages as well as attorney's fees allegedly for
lack of basis.
In its Comment, CATHAY firmly maintains that it did not breach
its contract of carriage with petitioner. It argues that it is only
when passenger is confirmed on a particular flight and on a
particular date specifically stated in his ticket that its refusal to
board the passenger will result in a breach of contract. And
even assuming that there was breach of contract, there was no
fraud or bad faith on the part of CATHAY as to justify the
award of moral and exemplary damages plus attorney's fees in
favor of petitioner.
There are two (2) main issues that confront the Court:  first,
whether a breach of contract was committed by CATHAY when
it failed to confirm the booking of petitioner for its 1 July 1988
flight; and, second, whether the carrier was liable not only for
actual damages but also for moral and exemplary damages,
and attorney's fees for failing to book petitioner on his return
flight to the Philippines.
We find merit in the petition. CATHAY undoubtedly committed
a breach of contract when it refused to confirm petitioner's
flight reservation back to the Philippines on account of his
missing flight coupon. Its contention that there was no contract
of carriage that was breached because petitioner's ticket was
open-dated is untenable. To begin with, the round trip ticket
issued by the carrier to the passenger was in itself a complete
written contract by and between the carrier and the passenger.
It has all the elements of a complete written contract, to wit: (a)
the consent of the contracting parties manifested by the fact
that the passenger agreed to be transported by the carrier to
and from Los Angeles via San Francisco and Hongkong back
to the Philippines, and the carrier's acceptance to bring him to
his destination and then back home; (b) cause or
consideration, which was the fare paid by the passenger as
stated in his ticket; and, (c) object, which was the
transportation of the passenger from the place of departure to
the place of destination and back, which are also stated in his
ticket.6 In fact, the contract of carriage in the instant case was
already partially executed as the carrier complied with its
obligation to transport the passenger to his destination, i.e.,
Los Angeles. Only the performance of the other half of the
contract — which was to transport the passenger back to the
Philippines — was left to be done. Moreover, Timothy
Remedios, CATHAY's reservation and ticketing agent,
unequivocally testified that petitioner indeed had reservations
booked for travel —
Q: Were you able to grant what
they wanted, if not, please state
why?
A: I was able to obtain a record of
Mr. Singson's computer profile from
my flight reservations computer. I
verified that Mr. Singson did indeed
have reservations booked for travel:
Los Angeles to San Francisco, San
Francisco to Hongkong to Manila. I
then proceeded to revalidate their
tickets but was surprised to observe
that Mr. Singson's ticket did not
contain a flight coupon for San
Francisco to Hongkong. His ticket
did, however, contain a flight
coupon for San Francisco to Los
Angeles which was supposed to
have been utilized already, that is,
supposed to have been removed by
U.S. Air when he checked in San
Francisco for his flight from San
Francisco to Los
Angeles7 (emphasis supplied).
Clearly therefore petitioner was not a mere "chance passenger
with no superior right to be boarded on a specific flight," as
erroneously claimed by CATHAY and sustained by the
appellate court.
Interestingly, it appears that CATHAY was responsible for the
loss of the ticket. One of two (2) things may be surmised from
the circumstances of this case:  first, US Air (CATHAY's agent)
had mistakenly detached the San Francisco-Hongkong flight
coupon thinking that it was the San Francisco-Los Angeles
portion; or, second, petitioner's booklet of tickets did not from
issuance include a San Francisco-Hongkong flight coupon. In
either case, the loss of the coupon was attributed to
the negligence of CATHAY's agents and was the proximate
cause of the non-confirmation of petitioner's return flight on 1
July 1988. It virtually prevented petitioner from demanding the
fulfillment of the carrier's obligations under the contract. Had
CATHAY's agents been diligent in double checking the
coupons they were supposed to detach from the passengers'
tickets, there would have been no reason for CATHAY not to
confirm petitioner's booking as exemplified in the case of his
cousin and flight companion Tiongson whose ticket booklet
was found to be in order. Hence, to hold that no contractual
breach was committed by CATHAY and totally absolve it from
any liability would in effect put a premium on the negligence of
its agent, contrary to the policy of the law requiring common
carriers to exercise extraordinary diligence.
With regard to the second issue, we are of the firm view that
the appellate court seriously erred in disallowing moral and
exemplary damages. Although the rule is that moral damages
predicated upon a breach of contract of carriage may only be
recoverable in instances where the mishap results in the death
of a passenger,8 or where the carrier is guilty of fraud or bad
faith,9 there are situations where the negligence of the carrier is
so gross and reckless as to virtually amount to bad faith, in
which case, the passenger likewise becomes entitled to
recover moral damages.10
In the instant case, the following circumstances attended the
breach of contract by CATHAY, to wit: First, as heretofore
discussed, the ticket coupon corresponding to the San
Francisco-Hongkong flight was missing either due to
the negligence of CATHAY's agents in improperly detaching
petitioner's flight coupons or failing to issue the flight coupon
for San Francisco-Hongkong in the ticket booklet; second,
petitioner and his cousin presented their respective ticket
booklets bearing identical itineraries to prove that there had
been a mistake in removing the coupons of petitioner.
Furthermore, CATHAY's Timothy Remedios testified that he
was able to ascertain from his flight reservations computer that
petitioner indeed had reservations booked for travel on their
return flight, but CATHAY apparently ignored the clear
evidential import of these facts and peremptorily refused to
confirm petitioner's flight — while ready to confirm his traveling
companion's identically routed plane ticket — on the lame and
flimsy excuse that the existence and validity of the missing
ticket must first be verified; third, petitioner was directed by
CATHAY to go to its San Francisco office and make the
necessary verification concerning the lost coupon himself.
This, notwithstanding the fact that CATHAY was responsible
for the loss of the ticket and had all the necessary equipment,
e.g., computers, fax and telex machines and telephones which
could facilitate the verification right there at its Los Angeles
Office.
CATHAY's allegation that it never required petitioner to go to
San Francisco is unpersuasive. Petitioner categorically testified
that a lady employee of CATHAY in Los Angeles "insisted that
we take the matter (up) with their office in San Francisco." 11 In
fact, it even appeared from the evidence that it was the San
Francisco office which arranged for his return flight to the
Philippines and not the Los Angeles office. 12 Moreover, due
deference must be accorded the trial court's finding that
petitioner was indeed sent by CATHAY to its San Francisco
office to verify. For good and sound reasons, this Court has
consistently affirmed that review of the findings of fact of the
trial court is not a function that appellate courts ordinarily
undertake, such findings being as a rule binding and
conclusive.13 It is true that certain exceptions have become
familiar. However, nothing in the records warrants a review
based on any of these well-recognized exceptions; and, fourth,
private respondent endeavored to show that it undertook the
verification of the lost coupon by sending a telex to its
Hongkong Office. It likewise tried to justify the five (5) days
delay in completing the verification process, claiming that it
was due to the time difference between Hongkong and Los
Angeles and the coinciding non-working days in the United
States. The following dialogue between Consul Cortez
and Cathay's reservation and ticketing agent Timothy
Remedios can be enlightening —
Q: What official action did you in
turn take?
A: While Mr. Singson was still in my
office I sent a telex out at
approximately 10:00 a.m. on 30
June 1988 to Hongkong Accounting
Office and copied San Francisco
ticket office since Mr. Singson
advised he might not be able to
return to my office but would be
going to San Francisco. 10:00 a.m.
30 June 1988 in Los Angeles is
however 2:00 a.m. on 1 July 1988
in Hongkong and since office hours
start at 9:00 a.m. in Hongkong, no
reply was instantly sent back to me.
The response was sent out from
Hongkong on 2 July 1988 at
approximately 12:00 noon
(Hongkong time) and was received
immediately by the Los Angeles
telex machine. However, 12:00
noon 2 July 1988 Hongkong time
was 8:00 p.m. 1 July 1988 in Los
Angeles where office hours close at
5: pm.. The Los Angeles office was
closed on 2 and 3 July 1988 being
Saturday and Sunday and also
closed 4 July 1988 for a public
holiday (Independence day) so the
reply from Hongkong was not read
until 5 July 1988, 8:30 Los Angeles
time.14
But far from helping private respondent's cause, the foregoing
testimony only betrayed another act of negligence committed
by its employees in Hongkong. It will be observed that
CATHAY's Hongkong Office received the telex from Los
Angeles on 1 July 1988 at approximately 2:00 a.m. (Hongkong
time) and sent out their response only on 2 July 1988 at 12:00
noon. In spite of the fact that they had access to all records
and facilities that would enable them to verify in a matter of
minutes, it strangely took them more than twenty-four (24)
hours to complete the verification process and to sent their
reply to Los Angeles. The inevitable conclusion is that
CATHAY's Hongkong personnel never acted promptly and
timely on the request for verification.
Besides, to be stranded for five (5) days in a foreign land
because of an air carrier's negligence is too exasperating an
experience for a plane passenger. For sure, petitioner
underwent profound distress and anxiety, not to mention the A: For our meals, we have to eat
worries brought by the thought that he did not have enough outside.
money to sustain himself, and the embarrassment of having
been forced to seek the generosity of relatives and friends. Q: Will you tell, more or less, how
much you spent for your meals?
Anent the accusation that private respondent's personnel were
rude and arrogant, petitioner failed to adduce sufficient x x x           x x x          x x x
evidence to substantiate his claim. Nonetheless, such fact will
not in any manner affect the disposition of this case. Private
respondent's mistake in removing the wrong coupon was A: For every meal we spend around
compounded by several other independent acts of negligence thirty dollars each.
above-enumerated. Taken together, they indubitably signify
more than ordinary inadvertence or inattention and thus Q: And this is for how many days?
constitute a radical departure from the extraordinary standard
of care required of common carriers. Put differently, these A: From July 1, up to the 6th in the
circumstances reflect the carrier's utter lack of care and morning, sir.
sensitivity to the needs of its passengers, clearly constitutive of
gross negligence, recklessness and wanton disregard of the
rights of the latter, acts evidently indistinguishable or no Q: So more or less how many in
different from fraud, malice and bad faith. As the rule now pesos did you spend for this period
stands, where in breaching the contract of carriage the of waiting from July 1 to 6?
defendant airline is shown to have acted fraudulently, with
malice or in bad faith, the award of moral and exemplary A: Twenty thousand pesos, sir.19
damages, in addition to actual damages, is proper.15
In the absence of any countervailing evidence from private
However, the P500,000.00 moral damages and P400,000.00 respondent, and in view of the negligence attributable to it, the
exemplary damages awarded by the trial court have to be foregoing testimony suffices as basis for actual damages as
reduced. The well-entrenched principle is that the grant of determined by the court a quo.
moral damages depends upon the discretion of the court
based on the circumstances of each case.16 This discretion is
As regards attorney's fees, they may be awarded when the
limited by the principle that the "amount awarded should not be
defendant's act or omission has compelled the plaintiff to
palpably and scandalously excessive" as to indicate that it was
litigate with third persons or to incur expenses to protect his
the result of prejudice or corruption on the part of the trial
interest. It was therefore erroneous for the Court of Appeals to
court.17 Damages are not intended to enrich the complainant at
delete the award made by the trial court; consequently,
the expense of the defendant. They are awarded only to
petitioner should be awarded attorney's fees and the amount of
alleviate the moral suffering that the injured partly had
P25,000.00, instead of P100,000.00 earlier awarded, may be
undergone by reason of the defendant's culpable
considered rational, fair and reasonable.
action.18 There is not hard-and-fast rule in the determination of
what would be a fair amount of moral damages since each
case must be governed by its own peculiar facts. WHEREFORE, the petition is GRANTED and the 14 July 1994
Decision of the Court of Appeals is REVERSED. Private
respondent is ordered to pay petitioner P20,000.00 for actual
In the instant case, the injury suffered by petitioner is not so
damages as fixed by the trial court, plus P200,000.00 for moral
serious or extensive as to warrant an award amounting to
damages, P50,000.00 for exemplary damages and P25,000.00
P900,000.00. The assessment of P200,000.00 as moral
for attorney's fees. No costs.
damages and P50,000.00 as exemplary damages in his favor
is, in our view, reasonable and realistic.
SO ORDERED.
On the issue of actual damages, we agree with the Court of
Appeals that the amount of P20,000.00 granted by the trial
court to petitioner should not be disturbed. Petitioner
categorically testified that he incurred the amount during the
period of his delay in departing from the United States —

Q: Will you kindly tell the Court

what expenses if any did you incur
for these . . . days from July 1 until
you were able to leave on July 6,
1988?

A: Well, it is true we stayed in the

house of my nephew but still we
had to spend for our food and I left
him some around five hundred
dollars for our stay for around five
days.

Q: How about your meals?

G.R. No. 157917               August 29, 2012
SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,
vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L.
ZARATE, NATIONAL RAILWAYS, and the COURT OF
APPEALS Respondents.
DECISION
BERSAMIN, J.:
The operator of a. school bus service is a common carrier in
the eyes of the law. He is bound to observe extraordinary
diligence in the conduct of his business. He is presumed to be
negligent when death occurs to a passenger. His liability may
include indemnity for loss of earning capacity even if the
deceased passenger may only be an unemployed high school
student at the time of the accident.
The Case
By petition for review on certiorari, Spouses Teodoro and
Nanette Perefia (Perefias) appeal the adverse decision
promulgated on November 13, 2002, by which the Court of
Appeals (CA) affirmed with modification the decision rendered
on December 3, 1999 by the Regional Trial Court (RTC),
Branch 260, in Parañaque City that had decreed them jointly
and severally liable with Philippine National Railways (PNR),
their co-defendant, to Spouses Nicolas and Teresita Zarate
(Zarates) for the death of their 15-year old son, Aaron John L.
Zarate (Aaron), then a high school student of Don Bosco
Technical Institute (Don Bosco).
Antecedents
The Pereñas were engaged in the business of transporting
students from their respective residences in Parañaque City to
Don Bosco in Pasong Tamo, Makati City, and back. In their
business, the Pereñas used a KIA Ceres Van (van) with Plate
No. PYA 896, which had the capacity to transport 14 students
at a time, two of whom would be seated in the front beside the
driver, and the others in the rear, with six students on either
side. They employed Clemente Alfaro (Alfaro) as driver of the
van.
In June 1996, the Zarates contracted the Pereñas to transport
Aaron to and from Don Bosco. On August 22, 1996, as on
previous school days, the van picked Aaron up around 6:00
a.m. from the Zarates’ residence. Aaron took his place on the
left side of the van near the rear door. The van, with its air-
conditioning unit turned on and the stereo playing loudly,
ultimately carried all the 14 student riders on their way to Don
Bosco. Considering that the students were due at Don Bosco
by 7:15 a.m., and that they were already running late because
of the heavy vehicular traffic on the South Superhighway,
Alfaro took the van to an alternate route at about 6:45 a.m. by
traversing the narrow path underneath the Magallanes
Interchange that was then commonly used by Makati-bound
vehicles as a short cut into Makati. At the time, the narrow path
was marked by piles of construction materials and parked
passenger jeepneys, and the railroad crossing in the narrow
path had no railroad warning signs, or watchmen, or other
responsible persons manning the crossing. In fact, the bamboo
barandilla was up, leaving the railroad crossing open to
traversing motorists.
At about the time the van was to traverse the railroad crossing,
PNR Commuter No. 302 (train), operated by Jhonny Alano
(Alano), was in the vicinity of the Magallanes Interchange
travelling northbound. As the train neared the railroad crossing,
Alfaro drove the van eastward across the railroad tracks,
closely tailing a large passenger bus. His view of the oncoming
train was blocked because he overtook the passenger bus on
its left side. The train blew its horn to warn motorists of its
approach. When the train was about 50 meters away from the
passenger bus and the van, Alano applied the ordinary brakes
of the train. He applied the emergency brakes only when he
saw that a collision was imminent. The passenger bus
successfully crossed the railroad tracks, but the van driven by
Alfaro did not. The train hit the rear end of the van, and the
impact threw nine of the 12 students in the rear, including
Aaron, out of the van. Aaron landed in the path of the train,
which dragged his body and severed his head, instantaneously
killing him. Alano fled the scene on board the train, and did not
wait for the police investigator to arrive.
Devastated by the early and unexpected death of Aaron, the
Zarates commenced this action for damages against Alfaro,
the Pereñas, PNR and Alano. The Pereñas and PNR filed their
respective answers, with cross-claims against each other, but
Alfaro could not be served with summons.
At the pre-trial, the parties stipulated on the facts and issues,
viz:
A. FACTS:
(1) That spouses Zarate were the legitimate parents
of Aaron John L. Zarate;
(2) Spouses Zarate engaged the services of spouses
Pereña for the adequate and safe transportation
carriage of the former spouses' son from their
residence in Parañaque to his school at the Don
Bosco Technical Institute in Makati City;
(3) During the effectivity of the contract of carriage
and in the implementation thereof, Aaron, the minor
son of spouses Zarate died in connection with a
vehicular/train collision which occurred while Aaron
was riding the contracted carrier Kia Ceres van of
spouses Pereña, then driven and operated by the
latter's employee/authorized driver Clemente Alfaro,
which van collided with the train of PNR, at around
6:45 A.M. of August 22, 1996, within the vicinity of the
Magallanes Interchange in Makati City, Metro Manila,
Philippines;
(4) At the time of the vehicular/train collision, the
subject site of the vehicular/train collision was a
railroad crossing used by motorists for crossing the
railroad tracks;
(5) During the said time of the vehicular/train
collision, there were no appropriate and safety
warning signs and railings at the site commonly used
for railroad crossing;
 (6) At the material time, countless number of Makati
bound public utility and private vehicles used on a
daily basis the site of the collision as an alternative
route and short-cut to Makati;
(7) The train driver or operator left the scene of the
incident on board the commuter train involved without
waiting for the police investigator;
(8) The site commonly used for railroad crossing by
motorists was not in fact intended by the railroad
operator for railroad crossing at the time of the
vehicular collision;
(9) PNR received the demand letter of the spouses
Zarate;
(10) PNR refused to acknowledge any liability for
the vehicular/train collision;
(11) The eventual closure of the railroad crossing
alleged by PNR was an internal arrangement between
the former and its project contractor; and
(12) The site of the vehicular/train collision was within
the vicinity or less than 100 meters from the
Magallanes station of PNR.
B. ISSUES
(1) Whether or not defendant-driver of the van is, in
the performance of his functions, liable for negligence
constituting the proximate cause of the vehicular
collision, which resulted in the death of plaintiff
spouses' son;
(2) Whether or not the defendant spouses Pereña
being the employer of defendant Alfaro are liable for
any negligence which may be attributed to defendant
Alfaro;
(3) Whether or not defendant Philippine National
Railways being the operator of the railroad system is
liable for negligence in failing to provide adequate
safety warning signs and railings in the area
commonly used by motorists for railroad crossings,
constituting the proximate cause of the vehicular
collision which resulted in the death of the plaintiff
spouses' son;
(4) Whether or not defendant spouses Pereña are
liable for breach of the contract of carriage with
plaintiff-spouses in failing to provide adequate and
safe transportation for the latter's son;
(5) Whether or not defendants spouses are liable for
actual, moral damages, exemplary damages, and
attorney's fees;
(6) Whether or not defendants spouses Teodorico
and Nanette Pereña observed the diligence of
employers and school bus operators;
(7) Whether or not defendant-spouses are civilly liable
for the accidental death of Aaron John Zarate;
(8) Whether or not defendant PNR was grossly
negligent in operating the commuter train involved in
the accident, in allowing or tolerating the motoring
public to cross, and its failure to install safety devices
or equipment at the site of the accident for the
protection of the public;
(9) Whether or not defendant PNR should be made to
reimburse defendant spouses for any and whatever
amount the latter may be held answerable or which
they may be ordered to pay in favor of plaintiffs by
reason of the action;
(10) Whether or not defendant PNR should pay
plaintiffs directly and fully on the amounts claimed by
the latter in their Complaint by reason of its gross
negligence;
(11) Whether or not defendant PNR is liable to
defendants spouses for actual, moral and exemplary
damages and attorney's fees.2
The Zarates’ claim against the Pereñas was upon breach of
the contract of carriage for the safe transport of Aaron; but that
against PNR was based on quasi-delict under Article 2176,
Civil Code.
In their defense, the Pereñas adduced evidence to show that
they had exercised the diligence of a good father of the family
in the selection and supervision of Alfaro, by making sure that
Alfaro had been issued a driver’s license and had not been
involved in any vehicular accident prior to the collision; that
their own son had taken the van daily; and that Teodoro
Pereña had sometimes accompanied Alfaro in the van’s trips
transporting the students to school.
For its part, PNR tended to show that the proximate cause of
the collision had been the reckless crossing of the van whose
driver had not first stopped, looked and listened; and that the
narrow path traversed by the van had not been intended to be
a railroad crossing for motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its
decision,3 disposing:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the defendants
ordering them to jointly and severally pay the plaintiffs as
follows:
(1) (for) the death of Aaron- Php50,000.00;
(2) Actual damages in the amount of Php100,000.00;
(3) For the loss of earning capacity- Php2,109,071.00;
(4) Moral damages in the amount of
Php4,000,000.00;
 (5) Exemplary damages in the amount
Php1,000,000.00;
(6) Attorney’s fees in the amount of Php200,000.00;
and
(7) Cost of suit.
SO ORDERED.
On June 29, 2000, the RTC denied the Pereñas’ motion for
reconsideration,4 reiterating that the cooperative gross
negligence of the Pereñas and PNR had caused the collision
that led to the death of Aaron; and that the damages awarded
to the Zarates were not excessive, but based on the
established circumstances.
The CA’s Ruling
Both the Pereñas and PNR appealed (C.A.-G.R. CV No.
68916).
PNR assigned the following errors, to wit:5
The Court a quo erred in:
1. In finding the defendant-appellant Philippine
National Railways jointly and severally liable together
with defendant-appellants spouses Teodorico and
Nanette Pereña and defendant-appellant Clemente
Alfaro to pay plaintiffs-appellees for the death of
Aaron Zarate and damages.
2. In giving full faith and merit to the oral testimonies
of plaintiffs-appellees witnesses despite
overwhelming documentary evidence on record,
supporting the case of defendants-appellants
Philippine National Railways.
The Pereñas ascribed the following errors to the RTC, namely:
The trial court erred in finding defendants-appellants jointly and
severally liable for actual, moral and exemplary damages and
attorney’s fees with the other defendants.
The trial court erred in dismissing the cross-claim of the
appellants Pereñas against the Philippine National Railways
and in not holding the latter and its train driver primarily
responsible for the incident.
The trial court erred in awarding excessive damages and
attorney’s fees.
The trial court erred in awarding damages in the form of
deceased’s loss of earning capacity in the absence of sufficient
basis for such an award.
On November 13, 2002, the CA promulgated its decision,
affirming the findings of the RTC, but limited the moral
damages to ₱ 2,500,000.00; and deleted the attorney’s fees
because the RTC did not state the factual and legal bases, to
wit:6
of WHEREFORE, premises considered, the assailed Decision of
the Regional Trial Court, Branch 260 of Parañaque City is
AFFIRMED with the modification that the award of Actual
Damages is reduced to ₱ 59,502.76; Moral Damages is
reduced to ₱ 2,500,000.00; and the award for Attorney’s Fees
is Deleted.
SO ORDERED.
The CA upheld the award for the loss of Aaron’s earning
capacity, taking cognizance of the ruling in Cariaga v. Laguna
Tayabas Bus Company and Manila Railroad
Company,7 wherein the Court gave the heirs of Cariaga a sum
representing the loss of the deceased’s earning capacity
despite Cariaga being only a medical student at the time of the
fatal incident. Applying the formula adopted in the American
Expectancy Table of Mortality:–
2/3 x (80 - age at the time of death) = life expectancy
the CA determined the life expectancy of Aaron to be 39.3
years upon reckoning his life expectancy from age of 21 (the
age when he would have graduated from college and started
working for his own livelihood) instead of 15 years (his age
when he died). Considering that the nature of his work and his
salary at the time of Aaron’s death were unknown, it used the
prevailing minimum wage of ₱ 280.00/day to compute Aaron’s
gross annual salary to be ₱ 110,716.65, inclusive of the
thirteenth month pay. Multiplying this annual salary by Aaron’s
life expectancy of 39.3 years, his gross income would
aggregate to ₱ 4,351,164.30, from which his estimated
expenses in the sum of ₱ 2,189,664.30 was deducted to finally
arrive at P 2,161,500.00 as net income. Due to Aaron’s
computed net income turning out to be higher than the amount
claimed by the Zarates, only ₱ 2,109,071.00, the amount
expressly prayed for by them, was granted.
On April 4, 2003, the CA denied the Pereñas’ motion for
reconsideration.8
Issues
In this appeal, the Pereñas list the following as the errors
committed by the CA, to wit:
I. The lower court erred when it upheld the trial court’s decision
holding the petitioners jointly and severally liable to pay
damages with Philippine National Railways and dismissing
their cross-claim against the latter.
II. The lower court erred in affirming the trial court’s decision
awarding damages for loss of earning capacity of a minor who
was only a high school student at the time of his death in the
absence of sufficient basis for such an award.
III. The lower court erred in not reducing further the amount of
damages awarded, assuming petitioners are liable at all.
Ruling
The petition has no merit.
1.
Were the Pereñas and PNR jointly
and severally liable for damages?
The Zarates brought this action for recovery of damages
against both the Pereñas and the PNR, basing their claim
against the Pereñas on breach of contract of carriage and
against the PNR on quasi-delict.
The RTC found the Pereñas and the PNR negligent. The CA
affirmed the findings.
We concur with the CA.
To start with, the Pereñas’ defense was that they exercised the
diligence of a good father of the family in the selection and
supervision of Alfaro, the van driver, by seeing to it that Alfaro
had a driver’s license and that he had not been involved in any
vehicular accident prior to the fatal collision with the train; that
they even had their own son travel to and from school on a
daily basis; and that Teodoro Pereña himself sometimes
accompanied Alfaro in transporting the passengers to and from
school. The RTC gave scant consideration to such defense by
regarding such defense as inappropriate in an action for
breach of contract of carriage.
We find no adequate cause to differ from the conclusions of
the lower courts that the Pereñas operated as a common
carrier; and that their standard of care was extraordinary
diligence, not the ordinary diligence of a good father of a
family.
Although in this jurisdiction the operator of a school bus service
has been usually regarded as a private carrier,9 primarily
because he only caters to some specific or privileged
individuals, and his operation is neither open to the indefinite
public nor for public use, the exact nature of the operation of a
school bus service has not been finally settled. This is the
occasion to lay the matter to rest.
A carrier is a person or corporation who undertakes to
transport or convey goods or persons from one place to
another, gratuitously or for hire. The carrier is classified either
as a private/special carrier or as a common/public carrier.10 A
private carrier is one who, without making the activity a
vocation, or without holding himself or itself out to the public as
ready to act for all who may desire his or its services,
undertakes, by special agreement in a particular instance only,
to transport goods or persons from one place to another either
gratuitously or for hire.11 The provisions on ordinary contracts of
the Civil Code govern the contract of private carriage.The
diligence required of a private carrier is only ordinary, that is,
the diligence of a good father of the family. In contrast, a
common carrier is a person, corporation, firm or association
engaged in the business of carrying or transporting passengers
or goods or both, by land, water, or air, for compensation,
offering such services to the public.12 Contracts of common
carriage are governed by the provisions on common carriers of
the Civil Code, the Public Service Act,13 and other special laws
relating to transportation. A common carrier is required to
observe extraordinary diligence, and is presumed to be at fault
or to have acted negligently in case of the loss of the effects of
passengers, or the death or injuries to passengers.14
In relation to common carriers, the Court defined public use in
the following terms in United States v. Tan Piaco,15 viz:
"Public use" is the same as "use by the public". The essential
feature of the public use is not confined to privileged
individuals, but is open to the indefinite public. It is this
indefinite or unrestricted quality that gives it its public
character. In determining whether a use is public, we must look
not only to the character of the business to be done, but also to
the proposed mode of doing it. If the use is merely optional
with the owners, or the public benefit is merely incidental, it is
not a public use, authorizing the exercise of the jurisdiction of
the public utility commission. There must be, in general, a right
which the law compels the owner to give to the general public.
It is not enough that the general prosperity of the public is
promoted. Public use is not synonymous with public interest.
The true criterion by which to judge the character of the use is
whether the public may enjoy it by right or only by permission.
In De Guzman v. Court of Appeals,16 the Court noted that
Article 1732 of the Civil Code avoided any distinction between
a person or an enterprise offering transportation on a regular or
an isolated basis; and has not distinguished a carrier offering
his services to the general public, that is, the general
community or population, from one offering his services only to
a narrow segment of the general population.
Nonetheless, the concept of a common carrier embodied in
Article 1732 of the Civil Code coincides neatly with the notion
of public service under the Public Service Act, which
supplements the law on common carriers found in the Civil
Code. Public service, according to Section 13, paragraph (b) of
the Public Service Act, includes:
x x x every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or compensation,
with general or limited clientèle, whether permanent or
occasional, and done for the general business purposes, any
common carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger, or both,
with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express
service, steamboat, or steamship line, pontines, ferries and
water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, ice-refrigeration
plant, canal, irrigation system, gas, electric light, heat and
power, water supply and power petroleum, sewerage system,
wire or wireless communications systems, wire or wireless
broadcasting stations and other similar public services. x x x.17
Given the breadth of the aforequoted characterization of a
common carrier, the Court has considered as common carriers
pipeline operators,18 custom brokers and warehousemen,19 and
barge operators20 even if they had limited clientèle.
As all the foregoing indicate, the true test for a common carrier
is not the quantity or extent of the business actually transacted,
or the number and character of the conveyances used in the
activity, but whether the undertaking is a part of the activity
engaged in by the carrier that he has held out to the general
public as his business or occupation. If the undertaking is a
single transaction, not a part of the general business or
occupation engaged in, as advertised and held out to the
general public, the individual or the entity rendering such
service is a private, not a common, carrier. The question must
be determined by the character of the business actually carried
on by the carrier, not by any secret intention or mental
reservation it may entertain or assert when charged with the
duties and obligations that the law imposes.21
Applying these considerations to the case before us, there is
no question that the Pereñas as the operators of a school bus
service were: (a) engaged in transporting passengers generally
as a business, not just as a casual occupation; (b) undertaking
to carry passengers over established roads by the method by
which the business was conducted; and (c) transporting
students for a fee. Despite catering to a limited clientèle, the
Pereñas operated as a common carrier because they held
themselves out as a ready transportation indiscriminately to the
students of a particular school living within or near where they
operated the service and for a fee.
The common carrier’s standard of care and vigilance as to the
safety of the passengers is defined by law. Given the nature of
the business and for reasons of public policy, the common
carrier is bound "to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of
each case."22 Article 1755 of the Civil Code specifies that the
common carrier should "carry the passengers safely as far as
human care and foresight can provide, using the utmost
diligence of very cautious persons, with a due regard for all the
circumstances." To successfully fend off liability in an action
upon the death or injury to a passenger, the common carrier
must prove his or its observance of that extraordinary
diligence; otherwise, the legal presumption that he or it was at
fault or acted negligently would stand.23 No device, whether by
stipulation, posting of notices, statements on tickets, or
otherwise, may dispense with or lessen the responsibility of the
common carrier as defined under Article 1755 of the Civil
Code. 24
And, secondly, the Pereñas have not presented any
compelling defense or reason by which the Court might now
reverse the CA’s findings on their liability. On the contrary, an
examination of the records shows that the evidence fully
supported the findings of the CA.
As earlier stated, the Pereñas, acting as a common carrier,
were already presumed to be negligent at the time of the
accident because death had occurred to their passenger. 25 The
presumption of negligence, being a presumption of law, laid
the burden of evidence on their shoulders to establish that they
had not been negligent.26 It was the law no less that required
them to prove their observance of extraordinary diligence in
seeing to the safe and secure carriage of the passengers to
their destination. Until they did so in a credible manner, they
stood to be held legally responsible for the death of Aaron and
thus to be held liable for all the natural consequences of such
death.
There is no question that the Pereñas did not overturn the
presumption of their negligence by credible evidence. Their
defense of having observed the diligence of a good father of a
family in the selection and supervision of their driver was not
legally sufficient. According to Article 1759 of the Civil Code,
their liability as a common carrier did not cease upon proof that
they exercised all the diligence of a good father of a family in
the selection and supervision of their employee. This was the
reason why the RTC treated this defense of the Pereñas as
inappropriate in this action for breach of contract of carriage.
The Pereñas were liable for the death of Aaron despite the fact
that their driver might have acted beyond the scope of his
authority or even in violation of the orders of the common
carrier.27 In this connection, the records showed their driver’s
actual negligence. There was a showing, to begin with, that
their driver traversed the railroad tracks at a point at which the
PNR did not permit motorists going into the Makati area to
cross the railroad tracks. Although that point had been used by
motorists as a shortcut into the Makati area, that fact alone did
not excuse their driver into taking that route. On the other
hand, with his familiarity with that shortcut, their driver was fully
aware of the risks to his passengers but he still disregarded the
risks. Compounding his lack of care was that loud music was
playing inside the air-conditioned van at the time of the
accident. The loudness most probably reduced his ability to
hear the warning horns of the oncoming train to allow him to
correctly appreciate the lurking dangers on the railroad tracks.
Also, he sought to overtake a passenger bus on the left side as
both vehicles traversed the railroad tracks. In so doing, he lost
his view of the train that was then coming from the opposite
side of the passenger bus, leading him to miscalculate his
chances of beating the bus in their race, and of getting clear of
the train. As a result, the bus avoided a collision with the train
but the van got slammed at its rear, causing the fatality. Lastly,
he did not slow down or go to a full stop before traversing the
railroad tracks despite knowing that his slackening of speed
and going to a full stop were in observance of the right of way
at railroad tracks as defined by the traffic laws and
regulations.28 He thereby violated a specific traffic regulation on
right of way, by virtue of which he was immediately presumed
to be negligent.29
The omissions of care on the part of the van driver constituted
negligence,30 which, according to Layugan v. Intermediate
Appellate Court,31 is "the omission to do something which a
reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or
the doing of something which a prudent and reasonable man
would not do,32 or as Judge Cooley defines it, ‘(t)he failure to
observe for the protection of the interests of another person,
that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person
suffers injury.’"33
The test by which to determine the existence of negligence in a
particular case has been aptly stated in the leading case of
Picart v. Smith,34 thuswise:
The test by which to determine the existence of negligence in a
particular case may be stated as follows: Did the defendant in
doing the alleged negligent act use that reasonable care and
caution which an ordinarily prudent person would have used in
the same situation? If not, then he is guilty of negligence. The
law here in effect adopts the standard supposed to be supplied
by the imaginary conduct of the discreet paterfamilias of the
Roman law. The existence of negligence in a given case is not
determined by reference to the personal judgment of the actor
in the situation before him. The law considers what would be
reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.
The question as to what would constitute the conduct of a
prudent man in a given situation must of course be always
determined in the light of human experience and in view of the
facts involved in the particular case. Abstract speculation
cannot here be of much value but this much can be profitably
said: Reasonable men govern their conduct by the
circumstances which are before them or known to them. They
are not, and are not supposed to be, omniscient of the future.
Hence they can be expected to take care only when there is
something before them to suggest or warn of danger. Could a
prudent man, in the case under consideration, foresee harm as
a result of the course actually pursued? If so, it was the duty of
the actor to take precautions to guard against that harm.
Reasonable foresight of harm, followed by the ignoring of the
suggestion born of this prevision, is always necessary before
negligence can be held to exist. Stated in these terms, the
proper criterion for determining the existence of negligence in a
given case is this: Conduct is said to be negligent when a
prudent man in the position of the tortfeasor would have
foreseen that an effect harmful to another was sufficiently
probable to warrant his foregoing the conduct or guarding
against its consequences. (Emphasis supplied)
Pursuant to the Picart v. Smith test of negligence, the Pereñas’
driver was entirely negligent when he traversed the railroad
tracks at a point not allowed for a motorist’s crossing despite
being fully aware of the grave harm to be thereby caused to his
passengers; and when he disregarded the foresight of harm to
his passengers by overtaking the bus on the left side as to
leave himself blind to the approach of the oncoming train that
he knew was on the opposite side of the bus.
Unrelenting, the Pereñas cite Phil. National Railways v.
Intermediate Appellate Court,35 where the Court held the PNR
solely liable for the damages caused to a passenger bus and
its passengers when its train hit the rear end of the bus that
was then traversing the railroad crossing. But the
circumstances of that case and this one share no similarities.
In Philippine National Railways v. Intermediate Appellate
Court, no evidence of contributory negligence was adduced
against the owner of the bus. Instead, it was the owner of the
bus who proved the exercise of extraordinary diligence by
preponderant evidence. Also, the records are replete with the
showing of negligence on the part of both the Pereñas and the
PNR. Another distinction is that the passenger bus in
Philippine National Railways v. Intermediate Appellate Court
was traversing the dedicated railroad crossing when it was hit
by the train, but the Pereñas’ school van traversed the railroad
tracks at a point not intended for that purpose.
At any rate, the lower courts correctly held both the Pereñas
and the PNR "jointly and severally" liable for damages arising
from the death of Aaron. They had been impleaded in the
same complaint as defendants against whom the Zarates had
the right to relief, whether jointly, severally, or in the alternative,
in respect to or arising out of the accident, and questions of
fact and of law were common as to the Zarates. 36 Although the
basis of the right to relief of the Zarates (i.e., breach of contract
of carriage) against the Pereñas was distinct from the basis of
the Zarates’ right to relief against the PNR (i.e., quasi-delict
under Article 2176, Civil Code), they nonetheless could be held
jointly and severally liable by virtue of their respective
negligence combining to cause the death of Aaron. As to the
PNR, the RTC rightly found the PNR also guilty of negligence
despite the school van of the Pereñas traversing the railroad
tracks at a point not dedicated by the PNR as a railroad
crossing for pedestrians and motorists, because the PNR did
not ensure the safety of others through the placing of
crossbars, signal lights, warning signs, and other permanent
safety barriers to prevent vehicles or pedestrians from crossing
there. The RTC observed that the fact that a crossing guard
had been assigned to man that point from 7 a.m. to 5 p.m. was
a good indicium that the PNR was aware of the risks to others
as well as the need to control the vehicular and other traffic
there. Verily, the Pereñas and the PNR were joint tortfeasors.
2.
Was the indemnity for loss of
Aaron’s earning capacity proper?
The RTC awarded indemnity for loss of Aaron’s earning
capacity. Although agreeing with the RTC on the liability, the
CA modified the amount. Both lower courts took into
consideration that Aaron, while only a high school student, had
been enrolled in one of the reputable schools in the Philippines
and that he had been a normal and able-bodied child prior to
his death. The basis for the computation of Aaron’s earning
capacity was not what he would have become or what he
would have wanted to be if not for his untimely death, but the
minimum wage in effect at the time of his death. Moreover, the
RTC’s computation of Aaron’s life expectancy rate was not
reckoned from his age of 15 years at the time of his death, but
on 21 years, his age when he would have graduated from
college.
We find the considerations taken into account by the lower
courts to be reasonable and fully warranted.
Yet, the Pereñas submit that the indemnity for loss of earning
capacity was speculative and unfounded.1âwphi1 They cited
People v. Teehankee, Jr.,37 where the Court deleted the
indemnity for victim Jussi Leino’s loss of earning capacity as a
pilot for being speculative due to his having graduated from
high school at the International School in Manila only two years
before the shooting, and was at the time of the shooting only
enrolled in the first semester at the Manila Aero Club to pursue
his ambition to become a professional pilot. That meant,
according to the Court, that he was for all intents and purposes
only a high school graduate.
We reject the Pereñas’ submission.
First of all, a careful perusal of the Teehankee, Jr. case shows
that the situation there of Jussi Leino was not akin to that of
Aaron here. The CA and the RTC were not speculating that
Aaron would be some highly-paid professional, like a pilot (or,
for that matter, an engineer, a physician, or a lawyer). Instead,
the computation of Aaron’s earning capacity was premised on
him being a lowly minimum wage earner despite his being then
enrolled at a prestigious high school like Don Bosco in Makati,
a fact that would have likely ensured his success in his later
years in life and at work.
And, secondly, the fact that Aaron was then without a history of
earnings should not be taken against his parents and in favor
of the defendants whose negligence not only cost Aaron his life
and his right to work and earn money, but also deprived his
parents of their right to his presence and his services as well.
Our law itself states that the loss of the earning capacity of the
deceased shall be the liability of the guilty party in favor of the
heirs of the deceased, and shall in every case be assessed
and awarded by the court "unless the deceased on account of
permanent physical disability not caused by the defendant, had
no earning capacity at the time of his death." 38 Accordingly, we
emphatically hold in favor of the indemnification for Aaron’s
loss of earning capacity despite him having been unemployed,
because compensation of this nature is awarded not for loss of
time or earnings but for loss of the deceased’s power or ability
to earn money.39
This favorable treatment of the Zarates’ claim is not
unprecedented. In Cariaga v. Laguna Tayabas Bus Company
and Manila Railroad Company,40 fourth-year medical student
Edgardo Carriaga’s earning capacity, although he survived the
accident but his injuries rendered him permanently
incapacitated, was computed to be that of the physician that he
dreamed to become. The Court considered his scholastic
record sufficient to justify the assumption that he could have
finished the medical course and would have passed the
medical board examinations in due time, and that he could
have possibly earned a modest income as a medical
practitioner. Also, in People v. Sanchez,41 the Court opined that
murder and rape victim Eileen Sarmienta and murder victim
Allan Gomez could have easily landed good-paying jobs had
they graduated in due time, and that their jobs would probably
pay them high monthly salaries from ₱ 10,000.00 to ₱
15,000.00 upon their graduation. Their earning capacities were
computed at rates higher than the minimum wage at the time
of their deaths due to their being already senior agriculture
students of the University of the Philippines in Los Baños, the
country’s leading educational institution in agriculture.

3.
Were the amounts of damages excessive?

The Pereñas plead for the reduction of the moral and

exemplary damages awarded to the Zarates in the respective
amounts of ₱ 2,500,000.00 and ₱ 1,000,000.00 on the ground
that such amounts were excessive.

The plea is unwarranted.

The moral damages of ₱ 2,500,000.00 were really just and

reasonable under the established circumstances of this case
because they were intended by the law to assuage the
Zarates’ deep mental anguish over their son’s unexpected and
violent death, and their moral shock over the senseless
accident. That amount would not be too much, considering that
it would help the Zarates obtain the means, diversions or
amusements that would alleviate their suffering for the loss of
their child. At any rate, reducing the amount as excessive
might prove to be an injustice, given the passage of a long time
from when their mental anguish was inflicted on them on
August 22, 1996.

Anent the ₱ 1,000,000.00 allowed as exemplary damages, we

should not reduce the amount if only to render effective the
desired example for the public good. As a common carrier, the
Pereñas needed to be vigorously reminded to observe their
duty to exercise extraordinary diligence to prevent a similarly
senseless accident from happening again. Only by an award of
exemplary damages in that amount would suffice to instill in
them and others similarly situated like them the ever-present
need for greater and constant vigilance in the conduct of a
business imbued with public interest.

WHEREFORE, we DENY the petition for review

on certiorari; AFFIRM the decision promulgated on November
13, 2002; and ORDER the petitioners to pay the costs of suit.
G.R. No. 112287 December 12, 1997
NATIONAL STEEL CORPORATION, petitioner,
vs.
COURT OF APPEALS AND VLASONS SHIPPING,
INC., respondents.
G.R. No. 112350 December 12, 1997
VLASONS SHIPPING, INC., petitioner,
vs.
COURT OF APPEALS AND NATIONAL STEEL
CORPORATION, respondents.
PANGANIBAN, J.:
The Court finds occasion to apply the rules on the
seaworthiness of private carrier, its owner's responsibility for
damage to the cargo and its liability for demurrage and
attorney's fees. The Court also reiterates the well-known rule
that findings of facts of trial courts, when affirmed by the Court
of Appeals, are binding on this Court.
The Case
Before us are two separate petitions for review filed by
National Steel Corporation (NSC) and Vlasons Shipping, Inc.
(VSI), both of which assail the August 12, 1993 Decision of the
Court of Appeals.1 The Court of Appeals modified the decision
of the Regional Trial Court of Pasig, Metro Manila, Branch 163
in Civil Case No. 23317. The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor
of defendant and against the plaintiff dismissing the
complaint with cost against plaintiff, and ordering
plaintiff to pay the defendant on the counterclaim as
follows:
1. The sum of P75,000.00 as unpaid freight and
P88,000.00 as demurrage with interest at the legal
rate on both amounts from April 7, 1976 until the
same shall have been fully paid;
2. Attorney's fees and expenses of litigation in the
sum of P100,000.00; and
3. Costs of suit.
SO ORDERED.2
On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the decision
appealed from is modified by reducing the award for
demurrage to P44,000.00 and deleting the award for
attorney's fees and expenses of litigation. Except as
thus modified, the decision is AFFIRMED. There is no
pronouncement as to costs.
SO ORDERED.3
The Facts
The MV Vlasons I is a vessel which renders tramping service
and, as such, does not transport cargo or shipment for the
general public. Its services are available only to specific
persons who enter into a special contract of charter party with
its owner. It is undisputed that the ship is a private carrier. And
it is in the capacity that its owner, Vlasons Shipping, Inc.,
entered into a contract of affreightment or contract of voyage
charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as
follows:
(1) On July 17, 1974, plaintiff National Steel
Corporation (NSC) as Charterer and defendant
Vlasons Shipping, Inc. (VSI) as Owner, entered into a
Contract of Voyage Charter Hire (Exhibit "B"; also
Exhibit "1") whereby NSC hired VSI's vessel, the MV
"VLASONS I" to make one (1) voyage to load steel
products at Iligan City and discharge them at North
Harbor, Manila, under the following terms and
conditions, viz:
1. . . .
2. Cargo: Full cargo of steel products of not less than
2,500 MT, 10% more or less at Master's option.
3. . . .
4. Freight/Payment: P30.00/metric ton, FIOST basis.
Payment upon presentation of Bill of Lading within
fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per
WWDSHINC. (Weather Working Day of 24
consecutive hours, Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per
day.
8. . . .
9. Cargo Insurance: Charterer's and/or Shipper's must
insure the cargoes. Shipowners not responsible for
losses/damages except on proven willful negligence
of the officers of the vessel.
10. Other terms: (a) All terms/conditions
of NONYAZAI C/P [sic] or other internationally
recognized Charter Party Agreement shall form part
of this Contract.
xxx xxx xxx
The terms "F.I.O.S.T." which is used in the shipping
business is a standard provision in the NANYOZAI
Charter Party which stands for "Freight In and Out
including Stevedoring and Trading", which means that
the handling, loading and unloading of the cargoes
are the responsibility of the Charterer. Under
Paragraph 5 of the NANYOZAI Charter Party, it
states, "Charterers to load, stow and discharge the
cargo free of risk and expenses to owners. . . .
(Emphasis supplied).
Under paragraph 10 thereof, it is provided that
"(o)wners shall, before and at the beginning of the
voyage, exercise due diligence to make the vessel
seaworthy and properly manned, equipped and
supplied and to make the holds and all other parts of
the vessel in which cargo is carried, fit and safe for its
reception, carriage and preservation. Owners shall
not be liable for loss of or damage of the cargo arising
or resulting from: unseaworthiness unless caused by
want of due diligence on the part of the owners to
make the vessel seaworthy, and to secure that the
vessel is properly manned, equipped and supplied
and to make the holds and all other parts of the
vessel in which cargo is carried, fit and safe for its
reception, carriage and preservation; . . . ; perils,
dangers and accidents of the sea or other navigable
waters; . . . ; wastage in bulk or weight or any other
loss or damage arising from inherent defect, quality or
vice of the cargo; insufficiency of packing; . . . ; latent
defects not discoverable by due diligence; any other
cause arising without the actual fault or privity of
Owners or without the fault of the agents or servants
of owners."
Paragraph 12 of said NANYOZAI Charter Party also
provides that "(o)wners shall not be responsible for
split, chafing and/or any damage unless caused by
the negligence or default of the master and crew."
(2) On August 6, 7 and 8, 1974, in accordance with
the Contract of Voyage Charter Hire, the MV
"VLASONS I" loaded at plaintiffs pier at Iligan City,
the NSC's shipment of 1,677 skids of tinplates and 92
packages of hot rolled sheets or a total of 1,769
packages with a total weight of about 2,481.19 metric
tons for carriage to Manila. The shipment was placed
in the three (3) hatches of the ship. Chief Mate
Gonzalo Sabando, acting as agent of the vessel[,]
acknowledged receipt of the cargo on board and
signed the corresponding bill of lading, B.L.P.P. No.
0233 (Exhibit "D") on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North
Harbor, Manila, on August 12, 1974. The following
day, August 13, 1974, when the vessel's three (3)
hatches containing the shipment were opened by
plaintiff's agents, nearly all the skids of tinplates and
hot rolled sheets were allegedly found to be wet and
rusty. The cargo was discharged and unloaded by
stevedores hired by the Charterer. Unloading was
completed only on August 24, 1974 after incurring a
delay of eleven (11) days due to the heavy rain which
interrupted the unloading operations. (Exhibit "E")
(4) To determine the nature and extent of the wetting
and rusting, NSC called for a survey of the shipment
by the Manila Adjusters and Surveyors Company
(MASCO). In a letter to the NSC dated March 17,
1975 (Exhibit "G"), MASCO made a report of its
ocular inspection conducted on the cargo, both while
it was still on board the vessel and later at the NDC
warehouse in Pureza St., Sta. Mesa, Manila where
the cargo was taken and stored. MASCO reported
that it found wetting and rusting of the packages of
hot rolled sheets and metal covers of the tinplates;
that tarpaulin hatch covers were noted torn at various
extents; that container/metal casings of the skids
were rusting all over. MASCO ventured the opinion
that "rusting of the tinplates was caused by contact
with SEA WATER sustained while still on board the
vessel as a consequence of the heavy weather and
rough seas encountered while en route to destination
(Exhibit "F"). It was also reported that MASCO's
surveyors drew at random samples of bad order
packing materials of the tinplates and delivered the
same to the M.I.T. Testing Laboratories for analysis.
On August 31, 1974, the M.I.T. Testing Laboratories
issued Report No. 1770 (Exhibit "I") which in part,
states, "The analysis of bad order samples of packing
materials . . . shows that wetting was caused by
contact with SEA WATER".
(5) On September 6, 1974, on the basis of the
aforesaid Report No. 1770, plaintiff filed with the
defendant its claim for damages suffered due to the
downgrading of the damaged tinplates in the amount
of P941,145.18. Then on October 3, 1974, plaintiff
formally demanded payment of said claim but
defendant VSI refused and failed to pay. Plaintiff filed
its complaint against defendant on April 21, 1976
which was docketed as Civil Case No. 23317, CFI,
Rizal.
(6) In its complaint, plaintiff claimed that it sustained
losses in the aforesaid amount of P941,145.18 as a
result of the act, neglect and default of the master and
crew in the management of the vessel as well as the
want of due diligence on the part of the defendant to
make the vessel seaworthy and to make the holds
and all other parts of the vessel in which the cargo
was carried, fit and safe for its reception, carriage and
preservation — all in violation of defendant's
undertaking under their Contract of Voyage Charter
Hire.
(7) In its answer, defendant denied liability for the
alleged damage claiming that the MV "VLASONS I"
was seaworthy in all respects for the carriage of
plaintiff's cargo; that said vessel was not a "common
carrier" inasmuch as she was under voyage charter
contract with the plaintiff as charterer under the
charter party; that in the course of the voyage from
Iligan City to Manila, the MV "VLASONS I"
encountered very rough seas, strong winds and
adverse weather condition, causing strong winds and
big waves to continuously pound against the vessel
and seawater to overflow on its deck and hatch
covers, that under the Contract of Voyage Charter
Hire, defendant shall not be responsible for
losses/damages except on proven willful negligence
of the officers of the vessel, that the officers of said
MV "VLASONS I" exercised due diligence and proper
seamanship and were not willfully negligent; that
furthermore the Voyage Charter Party provides that
loading and discharging of the cargo was on FIOST
terms which means that the vessel was free of risk
and expense in connection with the loading and
discharging of the cargo; that the damage, if any, was
due to the inherent defect, quality or vice of the cargo
or to the insufficient packing thereof or to latent defect
of the cargo not discoverable by due diligence or to
any other cause arising without the actual fault or
privity of defendant and without the fault of the agents
or servants of defendant; consequently, defendant is
not liable; that the stevedores of plaintiff who
discharged the cargo in Manila were negligent and did
not exercise due care in the discharge of the cargo;
land that the cargo was exposed to rain and seawater
spray while on the pier or in transit from the pier to
plaintiff's warehouse after discharge from the vessel;
and that plaintiff's claim was highly speculative and
grossly exaggerated and that the small stain marks or
sweat marks on the edges of the tinplates were
magnified and considered total loss of the cargo.
Finally, defendant claimed that it had complied with all
its duties and obligations under the Voyage Charter
Hire Contract and had no responsibility whatsoever to
plaintiff. In turn, it alleged the following counterclaim:
(a) That despite the full and proper
performance by defendant of its
obligations under the Voyage
Charter Hire Contract, plaintiff failed
and refused to pay the agreed
charter hire of P75,000.00 despite
demands made by defendant;
(b) That under their Voyage Charter
Hire Contract, plaintiff had agreed
to pay defendant the sum of
P8,000.00 per day for demurrage.
The vessel was on demurrage for
eleven (11) days in Manila waiting
for plaintiff to discharge its cargo
from the vessel. Thus, plaintiff was
liable to pay defendant demurrage
in the total amount of P88,000.00.
(c) For filing a clearly unfounded
civil action against defendant,
plaintiff should be ordered to pay
defendant attorney's fees and all
expenses of litigation in the amount
of not less than P100,000.00.
(8) From the evidence presented by both parties, the
trial court came out with the following findings which
were set forth in its decision:
(a) The MV "VLASONS I" is a
vessel of Philippine registry
engaged in the tramping service
and is available for hire only under
special contracts of charter party as
in this particular case.
(b) That for purposes of the voyage
covered by the Contract of Voyage
Charter Hire (Exh. "1"), the MV
VLASONS I" was covered by the
required seaworthiness certificates
including the Certification of
Classification issued by an
international classification society,
the NIPPON KAIJI KYOKAI (Exh.
"4"); Coastwise License from the
Board of Transportation (Exh. "5");
International Loadline Certificate
from the Philippine Coast Guard
(Exh. "6"); Cargo Ship Safety
Equipment Certificate also from the
Philippine Coast Guard (Exh. "7");
Ship Radio Station License (Exh.
"8"); Certificate of Inspection by the
Philippine Coast Guard (Exh. "12");
and Certificate of Approval for
Conversion issued by the Bureau of
Customs (Exh. "9"). That being a
vessel engaged in both overseas
and coastwise trade, the MV
"VLASONS I" has a higher degree
of seaworthiness and safety.
(c) Before it proceeded to Iligan City
to perform the voyage called for by
the Contract of Voyage Charter
Hire, the MV "VLASONS I"
underwent drydocking in Cebu and
was thoroughly inspected by the
Philippine Coast Guard. In fact,
subject voyage was the vessel's
first voyage after the drydocking.
The evidence shows that the MV
"VLASONS I" was seaworthy and
properly manned, equipped and
supplied when it undertook the
voyage. It has all the required
certificates of seaworthiness.
(d) The cargo/shipment was
securely stowed in three (3)
hatches of the ship. The hatch
openings were covered by
hatchboards which were in turn
covered by two or double
tarpaulins. The hatch covers were
water tight. Furthermore, under the
hatchboards were steel beams to
give support.
(e) The claim of the plaintiff that
defendant violated the contract of
carriage is not supported by
evidence. The provisions of the
Civil Code on common carriers
pursuant to which there exists a
presumption of negligence in case
of loss or damage to the cargo are
not applicable. As to the damage to
the tinplates which was allegedly
due to the wetting and rusting
thereof, there is unrebutted
testimony of witness Vicente
Angliongto that tinplates "sweat" by
themselves when packed even
without being in contract (sic) with
water from outside especially when
the weather is bad or raining. The
trust caused by sweat or moisture
on the tinplates may be considered
as a loss or damage but then,
defendant cannot be held liable for
it pursuant to Article 1734 of the
Civil Case which exempts the
carrier from responsibility for loss or
damage arising from the "character
of the goods . . ." All the 1,769 skids
of the tinplates could not have been
damaged by water as claimed by
plaintiff. It was shown as claimed by
plaintiff that the tinplates
themselves were wrapped in kraft
paper lining and corrugated
cardboards could not be affected by
water from outside.
(f) The stevedores hired by the
plaintiff to discharge the cargo of
tinplates were negligent in not
closing the hatch openings of the
MV "VLASONS I" when rains
occurred during the discharging of
the cargo thus allowing rainwater to
enter the hatches. It was proven
that the stevedores merely set up
temporary tents to cover the hatch
openings in case of rain so that it
would be easy for them to resume
work when the rains stopped by just
removing the tent or canvas.
Because of this improper covering
of the hatches by the stevedores
during the discharging and
unloading operations which were
interrupted by rains, rainwater
drifted into the cargo through the
hatch openings. Pursuant to
paragraph 5 of the NANYOSAI [sic]
Charter Party which was expressly
made part of the Contract of
Voyage Charter Hire, the loading,
stowing and discharging of the
cargo is the sole responsibility of
the plaintiff charterer and defendant
carrier has no liability for whatever
damage may occur or maybe [sic]
caused to the cargo in the process.
(g) It was also established that the
vessel encountered rough seas and
bad weather while en route from
Iligan City to Manila causing sea
water to splash on the ship's deck
on account of which the master of
the vessel (Mr. Antonio C. Dumlao)
filed a "Marine Protest" on August
13, 1974 (Exh. "15"); which can be
invoked by defendant as a force
majeure that would exempt the
defendant from liability.
(h) Plaintiff did not comply with the
requirement prescribed in
paragraph 9 of the Voyage Charter
Hire contract that it was to insure
the cargo because it did not. Had
plaintiff complied with the
requirement, then it could have
recovered its loss or damage from
the insurer. Plaintiff also violated
the charter party contract when it
loaded not only "steel products", i.e.
steel bars, angular bars and the like
but also tinplates and hot rolled
sheets which are high grade cargo
commanding a higher freight. Thus
plaintiff was able to ship grade
cargo at a lower freight rate.
(i) As regards defendant's
counterclaim, the contract of
voyage charter hire under
Paragraph 4 thereof, fixed the
freight at P30.00 per metric ton
payable to defendant carrier upon
presentation of the bill of lading
within fifteen (15) days. Plaintiff has
not paid the total freight due of
P75,000.00 despite demands. The
evidence also showed that the
plaintiff was required and bound
under paragraph 7 of the same
Voyage Charter Hire contract to pay
demurrage of P8,000.00 per day of
delay in the unloading of the
cargoes. The delay amounted to
eleven (11) days thereby making
plaintiff liable to pay defendant for
demurrage in the amount of
P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC
alleged six errors:
I
The trial court erred in finding that the MV "VLASONS
I" was seaworthy, properly manned, equipped and
supplied, and that there is no proof of willful
negligence of the vessel's officers.
II
The trial court erred in finding that the rusting of
NSC's tinplates was due to the inherent nature or
character of the goods and not due to contact with
seawater.
III
The trial court erred in finding that the stevedores
hired by NSC were negligent in the unloading of
NSC's shipment.
IV
The trial court erred in exempting VSI from liability on
the ground of force majeure.
V
The trial court erred in finding that NSC violated the
contract of voyage charter hire.
VI
 The trial court erred in ordering NSC to pay freight,
demurrage and attorney's fees, to VSI.4
As earlier stated, the Court of Appeals modified the decision of
the trial court by reducing the demurrage from P88,000.00 to
P44,000.00 and deleting the award of attorneys fees and
expenses of litigation. NSC and VSI filed separate motions for
reconsideration. In a Resolution5 dated October 20, 1993, the
appellate court denied both motions. Undaunted, NSC and VSI
filed their respective petitions for review before this Court. On
motion of VSI, the Court ordered on February 14, 1994 the
consolidation of these petitions.6
The Issues
In its petition7 and memorandum,8 NSC raises the following
questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for
demurrage due to cargo unloading delays caused by
weather interruption;
2. Whether or not the alleged "seaworthiness
certificates" (Exhibits "3", "4", "5", "6", "7", "8", "9",
"11" and "12") were admissible in evidence and
constituted evidence of the vessel's seaworthiness at
the beginning of the voyages; and
3. Whether or not a charterer's failure to insure its
cargo exempts the shipowner from liability for cargo
damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and
cargo-worthy;
2. Whether or not vessel's officers and crew were
negligent in handling and caring for NSC's cargo;
3. Whether or not NSC's cargo of tinplates did sweat
during the voyage and, hence, rusted on their own;
and
4. Whether or not NSC's stevedores were negligent
and caused the wetting[/]rusting of NSC's tinplates.
In its separate petition,9 VSI submits for the consideration of
this Court the following alleged errors of the CA:
A. The respondent Court of Appeals committed an
error of law in reducing the award of demurrage from
P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an
error of law in deleting the award of P100,000 for
attorney's fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its
memorandum:10
I. Whether or not the provisions of the Civil Code of
the Philippines on common carriers pursuant to which
there exist[s] a presumption of negligence against the
common carrier in case of loss or damage to the
cargo are applicable to a private carrier.
II. Whether or not the terms and conditions of the
Contract of Voyage Charter Hire, including the
Nanyozai Charter, are valid and binding on both
contracting parties.
The foregoing issues raised by the parties will be discussed
under the following headings:
1. Questions of Fact
2. Effect of NSC's Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorney's Fees.
The Court's Ruling
The Court affirms the assailed Decision of the Court of
Appeals, except in respect of the demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted
with NSC as a common carrier or as a private carrier. The
resolution of this preliminary question determines the law,
standard of diligence and burden of proof applicable to the
present case.
Article 1732 of the Civil Code defines a common carrier as
"persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their
services to the public." It has been held that the true test of a
common carrier is the carriage of passengers or goods,
provided it has space, for all who opt to avail themselves of its
transportation service for a fee.11 A carrier which does not
qualify under the above test is deemed a private carrier.
"Generally, private carriage is undertaken by special
agreement and the carrier does not hold himself out to carry
goods for the general public. The most typical, although not the
only form of private carriage, is the charter party, a maritime
contract by which the charterer, a party other than the
shipowner, obtains the use and service of all or some part of a
ship for a period of time or a voyage or voyages."12
In the instant case, it is undisputed that VSI did not offer its
services to the general public. As found by the Regional Trial
Court, it carried passengers or goods only for those it chose
under a "special contract of charter party." 13 As correctly
concluded by the Court of Appeals, the MV Vlasons I "was not
a common but a private carrier."14 Consequently, the rights and
obligations of VSI and NSC, including their respective liability
for damage to the cargo, are determined primarily by
stipulations in their contract of private carriage or charter
party.15 Recently, in Valenzuela Hardwood and Industrial
Supply, Inc., vs.  Court of Appeals and Seven Brothers
Shipping Corporation,16 the Court ruled:
 . . . in a contract of private carriage, the parties may
freely stipulate their duties and obligations which
perforce would be binding on them. Unlike in a
contract involving a common carrier, private carriage
does not involve the general public. Hence, the
stringent provisions of the Civil Code on common
carriers protecting the general public cannot justifiably
be applied to a ship transporting commercial goods as
a private carrier. Consequently, the public policy
embodied therein is not contravened by stipulations in
a charter party that lessen or remove the protection
given by law in contracts involving common carriers.17
Extent of VSI's Responsibility and
Liability Over NSC's Cargo
It is clear from the parties' Contract of Voyage Charter Hire,
dated July 17, 1974, that VSI "shall not be responsible for
losses except on proven willful negligence of the officers of the
vessel." The NANYOZAI Charter Party, which was
incorporated in the parties' contract of transportation further
provided that the shipowner shall not be liable for loss of or a
damage to the cargo arising or resulting from unseaworthiness,
unless the same was caused by its lack of due diligence to
make the vessel seaworthy or to ensure that the same was
"properly manned, equipped and supplied," and to "make the
holds and all other parts of the vessel in which cargo [was]
carried, fit and safe for its reception, carriage and
preservation."18 The NANYOZAI Charter Party also provided
that "[o]wners shall not be responsible for split, chafing and/or
any damage unless caused by the negligence or default of the
master or crew."19
Burden of Proof
In view of the aforementioned contractual stipulations, NSC
must prove that the damage to its shipment was caused by
VSI's willful negligence or failure to exercise due diligence in
making MV Vlasons I seaworthy and fit for holding, carrying
and safekeeping the cargo. Ineluctably, the burden of proof
was placed on NSC by the parties' agreement.
This view finds further support in the Code of Commerce which
pertinently provides:
Art. 361. Merchandise shall be transported at the risk
and venture of the shipper, if the contrary has not
been expressly stipulated.
Therefore, the damage and impairment suffered by
the goods during the transportation, due to fortuitous
event, force majeure, or the nature and inherent
defect of the things, shall be for the account and risk
of the shipper.
The burden of proof of these accidents is on the
carrier.
Art. 362. The carrier, however, shall be liable for
damages arising from the cause mentioned in the
preceding article if proofs against him show that they
occurred on account of his negligence or his omission
to take the precautions usually adopted by careful
persons, unless the shipper committed fraud in the bill
of lading, making him to believe that the goods were
of a class or quality different from what they really
were.
Because the MV Vlasons I was a private carrier, the
shipowner's obligations are governed by the foregoing
provisions of the Code of Commerce and not by the Civil Code
which, as a general rule, places the  prima facie presumption of
negligence on a common carrier. It is a hornbook doctrine that:
In an action against a private carrier for loss of, or
injury to, cargo, the burden is on the plaintiff to prove
that the carrier was negligent or unseaworthy, and the
fact that the goods were lost or damaged while in the
carrier's custody does not put the burden of proof on
the carrier.
Since . . . a private carrier is not an insurer but
undertakes only to exercise due care in the protection
of the goods committed to its care, the burden of
proving negligence or a breach of that duty rests on
plaintiff and proof of loss of, or damage to, cargo
while in the carrier's possession does not cast on it
the burden of proving proper care and diligence on its
part or that the loss occurred from an excepted cause
in the contract or bill of lading. However, in
discharging the burden of proof, plaintiff is entitled to
the benefit of the presumptions and inferences by
which the law aids the bailor in an action against a
bailee, and since the carrier is in a better position to
know the cause of the loss and that it was not one
involving its liability, the law requires that it come
forward with the information available to it, and its
failure to do so warrants an inference or presumption
of its liability. However, such inferences and
presumptions, while they may affect the burden of
coming forward with evidence, do not alter the burden
of proof which remains on plaintiff, and, where the
carrier comes forward with evidence explaining the
loss or damage, the burden of going forward with the
evidence is again on plaintiff.
Where the action is based on the shipowner's
warranty of seaworthiness, the burden of proving a
breach thereof and that such breach was the
proximate cause of the damage rests on plaintiff, and
proof that the goods were lost or damaged while in
the carrier's possession does not cast on it the burden
of proving seaworthiness. . . . Where the contract of
carriage exempts the carrier from liability for
unseaworthiness not discoverable by due diligence,
the carrier has the preliminary burden of proving the
exercise of due diligence to make the vessel
seaworthy.20
In the instant case, the Court of Appeals correctly found the
NSC "has not taken the correct position in relation to the
question of who has the burden of proof. Thus, in its brief (pp.
10-11), after citing Clause 10 and Clause 12 of the NANYOZAI
Charter Party (incidentally plaintiff-appellant's [NSC's]
interpretation of Clause 12 is not even correct), it argues that 'a
careful examination of the evidence will show that VSI
miserably failed to comply with any of these obligation's as if
defendant-appellee [VSI] had the burden of
proof."21
First Issue: Questions of Fact
Based on the foregoing, the determination of the following
factual questions is manifestly relevant: (1) whether VSI
exercised due diligence in making MV Vlasons I seaworthy for
the intended purpose under the charter party; (2) whether the
damage to the cargo should be attributed to the willful
negligence of the officers and crew of the vessel or of the
stevedores hired by NSC; and (3) whether the rusting of the
tinplates was caused by its own "sweat" or by contact with
seawater.
These questions of fact were threshed out and decided by the
trial court, which had the firsthand opportunity to hear the
parties' conflicting claims and to carefully weigh their
respective evidence. The findings of the trial court were
subsequently affirmed by the Court of Appeals. Where the
factual findings of both the trial court and the Court of Appeals
coincide, the same are binding on this Court.22 We stress that,
subject to some exceptional instances,23 only questions of law
— not questions of fact — may be raised before this Court in a
petition for review under Rule 45 of the Rules of Court. After a
thorough review of the case at bar, we find no reason to disturb
the lower court's factual findings, as indeed NSC has not
successfully proven the application of any of the aforecited
exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due
diligence to make the ship seaworthy and fit for the carriage of
NSC's cargo of steel and tinplates. This is shown by the fact
that it was drylocked and inspected by the Philippine Coast
Guard before it proceeded to Iligan City for its voyage to
Manila under the contract of voyage charter hire. 24 The vessel's
voyage from Iligan to Manila was the vessel's first voyage after
drydocking. The Philippine Coast Guard Station in Cebu
cleared it as seaworthy, fitted and equipped; it met all
requirements for trading as cargo vessel.25 The Court of
Appeals itself sustained the conclusion of the trial court
that MV Vlasons I was seaworthy. We find no reason to modify
or reverse this finding of both the trial and the appellate courts.
Who Were Negligent:
Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that the
damage to the cargo was caused by the negligence of the
officers and the crew of MV Vlasons I in making their vessel
seaworthy and fit for the carriage of tinplates. NSC failed to
discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons
I  had used an old and torn tarpaulin or canvas to cover the
hatches through which the cargo was loaded into the cargo
hold of the ship. It faults the Court of Appeals for failing to
consider such claim as an "uncontroverted fact"26 and denies
that MV Vlasons I  "was equipped with new canvas covers in
tandem with the old ones as indicated in the Marine
Protest . . ."27 We disagree.
The records sufficiently support VSI's contention that the ship
used the old tarpaulin, only in addition to the new one used
primarily to make the ship's hatches watertight. The foregoing
are clear from the marine protest of the master of the MV
Vlasons I, Antonio C. Dumlao, and the deposition of the ship's
boatswain, Jose Pascua. The salient portions of said marine
protest read:
. . . That the M/V "VLASONS I" departed Iligan City or
about 0730 hours of August 8, 1974, loaded with
approximately 2,487.9 tons of steel plates and tin
plates consigned to National Steel Corporation; that
before departure, the vessel was rigged, fully
equipped and cleared by the authorities; that on or
about August 9, 1974, while in the vicinity of the
western part of Negros and Panay, we encountered
very rough seas and strong winds and Manila office
was advised by telegram of the adverse weather
conditions encountered; that in the morning of August
10, 1974, the weather condition changed to worse
and strong winds and big waves continued pounding
the vessel at her port side causing sea water to
overflow on deck andhatch (sic) covers and which
caused the first layer of the canvass covering to give
way while the new canvass covering still holding on;
That the weather condition improved when we
reached Dumali Point protected by Mindoro; that we
re-secured the canvass covering back to position; that
in the afternoon of August 10, 1974, while entering
Maricaban Passage, we were again exposed to
moderate seas and heavy rains; that while
approaching Fortune Island, we encountered again
rough seas, strong winds and big waves which
caused the same canvass to give way and leaving the
new canvass holding on;
xxx xxx xxx 28
And the relevant portions of Jose Pascua's deposition are as
follows:
q What is the purpose of the canvas
cover?
a So that the cargo would not be
soaked with water.
q And will you describe how the
canvas cover was secured on the
hatch opening?
WITNESS
a It was placed flat on top of the
hatch cover, with a little canvas
flowing over the sides and we
place[d] a flat bar over the canvas
on the side of the hatches and then
we place[d] a stopper so that the
canvas could not be removed.
ATTY DEL ROSARIO
q And will you tell us the size of the
hatch opening? The length and the
width of the hatch opening.
a Forty-five feet by thirty-five feet,
sir.
x x x           x x x          x x x
q How was the canvas supported in
the middle of the hatch opening?
a There is a hatch board.
ATTY DEL ROSARIO
q What is the hatch board made of?
a It is made of wood, with a handle.
q And aside from the hatch board,
is there any other material there to
cover the hatch?
a There is a beam supporting the
hatch board.
q What is this beam made of?
a It is made of steel, sir.
q Is the beam that was placed in
the hatch opening covering the
whole hatch opening?
a No, sir.
q How many hatch beams were
there placed across the opening?
a There are five beams in one
hatch opening.
ATTY DEL ROSARIO
q And on top of the beams you said
there is a hatch board. How many
pieces of wood are put on top?
a Plenty, sir, because there are
several pieces on top of the hatch
beam.
q And is there a space between the
hatch boards?
a There is none, sir.
q They are tight together?
a Yes, sir.
q How tight?
a Very tight, sir.
q Now, on top of the hatch boards,
according to you, is the canvass
cover. How many canvas covers?
a Two, sir.29
That due diligence was exercised by the officers and the crew
of the MV Vlasons I  was further demonstrated by the fact that,
despite encountering rough weather twice, the new tarpaulin
did not give way and the ship's hatches and cargo holds
remained waterproof. As aptly stated by the Court of Appeals,
". . . we find no reason not to sustain the conclusion of the
lower court based on overwhelming evidence, that the MV
'VLASONS I' was seaworthy when it undertook the voyage on
August 8, 1974 carrying on board thereof plaintiff-appellant's
shipment of 1,677 skids of tinplates and 92 packages of hot
rolled sheets or a total of 1,769 packages from NSC's pier in
Iligan City arriving safely at North Harbor, Port Area, Manila, on
August 12, 1974; . . .30
Indeed, NSC failed to discharge its burden to show negligence
on the part of the officers and the crew of MV Vlasons I. On the
contrary, the records reveal that it was the stevedores of NSC
who were negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the
hatches when strong rains occasioned by a passing typhoon
disrupted the unloading of the cargo. This tent-like covering,
however, was clearly inadequate for keeping rain and seawater
away from the hatches of the ship. Vicente Angliongto, an
officer of VSI, testified thus:
ATTY ZAMORA:
Q Now, during your testimony on
November 5, 1979, you stated on
August 14 you went on board the
vessel upon notice from the
National Steel Corporation in order
to conduct the inspection of the
cargo. During the course of the
investigation, did you chance to see
the discharging operation?
WITNESS:
A Yes, sir, upon my arrival at the
vessel, I saw some of the tinplates
already discharged on the pier but
majority of the tinplates were inside
the hall, all the hatches were
opened.
Q In connection with these cargoes
which were unloaded, where is the
place.
A At the Pier.
Q What was used to protect the
same from weather?
ATTY LOPEZ:
We object, your Honor, this
question was already asked. This
particular matter . . . the transcript
of stenographic notes shows the
same was covered in the direct
examination.
ATTY ZAMORA:
Precisely, your Honor, we would
like to go on detail, this is the
serious part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q What was used in order to
protect the cargo from the weather?
A A base of canvas was used as
cover on top of the tin plates, and
tents were built at the opening of
the hatches.
Q You also stated that the hatches
were already opened and that there
were tents constructed at the
opening of the hatches to protect
the cargo from the rain. Now, will
you describe [to] the Court the tents
constructed.
A The tents are just a base of
canvas which look like a tent of an
Indian camp raise[d] high at the
middle with the whole side
separated down to the hatch, the
size of the hatch and it is soaks [sic]
at the middle because of those
weather and this can be used only
to temporarily protect the cargo
from getting wet by rains.
Q Now, is this procedure adopted
by the stevedores of covering tents
proper?
A No, sir, at the time they were
discharging the cargo, there was a
typhoon passing by and the hatch
tent was not good enough to hold
all of it to prevent the water soaking
through the canvass and enter the
cargo.
Q In the course of your inspection,
Mr.  Anglingto [sic], did you see in
fact the water enter and soak into
the canvass and tinplates.
A Yes, sir, the second time I went
there, I saw it.
Q As owner of the vessel, did you
not advise the National Steel
Corporation [of] the procedure
adopted by its stevedores in
discharging the cargo particularly in
this tent covering of the hatches?
A Yes, sir, I did the first time I saw
it, I called the attention of the
stevedores but the stevedores did
not mind at all, so, called the
attention of the representative of
the National Steel but nothing was
done, just the same. Finally, I wrote
a letter to them.31
NSC attempts to discredit the testimony of Angliongto by
questioning his failure to complain immediately about the
stevedores' negligence on the first day of unloading, pointing
out that he wrote his letter to petitioner only seven days
later.32 The Court is not persuaded. Angliongto's candid answer
in his aforequoted testimony satisfactorily explained the delay.
Seven days lapsed because he first called the attention of the
stevedores, then the NSC's representative, about the negligent
and defective procedure adopted in unloading the cargo. This
series of actions constitutes a reasonable response in accord
with common sense and ordinary human experience. Vicente
Angliongto could not be blamed for calling the stevedores'
attention first and then the NSC's representative on location
before formally informing NSC of the negligence he had
observed, because he was not responsible for the stevedores
or the unloading operations. In fact, he was merely expressing
concern for NSC which was ultimately responsible for the
stevedores it had hired and the performance of their task to
unload the cargo.
We see no reason to reverse the trial and the appellate courts'
findings and conclusions on this point, viz:
In the THIRD assigned error, [NSC] claims that the
trial court erred in finding that the stevedores hired by
NSC were negligent in the unloading of NSC's
shipment. We do not think so. Such negligence
according to the trial court is evident in the stevedores
hired by [NSC], not closing the hatch of MV
'VLASONS I' when rains occurred during the
discharging of the cargo thus allowing rain water and
seawater spray to enter the hatches and to drift to and
fall on the cargo. It was proven that the stevedores
merely set up temporary tents or canvas to cover the
hatch openings when it rained during the unloading
operations so that it would be easier for them to
resume work after the rains stopped by just removing
said tents or canvass. It has also been shown that on
August 20, 1974, VSI President Vicente Angliongto
wrote [NSC] calling attention to the manner the
stevedores hired by [NSC] were discharging the cargo
on rainy days and the improper closing of the hatches
which allowed continuous heavy rain water to leak
through and drip to the tinplates' covers and [Vicente
Angliongto] also suggesting that due to four (4) days
continuos rains with strong winds that the hatches be
totally closed down and covered with canvas and the
hatch tents lowered. (Exh. "13"). This letter was
received by [NSC] on 22 August 1974 while
discharging operations were still going on (Exhibit
"13-A").33
The fact that NSC actually accepted and proceeded to remove
the cargo from the ship during unfavorable weather will not
make VSI liable for any damage caused thereby. In passing, it
may be noted that the NSC may seek indemnification, subject
to the laws on prescription, from the stevedoring company at
fault in the discharge operations. "A stevedore company
engaged in discharging cargo . . . has the duty to load the
cargo . . . in a prudent manner, and it is liable for injury to, or
loss of, cargo caused by its negligence . . . and where the
officers and members and crew of the vessel do nothing and
have no responsibility in the discharge of cargo by stevedores .
. . the vessel is not liable for loss of, or damage to, the cargo
caused by the negligence of the
stevedores . . ."34 as in the instant case.
Do Tinplates "Sweat"?
The trial court relied on the testimony of Vicente Angliongto in
finding that ". . . tinplates 'sweat' by themselves when packed
even without being in contact with water from outside
especially when the weather is bad or
raining . . ."35 The Court of Appeals affirmed the trial court's
finding.
A discussion of this issue appears inconsequential and
unnecessary. As previously discussed, the damage to the
tinplates was occasioned not by airborne moisture but by
contact with rain and seawater which the stevedores
negligently allowed to seep in during the unloading.
Second Issue: Effect of NSC's Failure to
Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the
Contract of Voyage Charter Hire is totally separate and distinct
from the contractual or statutory responsibility that may be
incurred by VSI for damage to the cargo caused by the willful
negligence of the officers and the crew of MV Vlasons I.
Clearly, therefore, NSC's failure to insure the cargo will not
affect its right, as owner and real party in interest, to file an
action against VSI for damages caused by the latter's willful
negligence. We do not find anything in the charter party that
would make the liability of VSI for damage to the cargo
contingent on or affected in any manner by NSC's obtaining an
insurance over the cargo.
Third Issue: Admissibility of Certificates
Proving Seaworthiness
NSC's contention that MV Vlasons I was not seaworthy is
anchored on the alleged inadmissibility of the certificates of
seaworthiness offered in evidence by VSI. The said certificates
include the following:
1. Certificate of Inspection of the Philippines Coast Guard at
Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast
Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau
of Customs36
NSC argues that the certificates are hearsay for not having
been presented in accordance with the Rules of Court. It points
out that Exhibits 3, 4 and 11 allegedly are "not written records
or acts of public officers"; while Exhibits 5, 6, 7, 8, 9, 11 and 12
are not "evidenced by official publications or certified true
copies" as required by Sections 25 and 26, Rule 132, of the
Rules of Court.37
After a careful examination of these exhibits, the Court rules
that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they
have not been properly offered as evidence. Exhibits 3 and 4
are certificates issued by private parties, but they have not
been proven by one who saw the writing executed, or by
evidence of the genuineness of the handwriting of the maker,
or by a subscribing witness. Exhibits, 5, 6, 7, 8, 9, and 12 are
photocopies, but their admission under the best evidence rule
have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-
settled exception to the hearsay rule per Section 44 of Rule
130 of the Rules of Court, which provides that "(e)ntries in
official records made in the performance of a duty by a public
officer of the Philippines, or by a person in the performance of
a duty specially enjoined by law, are  prima facie evidence of
the facts therein stated."38 Exhibit 11 is an original certificate of
the Philippine Coast Guard in Cebu issued by Lieutenant
Junior Grade Noli C. Flores to the effect that "the vessel
'VLASONS I' was drydocked . . . and PCG Inspectors were
sent on board for inspection . . . After completion of drydocking
and duly inspected by PCG Inspectors, the vessel 'VLASONS
I', a cargo vessel, is in seaworthy condition, meets all
requirements, fitted and equipped for trading as a cargo vessel
was cleared by the Philippine Coast Guard and sailed for Cebu
Port on July 10, 1974." (sic) NSC's claim, therefore, is
obviously misleading and erroneous.
At any rate, it should be stressed that NSC has the burden of
proving that MV Vlasons I was not seaworthy. As observed
earlier, the vessel was a private carrier and, as such, it did not
have the obligation of a common carrier to show that it was
seaworthy. Indeed, NSC glaringly failed to discharge its duty of
proving the willful negligence of VSI in making the ship
seaworthy resulting in damage to its cargo. Assailing the
genuineness of the certificate of seaworthiness is not sufficient
proof that the vessel was not seaworthy.
Fourth Issue: Demurrage and Attorney's Fees
The contract of voyage charter hire provides inter alia:
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than
2,500 MT, 10% more or less at Master's option.
xxx xxx xxx
6. Loading/Discharging Rate: 750 tons per
WWDSHINC.
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per
day.39
The Court defined demurrage in its strict sense as the because the parties entered into a contract of private charter,
compensation provided for in the contract of affreightment for not one of common carriage. Basic too is the doctrine that
the detention of the vessel beyond the laytime or that period of courts cannot relieve a parry from the effects of a private
time agreed on for loading and unloading of cargo. 40 It is given contract freely entered into, on the ground that it is allegedly
to compensate the shipowner for the nonuse of the vessel. On one-sided or unfair to the plaintiff. The charter party is a normal
the other hand, the following is well-settled: commercial contract and its stipulations are agreed upon in
consideration of many factors, not the least of which is the
Laytime runs according to the particular clause of the transport price which is determined not only by the actual costs
charter party. . . . If laytime is expressed in "running but also by the risks and burdens assumed by the shipper in
days," this means days when the ship would be run regard to possible loss or damage to the cargo. In recognition
continuously, and holidays are not excepted. A of such factors, the parties even stipulated that the shipper
qualification of "weather permitting" excepts only should insure the cargo to protect itself from the risks it
those days when bad weather reasonably prevents undertook under the charter party. That NSC failed or
the work contemplated.41 neglected to protect itself with such insurance should not
adversely affect VSI, which had nothing to do with such failure
or neglect.
In this case, the contract of voyage charter hire provided for a
four-day laytime; it also qualified laytime as WWDSHINC or
weather working days Sundays and holidays included.42 The WHEREFORE, premises considered, the instant consolidated
running of laytime was thus made subject to the weather, and petitions are hereby DENIED. The questioned Decision of the
would cease to run in the event unfavorable weather interfered Court of Appeals is AFFIRMED with the MODIFICATION that
with the unloading of cargo. 43 Consequently, NSC may not be the demurrage awarded to VSI is deleted. No pronouncement
held liable for demurrage as the four-day laytime allowed it did as to costs.
not lapse, having been tolled by unfavorable weather condition
in view of the WWDSHINC qualification agreed upon by the
parties. Clearly, it was error for the trial court and the Court of
Appeals to have found and affirmed respectively that NSC
incurred eleven days of delay in unloading the cargo. The trial
court arrived at this erroneous finding by subtracting from the
twelve days, specifically August 13, 1974 to August 24, 1974,
the only day of unloading unhampered by unfavorable weather
or rain, which was August 22, 1974. Based on our previous
discussion, such finding is a reversible error. As mentioned,
the respondent appellate court also erred in ruling that NSC
was liable to VSI for demurrage, even if it reduced the amount
by half.

Attorney's Fees

VSI assigns as error of law the Court of Appeals' deletion of

the award of attorney's fees. We disagree. While VSI was
compelled to litigate to protect its rights, such fact by itself will
not justify an award of attorney's fees under Article 2208 of the
Civil Code when ". . . no sufficient showing of bad faith would
be reflected in a party's persistence in a case other than an
erroneous conviction of the righteousness of his
cause . . ."44 Moreover, attorney's fees may not be awarded to
a party for the reason alone that the judgment rendered was
favorable to the latter, as this is tantamount to imposing a
premium on one's right to litigate or seek judicial redress of
legitimate grievances.45

Epilogue

At bottom, this appeal really hinges on a factual issue: when,

how and who caused the damage to the cargo? Ranged
against NSC are two formidable truths. First, both lower courts
found that such damage was brought about during the
unloading process when rain and seawater seeped through the
cargo due to the fault or negligence of the stevedores
employed by it. Basic is the rule that factual findings of the trial
court, when affirmed by the Court of Appeals, are binding on
the Supreme Court. Although there are settled exceptions,
NSC has not satisfactorily shown that this case is one of them.
Second, the agreement between the parties — the Contract of
Voyage Charter Hire — placed the burden of proof for such
loss or damage upon the shipper, not upon the shipowner.
Such stipulation, while disadvantageous to NSC, is valid