10 SUPREME COURT

REPORTS
ANNOTATED
JG Summit Holdings,
Inc. vs. Court of Appeals
*
G.R. No. 124293. September 24, 2003.

JG SUMMIT HOLDINGS, INC., petitioner,  vs.  COURT OF APPEALS, COMMITTEE ON

PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION TRUST and
PHILYARDS HOLDINGS, INC., respondents.

Administrative Law;  Public Utilities;  Definition;  To constitute a public utility, the facility must be
necessary for the maintenance of life and occupation of the residents.—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.” To constitute a public utility,
the facility must be necessary for the maintenance of life and occupation of the residents. However, the fact
that a business offers services or goods that promote public good and serve the interest of the public does not
automatically

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* SPECIAL FIRST DIVISION.

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JG Summit
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of Appeals

make it a public utility. Public use is not synonymous with public interest. As its name indicates, the
term “public utility” implies public use and service to the public. The principal determinative characteristic of
a public utility is that of service to, or readiness to serve, an indefinite public or portion of the public as such
which has a legal right to demand and receive its services or commodities. Stated otherwise, the owner or
person in control of a public utility must have devoted it to such use that the public generally or that part of
the public which has been served and has accepted the service, has the right to demand that use or service
so long as it is continued, with reasonable efficiency and under proper charges. Unlike a private enterprise
which independently determines whom it will serve, a “public utility holds out generally and may refuse
legitimate demand for service.”
Same; Same; “Public Use”;  Definition;  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.—“Public use” means the same as “use by the
public.” The essential feature of the public use is that it is not confined to privileged individuals, but is open
to the indefinite public. It is this indefinite or unrestricted quality that gives it its public character. In
determining whether a use is public, we must look not only to the character of the business to be done, but
also to the proposed mode of doing it. If the use is merely optional with the owners, or the public benefit is
merely incidental, it is not a public use, authorizing the exercise of jurisdiction of the public utility
commission. There must be, in general, a right which the law compels the owner to give to the general
public. It is not enough that the general prosperity of the public is promoted. Public use is not synonymous
with public interest. The true criterion by which to judge the character of the use is whether the public may
enjoy it by right or only by permission. (emphasis supplied)
Same; Same; “Bidding”; Definition; Principles.—The word “bidding” in its comprehensive sense means
making an offer or an invitation to prospective contractors whereby the government manifests its intention
to make proposals for the purpose of supplies, materials and equipment for official business or public use, or
for public works or repair. The three principles of public bidding are: (1) the offer to the public; (2) an
opportunity for competition; and (3) a basis for comparison of bids. As long as these three principles are
complied with, the public bidding can be considered valid and legal. It is not necessary that the highest bid
be automatically accepted. The bidding rules may specify other conditions or the bidding process be
subjected to certain reservation or qualification such as when the owner reserves to himself openly at the
time of the sale the right to bid upon the property, or openly announces a price below which the property
will not be sold. Hence, where the seller reserves the right to refuse to accept any bid made, a binding sale is
not consummated between

12

12 SUPREME
COURT
REPORTS
ANNOTATED

JG Summit
Holdings, Inc. vs. Court
of Appeals

the seller and the bidder until the seller accepts the bid. Furthermore, where a right is reserved in the
seller to reject any and all bids received, the owner may exercise the right even after the auctioneer has
accepted a bid, and this applies to the auction of public as well as private property.
Same; Same; Same; Where the invitation to bid contains a reservation for the Government to reject any or
all bids, the lowest or the highest bidder, as the case may be, is not entitled to an award as a matter of right
for it does not become a ministerial duty of the Government to make such an award.—It is a settled rule that
where the invitation to bid contains a reservation for the Government to reject any or all bids, the lowest or
the highest bidder, as the case may be, is not entitled to an award as a matter of right for it does not become
a ministerial duty of the Government to make such an award. Thus, it has been held that where the right to
eject is so reserved, the lowest bid or any bid for that matter may be rejected on a mere technicality, that all
bids may be rejected, even if arbitrarily and unwisely, or under a mistake, and that in the exercise of a
sound discretion, the award may be made to another than the lowest bidder. And so, where the Government
—as advertiser, availing itself of that right, makes its choice in rejecting any or all bids, the losing bidder
has no cause to complain nor right to dispute that choice, unless an unfairness or injustice is shown.
Accordingly, he has no ground of action to compel the Government to award the contract in his favor, nor
compel it to accept his bid.
Same; Same; Same; Public Bidding; The requirement of public bidding does not negate the exercise of the
right of first refusal.—It is true that properties of the National Government, as a rule, may be sold only after
a public bidding is held. Public bidding is the accepted method in arriving at a fair and reasonable price and
ensures that overpricing, favoritism and other anomalous practices are eliminated or minimized. But the
requirement for public bidding does not negate the exercise of the right of first refusal. In fact, public
bidding is an essential first step in the exercise of the right of first refusal because it is only after the public
bidding that the terms upon which the Government may be said to be willing to sell its shares to third
parties may be known.

TINGA, J., Separate Opinion:

Administrative Law; “Public Service”;  Definition;  Distinguished from “Public Utility”;  Public service is
different from public utility.—The definition of “public service” in the Public Service Act, as last amended by
Republic Act No. 2677,  includes every person who owns, operates, manages or controls, for hire or
compensation, and done for general business purposes, any common carrier, railroad, street railway, traction
railway, sub-way 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

13

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JG Summit
Holdings, Inc. vs. Court
of Appeals

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 railway, marine repair shop, wharf or dock,
ice plant, ice refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply
and power, petroleum, sewerage system, wire or wireless communications systems, broadcasting stations and
other similar public services.  A “public utility,” on the other hand, 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. Simply stated, a public utility provides a service or
facility needed for present day living which cannot be denied to anyone who is willing to pay for it.
Same;  Same;  Same;  All public utilities are public services but the converse is not true.—Another
dissimilarity is that a public utility requires a franchise, aside from a certificate of public necessity and
convenience, for its operation, while a public service which is not a public utility requires only a certificate of
public convenience. The dichotomy in requirements flows from the enforced indeterminacy of the market for
the service provided by a public utility. Thus, it may be pointed out that  all public utilities are public
services but the converse is not true. This is so because the term “public utility” connotes  public
use and service to the public.
Same; Public Utilities; Whether or not a given business or industry is a public utility depends upon the
nature of the business or service rendered.—“* * * Whether or not a given business, industry, or service is a
public utility does not depend upon legislative definition, but upon the nature of the business or service
rendered, and an attempt to declare a company or enterprise to be a public utility, where it is inherently not
such, is, by virtue of the guaranties of the federal constitution, void whenever it interferes with private
rights of property or contract. So a legislature cannot by mere fiat or regulatory order convert a private
business or enterprise into a public utility, and the question whether or not a particular company or service is
a public utility is a judicial one, and must be determined as such by a court of competent jurisdiction, * * *.”
(51 C.J., sec. 3, p. 5) [Emphasis supplied]
Same;  Same;  A private enterprise doing business not devoted to public use cannot by legislative
enactment or administrative order be converted into a public utility.—Paraphrasing a decision of the United
States Supreme Court, a private enterprise doing business under private contracts with customers of its
choice and therefore not devoted to public use cannot by legislative enactment or administrative order be
converted into a public utility, for that would constitute taking of private property for public use without
just compensation in derogation of the Constitution.

14

14 SUPREME COURT
REPORTS
ANNOTATED
JG Summit Holdings,
Inc. vs. Court of Appeals

MOTIONS FOR RECONSIDERATION of the decision of the Supreme Court.

The facts are stated in the resolution of the Court.  Romulo, Mabanta, Buenaventura, Sayoc &
Delos Angeles for petitioner.
      Sycip, Salazar, Hernandez and Gatmaitan for private respondent Philyards Holdings, Inc.
      Raul Villanueva and Dinah Bal for Privatization & Management Office.

RESOLUTION

PUNO, J.:

The core issue posed by the Motions for Reconsideration is whether a shipyard is a public utility
whose capitalization must be sixty percent (60%) owned by Filipinos. Our resolution of this issue
will determine the fate of the shipbuilding and ship repair industry. It can either spell the
industry’s demise or breathe new life to the struggling but potentially healthy partner in the
country’s bid for economic growth. It can either kill an initiative yet in its infancy, or harness
creativity in the productive disposition of government assets.
The facts are undisputed and can be summarized briefly as follows:
On January 27, 1977, the National Investment and Development Corporation (NIDC), a
government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy
Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management of
the Subic National Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and
Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will
contribute P330
1
million for the capitalization of PHILSECO in the proportion of 60%-40%
respectively.  One of

_______________
1  JG Summit Holdings, Inc. v. Court of Appeals,  et al.,  345 SCRA 143, 145 (2000). The Decision was penned by
Associate Justice Consuelo Ynares-Santiago and concurred in by Chief Justice Hilario G. Davide, Jr.

15

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SEPTEMBER 24,
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 JG Summit Holdings,
Inc. vs. Court of Appeals

its salient features is the grant to the parties of the right of first refusal  should either of them
decide to sell, assign or transfer its interest in the joint venture, viz.:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third
party without giving the other under the same terms the right of first refusal. This provision shall not apply
2
if the transferee is a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate.

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the
Philippine National Bank (PNB). Such interests were subsequently transferred to the National
Government pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon
C. Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the
Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage and dispose
of non-performing assets of the National Government. Thereafter, on February 27, 1987, a trust
agreement was entered into between the National Government and the APT wherein the latter
was named the trustee of the National Government’s share in PHILSECO. In 1989, as a result of
a quasireorganization of PHILSECO to settle its huge obligations to PNB, the National
Government’s shareholdings
3
in PHILSECO increased to 97.41% thereby reducing KAWASAKI’S
shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the APT deemed it
best to sell the National Government’s share in PHILSECO to private entities. After a series of
negotiations between the APT and KAWASAKI, they agreed that the latter’s right of first refusal
under the JVA be “exchanged” for the right to top by five percent (5%) the highest bid for the said
shares. They further agreed that KAWASAKI would be entitled to name a company in which it
was a stockholder, which could exercise the right to top. On September 7, 1990, 4
KAWASAKI
informed APT that Philyards Holdings, Inc. (PHI) would exercise its right to top.

_______________

and Associate Justices Reynato S. Puno, Santiago M. Kapunan and Bernardo P. Pardo.
2 Ibid.
3 Id., at p. 146.
4 Ibid.

16

16 SUPREME COURT
REPORTS
ANNOTATED
JG Summit Holdings,
Inc. vs. Court of Appeals

At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of
the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding
5
Rules (ASBR) drafted
for the National Government’s 87.6% equity share in PHILSECO.   The provisions of the ASBR
were explained to the interested bidders who were notified that the bidding would be held on
December 2, 1993. A portion of the ASBR reads:
 1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the
National Government’s equity in PHILSECO consisting of 896,869,942 shares of stock
(representing 87.67% of PHILSECO’s outstanding capital stock), which will be sold as a
whole block in accordance with the rules herein enumerated.
...
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the
APT Board of Trustees and the Committee on Privatization (COP).

2.1 APT reserves the right in its sole discretion, to reject any or all bids.

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set
for the National Government’s 87.67% equity in PHILSECO is PESOS: ONE BILLION
THREE HUNDRED MILLION (P1,300,000,000.00).
...
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular
meeting following the bidding, for the purpose of determining whether or not it should be
endorsed by the APT Board of Trustees to the COP, and the latter approves the same. The
APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, Philyards
Holdings, Inc., that the highest bid is acceptable to the National Government. Kawasaki
Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of thirty
(30) calendar days from the date of receipt of such advice from APT within which to
exercise their “Option to Top the Highest Bid” by offering a bid equivalent to the highest
bid plus five (5%) percent thereof.

_______________
5 The heading of the ASBR states that the rules were specifically set up for “97.4 equity of the national government in
Philippine Shipyard & Engineering Corporation (PHILSECO),” Rollo, p. 1146. However, only 87.67% of the shares were
offered for sale since “the remaining 9.73% of the National Government’s equity in PHILSECO will be offered separately
to PHILSECO’s employees and to local small investors,” Id., at par. 1.1.

17

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JG Summit Holdings,
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6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. exercise their
“Option to Top the Highest Bid,” they shall so notify the APT about such exercise of their
option and deposit with APT the amount equivalent to ten percent (10%) of the highest
bid plus five percent (5%) thereof within the thirty (30)-day period mentioned in
paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc.
and/or Philyards Holdings, Inc. declaring them as the preferred bidder and they shall
have a period of ninety (90) days from the receipt of the APT’s notice within which to pay
the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. fail to exercise
their “Option to Top the Highest Bid” within the thirty (30)-day period, APT will declare
 the highest bidder as the winning bidder.
...
12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the
official bid forms, including any addenda or amendments thereto issued during the
bidding period. The bidder shall likewise be responsible for informing itself with respect
to any and all conditions concerning the PHILSECO Shares which may, in any manner,
affect the bidder’s proposal. Failure on the part of the bidder to so examine and inform
itself
6
shall be its sole risk and no relief for error or omission will be given by APT or COP.
...

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted a bid of
Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgement of
KAWASAKI/Philyards’ right to top, viz.:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to
act on APT’s recommendation based on the result of this bidding. Should the COP
approve the highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its
nominee, Philyards Holdings, Inc. that the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then
have a period of thirty (30) calendar days from the date of receipt of such advice from APT
within which to exercise their “Option to Top the7 Highest Bid” by offering a bid equivalent
to the highest bid plus five (5%) percent thereof.

_______________
6 Rollo,
pp. 1146-1151.
7  Id.,
at pp. 1144-1145. The bid, as well as the acknowledgement of its conformity with the ASBR was signed by
Johnson Robert I. Go, Executive Vice President of J.G. Summit Holdings, Inc.

18

18 SUPREME COURT
REPORTS
ANNOTATED
JG Summit Holdings,
Inc. vs. Court of Appeals

As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993
“subject to the right of Kawasaki Heavy Industries,
8
Inc./Philyards Holdings, Inc. to top JGSMI’s
bid by 5% as specified in the bidding rules.”
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top
its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of Kawasaki,
Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last
four (4) companies were the losing bidders thereby circumventing the law and prejudicing the
weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same
option to top to PHI constituted unwarranted benefit to a third party; (d) no right of first refusal
can be exercised in a public bidding or auction
9
sale; and (e) the JG Summit consortium was not
estopped from questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the
purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner that PHI
had exercised its option to top the highest bid and that the COP had approved the same on
January 6,10 1994. On February 24, 1994, the APT and PHI executed a Stock Purchase
Agreement.  Consequently, petitioner filed with this Court a Petition for Mandamus under G.R.
No. 114057. On May 11, 1994, said petition was referred to the Court of Appeals. On July 18,
1995, the Court of Appeals denied the same for lack of merit. It ruled that the petition for
mandamus was not the proper remedy to question the constitutionality or legality of the right of
first refusal and the right to top that was exercised by KAWASAKI/PHI, and that the matter
must be brought “by the proper party in the proper forum at the proper time and threshed out in
a full blown trial.” The Court of Appeals further ruled that the right of first refusal and the right
to top are prima facie legal and that the petitioner, “by participating in the public bidding, with
full knowledge of the right to top granted to KASAWASAKI/Philyards is . . . estopped from
questioning the validity of the award given to Philyards after the latter exercised the right to top
and had paid in full the purchase price of the sub-

_______________
8 Supra note 1 at p. 148.
9 Id., at pp. 147-148.
10 Id., at p. 148.

19

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JG Summit Holdings,
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ject shares, pursuant to the ASBR.” Petitioner filed a Motion for Reconsideration of said Decision
which was denied on March 15, 1996. Petitioner thus filed a Petition for 11
Certiorari with this
Court alleging grave abuse of discretion on the part of the appellate court.
On November 20, 2000, this Court rendered the now assailed Decision ruling among others
that the Court of Appeals erred when it dismissed the petition on the sole ground of the
impropriety12
of the special civil action of mandamus because the petition was also one of
certiorari.   It further ruled that a shipyard like PHILSECO 13
is a public utility whose
capitalization must be sixty percent (60%) Filipino-owned.   Consequently,  the right to
top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for the sale of
the 87.67% equity of the National Government in PHILSECO is illegal—not only because it
violates the rules on competitive bidding—but 14
more so, because it allows foreign corporations to
own more than 40% equity in the shipyard.  It also held that “although the petitioner had the
opportunity to examine the ASBR before it participated in the bidding, it cannot 15
be estopped from
questioning the unconstitutional, illegal and inequitable provisions thereof.”   Thus, this Court
voided the transfer of the national government’s 87.67% share in PHILSECO to Philyard
Holdings, Inc., and upheld the right of JG Summit, as the highest bidder, to take title to the said
shares, viz.:
“WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its
bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00), less its bid deposit plus interests upon the
finality of this Decision. In turn, APT is ordered to:
 (a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;

_______________
11 Id., at pp. 148-149.
12 Id., at p. 153.
13 Id., at p. 156.
14 Id., at pp. 157-158.
15 Id., at p. 166.

20

20 SUPREME COURT
REPORTS
ANNOTATED
JG Summit Holdings,
Inc. vs. Court of Appeals

(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of
PHILSECO’s total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five
Hundred Thousand Pesos (P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
16
SO ORDERED.”
17
In separate Motions for Reconsideration,   respondents submit three basic issues for our
resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA,
KAWASAKI can exercise its right of first refusal only up to 40% of the total capitalization of
PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the principles of
competitive bidding.

I. Whether PHILSECO is a Public Utility.

After carefully reviewing the applicable laws and jurisprudence, we hold that PHILSECO is not a
public utility for the following reasons:
First. By nature, a shipyard is not a public utility.
A “public utility” is “a business or service engaged in regularly supplying the public with some
commodity or service of public 18
consequence such as electricity, gas, water, transportation,
telephone or telegraph service.”  To constitute a public utility, the facility must be necessary for
the maintenance of life and occupation of the residents. However, the fact that a business offers
ser-

_______________
16 Ibid.
17 Private respondent Philyard Holdings, Inc., through counsel filed its Motion for Reconsideration on December 28,

2000, Rollo, pp. 936-980. On the other hand, public respondents Committee on Privatization (COP) and Asset
Privatization Trust (APT), represented by the Office of the Solicitor General, jointly filed their Motions for
Reconsideration on January 2, 2001, Rollo, pp. 1053-1068.
 18  Almario, Generoso O., “Transportation and the Public Service Law,” 3rd ed. (1977), p. 267 citing 73 CJS 990-
991; Albano v. Reyes, 175 SCRA 264 (1989) citing Am. Jur. 2d v. 64, p. 549; NAPOCOR v. Court of Appeals, 279 SCRA
506 (1997).

21

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JG Summit Holdings,
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vices or goods that promote public good and serve the interest of the public does not automatically
make it a public utility. Public use is not synonymous with public interest. As its name indicates,
the term “public utility” implies public use and service to the public. The principal determinative
characteristic of a public utility is that of service to, or readiness to serve, an indefinite public or
portion of the public as such which has a legal right to demand and receive its services or
commodities. Stated otherwise, the owner or person in control of a public utility must have
devoted it to such use that the public generally or that part of the public which has been served
and has accepted the service, has the right to demand that use 19
or service so long as it is
continued, with reasonable efficiency and under proper charges.   Unlike a private enterprise
which independently determines whom 20
it will serve, a “public utility holds out generally and may
refuse 21
legitimate demand for service.”  Thus, in Iloilo Ice and Cold Storage Co. vs. Public Utility
Board,  this Court defined “public use,” viz.:
“Public use” means the same as “use by the public.” The essential feature of the public use is that it is not
confined to privileged individuals, but is open to the indefinite public. It is this indefinite or unrestricted
quality that gives it its public character. In determining whether a use is public, we must look not only to
the character of the business to be done, but also to the proposed mode of doing it. If the use is merely
optional with the owners, or the public benefit is merely incidental, it is not a public use, authorizing the
exercise of jurisdiction of the public utility commission. There must be, in general, a right which the law
compels the owner to give to the general public. It is not enough that the general prosperity of the public is
promoted. Public use is not synonymous with public interest.  The true criterion22 by which to judge the
character of the use is whether the public may enjoy it by right or only by permission.  (emphasis supplied)

Applying the criterion laid down in  Iloilo  to the case at bar, it is crystal clear  that a shipyard
cannot be considered a public utility. 23
A “shipyard” is “a place or enclosure where ships are built or repaired.”  Its nature dictates
that it serves but a limited clientele

_______________
19 Ibid.
20 Commonwealth v. Lafferty, 426 Pa 541, 233 A2d 256.
21 Iloilo Ice and Cold Storage Co. v. Public Utility Board, 44 Phil. 551, 557 (1923).
22 Id., at pp. 557-558.
23 Webster’s Third New International Dictionary (1993), p. 2098.

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22 SUPREME COURT
REPORTS
 ANNOTATED
JG Summit Holdings,
Inc. vs. Court of Appeals

whom it may choose to serve at its discretion. While it offers its facilities to whoever may wish to
avail of its services, a shipyard is not legally obliged to render its services indiscriminately to the
public. It has no legal obligation to render the services sought by each and every client. The fact
that it publicly offers its services does not give the public a legal right to demand that such
services be rendered.
There can be no disagreement that the shipbuilding and ship repair industry is imbued with
public interest as it involves the maintenance of the seaworthiness of vessels dedicated to the
transportation of either persons or goods. Nevertheless, the fact that a business is affected with
public interest does not imply that it is under a duty to serve the public. While the business may
be regulated for public good, the regulation cannot justify the classification of a purely private
enterprise as a public utility. The legislature cannot, by its mere declaration, make something a
public utility which is not in fact such; and a private business operated under private contracts
with selected customers and not devoted to public use cannot, by legislative fiat or by order of a
public service commission, be declared a public utility, since that would be taking private
property for public24use without just compensation, which cannot be done consistently with the
due process clause.
It is worthy to note that automobile and aircraft manufacturers, which are of similar nature to
shipyards, are not considered public utilities despite the fact that their operations greatly impact
on land and air transportation. The reason is simple. Unlike commodities or services traditionally
regarded as public utilities such as electricity, gas, water, transportation, telephone or telegraph
service, automobile and aircraft manufacturing—and for that matter ship building and ship
repair—serve the public only incidentally.
Second. There is no law declaring a shipyard as a public utility.
History provides us hindsight and hindsight ought to give us a better view of the intent of any
law. The succession of laws affecting the status of shipyards ought not to obliterate, but rather,
give us full picture of the intent of the legislature. The totality of the circumstances, including the
contemporaneous interpretation ac-

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24 Supra note 20 at p. 560.

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corded by the administrative bodies tasked with the enforcement of the law all lead to a singular
conclusion: that shipyards are not public utilities.
Since the enactment of Act No. 2307 which created the Public Utility Commission (PUC) until
its repeal by Commonwealth Act No. 146, establishing the Public Service 25
Commission (PSC), a
shipyard, by legislative declaration, has been considered a public utility.  A Certificate of Public
Convenience (CPC) from the PSC to the effect that the operation of the said service and the
authorization to do business will promote the public interests in a proper
26
and suitable manner is
required before any person or corporation may operate a shipyard.  In addition, such persons or
corporations should
27
abide by the citizenship requirement provided in Article XIII, section 8 of the
1935 Constitution,  viz.:
Sec. 8. No franchise, certificate, or any other form or authorization for the operation of a public utility shall
be granted except to citizens of

_______________
25 Act No. 2307 was amended by Act No. 2694. It was subsequently repealed by Act No. 3108. Later however, Act No. 3108 was also
repealed by Commonwealth Act No. 146. The series of amendments and repeals did not alter the character of shipyards as public
utilities. Section 13 (b) of C.A. No. 146 provides that:
“The term ‘public service’ includes every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for 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, or steamship line, pontines, ferries
and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine railway, marine repair shop, wharf or dock, ice plant,
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” (Italics supplied).

26 See C.A.
No. 146, section 15.
27 This
provision is substantially reproduced in Article XIV, section 5 of the 1973 Constitution and in Article XII, section 11 of the
1987 Constitution.

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the Philippines or to corporations or other entities organized under the laws of the Philippines,  sixty per
centum of the capital of which is owned by citizens of the Philippines, nor shall such franchise, certificate or
authorization be exclusive in character or for a longer period than fifty years. No franchise or right shall be
granted to any individual, firm or corporation, except under the condition that it shall be subject to
amendment, alteration, or repeal by the National Assembly when the public interest so requires. (emphasis
supplied)

To accelerate the development of shipbuilding and ship repair industry, former President
Ferdinand E. Marcos issued P.D. No. 666 granting the following incentives:
SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime Industry Authority shall
be entitled to the following incentive benefits:
(a) Exemption from import duties and taxes.—The importation of machinery, equipment and materials for
shipbuilding, ship repair and/or alteration, including indirect import, as well as replacement and spare parts
for the repair and overhaul of vessels such as steel plates, electrical machinery and electronic parts, shall be
exempt from the payment of customs duty and compensating tax:  Provided, however, That the Maritime
Industry Authority certifies that the item or items imported are not produced locally in sufficient quantity
and acceptable quality at reasonable prices, and that the importation is directly and actually needed and
will be used exclusively for the construction, repair, alteration, or overhaul of merchant vessels, and other
watercrafts; Provided, further, That if the above machinery, equipment, materials and spare parts are sold
to non-tax exempt persons or entities, the corresponding duties and taxes shall be paid by the original
importer; Provided, finally, That local dealers and/or agents who sell machinery, equipment, materials and
accessories to shipyards for shipbuilding and ship repair are entitled to tax credits, subject to approval by
the total tariff duties and compensating tax paid for said machinery, equipment, materials and accessories.
 (b) Accelerated depreciation.—Industrial plant and equipment may, at the option of the shipbuilder and
ship repairer, be depreciated for any number of years between five years and expected economic life.
(c)  Exemption from contractor’s percentage tax.—The gross receipts derived by shipbuilders and ship
repairers from shipbuilding and ship repairing activities shall be exempt from the Contractor’s Tax provided
in Section 91 of the National Internal Revenue Code during the first ten years from registration with the
Maritime Industry Authority, provided that such registration is effected not later than the year 1990;
Provided, That any and all amounts which would otherwise have been paid as contractor’s tax shall be set
aside as a separate fund, to be known as “Ship-

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yard Development Fund,” by the contractor for the purpose of expansion, modernization and/or improvement
of the contractor’s own shipbuilding or ship repairing facilities; Provided, That, for this purpose, the
contractor shall submit an annual statement of its receipts to the Maritime Industry Authority; and
Provided, further, That any disbursement from such fund for any of the purposes hereinabove stated shall
be subject to approval by the Maritime Industry Authority.

In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from the list of
public utilities, thereby freeing the industry from the 60% citizenship requirement under the
Constitution and from the need to obtain Certificate of Public Convenience pursuant to section 15
of C.A No. 146. Section 1 (d) of P.D. 666 reads:
(d) Registration required but not as a Public Utility.—The business of constructing and repairing vessels or
parts thereof shall not be considered a public utility and no Certificate of Public Convenience shall be
required therefor. However, no shipyard, graving dock, marine railway or marine repair shop and no person
or enterprise shall engage in construction and/or repair of any vessel, or any phase or part thereof, without a
valid Certificate of Registration and license for this purpose from the Maritime Industry Authority, except
those owned or operated by the Armed Forces of the Philippines or by foreign governments pursuant to a
treaty or agreement. (emphasis supplied)

Any law, decree, executive order, 28or rules and regulations inconsistent with P.D. No. 666 were
repealed or modified accordingly.   Consequently, sections 13 (b) and 15 of C.A. No. 146 were
repealed in so far as the former law included shipyards in the list of public utilities and required
the certificate of public convenience for their operation. Simply stated, the repeal was due to
irreconcilable inconsistency,
29
and by definition, this kind of repeal falls under the category of an
implied repeal.
On April 28, 1983, Batas Pambansa Blg. 391, also known as the “Investment Incentive Policy
Act of 1983,” was enacted. It laid

_______________
28 See Section 4, P.D. No. 666.
29  A declaration in the statute, usually in its repealing clause, that a particular and specific law, identified by its
number of title, is repealed is an express repeal; all other repeals are implied repeals. See  Mecano v. Commission on
Audit, 216 SCRA 500 (1992) citing Agpalo, Statutory Construction, 289 (1986).

26
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JG Summit Holdings,
Inc. vs. Court of Appeals

down the general policy of the government to encourage private domestic and foreign investments
in the various sectors of the economy, to wit:
Sec. 2.  Declaration of Investment Policy.—It is the policy of the State to encourage private domestic and
foreign investments in industry, agriculture, mining and other sectors of the economy which shall: provide
significant employment opportunities relative to the amount of the capital being invested; increase
productivity of the land, minerals, forestry, aquatic and other resources of the country, and improve
utilization of the products thereof; improve technical skills of the people employed in the enterprise; provide
a foundation for the future development of the economy; accelerate development of less developed regions of
the country; and result in increased volume and value of exports for the economy.
It is the policy of the State to extend to projects which will significantly contribute to the attainment of
these objectives, fiscal incentives without which said projects may not be established in the locales, number
and/or pace required for optimum national economic development. Fiscal incentive systems shall be devised
to compensate for market imperfections, reward performance of making contributions to economic
development, cost-efficient and be simple to administer.
The fiscal incentives shall be extended to stimulate establishment and assist initial operations of the
enterprise, and shall terminate after a period of not more than 10 years from registration or start-up of
operation unless a special period is otherwise stated.
The foregoing declaration shall apply to all investment incentive schemes and in particular will supersede
article 2 of Presidential Decree No. 1789. (emphases supplied)

With the new investment incentive regime, Batas Pambansa Blg. 391 repealed the following
laws, viz.:
Sec. 20. The following provisions are hereby repealed:

1) Section 53, P.D. 463 (Mineral Resources Development Decree);

2) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);
3) Section 6, P.D. 1101 (Radioactive Minerals);
4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and
5) The following articles of Presidential Decree 1789:2, 18, 19, 22, 28, 30, 39, 49 (d), 62, and 77. Articles
45, 46 and 48 are hereby amended only with respect to domestic and export producers.

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All other laws, decrees, executive orders, administrative orders, rules and regulations or parts thereof which
are inconsistent with the provisions of this Act are hereby repealed, amended or modified accordingly.
All other incentive systems which are not in any way affected by the provisions of this Act may be
restructured by the President so as to render them cost-efficient and to make them conform with the other
policy guidelines in the declaration of policy provided in Section 2 of this Act. (emphasis supplied)

From the language of the afore-quoted provision, the whole of P.D. No. 666, section 1 was
expressly and categorically repealed. As a consequence, the provisions 30
of  C.A. No. 146, which
were impliedly repealed by P.D. No. 666, section 1 were revived.   In other words, with the
enactment of Batas Pambansa Blg. 391, a shipyard reverted back to its status as a public utility
and as such, requires a CPC for its operation.
The crux of the present controversy is the effect of the express repeal of Batas Pambansa Blg.
391 by Executive Order No. 226 issued by former President Corazon C. Aquino under her
emergency powers.
We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did not revive
Section 1 of P.D. No. 666. But more importantly, it also put a period to the existence of sections
13 (b) and 15 of C.A. No. 146. It bears emphasis that sections 13 (b) and 15 of C.A. No. 146, as
originally written, owed their continued existence to Batas Pambansa Blg. 391. Had the latter not
repealed P.D. No. 666, the former should have been modified accordingly and shipyards
effectively removed from the list of public utilities.  Ergo, with the express repeal of Batas
Pambansa Blg. 391 by E.O. No. 226, the revival of sections 13 (b) and 15 of C.A. No. 146 had no
more leg to stand on. A law that has been expressly repealed ceases 31
to exist and becomes
inoperative from the moment the repealing law becomes effective.   Hence, there is simply no
basis in the conclusion that shipyards remain to be a public utility. A re-

_______________
30 Book I, Chapter 5, section 22 provides: “Revival of Law Impliedly Repealed. When a law which impliedly repeals a

prior law is itself repealed, the prior law shall thereby be revived, unless the repealing law provides otherwise.”
31 Agpalo, Statutory Construction (1995), p. 330.

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28 SUPREME COURT
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pealed statute cannot be the basis for classifying shipyards as public utilities.
In view of the foregoing, there can be no other conclusion than to hold that a shipyard is not a
pubic utility. A shipyard has been considered a public utility merely by legislative declaration.
Absent this declaration, there is no more reason why it should continuously be regarded as such.
The fact that the legislature did not clearly and unambiguously express its intention to include
shipyards in the list of public utilities indicates that that it did not intend to do so. Thus, a
shipyard reverts back to its status as nonpublic utility prior to the enactment of the Public
Service Law.
This interpretation is in accord with the uniform interpretation placed upon it by the Board of
Investments (BOI), which was entrusted by the legislature with the preparation of annual
Investment Priorities Plan (IPPs). The BOI has consistently classified shipyards as part of the
manufacturing sector and not of the public utilities sector. The enactment of Batas Pambansa
Blg. 391 did not alter the treatment of the BOI on shipyards. It has32
been, as at present, classified
as part of the manufacturing and not of the public utilities sector.
Furthermore,
33
of the 441 Ship Building and Ship Repair (SBSR) entities registered with the
MARINA,  none appears to have an existing franchise. If we continue to hold that a shipyard is a
pubic utility, it is a necessary consequence that all these entities should have obtained a
franchise as was the rule prior to the34 enactment of P.D. No. 666. But MARINA remains without
authority, pursuant to P.D. No. 474  to issue franchises for the operation of shipyards. Surely,
the legislature did not intend to create a vacuum by continuously treating a shipyard as a public
utility without giving MARINA the power to issue a Certificate of Public Convenience (CPC) or a
Certificate of Public Convenience and Necessity (CPCN) as required by section 15 of C.A. No. 146.

_______________
32 Annexes 1-5 of the Motion for Reconsideration, Rollo, pp. 982-1043.
33 Industry Profile, Shipbuilding and Ship Repair Industry 2001, p. 3; Rollo, p. 1721.
34 “An Act for the Reorganization of Maritime functions in the Philippines, creating the Maritime Industry Authority,

and for other purposes,” June 1, 1974.

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II.  Whether under the 1977 Joint Venture Agreement, KAWASAKI can purchase only a
maximum of 40% of PHILSECO’s total capitalization.

A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing that
prevents KAWASAKI from acquiring more than 40% of PHILSECO’s total capitalization. Section
1 of the 1977 JVA states:

1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall thereafter
increase their subscription in Philseco as may be necessary and as called by the Board of
Directors, maintaining a proportion of 60%-40% for NIDC and KAWASAKI, respectively,
up to a total subscribed and paid-up capital stock of P312 million.
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [renamed
PHILSECO] to any third party without giving the other under the same terms the right of
first refusal. This provision shall not apply if the transferee is a corporation owned and
controlled by the GOVERMENT [of the Philippines] or by a Kawasaki affiliate.
1.5 The By-Laws of SNS [PHILSECO] 35
shall grant the parties preemptive rights to unissued
shares of SNS [PHILSECO].

Under section 1.3, the parties agreed to the amount of P330 million as the total capitalization of
their joint venture. There was no mention of the amount of their initial subscription. What is
clear is that they are to infuse the needed capital from time to time until the total subscribed and
paid-up capital reaches P312 million. The phrase “maintaining a proportion of 60%-40%” refers to
their respective share of the burden each time the Board of Directors decides to increase the
subscription to reach the target paid-up capital of P312 million. It does not bind the parties to
maintain the sharing scheme all throughout the existence of their partnership.
 The parties likewise agreed to arm themselves with protective mechanisms to preserve their
respective interests in the partnership in the event that (a) one party decides to sell its shares to
third parties; and (b) new Philseco shares are issued. Anent the first situation, the non-selling
party is given the right of first re-

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35 1977 Joint Venture Agreement as amended by Addendum No. 2 dated December 1983.

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30 SUPREME COURT
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fusal under section 1.4 to have a preferential right to buy or to refuse the selling party’s shares.
The right of first refusal is meant to protect the original or remaining joint venturer(s) or
shareholder(s) from the entry of third persons who are not acceptable to it as co-venturer(s) or co-
shareholder(s). The joint venture
36
between the Philippine Government and KAWASAKI is in the
nature of37 a partnership   which, unlike an ordinary corporation, is based on  delectus
personae.  No one can become a member of the partnership association without the consent of all
the other associates. The right of first refusal thus ensures that the parties are given control over
who may become a new partner in substitution of or in addition to the original partners. Should
the selling partner decide to dispose all its shares, the non-selling partner may acquire all these
shares and terminate the partnership. No person or corporation can be compelled to remain or to
continue the partnership. Of course, this presupposes that there are no other restrictions in the
maximum allowable share that the non-selling partner may acquire such as the constitutional
restriction on foreign ownership in public utility. The theory that KAWASAKI can acquire, as a
maximum, only 40% of PHILSECO’s shares is correct only if a shipyard is a public utility. In such
instance, the non-selling partner who is an alien can acquire only a maximum of 40% of the total
capitalization of a public utility despite the grant of first refusal. The partners cannot, by mere
agreement, avoid the constitutional proscription. But as afore-discussed, PHILSECO is not a
public utility and no other restriction is present that would limit the right of KAWASAKI to
purchase the Government’s share to 40% of Philseco’s total capitalization.
Furthermore, the phrase “under the same terms” in section 1.4 cannot be given an
interpretation that would limit the right of

_______________
36 Supra note 1 at pp. 157-158. The assailed Decision reads: “A joint venture is an association of persons or companies
jointly undertaking some commercial enterprise with all of them generally contributing assets and risks. It requires a
community of interest in the performance of the subject matter, a right to direct and govern the policy in connection
therewith, and duty, which may be altered by agreement to share both in profit or losses. Persons and business
enterprises enter into a joint venture because it is exempt from corporate income tax. Considered more of a partnership, a
joint venture is governed by the laws on contracts and on partnership.”
37 Literally, choice of person(s).

31
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JG Summit Holdings,
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KAWASAKI to purchase PHILSECO shares only to the extent of its original proportionate
contribution of 40% to the total capitalization of the PHILSECO. Taken together with the whole
of section 1.4, the phrase “under the same terms” means that a partner to the joint venture that
decides to sell its shares to a third party shall make a similar offer to the non-selling partner. The
selling partner cannot make a different or a more onerous offer to the non-selling partner.
The exercise of first refusal presupposes that the non-selling partner is aware of the terms of
the conditions attendant to the sale for it to have a guided choice. While the right of first refusal
protects the non-selling partner from the entry of third persons, it cannot also deprive the other
partner the right to sell its shares to third persons if, under the same offer, it does not buy the
shares.
Apart from the right of first refusal, the parties also have preemptive rights under section 1.5
in the unissued shares of Philseco. Unlike the former, this situation does not contemplate
transfer of a partner’s shares to third parties but the issuance of new Philseco shares. The grant
of preemptive rights preserves the proportionate shares of the original partners so as not to dilute
their respective interests with the issuance of the new shares. Unlike the right of first refusal, a
preemptive right gives a partner a preferential right over the newly issued shares only to the
extent that it retains its original proportionate share in the joint venture.
The case at bar does not concern the issuance of new shares but the transfer of a partner’s
share in the joint venture. Verily, the operative protective mechanism is the right of first refusal
which does not impose any limitation in the maximum shares that the non-selling partner may
acquire.

III.

Whether the right to top granted to KAWASAKI in exchange for its right of first refusal violates
the principles of competitive bidding.
We also hold that the right to top granted to KAWASAKI and exercised by private respondent did
not violate the rules of competitive bidding.
The word “bidding” in its comprehensive sense means making an offer or an invitation to
prospective contractors whereby the government manifests its intention to make proposals for the
pur-
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32 SUPREME COURT
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JG Summit Holdings,
Inc. vs. Court of Appeals
pose of supplies,
38
materials and equipment for official business or public use, or for public works
or repair.  The three principles of public bidding are: (1) the
39
offer to the public; (2) an opportunity
for competition; and (3) a basis for comparison of bids.   As long as these three principles are
complied with, the public bidding can be considered valid and legal. It is not necessary that the
highest bid be automatically accepted. The bidding rules may specify other conditions or the
bidding process be subjected to certain reservation or qualification such as when the owner
reserves to himself openly at the time of the sale the right to bid upon the property, or openly
announces a price below which the property will not be sold. Hence, where the seller reserves the
right to refuse to accept any bid made, a binding sale is not consummated between the seller and
the bidder until the seller accepts the bid. Furthermore, where a right is reserved in the seller to
reject any and all bids received, the owner may exercise the right even after the 40auctioneer has
accepted a bid, and this applies to the auction of public as well as private property.  Thus:
It is a settled rule that where the invitation to bid contains a reservation for the Government to reject any or
all bids, the lowest or the highest bidder, as the case may be, is not entitled to an award as a matter of right
for it does not become a ministerial duty of the Government to make such an award. Thus, it has been held
that where the right to eject is so reserved, the lowest bid or any bid for that matter may be rejected on a
mere technicality, that all bids may be rejected, even if arbitrarily and unwisely, or under a mistake, and
that in the exercise of a sound discretion, the award may be made to another than the lowest bidder. And so,
where the Government—as advertiser, availing itself of that right, makes its choice in rejecting any or all
bids, the losing bidder has no cause to complain nor right to dispute that choice, unless an unfairness or
injustice is shown. Accordingly, he has no ground
41
of action to compel the Government to award the contract
in his favor, nor compel it to accept his bid.

_______________
38 Supra note 1 at p. 162.
39 Ibid.
40 7 Am. Jur. 2d §21, p. 238.
41 B. Fernandez, Treatise on Government Contracts Under Philippine Law (1991), p. 26, citing  Gutierrez v. Ins. Life
Assurance Co., Ltd., 102 Phil. 524 (1957), C & C Commercial Corp. v. Menor, 120 SCRA 112 (1982), AC Esguerra & Sons
v. Aytona, 4 SCRA 1245 (1962).

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In the instant case, the sale of the Government shares in PHILSECO was publicly known. All
interested bidders were welcomed The basis for comparing the bids were laid down. All bids were
accepted sealed and were opened and read in the presence of the COA’s official representative
and before all interested bidders. The only question that remains is whether or not the existence
of KAWASAKI’s right to top destroys the essence of competitive bidding so as to say that the
bidders did not have an opportunity for competition. We hold that it does not.
The essence of competition in public bidding is that the bidders are placed on equal footing.
This means that all qualified bidders have an equal chance of winning the auction through their
bids. In the case at bar, all of the bidders were exposed to the same risk and were subjected to the
same condition, i.e., the existence of KAWASAKI’s right to top. Under the ASBR, the Government
expressly reserved the right to reject any or all bids, and manifested its intention not to accept
the highest bid should KAWASAKI decide to exercise its right to top under the ABSR. This
reservation or qualification was made known to the bidders in a pre-bidding conference held on
September 28, 1993. They all expressly accepted this condition in writing without any
qualification. Furthermore, when the Committee on Privatization notified petitioner of the
approval of the sale of the National Government shares of stock in PHILSECO, it specifically
stated that such approval was subject to the right of KAWASAKI Heavy Industries,
Inc./Philyards Holdings, Inc. to top JGSMI’s bid by 5% as specified in the bidding rules. Clearly,
the approval of the sale was a conditional one. Since Philyards eventually exercised its right to
top petitioner’s bid by 5%, the sale was not consummated. Parenthetically, it cannot be argued
that the existence of the right to top “set for naught the entire public bidding.” Had Philyards
Holdings, Inc. failed or refused to exercise its right to top, the sale between the petitioner and the
National Government would have been consummated. In like manner, the existence of the right
to top cannot be likened to a second bidding, which is countenanced, except when there is failure
to bid as when there is only one bidder or none at all. A prohibited second bidding presupposes
that based on the terms and conditions of the sale, there is already a highest bidder with the
right to demand that the seller accept its bid. In the instant case, the highest bidder was well
aware that the acceptance of its bid was conditioned upon the non-exercise of the right to top.
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To be sure, respondents did not circumvent the requirements for bidding by granting
KAWASAKI, a non-bidder, the right to top the highest bidder. The fact that KAWASAKI’s
nominee to exercise the right to top has among its stockholders some losing bidders cannot also
be deemed “unfair.”
It must be emphasized that none of the parties questions the existence of KAWASAKI’s right
of first refusal, which is concededly the basis for the grant of the right to top. Under
KAWASAKI’s right of first refusal, the National Government is under the obligation to give
preferential right to KAWASAKI in the event it decides to sell its shares in PHILSECO. It has to
offer to KAWASAKI the shares and give it the option to buy or refuse under the same terms  for
which it is willing to sell the said shares to third parties. KAWASAKI is not a mere non-bidder. It
is a partner in the joint venture; the incidents of which are governed by the law on contracts and
on partnership.
It is true that properties of the National Government, as a rule, may be sold only after a public
bidding is held. Public bidding is the accepted method in arriving at a fair and reasonable price
and ensures 42
that overpricing, favoritism and other anomalous practices are eliminated or
minimized.  But the requirement for public bidding does not negate the exercise of the right of
first refusal. In fact, public bidding is an essential first step in the exercise of the right of first
refusal because it is only after the public bidding that the terms upon which the Government may
be said to be willing to sell its shares to third parties may be known. It is only after the public
bidding that the Government will have a basis with which to offer KAWASAKI the option to buy
or forego the shares.
Assuming that the parties did not swap KAWASAKI’s right of first refusal with the right to
top, KAWASAKI would have been able to buy the National Government’s shares in
PHILSECO  under the same terms  as offered by the highest bidder. Stated otherwise, by
exercising its right of first refusal, KAWASAKI could have bought the shares for only P2.03
billion and not the higher amount of P2.1315 billion. There is, thus, no basis in the submission
that the right to top unfairly favored KAWASAKI. In fact, with the right to top, KAWASAKI
stands to pay higher than it should had it

_______________
42 Fernandez, supra at p. 25.

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settled with its right of first refusal. The obvious beneficiary of the scheme is the National
Government.
If at all, the obvious consideration for the exchange of the right of first refusal with the right to
top is that KAWASAKI can name a nominee, which it is a shareholder, to exercise the right to
top. This is a valid contractual stipulation; the right to top is an assignable right and both parties
are aware of the full legal consequences of its exercise. As aforesaid, all bidders were aware of the
existence of the right to top, and its possible effects on the result of the public bidding was fully
disclosed to them. The petitioner, thus, cannot feign ignorance 43
nor can it be allowed to repudiate
its acts and question the proceedings it had fully adhered to.
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular
Life Assurance, Mitsui and ICTSI), has joined Philyards in the latter’s effort to raise P2.131
billion necessary in exercising the right to top is not contrary to law, public policy or public
morals. There is nothing in the ASBR that bars the losing bidders from joining either the winning
bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to
top as it did), to raise the purchase price. The petitioner did not allege, nor was it shown by
competent evidence, that the participation of the losing bidders in the public bidding was done
with fraudulent intent. Absent any proof of fraud, the formation by Philyards of a consortium is
legitimate in a free enterprise system. The appellate court is thus correct in holding the
petitioner estopped from questioning the validity of the transfer of the National Government’s
shares in PHILSECO to respondent.
Finally, no factual basis exists to support the view that the drafting of the ASBR was illegal
because no prior approval was given by the COA for it, specifically the provision on the right to
top the highest bidder and that the public auction on December 2, 1993 was not witnessed by a
COA representative. No evidence was proffered to prove these allegations and the Court cannot
make legal 44
conclusions out of mere allegations. Regularity in the performance of official duties is
presumed   and in the absence of competent evidence to rebut this presumption, this Court is
duty bound to uphold this presumption.

_______________
43 Medina v. Patcho, 132 SCRA 551 (1984).
44 Rules of Court, Rule 131, section 3(m).

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36 SUPREME COURT
REPORTS
ANNOTATED
JG Summit Holdings,
Inc. vs. Court of Appeals

IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby GRANTED. The
impugned Decision and Resolution of the Court of Appeals are AFFIRMED.
SO ORDERED.

      Davide, Jr. (C.J., Chairman), Ynares-Santiago and Corona, JJ., concur.

      Tinga, J., Please see separate opinion.

SEPARATE OPINION

TINGA, J.:

Whether a shipyard is a public utility is at the heart of the present controversy.

Although I take a different route, I reach the same result as Mr. Justice Puno.
Since the enactment of Commonwealth Act No. 454 on June 8, 1939, shipyards have never
been considered public utilities, whether by legislative declaration or executive fiat, or even in
administrative practice.
True, “shipyard” is mentioned along with other business operations 1
in the course of the
definition by enumeration of “public service” in the Public Service Act.  The terms “public service”
and “public utility,”
2
however, do not have the same legal meaning, at least since the enactment
of C.A. No. 454.  The terms are related though.
The definition of “public service” in the Public Service Act, as last amended by Republic Act
No. 2677,  includes every person who owns, operates, manages or controls, for hire or
compensation, and done for 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 what-

_______________
1 CA No. 146, as amended.
2 “Public utility” was used in Act No. 2307, Act No. 269 and Act No. 3108. “Public service” and “public utility” were
interchangeably used in CA No 146. “Public utility” was abandoned and “public service” used in its place in CA No. 454.
The subsequent enactments, RA No. 1270 and RA No. 2677, also defined “public service” only.

37

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JG Summit Holdings,
Inc. vs. Court of Appeals
ever may be its classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontlines, ferries, and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine railway, marine repair shop, wharf or dock, ice plant, ice
refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and
power, petroleum, sewerage system, wire3 or wireless communications systems, broadcasting
stations and other similar public services.  A “public utility,” on the other hand, is a business or
service engaged in regularly supplying the public with some commodity or service of4 public
consequence such as electricity, gas, water, transportation, telephone or telegraph service.  Simply
stated, a public utility provides a service or facility
5
needed for present day living which cannot be
denied to anyone who is willing to pay for it.
Formerly,
6
there was a statutory definition of “public utility),” but it was abandoned in C.A. No.
454.  The definition was instead solely applied to “public service” apparently because it did not
exactly fit the concept of public utility. It is significant in this regard that while the 7 1935
Constitution which took effect on February 2, 1935 specifically mentioned “public utility,”   C.A.
No. 454 shifted from “public utility” to “public service” as the sole reference term in the Public
Service Act.
Another dissimilarity is that a public utility requires a franchise, aside from a certificate of
public necessity and convenience,

_______________
3 Sec.
1, RA No. 2677, amending Sec. 13(b), CA No. 146 as amended.
4 NationalPower Corporation v. Court of Appeals, 345 Phil. 9; 279 SCRA 506, 523 (1997), citing Albano v. Reyes, G.R.
No. 83551, July 11, 1989, 175 SCRA 264, and 64 Am. Jur. 2nd, p. 549.
5 A more comprehensive definition of “public utility” has been offered by a noted American author:

In its most extended sense the term public utilities is designed to cover certain industries which in the course of time have been
classified apart from industry in general and have likewise been distinguished from governmental services with which, however, they
often are intimately related. The basis of the classification is essentially economic and technological, although the meaning of the term
is derived from the law.

(Martin G. Glaeser, PUBLIC UTILITIES IN AMERICAN CAPITALISM[New York: The MacMillan Co., 1957], p. 8)
6 See note 2, supra.
7 1935 CONST., Art. XIV, Sec. 8.

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38 SUPREME COURT
REPORTS
ANNOTATED
JG Summit Holdings,
Inc. vs. Court of Appeals

for its operation, while

8
a public service which is not a public utility requires only a certificate of
public convenience.  The dichotomy in requirements flows from the enforced indeterminacy of the
market for the service provided by a public utility. Thus, it may be pointed out that  all public
utilities are public services but the converse is9 not true. This is so because the term “public utility”
connotes public use and service to the public. 10
A legislative declaration such as the definition by enumeration in the Public Service Act  does
not ipso facto render a11 business or service a public utility. For, as this Court held in North Negros
Sugar Co. v. Hidalgo,  whether or not one is a public utility is a matter of judicial, not legislative
determination.
“* * * Whether or not a given business, industry, or service is a public utility does not depend upon legislative
definition, but upon the nature of the business or service rendered, and an attempt to declare a company or
enterprise to be a public utility, where it is inherently not such, is, by virtue of the guaranties of the federal
constitution, void whenever it interferes with private rights of property or contract. So a legislature cannot
by mere fiat or regulatory order convert a private business or enterprise into a public utility, and  the
question whether or not a particular company or service is a public utility is a judicial
12
one, and must be
determined as such by a court of competent jurisdiction, * * *.” (51 C.J., sec. 3, p. 5)  [Emphasis supplied]
13
Paraphrasing a decision  of the United States Supreme Court, a private enterprise doing business
under private contracts with customers of its choice and therefore not devoted to public use cannot
by legislative enactment or administrative order be converted into a public utility, for that would
constitute taking of private property for public use without just compensation in derogation of the
Constitution.

_______________
8 See Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, 1972 ed. Vol. 4, p. 307,
Sec. 14(i), Act No. 3108.
9 64 Am. Jur. 2d, p 549, cited in Albano v. Reyes and National Power Corporation v. Court of Appeals, supra, note 4.
10 See note 3, supra.
11 63 Phil. 664 (1936).
12 Id., at p. 691.
13 Pipe Line Cases, 234 US 548, cited in Iloilo Ice and Cold Storage Co. v. Public Utility Board, 44 Phil. 551, at p. 560

(1923).

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SEPTEMBER 24,
2003
JG Summit Holdings,
Inc. vs. Court of Appeals

Again, the categorization of a business or service as a public utility or otherwise is a judicial

prerogative. Hence, this Court held in a significant number of cases that the businesses or
services involved
14
were not public utilities despite contradicting legislative classifications.
In
15
one case,   we declared that an oil company is  not  a public utility, notwithstanding the
law  which categorizes petroleum operation, including refining, as a public utility.
A “public utility” under the Constitution and the Public Service Law is one organized “for hire or
compensation” to serve the public, which is given the right to demand its service.
16
PETRON is not engaged
17
in oil refining to process the oil of other parties.
In another case,   we intimated that a “wharf”
18
or “dock” as contemplated under the Public
Service Act is not necessarily a public utility.
An operator of trucks who furnished service under special agreements to carry particular
persons and property19 was held to be not a public utility as he did not hold himself out to serve
any and all persons.   So is a mere owner and lessor of the equipment and facilities needed to
operate a rail system  not  a public utility since the right to operate a public
20
utility may exist
independently of and separately from the ownership of the facilities thereof.

_______________
 14 Bagatsing v. Committee on Privatization, G.R. No. 112399, Gonzales v. Lazaro, G.R. No. 115334, July 14, 1995, 246
SCRA 334.
15 RA No. 387, otherwise known as the Petroleum Act of 1949. Act No. 3108 and CA No. 146, included “oil” in the

definition of “public utility” while the definition of “public service” in CA No. 146 and No. 454, RA No. 1270 and No. 2677
covered “petroleum.”
16 Supra note 13, at p. 358.
17 Albano v. Reyes, supra, p. 8.
18 Id., at pp. 270-271.
19 United States v. Tan Piaco, 40 Phil. 853, 855 (1949). Under Sec. 13 (b), CA No. 146, as amended, a “freight or carrier

service of any class . . . engaged in the transportation of passenger or freight or both” is a public service.
20 Tatad v. Garcia, G.R. No. 114222, April 6, 1995, 243 SCRA 436. Also under Sec. 13(b), CA No. 146, as amended, a

railway “engaged in the transportation of passengers or freight or both” is a public service.

40

40 SUPREME COURT
REPORTS
ANNOTATED
JG Summit Holdings,
Inc. vs. Court of Appeals
21
An ice plant, although included in the definition of a public service under Act No. 2307,  is not a
public utility if it is organized solely for particular persons under strictly private contracts, and
never was devoted by its owner 22
to public use. However, it is treated as a public utility if the ice it
produces is sold to the public.
To reiterate, shipyards have never been in legal contemplation considered as public 29
utilities.
The promulgation of P.D. No. 666 in 1975 which required, in Section 1 (d)   thereof, the
registration of shipyards merely as such, definitely not as public utilities, served simply to
remove any doubt as to30 their non-public utility status. Note in this regard that MARINA was
created by P.D. No. 474  on June 1, 1974, or prior to the promulgation of P.D. No. 666. And P.D.
No. 474 did not authorize MARINA to issue franchise for shipyard operation, not unlike E.O. Nos.
125 and 125-A which were promulgated after it.
The repeal of Section 1 of P.D. No. 666 by Batas Pambansa Blg. 391, enacted in 1983, did not
convert shipyards into 31 public utilities. Of course, the subsequent repeal of  Batas Pambansa
Blg. 391 by E.O. No. 226  in 1987 has effectively laid the issue to rest once and for all.
Except for this divergence, I concur in Mr. Justice Puno’s well-reasoned opinion.

_______________
21 This Act is one of the precursors of C.A. No. 146.
22 La Paz Ice Plant & Cold Storage Co., Inc. v. John Bordman and Iloilo Commercial & Ice Co., 65 Phil. 401 (1938).
29 “Sec. 1(d).  Registration required but not as Public Utility.—The business of constructing and repairing vessels or

parts thereof shall not be considered a public utility and no Certificate of Public Convenience shall be required therefor.
However, no shipyard, graving dock, marine railway or marine repair shop and no person or enterprise shall engage in
the construction and/or repair of any vessel, or any phase or part thereof, without a valid Certificate of Registration and
license for this purpose from the Maritime Industry Authority, except those owned or operated by the Armed Forces of the
Philippines or by foreign governments pursuant to a treaty or agreement (P.D. No. 666).
30 “An Act for the Reorganization of Maritime Functions in the Philippines,” creating the Maritime Industry Authority,

and for other purposes.

31  This Order, otherwise known as the “Omnibus Investments Code of 1987,” was promulgated by then President

Corazon C. Aquino in the exercise of her residual legislative powers.

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 VOL. 412, 41
SEPTEMBER 24,
2003
Barcelona vs. Court of
Appeals

I vote to GRANT respondents’ motions for reconsideration.

Motion for reconsideration granted, assailed decision and resolution affirmed.

Note.—While the rigid standards governing public utility regulation where exclusivity is
allowed upon satisfaction of certain requirements, exclusivity is more the exception rather than
the rule in the gasoline service station business. (Energy Regulatory Board vs. Court of
Appeals, 357 SCRA 30 [2001])

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