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THIRD DIVISION

G.R. No. 141314 November 15, 2002

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGYREGULATORY BOARD petitioner,vs.MANILA ELECTRIC COMPANY, respondent.

-----------------------------

G.R. No. 141369 November 15, 2002

LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP) consistingof CEFERINO PADUA, Chairman,G. FULTON ACOSTA, GALILEO BRION, ANATALIA BUENAVENTURA,PEDRO CASTILLO, NAPOLEON CORONADO, ROMEO ECHAUZ,FERNANDO GAITE, ALFREDO DE GUZMAN, ROGELIO KARAGDAG,JR.,

MA. LUZ ARZAGA-MENDOZA, ANSBERTO PAREDES, AQUILINOPIMENTEL III,MARIO REYES, EMMANUEL SANTOS, RUDEGELIO TACORDA,members,and ROLANDO ARZAGA, Secretary-General,JUSTICE ABRAHAM SARMIENTO, SENATOR AQUILINO PIMENTEL,JR. andCOMMISSIONER BARTOLOME FERNANDEZ, JR., Board of Consultants,and Lawyer GENARO LUALHATI, petitioners,vs.MANILA ELECTRIC COMPANY (MERALCO), respondent.

D E C I S I O N

PUNO, J .:

In third world countries like the Philippines, equal justice will have asynthetic ring unless the economic rights of the people, especially the poor,are protected with the same resoluteness as their right to liberty. The casesat bar are of utmost significance for they concern the right of our people toelectricity and to be reasonably charged for their consumption. Inconfiguring the contours of this economic right to a basic necessity of life,the Court shall define the limits of the power of respondent MERALCO, a

giant public utility and a monopoly, to charge our people for their electric

consumption. The question is: should public interest prevail over privateprofits?

The facts are brief and undisputed. On December 23, 1993, MERALCOfiled with the ERB an application for the revision of its rate schedules. Theapplication reflected an average increase of 21 centavos per kilowatthour (kwh) in its distribution charge. The application also included a prayer for provisional approval of the increase pursuant to Section 16(c) of the Public

Service Act and Section 8 of Executive Order No. 172.

On January 28, 1994, the ERB issued an Order granting a provisionalincrease of P0.184 per kwh, subject to the following condition.

"In the event, however, that the Board finds, after hearing and submissionby the Commission on Audit of an audit report on the books and records of the applicant that the latter is entitled to a lesser increase in rates, allexcess amounts collected from the applicant's customers as a result of thisOrder shall either be refunded to them or correspondingly credited in their favor for application to electric bills covering future consumptions."

1

In the same Order, the ERB requested the Commission on Audit (COA) toconduct an "audit and examination of the books and other records of account of the applicant for such period of time, which in no case shall beless than 12 consecutive months, as it may deem appropriate" and tosubmit a copy thereof to the ERB immediately upon completion.

2

On February 11, 1997, the COA submitted its Audit Report SAO No. 95-07(the "COA Report") which contained, among others, the recommendationnot to include income taxes paid by MERALCO as part of its operatingexpenses for purposes of rate determination and the use of the net averageinvestment method for the computation of the proportionate value of theproperties used by MERALCO during the test year for the determination of the rate base.3

Subsequently, the ERB rendered its decision adopting the aboverecommendations and authorized MERALCO to implement a rateadjustment in the average amount of P0.017 per kwh, effective with respectto MERALCO's billing cycles beginning February 1994. The ERB further ordered that "the provisional relief in the amount of P0.184 per kilowatthour granted under the Board's Order dated January 28, 1994 is herebysuperseded and modified and the excess average amount of P0.167 per kilowatthour starting with [MERALCO's] billing cycles beginning February1994 until its billing cycles beginning February 1998, be refunded to

[MERALCO's] customers or correspondingly credited in their favor for future consumption."4

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The ERB held that income tax should not be treated as operating expenseas this should be "borne by the stockholders who are recipients of theincome or profits realized from the operation of their business" hence,should not be passed on to the consumers.

5Further, in applying the net

average investment method, the ERB adopted the recommendation of COAthat in computing the rate base, only the proportionate value of the propertyshould be included, determined in accordance with the number of monthsthe same was actually used in service during the test year.

6

On appeal, the Court of Appeals set aside the ERB decision insofar asit directed the reduction of the MERALCO rates by an average of P0.167 per kwh and the refund of such amount to MERALCO'scustomers beginning February 1994 and until its billing cyclebeginning February 1998.

7Separate Motions for Reconsideration filed by

the petitioners were denied by the Court of Appeals.8

Petitioners are now before the Court seeking a reversal of the decision of the Court of Appeals by arguing primarily that the Court of Appeals erred:a) in ruling that income tax paid by MERALCO should be treated as part of its operating expenses and thus considered in determining the amount of

increase in rates imposed by MERALCO and b) in rejecting the net averageinvestment method used by the COA and the ERB and instead adopted theaverage investment method used by MERALCO.

We grant the petition.

The regulation of rates to be charged by public utilities is founded upon thepolice powers of the State and statutes prescribing rules for the control andregulation of public utilities are a valid exercise thereof. When privateproperty is used for a public purpose and is affected with public interest, itceases to be juris privati only and becomes subject to regulation. Theregulation is to promote the common good. Submission to regulation may

be withdrawn by the owner by discontinuing use; but as long as use of theproperty is continued, the same is subject to public regulation.

9

In regulating rates charged by public utilities, the State protects the publicagainst arbitrary and excessive rates while maintaining the efficiency andquality of services rendered. However, the power to regulate rates does notgive the State the right to prescribe rates which are so low as to deprive thepublic utility of a reasonable return on investment. Thus, the ratesprescribed by the State must be one that yields a fair return on thepublic utility upon the value of the property performing the serviceand one that is reasonable to the public for the services rendered.

10

The fixing of just and reasonable rates involves a balancing of the investor and the consumer interests.11

In his famous dissenting opinion in the 1923 case of Southwestern BellTel. Co. v. Public Service Commission,

12Mr. Justice Brandeis wrote:

"The thing devoted by the investor to the public use is not specific property,tangible and intangible, but capital embarked in an enterprise. Upon thecapital so invested, the Federal Constitution guarantees to the utility theopportunity to earn a fair return… The Constitution does not guarantee tothe utility the opportunity to earn a return on the value of all items of

property used by the utility, or of any of them.

….

The investor agrees, by embarking capital in a utility, that its charges tothe public shall be reasonable. His company is the substitute for theState in the performance of the public service, thus becoming a publicservant. The compensation which the Constitution guarantees anopportunity to earn is the reasonable cost of conducting the business."

While the power to fix rates is a legislative function, whether exercised bythe legislature itself or delegated through an administrative agency, adetermination of whether the rates so fixed are reasonable and just is apurely judicial question and is subject to the review of the courts.

13

The ERB was created under Executive Order No. 172 to regulate, amongothers, the distribution of energy resources and to fix rates to be chargedby public utilities involved in the distribution of electricity. In the fixing of rates, the only standard which the legislature is required to prescribe for the guidance of the administrative authority is that the rate be reasonableand just. It has been held that even in the absence of an expressrequirement as to reasonableness, this standard may be implied.

14What is

a just and reasonable rate is a question of fact calling for the exercise of discretion, good sense, and a fair, enlightened and independent judgment.The requirement of reasonableness comprehends such rates which mustnot be so low as to be confiscatory, or too high as to be oppressive. Indetermining whether a rate is confiscatory, it is essential also to consider the given situation, requirements and opportunities of the utility.

15

Settled jurisprudence holds that factual findings of administrative bodies ontechnical matters within their area of expertise should be accorded not onlyrespect but even finality if they are supported by substantial evidence evenif not overwhelming or preponderant.

16In one case,

17we cautioned that

courts should "refrain from substituting their discretion on the weight of theevidence for the discretion of the Public Service Commission on questions

of fact and will only reverse or modify such orders of the Public Service



Commission when it really appears that the evidence is insufficient tosupport their conclusions."

18

In the cases at bar, findings and conclusions of the ERB on the rate thatcan be charged by MERALCO to the public should be respected.

19The

function of the court, in exercising its power of judicial review, is todetermine whether under the facts and circumstances, the final order entered by the administrative agency is unlawful or unreasonable.

20Thus,

to the extent that the administrative agency has not been arbitrary or capricious in the exercise of its power, the time-honored principle is thatcourts should not interfere. The principle of separation of powers dictatesthat courts should hesitate to review the acts of administrative officersexcept in clear cases of grave abuse of discretion.

21

In determining the just and reasonable rates to be charged by a publicutility, three major factors are considered by the regulating agency: a) rateof return; b) rate base and c) the return itself or the computed revenue to beearned by the public utility based on the rate of return and rate base.

22The

rate of return is a judgment percentage which, if multiplied with the ratebase, provides a fair return on the public utility for the use of its property for

service to the public.23

The rate of return of a public utility is not prescribedby statute but by administrative and judicial pronouncements. This Courthas consistently adopted a 12% rate of return for public utilities.

24The rate

base, on the other hand, is an evaluation of the property devoted by theutility to the public service or the value of invested capital or property whichthe utility is entitled to a return.

25

In the cases at bar, the resolution of the issues involved hinges on thedetermination of the kind and the amount of operating expenses that shouldbe allowed to a public utility to generate a fair return and the proper valuation of the rate base or the value of the property entitled to a return.

I

Income Tax as Operating Expense Cannot be Allowed For Rate-Determination Purposes

In determining whether or not a rate yields a fair return to the utility, theoperating expenses of the utility must be considered. The return allowed toa public utility in accordance with the prescribed rate must be sufficient toprovide for the payment of such reasonable operating expenses incurred bythe public utility in the provision of its services to the public. Thus, the publicutility is allowed a return on capital over and above operating expenses.

However, only such expenses and in such amounts as are reasonable for

the efficient operation of the utility should be allowed for determination of the rates to be charged by a public utility.

The ERB correctly ruled that income tax should not be included in thecomputation of operating expenses of a public utility. Income tax paidby a public utility is inconsistent with the nature of operating expenses. Ingeneral, operating expenses are those which are reasonably incurred inconnection with business operations to yield revenue or income. They are

items of expenses which contribute or are attributable to the production of income or revenue. As correctly put by the ERB, operating expenses"should be a requisite of or necessary in the operation of a utility, recurring,and that it redounds to the service or benefit of customers."

26

Income tax, it should be stressed, is imposed on an individual or entity as aform of excise tax or a tax on the privilege of earning income.

27In exchange

for the protection extended by the State to the taxpayer, the governmentcollects taxes as a source of revenue to finance its activities. Clearly, by itsnature, income tax payments of a public utility are not expenses whichcontribute to or are incurred in connection with the production of profit of apublic utility. Income tax should be borne by the taxpayer alone as they are

payments made in exchange for benefits received by the taxpayer from theState. No benefit is derived by the customers of a public utility for the taxespaid by such entity and no direct contribution is made by the payment of income tax to the operation of a public utility for purposes of generatingrevenue or profit. Accordingly, the burden of paying income tax shouldbe Meralco's alone and should not be shifted to the consumers byincluding the same in the computation of its operating expenses.

The principle behind the inclusion of operating expenses in thedetermination of a just and reasonable rate is to allow the public utility torecoup the reasonable amount of expenses it has incurred in connectionwith the services it provides. It does not give the public utility the license to

indiscriminately charge any and all types of expenses incurred withoutregard to the nature thereof, i.e., whether or not the expense is attributableto the production of services by the public utility. To charge consumers for expenses incurred by a public utility which are not related to the service or benefit derived by the customers from the public utility is unjustified andinequitable.

While the public utility is entitled to a reasonable return on the fair value of the property being used for the service of the public, no less than theFederal Supreme Court of the United States emphasized: "[t]he publiccannot properly be subjected to unreasonable rates in order simply thatstockholders may earn dividends… If a corporation cannot maintain such a

[facility] and earn dividends for stockholders, it is a misfortune for it and



them which the Constitution does not require to be remedied by imposingunjust burdens on the public."

28

We are not impressed by the reliance by MERALCO on some Americancase law allowing the treatment of income tax paid by a public utility asoperating expense for rate-making purposes. Suffice to state that withregard to rate-determination, the government is not hidebound to apply anyparticular method or formula.

29The question of what constitutes a

reasonable return for the public utility is necessarily determined andcontrolled by its peculiar environmental milieu. Aside from the financialcondition of the public utility, there are other critical factors to consider for purposes of rate regulation. Among others, they are: particular reasonsinvolved for the request of the rate increase, the quality of servicesrendered by the public utility, the existence of competition, the element of risk or hazard involved in the investment, the capacity of consumers, etc.

30

Rate regulation is the art of reaching a result that is good for the publicutility and is best for the public.

For these reasons, the Court cannot give in to the importunings of MERALCO that we blindly apply the rulings of American courts on the

treatment of income tax as operating expenses in rate regulation cases. Anapproach allowing the indiscriminate inclusion of income tax payments asoperating expenses may create an undesirable precedent and serve as ablanket authority for public utilities to charge their income tax payments tooperating expenses and unjustly shift the tax burden to the customer. To besure, public utility taxation in the United States is going through the eye of criticism. Some commentators are of the view that by allowing the publicutility to collect its income tax payment from its customers, a form of "salestax" is, in effect, imposed on the public for consumption of public utilityservices. By charging their income tax payments to their customers, publicutilities virtually become "tax collectors" rather than taxpayers.

31In the

cases at bar, MERALCO has not justified why its income tax should be

treated as an operating expense to enable it to derive a fair return for itsservices.

It is also noteworthy that under American laws, public utilities are taxeddifferently from other types of corporations and thus carry a heavier taxburden. Moreover, different types of taxes, charges, tolls or fees areassessed on a public utility depending on the state or locality where itoperates. At a federal level, public utilities are subject to corporate incometaxes and Social Security taxes—in the same manner as other businesscorporations. At the state and local levels, public utilities are subject to awide variety of taxes, not all of which are imposed on each state. Thus, it isnot unusual to find different taxes or combinations of taxes applicable to

respective utility industries within a particular state.32

A significant aspect of

state and local taxation of public utilities in the United States is that theyhave been singled out for special taxation, i.e., they are required to pay oneor more taxes that are not levied upon other industries. In contrast, in this

jurisdiction, public utilities are subject to the same tax treatment as anyother corporation and local taxes paid by it to various local governmentunits are substantially the same. The reason for this is that the power to taxresides in our legislature which may prescribe the limits of both nationaland local taxation, unlike in the federal system of the United States where

state legislature may prescribe taxes to be levied in their respective jurisdictions.

MERALCO likewise cites decisions of the ERB33

allowing the application of a tax recovery clause for the imposition of an additional charge onconsumers for taxes paid by the public utility. A close look at thesedecisions will show they are inappropos. In the said cases, the ERBapproved the adoption of a formula which will allow the public utility torecover from its customers taxes already paid by it. However, in the casesat bar, the income tax component added to the operating expenses of apublic utility is based on an estimate or approximate figure of income taxto be paid by the public utility. It is this estimated amount of income tax to

be paid by MERALCO which is included in the amount of operatingexpenses and used as basis in determining the reasonable rate to becharged to the customers. Accordingly, the varying factual circumstances inthe said cases prohibit a square application of the rule under the previousERB decisions.

II

Use of "Net Average Investment Method" is Not Unreasonable

In the determination of the rate base, property used in the operation of thepublic utility must be subject to appraisal and evaluation to determine the

fair value thereof entitled to a fair return. With respect to those propertieswhich have not been used by the public utility for the entire duration of thetest year, i.e., the year subject to audit examination for rate-makingpurposes, a valuation method must be adopted to determine theproportionate value of the property. Petitioners maintain that the netaverage investment method (also known as "actual number of monthsuse method") recommended by COA and adopted by the ERB should beused, while MERALCO argues that the average investment method (alsoknown as the "trending method") to determine the proportionate value of properties should be applied.

Under the "net average investment method," properties and equipmentused in the operation of a public utility are entitled to a return only on the



actual number of months they are in service during the period.34

In contrast,the "average investment method" computes the proportionate value of theproperty by adding the value of the property at the beginning and at the endof the test year with the resulting sum divided by two.

35

The ERB did not abuse its discretion when it applied the net averageinvestment method. The reasonableness of net average investment methodis borne by the records of the case. In its report, the COA explained that the

computation of the proportionate value of the property and equipment inaccordance with the actual number of months such property or equipment is in service for purposes of determining the rate base isfavored, as against the trending method employed by MERALCO, "toreflect the real status of the property."

36By using the net average

investment method, the ERB and the COA considered for determination of the rate base the value of properties and equipment used by MERALCO inproportion to the period that the same were actually used during the periodin question. This treatment is consistent with the settled rule in rateregulation that the determination of the rate base of a public utility entitledto a return must be based on properties and equipment actually being usedor are useful to the operations of the public utility.

37

MERALCO does not seriously contest this treatment of actual usage of property but opposes the method of computation or valuation thereof adopted by the ERB and the COA on the ground that the net averageinvestment method "assumes an ideal situation where a utility, likeMERALCO, is able to record in its books within any given month the valueof all the properties actually placed in service during that month."

38

MERALCO contends that immediate recordal in its books of the property or equipment is not possible as MERALCO's franchise covers a wide areaand that due to the volume of properties and equipment put into serviceand the amount of paper work required to be accomplished for recording inthe books of the company, "it takes three to six months (often longer)

before an asset placed in service is recorded in the books" of MERALCO.39

Hence, MERALCO adopted the "average investment method" or the"trending method" which computes the average value of the property at thebeginning and at the end of the test year to compensate for the irregular recording in its books.

MERALCO'S stance is belied by the COA Report which states that the"verification of the records, as confirmed by the Management Staff,disclosed that properties are recorded in the books as these areactually placed in service."

40Moreover, while the case was pending trial

before the ERB, the ERB conducted an ocular inspection to examine theassets in service, records and books of accounts of MERALCO to ascertain

the physical existence, ownership, valuation and usefulness of the assets

contained in the COA Report.41

Thus, MERALCO's contention that the dateof recordal in the books does not reflect the date when the asset is placedin service is baseless.

Further, computing the proportionate value of assets used in service inaccordance with the actual number of months the same is used during thetest year is a more accurate method of determining the value of theproperties of a public utility entitled to a return. If, as determined by COA,

the date of recordal in the books of MERALCO reflects the actual date theequipment or property is used in service, there is no reason for the ERB toadopt the trending method applied by MERALCO if a more precise methodis available for determining the proportionate value of the assets placed inservice.

If we were to sustain the application of the "trending method," the publicutility may easily manipulate the valuation of its property entitled to a return(rate base) by simply including a highly capitalized asset in the computationof the rate base even if the same was used for a limited period of timeduring the test year. With the inexactness of the trending method and thepossibility that the valuation of certain properties may be subject to the

control of and abuse by the public utility, the Court finds no reasonablebasis to overturn the recommendation of COA and the decision of the ERB.

MERALCO further insists that the Court should sustain the "trendingmethod" in view of previous decisions by the Public Service Commissionand of this Court which "upheld" the use of this method. By refusing toadopt the trending method, MERALCO argues that the ERB violated therule on stare decisis.

Again, we are not impressed. It is a settled rule that the goal of rate-makingis to arrive at a just and reasonable rate for both the public utility and thepublic which avails of the former's products and services.

42However, what

is a just and reasonable rate cannot be fixed by any immutable method or formula. Hence, it has been held that no public utility has a vested right toany particular method of valuation.

43Accordingly, with respect to a

determination of the proper method to be used in the valuation of propertyand equipment used by a public utility for rate-making purposes, theadministrative agency is not bound to apply any one particular formula or method simply because the same method has been previously used andapplied. In fact, nowhere in the previous decisions cited by MERALCOwhich applied the trending method did the Court rule that the same shouldbe the only method to be applied in all instances.

At any rate, MERALCO has not adequately shown that the rates prescribedby the ERB are unjust or confiscatory as to deprive its stockholders a



reasonable return on investment. In the early case of Ynchausti S.S. Co.v. Public Utility Commissioner, this Court held: "[t]here is a legalpresumption that the rates fixed by an administrative agency arereasonable, and it must be conceded that the fixing of rates by theGovernment, through its authorized agents, involves the exercise of reasonable discretion and, unless there is an abuse of that discretion, thecourts will not interfere."

44Thus, the burden is upon the oppositor,

MERALCO, to prove that the rates fixed by the ERB are unreasonable or otherwise confiscatory as to merit the reversal of the ERB. In the instantcases, MERALCO was unable to discharge this burden.

WHEREFORE, in view of the foregoing, the instant petitions are GRANTEDand the decision of the Court of Appeals in C.A. G.R. SP No. 46888 isREVERSED. Respondent MERALCO is authorized to adopt a rateadjustment in the amount of P0.017 per kilowatthour, effective with respectto MERALCO's billing cycles beginning February 1994. Further, inaccordance with the decision of the ERB dated February 16, 1998, theexcess average amount of P0.167 per kilwatthour starting with theapplicant's billing cycles beginning February 1998 is ordered to be refundedto MERALCO's customers or correspondingly credited in their favor for

future consumption.

SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.



EN BANC

G.R. No. 173044 December 10, 2007

FREEDOM FROM DEBT COALITION, AKBAYAN CITIZENS' ACTIONPARTY, ALLIANCE OF PROGRESSIVE LABOR, MARIO JOYO AGUJA,ANA THERESIA HONTIVEROS-BARAQUEL, RENATO B. MAGTUBO,EMMANUEL JOEL J. VILLANUEVA, EDUARDO C. ZIALCITA, MA.

THERESA DIOKNO-PASCUAL, MARY ANN B. MANAHAN ANDPATROCINIO JUDE ESGUERRA III, Petitioners,vs.METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM (MWSS)and the MWSS REGULATORY OFFICE (MWSS-RO), Respondents.

D E C I S I O N

SANDOVAL-GUTIERREZ, J. :

Before us for resolution is the instant Petition for Certiorari and Prohibition(with prayer for the issuance of a temporary restraining order and a writ of preliminary injunction) assailing (a) Resolution No. 2004-201 of theMetropolitan Waterworks and Sewerage System (MWSS) Board of Trustees, respondent; and (b) Resolution No. 04-006-CA of the MWSSRegulatory Office (MWSS-RO), another respondent, both dated July 30,2004.

The facts as culled from the petition are:

Respondent MWSS is a government corporation created in 1971 under Republic Act No. 6234,

1 as amended, for the purpose of owning and/or

having jurisdiction, supervision and control over all waterworks and

sewerage systems in Metro Manila and the provinces of Rizal and Cavite.

In 1995, the government embarked upon the privatization of the waterworksand sewerage system of MWSS. Among the range of privatization options,MWSS chose to enter into concession arrangement with private entities.The area of Metro Manila was divided into two (2) concession areas – Service Area East and Service Area West.

After a process of public bidding and selection, the Service Area East wasawarded to Manila Water Company, Inc., while the Service Area West wasawarded to Maynilad Water Services, Inc.

On February 21, 1997, respondent MWSS executed separate Concession Agreements with the Manila Water Company, Inc. and Maynilad Water Services, Inc. (the concessionaires). Each Concession Agreement iseffective for a 25-year period, or from August 1, 1997 to May 6, 2022,subject to early termination. Under the Concession Agreements, theconcessionaires act as contractors to perform certain functions, and asagents to exercise certain rights and powers for the operation of thewaterworks and sewerage system. The concessionaires are required toexpand the supply of water coverage and sewerage services, provideuninterrupted water supply, and increase water pressure during theconcession period. The ownership of the facilities and movable propertiesexisting at the beginning of the concession period remain with respondentMWSS.

As consideration for the performance of their obligations, theconcessionaires are empowered to charge and collect water and sewerageservices based on standard rates. Article 9

2 of the Concession Agreements

provides inter alia that the standard rates may be adjusted from time to timesubject to the limitation that the concessionaires’ rate of net return shall notexceed twelve percent (12%) per annum, as required in Section 12

3 of the

MWSS Charter (R.A. No. 6234).

On August 3, 2000, the MWSS Board of Trustees, pursuant to Article 13.24

of the Concession Agreements, passed Resolution No. 277-2000 directingthe Commission on Audit (COA) to conduct a rate audit of theconcessionaires’ operations for the purpose of ensuring that their rate of return does not exceed the 12% cap mandated in Section 12 of the MWSSCharter.

On September 15, 2003 and December 2, 2003, the COA submitted to theMWSS its two audit Reports with a finding that from January 1 to December 31, 1999, the Maynilad Water Services, Inc. had a net Rate of Return

(ROR) of 7.71%, while the Manila Water Company, Inc. had an ROR of 40.92%. The pertinent portions of the COA Reports state:

Report No. 2000-38 (for Maynilad Water Services, Inc. [MWSI])

Result of the Audit

The audit, after considering the adjustments for rate determination, resultedin an actual rate of return of 7.71% during the period January 1 toDecember 31, 1999 on MWSI’s invested capital of P3.999 billion inclusiveof Concession Fees of P3.36 billion pertaining to completed projects. Thereturn is 4.29% below the allowable Rate of Return Base (RORB) of 12%.

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x x x

Report No. 2000-39 (for Manila Water Company, Inc. [MWCI])

Result of the Audit

The audit, after considering the adjustments for rate determination, resultedin an actual rate of return of 40.92% during the period January 1 to

December 31, 1999 on MWCI’s invested capital of P971.93 million inclusiveof Concession Fees of P556.12 million pertaining to completed projects.The return is 28.92% above the allowable RORB of 12%.

x x x

According to the COA Reports, "in the rate determination, only thoseproperties acquired, owned, and actually used in the operation of theconcessionaires were included in the computation of the invested capital."

On March 31, 2004, the MWSS Regulatory Office issued a Notice of

Extraordinary Price Adjustment (NEPA) to both concessionaires, statingthat "pursuant to Article 9.3.1 of the Concession Agreements, theRegulatory Office has determined that Grounds for Extraordinary Price

Adjustment (GEPA) have occurred," consisting in a purported "change inlaw, government regulation, rule or order or interpretation thereof, thataffects or is likely to affect the Cash Flow of the concessionaires."

According to the NEPA, the "change in law, rule or interpretation thereof"was brought about by the Supreme Court Resolution dated April 9, 2003 inRepublic v. Manila Electric Company (MERALCO)

5 holding that "income tax

payments of a utility are not expenses which contribute to or are incurred inconnection with the production of profit of a public utility." The NEPA further stated that "the Regulatory Office shall soon determine the Extraordinary

Price Adjustment which shall be made effective January 1st of the ChargingYear 2005."

The concessionaires opposed the NEPA and requested that it be set asideon the grounds that (a) they are not public utilities but mere agents andcontractors of MWSS by virtue of the Concession Agreements; (b) their income tax payments are considered expenditures under the Concession

Agreements; (c) in the case of the Manila Water Company, Inc., the MWSSRegulatory Office had approved its Business Plan dated September 18,2002 and granted it a Rate Rebasing; and that the said Plan treats incometax payments as expenditures; (d) the premise of the GEPA is that theconcessionaires are public utilities; (e) the COA conducted the rate audit on

the premise that the concessionaires are public utilities even if they

maintain they are not of such character; and (f) the MERALCO ruling doesnot involve the GEPA contemplated in clause 9.3.1 (ii) of the Concession

Agreements.

On June 2, 2004, the MWSS Board of Trustees, pursuant to Article 12.16 of

the Concession Agreements, directed its Regulatory Office and theconcessionaires to create a Technical Working Group (TWG) which willdiscuss the issues raised by the concessionaires in order to find a mutually

acceptable resolution to avoid arbitration before the Appeals Panel.

Thus, the TWG was created composed of representatives from the MWSSRegulatory Office, the concessionaires, and the MWSS Corporate Office.On July 9, 2004, the TWG invited resource persons

7 to shed light on what

should be the status of the MWSS and the concessionaires under theprivatization program, as well as the proper interpretation and applicationthat should be given to Section 12 of the MWSS Charter and Section 9.1 of the Concession Agreements insofar as the rate of return set in the Charter and the tariff adjustments are concerned.

On July 27, 2004, the TWG submitted its Report. Among the findings of the

TWG, with the assistance of the resource persons, are: (1) the intent of theConcession Agreements is for the MWSS to remain as a public utilityproviding waterworks and sewerage services, while the concessionairesare its agents and contractors, consistent with the framework of theconcession arrangements; (2) it is the MWSS that has the legislativefranchise under its Charter, while the concessionaires do not have afranchise: (3) in its operation, the MWSS contracted the services of theconcessionaires to perform certain functions and authorized them, by wayof agency, to exercise certain rights in performing their obligations; (4)during the bidding and selection of concessionaires, the latter hadsubmitted their bids on the basis of MWSS representation that it wouldretain its status as a public utility having jurisdiction, supervision and control

over all waterworks and sewerage system within Metro Manila, Rizal andCavite; and (5) based on the framework of the Concession Agreements(specifically on Art. 1 "Definitions", Art. 2.1 "Grant of Concession", and Art.9.4 "General Rate Setting Policy/Rate Rebasing Determination"), theMERALCO ruling has no relevance to the concessionaires’ situation.

On July 30, 2004, the MWSS Regulatory Office issued the assailedResolution No. 04-006-CA

8 approving and adopting the findings and

recommendations of the TWG, thus:

NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved:

















1. The RO hereby APPROVES and adopts all the findings,conclusions, and recommendations of the Joint Technical WorkingGroup as contained in its memorandum to the MWSS Board of Trustees dated July 29, 2004;

2. The RO shall consider and treat the Concessionaires as mereagents and contractors of MWSS, which is and still remains to bethe public utility. The Supreme Court Decision in the Meralco case

is not applicable to the Concessionaires, thus the NEPA Noticedated 31 March 2004 has no further force and effect. Theappropriate procedure in the conduct of rate audit of MWSS hasbeen established by the National Water Resources Board (NWRB).

3. The RO shall provide COA with a copy of the TWG Report per Assistant Commissioner Cuenco’s request, as well as inform theCOA of the appropriate framework for the conduct of the rate audit.

4. The RO shall inform the COA of the appropriate framework for the conduct of the rate audit of MWSS such that: a) the rate auditof MWSS as public utility shall observe the procedures/guidelines

set out in the MWSS letter to NWRB dated 21 November 1996 andNWRB letter to MWSS dated 02 December 1996, i.e., "Theprocedure for rate of return (ROR) calculation and, the 12% ceilingshall be applicable to the entire waterworks system, including boththe income and assets held respectively by the Concessionairesand MWSS," and the formula that the ROR is equal to income after interest and taxes divided by the base of Net revalued fixed assetsin operation + 2 months operating capital; and b) MWSS and itsConcessionaires shall ensure that actual tariff rates as adjusted by

Article 9.1 of the CA shall not exceed the maximum tariff ratesconsisted with the 12% ROR limit, and in case actual rates exceedthe tariff ceiling consistent with 12% ROR limit, RO shall propose a

service obligation deferment to adjust actual rates or computeExpiration Payment due to Concessionaires.

The following were also identified as continuing guiding principles:

1. Any dispute between MWSS and its Concessionaires on rateaudits shall be resolved through Dispute Resolution procedures(Art. 12) set in the CA.

2. The Concessionaires, as agents and contractors of MWSS areto submit annual audited Financial Statements (F/S) relating to theConcession. Said F/S, which will be treated as final inputs, shall be

consolidated for purposes of rate audit determination as per NWRBguidelines.

3. The Concessionaires shall engage an independent Auditor whowill be tasked to prepare the audited F/S. The Concessionairesshall ensure that the independent Auditor shall have competenceand international experience auditing water projects.

4. Prior to the implementation of any Rate Rebasing tariff adjustment for a Rate Rebasing Period, the RO shall:

a) Determine the indicative tariff consistent with the 12%return limit for said RR period;

b) Determine the actual RR tariff adjustment consistentwith the Concessionaires’ Business Plan and ADR asreviewed and approved by RO;

c) Prepare a "trial or test rate audit" to indicate level andtrend of actual rates vis-à-vis the tariff ceiling in each year of the Rate Rebasing.

5. The KPI/BEM mutually agreed between the Concessionairesand MWSS/RO shall serve as basis for determining the prudentand efficient expenditures of the Concessionaires. Other mechanism to determine prudence and efficiency will be exploredby the RO with the Concessionaires.

6. The RO shall take the lead role to conduct arevaluation/reappraisal of the assets of both MWSS and itsConcessionaires use for the provision of water supply and

sewerage services. This shall be conducted by reputable appraisalfirms and shall be done at least once a year.

7. The COA (or any Independent Auditor of RO’s choice) shallfacilitate the consolidation of audited F/S of both MWSS andConcessionaires.

8. The audit of MWSS as the public utility by COA shall be basedon the framework developed by NWRB. The audit of Concessionaires shall be conducted by an Independent Auditor inaccordance with KPI/BEM framework.



On the same day (July 30, 2004), respondent MWSS Board of Trustees, inits assailed Resolution No. 2004-201,

9 approved Regulatory Office

Resolution No. 04-006-CA.

On June 29, 2006, the above-named petitioners filed the present petitionalleging that they received copies of the two assailed Resolutions only onMay 25, 2006;

10 that respondents, in issuing the assailed Resolutions,

acted with grave abuse of discretion amounting to lack or in excess of

jurisdiction; that the finding by respondents that the concessionaires are notpublic utilities, but mere agents/contractors of the MWSS, has "the effect of excluding the rates set by such concessionaires from the limitation inSection 12 of R.A. 6234 (MWSS Charter);" and that this, in turn, "will havethe effect of increasing the rates that can be charged against them and thesubscribers to the water service provided by the concessionaires."

11

For their part, respondents, in their Comment, pray for the dismissal of thepetition for lack of merit.

The instant petition must fail.

First, petitioners failed to resort to the appropriate remedy. Under Section12 of the MWSS Charter, it was the defunct Public Service Commission

12

which had the exclusive original jurisdiction over all cases contesting therates or fees of water and sewerage services, thus:

Sec. 12. Review of Rates by the Public Service Commission.- The ratesand fees fixed by the Board of Trustees for the System (MWSS) and by thelocal governments for the local systems shall be of such magnitude that theSystem’s rate of net return shall not exceed twelve percentum (12%), on arate base composed of the sum of its assets in operation as revalued fromtime to time plus two months’ operating capital. Such rates and fees shallbe effective and enforceable fifteen (15) days after publication in anewspaper of general circulation within the territory defined in Section 2(c)of this Act. The Public Service Commission shall have exclusive original

jurisdiction over all cases contesting said rates or fees. Any complaintagainst such rates or fees shall be filed with the Public Service Commissionwithin thirty (30) days after the effectivity of such rates, but the filing of suchcomplaint or action shall not stay the effectivity of said rates or fees. ThePublic Service Commission shall verify the rate base, and the rate of returncomputed therefrom, in accordance with the standards above outlined. ThePublic Service Commission shall finish, within sixty (60) calendar days, anyand all proceedings necessary and/or incidental to the case, and shallrender its findings or decisions thereon within thirty (30) calendar days after said case is submitted for decision.

In cases where the decision is against the fixed rates or fees, excesspayments shall be reimbursed and/or credited to future payments, in thediscretion of the Commission. (Underscoring supplied)

Indeed, petitioners have a plain and speedy remedy in the ordinary courseof law as prescribed in Section 12 above. They cannot avail of certiorari asa substitute for that plain and speedy recourse. The writ of certiorari andprohibition may be availed of only when "there is no appeal, or any plain,

speedy, and adequate remedy in the ordinary course of law."

13

Second, even assuming that petitioners may resort to certiorari andprohibition, their petition, however, suffers from a fatal defect, i.e., it failedto implead the two concessionaires who are certainly indispensable parties.Indispensable parties are those which have such interest in the controversythat a final adjudication of the case would certainly affect their rights, sothat the court cannot proceed without their presence.

14 Thus, their non-

inclusion

in the petition for a writ of certiorari would render the said petitiondefective.

15

Third, the petition is barred under the doctrine of hierarchy of courts. Suchdoctrine is one of the structural aspects intended for the orderlyadministration of justice. This Court has concurrent original jurisdiction withthe Regional Trial Court and the Court of Appeals in the issuance of theextraordinary writ of certiorari and prohibition. However, in availing of suchextraordinary writ, petitioners do not have the complete liberty or discretionto file their petition in any of these courts. In the absence of specialreasons, they cannot disregard the doctrine of the hierarchy of courts in our

judicial system by seeking relief directly from this Court despite the fact thatthe same is available in the lower tribunals in the exercise of their originalconcurrent jurisdiction.

16

Significantly, the petition raises issues of fact which cannot be addressed tothis Court.1avvphi1 For instance, in determining whether theconcessionaires are public utilities or mere agents of MWSS, there must bean examination of the intention of MWSS and the concessionaires at thetime of the bidding process, negotiation, and execution of the Concession

Agreements. Certainly, this matter is a factual issue requiring presentationand evaluation of evidence such as bidding documents, memoranda, andthe testimonies of the participants of the bidding and contract negotiations.Moreover, petitioners maintain that the assailed Resolutions couldauthorize the increase of water rates beyond the 12% rate of return limit.While such claim is purely speculative in nature, it would nonetheless

require a very complicated and technical computation of the current rate of



































return – which entails a determination of income, the valuation of assets,which assets are to be included in the computation, and other factualfactors. Again, these matters are beyond the Court’s function as it is not atrier of facts.

While petitioners claim that the assailed Resolutions are "in flagrantviolation of the Constitution and statutory provisions defining publicutilities," however, they failed to cite any Constitutional provision being

violated.

In Santiago v. Vasquez, et al.,17

this Court held:

x x x. We discern in the proceedings in this case a propensity on the part of petitioner, and, for that matter, the same may be said of a number of litigants who initiate recourses before us, to disregard the hierarchy of courts in our judicial system by seeking relief directly from this Courtdespite the fact that the same is available in the lower courts in the exerciseof their original concurrent jurisdiction, or is even mandated by law to besought therein. This practice must be stopped, not only because of theimposition upon the precious time of this Court but also because of the

inevitable and resultant delay, intended or otherwise, in the adjudication of the case which often has to be remanded or referred to the lower court asthe proper forum under the rules of procedure, or as better equipped toresolve the issues since this Court is not a trier of facts. We, therefore,reiterate the judicial policy that this Court will not entertain direct resort to itunless the redress desired cannot be obtained in the appropriate courts or where exceptional and compelling circumstances justify availment of aremedy within and calling for the exercise of our primary jurisdiction.(Underscoring supplied)

WHEREFORE, we DISMISS the instant petition for lack of merit. Nopronouncement as to costs.

SO ORDERED.

ANGELINA SANDOVAL-GUTIERREZ







EN BANC

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 SEALANDSERVICES. LTD., respondents.

Vicente Abad Santos for petitioner.

Bautista, Picazo, Buyco & Tan for private 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 andCommunications Rainerio O. Reyes from awarding to the InternationalContainer 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 directingPPA management to prepare the Invitation to Bid and all relevant biddingdocuments 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 documentationrequirements 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 withevaluating all bid proposals, recommending to the Board the best bid, andpreparing the corresponding contract between the PPA and the winningbidder or contractor. The Bidding Committee consisted of three (3) PPArepresentatives, 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 draftcontract 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 thegovernment."

Seven (7) consortia of companies actually submitted bids, which bids wereopened on July 17, 1987 at the PPA Head Office. After evaluation of theseveral bids, the Bidding Committee recommended the award of thecontract to develop, manage and operate the MICT to respondentInternational Container Terminal Services, Inc. (ICTSI) as having offeredthe best Technical and Financial Proposal. Accordingly, respondentSecretary declared the ICTSI consortium as the winning bidder.

Before the corresponding MICT contract could be signed, two successivecases 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 byBasilio H. Alo, an alleged "concerned taxpayer", and, the second was CivilCase 88-43616 for "Prohibition with Prayer for Temporary RestrainingOrder (TRO)" filed with the RTC of Manila by C.F. Sharp Co., Inc., amember 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 weresubsequently lifted by this Court in Resolutions dated March 17, 1988 (inG.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. 81947captioned "Hon. Rainerio O. Reyes etc., et al. vs. Court of Appeals, et al.")

On May 18, 1988, the President of the Philippines approved the proposedMICT Contract, with directives that "the responsibility for planning, detailedengineering, construction, expansion, rehabilitation and capital dredging of the port, as well as the determination of how the revenues of the portsystem 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 caseof wharfage or tonnage dues and harbor and berthing fees, payment to theGovernment may be made through the contractor who shall issueprovisional receipts and turn over the payments to the Government whichwill 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 aforementionedpresidential directives. (Annex "4").

Meanwhile, the petitioner, Rodolfo A. Albano filed the present petition ascitizen and taxpayer and as a member of the House of Representatives,assailing the award of the MICT contract to the ICTSI by the PPA. Thepetitioner 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 Article12, Section 11 of the 1987 Constitution.

The petition is devoid of merit.

A review of the applicable provisions of law indicates that a franchisespecially granted by Congress is not necessary for the operation of theManila International Container Port (MICP) by a private entity, a contractentered into by the PPA and such entity constituting substantial compliancewith the law.

1. Executive Order No. 30, dated July 16, 1986, provides:

WHEREFORE, I, CORAZON C. AQUINO, President of theRepublic of the Philippines, by virtue of the powers vestedin me by the Constitution and the law, do hereby order theimmediate recall of the franchise granted to the ManilaInternational Port Terminals, Inc. (MIPTI) and authorize thePhilippine Ports Authority (PPA) to take over, manage andoperate the Manila International Port Complex at NorthHarbor, Manila and undertake the provision of cargohandling and port related services thereat, in accordancewith P.D. 857 and other applicable laws and regulations.

Section 6 of Presidential Decree No. 857 (the Revised Charter of thePhilippine Ports Authority) states:

a) The corporate duties of the Authorityshall be:

xxx xxx xxx

(ii) To supervise, control, regulate,construct, maintain, operate, and providesuch 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 itsown, by contract, or otherwise) within thePort 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 Authorityshall be as follows:

xxx xxx xxx

(vi) To make or enter into contracts of anykind or nature to enable it to discharge itsfunctions under this Decree.

xxx xxx xxx

[Emphasis supplied.]

Thus, while the PPA has been tasked, under E.O. No. 30, with themanagement and operation of the Manila International Port Complex and toundertake 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. 857expressly 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 contractwith 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 service2

onthe theory that it is a "wharf' or a "dock"

3as contemplated under the Public

Service Act, its operation would not necessarily call for a franchise from theLegislative Branch. Franchises issued by Congress are not required beforeeach and every public utility may operate. Thus, the law has granted certainadministrative agencies the power to grant licenses for or to authorize theoperation of certain public utilities. (See E.O. Nos. 172 and 202)

That the Constitution provides in Art. XII, Sec. 11 that the issuance of afranchise, certificate or other form of authorization for the operation of apublic utility shall be subject to amendment, alteration or repeal byCongress does not necessarily, imply, as petitioner posits that onlyCongress has the power to grant such authorization. Our statute books arereplete with laws granting specified agencies in the Executive Branch thepower 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 andmanagement of the MICP, in accordance with P.D. 857 and other applicable laws and regulations. However, P.D. 857 itself authorizes thePPA 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 inescapableconclusion is that the lawmaker has empowered the PPA to undertake byitself the operation and management of the MICP or to authorize itsoperation and management by another by contract or other means, at itsoption. The latter power having been delegated to the PPA, a franchisefrom Congress to authorize an entity other than the PPA to operate andmanage 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 MICPto a private corporation. This is clearly within its power to do. Thus, PPA'sacts of privatizing the MICT and awarding the MICT contract to ICTSI are

wholly within the jurisdiction of the PPA under its Charter which empowersthe PPA to "supervise, control, regulate, construct, maintain, operate andprovide 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'swritten approval, constitute the necessary authorization for ICTSI'soperation and management of the MICP. The award of the MICT contractapproved by no less than the President of the Philippines herself enjoys thelegal presumption of validity and regularity of official action. In the case atbar, 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 andICTSI is illegal in the absence of a f ranchise from Congress appears bereftof any legal basis.

3. On the peripheral issues raised by the party, the following observationsmay be made:

A. That petitioner herein is suing as a citizen and taxpayer and as a

Member of the House of Representatives, sufficiently clothes him with thestanding to institute the instant suit questioning the validity of the assailedcontract. While the expenditure of public funds may not be involved under the contract, public interest is definitely involved considering the importantrole of the MICP in the economic development of the country and themagnitude of the financial consideration involved. Consequently, thedisclosure 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 petitionerswith sufficient standing to institute an action where a public right is soughtto be enforced.]

B. That certain committees in the Senate and the House of Representativeshave, in their respective reports, and the latter in a resolution as well,declared their opinion that a franchise from Congress is necessary for theoperation of the MICP by a private individual or entity, does not necessarilycreate a conflict between the Executive and the Legislative Branchesneeding the intervention of the Judicial Branch. The court is not faced witha situation where the Executive Branch has contravened an enactment of Congress. As discussed earlier, neither is the Court confronted with a caseof 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 subsequentlycontracted, considering the conditions imposed by the President in her letter of approval, thus rendering the bids and projections immaterial andthe procedure taken ineffectual, is not supported by the established facts.The conditions imposed by the President did not materially alter thesubstance of the contract, but merely dealt on the details of itsimplementation.

D. The determination of whether or not the winning bidder is qualified toundertake 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 developmentplan. Neither the Court, nor Congress, has the time and the technicalexpertise 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 theexercise of administrative functions. This is so becausesuch bodies are generally better equipped technically todecide administrative questions and that non-legal factors,such as government policy on the matter, are usuallyinvolved 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 excess of jurisdiction as towarrant the issuance of the writ of prohibition.

WHEREFORE, the petition is hereby DISMISSED.

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Gancayco, Bidin, Cortes,Griño-Aquino, Medialdea and Regalado, JJ., concur.

Feliciano, J., concurs in the result.

Padilla and Sarmiento, JJ., took no part.

Separate Opinions

GUTIERREZ, JR., J. , concurring:

I concur in the Court's decision that the determination of whether or not thewinning bidder is qualified to undertake the contracted service should beleft to the sound judgment of the Philippine Ports Authority (PPA). I agreethat the PPA is the agency which can best evaluate the comparativequalifications of the various bidding contractors and that in making suchevaluation it has the technical expertise which neither this Court nor

Congress possesses.

However, I would feel more comfortable in the thought that the aboverulings are not only grounded on firm legal foundations but are alsofactually accurate if the PPA shows greater consistency in its submissionsto this Court.

I recall that in E. Razon, Inc. v. Philippine Ports Authority (151 SCRA 233[1977]), this Court decided the case in favor of the PPA because, amongothers, of its submissions that: (1) the petitioner therein committed

violations as to outside stevedoring services, inadequate equipment,delayed submission of reports, and non-compliance with certain portregulations; (2) respondent Marina Port Services and not the petitioner wasbetter qualified to handle arrastre services; (3) the petitioner beingcontrolled by Alfredo Romualdez could not enter into a managementcontract with PPA and any such contract would be null and void; and (4)even if the petitioner may not have shared in the illegal intention behind thetransfer of majority shares, it shared in the benefits of the violation of law.

I was surprised during the oral arguments of the present petition to hear thecounsel for PPA submit diametrically different statements regarding thecapabilities and worth of E. Razon, Inc., as an arrastre operator. It now

turns out that the Manila International Container Terminal will depend agreat deal on the expertise, reliability and competence of E. Razon, Inc., for its successful operations. The time difference between the two petitions isinsubstantial. After going over the pleadings of the present petition, I amnow convinced that it is the submissions of PPA in this case and not itscontentions in G.R. No. 75197 which are accurate and meritorious. There isthe distinct possibility that we may have been unfair in the earlier petitionbecause of assertions made therein which are contradictory to thesubmissions in the instant petition. No such doubts would exist if theGovernment is more consistent in its pleadings on such important factualmatters as those raised in these two petitions.



EN BANC

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 theDepartment of Transportation and Communications, and EDSA LRTCORPORATION, LTD., respondents.

QUIASON, J. :

This is a petition under Rule 65 of the Revised Rules of Court to prohibitrespondents from further implementing and enforcing the "Revised and

Restated Agreement to Build, Lease and Transfer a Light Rail TransitSystem for EDSA" dated April 22, 1992, and the "Supplemental Agreementto the 22 April 1992 Revised and Restated Agreement To Build, Lease andTransfer a Light Rail Transit System for EDSA" dated May 6, 1993.

Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazonare members of the Philippine Senate and are suing in their capacities asSenators and as taxpayers. Respondent Jesus B. Garcia, Jr. is theincumbent Secretary of the Department of Transportation andCommunications (DOTC), while private respondent EDSA LRTCorporation, 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 citiesof Pasay, Quezon, Mandaluyong and Makati. The plan, referred to asEDSA Light Rail Transit III (EDSA LRT III), was intended to provide a masstransit system along EDSA and alleviate the congestion and growingtransportation 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 teamto discuss the project with DOTC.

On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing theFinancing, Construction, Operation and Maintenance of Infrastructure

Projects by the Private Sector, and For Other Purposes," was signed byPresident 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 initiativeand investment: Build-Operate-Transfer (BOT) or Build-Transfer (BT).

In accordance with the provisions of R.A. No. 6957 and to set the EDSALRT III project underway, DOTC, on January 22, 1991 and March 14, 1991,issued Department Orders Nos. 91-494 and 91-496, respectively creatingthe 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 threenewspapers of general circulation once a week for three consecutive weeksstarting February 21, 1991.

The deadline set for submission of prequalification documents was March21, 1991, later extended to April 1, 1991. Five groups responded to theinvitation 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 domesticcorporations: namely, Kaiser Engineers International, Inc., ACERConsultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All AsiaCapital 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, theprequalification criteria proposed by the Technical Committee were adoptedby 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) Technicalcapability — 30 percent (Rollo, p. 122).

On April 3, 1991, the Committee, charged under the BOT Law with theformulation of the Implementation Rules and Regulations thereof, approvedthe same.

After evaluating the prequalification, bids, the PBAC issued a Resolution on

May 9, 1991 declaring that of the five applicants, only the EDSA LRTConsortium "met the requirements of garnering at least 21 points per criteria [sic ], except for Legal Aspects, and obtaining an over-all passingmark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred toprovided that the BOT/BT contractor-applicant meet the requirementsspecified in the Constitution and other pertinent laws (Rollo, p. 114).

Subsequently, Secretary Orbos was appointed Executive Secretary to thePresident of the Philippines and was replaced by Secretary PeteNicomedes Prado. The latter sent to President Aquino two letters datedMay 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 andRegulations of the BOT Law (Rollo, pp. 298-302).

In July 1991, Executive Secretary Orbos, acting on instructions of thePresident, issued a directive to the DOTC to proceed with the negotiations.On July 16, 1991, the EDSA LRT Consortium submitted its bid proposal toDOTC.

Finding this proposal to be in compliance with the bid requirements, DOTCand respondent EDSA LRT Corporation, Ltd., in substitution of the EDSALRT Consortium, entered into an "Agreement to Build, Lease and Transfer

a Light Rail Transit System for EDSA" under the terms of the BOT Law(Rollo, pp. 147-177).

Secretary Prado, thereafter, requested presidential approval of the contract.

In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, whoreplaced Executive Secretary Orbos, informed Secretary Prado that thePresident could not grant the requested approval for the following reasons:(1) that DOTC failed to conduct actual public bidding in compliance withSection 5 of the BOT Law; (2) that the law authorized public bidding as theonly mode to award BOT projects, and the prequalification proceedings

was not the public bidding contemplated under the law; (3) that Item 14 of

the Implementing Rules and Regulations of the BOT Law which authorizednegotiated award of contract in addition to public bidding was of doubtfullegality; and (4) that congressional approval of the list of priority projectsunder the BOT or BT Scheme provided in the law had not yet been grantedat the time the contract was awarded (Rollo, pp. 178-179).

In view of the comments of Executive Secretary Drilon, the DOTC andprivate respondents re-negotiated the agreement. On April 22, 1992, the

parties entered into a "Revised and Restated Agreement to Build, Leaseand Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78)inasmuch as "the parties [are] cognizant of the fact the DOTC has fullauthority to sign the Agreement without need of approval by the Presidentpursuant to the provisions of Executive Order No. 380 and that certainevents [had] supervened since November 7, 1991 which necessitate[d] therevision of the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC,represented by Secretary Jesus Garcia vice Secretary Prado, and privaterespondent entered into a "Supplemental Agreement to the 22 April 1992Revised and Restated Agreement to Build, Lease and Transfer a Light RailTransit System for EDSA" so as to "clarify their respective rights andresponsibilities" and to submit [the] Supplemental Agreement to thePresident, of the Philippines for his approval" (Rollo, pp. 79-80).

Secretary Garcia submitted the two Agreements to President Fidel V.Ramos for his consideration and approval. In a Memorandum to SecretaryGarcia on May 6, 1993, approved the said Agreements, (Rollo, p. 194).

According to the agreements, the EDSA LRT III will use light rail vehiclesfrom the Czech and Slovak Federal Republics and will have a maximumcarrying capacity of 450,000 passengers a day, or 150 million a year to beachieved-through 54 such vehicles operating simultaneously. The EDSALRT III will run at grade, or street level, on the mid-section of EDSA for adistance of 17.8 kilometers from F.B. Harrison, Pasay City to North Avenue,

Quezon City. The system will have its own power facility (Revised andRestated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13)passenger stations and one depot in 16-hectare government property atNorth Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).

Private respondents shall undertake and finance the entire project requiredfor 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 three years from the implementation date of the contractinclusive of mobilization, site works, initial and final testing of the system(Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partialcompletion and viability thereof, private respondent shall deliver the use

and possession of the completed portion to DOTC which shall operate the



same (Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay privaterespondent rentals on a monthly basis through an Irrevocable Letter of Credit. The rentals shall be determined by an independent andinternationally accredited inspection firm to be appointed by the parties(Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon,private respondent's capital shall be recovered from the rentals to be paidby the DOTC which, in turn, shall come from the earnings of the EDSA LRTIII (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25years and DOTC shall have completed payment of the rentals, ownershipof the project shall be transferred to the latter for a consideration of onlyU.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67).

On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled "An Act Authorizing the Financing,Construction, Operation and Maintenance of Infrastructure Projects by thePrivate Sector, and for Other Purposes" was signed into law by thePresident. The law was published in two newspapers of general circulationon May 12, 1994, and took effect 15 days thereafter or on May 28, 1994.The law expressly recognizes BLT scheme and allows direct negotiation of BLT contracts.

II

In their petition, petitioners argued that:

(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR AS ITGRANTS EDSA LRT CORPORATION, LTD., AFOREIGN CORPORATION, THE OWNERSHIPOF EDSA LRT III, A PUBLIC UTILITY, VIOLATES

THE CONSTITUTION AND, HENCE, ISUNCONSTITUTIONAL;

(2) THE BUILD-LEASE-TRANSFER SCHEMEPROVIDED IN THE AGREEMENTS IS NOTDEFINED NOR RECOGNIZED IN R.A. NO. 6957OR ITS IMPLEMENTING RULES ANDREGULATIONS AND, HENCE, IS ILLEGAL;

(3) THE AWARD OF THE CONTRACT ON ANEGOTIATED BASIS VIOLATES R; A. NO. 6957

AND, HENCE, IS UNLAWFUL;

(4) THE AWARD OF THE CONTRACT IN FAVOROF RESPONDENT EDSA LRT CORPORATION,LTD. VIOLATES THE REQUIREMENTSPROVIDED IN THE IMPLEMENTING RULES ANDREGULATIONS OF THE BOT LAW AND, HENCE,IS ILLEGAL;

(5) THE AGREEMENTS VIOLATE EXECUTIVE

ORDER NO 380 FOR THEIR FAILURE TO BEARPRESIDENTIAL APPROVAL AND, HENCE, AREILLEGAL AND INEFFECTIVE; AND

(6) THE AGREEMENTS ARE GROSSLYDISADVANTAGEOUS TO THE GOVERNMENT(Rollo, pp. 15-16).

Secretary Garcia and private respondent filed their comments separatelyand 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 requiresascertainment 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 theConstitution does not apply to private respondent;

(5) The Agreements executed by and between respondents have beenapproved by President Ramos and are not disadvantageous to thegovernment;

(6) The award of the contract to private respondent through negotiation andnot public bidding is allowed by the BOT Law; and

(7) Granting that the BOT Law requires public bidding, this has beenamended by R.A No. 7718 passed by the Legislature On May 12, 1994,which provides for direct negotiation as a mode of award of infrastructureprojects.



III

Respondents claimed that petitioners had no legal standing to initiate theinstant action. Petitioners, however, countered that the action was filed bythem in their capacity as Senators and as taxpayers.

The prevailing doctrines in taxpayer's suits are to allow taxpayers toquestion 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 thesame when only municipal contracts are involved (Bugnay Constructionand Development Corporation v. Laron, 176 SCRA. 240 [1989]).

For as long as the ruling in Kilosbayan on locus standi is not reversed, wehave no choice but to follow it and uphold the legal standing of petitionersas 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 areunconstitutional and invalid for the following reasons:

(1) the EDSA LRT III is a public utility, and theownership and operation thereof is limited by theConstitution to Filipino citizens and domesticcorporations, not foreign corporations like privaterespondent;

(2) the Build-Lease-Transfer (BLT) schemeprovided in the agreements is not the BOT or BT

Scheme under the law;

(3) the contract to construct the EDSA LRT III wasawarded to private respondent not through publicbidding which is the only mode of awardinginfrastructure projects under the BOT law; and

(4) the agreements are grossly disadvantageous tothe government.

1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract toconstruct 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 oncethe EDSA LRT III is constructed, private respondent, as lessor, will turn itover to DOTC, as lessee, for the latter to operate the system and payrentals for said use.

The question posed by petitioners is:

Can respondent EDSA LRT Corporation, Ltd., a

foreign corporation own EDSA LRT III; a publicutility? (Rollo, p. 17).

The phrasing of the question is erroneous; it is loaded. What privaterespondent owns are the rail tracks, rolling stocks like the coaches, railstations, terminals and the power plant, not a public utility. While afranchise is needed to operate these facilities to serve the public, they donot by themselves constitute a public utility. What constitutes a public utilityis not their ownership but their use to serve the public (Iloilo Ice & ColdStorage 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 beforeone can own the facilities needed to operate a public utility so long as itdoes 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 thePhilippines or to corporations or associationsorganized under the laws of the Philippines at leastsixty per centum of whose capital is owned by suchcitizens, 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 utilityand 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 thingpertaining to one person is completely subjected to his will in everything notprohibited by law or the concurrence with the rights of another (Tolentino, IICommentaries and Jurisprudence on the Civil Code of the Philippines 45

[1992]).



The exercise of the rights encompassed in ownership is limited by law sothat a property cannot be operated and used to serve the public as a publicutility unless the operator has a franchise. The operation of a rail system asa public utility includes the transportation of passengers from one point toanother point, their loading and unloading at designated places and themovement 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] ;UnitedStates 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 separatelyfrom the ownership of the facilities thereof. One can own said facilitieswithout operating them as a public utility, or conversely, one may operate apublic utility without owning the facilities used to serve the public. Thedevotion of property to serve the public may be done by the owner or by theperson in control thereof who may not necessarily be the owner thereof.

This dichotomy between the operation of a public utility and the ownershipof the facilities used to serve the public can be very well appreciated whenwe consider the transportation industry. Enfranchised airline and shipping

companies may lease their aircraft and vessels instead of owning themthemselves.

While private respondent is the owner of the facilities necessary to operatethe EDSA. LRT III, it admits that it is not enfranchised to operate a publicutility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC agreed that on completiondate, private respondent will immediately deliver possession of the LRTsystem by way of lease for 25 years, during which period DOTC shalloperate the same as a common carrier and private respondent shallprovide technical maintenance and repair services to DOTC (Revised andRestated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62).

Technical maintenance consists of providing (1) repair and maintenancefacilities for the depot and rail lines, services for routine clearing andsecurity; and (2) producing and distributing maintenance manuals anddrawings for the entire system (Revised and Restated Agreement, AnnexF).

Private respondent shall also train DOTC personnel for familiarization withthe operation, use, maintenance and repair of the rolling stock, power plant,substations, electrical, signaling, communications and all other equipmentas supplied in the agreement (Revised and Restated Agreement, Sec. 10;Rollo, pp. 66-67). Training consists of theoretical and live training of DOTCoperational personnel which includes actual driving of light rail vehicles

under simulated operating conditions, control of operations, dealing with

emergencies, collection, counting and securing cash f rom the farecollection system (Revised and Restated Agreement, Annex E, Secs. 2-3).Personnel of DOTC will work under the direction and control of privaterespondent only during training (Revised and Restated Agreement, AnnexE, Sec. 3.1). The training objectives, however, shall be such that uponcompletion of the EDSA LRT III and upon opening of normal revenueoperation, DOTC shall have in their employ personnel capable of undertaking training of all new and replacement personnel (Revised andRestated Agreement, Annex E Sec. 5.1). In other words, by the end of the

three-year construction period and upon commencement of normal revenueoperation, DOTC shall be able to operate the EDSA LRT III on its own andtrain all new personnel by itself.

Fees for private respondent' s services shall be included in the rent, whichlikewise includes the project cost, cost of replacement of plant equipmentand 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 theobligations 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 dueto defects in the EDSA LRT III on account of the defective condition of equipment or facilities or the defective maintenance of such equipmentfacilities (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 feesfrom the riding public. It will have no dealings with the public and the publicwill have no right to demand any services from it.

It is well to point out that the role of private respondent as lessor during thelease period must be distinguished from the role of the Philippine GamingManagement Corporation (PGMC) in the case of Kilosbayan Inc. v.Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease betweenPGMC and the Philippine Charity Sweepstakes Office (PCSO) was actuallya collaboration or joint venture agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the lessor obligated itself tobuild, at its own expense, all the facilities necessary to operate andmaintain a nationwide on-line lottery system from whom PCSO was tolease the facilities and operate the same. Upon due examination of thecontract, the Court found that PGMC's participation was not confined to theconstruction 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 sophisticatedlottery system. In effect, the PCSO leased out its franchise to PGMC whichactually operated and managed the same.

Indeed, a mere owner and lessor of the facilities used by a public utility isnot 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 CommerceCommission, 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 whosupply cars under contract to railroad companies considered as publicutilities (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 momentfor determining the requisite Filipino nationality is when the entity appliesfor 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 inquestion is not recognized in the BOT Law and its Implementing Rules andRegulations.

Section 2 of the BOT Law defines the BOT and BT schemes as follows:

(a) Build-operate-and-transfer scheme — Acontractual arrangement whereby the contractor undertakes the construction including financing, of a given infrastructure facility, and the operationand maintenance thereof. The contractor operatesthe facility over a fixed term during which it is

allowed to charge facility users appropriate tolls,fees, rentals and charges sufficient to enable thecontractor to recover its operating andmaintenance expenses and its investment in theproject plus a reasonable rate of return thereon.The contractor transfers the facility to thegovernment agency or local government unitconcerned at the end of the fixed term which shallnot exceed fifty (50) years. For the constructionstage, the contractor may obtain financing fromforeign and/or domestic sources and/or engage theservices of a foreign and/or Filipino constructor

[sic ]: Provided, That the ownership structure of the

contractor of an infrastructure facility whoseoperation requires a public utility franchise must bein accordance with the Constitution: Provided,however, That in the case of corporate investors inthe build-operate-and-transfer corporation, thecitizenship of each stockholder in the corporateinvestors 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 inthe different phases of the construction whereFilipino skills are available: Provided, furthermore,that the financing of a foreign or foreign-controlledcontractor from Philippine government financinginstitutions shall not exceed twenty percent (20%)of the total cost of the infrastructure facility or project: Provided, finally, That financing fromforeign sources shall not require a guarantee bythe 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 wherebythe supplier of equipment and machinery for agiven infrastructure facility, if the interest of theGovernment so requires, operates the facilityproviding in the process technology transfer andtraining to Filipino nationals.

(b) Build-and-transfer scheme — "A contractualarrangement whereby the contractor undertakesthe construction including financing, of a giveninfrastructure facility, and its turnover after completion to the government agency or localgovernment unit concerned which shall pay thecontractor its total investment expended on theproject, plus a reasonable rate of return thereon.This arrangement may be employed in theconstruction of any infrastructure project includingcritical facilities which for security or strategicreasons, must be operated directly by thegovernment (Emphasis supplied).

The BOT scheme is expressly defined as one where the contractor undertakes the construction and financing in infrastructure facility, andoperates and maintains the same. The contractor operates the facility for a



fixed period during which it may recover its expenses and investment in theproject plus a reasonable rate of return thereon. After the expiration of theagreed term, the contractor transfers the ownership and operation of theproject to the government.

In the BT scheme, the contractor undertakes the construction and financingof the facility, but after completion, the ownership and operation thereof areturned over to the government. The government, in turn, shall pay thecontractor its total investment on the project in addition to a reasonable rateof return. If payment is to be effected through amortization payments by thegovernment infrastructure agency or local government unit concerned, thisshall be made in accordance with a scheme proposed in the bid andincorporated in the contract (R.A. No. 6957, Sec. 6).

Emphasis must be made that under the BOT scheme, the owner of theinfrastructure facility must comply with the citizenship requirement of theConstitution on the operation of a public utility. No such a requirement isimposed 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 anyvariation within the context of the two schemes. Indeed, no statute can beenacted to anticipate and provide all the fine points and details for themultifarious and complex situations that may be encountered in enforcingthe 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 BTscheme under the law.

As a matter of fact, the burden on the government in raising funds to payfor the project is made lighter by allowing it to amortize payments out of theincome from the operation of the LRT System.

In form and substance, the challenged agreements provide that rentals areto be paid on a monthly basis according to a schedule of rates through andunder the terms of a confirmed Irrevocable Revolving Letter of Credit(Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years andwhen full payment shall have been made to and received by privaterespondent, 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 (Revisedand 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 toanother the enjoyment or use of a thing for a certain price and for a periodwhich may be definite or indefinite but not longer than 99 years (Civil Codeof the Philippines, Art. 1643). There is no transfer of ownership at the endof the lease period. But if the parties stipulate that title to the leasedpremises shall be transferred to the lessee at the end of the lease periodupon the payment of an agreed sum, the lease becomes a lease-purchaseagreement.

Furthermore, it is of no significance that the rents shall be paid in UnitedStates currency, not Philippine pesos. The EDSA LRT III Project is a highpriority project certified by Congress and the National Economic andDevelopment 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 madewith respect to, any domestic obligation to wit, anyobligation contracted in the Philippines whichprovisions 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 Philippinesmeasured thereby, be as it is hereby declaredagainst public policy, and null, void, and of noeffect, 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-priorityeconomic projects for agricultural, industrial andpower development as may be determined bythe National Economic Council which are financedby or through foreign funds; . . . .

3. The fact that the contract for the construction of the EDSA LRT III wasawarded through negotiation and before congressional approval onJanuary 22 and 23, 1992 of the List of National Projects to be undertakenby the private sector pursuant to the BOT Law (Rollo, pp. 309-312) doesnot suffice to invalidate the award.

Subsequent congressional approval of the list including "rail-based projectspackaged with commercial development opportunities" (Rollo, p. 310)under which the EDSA LRT III projects falls, amounts to a ratification of theprior award of the EDSA LRT III contract under the BOT Law.



Petitioners insist that the prequalifications process which led to thenegotiated award of the contract appears to have been rigged from the verybeginning to do away with the usual open international public bidding wherequalified internationally known applicants could fairly participate.

The records show that only one applicant passed the prequalificationprocess. Since only one was left, to conduct a public bidding in accordancewith Section 5 of the BOT Law for that lone participant will be an absurband 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 thenegotiated award of government infrastructure projects.

Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules andRegulations for Government Infrastructure Contracts," allows thenegotiated award of government projects in exceptional cases. Sections 4of the said law reads as follows:

Bidding . — Construction projects shall generally beundertaken by contract after competitive publicbidding. 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 conclusiveevidence that greater economy and efficiency would be achieved through this arrangement , andin accordance with provision of laws and acts onthe 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 thePresident of the Philippines, upon recommendationof 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 awardof 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 participationin government infrastructure projects. The two laws are not inconsistentwith each other but are in pari materia and should be read together accordingly.

In the instant case, if the prequalification process was actually tainted byfoul play, one wonders why none of the competing firms ever brought thematter before the PBAC, or intervened in this case before us (cf. MalayanIntegrated 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 Ramoshimself. Although then Executive Secretary Drilon may have disapprovedthe "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 fromrenegotiating and modifying in good faith the terms and conditions thereof so as to meet legal, statutory and constitutional requirements. Under thecircumstances, to require the parties to go back to step one of theprequalification process would just be an idle ceremony. Uselessbureaucratic "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 2thereof as:

(e) Build-lease-and-transfer — A contractualarrangement whereby a project proponent isauthorized to finance and construct aninfrastructure or development facility and upon itscompletion turns it over to the government agencyor local government unit concerned on a lease

arrangement for a fixed period after whichownership of the facility is automatically transferredto the government unit concerned.

Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:

Direct Negotiation of Contracts. — Directnegotiation shall be resorted to when there is onlyone complying bidder left as defined hereunder.



(a) If, after advertisement, only one contractor applies for prequalification and it meets theprequalification requirements, after which it isrequired to submit a bid proposal which issubsequently found by the agency/localgovernment unit (LGU) to be complying.

(b) If, after advertisement, more than onecontractor applied for prequalification but only onemeets the prequalification requirements, after which it submits bid/proposal which is found by theagency/local government unit (LGU) to becomplying.

(c) If, after prequalification of more than onecontractor only one submits a bid which is found bythe agency/LGU to be complying.

(d) If, after prequalification, more than onecontractor submit bids but only one is found by the

agency/LGU to be complying. Provided, That, anyof the disqualified prospective bidder [sic ] mayappeal the decision of the implementing agency,agency/LGUs prequalification bids and awardscommittee within fifteen (15) working days to thehead of the agency, in case of national projects or to the Department of the Interior and LocalGovernment, in case of local projects from the datethe disqualification was made known to thedisqualified bidder: Provided, furthermore, That theimplementing agency/LGUs concerned should acton the appeal within forty-five (45) working days

from receipt thereof.

Petitioners' claim that the BLT scheme and direct negotiation of contractsare not contemplated by the BOT Law has now been rendered moot andacademic by R.A. No. 7718. Section 3 of this law authorizes all governmentinfrastructure agencies, government-owned and controlled corporationsand local government units to enter into contract with any duly prequalifiedproponent 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 intoany of the schemes enumerated in Section 2 thereof, including a BLTarrangement, enumerated and defined therein (Sec. 3).

Republic Act No. 7718 is a curative statute. It is intended to providefinancial incentives and "a climate of minimum government regulations andprocedures and specific government undertakings in support of the privatesector" (Sec. 1). A curative statute makes valid that which beforeenactment of the statute was invalid. Thus, whatever doubts and allegedprocedural lapses private respondent and DOTC may have engenderedand committed in entering into the questioned contracts, these have nowbeen 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 grosslydisadvantageous to the government because the rental rates are excessiveand private respondent's development rights over the 13 stations and thedepot 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, privaterespondent has been granted, for a period of 25 years, exclusive rightsover the depot and the air space above the stations for development intocommercial premises for lease, sublease, transfer, or advertising(Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and inconsideration of these development rights, private respondent shall payDOTC in Philippine currency guaranteed revenues generated therefrom inthe amounts set forth in the Supplemental Agreement (Sec. 11; Rollo, p.93). In the event that DOTC shall be unable to collect the guaranteedrevenues, DOTC shall be allowed to deduct any shortfalls from the monthlyrent 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 shallrevert 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 byDOTC. The determination by the proper administrative agencies andofficials who have acquired expertise, specialized skills and knowledge inthe performance of their functions should be accorded respect absent anyshowing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. DeputyExecutive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v.

Alfonso, 176 SCRA 304 [1989]).



Government officials are presumed to perform their functions with regularityand strong evidence is necessary to rebut this presumption. Petitionershave not presented evidence on the reasonable rentals to be paid by theparties to each other. The matter of valuation is an esoteric field which isbetter 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 thatextent the government is deprived of the profits if it engages in the businessitself, is not worthy of being raised as an issue. In all cases where a partyenters into a contract with the government, he does so, not out of charityand not to lose money, but to gain pecuniarily.

5. Definitely, the agreements in question have been entered into by DOTCin the exercise of its governmental function. DOTC is the primary policy,planning, programming, regulating and administrative entity of theExecutive branch of government in the promotion, development andregulation of dependable and coordinated networks of transportation andcommunications systems as well as in the fast, safe, efficient and reliablepostal, 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 determinewhether or not a specific transportation or communication project isnecessary, viable and beneficial to the people. The discretion to award acontract is vested in the government agencies entrusted with that function(Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).

WHEREFORE, the petition is DISMISSED.

SO ORDERED

Bellosillo and Kapunan, JJ., concur.

Padilla and Regalado, JJ., concurs in the result.

Romero, J., is on leave.

Separate Opinions

MENDOZA, J ., concurring:

I concur in all but Part III of the majority opinion. Because I hold thatpetitioners do not have standing to sue, I join to dismiss the petition in thiscase. I write only to set forth what I understand the grounds for our decisions on the doctrine of standing are and, why in accordance with

these decisions, petitioners do not have the rights to sue, whether aslegislators, taxpayers or citizens. As members of Congress, because theyallege no infringement of prerogative as legislators.

1 As taxpayers because

petitioners allege neither an unconstitutional exercise of the taxing or spending powers of Congress (Art VI, §§24-25 and 29)

2nor an illegal

disbursement of public money.3 As this Court pointed out in Bugnay Const .

and Dev . Corp. v . Laron,4

a party suing as taxpayer "must specificallyprove that he has sufficient interest in preventing the illegal expenditure of money raised by taxation and that he will sustain a direct injury as a resultof the enforcement of the questioned statute or contract. It is not sufficientthat he has merely a general interest common to all members of thepublic." In that case, it was held that a contract, whereby a local

government leased property to a private party with the understanding thatthe latter would build a market building and at the end of the lease wouldtransfer the building of the lessor, did not involve a disbursement of publicfunds so as to give taxpayer standing to question the legality of thecontract. I see no substantial difference, as far as the standing is of taxpayers to question public contracts is concerned, between the contractthere and the build-lease-transfer (BLT) contract being questioned bypetitioners in this case.

Nor do petitioners have standing to bring this suit as citizens. In the cases5

in which citizens were authorized to sue, this Court found standing becauseit thought the constitutional claims pressed for decision to be of

"transcendental importance," as in fact it subsequently granted relief topetitioners by invalidating the challenged statutes or governmental actions.Thus in the Lotto case

6relied upon by the majority for upholding petitioners

standing, this Court took into account the "paramount public interest"involved which "immeasurably affect[ed] the social, economic, and moralwell-being of the people . . . and the counter-productive and retrogressiveeffects of the envisioned on-line lottery system:"

7Accordingly, the Court

invalidated the contract for the operation of lottery.

But in the case at bar, the Court precisely finds the opposite by findingpetitioners' substantive contentions to be without merit To the extenttherefore that a party's standing is affected by a determination of the

substantive merit of the case or a preliminary estimate thereof, petitioners



in the case at bar must be held to be without standing. This is in line withour ruling in Lawyers League for a Better Philippines v. Aquino

8and In re

Bermudez 9 where we dismissed citizens' actions on the ground thatpetitioners had no personality to sue and their petitions did not state acause of action. The holding that petitioners did not have standing followedfrom the finding that they did not have a cause of action.

In order that citizens' actions may be allowed a party must show that hepersonally has suffered some actual or threatened injury as a result of theallegedly illegal conduct of the government; the injury is fairly traceable tothe challenged action; and the injury is likely to be redressed by a favorableaction.

10 As the U.S. Supreme Court has held:

Typically, . . . the standing inquiry requires careful judicial examination of a complaint's allegation toascertain whether the particular plaintiff is entitledto an adjudication of the particular claims asserted.Is the injury too abstract, or otherwise notappropriate, to be considered judiciallycognizable? Is the line of causation between the

illegal conduct and injury too attenuated? Is theprospect of obtaining relief from the injury as aresult of a favorable ruling too speculative? Thesequestions and any others relevant to the standinginquiry must be answered by reference to the Art IIInotion that federal courts may exercise power only"in the last resort, and as a necessity, Chicago &Grand Trunk R. Co. v. Wellman, 143 US 339, 345,36 L Ed 176,12 S Ct 400 (1892), and only whenadjudication is "consistent with a system of separated powers and [the dispute is one]traditionally thought to be capable of resolutionthrough the judicial process," Flast v Cohen, 392US 83, 97, 20 L Ed 2d 947, 88 S Ct 1942 (1968).See Valley Forge, 454 US, at 472-473, 70 L Ed 2d700, 102 S Ct 752.

11

Today's holding that a citizen, qua citizen, has standing to question agovernment contract unduly expands the scope of public actions andsweeps away the case and controversy requirement so carefully embodiedin Art. VIII, §5 in defining the jurisdiction of this Court. The result is toconvert the Court into an office of ombudsman for the ventilation of generalized grievances. Consistent with the view that this case has nomerit I submit with respect that petitioners, as representatives of the public

interest, have no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.

DAVIDE, JR., J ., dissenting:

After wading through the record of the vicissitudes of the challengedcontract and evaluating the issues raised and the arguments adduced bythe parties, I find myself unable to joint majority in the well-written ponenciaof Mr. Justice Camilo P. Quiason.

I most respectfully submit that the challenged contract is void for at leasttwo reasons: (a) it is an-ultra-vires act of the Department of Transportationand Communications (DOTC) since under R.A. 6957 the DOTC has noauthority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b)even assuming arguendo that it has, the contract was entered into withoutcomplying with the mandatory requirement of public bidding.

I

Respondents admit that the assailed contract was entered into under R.A.6957. This law, fittingly entitled "An Act Authorizing the Financing,

Construction, Operation and Maintenance of Infrastructure Projects by thePrivate Sector, and For Other Purposes," recognizes only two (2) kinds of contractual arrangements between the private sector and governmentinfrastructure agencies: (a) the Build-Operate-and-Transfer (BOT) schemeand (b) the Build-and-Transfer (BT) scheme. This conclusion finds supportin Section 2 thereof which defines only the BOT and BT schemes, inSection 3 which explicitly provides for said schemes thus:

Sec. 3 Private Initiative in Infrastructure. — Allgovernment infrastructure agencies, includinggovernment-owned and controlled corporationsand local government units, are hereby authorizedto enter into contract with any duly prequalifiedprivate contractor for the financing, construction,operation and maintenance of any financiallyviable infrastructure facilities through the build-operate-and transfer or build-and-transfer scheme,subject to the terms and conditions hereinafter setforth; (Emphasis supplied).

and in Section 5 which requires public bidding of projects under bothschemes.



All prior acts and negotiations leading to the perfection of the challengedcontract were clearly intended and pursued for such schemes.

A Build-Lease-and-Transfer (BLT) scheme is not authorized under the saidlaw, and none of the aforesaid prior acts and negotiations were designedfor such unauthorized scheme. Hence, the DOTC is without any power or authority to enter into the BLT contract in question.

The majority opinion maintains, however, that since "[t]here is no mentionin the BOT Law that the BOT and the BT schemes bar any other arrangement for the payment by the government of the project cost," then"[t]he law must not be read in such a way as to rule outer unduly restrictany variation within the context of the two schemes." This interpretationwould be correct if the law itself provides a room for flexibility. We find nosuch provisions in R.A. No. 6957 if it intended to include a BLT scheme,then it should have so stated, for contracts of lease are not unknown in our

jurisdiction, and Congress has enacted several laws relating to leases. Thatthe BLT scheme was never intended as a permissible variation "within thecontext" of the BOT and BT schemes is conclusively established by thepassage of R.A. No. 7718 which amends:

a. Section 2 by adding to the original BOT and BTschemes the following schemes:

(1) Build-own-and-operate (BOO)

(2) Build-Lease-and-transfer (BLT)

(3) Build-transfer-and-operate (BTO)

(4) Contract-add-and-operate (CAO)

(5) Develop-operate-and-transfer (DOT)

(6) Rehabilitate-operate-and-transfer (ROT)

(7) Rehabilitate-own-and-operate (ROO).

b) Section 3 of R.A. No. 6957 by deleting therefromthe phrase "through the build-operate-and-transfer or build-and-transfer scheme."

II

Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads asfollows:

Sec. 5 Public Bidding of Projects. — Uponapproval of the projects mentioned in Section 4 of this Act, the concerned head of the infrastructureagency or local government unit shall forthwithcause to be published, once every week for three(3) consecutive weeks, in at least two (2)newspapers of general circulation and in at leastone (1) local newspaper which is circulated in theregion, province, city or municipality in which the

project is to be constructed a notice inviting all dulyprequalified infrastructure contractors to participatein the public bidding for the projects so approved.In the case of a build-operate-and-transfer arrangement, the contract shall be awarded to thelowest complying bidder based on the presentvalue of its proposed tolls, fees, rentals, andcharges over a fixed term for the facility to beconstructed, operated, and maintained accordingto the prescribed minimum design andperformance standards plans, and specifications.For this purpose, the winning contractor shall be

automatically granted by the infrastructure agencyor local government unit the franchise to operateand maintain the facility, including the collection of tolls, fees, rentals; and charges in accordance withSection 6 hereof.

In the case of a build-and-transfer arrangement,the contract shall be awarded to the lowestcomplying bidder based on the present value of itsproposed, schedule of amortization payments for the facility to be constructed according to theprescribed minimum design and performance

standards, plans and specifications: Provided,however , That a Filipino constructor who submitsan equally advantageous bid shall be givenpreference.

A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be submittedto Congress for its information.

The requirement of public bidding is not an idle ceremony. It has been aptlysaid that in our jurisdiction "public bidding is the policy and medium

adhered to in Government procurement and construction contracts under



existing laws and regulations. It is the accepted method for arriving at a fair and reasonable price and ensures that overpricing, favoritism, and other anomalous practices are eliminated or minimized. And any Governmentcontract entered into without the required bidding is null and void andcannot adversely affect the rights of third parties." (Bartolome C.Fernandez, Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDERPHILIPPINE LAW 25 [rev. ed. 1991], citing Caltex vs. Delgado Bros., 96Phil. 368 [1954]).

The Office of the President, through then Executive Secretary FranklinDrilon Correctly disapproved the contract because no public bidding is strictcompliance with Section 5 of R.A. No. 6957 was conducted. SecretaryDrilon Further bluntly stated that the provision of the Implementing Rules of said law authorizing negotiated contracts was of doubtful legality. Indeed, itis null and void because the law itself does not recognize or allownegotiated contracts.

However the majority opinion posits the view that since only privaterespondent EDSA LRT was prequalified, then a public bidding would be "anabsurd and pointless exercise." I submit that the mandatory requirement of public bidding cannot be legally dispensed with simply because only onewas qualified to bid during the prequalification proceedings. Section 5mandates that the BOT or BT contract should be awarded "to the lowestcomplying bidder," which logically means that there must at least be two (2)bidders. If this minimum requirement is not met, then the proposed biddingshould be deferred and a new prequalification proceeding be scheduled.Even those who were earlier disqualified may by then have qualifiedbecause they may have, in the meantime, exerted efforts to meet all thequalifications.

This view of the majority would open the floodgates to the rigging of prequalification proceedings or to unholy conspiracies among prospective

bidders, which would even include dishonest government officials. Theycould just agree, for a certain consideration, that only one of them qualify inorder that the latter would automatically corner the contract and obtain theaward.

That section 5 admits of no exception and that no bidding could be validlyhad with only one bidder is likewise conclusively shown by theamendments introduced by R.A. No. 7718 Per section 7 thereof, a newsection denominated as Section 5-A was introduced in R.A. No. 6957 toallow direct negotiation contracts. This new section reads:

Sec. 5-A. Direct Negotiation Of Contracts — Directnegotiation, shall be resorted to when there is onlyone complying bidder left as defined hereunder.

(a) If, after advertisement, onlyone contractor applies for prequalification requirements, after which it is required to submit abid/proposal which subsequentlyfound by the agency/localgovernment unit (LGU) to becomplying.

(b) If, after advertisement, morethan one contractor applied for prequalification but only one meetsthe prequalification requirements,after which it submits bid/proposalwhich is found by the agency/localgovernment unit (LGU) to becomplying,

(c) If after prequalification of morethan one contractor only onesubmits a bid which is found bythe agency/LGU to be complying.

(d) If, after prequalification, morethan one contractor, only onesubmit bids but only one is foundby the agency/LGU to becomplying: Provided , That, any of

the disqualified prospective bidder may appeal the decisioncontractor of the implementingagency/LGUs prequalification bidsan award committee within fifteen(15) working days to the head of the agency, in case of nationalprojects or to the Department of the Interior and Local Government,in case of local projects from thedate the disqualification was madeknown to the disqualified bidder

Provided, That the implementing



agency/LGUs concerned shouldact on the appeal within forty-five(45) working days from receiptthereof.

Can this amendment be given retroactive effect to the challenged contractso that it may now be considered a permissible negotiated contract? Isubmit that it cannot be R.A. No. 7718 does not provide that it should begiven retroactive effect to pre-existing contracts. Section 18 thereof saysthat it "shall take effect fifteen (15) days after its publication in at least two(2) newspapers of general circulation." If it were the intention of Congressto give said act retroactive effect then it would have so expressly provided.

Article 4 of the Civil Code provides that "[l]aws shall have no retroactiveeffect, unless the contrary is provided."

The presumption is that all laws operate prospectively, unless the contraryclearly appears or is clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the doubt will be resolvedagainst the retroactive application of laws. (Ruben E Agpalo, STATUTORYCONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts whichchange an existing statute, Sutherland states:

In accordance with the rule applicable to originalacts, it is presumed that provisions added by theamendment affecting substantive rights areintended to operate prospectively. Provisionsadded by the amendment that affect substantiverights will not be construed to apply to transactionsand events completed prior to its enactment unlessthe legislature has expressed its intent to thateffect or such intent is clearly implied by thelanguage of the amendment or by the

circumstances surrounding its enactment. (1 FrankE. Horack, Jr., SUTHERLAND'S STATUTES ANDSTATUTORY CONSTRUCTION 434-436 [1943ed.]).

I vote then to grant the instant petition and to declare void the challengedcontract and its supplement.

FELICIANO, J. , dissenting:

After considerable study and effort, and with much reluctance, I find I mustdissent in the instant case. I agree with many of the things set out in the

majority opinion written by my distinguished brother in the Court Quiason,

J . At the end of the day, however, I find myself unable to join in the result reached by the majority.

I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which isappropriately drawn on fairly narrow grounds. At the same time; I wish toaddress briefly one of the points made by Justice Quiason in the majorityopinion in his effort to meet the difficulties posed by Davide Jr., J .

I refer to the invocation of the provisions of presidential Decree No. 1594dated 11 June 1978 entitled: "Prescribing policies, Guidelines, Rules andRegulations for Government Infrastructure Contracts·" More specifically,the majority opinion invokes paragraph 1 of Section 4 of this Degree whichreads as follows:

Sec. 4. Bidding . — Construction projects shall,generally be undertaken by contract after competitive public bidding. Projects may beundertaken by administration or force account or by negotiated contract only in exceptional caseswhere time is of the essence, or where there is

lack of qualified bidders or contractors, or wherethere is a conclusive evidence that greater economy and efficiency would be achievedthrough this arrangement, and in accordance withprovisions of laws and acts on the matter, subjectto the approval of the Ministry of public Works,Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, asthe case may be, if the project cost is less than P1Million, and of the President of the Philippines,upon the recommendation of the Minister, if theproject cost is P1 Million or more.

xxx xxx xxx

I understand the unspoken theory in the majority opinion to be that aboveSection 4 and presumably the rest of Presidential Decree No. 1594continue to exist and to run parallel to the provisions of Republic Act No.6957, whether in its original form or as amended by Republic Act No. 7718.

A principal difficulty with this approach is that Presidential Decree No. 1594purports to apply to all "government contracts for infrastructure and other construction projects." But Republic Act No. 6957 as amended by Republic

Act No. 7718, relates only to "infrastructure projects" which are financed,

constructed, operated and maintained "by the private sector" "through the



build/operate-and-transfer or build-and-transfer scheme" under Republic Act No. 6597 and under a series of other comparable schemes under Republic Act No. 7718. In other words, Republic Act No. 6957 and Republic

Act. No. 7718 must be held, in my view, to be special statutes applicable toa more limited field of "infrastructure projects" than the wide-ranging scopeof application of the general statute i.e., Presidential Decree No. 1594.Thus, the high relevance of the point made by Mr. Justice Davide thatRepublic Act No. 6957 in specific connection with BCT- and BLT type and BLT type of contracts imposed an unqualified requirement of public bidding

set out in Section 5 thereof.

It should also be pointed out that under Presidential Decree No. 1594,projects may be undertaken "by administration or force account or bynegotiated contract only "

(1) in exceptional cases where time is of theessence; or

(2) where there is lack of bidders or contractors; or

(3) where there is a conclusive evidence thatgreater economy and efficiency would be achievedthrough these arrangements, and in accordancewith provision[s] of laws and acts on the matter.

It must, upon the one hand, be noted that the special law Republic Act No.6957 made absolutely no mention of negotiated contracts being permittedto displace the requirement of public bidding. Upon the other hand, Section5-a, inserted in Republic Act No. 6957 by the amending statute Republic

Act No. 7718, does not purport to authorize direct negotiation of contractssituations where there is a lack of pre-qualified contractors or, complyingbidders. Thus, even under the amended special statute, entering into

contracts by negotiation is not permissible in the other (2) categories of cases referred to in Section 4 of Presidential Decree No. 1594, i.e., "inexceptional cases where time is of the essence" and "when there isconclusive evidence that greater economy and efficiency would beachieved through these arrangements, etc."

The result I reach is that insofar as BOT, etc .-types of contracts areconcerned, the applicable public bidding requirement is that set out inRepublic Act No. 6957 and, with respect to such type of contracts opened for pre-qualification and bidding after the date of effectivity of Republic Act No. 7718, The provision of Republic Act No. 7718. The assailed contractwas entered into before Republic Act. No. 7718 was enacted.

The difficulties. of applying the provisions of Presidential Degree No. 1594to the Edsa LRT-type of contracts are aggravated when one considers thedetailed "Implementing Rules and Regulations as amended April 1988"issued under that Presidential Decree.

1For instance:

IB [2.5.2] 2.4.2 By Negotiated Contract

xxx xxx xxx

a. In times of emergencies arisingfrom natural calamities whereimmediate action is necessary toprevent imminent loss of lifeand/or property.

b. Failure to award the contractafter competitive public bidding for valid cause or causes [such aswhere the prices obtained throughpublic bidding are all above the

AAE and the bidders refuse toreduce their prices to the AAE].

In these cases, bidding may be undertakenthrough sealed canvass of at least three (3)qualified contractors. Authority to negotiatecontracts for projects under these exceptionalcases shall be subject to pr ior approval by headsof agencies within their limits of approvingauthority.

c. Where the subject project is

adjacent or contiguous to an on-going project and it could beeconomically prosecuted by thesame contractor provided that hehas no negative slippage and hasdemonstrated a satisfactoryperformance. (Emphasissupplied).

Note that there is no reference at all in these Presidential Decree No. 1594Implementing Rules and Regulations to absence of pre-qualified applicants



and bidders as justifying negotiation of contracts as distinguished fromrequiring public bidding or a second public bidding.

Note also the following provision of the same Implementing Rules andRegulations:

IB 1 Prequalification

The following may be become contractors for government projects:

1 Filipino

a. Citizens (single proprietorship)

b. Partnership of corporation duly organized under the laws of the Philippines, and at least seventy five percent (75%) of the capital stock of whichbelongs to Filipino citizens.

2. Contractors forming themselves into a jointventure, i.e., a group of two or more contractorsthat intend to be jointly and severally responsiblefor a particular contract, shall for purposes of bidding/tendering comply with LOI 630, and, asidefrom being currently and properly accredited by thePhilippine Contractors Accreditation Board, shallcomply with the provisions of R.A. 4566, providedthat joint ventures in which Filipino ownership isless than seventy five percent ( 75%) may be

prequalified where the structures to be built requirethe application of techniques and/or technologieswhich are not adequately possessed by a Filipinoentity as defined above.

[The foregoing shall not negate any existing andfuture commitments with respect to the bidding andaware of contracts financed partly or wholly withfunds from international lending institutions like the

Asian Development Bank and the Worlds Bank aswell as from bilateral and other similar sources.(Emphases supplied)

The record of this case is entirely silent on the extent of Philippine equity inthe Edsa LRT Corporation; there is no suggestion that this corporation isorganized under Philippine law and is at least seventy-five (75%) percentowned by Philippine citizens.

Public bidding is the normal method by which a government keepscontractors honest and is able to assure itself that it would be getting thebest possible value for its money in any construction or similar project. It isnot for nothing that multilateral financial organizations like the World Bankand the Asian Development Bank uniformly require projects financed bythem to be implemented and carried out by public bidding. Public bidding ismuch too important a requirement casually to loosen by a latitudinarianexercise in statutory construction.

The instant petition should be granted and the challenged contract and itssupplement should be nullified and set aside. A true public bidding,complete with a new prequalification proceeding, should be required for theEdsa LRT Project.



SECOND DIVISION

G.R. No. 119528 March 26, 1997

PHILIPPINE AIRLINES, INC., petitioner,vs.

CIVIL AERONAUTICS BOARD and GRAND INTERNATIONALAIRWAYS, INC., respondents.

TORRES, JR., J .:

This Special Civil Action for Certiorari and Prohibition under Rule 65 of theRules of Court seeks to prohibit respondent Civil Aeronautics Board fromexercising jurisdiction over private respondent's Application for theissuance of a Certificate of Public Convenience and Necessity, and toannul and set aside a temporary operating permit issued by the Civil

Aeronautics Board in favor of Grand International Airways (GrandAir, for brevity) allowing the same to engage in scheduled domestic air transportation services, particularly the Manila-Cebu, Manila-Davao, andconverse routes.

The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) tosupport its petition is the fact that GrandAir does not possess a legislativefranchise authorizing it to engage in air transportation service within thePhilippines or elsewhere. Such franchise is, allegedly, a requisite fo r theissuance of a Certificate of Public Convenience or Necessity by therespondent Board, as mandated under Section 11, Article XII of theConstitution.

Respondent GrandAir, on the other hand, posits that a legislative franchiseis no longer a requirement for the issuance of a Certificate of PublicConvenience and Necessity or a Temporary Operating Permit, following theCourt's pronouncements in the case of Albano vs. Reyes,

1 as restated by

the Court of Appeals in Avia Filipinas International vs. Civil AeronauticsBoard

2 and Silangan Airways, Inc . vs. Grand International Airways, Inc .,

and the Hon. Civil Aeronautics Board.3

On November 24, 1994, private respondent GrandAir applied for aCertificate 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 issued a Notice of Hearing setting theapplication for initial hearing on December 16, 1994, and directing GrandAir to serve a copy of the application and corresponding notice to all scheduledPhilippine Domestic operators. On December 14, 1994, GrandAir filed itsCompliance, and requested for the issuance of a Temporary OperatingPermit. Petitioner, itself the holder of a legislative franchise to operate air transport services, filed an Opposition to the application for a Certificate of Public Convenience and Necessity on December 16, 1995 on the followinggrounds:

A. The CAB has no jurisdiction to hear thepetitioner's application until the latter has firstobtained a franchise to operate from Congress.

B. The petitioner's application is deficient in formand substance in that:

1. The application does notindicate a route structure includinga computation of trunkline,

secondary and rural available seatkilometers (ASK) which shallalways be maintained at a monthlylevel at least 5% and 20% of the

ASK offered into and out of theproposed base of operations for rural and secondary, respectively.

2. It does not contain aproject/feasibility study, projectedprofit and loss statements,projected balance sheet,

insurance coverage, list of personnel, list of spare partsinventory, tariff structure,documents supportive of financialcapacity, route flight schedule,contracts on facilities (hangars,maintenance, lot) etc.

C. Approval of petitioner's application would violatethe equal protection clause of the constitution.

D. There is no urgent need and demand for the

services applied for.



E. To grant petitioner's application would onlyresult in ruinous competition contrary to Section4(d) of R.A. 776.

5

At the initial hearing for the application, petitioner raised the issue of lack of jurisdiction of the Board to hear the application because GrandAir did notpossess a legislative franchise.

On December 20, 1994, the Chief Hearing Officer of CAB issued an Order denying petitioner's Opposition. Pertinent portions of the Order read:

PAL alleges that the CAB has no jurisdiction tohear the petitioner's application until the latter hasfirst obtained a franchise to operate fromCongress.

The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia Filipina vs.CAB, CA G.R. No. 23365, it has been ruled thatunder Section 10 (c) (I) of R.A. 776, the Board

possesses this specific power and duty.

In view thereof, the opposition of PAL on thisground is hereby denied.

SO ORDERED.

Meantime, on December 22, 1994, petitioner this time, opposed privaterespondent's application for a temporary permit maintaining that:

1. The applicant does not possess the required

fitness and capability of operating the servicesapplied 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 theTemporary 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'sapplication.

WHEREAS , the CAB is specifically authorizedunder Section 10-C (1) of Republic Act No. 776 asfollows:

(c) The Board shall have the following specificpowers and duties:

(1) In accordance with the provision of Chapter IVof this Act, to issue, deny, amend revise, alter,modify, cancel, suspend or revoke, in whole or inpart, upon petitioner-complaint, or upon its owninitiative, 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 theapproval of the President of the Republic of thePhilippines.

WHEREAS, such authority was affirmed in PAL vs.CAB, (23 SCRA 992), wherein the Supreme Courtheld 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, theCAB can issue not only a TOP but also aCertificate of Public Convenience and Necessity

(CPCN) to a qualified applicant therefor in theabsence of a legislative franchise, citing therein asbasis the decision of Albano vs. Reyes (175 SCRA264) which provides (inter alia) that:

a) Franchises by Congress are not required beforeeach and every public utility may operate when thelaw has granted certain administrative agenciesthe power to grant licenses for or to authorize theoperation 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 theoperation of a public utility does not necessarilyimply that only Congress has the power to grantsuch authorization since our statute books arereplete with laws granting specified agencies in theExecutive Branch the power to issue suchauthorization for certain classes of public utilities.

WHEREAS, Executive Order No. 219 which tookeffect on 22 January 1995, provides in Section 2.1that a minimum of two (2) operators in eachroute/link shall be encouraged and that routes/linkspresently serviced by only one (1) operator shall beopen for entry to additional operators.

RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine Airlines onJanuary 05, 1995 on the Grant by this Board of aTemporary Operating Permit (TOP) to GrandInternational Airways, Inc. alleging among othersthat the CAB has no such jurisdiction, is herebyDENIED, as it hereby denied, in view of theforegoing and considering that the grounds reliedupon by the movant are not indubitable.

On March 21, 1995, upon motion by private respondent, the temporarypermit 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 issuanceof a Certificate of Public Convenience and Necessity, and in issuing atemporary operating permit in the meantime, since GrandAir has not beengranted and does not possess a legislative franchise to engage inscheduled domestic air transportation. A legislative franchise is necessarybefore anyone may engage in air transport services, and a franchise mayonly be granted by Congress. This is the meaning given by the petitioner upon a reading of Section 11, Article XII,

9and Section 1, Article VI,

10 of the

Constitution.

To support its theory, PAL submits Opinion No. 163, S. 1989 of theDepartment of Justice, which reads:

Dr. Arturo C. CoronaExecutive Director Civil Aeronautics BoardPPL Building, 1000 U.N. AvenueErmita, Manila

Sir:

This has reference to your request for opinion onthe necessity of a legislative franchise before theCivil Aeronautics Board ("CAB") may issue aCertificate of Public Convenience and Necessityand/or permit to engage in air commerce or air transportation to an individual or entity.

You state that during the hearing on the applicationof Cebu Air for a congressional franchise, the

House Committee on Corporations and Franchisescontended that under the present Constitution, theCAB may not issue the abovestated certificate or

permit, unless the individual or entity concerned possesses a legislative franchise. You believeotherwise, however, for the reason that under R.A.No. 776, as amended, the CAB is explicitlyempowered to issue operating permits or certificates of public convenience and necessityand that this statutory provision is not inconsistentwith the current charter.

We concur with the view expressed by the HouseCommittee on Corporations and Franchises. In anopinion rendered in favor of your predecessor-in-office, this Department observed that, —

. . . it is useful to note the distinction between thefranchise to operate and a permit to commenceoperation. The former is sovereign and legislativein nature; it can be conferred only by thelawmaking authority (17 W and P, pp. 691-697).The latter is administrative and regulatory incharacter (In re Application of Fort Crook-Bellevue

Boulevard Line, 283 NW 223); it is granted by an



administrative agency, such as the Public ServiceCommission [now Board of Transportation], in thecase of land transportation, and the Civil

Aeronautics Board, in case of air services. While alegislative franchise is a pre-requisite to a grant of a certificate of public convenience and necessity toan airline company, such franchise alone cannotconstitute the authority to commence operations,inasmuch as there are still matters relevant to such

operations which are not determined in thefranchise, like rates, schedules and routes, andwhich 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 anauthorization issued by the appropriategovernmental agency for the operation of publicservices 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 a franchiseis the legislative authorization to engage in abusiness activity or enterprise of a public nature,whereas a certificate of public convenience andnecessity is a regulatory measure whichconstitutes the franchise's authority to commenceoperations. It is thus logical that the grant of theformer should precede the latter.

Please be guided accordingly.

(SGD.) SE

D

Respondent GrandAir, on the other hand, relies on its interpretation of theprovisions of Republic Act 776, which follows the pronouncements of theCourt 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 AeronauticsBoard 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), theCourt of Appeals upheld the authority of the Board to issue such authority,even in the absence of a legislative franchise, which authority is derivedfrom 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 caseof Philippine Air Lines Inc ., vs. Civil Aeronautics Board , promulgated on

June 13, 1968. 12 The Board is expressly authorized by Republic Act 776 toissue a temporary operating permit or Certificate of Public Convenienceand Necessity, and nothing contained in the said law negates the power toissue said permit before the completion of the applicant's evidence and thatof the oppositor thereto on the main petition. Indeed, the CAB's authority togrant a temporary permit "upon its own initiative" strongly suggests thepower to exercise said authority, even before the presentation of saidevidence has begun. Assuming arguendo that a legislative franchise isprerequisite to the issuance of a permit, the absence of the same does notaffect the jurisdiction of the Board to hear the application, but tolls onlyupon the ultimate issuance of the requested permit.

The power to authorize and control the operation of a public utility isadmittedly 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 madedirectly by the legislature itself, or by any one of itsproperly 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 domesticair transport services to the respondent Board, such that Congressionalmandate for the approval of such authority is no longer necessary.

Congress has granted certain administrative agencies the power to grantlicenses for, or to authorize the operation of certain public utilities. With thegrowing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering thelaws, there is a constantly growing tendency towards the delegation of greater powers by the legislature, and towards the approval of the practiceby 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 asagents for the state constitute as much a legislative franchise as though thegrant 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 servicesunder reasonable rules and regulations, and as a general rule, courts willnot 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 theoperation 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 toPPA, a franchise from Congress to authorize an entity other than the PPAto operate and manage the MICP becomes unnecessary.

Given the foregoing postulates, we find that the Civil Aeronautics Board hasthe 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 enumeratedin Section 21 of R.A. 776.

There is nothing in the law nor in the Constitution, which indicates that alegislative franchise is an indispensable requirement for an entity to operateas a domestic air transport operator. Although Section 11 of Article XIIrecognizes Congress' control over any franchise, certificate or authority tooperate a public utility, it does not mean Congress has exclusive authority

to issue the same. Franchises issued by Congress are not required beforeeach and every public utility may operate.19

In many instances, Congresshas seen it fit to delegate this function to government agencies, specializedparticularly in their respective areas of public service.

A reading of Section 10 of the same reveals the clear intent of Congress todelegate the authority to regulate the issuance of a license to operatedomestic air transport services:

Sec. 10. Powers and Duties of the Board. (A)Except as otherwise provided herein, the Boardshall have the power to regulate the economic

aspect of air transportation, and shall have general



supervision and regulation of, the jurisdiction andcontrol over air carriers, general sales agents,cargo sales agents, and air freight forwarders aswell as their property rights, equipment, facilitiesand franchise, insofar as may be necessary for thepurpose of carrying out the provision of this Act.

In support of the Board's authority as stated above, it is given the followingspecific powers and duties:

(C) The Board shall have the following specificpowers and duties:

(1) In accordance with the provisions of Chapter IVof this Act, to issue, deny, amend, revise, alter,modify, cancel, suspend or revoke in whole or inpart upon petition or complaint or upon its owninitiative 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 theapproval of the President of the Republic of thePhilippines.

Petitioner argues that since R.A. 776 gives the Board the authority to issue"Certificates of Public Convenience and Necessity", this, according topetitioner, means that a legislative franchise is an absolute requirement. Itcites a number of authorities supporting the view that a Certificate of PublicConvenience and Necessity is issued to a public service for which afranchise is required by law, as distinguished from a "Certificate of PublicConvenience" which is an authorization issued for the operation of publicservices for which no franchise, either municipal or legislative, is required

by law.

20

This submission relies on the premise that the authority to issue acertificate of public convenience and necessity is a regulatory measureseparate and distinct from the authority to grant a franchise for theoperation of the public utility subject of this particular case, which isexclusively lodged by petitioner in Congress.

We do not agree with the petitioner.

Many and varied are the definitions of certificates of public conveniencewhich courts and legal writers have drafted. Some statutes use the terms

"convenience and necessity" while others use only the words "publicconvenience." The terms "convenience and necessity", if used together in astatute, 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 modifyand qualify what might otherwise be taken as the strict significance of theword necessity. Public convenience and necessity exists when theproposed facility will meet a reasonable want of the public and supply aneed 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 beconstrued together, although they are notsynonymous, and effect must be given both. Theconvenience of the public must not becircumscribed 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" ina certificate of authorization to a public service entity to operate, does not inany way modify the nature of such certification, or the requirements for theissuance of the same. It is the law which determines the requisites for theissuance 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 saidbody the authority to determine the capability and competence of aprospective domestic air transport operator to engage in such venture. Thisis not an instance of transforming the respondent Board into a mini-legislative body, with unbridled authority to choose who should be givenauthority to operate domestic air transport services.

To be valid, the delegation itself must becircumscribed by legislative restrictions, not a"roving commission" that will give the delegateunlimited legislative authority. It must not be adelegation "running riot" and "not canalized withbanks that keep it f rom overflowing." Otherwise,the delegation is in legal effect an abdication of legislative authority, a total surrender by thelegislature of its prerogatives in favor of thedelegate.

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 followingguidelines or policies:

Sec. 4. Declaration of policies. In the exercise andperformance of its powers and duties under this

Act, the Civil Aeronautics Board and the Civil Aeronautics Administrator shall consider thefollowing, among other things, as being in thepublic 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 thepresent and future of foreign and domesticcommerce of the Philippines, of the Postal Serviceand of the National Defense;

(c) The regulation of air transportation in suchmanner as to recognize and preserve the inherentadvantages of, assure the highest degree of safetyin, and foster sound economic condition in, suchtransportation, and to improve the relationsbetween, and coordinate transportation by, air carriers;

(d) The promotion of adequate, economical andefficient service by air carriers at reasonablecharges, without unjust discriminations, unduepreferences or advantages, or unfair or destructive

competitive practices;

(e) Competition between air carriers to the extentnecessary to assure the sound development of anair transportation system properly adapted to theneed of the foreign and domestic commerce of thePhilippines, of the Postal Service, and of theNational Defense;

(f) To promote safety of flight in air commerce inthe Philippines; and,

(g) The encouragement and development of civilaeronautics.

More importantly, the said law has enumerated the requirements todetermine the competency of a prospective operator to engage in the publicservice of air transportation.

Sec. 12. Citizenship requirement. Except asotherwise provided in the Constitution and existingtreaty or treaties, a permit authorizing a person toengage in domestic air commerce and/or air transportation shall be issued only to citizens of thePhilippines

24

Sec. 21. Issuance of permit. The Board shall issuea permit authorizing the whole or any part of theservice covered by the application, if it finds: (1)that the applicant is fit, willing and able to performsuch service properly in conformity with theprovisions of this Act and the rules, regulations,

and requirements issued thereunder; and (2) thatsuch service is required by the public convenienceand necessity; otherwise the application shall bedenied.

Furthermore, the procedure for the processing of the application of aCertificate of Public Convenience and Necessity had been established toensure the weeding out of those entities that are not deserving of publicservice.

25

In sum, respondent Board should now be allowed to continue hearing theapplication of GrandAir for the issuance of a Certificate of Public

Convenience and Necessity, there being no legal obstacle to the exerciseof its jurisdiction.

ACCORDINGLY, in view of the foregoing considerations, the CourtRESOLVED to DISMISS the instant petition for lack of merit. Therespondent Civil Aeronautics Board is hereby DIRECTED to CONTINUEhearing the application of respondent Grand International Airways, Inc. for the issuance of a Certificate of Public Convenience and Necessity.

SO ORDERED.

Regalado and Puno, JJ., concur. Romero and Mendoza JJ., took no part.



THIRD DIVISION

G.R. No. 88195-96 January 27, 1994

"Y" TRANSIT CO, INC., petitioner,vs.THE NATIONAL LABOR RELATIONS COMMISSION AND YUJUICOTRANSIT EMPLOYEES UNION (ASSOCIATED LABOR UNION),MANUEL VILLARTA, respondents.

Cruz, Durian, Agabin, Atienza, Alday & Tuason for petitioner.

Evaristo S. Orosa for private respondents.

ROMERO, J .:

This is a special civil action for certiorari filed by "Y" Transit Co., Inc. for theannulment of the decision of the National labor Relations Commission, thedispositive portion of which reads as follows:

WHEREFORE, the appealed Order should be as itis hereby REVERSED reinstating the levy made bythe Sheriff on July 13 and 16, 1982. Accordingly,the sale of the levied properties may proceedpursuant to existing laws.

SO ORDERED.1

The antecedent facts of the case are as follows:

In March 1960 and sometime thereafter, Yujuico Transit Co., Inc.,mortgaged ten (10) of its buses to the Development Bank of the Philippines(DBP) to secure a loan in the amount of P2,795,129.36. Thereafter, theBoard of Directors of Yujuico Transit Co., Inc. passed a resolutionauthorizing its President, Jesus Yujuico to enter into a dacion en pagoarrangement with the DBP, whereby Jesus Yujuico would transfer to theDBP the Saint Martin Technical Institute in consideration of the fullsettlement of the obligations of three companies, one of which was YujuicoTransit Co, Inc. Accordingly, on or about October 24, 1978, the transfer of the property was made and DBP released the mortgages constituted on thebuses of Yujuico Transit Co., Inc. Consequently, the company transferred

the ownership of its mortgaged properties, including the buses, to JesusYujuico.

Meanwhile, sometime in June and July 1979, the Yujuico TransitEmployees Union (Associated labor Union) filed two (2) consolidatedcomplaints against Yujuico Transit Co., Inc. for Unfair Labor Practice andviolations of Presidential Decrees Nos. 525, 1123, 1614 and 851 (non-payment of living allowances).

On May 21, 1980, Jesus Yujuico sold the subject buses to herein petitioner "Y" Transit Co., Inc. for P3,485,400.00.

On July 23, 1981, the Labor Arbiter rendered a decision dismissing thecomplaint for unfair labor practice but holding Yujuico Transit Co., Inc. liableunder the aforementioned Presidential Decrees in the amount of P142,790.49. On February 9, 1982, a writ of execution for the said amountwas issued by the Labor Arbiter. On June 14, 1982, an alias writ of execution was issued and levy was made upon the ten (10) buses.Thereafter, "Y" Transit Co., Inc. filed Affidavits of Third Party Claim.

Private respondents herein opposed the Third party claim on the groundthat the transactions leading to the transfer of the buses to "Y" Transit Co.,Inc. were void because they lacked the approval of the BOT as required bythe Public Service Act. They also argued that the buses were still registeredin the name of Yujuico Transit Co. which was, therefore, still the lawfulowner thereof.

The Labor Arbiter found that "Y" Transit Co., Inc. had valid title to the busesand that the BOT, by its subsequent acts had approved the transfer. Thedecision stated further, thus:

The fact that the registration certificates of most of

the vehicles in question are still in the name of Yujuico Transit Co., Inc. at the time of the levy onexecution does not militate against the claimant.Registration of a motor vehicle is not the operativeact that transfers ownership, unlike in landregistration cases. Furthermore, the evidenceshows that the claimant cannot be faulted for itsfailure to have the certificates of registrationtransferred in its own name. Prior to the levy,claimant had already paid for the transfer fee, thefee for the cancellation of mortgage and other feesrequired by the BLT. Moreover, the registration

fees of the vehicles whose last digit of their plate



numbers made the vehicles due for registrationwere already paid for by the claimant (Exhibits "N"to "N-7"). Therefore, there was already aconstructive registration made by the claimant(Mariano B. Arroyo vs. Maria Corazon Yu de Sane,et al., 54 Phil. 511, 518), sufficient notice to affectthe rights of third-parties. It is now ministerial onthe part of the BLT to issue the RegistrationCertificates in the name of the claimant, but the

same was held in abeyance pending thecomputerization of the records of BOT on publicutility vehicles. On all fours is the ruling of theSupreme Court in Mariano B. Arroyo vs. Ma. Corazon Yu de Sane, 54 Phil. 511, which upheldthe right of PNB as mortgagee over motorizedwater vessels as superior over the rights of a

judgment creditor who had already secured a writof attachment and execution over the vessels, itappearing that the delay was caused by theCollector of Custom's uncertainty as to thenecessity of the registration of the vessels.

2

Accordingly, the Third-Party Claim was granted and the release of all thebuses levied for execution was ordered.

On appeal, the NLRC reversed the labor arbiter's decision on the groundthat the transfer of the buses lacked the BOT approval. It ordered thereinstatement of the levy and the auction of properties.

"Y" Transit Co., Inc. thereafter filed this special civil action for certiorari under Rule 65 of the Rules of Court praying for the issuance of aRestraining Order and/or a Writ of Preliminary Injunction and for theannulment of the NLRC decision as it was issued with grave abuse of discretion amounting to lack of jurisdiction.

In this petition, "Y" Transit Co., Inc. raised the following issue, to writ:

I

The public respondent NLRC committed palpablelegal error and grave abuse of discretionamounting to lack of jurisdiction when it held thatthere was no valid transfer of ownership in favor of the petitioner, completely disregarding the

preponderance of evidence and existing

jurisprudence which support the validity of thetransfer of ownership to the petitioner.

3

On July 6, 1989, petitioner filed a motion to cite Labor Arbiter Benigno C.Villarente, Jr. for contempt of court and for the issuance of an order for theimmediate release of the property. Petitioner argues that the Labor Arbiter refused to release the vehicles levied on June 5, 1989 despite notice that aTRO has been issued by the Supreme Court; that there was no reason tohold on to the levy as petitioner had already posted a bond to answer for

the damages and award in the above-entitled case; that the labor arbiter wrongly required the payment of storage charges and sheriff's fees beforereleasing the levied buses.

Did public respondent commit grave abuse of discretion in reinstating thelevy on the buses which have been allegedly transferred to a third party,herein petitioner "Y" Transit Co., Inc.?

We rule in the negative.

The following facts have been established before the NLRC: that the

transfer of ownership from Yujuico Transit Co., Inc. to Jesus Yujuico, andfrom Jesus Yujuico to "Y" Transit Co., Inc. lacked the prior approval of theBOT as required by Section 20 of the Public Service Act;

4that the buses

were transferred to "Y" Transit Co., Inc. during the pendency of the action;and that until the time of the execution, the buses were still registered in thename of Yujuico Transit Co., Inc.

In Montoya v . Ignacio,5

we held:

. . . The law really requires the approval of thePublic Service Commission in order that afranchise, or any privilege pertaining thereto, may

be sold or leased without infringing the certificateissued to the grantee. The reason is obvious.Since a franchise is personal in nature any transfer or lease thereof should be notified to the PublicService Commission so that the latter may takeproper safeguards to protect the interest of thepublic. In fact, the law requires that, beforeapproval is granted, there should be a publichearing with notice to all interested parties in order that the commission may determine if there aregood and reasonable grounds justifying thetransfer or lease of the property covered by the

franchise, or if the sale or lease is detrimental to



public interest. Such being the reason andphilosophy behind this requirement, it follows that if the property covered by the franchise istransferred, or leased to another without obtainingthe requisite approval, the transfer is not bindingagainst Public Service Commission and incontemplation of law, the grantee continues to beresponsible under the franchise in relation to theCommission and to the public. . . .

It may be argued that Section 16, paragraph (h)provides in its last part that "nothing hereincontained shall be construed to prevent the sale,alienation, or lease by any public utility of any of itsproperty in the ordinary course of business," whichgives the impression that the approval of PublicService Commission is but a mere formality whichdoes not affect the effectivity of the transfer or lease of the property belonging to a public utility.But such provision only means that even if theapproval has not been obtained the transfer or

lease is valid and binding between the partiesalthough not effective against the public and thePublic Service Commission. The approval is only necessary to protect public interest . (Emphasisours)

There being no prior BOT approval in the transfer of property from YujuicoTransit Co., Inc. to Jesus Yujuico, it only follows that as far as the BOT andthird parties are concerned, Yujuico Transit Co., Inc. still owned theproperties. and Yujuico, and later, "Y" Transit Co., Inc. only held the sameas agents of the former. In Tamayo v . Aquino,

6the Supreme Court stated,

thus:

. . . In operating the truck without transfer thereof having been approved by the Public ServiceCommission, the transferee acted merely as agentof the registered owner and should be responsibleto him(the registered owner) for any damages that hemay cause the latter by his negligence.

Conversely, where the registered owner is liable for obligations to thirdparties and vehicles registered under his name are levied upon to satisfy

his obligations, the transferee of such vehicles cannot prevent the levy by

asserting his ownership because as far as the law is concerned, the one inwhose name the vehicle is registered remains to be the owner and thetransferee merely holds the vehicles for the registered owner. Thus, "Y"Transit Co., Inc. cannot now argue that the buses could not be levied uponto satisfy the money judgment in favor of herein respondents. However, thisdoes not deprive the transferee of the right to recover from the registeredowner any damages which may have been incurred by the former since the. . . transfer or lease is valid and binding between the parties. . . .

7 Thus,

had there been any real contract between "Y" Transit Co., Inc. and Yujuico

Transit Co., Inc. of "Y" Transit Co., Inc. and Jesus Yujuico regarding thesale or transfer of the buses, the former may avail of its remedies torecover damages.

Regarding the Motion for Contempt filed by petitioner, we are constrainedto deny the same since the Order to levy upon petitioner's allegedproperties was issued even before the issuance by the Court of atemporary restraining order. From the records, it appeared that Labor

Arbiter Villarente ordered the public auction of the subject properties onMay 12, 1989. The sheriff levied on the properties on June 5, 1989. TheSupreme Court issued the Temporary Restraining Order on June 19, 1989and this was received by the Labor Arbiter on June 22, 1989. On June 28,

1989, the Labor Arbiter directed the sheriff to release the two buses alreadylevied upon by him.

Likewise, we find no error in requiring petitioner to pay the storage feesprior to the release of the properties. Storage costs are imposed inaccordance with the provisions of Rule IX of the NLRC Manuel of Instructions for Sheriffs, to wit:

Sec. 3. Storing of Levied Property . — To avoidpilferage of or damage to levied property, the sameshall be inventoried and stored in a bondedwarehouse, wherever available, or in a securedplace as may be determined by the sheriff withnotice to and conformity of the losing party or thirdparty claimant. In case of disagreement, the sameshall be referred to the Labor Arbiter or proper officer who issued the writ of execution for proper disposition. For this purpose, sheriffs should informthe Labor Arbiter or proper officer issuing the writof corresponding storage fees, furnishing him aswell as the parties with a copy of the inventory. Thestorage fees shall be shouldered by the losingparty.



WHEREFORE, in view of the foregoing, this petition is hereby DISMISSED.

The Motion to Cite Labor Arbiter Benigno Villarente, Jr. is DENIED andpetitioner is ordered to PAY storage costs and sheriff's fees.

This decision is immediately executory.

SO ORDERED.

Feliciano, Bidin and Melo, Vitug, JJ., concur.



EN BANC

G.R. Nos. L-39902, L-39903 November 29, 1933

DOMINADOR RAYMUNDO, petitioner-appellant,vs.LUNETA MOTOR CO., ET AL., respondents-appellees.

A.M. Zarate for appellant.Jose Agbulos for appellee Luneta Motor Co.No appearance for the other appellee.

MALCOLM, J. :

The question squarely raised in these concerns the forced sales of certificates of public convinced held by public service operators and theliability to execution of such certificates.

Breaking into the narration of the facts at the proper point, we findNicanor de Guzman, signing as Guzco Transit, purchasing trucks from theLuneta Motor Co. and to pay for them executing a series of promissorynotes guaranteed by a chattel mortgage on several trucks. On failure of DeGuzman or Guzco Transit to pay the promissory notes, suit was brought inthe Court of First Instance of Manila for the collection of the amountoutstanding and unpaid. When the complaint was presented, a writ of attachment was obtained against the properties of the Guzco Transit, andas a consequence garnishment was served on the Secretary of the PublicService Commission attacking the right, title, and participation of the GuzcoTransit in the certificates of public convenience issued in cases Nos.25635, 23914 and 24255 covering the bus transportation lines between

Manila and Cardona, Rizal, and between Manila and Pililla, Rizal. Thesecertificates were ordered sold by the Court of First Instance of Manila, andin fact the certificates of public convenience Nos. 25635 and 23914 weresold to the Luneta Motor Co. as the highest bidder. The approval of thesheriff's sale was prayed for before the Public Service Commission, and isone of the cases under review.

Going back a moment, it is necessary to insert in the statement of facts that on July 16, 1932, or nine days after the certificates were attachedby the Luneta Motor Co., the same certificates, together with certificate No.25951 and several trucks, were sold by De Guzman for the Guzco Transitto Dominador Raymundo. The approval of this sale was sought from the

Public Service commission, and is the other case now under review. On thetwo cases being heard together, the commission in its decision approvedthe sale at public auction in favor of the Luneta Motor Co., and disapprovedthe sale made to Dominador Raymundo, reserving to Raymundo the rightto present another petition for the approval of the sale of certificate of publicconvenience No. 25951 which was not included in the sale in favor of theLuneta Motor Co.

Sweeping incidental matters to one side, the prime question need not

be complicated by determining if a sale of a certificate of publicconvenience without any equipment may be the object of execution andgarnishment sale, for this is matter of policy to be determined by the PublicService Commission, and it appears that sale of certificates of publicconvenience without equipment have been approved by the commission.

Also it is evident that the articles of incorporation of the Luneta Motor Co.are broad enough in scope to authorize the company, if it so desires, toengage in the autotruck business, and if not, there would be nothing topreclude the company from transferring the certificates to a third party withthe approval of the Public Service Commission. Further, the nature of thepartnership which may have been entered into by Nicanor de Guzman and

Agapito C. Correa cannot now be discussed, considering that the

promissory notes were signed Guzco Transit, by Nicanor de Guzman, andconsidering that the judgment against Guzco Transit in the Court of FirstInstance of Manila has become final. Finally, the dismissal in case No.33033 pertaining to certificate No. 25951 was without prejudice, and theappellees disclaim any interest in this certificate. Therefore, the question tobe decided on this appeal is, which of the two sales, the one at publicauction by virtue of an attachment, or two voluntary sale made after theproperty had been levied upon, should prevail, and a decision on thisquestion is dependent on a decision relative to the liability to execution of certificates of public convenience.

The Public Service Law, Act No. 3108, as amended, authorizes

certificates of public convenience to be secured by public service operatorsfrom the Public Service Commission. (Sec. 15 [i ].) A certificate of publicconvenience granted to the owner or operator of public service motor vehicles, it has been held, grants a right in the nature of a limited franchise.(Public Utilities Commission vs. Garviloch [191], 54 Utah, 406.)

The Code of Civil Procedure establishes the general rule that"property, both real and personal, or any interest therein of the judgmentdebtor, not exempt by law, and all property and rights of property seizedand held under attachment in the action, shall be liable to execution." (Sec.450.) The statutory exemptions do not include franchises or certificates of public convenience. (Sec. 452.) The word "property" as used in section 450



of the Code of Civil Procedure comprehends every species of title, inchoateor complete, legal or equitable. The test by which to determine whether or not property can be attached and sold upon execution is whether the

judgment debtor has such a beneficial interest therein that he can sell or otherwise dispose of it for value. (Reyes vs. Grey [1911], 21 Phil., 73.)

It will be noted that the Public Service Law and the Code of CivilProcedure are silent on the question at issue, that is, silent in the sense of not containing specific provisions on the right to attach certificates of public

convenience. The same attitude was not assumed in the enactment of ActNo. 667, section 10, as amended, which gave authority for the mortgageand sale under foreclosure proceedings of franchises granted by Provincialand municipal governments. A similar tendency was evident in theCorporation Law, for in section 56 and following thereof express provisionswere made for the sale on execution used in connection with them. Shouldthe legislative intention thus evidenced be taken as meaning that thegenerality of the language used by the Code of Civil Procedure was toovague to permit of forced sales of franchises and certificates of publicconvenience, or notwithstanding the provisions to be found in these speciallaws, is the language of the code of Civil Procedure broad enough toinclude certificates of public convenience? We lean to the latter proposition,

and will now proceed to elucidate our viewpoint.

The test to be applied was announced by our Supreme Court inReyes vs. Grey, supra, and there is nothing in Tufexis vs. Olaguera andMunicipal Council of Guinobatan ( [1915], 32 Phil., 654), cited by appellant,which sanctions a contrary test. That rule it will be recalled tested theliability of property to execution by determining if the interest of the

judgment debtor in the case can be sold or conveyed to another in anyway. Now the Public Service Law permits the Public Service Commission toapproved the sale, alienation, mortgaging, encumbering, or leasing of property, franchises, privileges, or rights or any part thereof (sec. 16 [h]),and in practice the purchase and sale of certificates of public convenience

has been permitted by the Public Service Commission. If the holder of acertificate of public convenience can sell it voluntarily, there is no validreason why the same certificate cannot be taken and sold involuntarilypursuant to process.

If this was all that there was to the case, we might hesitate toapprove attachments of certificates of public convenience. But there ismore. Certificates of public convenience have come to have considerablematerial value. They are valuable assets. In many cases the certificates arethe cornerstones on which are builded the business of bus transportation.The United States Supreme Court considers a franchise granted inconsideration of the performance of public service as constituting property

within the protection of the Fourteenth Amendment to the United StatesConstitution. (Frost vs. Corporation Commission of Oklahoma [1929], 278U.S., 515.) If the holder of the certificate of public convenience can thus beprotected in his constitutional rights, we see no reason why the certificate of public convenience should not assume corresponding responsibilities andbe susceptible as property or an interest therein of being liable toexecution. In at least one State, the certificate of the railroad commissionpermitting the operation of a bus line has been held to be included in theterm "property" in the broad sense of the term. If thus is true, the certificate

under our law, considered as a species of property, would be liable toexecution. (Willis vs. Buck [1928], 81 Mont., 472.)

As has been intimated herein before, a practice has grown up in thePublic Service Commission of permitting the alienation of certificates of public convenience and in so doing approval has been given to the salethrough foreclosure proceedings of the certificates of public convenience tothird parties. The very decision in the two cases before us is an illustrationof this practice. The same tendency is to be noted in the lower courts. Asan example in the instant record, there is a previous foreclosure of amortgage apparently uncontested, Not only this, but tacit approval to theattachment of certificates of public convenience either through chattel

mortgages or court writs has been given by this court. (Orlanes & BanaagTransportation Co. vs. Public Service Commission [1932], 57 Phil., 634;Manila Electric Company vs. Orlanes & Banaag Transportation Co. [1933],57 Phil., 805; Nos. 39525 and 39531, Red Line Transportation Co. vs.Rural Transit Co. and Bachrach Motor Co., November 17, 1933.

1)

When the motion of the plaintiff praying that the certificates of publicconvenience granted by the Public Service Commission which wereattached be sold at public auction and the answer opposing the granting of the motion on the ground that franchises can not be the subject of attachment and sale by garnishment came before the Court of FirstInstance of Manila, the presiding Judge Anacleto Diaz, promulgated an

order which sustained the right of the plaintiff to attachment andgarnishment. That order gains particular force because a later judgment byconsent was taken and no appeal was attempted to this court. It is true thatthe sale further required the approval of the Public Service Commission,but the Public Service Commission respected the decision of the court andso we have the concurrence of the court and the commission on thisquestion. In the order in first instance appears the following well consideredlanguage:

It remains to be determined whether, under the law,certificates of public convenience are liable to attachmentand seizure by legal process. The law is silent as to this



matter. It can not be denied that such franchises arevaluable. They are subject to being sold for a considerationas much as any other property. They are even morevaluable than ordinary properties, taking into considerationthan that they are not granted to every one who applies for them but only to those who undertake to furnishsatisfactory and convenient service to the public. It mayalso be said that dealers in motor vehicles even extendcredit to owners of such certificates or franchises. The law

permits the seizure by means of a writ of attachment notonly of chattels but also for shares and credits. While thesefranchises may be said to be intangible character, they arehowever of value and are considered properties which canbe seized through legal process.

For all the foregoing, the court is of the opinion thatthe plaintiff is entitled to the remedy it prays for in itsmotion which is hereby granted.lawphil.net

The ruling of the Supreme Court on the question raised by the recordand the assignments of error is this: Certificates of public convenience

secured by public service operators are liable to execution, and the PublicService Commission is authorized to approve the transfer of the certificatesof public convenience to the execution creditor. As a consequence, thedecision brought on review will be affirmed, with costs against theappellant.

Avanceña, C.J., Villa-Real, Hull, and Imperial, JJ., concur.



EN BANC

G.R. No. L-28865 December 19, 1928

BATANGAS TRANSPORTATION CO., petitioner-appellant,vs.CAYETANO ORLANES, respondent-appellee.

L. D. Lockwood and C. de G. Alvear for appellant.Paredes, Buencamino and Yulo and Menandro Quiogue for appellee.

STATEMENT

In his application for a permit, the appellee Orlanes alleges that he is theholder of a certificate of public convenience issued by the Public ServiceCommission in case No. 7306, to operate an autobus line from Taal toLucena, passing through Batangas, Bolbok and Bantilan, in the Province of Batangas, and Candelaria and Sariaya, in the Province of Tayabas, withoutany fixed schedule; that by reason of the requirements of publicconvenience, he has applied for a fixed schedule from Bantilan to Lucena

and return; that in case No. 7306, he cannot accept passengers or cargofrom Taal to any point before Balbok, and vice versa; that the publicconvenience requires that he be converted into what is known as a regular operator on a fixed schedule between Taal and Bantilan and intermediatepoints, and for that purpose, he has submitted to the Commission proposedschedule for a license to make trips between those and intermediate points.He then alleges that by reason of increase of traffic, the public conveniencealso requires that he be permitted to accept passengers and cargo at pointsbetween Taal and Bantilan, and he asked for authority to establish thatschedule, and to accept passengers at all points between Taal andBantilan.

To this petition the Batangas Transportation Company appeared and filedan application for a permit, in which it alleged that it is operating a regular service of auto trucks between the principal municipalities of the Provinceof Batangas and some of those of the Province of Tayabas; that since1918, it has been operating a regular service between Taal and Rosario,and that in 1920, its service was extended to the municipality of San Juande Bolbok, with a certificate of public convenience issued by the PublicServise Commission; that in the year 1925 Orlanes obtained from theCommission a certificate of public convenience to operate an irregular service of auto trucks between Taal, Province of Batangas, and Lucena,Province of Tayabas, passing through the municipalities of Bauan,Batangas, Ibaan, Rosario, and San Juan de Bolbok, with the express

limitation that he could not accept passengers from intermediate points

between Taal and Bolbok, except those which were going to points beyondSan Juan de Bolbok or to the Province of Tayabas; that he inaugurated thisirregular in March, 1926, but maintained it on that part of the line betweenTaal and Bantilan only for about three months, when he abandoned thatportion of it in the month of June and did not renew it until five days beforethe hearing of case No. 10301, which was set for November 24, 1926, inwhich hearing the Batangas Transportation Company asked for additionalhours for its line between Batangas and Bantilan; that in June, 1926,Orlanes sought to obtain a license as a regular operator on that portion of

the line between Bantilan and Lucena without having asked for a permit for tat portion of the line between Bantilan and Taal; that from June, 1926,Orlanes and the Batangas Transportation Company were jointly operating aregular service between Bantilan and Lucena, with trips every half an hour,and Orlanes not having asked for a regular service between Bantilan andTaal, the Batangas Transportation Company remedied this lack of serviceunder the authority of the Commission, and increased its trips betweenBantilan and Tayabas to make due and timely connections in Bantilan on ahalf-hour service between Bantilan and Batangas with connections there for Taal and all other points in the Province of Batangas. It is then alleged thatthe service maintained by the company is sufficient to satisafy theconvenience of the public, and that the public convenience does not require

the granting of the permit for the service which Orlanes petitions, and thatto do so would result in ruinous competition and to the grave prejudice of the company and without any benefit to the public, and it prayed that thepetition of Orlanes to operate a regular service be denied.

After the evidence was taken upon such issues, the Public ServiceCommission granted the petition of Orlanes, as prayed for, and thecompany then filed a motion for a rehearing, which was denied, and thecase is now before this court, in which the appellant assigns the followingerrors:

The Commission erred in ordering that a certificate of

public convenience be issued in favor of Cayetano Orlanesto operate the proposed service without finding anddeclaring that the public interest will be prompted in aproper and suitable by the operation of such service, or when the evidence does not show that the public interestswill be so prompted.

That the Commission erred in denying the motion for arehearing.



JOHNS, J. :

The questions presented involve a legal construction of the powers andduties of the Public Service Commission, and the purpose and intent for which it was created, and the legal rights and privileges of a public utilityoperating under a prior license.

It must be conceded that an autobus line is a public utility, and that in allthings and respects, it is what is legally known as a common carrier, andthat it is an important factor in the business conditions of the Islands, whichis daily branching out and growing very fast.

Before such a business can be operated, it must apply for, and obtain, alicense or permit from the Public Service Commission, and comply withcertain defined terms and conditions, and when license is once, granted,the operator must conform to, and comply with all, reasonable rules andregulations of the Public Service Commission. The object and purpose of such a commission, among other things, is to look out for, and protect, theinterests of the public, and, in the instant case, to provide it with safe andsuitable means of travel over the highways in question, in like manner thata railroad would be operated under like terms and conditions. To all intentsand purposes, the operation of an autobus line is very similar to that of arailroad, and a license for its operation should be granted or refused on liketerms and conditions. For many and different reasons, it has never beenthe policy of a public service commission to grant a license for theoperation of a new line of railroad which parallels and covers the same fieldand territory of another old established line, for the simple reason that itwould result in ruinous competition between the two lines, and would not beof any benefit or convenience to the public.

The Public Service Commission has ample power and authority to makeany and all reasonable rules and regulations for the operation of any public

utility and to enforce complience with them, and for failure of such utility tocomply with, or conform to, such reasonable rules and regulations, theCommission has power to revoke the license for its operation. It also hasample power to specify and define what is a reasonable compensation for the services rendered to the traveling public.

That is to say, the Public Service Commission, as such has the power tospecify and define the terms and conditions upon which the public utilityshall be operated, and to make reasonable rules and regulations for itsoperation and the compensation which the utility shall receive for itsservices to the public, and for any failure to comply with such rules andregulations or the violation of any of the terms and conditions for which the

license was granted the Commission has ample power to enforce the

provisions of the license or even to revoke it, for any failure or neglect tocomply with any of its terms and provisions.

Hence, and for such reasons, the fact that the Commission has previouslygranted a license to any person to operate a bus line over a given highwayand refuses to grant a similar license to another person over the samehighway, does not in the least create a monopoly in the person of thelicensee, for the reason that at all times the Public Service Commission hasthe power to say what is a reasonable compensation to the utility, and to

make reasonable rules and regulations for the convenience of the travelingpublic and to enforce them.

In the instant case, Orlanes seek to have a certificate of public convenienceto operate a line of auto trucks with fixed times of departure between Taaland Bantilan, in the municipality of Bolbok, Province of Batangas, with theright to receive passengers and freight f rom intermediate points. Theevidence is conclusive that at the time of his application, Orlanes was whatis known as an irregular operator between Bantilan and Taal, and that theBatangas operator between Batangas and Rosario. Orlanes now seeks tohave his irregular changed into a regular one, fixed hours of departure andarrival between Bantilan and Taal, and to set aside and nullify the

prohibition against him in his certificate of public convenience, in substanceand to the effect that he shall not have or receive any passengers or freightat any of the points served by the Batangas Transportation Company for which that company holds a prior license from the Commission. His petitionto become such a regular operator over such conflicting routes is largelybased upon the fact that, to comply with the growing demands of the public,the Batangas Transportation Company, in case No. 10301, applied to theCommission for a permit to increase the number of trip hours at andbetween the same places from Batangas to Rosario, and or for an order that all irregular operators be prohibited from operating their respectivelicenses, unless they should observe the interval of two hours before, or one hour after, the regular hours of the Batangas Transportation Company.

In his petition Orlanes sought to be releived from his prohibition to becomea regular operator, and for a license to become a regular operator with apermission to make three trips daily between Bantilan and Taal, thegranting of which make him a regular operator between those points andbring him in direct conflict and competition over the same points with theBatangas Transportation Company under its prior license, and in legaleffect that was the order which the Commission made, of which theBatangas Transportation Company now complains.

The appellant squarely plants its case on the proposition:



Is a certificate of public convenience going to be issued toa second operator to operate a public utility in a fieldwhere, and in competition with, a first operator who isalready operating, adequate and satisfactory service?

There is no claim or pretense that the Batangas Transportation Companyhas violated any of the terms and conditions of its license. Neiher does thePublic Service Commission find as a fact that the grantring of a license toOrlanes as a regular operator between the points in question is required or

necessary for the convenience of the traveling public, or that there is anycomplaint or criticism by the public of the services rendered by theBatangas Transportation Company over the route in question.

The law creating the Public service Commission of the Philippine Islands isknown as Act No. 3108, as amended by Act No. 3316, and under it thesupervision and control of public utilities is very broad and comprehensive.

Section 15 of Act No. 3108 provides that the Commission shall have power,after hearing, upon notice, by order in writing to require every public utility:

(a) To comply with the laws of the Philippine Islands;

(b) To furnish safe, adequate, and proper service as regards the manner of furnishing the same as well as the maintenance of the necessary materialequipment, etc;

(c) To establish, construct, maintain, and operate any reasonable extentionof its existing facilities, where such extension is reasonable and practicableand will furnish sufficient business to justify the construction andmaintenance of the same;

(d) To keep a uniform system of books, records and accounts;

(e) To make specific answer with regard to any point on which theCommission requires information, and to furnish annual reports of financeand operations;

(f) To carry, whenever the Commission may require, a proper and adequatedepreciation account;

(g) To notify the Commission of all accidents;

(h) That when any public utility purposes to increase or reduce any existingindividual rates, it shall give the Commission written notice thirty days prior to the proposed change; and

(i) "No public utility as herein defind shall operate in the Philippine Islandswithout having first secured from the Commission a certificate, which shallbe known as Certificate of Public Convenience, to the effect that theoperation of said public utility and the authorization to do busibness wikllpromote the public interest in a proper and suitable maner."

Section 16 specially prohibits any discrimination in the handling of freightcharges.

In construing a similar law of the State of Kansas, the United StatesSupreme Court, in an opinion written by Chief Justice Taft, in WichitaRailroad and Light Co. vs. Public Utilities Commission of Kansas (260 U. S.48; 67 Law. ed., 124), said:

The proceeding we are considering is governed by section13. That is the general section of the act comprehensively

describing the duty of the Commission, vesting it withpower to fix and order substituted new rates for existingrates. The power is expressly made to depend on thecondition that, after full hearing and investigation, theCommission shall find existing rates to be unjust,unreasonable, unjustly discriminatory, or undulypreferential. We conclude that a valid order of theCommission under the act must contain a finding of factafter hearing and investigation, upon which the order isfounded, and that, for lack of such a finding, the order inthis case was void.

This conclusion accords with the construction put uponsimilar statutes in other states. (State Public UtilitiesCommission ex rel. Springfield vs. Springfield Gas and E.Co., 291 Ill., 209; P. U. R., 1920C, 640; 125 N. E. 891;State Public Utilities Co. vs. Baltimore and O. S. W. R. Co.,281 Ill; 405; P. U. R., 1918B, 655; 118 N. E., 81.)Moreover, it accords with general principles of constitutional government. The maxim that a legislaturemay not delegate legislative power has somequalifications, as in the creation of municipalities, and alsoin the creation of administrative boards to apply to themyriad details of rate schedule the regulatory police power

of the state. The latter qualification is made necessary in



order that the legislative power may be effectivelyexercised. In creating such an administrative agency, thelegislature, to prevent its being a pure delegation of legislative power, must enjoin upon a certain course of procedure and certain rules of decision in the perfomanceof its function. It is a wholesome and necessary principlethat such an agency must pursue the procedure and rulesenjoined, and show a substantial compliance therewith, togive validity to its action. When, therefore, such an

administrative agency is required, as a condition precedentto an order, to make a finding of facts, the validity of theorder rest upon the needed finding. It is lacking, the order is ineffective.

It is pressed on us that the lack of an express finding maybe supplied by implication and by reference to theaverments of the petition invoking the action of theCommission. We cannot agree to this point. It is doubtfulwhether the facts averred in the petition were sufficient to

justify a finding that the contract rates were unreasonablylow; but we do not find it necessay to answer this question.

We rest our decision on the principle that an expressfinding of unreasonableness by the Commission wasindispensable under the statutes of the state.

That is to say, in legal effect, that the power of the Commission to issue acertificate of public convenience depends on the condition precedent that,after a full hearing and investigation, the Commission shall have found as afact that the operation of the proposed public service and its authority to dobusiness must be based upon the finding that it is for the convenience of the public.

In the Philippine Islands the cetificate of public convenience is as folows:

CERTIFICATE OF PUBLIC CONVENIENCE

To whom it may concern:

THIS IS TO CERTIFY, That in pursuance of the power andauthority conferred upon it by subsection (i) of section 15 of

Act No. 3108 of the Philippine Legislature,

THE PUBLIC SERVICE COMMISSION OF THEPHILIPPINE ISLANDS, after having duly considered theapplication of ................. for a certificate of publicconvenience the operation of ........................ in connectionwith the evidence submitted in support thereof, hasrendered its decision on................, 192...., in case No............., declaring that the operation by the applicant...................... of the business above described willpromote the public interests in a proper and suitable

manner, and granting................. to this effect thecorresponding authority, subject to the conditionsprescribed in said decision.

Given at Manila Philippine Islands, this ......... day of ....................., 192 .....

PUBLIC SERVICE COMMISSION OF THE PHILIPPINEISLANDS

By..................................Commissioner

Attested:.....................................Secretary

That is to say, that the certificate of public convenince granted to Orlanes inthe instant case expressly recites that it "will promote the public interests ina proper and suitable manner." Yet no such finding of fact was made by theCommission.

In the instant case, the evidence is conclusive that the BatangasTransportation Company operated its line five years before Orlanes ever turned a wheel, yet the legal effect of the decision of the Public ServiceCommission is to give an irregular operator, who was the last in the field, apreferential right over a regular operator, who was the first in the f ield. Thatis not the law, and there is no legal principle upon which it can besustained.

So long as the first licensee keeps and performs the terms and conditionsof its license and complies with the reasonable rules and regulations of theCommission and meets the reasonable demands of the public, it should

have more or less of a vested and preferential right over a person who



seeks to acquire another and a later license over the same route.Otherwise, the first license would not have protection on his investment,and would be subject to ruinous competition and thus defeat the verypurpose and intent for which the Public Service Commission was created.

It does not appear that the public has ever made any complaint theBatangas Transportation Company, yet on its own volition and to meet theincrease of its business, it has applied to the Public Service Commission for authority to increase the number of daily trips to nineteen, thus showing a

spirit that ought to be commended.

Such is the rule laid down in the case of Re B. F. Davis Motor Lines, citedby the Public Service Commission of Indiana (P. U. R., 1927-B, page 729),in which it was held:

A motor vehicle operator having received a certificate witha voluntary stipulation not to make stops (that is not tocarry passengers) on a part of a route served by other carriers, and having contracted with such carries not tomake the stops, will not subsequently are able to carry allpassengers who present theselves for transportation withinthe restricted district.

And in Re Mount Baker Development Co., the Public Service Commissionof Washington (P. U. R., 1925D, 705), held:

A cerificate authorizing through motor carrier serviceshould not authorize local service between points servedby the holders of a certificate, without first giving thecertificate holders an opportunity to render additionalservice desired.

In the National Coal Company case (47 Phil., 356), this court said:

When there is no monopoly . — There is no such thing as amonopoly where a property is operated as a public utilityunder the rules and regulations of the Public UtilityCommission and the terms and provision of the PublicUtility Act.

Section 775 of Pond on Public Utilities, which is recognized as a standardauthority, states the rule thus:

The policy of regulation, upon which our present publicutility commission plan is based and which tends to doaway with competition among public utilities as they arenatural monopolies, is at once reason and the justificationfor the holding of our courts that the regulation of anexisting system of transportation, which is properly servinga given field, or may be required to do so, is to be preferredto competition among several independent systems. Whilerequiring a proper service from, a single system for a city

or territory in consideration for protecting it as a monopolyfor all service required and in conserving its resources, noeconomic waste results and service may be furnished atthe minimum cost. The prime object and real purpose of commission control is to secure adequate sustainedservice for the public at the least possible cost, and toprotect and conserve investments already made for thispurpose. Experience has demonstrated beyond anyquestion that competition among natural monopolies iswasteful economically and results finally in insufficient andunsatisfactory service and extravagant rates.

The rule has been laid down, without dissent in numerous decisions, thatwhere an operator is rendering good, sufficient and adequate service to thepublic, that the convenince does not require and the public interests will notbe promoted in a proper and suitable manner by giving another operator acertificate of public convenience to operate a competing line over the sameruote.

In Re Haydis (Cal.), P. U. R., 1920A, 923:

A certificate of convenience and necessity for the operationof an auto truck line in occupied territory will not begranted, where there is no complaint as to existing rates

and the present company is rendering adequate service.

In Re Chester Auto Bus Line (Pa.), P. U. R., 1923E, 384:

A Commission should not approve an additional charter and grant an additional certificate to a second buscompany to operate in territory covered by a certificategranted to another bus company as a subsidiary of arailway company for operation in conjunction with thetrolley system where one bus service would be ample for all requirements.



In Re Branham (Ariz.), P. U. R., 1924C, 500:

A showing must be clear and affirmative that an existing isunable or has refused to maintain adequate andsatisfactory service, before a certificate of convenience andnecessity will be granted for the operation of an additionalservice.

In Re Lambert (N. H.), P. U. R., 1923D, 572:

Authority to operate a jitney bus should be refused whenpermision has been given to other parties to operate and,from the evidence, they are equipped adequately toaccommodate the public in this respect, no complaintshaving been received in regard to service rendered.

In Re White (Md.), P. U. R., 1924E, 316:

A motor vehicle operator who has built up a businessbetween specified points after years of effort should not be

deprived of the fruits of his labor and of the capital he hasinvested in his operation by a larger concern desiring tooperate between the same points.

In Re Kocin (Mont.), P. U. R., 1924C, 214:

A certificate authorizing the operation of passenger motor service should be denied where the record shows that theadmission of another operator into the territory served bypresent licensees is not necessary and would render their licensee oppressive and confiscatory because of further division and depletion of revenues and would defeat the

purpose of the statue and disorganize the public service.

In Re Nevada California Stage Co., P. U. R., 1924A, 460:

The Nevada Commission denied an application for acertificate of convenience and necessity for the operationof an automobile passenger service in view of the fact thatthe service within the territory proposed to be servedappeared to be adequate and it was the policy of theCommission to protect the established line in theenjoyment of business which it had built, and in view of thefurther fact that it was very uncertain whether the applicant

could secure sufficient business to enable him to operateprofitably.

In Re Idaho Light & P. Co. (Idaho), P. U. R., 1915A, 2:

Unless it is shown that the utility desiring to enter acompetitive field can give such service as will be a positiveadvantage to the public, a certificate of convenience will bedenied by the Idaho Commission, provided that the existing

utility furnishing adequate service at reasonable rates atthe time of the threatened competition.

In Scott, vs. Latham (N. Y. 2d Dist), P. U. R., 1921C, 714:

Competition between bus lines should be prohibited thesame as competition between common carriers.

In Re Portland Taxicab Co. (Me.), P. U. R., 1923E, 772:

Certificates permitting the operation of motor vehicles for

carrying passengers for hire over regular routes betweenpoints served by steam and electric railways should not begranted when the existing service is reasonable, safe, andadequate as required by statue.

In Re Murphy (Minnesota), P.U.R., 1927C, 807:

Authority to operate an auto transportation service over aroute which is served by another auto transportationcompany should be denied if no necessity is shown for additional service.

In Re Hall, editorial notes, P. U. R., 1927E:

A certificate of convenience and necessity for the operationof a motor carrier service has been denied by the ColoradoCommission where the only ground adduced for thecertificate was that competition thereby afforded to anexisting utility would benefit the public by lowering rates.The Commission said: "Up to the present time theCommission has never issued a certificate authorizing aduplication of motor vehicle operation over a given routeunless it appeared that the service already rendered was

not adequate, that there was no ruinous competition or that



the second applicant could, while operating on a soundbusinesslike basis, afford transportation at cheaper ratesthan those already in effect. There has been no complaintto date as to the rates now being charged on the routesover which the applicant desires to serve. Moreover, theCommission stand ready, at any time the unreasonable of the rates of any carrier are questioned, to determine their reasonableness and to order them reduced if they areshown to be unreasonable." In this case the Commission

also expressed its disappoval of the practice of anapplicant securing a certificate for the sole purpose of transferring it to another.

In Re Sumner (Utah), P. U. R., 1927D, 734:

The operation of an automobile stage line will not beauthorized over a route adequately served by a railroadand other bus line, although the proposed service would bean added convenience to the territory.

In Bartonville Bus Line vs. Eagle Motor Coach Line (Ill. Sup. Court), 157 N.E., 175; P. U. R., 1927E, 333:

The policy of the state is to compel an established publicutility occupying a given filed to provide adequate serviceand at the same time protect it from ruinous competition,and to allow it an apportunity to provide additional servicewhen required instead of permitting such service by anewly established competitor.

Upon the question of "Reason and Rule for Regulation," in section 775,Pond says:

The policy of regulation, upon which our present publicutility commission plan is based and which tends to doaway with competition among public utilities as they arenatural monopolies, is at once the reason and the

justification for the holding of our courts that the regulationof an existing system of transportation, which is properlyserving a given field or may be required to do so, is to bepreferred to competition among several independentsystems. While requiring a proper service from a singlesystem for a city or territory in consideration for protecting itas a monopoly for all the service required and in

conserving its resources, no economic waste results and

service may be furnished at the minimum cost. The primeobject and real purpose of commission control is to secureadequate sustained service for the public at the leastpossible cost, and to protect and conserve investmentsalready made for this purpose. Experience hasdemostrated beyond any question that competition amongnatural monopolies is wasteful economically and resultsfinally in insufficient and unsatisfactory service andextravagant rates. Neither the number of the individuals

demanding other service nor the question of the faresconstitutes the entire question, but rather what the proper agency should be to furnish the best service to the publicgenerally and continuously at the least cost. Anythingwhich tends to cripple seriously or destroy an establishedsystem of transportation that is necessary to a communityis not a convenience and necessity for the public and itsintroduction would be a handicap rather than a helpultimately in such a field.

That is the legal construction which should be placed on paragraph (e) of section 14, and paragraph (b) and (c) of section 15 of the Public Service

Law.

We are clearly of the opinion that the order of the Commission granting thepetition of Orlanes in question, for the reason therein stated, is null andvoid, and that it is in direct conflict with the underlying and fundamentalpriciples for which the Commission was created.1awphi1.net

The question presented is very important and far-reaching and one of firstimpression in this court, and for such reasons we have given this case thecareful consideration which its importance deserves. The Governmenthaving taken over the control and supervision of all public utilities, so longas an operator under a prior license complies with the terms and conditions

of his license and reasonable rules and regulation for its operation andmeets the reasonable demands of the public, it is the duty of theCommission to protect rather than to destroy his investment by the grantingof a subsequent license to another for the same thing over the same routeof travel. The granting of such a license does not serve its convenience or promote the interests of the public.

The decision of the Public Service Commission, granting to Orlanes thelicense in question, is revoked and set aside, and the case is remanded tothe Commission for such other and further proceedings as are notinconsistent with this opinion. Neither party to recover costs on this appeal.So ordered. Johnson, Street, Malcolm and Ostrand, JJ., concur.

S t O i i



Separate Opinions

ROMUALDEZ, J. , dissenting:

I believe the Public Service Commission had jurisdiction to try this case andthat there is sufficient evidence of record to sustain the appealed judgment.However, I think there sould be no conflict between trip hours, and that theCommission could do away with it by making the necessary arrangements.

Villa-Real, J., concur.

FIRST DIVISION 2 M k t diti i th d t t



FIRST DIVISION

G.R. No. L-61461 August 21, 1987

EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo),petitioners,vs.PANTRANCO SOUTH EXPRESS, INC., respondent.

CARDINAL SHIPPING CORPORATION, petitioner,vs.HONORABLE BOARD OF TRANSPORTATION AND PANTRANCOSOUTH EXPRESS, INC., respondents.

GANCAYCO, J .:

The question that is posed in these petitions for review is whether the seacan be considered as a continuation of the highway. The corollary issue is

whether a land transportation company can be authorized to operate a ferryservice or coastwise or interisland shipping service along its authorizedroute as an incident to its franchise without the need of filing a separateapplication for the same.

The Pantranco South Express, Inc., hereinafter referred to asPANTRANCO is a domestic corporation engaged in the land transportationbusiness with PUB service for passengers and freight and variouscertificates for public conveniences CPC to operate passenger buses fromMetro Manila to Bicol Region and Eastern Samar. On March 27,1980PANTRANCO through its counsel wrote to Maritime Industry Authority(MARINA) requesting authority to lease/purchase a vessel named M/V

"Black Double" "to be used for its project to operate a ferryboat service fromMatnog, Sorsogon and Allen, Samar that will provide service to companybuses and freight trucks that have to cross San Bernardo Strait. 1 In a replyof April 29,1981 PANTRANCO was informed by MARINA that it cannot givedue course to the request on the basis of the following observations:

1. The Matnog-Allen run is adequately serviced byCardinal Shipping Corp. and Epitacio San Pablo;MARINA policies on interisland shipping restrict theentry of new operators to Liner trade routes wherethese are adequately serviced byexisting/authorized operators.

2. Market conditions in the proposed route cannotsupport the entry of additional tonnage; vesselacquisitions intended for operations therein arenecessarily limited to those intended for replacement purposes only.

2

PANTRANCO nevertheless acquired the vessel MV "Black Double" on May27, 1981 for P3 Million pesos. It wrote the Chairman of the Board of Transportation (BOT) through its counsel, that it proposes to operate a ferry

service to carry its passenger buses and freight trucks between Allen andMatnog in connection with its trips to Tacloban City invoking the case of Javellana vs. Public Service Commission.

3 PANTRANCO claims that it can

operate a ferry service in connection with its franchise for bus operation inthe highway from Pasay City to Tacloban City "for the purpose of continuing the highway, which is interrupted by a small body of water, thesaid proposed ferry operation is merely a necessary and incidental serviceto its main service and obligation of transporting its passengers from PasayCity to Tacloban City. Such being the case ... there is no need ... to obtain aseparate certificate for public convenience to operate a ferry servicebetween Allen and Matnog to cater exclusively to its passenger buses andfreight trucks.

4

Without awaiting action on its request PANTRANCO started to operate saidferry service. Acting Chairman Jose C. Campos, Jr. of BOT orderedPANTRANCO not to operate its vessel until the application for hearing onOct. 1, 1981 at 10:00 A.M.

5In another order BOT enjoined PANTRANCO

from operating the MV "Black Double" otherwise it will be cited to showcause why its CPC should not be suspended or the pending applicationdenied.

6

Epitacio San Pablo (now represented by his heirs) and Cardinal ShippingCorporation who are franchise holders of the ferry service in this areainterposed their opposition. They claim they adequately service the

PANTRANCO by ferrying its buses, trucks and passengers. BOT thenasked the legal opinion from the Minister of Justice whether or not a buscompany with an existing CPC between Pasay City and Tacloban City maystill be required to secure another certificate in order to operate a ferryservice between two terminals of a small body of water . On October 20,1981 then Minister of Justice Ricardo Puno rendered an opinion to theeffect that there is no need for bus operators to secure a separate CPC tooperate a ferryboat service holding as follows:

Further, a common carrier which has been granteda certificate of public convenience is expected toprovide efficient, convenient and adequate service

to the riding public (Hocking Valley Railroad Co and pending consideration of the petition the issuance of a restraining



to the riding public. (Hocking Valley Railroad Co.vs. Public Utilities Commission, 1 10 NE 521;Louiseville and NR Co. vs. RailroadCommissioners, 58 SO 543) It is the right of thepublic which has accepted the service of a publicutility operator to demand that the service shouldbe conducted with reasonable efficiency. (Almario,supra, citing 73 C.J.S. 990-991) Thus, when thebus company in the case at bar proposes to add a

ferry service to its Pasay Tacloban route, it merelydoes so in the discharge of its duty under itscurrent certificate of public convenience to provideadequate and convenient service to its riders.Requiring said bus company to obtain another certificate to operate such ferry service when itmerely forms a part — and constitutes animprovement — of its existing transportationservice would simply be duplicitous andsuperfluous.

7

Thus on October 23, 1981 the BOT rendered its decision holding that the

ferry boat service is part of its CPC to operate from Pasay to Samar/Leyteby amending PANTRANCO's CPC so as to reflect the same in this wise:

Let the original Certificate of public conveniencegranted to Pantranco South Express Co., Inc. beamended to embody the grant of authority tooperate a private ferry boat service as one of theconditions for the grant of the certificate subject tothe condition that the ferryboat shall be for theexclusive use of Pantranco buses, its passengersand freight trucks, and should it offer itself to thepublic for hire other than its own passengers, it

must apply for a separate certificate of publicconvenience as a public ferry boat service,separate and distinct from its land transportsystems.

8

Cardinal Shipping Corporation and the heirs of San Pablo filed separatemotions for reconsideration of said decision and San Pablo filed asupplemental motion for reconsideration that were denied by the BOT onJuly 21, 1981.

9

Hence, San Pablo filed the herein petition for review on certiorari withprayer for preliminary injunction 10 seeking the revocation of said decision,

and pending consideration of the petition, the issuance of a restrainingorder or preliminary injunction against the operation by PANTRANCO of said ferry service. San Pablo raised the following issues:

A. DID THE RESPONDENT BOARD VIOLATEPETITIONERS' RIGHT TO DUE PROCESS, THERULES OF PROCEDURE AND SECTION 16 (m)OF THE PUBLIC SERVICE ACT, WHEN ITISSUED IN A COMPLAINT CASE THE DECISION

DATED OCTOBER 23, 1981 WHICH MOTU PROPIO AMENDED RESPONDENTPANTRANCO'S PUB CERTIFICATE TO INCLUDE

AND AUTHORIZE OPERATION OF A SHIPPINGSERVICE ON THE ROUTE MATNOG,SORSOGON — ALLEN, SAMAR — EVEN ASTHERE MUST BE A FORMAL APPLICATIONFOR AMENDMENT AND SEPARATEPROCEEDINGS HELD THEREFORE, ASSUMING

AMENDMENT IS PROPER?

B. DID THE RESPONDENT BOARD ERR IN

FINDING IN ITS DECISION OF OCTOBER 23,1981, THAT THE SEA FROM THE PORT OFMATNOG, SORSOGON, LUZON ISLAND TO THEPORT OF ALLEN, SAMAR ISLAND, OR FROMLUZON ISLAND TO SAMAR ISLAND IS A MEREFERRY OR CONTINUATION OF THE HIGHWAY— IT BEING 23 KILOMETERS OF ROUGH ANDOPEN SEA AND ABOUT 2 HOURS TRAVELTIME REQUIRING BIG INTER-ISLAND VESSELS,NOT MERE BARGES, RAFTS OR SMALL BOATSUTILIZED IN FERRY SERVICE?

C. DID THE RESPONDENT BOARD ERR WHENIT RULED THAT RESPONDENT PANTRANCO'SVESSEL M/V BLACK DOUBLE IS MERELY APRIVATE CARRIER, NOT A PUBLIC FERRYOPERATING FOR PUBLIC SERVICE(ASSUMING THAT THE MATNOG-ALLEN SEAROUTE IS A MERE FERRY OR CONTINUATIONOF HIGHWAY) EVEN IF SAID VESSEL IS FORHIRE AND COLLECTS SEPARATE FARES ANDCATERS TO THE PUBLIC EVEN FOR A LIMITEDCLIENTELE?

D DID THE RESPONDENT BOARD ERR WHEN d the grant of authority to operate a ferry service



D. DID THE RESPONDENT BOARD ERR WHENIT GRANTED RESPONDENT PANTRANCO

AUTHORITY TO OPERATE A SHIPPINGSERVICE IN THE FACE OF THE LATTER'SCONTENTION AS AN AFTER THOUGH THAT ITNEED NOT APPLY THEREFOR, AND IN SPITEOF ITS FAILURE TO SECURE THE PRE-REQUISITE MARITIME INDUSTRY AUTHORITY(MARINA) APPROVAL TO ACQUIRE A VESSEL

UNDER ITS MEMORANDUM CIRCULAR NO. 8-A AS WELL AS ITS PRIOR FAVORABLEENDORSEMENT BEFORE ANY SHIPPING

AUTHORIZATION MAY BE GRANTED UNDERBOT — MARINA AGREEMENT OF AUGUST 10,1976 AND FEBRUARY 26, 1982?

E. DID RESPONDENT BOARD ERR WHEN ITGRANTED RESPONDENT PANTRANCO

AUTHORITY TO OPERATE A SHIPPINGSERVICE ON A ROUTE ADEQUATELYSERVICED IF NOT ALREADY "SATURATED"

WITH THE SERVICES OF TWO 12) EXISTINGOPERATORS PETITIONERS AND CARDINALSHIPPING CORP.) IN VIOLATION OF THEPRINCIPLE OF PRIOR OPERATOR RULE'? 11

By the same token Cardinal Shipping Corporation filed a separate petitionraising similar issues, namely:

a. the decision did not conform to the procedureslaid down by law for an amendment of the originalcertificate of public convenience, and the authorityto operate a private ferry boat service to

PANTRANCO was issued without ascertaining theestablished essential requisites for such grant,hence, violative of due process requirements;

b. the grant to PANTRANCO of authority tooperate a ferryboat service as a private carrier onsaid route contravenes existing governmentpolicies relative to the rationalization of operationsof all water transport utilities;

c. it contravenes the memorandum of agreement

between MARINA and the Board of Transportation;

d. the grant of authority to operate a ferry serviceas a private carrier is not feasible; it lessensPANTRANCO's liability to passengers and cargo toa degree less than extraordinary diligence?

e. PANTRANCO is not a private carrier when itoperates its ferry service;

f. it runs counter to the "old operator" doctrine; and

g. the operation by PANTRANCO of the ferryservice c•nstitutes undue competition.

The foregoing considerations constitutes thesubstantial errors committed by the respondentBoard which would more than amply justify reviewof the questioned decision by this HonorableCourt.12

Both cases were consolidated and are now admitted for decision.

The resolution of all said issues raised revolves on the validity of thequestioned BOT decision.

The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a part of the authority originally grantedPANTRANCO in the following manner:

A ferry service, in law, is treated as a continuationof the highway from one side of the water over which passes to the other side for transportation of passengers or of travellers with their teams

vehicles and such other property as, they maycarry or have with them. (U.S. vs. Pudget SoundNev. Co. DC Washington, 24 F. Supp. 431). Itmaybe said to be a necessary service of aspecially constructed boat to carry passengers andproperty across rivers or bodies of water from aplace in one shore to a point conveniently oppositeon the other shore and continuation of the highwaymaking a connection with the thoroughfare at eachterminal (U.S. vs. Canadian Pac. N.Y. Co. 4 P.Supp, 85). It comprises not merely the privilege of transportation but also the use for that purpose of

the respective landings with outlets therefrom banks of a stream or other body of water The term



the respective landings with outlets therefrom.(Nole vs. Record, 74 OKL. 77; 176 Pac. 756). Aferry service maybe a public ferry or a private ferry.

A public ferry service is one which all the publichave the right to resort to and for which a regular fare is established and the ferryman is a commoncarrier be inbound to take an who apply and boundto keep his ferry in operation and good repair.(Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A ferry

(private) service is mainly for the use of the owner and though he may take pay for ferriage, he doesnot follow it as a business. His ferry is not open tothe public at its demand and he may or may notkeep it in operation (Hudspeth vs. Hall, supra, St.Paul Fire and Marine Ins. 696), Harrison, 140 Ark158; 215 S.W. 698).

The ferry boat service of Pantranco is acontinuation of the highway traversed by its busesfrom Pasay City to Samar, Leyte passing throughMatnog (Sorsogon) through San Bernardino Strait

to Alien (Samar). It is a private carrier because itwill be used exclusively to transport its own buses,passengers and freight trucks traversing the saidroute. It will cater exclusively to the needs of itsown clientele (passengers on board- Pantrancobuses) and will not offer itself indiscriminately for hire or for compensation to the general public.Legally therefore, Pantranco has the right tooperate the ferry boat M/V BLACK DOUBLE, alongthe route from Matnog (Sorsogon) to Allen (Samar)and vice versa for the exclusive use of its ownbuses, passengers and freight trucks without the

need of applying for a separate certificate of publicconvenience or provisional authority. Since itsoperation is an integral part of its land transportsystem, its original certificate of public convenienceshould be amended to include the operation of such ferryboat for its own exclusive use

In Javellana 14 this Court recited the following definition of ferry :

The term "ferry" implied the continuation by meansof boats, barges, or rafts, of a highway or theconnection of highways located on the opposite

banks of a stream or other body of water. The termnecessarily implies transportation for a short distance, almost invariably between two points,which is unrelated to other transportation.(Emphasis supplied)

The term "ferry" is often employed to denote theright or franchise granted by the state or itsauthorized mandatories to continue by means of

boats, an interrupted land highway over theinterrupting waters and to charge toll for the usethereof by the public. In this sense it has also beendefined as a privilege, a liberty, to take tolls for transporting passengers and goods across a lakeor stream or some other body of water, with noessential difference from a bridge franchise except as to the mode of transportation, 22 Am. Jur. 553.

A "ferry" has been defined by many courts as "a public highway or thoroughfare across a stream of water or river by boat instead of a bridge." (St.

Clare Country v. Interstate Car and Sand Transfer Co., 192 U.S. 454, 48 L. ed. 518; etc.)

The term ferry is often employed to denote theright or franchise granted by the state or itsauthorized mandatories to continue by means of boats, an interrupted land highway over theinterrupting waters and to charge toll for the usethereof by the public. (Vallejo Ferry Co. vs. Solano

Aquatic Club, 165 Cal. 255, 131 P. 864, Ann. Cas.1914C 1179; etc.) (Emphasis supplied)

"Ferry" is service necessity for common good toreach point across a stream lagoon, lake, or bay. (U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp.851,853)'

"Ferry" properly means a place of transit across ariver or arm of the sea, but in law it is treated as afranchise, and defined as the exclusive right tocarry passengers across a river, or arm of the sea,from one vill to another, or to connect a continuousline of road leading from township or vill to another.

(Canadian Pac Ry Co vs C C A Wash 73 F such as bay or lake which does not involve too



(Canadian Pac. Ry. Co. vs. C.C. A. Wash. 73 F.2d. 831, 832)'

Includes various waters: (1) But an arm of the seamay include various subordinate descriptions of waters, where the tide ebbs and flows. It may be ariver, harbor, creek, basin, or bay; and it issometimes used to designate very extensivereaches of waters within the projecting capes or

points or a country. (See Rex vs. Bruce, DeachC.C. 1093). (2) In an early case the court said:"The distinction between rivers navigable and notnavigable, that is, where the sea does, or does not,ebb and flow, is very ancient. Rex vs. Smith, 2Dougl. 441, 99 Reprint 283. The former are calledarms of the sea, while the latter pass under thedenomination of private or inland rivers" Adams vs.Pease 2 Conn. 481, 484. (Emphasis supplied)

In the cases of Cababa vs. Public Service Commission, 16 Cababa vs.Remigio & Carillo and Municipality of Gattaran vs. Elizaga 17 this Court

considered as ferry service such water service that crosses rivers.

However, in Javellana We made clear distinction between a ferry serviceand coastwise or interisland service by holding that:

We are not unmindful of the reasons adduced bythe Commission in considering the motorboatservice between Calapan and Batangas as ferry;but from our consideration of the law as it stands,particularly Commonwealth Act No. 146, known asthe Public Service Act and the provisions of theRevised Administrative Code regarding municipalferries and those regarding the jurisdiction of theBureau of Customs over documentation,registration, licensing, inspection, etc. of steamboats, motorboats or motor vessels, and thedefinition of ferry as above quoted we have theimpression and we are inclined to believe that theLegislature intended ferry to mean the serviceeither by barges or rafts, even by motor or steamvessels, between the banks of a river or stream tocontinue the highway which is interrupted by thebody of water, or in some cases to connect two

points on opposite shores of an arm of the sea

such as bay or lake which does not involve toogreat a distance or too long a time to navigate But where the line or service involves crossing theopen sea like the body of water between the

province of Batangas and the island of Mindorowhich the oppositors describe thus "the intervening waters between Calapan and Batangas are wideand dangerous with big waves where small boat barge, or raft are not adapted to the service," then

it is more reasonable to regard said line or serviceas more properly belonging to interisland or coastwise trade. According to the finding of theCommission itself the distance between Calapan isabout 24 nautical miles or about 44.5 kilometers.We do not believe that this is the short distancecontemplated by the Legislature in referring toferries whether within the jurisdiction of a singlemunicipality or ferries between two municipalitiesor provinces. If we are to grant that water transportation between Calapan and Batangas isferry service, then there would be no reason for not

considering the same service between the differentislands of the Philippines, such as BoacMarinduque and Batangas; Roxas City of Capizand Romblon; Cebu City, Cebu and Ormoc, Leyte;Guian, Samar and Surigao, Surigao; andDumaguete, Negros Oriental and Oroquieta or Cagayan de Oro.

The Commission makes the distinction betweenferry service and motorship in the coastwise trade,thus:

A ferry service is distinguished from a motorship or motorboat service engaged in the coastwise tradein that the latter is intended for the transportation of passengers and/or freight for hire or compensationbetween ports or places in the Philippines withoutdefinite routes or lines of service.

We cannot agree. The definiteness of the route of a boat is not the deciding factor. A boat of say theWilliam Lines, Inc. goes from Manila to Davao Cityvia Cebu, Tagbilaran, Dumaguete, Zamboanga,every week. It has a definite route, and yet it may

not for that reason be regarded as engaged in ferry provisions of law Its CPC as a bus transportation cannot be merely



not for that reason be regarded as engaged in ferryservice. Again, a vessel of the Compania Maritimamakes the trip from Manila to Tacloban and back,twice a week. Certainly, it has a definite route. Butthat service is not ferry service, but rather interisland or coastwise trade.

We believe that it will be more in consonance withthe spirit of the law to consider steamboat or

motorboat service between the different islands,involving more or less great distance and over more or less turbulent and dangerous waters of theopen sea, to be coastwise or inter-island service.

Anyway, whether said service between thedifferent islands is regarded as ferry service or coastwise trade service, as long as the water craftused are steamboats, motorboats or motor vessels, the result will be the same as far as theCommission is concerned. " 18 (Emphasissupplied)

This Court takes judicial notice of the fact, and as shown by an examinationof the map of the Philippines, that Matnog which is on the southern tip of the island of Luzon and within the province of Sorsogon and Allen which ison the northeastern tip of the island of Samar, is traversed by the SanBernardino Strait which leads towards the Pacific Ocean. The parties admitthat the distance between Matnog and Allen is about 23 kilometers whichmaybe negotiated by motorboat or vessel in about 1-1/2 hours as claimedby respondent PANTRANCO to 2 hours according to petitioners. As theSan Bernardino Strait which separates Matnog and Allen leads to theocean it must at times be choppy and rough so that it will not be safe tonavigate the same by small boats or barges but only by such steamboats or vessels as the MV "Black Double. 19

Considering the environmental circumstances of the case, the conveyanceof passengers, trucks and cargo from Matnog to Allen is certainly not aferry boat service but a coastwise or interisland shipping service. Under nocircumstance can the sea between Matnog and Allen be considered acontinuation of the highway. While a ferry boat service has beenconsidered as a continuation of the highway when crossing rivers or evenlakes, which are small body of waters - separating the land, however, whenas in this case the two terminals, Matnog and Allen are separated by anopen sea it can not be considered as a continuation of the highway.Respondent PANTRANCO should secure a separate CPC for the operationof an interisland or coastwise shipping service in accordance with the

provisions of law. Its CPC as a bus transportation cannot be merelyamended to include this water service under the guise that it is a mereprivate ferry service.

The contention of private respondent PANTRANCO that its ferry serviceoperation is as a private carrier, not as a common carrier for its exclusiveuse in the ferrying of its passenger buses and cargo trucks is absurd.PANTRANCO does not deny that it charges its passengers separately fromthe charges for the bus trips and issues separate tickets whenever they

board the MV "Black Double" that crosses Matnog to Allen,20

PANTRANCO cannot pretend that in issuing tickets to its passengers it didso as a private carrier and not as a common carrier. The Court does notsee any reason why inspite of its amended franchise to operate a privateferry boat service it cannot accept walk-in passengers just for the purposeof crossing the sea between Matnog and Allen. Indeed evidence to thiseffect has been submitted.

21 What is even more difficult to comprehend is

that while in one breath respondent PANTRANCO claims that it is a privatecarrier insofar as the ferryboat service is concerned, in another breath itstates that it does not thereby abdicate from its obligation as a commoncarrier to observe extraordinary diligence and vigilance in the transportationof its passengers and goods. Nevertheless, considering that the authority

granted to PANTRANCO is to operate a private ferry, it can still assert thatit cannot be held to account as a common carrier towards its passengersand cargo. Such an anomalous situation that will jeopardize the safety andinterests of its passengers and the cargo owners cannot be allowed.

What appears clear from the record is that at the beginning PANTRANCOplanned to operate such ferry boat service between Matnog and Alien as acommon carrier so it requested authority from MARINA to purchase thevessel M/V "Black Double

22in accordance with the procedure provided for

by law for such application for a certificate of public convenience.23

However when its request was denied as the said routes "are adequatelyserviced by existing/authorized operators,

24 it nevertheless purchased the

vessel and started operating the same. Obviously to go about this obstacleto its operation, it then contrived a novel theory that what it proposes tooperate is a private ferryboat service across a small body of water for theexclusive use of its buses, trucks and passengers as an incident to itsfranchise to convey passengers and cargo on land from Pasay City toTacloban so that it believes it need not secure a separate certificate of public convenience.

25Based on this representation, no less than the

Secretary of Justice was led to render an affirmative opinion on October 20,1981,

26followed a few days later by the questioned decision of public

respondent of October 23, 1981.27

Certainly the Court cannot give its imprimatur to such a situation.

Thus the Court holds that the water transport service between Matnog and



Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat service but a coastwise or interisland shippingservice. Before private respondent may be issued a franchise or CPC for the operation of the said service as a common carrier, it must comply withthe usual requirements of filing an application, payment of the fees,publication, adducing evidence at a hearing and affording the oppositorsthe opportunity to be heard, among others, as provided by law.

28

WHEREFORE, the petitions are hereby GRANTED and the Decision of the

respondent Board of Transportation (BOT) of October 23, 1981 in BOTCase No. 81-348-C and its Order of July 21, 1982 in the same casedenying the motions for reconsideration filed by petitioners are herebyReversed and set aside and declared null and void. RespondentPANTRANCO is hereby permanently enjoined from operating the ferryboatservice and/or coastwise/interisland services between Matnog and Allenuntil it shall have secured the appropriate Certificate of Public Convenience(CPC) in accordance with the requirements of the law, with costs againstrespondent PANTRANCO.

SO ORDERED.

Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur.

SECOND DIVISION account of the defendant was already P2,731.06



SECOND DIVISION

G.R. No. L-65510 March 9, 1987

TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,vs.HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N.NALE, respondents.

Cirilo A. Diaz, Jr. for petitioner.

Henry V. Briguera for private respondent.

PARAS, J .:

"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) isthe time-honored maxim that must be applied to the parties in the case atbar. Having entered into an illegal contract, neither can seek relief from the

courts, and each must bear the consequences of his acts." (LitaEnterprises vs. IAC, 129 SCRA 81.)

The factual background of this case is undisputed. The same is narrated bythe respondent court in its now assailed decision, as follows:

On May 9, 1975, the defendant bought from theplaintiff a motorcycle with complete accessoriesand a sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A").Out of the total purchase price the defendant gavea downpayment of P1,700.00 with a promise thathe would pay plaintiff the balance within sixty days.The defendant, however, failed to comply with hispromise and so upon his own request, the periodof paying the balance was extended to one year inmonthly installments until January 1976 when hestopped paying anymore. The plaintiff madedemands but just the same the defendant failed tocomply with the same thus forcing the plaintiff toconsult a lawyer and file this action for his damagein the amount of P546.21 for attorney's fees andP100.00 for expenses of litigation. The plaintiff alsoclaims that as of February 20, 1978, the total

account of the defendant was already P2,731.06as shown in a statement of account (Exhibit. "B").This amount includes not only the balance of P1,700.00 but an additional 12% interest per annum on the said balance from January 26, 1976to February 27, 1978; a 2% service charge; and P546.21 representing attorney's fees.

In this particular transaction a chattel mortgage

(Exhibit 1) was constituted as a security for thepayment of the balance of the purchase price. Ithas been the practice of financing firms thatwhenever there is a balance of the purchase pricethe registration papers of the motor vehicle subjectof the sale are not given to the buyer. The recordsof the LTC show that the motorcycle sold to thedefendant was first mortgaged to the TejaMarketing by Angel Jaucian though the TejaMarketing and Angel Jaucian are one and thesame, because it was made to appear that wayonly as the defendant had no franchise of his own

and he attached the unit to the plaintiff's MCH Line.The agreement also of the parties here was for theplaintiff to undertake the yearly registration of themotorcycle with the Land TransportationCommission. Pursuant to this agreement thedefendant on February 22, 1976 gave the plaintiff P90.00, the P8.00 would be for the mortgage feeand the P82.00 for the registration fee of themotorcycle. The plaintiff, however failed to register the motorcycle on that year on the ground that thedefendant failed to comply with some requirementssuch as the payment of the insurance premiums

and the bringing of the motorcycle to the LTC for stenciling, the plaintiff saying that the defendantwas hiding the motorcycle from him. Lastly, theplaintiff explained also that though the ownershipof the motorcycle was already transferred to thedefendant the vehicle was still mortgaged with theconsent of the defendant to the Rural Bank of Camaligan for the reason that all motorcyclepurchased from the plaintiff on credit wasrediscounted with the bank.

On his part the defendant did not dispute the sale xxx xxx xxx



p pand the outstanding balance of P1,700. 00 stillpayable to the plaintiff. The defendant waspersuaded to buy from the plaintiff the motorcyclewith the side car because of the condition that theplaintiff would be the one to register every year themotorcycle with the Land TransportationCommission. In 1976, however, the plaintfff failedto register both the chattel mortgage and the

motorcycle with the LTC notwithstanding the factthat the defendant gave him P90.00 for mortgagefee and registration fee and had the motorcycleinsured with La Perla Compana de Seguros(Exhibit "6") as shown also by the Certificate of cover (Exhibit "3"). Because of this failure of theplaintiff to comply with his obligation to register themotorcycle the defendant suffered damages whenhe failed to claim any insurance indemnity whichwould amount to no less than P15,000.00 for themore than two times that the motorcycle figured inaccidents aside from the loss of the daily income of

P15.00 as boundary fee beginning October 1976when the motorcycle was impounded by the LTCfor not being registered.

The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycleresulting in its not being registered. The truth beingthat the motorcycle was being used for transportingpassengers and it kept on travelling from one placeto another. The motor vehicle sold to him wasmortgaged by the plaintiff with the Rural Bank of Camaligan without his consent and knowledge and

the defendant was not even given a copy of themortgage deed. The defendant claims that it is nottrue that the motorcycle was mortgaged becauseof re-discounting for rediscounting is only true withRural Banks and the Central Bank. The defendantputs the blame on the plaintiff for not registeringthe motorcycle with the LTC and for not giving himthe registration papers inspite of demands made.Finally, the evidence of the defendant shows thatbecause of the filing of this case he was forced toretain the services of a lawyer for a fee on not lessthan P1,000.00.

... it also appears and the Court so f inds thatdefendant purchased the motorcycle in question,particularly for the purpose of engaging and usingthe same in the transportation business and for thispurpose said trimobile unit was attached to the

plaintiffs transportation line who had the franchise,so much so that in the registration certificate, the

plaintiff appears to be the owner of the unit. Furthermore, it appears to have been agreed,further between the plaintiff and the defendant, thatplaintiff would undertake the yearly registration of the unit in question with the LTC. Thus, for theregistration of the unit for the year 1976, per agreement, the defendant gave to the plaintiff theamount of P82.00 for its registration, as well as theinsurance coverage of the unit.

Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an actionfor "Sum of Money with Damages" against private respondent Pedro N.

Nale in the City Court of Naga City. The City Court rendered judgment infavor of petitioner, the dispositive portion of which reads:

WHEREFORE, decision is hereby rendereddismissing the counterclaim and ordering thedefendant to pay plaintiff the sum of P1,700.00representing the unpaid balance of the purchaseprice with legal rate of interest from the date of thefiling of the complaint until the same is fully paid; topay plaintiff the sum of P546.21 as attorney's fees;to pay plaintiff the sum of P200.00 as expenses of litigation; and to pay the costs.

SO ORDERED.

On appeal to the Court of First Instance of Camarines Sur, the decisionwas affirmed in toto. Private respondent filed a petition for review with theIntermediate Appellate Court and on July 18, 1983 the said Courtpromulgated its decision, the pertinent portion of which reads —

However, as the purchase of the motorcycle for operation as a trimobile under the franchise of theprivate respondent Jaucian, pursuant to what is

commonly known as the "kabit system", without the

prior approval of the Board of Transportation but will leave both where it finds then. Upon this premise it would be error



p pp p(formerly the Public Service Commission) was anillegal transaction involving the fictitious registrationof the motor vehicle in the name of the privaterespondent so that he may traffic with theprivileges of his franchise, or certificate of publicconvenience, to operate a tricycle service, theparties being in pari delicto, neither of them maybring an action against the other to enforce their

illegal contract [Art. 1412 (a), Civil Code].

xxx xxx xxx

WHEREFORE, the decision under review ishereby set aside. The complaint of respondentTeja Marketing and/or Angel Jaucian, as well asthe counterclaim of petitioner Pedro Nale in CivilCase No. 1153 of the Court of First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City) are dismissed. Nopronouncement as to costs.

SO ORDERED.

The decision is now before Us on a petition for review, petitioner TejaMarketing and/or Angel Jaucian presenting a lone assignment of error — whether or not respondent court erred in applying the doctrine of "paridelicto."

We find the petition devoid of merit.

Unquestionably, the parties herein operated under an arrangement,

commonly known as the "kabit system" whereby a person who has beengranted a certificate of public convenience allows another person who ownsmotor vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government.

Abuse of this privilege by the grantees thereof cannot be countenanced.The "kabit system" has been Identified as one of the root causes of theprevalence of graft and corruption in the government transportation offices.

Although not outrightly penalized as a criminal offense, the kabit system isinvariably recognized as being contrary to public policy and, therefore, voidand in existent under Article 1409 of the Civil Code. It is a fundamentalprinciple that the court will not aid either party to enforce an illegal contract,

p pto accord the parties relief from their predicament. Article 1412 of the CivilCode denies them such aid. It provides:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute acriminal offense, the following rules shall beobserved:

1. When the fault is on the part of both contractingparties, neither may recover that he has given byvirtue of the contract, or demand, the performanceof the other's undertaking.

The defect of in existence of a contract is permanent and cannot be curedby ratification or by prescription. The mere lapse of time cannot giveefficacy to contracts that are null and void.

WHEREFORE, the petition is hereby dismissed for lack of merit. Theassailed decision of the Intermediate Appellate Court (now the Court of

Appeals) is AFFIRMED. No costs.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortez, JJ., concur.

Alampay, J., took no part.

EN BANC there was then no other means of transportation, to which defendant



G.R. No. L-9907 June 30, 1958

LOURDES J. LARA, ET AL., plaintiffs-appellants,vs.BRIGIDO R. VALENCIA, defendant-appellant.

Castillo, Cervantes, Occeña, Lozano, Montana, Cunanan, Sison and

Castillo and Eligio G. Lagman for defendant-appellant.Donato C. Endriga and Emigdio Dakanay for plaintiffs-appellants.

BAUTISTA ANGELO, J .:

This is an action for damages brought by plaintiffs against defendant in theCourt of First Instance of Davao for the death of one Demetrio Lara, Sr.allegedly caused by the negligent act of defendant. Defendant denied thecharge of negligence and set up certain affirmative defenses and acounterclaim.

The court after hearing rendered judgment ordering defendant to pay theplaintiffs the following amount: (a) P10,000 as moral damages; (b) P3,000as exemplary damages; and (c) P1,000 as attorney's fees, in addition to thecosts of action. Both parties appealed to this Court because the damagesclaimed in the complaint exceed the sum of P50,000.

In their appeal, plaintiffs claim that the court a quo erred in disregardingtheir claim of P41,400 as actual or compensatory damages and in awardingas attorneys' fees only the sum of P1,000 instead of P3,000 as agreedupon between plaintiffs and their counsel. Defendant, on the other hand,disputes the finding of the court a quo that the oath of Demetrio Lara, Sr.was due to the negligence of defendant and the portion of the judgment

which orders dependant to pay to plaintiffs moral and exemplary damagesas well as attorneys' fees, said defendant contending that the court shouldhave declared that the death of Lara was due to unavoidable accident.

The deceased was an inspector of the Bureau of Forestry stationed inDavao with an annual salary of P1,800. The defendant is engaged in thebusiness of exporting logs from his lumber concession in Cotabato. Larawent to said concession upon instructions of his chief to classify the logs of defendant which were about to be loaded on a ship anchored in the port of Parang. The work Lara of lasted for six days during which he contractedmalaria fever. In the morning of January 9, 1954, Lara who then in a hurryto return to Davao asked defendant if he could take him in his pick-up as

pagreed, and in that same morning the pick-up left Parang bound for Davaotaking along six passengers, including Lara.

The pick-up has a front seat where the driver and two passengers can beaccommodated and the back has a steel flooring enclosed with a steelwalling of 16 to 17 inches tall on the sides and with a 19 inches tall wallingat the back. Before leaving Parang, the sitting arrangement was as follows:defendant was at the wheel and seated with him in the front seat were Mrs.

Valencia and Nicanor Quinain; on the back of the pick-up were twoimprovised benches placed on each side, and seated on the right benchwere Ricardo Alojipan and Antonio Lagahit, and on the left one Bernardoand Pastor Geronimo. A person by the name of Leoning was seated on abox located on the left side while in the middle Lara sat on a bag. Beforeleaving Parang, defendant invited Lara to sit with him on the front seat butLara declined. It was their understanding that upon reaching barrioSamoay, Cotabato, the passengers were to alight and take a bus bound for Davao, but when they arrived at that place, only Bernardo alighted and theother passengers requested defendant to allow them to ride with him up toDavao because there was then no available bus that they could take ingoing to that place. Defendant again accommodated the passengers.

When they continued their trip, the sitting arrangement of the passengersremained the same, Lara being seated on a bag in the middle with his armson a suitcase and his head cove red by a jacket. Upon reaching Km. 96,barrio Catidtuan, Lara accidentally fell from the pick-up and as a result hesuffered serious injuries. Valencia stopped the pick-up to see whathappened to Lara. He sought the help of the residents of that place andapplied water to Lara but to no avail. They brought Lara to the nearestplace where they could find a doctor and not having found any they tookhim to St. Joseph's Clinic of Kidapawan. But when Lara arrived he wasalready dead. From there they proceeded to Davao City and immediatelynotified the local authorities. An investigation was made regarding the

circumstances surrounding the death of Lara but no criminal action wastaken against defendant.

It should be noted that the deceased went to the lumber concession of defendant in Parang, Cotabato upon instructions of his chief in order toclassify the logs of defendant which were then ready to be exported and tobe loaded on a ship anchored in the port of Parang. It took Lara six days todo his work during which he contracted malaria fever and for that reason heevinced a desire to return immediately to Davao. At that time, there was noavailable bus that could take him back to Davao and so he requested thedefendant if he could take him in his own pick-up. Defendant agreed and,together with Lara, other passengers tagged along, most of them were

employees of the Government. Defendant merely accommodated them and manana, del dia 2 de enero de 1954, fecha en que Lara



did not charge them any fee for the service. It was also their understandingthat upon reaching barrio Samoay, the passengers would alight andtransfer to a bus that regularly makes the trip to Davao but unfortunatelythere was none available at the time and so the same passengers,including Lara, again requested the defendant to drive them to Davao.Defendant again accommodated them and upon reaching Km. 96, Laraaccidentally fell suffering fatal injuries.

It therefore appears that the deceased, as well his companions who rode inthe pick-up of defendant, were merely accommodation passengers whopaid nothing for the service and so they can be considered as invitedguests within the meaning of the law. As accommodation passengers or invited guests, defendant as owner and driver of the pick-up owes to themmerely the duty to exercise reasonable care so that they may betransported safely to their destination. Thus, "The rule is established by theweight of authority that the owner or operator of an automobile owes theduty to an invited guest to exercise reasonable care in its operation, andnot unreasonably to expose him to danger and injury by increasing thehazard of travel. This rule, as frequently stated by the courts, is that anowner of an automobile owes a guest the duty to exercise ordinary or

reasonable care to avoid injuring him. Since one riding in an automobile isno less a guest because he asked for the privilege of doing so, the sameobligation of care is imposed upon the driver as in the case of oneexpressly invited to ride" (5 Am. Jur., 626-627). Defendant, therefore, isonly required to observe ordinary care, and is not in duty bound to exerciseextraordinary diligence as required of a common carrier by our law (Articles1755 and 1756, new Civil Code).

The question that now arises is: Is there enough evidence to show thatdefendant failed to observe ordinary care or diligence in transporting thedeceased from Parang to Davao on the date in question?

The trial court answered the question in the affirmative but in so doing ittook into account only the following facts:

No debe perderse de vista el hecho, que los negocios deexportacion de trozos del demandado tiene un volumen deP1,200. Lara era empleado de la Oficina de Montes,asalariado por el gobierno, no pagado por el demandadopara classificar los trozos exportados; debido a los trabajosde classificacion que duro 6 dias, en su ultimo dia Lara nodurmio toda la noche, al dia siguiente, Lara fue atacado demalaria, tenia inflamada la cara y cuerpo, sufria dolores decabeza con erupciones en la cara y cuerpo; que en la

salio de Davao para Parang, en aeroplano para clasificar los trozos del demandado, el automobil de este condujo aaquel al aerodromo de Davao.

x x x x x x x x x

El viaje de Cotabato a Davao no es menos de 8 horas, sucarretera esta en malas condiciones, desnivelada, con

piedras salientes y baches, que hacen del vehiculo noestable en su marcha. Lara estaba enfermo de ciertagravedad, tenia el cuerpo y cara inflamados, atacado demalaria, con dolores de cabeza y con erupciones en lacara y cuerpo.

A la vista de estos hechos, el demandado debia de saber que era sumamente peligroso llevar 5 pasajeros en laparte trasera del pick-up; particularmente, para la salud deLara; el permitirlo, el demandado no ha tomado lasprecausiones, para evitar un posible accidente fatal. Lanegative de Lara de ocupar el asiento delantero del pick-

up no constituye a juicio del Juzgado una defensa, pues eldemendado conociendo el estado delicado de salud deLara, no debio de haber permitido que aquel regrese aDavao en su pick-up; si querria prestar a aquel un favor,debio de haver provisto a Lara de un automobil para suregrese a Davao, ya que el demendado es un millionario;si no podia prestar a aquel este favor, debio de haver dejado a Lara en Samuay para coger aquel un camion depasajero de Cotabato a Davao.

Even if we admit as true the facts found by the trial court, still we find thatthe same are not sufficient to show that defendant has failed to take the

precaution necessary to conduct his passengers safely to their place of destination for there is nothing there to indicate that defendant has actedwith negligence or without taking the precaution that an ordinary prudentman would have taken under similar circumstances. It should be noted thatLara went to the lumber concession of defendant in answer to a call of dutywhich he was bound to perform because of the requirement of his officeand he contracted the malaria fever in the course of the performance of thatduty. It should also be noted that defendant was not in duty bound to takethe deceased in his own pick-up to Davao because from Parang toCotabato there was a line of transportation that regularly makes trips for thepublic, and if defendant agreed to take the deceased in his own car, it wasonly to accommodate him considering his feverish condition and his

request that he be so accommodated. It should also be noted that the



passengers who rode in the pick-up of defendant took their respectiveseats therein at their own choice and not upon indication of defendant withthe particularity that defendant invited the deceased to sit with him in thefront seat but which invitation the deceased declined . The reason for thiscan only be attributed to his desire to be at the back so that he could sit ona bag and travel in a reclining position because such was more convenientfor him due to his feverish condition. All the circumstances therefore clearlyindicate that defendant had done what a reasonable prudent man would

have done under the circumstances.

There is every reason to believe that the unfortunate happening was onlydue to an unforeseen accident accused by the fact that at the time thedeceased was half asleep and must have fallen from the pick-up when itran into some stones causing it to jerk considering that the road was thenbumpy, rough and full of stones.

The finding of the trial court that the pick-up was running at more than 40kilometers per hour is not supported by the evidence. This is a meresurmise made by the trial court considering the time the pick-up left barrioSamoay and the time the accident occured in relation to the distance

covered by the pick-up. And even if this is correct, still we say that suchspeed is not unreasonable considering that they were traveling on anational road and the traffic then was not heavy. We may rather attributethe incident to lack of care on the part of the deceased considering that thepick-up was open and he was then in a crouching position. Indeed, the lawprovides that "A passenger must observe the diligence of a good father of afamily to avoid injury to himself" (Article 1761, new Civil Code), whichmeans that if the injury to the passenger has been proximately caused byhis own negligence, the carrier cannot be held liable.

All things considered, we are persuaded to conclude that the accidentoccurred not due to the negligence of defendant but to circumstances

beyond his control and so he should be exempt from liability.

Wherefore, the decision appealed from is reversed, without pronouncementas to costs.

Paras, C. J., Bengzon, Reyes, A., Concepcion, Reyes, J. B. L., Endenciaand Felix, JJ., concur.

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