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[2003R924] JG SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS, COMMITTEE ON
PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION TRUST and PHILYARDS
HOLDINGS, INC., respondents.2003 Sep 24Sp 1st DivisionG.R. No. 124293R E S O L U T I O N
PUNO, J.:
The core issue posed by the Motions for Reconsideration is whether a shipyard is a public
utility whose capitalization must be sixty percent (60%) owned by Filipinos. Our resolution of
this issue will determine the fate of the shipbuilding and ship repair industry. It can either
spell the industrys demise or breathe new life to the struggling but potentially healthy
partner in the countrys bid for economic growth. It can either kill an initiative yet in its
infancy, or harness creativity in the productive disposition of government assets.
The facts are undisputed and can be summarized briefly as follows:
On January 27, 1977, the National Investment and Development Corporation (NIDC), a
government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy
Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management
of the Subic National Shipyard, Inc. (SNS) which subsequently became the Philippine
Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI
will contribute P330 million for the capitalization of PHILSECO in the proportion of 60%-40%
respectively.[1] One of its salient features is the grant to the parties of the right of first
refusal should either of them decide to sell, assign or transfer its interest in the joint venture,
viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO]
to any third party without giving the other under the same terms the right of first refusal.
This provision shall not apply if the transferee is a corporation owned or controlled by the
GOVERNMENT or by a KAWASAKI affiliate.[2]
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the
Philippine National Bank (PNB). Such interests were subsequently transferred to the National
Government pursuant to Administrative Order No. 14. On December 8, 1986, President
Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on Privatization
(COP) and the Asset Privatization Trust (APT) to take title to, and possession of, conserve,
manage and dispose of non-performing assets of the National Government. Thereafter, on
February 27, 1987, a trust agreement was entered into between the National Government
and the APT wherein the latter was named the trustee of the National Governments share in
PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to settle its huge
obligations to PNB, the National Governments shareholdings in PHILSECO increased to
97.41% thereby reducing KAWASAKIs shareholdings to 2.59%.[3]
In the interest of the national economy and the government, the COP and the APT deemed it
best to sell the National Governments share in PHILSECO to private entities. After a series of
negotiations between the APT and KAWASAKI, they agreed that the latters right of first
refusal under the JVA be exchanged for the right to top by five percent (5%) the highest
bid for the said shares. They further agreed that KAWASAKI would be entitled to name a
company in which it was a stockholder, which could exercise the right to top. On September

7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) would exercise its right
to top.[4]
At the pre-bidding conference held on September 18, 1993, interested bidders were given
copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules
(ASBR) drafted for the National Governments 87.6% equity share in PHILSECO.[5] The
provisions of the ASBR were explained to the interested bidders who were notified that the
bidding would be held on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the
National Governments equity in PHILSECO consisting of 896,869,942 shares of stock
(representing 87.67% of PHILSECOs outstanding capital stock), which will be sold as a whole
block in accordance with the rules herein enumerated.
...
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the
APT Board of Trustees and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set
for the National Governments 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE
HUNDRED MILLION (P1,300,000,000.00).
...
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular
meeting following the bidding, for the purpose of determining whether or not it should be
endorsed by the APT Board of Trustees to the COP, and the latter approves the same. The
APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc.,
that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries,
Inc. and/or Philyards Holdings, Inc. shall then have a period of thirty (30) calendar days from
the date of receipt of such advice from APT within which to exercise their Option to Top the
Highest Bid by offering a bid equivalent to the highest bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. exercise their
Option to Top the Highest Bid, they shall so notify the APT about such exercise of their
option and deposit with APT the amount equivalent to ten percent (10%) of the highest bid
plus five percent (5%) thereof within the thirty (30)-day period mentioned in paragraph 6.0
above. APT will then serve notice upon Kawasaki Heavy Industries, Inc. and/or Philyards
Holdings, Inc. declaring them as the preferred bidder and they shall have a period of ninety
(90) days from the receipt of the APTs notice within which to pay the balance of their bid
price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. fail to exercise
their Option to Top the Highest Bid within the thirty (30)-day period, APT will declare the
highest bidder as the winning bidder.
...

12.0 The bidder shall be solely responsible for examining with appropriate care these rules,
the official bid forms, including any addenda or amendments thereto issued during the
bidding period. The bidder shall likewise be responsible for informing itself with respect to
any and all conditions concerning the PHILSECO Shares which may, in any manner, affect
the bidders proposal. Failure on the part of the bidder to so examine and inform itself shall
be its sole risk and no relief for error or omission will be given by APT or COP. . ..[6]
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted a bid
of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgement of
KAWASAKI/Philyards right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to
act on APTs recommendation based on the result of this bidding. Should the COP approve
the highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee,
Philyards Holdings, Inc. that the highest bid is acceptable to the National Government.
Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of
thirty (30) calendar days from the date of receipt of such advice from APT within which to
exercise their Option to Top the Highest Bid by offering a bid equivalent to the highest bid
plus five (5%) percent thereof.[7]
As petitioner was declared the highest bidder, the COP approved the sale on December 3,
1993 subject to the right of Kawasaki Heavy Industries, Inc./Philyards Holdings, Inc. to top
JGSMIs bid by 5% as specified in the bidding rules.[8]
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top
its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of Kawasaki,
Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last
four (4) companies were the losing bidders thereby circumventing the law and prejudicing
the weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the
same option to top to PHI constituted unwarranted benefit to a third party; (d) no right of
first refusal can be exercised in a public bidding or auction sale; and (e) the JG Summit
consortium was not estopped from questioning the proceedings.[9]
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the
purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner that
PHI had exercised its option to top the highest bid and that the COP had approved the same
on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock Purchase
Agreement.[10] Consequently, petitioner filed with this Court a Petition for Mandamus under
G.R. No. 114057. On May 11, 1994, said petition was referred to the Court of Appeals. On
July 18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that the
petition for mandamus was not the proper remedy to question the constitutionality or
legality of the right of first refusal and the right to top that was exercised by KAWASAKI/PHI,
and that the matter must be brought by the proper party in the proper forum at the proper
time and threshed out in a full blown trial. The Court of Appeals further ruled that the right
of first refusal and the right to top are prima facie legal and that the petitioner, by
participating in the public bidding, with full knowledge of the right to top granted to
KASAWASAKI/Philyards is . . .estopped from questioning the validity of the award given to
Philyards after the latter exercised the right to top and had paid in full the purchase price of
the subject shares, pursuant to the ASBR. Petitioner filed a Motion for Reconsideration of

said Decision which was denied on March 15, 1996. Petitioner thus filed a Petition for
Certiorari with this Court alleging grave abuse of discretion on the part of the appellate
court.[11]
On November 20, 2000, this Court rendered the now assailed Decision ruling among others
that the Court of Appeals erred when it dismissed the petition on the sole ground of the
impropriety of the special civil action of mandamus because the petition was also one of
certiorari.[12] It further ruled that a shipyard like PHILSECO is a public utility whose
capitalization must be sixty percent (60%) Filipino-owned.[13] Consequently, the right to top
granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for the sale of
the 87.67% equity of the National Government in PHILSECO is illegal---not only because it
violates the rules on competitive bidding--- but more so, because it allows foreign
corporations to own more than 40% equity in the shipyard.[14] It also held that although
the petitioner had the opportunity to examine the ASBR before it participated in the bidding,
it cannot be estopped from questioning the unconstitutional, illegal and inequitable
provisions thereof.[15] Thus, this Court voided the transfer of the national governments
87.67% share in PHILSECO to Philyard Holdings, Inc., and upheld the right of JG Summit, as
the highest bidder, to take title to the said shares, viz:
Wherefore, the instant petition for review on certiorari is GRANTED. The assailed Decision
and Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to
pay to APT its bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00 ), less its bid
deposit plus interests upon the finality of this Decision. In turn, APT is ordered to:
(a)
accept the said amount of P2,030,000,000.00 less bid deposit and interests from
petitioner;
(b)

execute a Stock Purchase Agreement with petitioner;

(c)
cause the issuance in favor of petitioner of the certificates of stocks representing
87.6% of PHILSECOs total capitalization;
(d)
return to private respondent PHGI the amount of Two Billion One Hundred ThirtyOne Million Five Hundred Thousand Pesos (P2,131,500,000.00); and
(e)

cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.[16]
In separate Motions for Reconsideration,[17] respondents submit three basic issues for our
resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA,
KAWASAKI can exercise its right of first refusal only up to 40% of the total capitalization of
PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the principles of
competitive bidding.
I.
Whether PHILSECO is a Public Utility.
After carefully reviewing the applicable laws and jurisprudence, we hold that PHILSECO is not
a public utility for the following reasons:

First. By nature, a shipyard is not a public utility.

A public utility is a business or service engaged in regularly supplying the public with
some commodity or service of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service.[18] To constitute a public utility, the facility
must be necessary for the maintenance of life and occupation of the residents. However, the
fact that a business offers services or goods that promote public good and serve the interest
of the public does not automatically make it a public utility. Public use is not synonymous
with public interest. As its name indicates, the term public utility implies public use and
service to the public. The principal determinative characteristic of a public utility is that of
service to, or readiness to serve, an indefinite public or portion of the public as such which
has a legal right to demand and receive its services or commodities. Stated otherwise, the
owner or person in control of a public utility must have devoted it to such use that the public
generally or that part of the public which has been served and has accepted the service, has
the right to demand that use or service so long as it is continued, with reasonable efficiency
and under proper charges.[19] Unlike a private enterprise which independently determines
whom it will serve, a public utility holds out generally and may not refuse legitimate
demand for service.[20] Thus, in Iloilo Ice and Cold Storage Co. vs. Public Utility Board,[21]
this Court defined public use, viz:
Public use means the same as use by the public. The essential feature of the public use
is that it is not confined to privileged individuals, but is open to the indefinite public. It is this
indefinite or unrestricted quality that gives it its public character. In determining whether a
use is public, we must look not only to the character of the business to be done, but also to
the proposed mode of doing it. If the use is merely optional with the owners, or the public
benefit is merely incidental, it is not a public use, authorizing the exercise of jurisdiction of
the public utility commission. There must be, in general, a right which the law compels the
owner to give to the general public. It is not enough that the general prosperity of the public
is promoted. Public use is not synonymous with public interest. The true criterion by which to
judge the character of the use is whether the public may enjoy it by right or only by
permission.[22] (emphasis supplied)
Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a shipyard
cannot be considered a public utility.
A shipyard is a place or enclosure where ships are built or repaired.[23] Its nature
dictates that it serves but a limited clientele whom it may choose to serve at its discretion.
While it offers its facilities to whoever may wish to avail of its services, a shipyard is not
legally obliged to render its services indiscriminately to the public. It has no legal obligation
to render the services sought by each and every client. The fact that it publicly offers its
services does not give the public a legal right to demand that such services be rendered.
There can be no disagreement that the shipbuilding and ship repair industry is imbued with
public interest as it involves the maintenance of the seaworthiness of vessels dedicated to
the transportation of either persons or goods. Nevertheless, the fact that a business is
affected with public interest does not imply that it is under a duty to serve the public. While
the business may be regulated for public good, the regulation cannot justify the
classification of a purely private enterprise as a public utility. The legislature cannot, by its
mere declaration, make something a public utility which is not in fact such; and a private

business operated under private contracts with selected customers and not devoted to
public use cannot, by legislative fiat or by order of a public service commission, be declared
a public utility, since that would be taking private property for public use without just
compensation, which cannot be done consistently with the due process clause.[24]
It is worthy to note that automobile and aircraft manufacturers, which are of similar nature
to shipyards, are not considered public utilities despite the fact that their operations greatly
impact on land and air transportation. The reason is simple. Unlike commodities or services
traditionally regarded as public utilities such as electricity, gas, water, transportation,
telephone or telegraph service, automobile and aircraft manufacturing---and for that matter
ship building and ship repair--- serve the public only incidentally.
Second. There is no law declaring a shipyard as a public utility.
History provides us hindsight and hindsight ought to give us a better view of the intent of
any law. The succession of laws affecting the status of shipyards ought not to obliterate, but
rather, give us full picture of the intent of the legislature. The totality of the circumstances,
including the contemporaneous interpretation accorded by the administrative bodies tasked
with the enforcement of the law all lead to a singular conclusion: that shipyards are not
public utilities.
Since the enactment of Act No. 2307 which created the Public Utility Commission (PUC) until
its repeal by Commonwealth Act No. 146, establishing the Public Service Commission (PSC),
a shipyard, by legislative declaration, has been considered a public utility.[25] A Certificate
of Public Convenience (CPC) from the PSC to the effect that the operation of the said service
and the authorization to do business will promote the public interests in a proper and
suitable manner is required before any person or corporation may operate a shipyard.[26] In
addition, such persons or corporations should abide by the citizenship requirement provided
in Article XIII, section 8 of the 1935 Constitution,[27] viz:
Sec. 8. No franchise, certificate, or any other form or authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or other
entities organized under the laws of the Philippines, sixty per centum of the capital of which
is owned by citizens of the Philippines, nor shall such franchise, certificate or authorization
be exclusive in character or for a longer period than fifty years. No franchise or right shall be
granted to any individual, firm or corporation, except under the condition that it shall be
subject to amendment, alteration, or repeal by the National Assembly when the public
interest so requires. (emphasis supplied)
To accelerate the development of shipbuilding and ship repair industry, former President
Ferdinand E. Marcos issued P.D. No. 666 granting the following incentives:
SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime Industry
Authority shall be entitled to the following incentive benefits:
(a)
Exemption from import duties and taxes.- The importation of machinery, equipment
and materials for shipbuilding, ship repair and/or alteration, including indirect import, as well
as replacement and spare parts for the repair and overhaul of vessels such as steel plates,
electrical machinery and electronic parts, shall be exempt from the payment of customs
duty and compensating tax: Provided, however, That the Maritime Industry Authority

certifies that the item or items imported are not produced locally in sufficient quantity and
acceptable quality at reasonable prices, and that the importation is directly and actually
needed and will be used exclusively for the construction, repair, alteration, or overhaul of
merchant vessels, and other watercrafts; Provided, further, That if the above machinery,
equipment, materials and spare parts are sold to non-tax exempt persons or entities, the
corresponding duties and taxes shall be paid by the original importer; Provided, finally, That
local dealers and/or agents who sell machinery, equipment, materials and accessories to
shipyards for shipbuilding and ship repair are entitled to tax credits, subject to approval by
the total tariff duties and compensating tax paid for said machinery, equipment, materials
and accessories.
(b)
Accelerated depreciation.- Industrial plant and equipment may, at the option of the
shipbuilder and ship repairer, be depreciated for any number of years between five years
and expected economic life.
(c)
Exemption from contractors percentage tax.- The gross receipts derived by
shipbuilders and ship repairers from shipbuilding and ship repairing activities shall be
exempt from the Contractors Tax provided in Section 91 of the National Internal Revenue
Code during the first ten years from registration with the Maritime Industry Authority,
provided that such registration is effected not later than the year 1990; Provided, That any
and all amounts which would otherwise have been paid as contractors tax shall be set aside
as a separate fund, to be known as Shipyard Development Fund, by the contractor for the
purpose of expansion, modernization and/or improvement of the contractors own
shipbuilding or ship repairing facilities; Provided, That, for this purpose, the contractor shall
submit an annual statement of its receipts to the Maritime Industry Authority; and Provided,
further, That any disbursement from such fund for any of the purposes hereinabove stated
shall be subject to approval by the Maritime Industry Authority.
In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from the list of
public utilities, thereby freeing the industry from the 60% citizenship requirement under the
Constitution and from the need to obtain Certificate of Public Convenience pursuant to
section 15 of C.A No. 146. Section 1 (d) of P.D. 666 reads:
(d) Registration required but not as a Public Utility.- The business of constructing and
repairing vessels or parts thereof shall not be considered a public utility and no Certificate of
Public Convenience shall be required therefor. However, no shipyard, graving dock, marine
railway or marine repair shop and no person or enterprise shall engage in construction
and/or repair of any vessel, or any phase or part thereof, without a valid Certificate of
Registration and license for this purpose from the Maritime Industry Authority, except those
owned or operated by the Armed Forces of the Philippines or by foreign governments
pursuant to a treaty or agreement. (emphasis supplied)
Any law, decree, executive order, or rules and regulations inconsistent with P.D. No. 666
were repealed or modified accordingly.[28] Consequently, sections 13 (b) and 15 of C.A. No.
146 were repealed in so far as the former law included shipyards in the list of public utilities
and required the certificate of public convenience for their operation. Simply stated, the
repeal was due to irreconcilable inconsistency, and by definition, this kind of repeal falls
under the category of an implied repeal.[29]

On April 28, 1983, Batas Pambansa Blg. 391, also known as the Investment Incentive Policy
Act of 1983, was enacted. It laid down the general policy of the government to encourage
private domestic and foreign investments in the various sectors of the economy, to wit:
Sec. 2. Declaration of Investment Policy.- It is the policy of the State to encourage private
domestic and foreign investments in industry, agriculture, mining and other sectors of the
economy which shall: provide significant employment opportunities relative to the amount of
the capital being invested; increase productivity of the land, minerals, forestry, aquatic and
other resources of the country, and improve utilization of the products thereof; improve
technical skills of the people employed in the enterprise; provide a foundation for the future
development of the economy; accelerate development of less developed regions of the
country; and result in increased volume and value of exports for the economy.
It is the policy of the State to extend to projects which will significantly contribute to the
attainment of these objectives, fiscal incentives without which said projects may not be
established in the locales, number and/or pace required for optimum national economic
development. Fiscal incentive systems shall be devised to compensate for market
imperfections, reward performance of making contributions to economic development, costefficient and be simple to administer.
The fiscal incentives shall be extended to stimulate establishment and assist initial
operations of the enterprise, and shall terminate after a period of not more than 10 years
from registration or start-up of operation unless a special period is otherwise stated.
The foregoing declaration shall apply to all investment incentive schemes and in particular
will supersede article 2 of Presidential Decree No. 1789. (emphases supplied)
With the new investment incentive regime, Batas Pambansa Blg. 391 repealed the following
laws, viz:
Sec. 20. The following provisions are hereby repealed:
1)

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

2.)

Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);

3)

Section 6, P.D. 1101 (Radioactive Minerals);

4)

LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and

5)
The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30, 39, 49 (d), 62,
and 77. Articles 45, 46 and 48 are hereby amended only with respect to domestic and export
producers.
All other laws, decrees, executive orders, administrative orders, rules and regulations or
parts thereof which are inconsistent with the provisions of this Act are hereby repealed,
amended or modified accordingly.
All other incentive systems which are not in any way affected by the provisions of this Act
may be restructured by the President so as to render them cost-efficient and to make them

conform with the other policy guidelines in the declaration of policy provided in Section 2 of
this Act. (emphasis supplied)
From the language of the afore-quoted provision, the whole of P.D. No. 666, section 1 was
expressly and categorically repealed. As a consequence, the provisions of C.A. No. 146,
which were impliedly repealed by P.D. No. 666, section 1 were revived.[30] In other words,
with the enactment of Batas Pambansa Blg. 391, a shipyard reverted back to its status as a
public utility and as such, requires a CPC for its operation.
The crux of the present controversy is the effect of the express repeal of Batas Pambansa
Blg. 391 by Executive Order No. 226 issued by former President Corazon C. Aquino under her
emergency powers.
We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did not revive
Section 1 of P.D. No. 666. But more importantly, it also put a period to the existence of
sections 13 (b) and 15 of C.A. No. 146. It bears emphasis that sections 13 (b) and 15 of C.A.
No. 146, as originally written, owed their continued existence to Batas Pambansa Blg. 391.
Had the latter not repealed P.D. No. 666, the former should have been modified accordingly
and shipyards effectively removed from the list of public utilities. Ergo, with the express
repeal of Batas Pambansa Blg. 391 by E.O. No. 226, the revival of sections 13 (b) and 15 of
C.A. No. 146 had no more leg to stand on. A law that has been expressly repealed ceases to
exist and becomes inoperative from the moment the repealing law becomes effective.[31]
Hence, there is simply no basis in the conclusion that shipyards remain to be a public utility.
A repealed statute cannot be the basis for classifying shipyards as public utilities.
In view of the foregoing, there can be no other conclusion than to hold that a shipyard is not
a pubic utility. A shipyard has been considered a public utility merely by legislative
declaration. Absent this declaration, there is no more reason why it should continuously be
regarded as such. The fact that the legislature did not clearly and unambiguously express its
intention to include shipyards in the list of public utilities indicates that that it did not intend
to do so. Thus, a shipyard reverts back to its status as non-public utility prior to the
enactment of the Public Service Law.
This interpretation is in accord with the uniform interpretation placed upon it by the Board of
Investments (BOI), which was entrusted by the legislature with the preparation of annual
Investment Priorities Plan (IPPs). The BOI has consistently classified shipyards as part of the
manufacturing sector and not of the public utilities sector. The enactment of Batas
Pambansa Blg. 391 did not alter the treatment of the BOI on shipyards. It has been, as at
present, classified as part of the manufacturing and not of the public utilities sector.[32]
Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered with the
MARINA,[33] none appears to have an existing franchise. If we continue to hold that a
shipyard is a pubic utility, it is a necessary consequence that all these entities should have
obtained a franchise as was the rule prior to the enactment of P.D. No. 666. But MARINA
remains without authority, pursuant to P.D. No. 474[34] to issue franchises for the operation
of shipyards. Surely,
the legislature did not intend to create a vacuum by continuously treating a shipyard as a
public utility without giving MARINA the power to issue a Certificate of Public Convenience

(CPC) or a Certificate of Public Convenience and Necessity (CPCN) as required by section 15

of C.A. No. 146.
II.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%
of PHILSECOs total capitalization.
A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing that
prevents KAWASAKI from acquiring more than 40% of PHILSECOs total capitalization.
Section 1 of the 1977 JVA states:
1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall thereafter
increase their subscription in Philseco as may be necessary and as called by the Board of
Directors, maintaining a proportion of 60%-40% for NIDC and KAWASAKI respectively, up to a
total subscribed and paid-up capital stock of P312 million.
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [renamed
PHILSECO] to any third party without giving the other under the same terms the right of first
refusal. This provision shall not apply if the transferee is a corporation owned and controlled
by the GOVERMENT [of the Philippines] or by a Kawasaki affiliate.
1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights to unissued
shares of SNS [PHILSECO].[35]
Under section 1.3, the parties agreed to the amount of P330 million as the total
capitalization of their joint venture. There was no mention of the amount of their initial
subscription. What is clear is that they are to infuse the needed capital from time to time
until the total subscribed and paid-up capital reaches P312 million. The phrase maintaining
a proportion of 60%-40% refers to their respective share of the burden each time the Board
of Directors decides to increase the subscription to reach the target paid-up capital of P312
million. It does not bind the parties to maintain the sharing scheme all throughout the
existence of their partnership.
The parties likewise agreed to arm themselves with protective mechanisms to preserve their
respective interests in the partnership in the event that (a) one party decides to sell its
shares to third parties; and (b) new Philseco shares are issued. Anent the first situation, the
non-selling party is given the right of first refusal under section 1.4 to have a preferential
right to buy or to refuse the selling partys shares. The right of first refusal is meant to
protect the original or remaining joint venturer(s) or shareholder(s) from the entry of third
persons who are not acceptable to it as co-venturer(s) or co-shareholder(s). The joint
venture between the Philippine Government and KAWASAKI is in the nature of a
partnership[36] which, unlike an ordinary corporation, is based on delectus personae.[37] No
one can become a member of the partnership association without the consent of all the
other associates. The right of first refusal thus ensures that the parties are given control
over who may become a new partner in substitution of or in addition to the original partners.
Should the selling partner decide to dispose all its shares, the non-selling partner may
acquire all these shares and terminate the partnership. No person or corporation can be

compelled to remain or to continue the partnership. Of course, this presupposes that there
are no other restrictions in the maximum allowable share that the non-selling partner may
acquire such as the constitutional restriction on foreign ownership in public utility. The
theory that KAWASAKI can acquire, as a maximum, only 40% of PHILSECOs shares is correct
only if a shipyard is a public utility. In such instance, the non-selling partner who is an alien
can acquire only a maximum of 40% of the total capitalization of a public utility despite the
grant of first refusal. The partners cannot, by mere agreement, avoid the constitutional
proscription. But as afore-discussed, PHILSECO is not a public utility and no other restriction
is present that would limit the right of KAWASAKI to purchase the Governments share to
40% of Philsecos total capitalization.
Furthermore, the phrase under the same terms in section 1.4 cannot be given an
interpretation that would limit the right of KAWASAKI to purchase PHILSECO shares only to
the extent of its original proportionate contribution of 40% to the total capitalization of the
PHILSECO. Taken together with the whole of section 1.4, the phrase under the same terms
means that a partner to the joint venture that decides to sell its shares to a third party shall
make a similar offer to the non-selling partner. The selling partner cannot make a different or
a more onerous offer to the non-selling partner.
The exercise of first refusal presupposes that the non-selling partner is aware of the terms of
the conditions attendant to the sale for it to have a guided choice. While the right of first
refusal protects the non-selling partner from the entry of third persons, it cannot also
deprive the other partner the right to sell its shares to third persons if, under the same offer,
it does not buy the shares.
Apart from the right of first refusal, the parties also have preemptive rights under section 1.5
in the unissued shares of Philseco. Unlike the former, this situation does not contemplate
transfer of a partners shares to third parties but the issuance of new Philseco shares. The
grant of preemptive rights preserves the proportionate shares of the original partners so as
not to dilute their respective interests with the issuance of the new shares. Unlike the right
of first refusal, a preemptive right gives a partner a preferential right over the newly issued
shares only to the extent that it retains its original proportionate share in the joint venture.
The case at bar does not concern the issuance of new shares but the transfer of a partners
share in the joint venture. Verily, the operative protective mechanism is the right of first
refusal which does not impose any limitation in the maximum shares that the non-selling
partner may acquire.
III.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates
the principles of competitive bidding.
We also hold that the right to top granted to KAWASAKI and exercised by private respondent
did not violate the rules of competitive bidding.
The word bidding in its comprehensive sense means making an offer or an invitation to
prospective contractors whereby the government manifests its intention to make proposals

for the purpose of supplies, materials and equipment for official business or public use, or for
public works or repair.[38] The three principles of public bidding are: (1) the offer to the
public; (2) an opportunity for competition; and (3) a basis for comparison of bids.[39] As long
as these three principles are complied with, the public bidding can be considered valid and
legal. It is not necessary that the highest bid be automatically accepted. The bidding rules
may specify other conditions or the bidding process be subjected to certain reservation or
qualification such as when the owner reserves to himself openly at the time of the sale the
right to bid upon the property, or openly announces a price below which the property will not
be sold. Hence, where the seller reserves the right to refuse to accept any bid made, a
binding sale is not consummated between the seller and the bidder until the seller accepts
the bid. Furthermore, where a right is reserved in the seller to reject any and all bids
received, the owner may exercise the right even after the auctioneer has accepted a bid,
and this applies to the auction of public as well as private property. [40] Thus:
It is a settled rule that where the invitation to bid contains a reservation for the Government
to reject any or all bids, the lowest or the highest bidder, as the case may be, is not entitled
to an award as a matter of right for it does not become a ministerial duty of the Government
to make such an award. Thus, it has been held that where the right to reject is so reserved,
the lowest bid or any bid for that matter may be rejected on a mere technicality, that all bids
may be rejected, even if arbitrarily and unwisely, or under a mistake, and that in the
exercise of a sound discretion, the award may be made to another than the lowest bidder.
And so, where the Government as advertiser, availing itself of that right, makes its choice in
rejecting any or all bids, the losing bidder has no cause to complain nor right to dispute that
choice, unless an unfairness or injustice is shown. Accordingly, he has no ground of action to
compel the Government to award the contract in his favor, nor compel it to accept his bid.
[41]
In the instant case, the sale of the Government shares in PHILSECO was publicly known. All
interested bidders were welcomed. The basis for comparing the bids were laid down. All
bids were accepted sealed and were opened and read in the presence of the COAs official
representative and before all interested bidders. The only question that remains is whether
or not the existence of KAWASAKIs right to top destroys the essence of competitive bidding
so as to say that the bidders did not have an opportunity for competition. We hold that it
does not.
The essence of competition in public bidding is that the bidders are placed on equal footing.
This means that all qualified bidders have an equal chance of winning the auction through
their bids. In the case at bar, all of the bidders were exposed to the same risk and were
subjected to the same condition, i.e., the existence of KAWASAKIs right to top. Under the
ASBR, the Government expressly reserved the right to reject any or all bids, and manifested
its intention not to accept the highest bid should KAWASAKI decide to exercise its right to top
under the ABSR. This reservation or qualification was made known to the bidders in a prebidding conference held on September 28, 1993. They all expressly accepted this condition
in writing without any qualification. Furthermore, when the Committee on Privatization
notified petitioner of the approval of the sale of the National Government shares of stock in
PHILSECO, it specifically stated that such approval was subject to the right of KAWASAKI
Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as specified in the
bidding rules. Clearly, the approval of the sale was a conditional one. Since Philyards
eventually exercised its right to top petitioners bid by 5%, the sale was not consummated.

Parenthetically, it cannot be argued that the existence of the right to top set for naught the
entire public bidding. Had Philyards Holdings, Inc. failed or refused to exercise its right to
top, the sale between the petitioner and the National Government would have been
consummated. In like manner, the existence of the right to top cannot be likened to a
second bidding, which is countenanced, except when there is failure to bid as when there is
only one bidder or none at all. A prohibited second bidding presupposes that based on the
terms and conditions of the sale, there is already a highest bidder with the right to demand
that the seller accept its bid. In the instant case, the highest bidder was well aware that the
acceptance of its bid was conditioned upon the non-exercise of the right to top.
To be sure, respondents did not circumvent the requirements for bidding by granting
KAWASAKI, a non-bidder, the right to top the highest bidder. The fact that KAWASAKIs
nominee to exercise the right to top has among its stockholders some losing bidders cannot
also be deemed unfair.
It must be emphasized that none of the parties questions the existence of KAWASAKIs right
of first refusal, which is concededly the basis for the grant of the right to top. Under
KAWASAKIs right of first refusal, the National Government is under the obligation to give
preferential right to KAWASAKI in the event it decides to sell its shares in PHILSECO. It has to
offer to KAWASAKI the shares and give it the option to buy or refuse under the same terms
for which it is willing to sell the said shares to third parties. KAWASAKI is not a mere nonbidder. It is a partner in the joint venture; the incidents of which are governed by the law on
contracts and on partnership.
It is true that properties of the National Government, as a rule, may be sold only after a
public bidding is held. Public bidding is the accepted method in arriving at a fair and
reasonable price and ensures that overpricing, favoritism and other anomalous practices are
eliminated or minimized.[42] But the requirement for public bidding does not negate the
exercise of the right of first refusal. In fact, public bidding is an essential first step in the
exercise of the right of first refusal because it is only after the public bidding that the terms
upon which the Government may be said to be willing to sell its shares to third parties may
be known. It is only after the public bidding that the Government will have a basis with
which to offer KAWASAKI the option to buy or forego the shares.
Assuming that the parties did not swap KAWASAKIs right of first refusal with the right to top,
KAWASAKI would have been able to buy the National Governments shares in PHILSECO
under the same terms as offered by the highest bidder. Stated otherwise, by exercising its
right of first refusal, KAWASAKI could have bought the shares for only P2.03 billion and not
the higher amount of P2.1315 billion. There is, thus, no basis in the submission that the
right to top unfairly favored KAWASAKI. In fact, with the right to top, KAWASAKI stands to pay
higher than it should had it settled with its right of first refusal. The obvious beneficiary of
the scheme is the National Government.
If at all, the obvious consideration for the exchange of the right of first refusal with the right
to top is that KAWASAKI can name a nominee, which it is a shareholder, to exercise the right
to top. This is a valid contractual stipulation; the right to top is an assignable right and both
parties are aware of the full legal consequences of its exercise. As aforesaid, all bidders were
aware of the existence of the right to top, and its possible effects on the result of the public

bidding was fully disclosed to them. The petitioner, thus, cannot feign ignorance nor can it
be allowed to repudiate its acts and question the proceedings it had fully adhered to.[43]
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular
Life Assurance, Mitsui and ICTSI), has joined Philyards in the latters effort to raise P2.131
billion necessary in exercising the right to top is not contrary to law, public policy or public
morals. There is nothing in the ASBR that bars the losing bidders from joining either the
winning bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it exercise
its right to top as it did), to raise the purchase price. The petitioner did not allege, nor was it
shown by competent evidence, that the participation of the losing bidders in the public
bidding was done with fraudulent intent. Absent any proof of fraud, the formation by
Philyards of a consortium is legitimate in a free enterprise system. The appellate court is
thus correct in holding the petitioner estopped from questioning the validity of the transfer
of the National Governments shares in PHILSECO to respondent.
Finally, no factual basis exists to support the view that the drafting of the ASBR was illegal
because no prior approval was given by the COA for it, specifically the provision on the right
to top the highest bidder and that the public auction on December 2, 1993 was not
witnessed by a COA representative. No evidence was proffered to prove these allegations
and the Court cannot make legal conclusions out of mere allegations. Regularity in the
performance of official duties is presumed[44] and in the absence of competent evidence to
rebut this presumption, this Court is duty bound to uphold this presumption.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby GRANTED. The
impugned Decision and Resolution of the Court of Appeals are AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, and Corona, JJ., concur.
Tinga, J., please see separate opinion.