Republic of the Philippines 111,415 PTIC shares, or 46.
125 percent of the outstanding capital stock of PTIC, through a public
SUPREME COURT
Manila
EN BANC
G.R. No. 176579 June 28, 2011
WILSON P. GAMBOA, Petitioner,
vs.
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P.
SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR
AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN
ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF
METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS
MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L.
NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE
BARIN OF THE SECURITIES EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM
OF THE PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-Intervention.
DECISION
CARPIO, J.:
The Case
This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity
of the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by
the government of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc. (MPAH),
an affiliate of First Pacific Company Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance
Telephone Company (PLDT), are as follows:1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a
franchise and the right to engage in telecommunications business. In 1969, General Telephone
and Electronics Corporation (GTE), an American company and a major PLDT stockholder, sold 26
percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI)
was incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently,
PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment
executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415
shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good
Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the
outstanding capital stock of PTIC, were later declared by this Court to be owned by the Republic
of the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the
remaining 54 percent of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-
Agency Privatization Council (IPC) of the Philippine Government announced that it would sell the
bidding to be conducted on 4 December 2006. Subsequently, the public bidding was reset to 8
December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia
Presidio Capital, submitted their bids. Parallax won with a bid of 25.6 billion or US$510 million.
Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC
stockholder and buy the 111,415 PTIC shares by matching the bid price of Parallax. However,
First Pacific failed to do so by the 1 February 2007 deadline set by IPC and instead, yielded its
right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On
14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and
Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital
stock of PTIC, with the Philippine Government for the price of 25,217,556,000 or
US$510,580,189. The sale was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of
PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding
common shares of PLDT. With the sale, First Pacifics common shareholdings in PLDT
increased from 30.7 percent to 37 percent, thereby increasing the common
shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11,
Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a
public utility to not more than 40 percent.3
On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John
P. Sevilla, and PCGG Commissioner Ricardo Abcede allege the following relevant facts:
On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment
holdings. PTIC held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT
outstanding common shares. PHI, on the other hand, was incorporated in 1977, and became the
owner of 111,415 PTIC shares or 46.125 percent of the outstanding capital stock of PTIC by virtue
of three Deeds of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the
111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently declared by
this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered
PTIC shares were reconveyed to the Republic of the Philippines in accordance with this Courts
decision4 which became final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent
of the outstanding common shares of stock of PLDT, and designated the Inter-Agency Privatization
Council (IPC), composed of the Department of Finance and the PCGG, as the disposing entity. An
invitation to bid was published in seven different newspapers from 13 to 24 November 2006. On
20 November 2006, a pre-bid conference was held, and the original deadline for bidding scheduled
on 4 December 2006 was reset to 8 December 2006. The extension was published in nine different
newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest
bidder with a bid of 25,217,556,000. The government notified First Pacific, the majority owner
of PTIC shares, of the bidding results and gave First Pacific until 1 February 2007 to exercise its
right of first refusal in accordance with PTICs Articles of Incorporation. First Pacific announced its
intention to match Parallaxs bid.
On 31 January 2007, the House of Representatives (HR) Committee on Good Government
conducted a public hearing on the particulars of the then impending sale of the 111,415 PTIC
shares. Respondents Teves and Sevilla were among those who attended the public hearing. The
HR Committee Report No. 2270 concluded that: (a) the auction of the governments 111,415 PTIC
shares bore due diligence, transparency and conformity with existing legal procedures; and
(b) First Pacifics intended acquisition of the governments 111,415 PTIC shares
resulting in First Pacifics 100% ownership of PTIC will not violate the 40 percent
constitutional limit on foreign ownership of a public utility since PTIC holds only
13.847 percent of the total outstanding common shares of PLDT.5 On 28 February 2007,
First Pacific completed the acquisition of the 111,415 shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public
bidding for the sale of 111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC
(the remaining 54 percent of PTIC shares was already owned by First Pacific and its affiliates);
(b) Parallax offered the highest bid amounting to 25,217,556,000; (c) pursuant to the right of
first refusal in favor of PTIC and its shareholders granted in PTICs Articles of Incorporation, MPAH,
a First Pacific affiliate, exercised its right of first refusal by matching the highest bid offered for
PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when
MPAH paid IPC 25,217,556,000 and the government delivered the certificates for the 111,415
PTIC shares. Respondent Pangilinan denies the other allegations of facts of petitioner.
On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory
relief, and declaration of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among
others, that the sale of the 111,415 PTIC shares would result in an increase in First Pacifics
common shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with
Japanese NTT DoCoMos common shareholdings in PLDT, would result to a total foreign common
shareholdings in PLDT of 51.56 percent which is over the 40 percent constitutional
limit.6 Petitioner asserts:
If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to
37.0 percent of its common or voting- stockholdings, x x x. Hence, the consummation of the
sale will put the two largest foreign investors in PLDT First Pacific and Japans NTT DoCoMo,
which is the worlds largest wireless telecommunications firm, owning 51.56 percent of PLDT
common equity. x x x With the completion of the sale, data culled from the official website of the
New York Stock Exchange (www.nyse.com) showed that those foreign entities, which own at least
five percent of common equity, will collectively own 81.47 percent of PLDTs common equity. x x
x Section 11, Article XII of the Constitution has far-reaching implications to the national economy,
x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT
submitted to the New York Stock Exchange for the period 2003-2005, revealed that First Pacific
and several other foreign entities breached the constitutional limit of 40 percent ownership as
early as 2003. x x x"7
Petitioner raises the following issues: (1) whether the consummation of the then impending sale
of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign ownership of a
public utility; (2) whether public respondents committed grave abuse of discretion in allowing the
sale of the 111,415 PTIC shares to First Pacific; and (3) whether the sale of common shares to
foreigners in excess of 40 percent of the entire subscribed common capital stock violates the
constitutional limit on foreign ownership of a public utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene
and Admit Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court
granted the motion and noted the Petition-in-Intervention.
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in seeking, among others, to
enjoin and/or nullify the sale by respondents of the 111,415 PTIC shares to First Pacific or
assignee." Petitioners-in-intervention claim that, as PLDT subscribers, they have a "stake in the
outcome of the controversy x x x where the Philippine Government is completing the sale of
government owned assets in [PLDT], unquestionably a public utility, in violation of the nationality
restrictions of the Philippine Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those raised by petitioner,9 which
indisputably demand a thorough examination of the evidence of the parties, are generally beyond
this Courts jurisdiction. Adhering to this well-settled principle, the Court shall confine the
resolution of the instant controversy solely on the threshold and purely legal issue of whether
the term "capital" in Section 11, Article XII of the Constitution refers to the total common shares
only or to the total outstanding capital stock (combined total of common and non-voting preferred
shares) of PLDT, a public utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks,
only the petition for prohibition is within the original jurisdiction of this court, which however is
not exclusive but is concurrent with the Regional Trial Court and the Court of Appeals. The actions
for declaratory relief,10 injunction, and annulment of sale are not embraced within the original
jurisdiction of the Supreme Court. On this ground alone, the petition could have been dismissed
outright.
While direct resort to this Court may be justified in a petition for prohibition,11 the Court shall
nevertheless refrain from discussing the grounds in support of the petition for prohibition since
on 28 February 2007, the questioned sale was consummated when MPAH paid IPC
25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition of the term "capital" in
the Court treats the petition for declaratory relief as one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory
relief as one for mandamus considering the grave injustice that would result in the interpretation
of a banking law. In that case, which involved the crime of rape committed by a foreign tourist
against a Filipino minor and the execution of the final judgment in the civil case for damages on
the tourists dollar deposit with a local bank, the Court declared Section 113 of Central Bank
Circular No. 960, exempting foreign currency deposits from attachment, garnishment or any other
order or process of any court, inapplicable due to the peculiar circumstances of the case. The
Court held that "injustice would result especially to a citizen aggrieved by a foreign guest like
accused x x x" that would "negate Article 10 of the Civil Code which provides that in case of doubt
in the interpretation or application of laws, it is presumed that the lawmaking body intended right
and justice to prevail." The Court therefore required respondents Central Bank of the Philippines,
the local bank, and the accused to comply with the writ of execution issued in the civil case for
damages and to release the dollar deposit of the accused to satisfy the judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the
procedural infirmity of the petition for declaratory relief and treated the same as one for
mandamus. In Alliance, the issue was whether the government unlawfully excluded petitioners,
who were government employees, from the enjoyment of rights to which they were entitled under
the law. Specifically, the question was: "Are the branches, agencies, subdivisions, and
instrumentalities of the Government, including government owned or controlled corporations
included among the four employers under Presidential Decree No. 851 which are required to pay
their employees x x x a thirteenth (13th) month pay x x x ?" The Constitutional principle involved
therein affected all government employees, clearly justifying a relaxation of the technical rules of
procedure, and certainly requiring the interpretation of the assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for
mandamus if the issue involved has far-reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition for declaratory
relief. However, exceptions to this rule have been recognized. Thus, where the petition
has far-reaching implications and raises questions that should be resolved, it may be
treated as one for mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the term "capital" in Section
11, Article XII of the Constitution. He prays that this Court declare that the term "capital" refers
to common shares only, and that such shares constitute "the sole basis in determining foreign
equity in a public utility." Petitioner further asks this Court to declare any ruling inconsistent with
such interpretation unconstitutional.
The interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-
reaching implications to the national economy. In fact, a resolution of this issue will determine
whether Filipinos are masters, or second class citizens, in their own country. What is at stake here
is whether Filipinos or foreigners will have effective control of the national economy. Indeed, if
ever there is a legal issue that has far-reaching implications to the entire nation, and to future
generations of Filipinos, it is the threshhold legal issue presented in this case.
The Court first encountered the issue on the definition of the term "capital" in Section 11, Article
XII of the Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No.
157360.16 That case involved the same public utility (PLDT) and substantially the same private
respondents. Despite the importance and novelty of the constitutional issue raised therein and
despite the fact that the petition involved a purely legal question, the Court declined to resolve
the case on the merits, and instead denied the same for disregarding the hierarchy of
courts.17There, petitioner Fernandez assailed on a pure question of law the Regional Trial Courts
Decision of 21 February 2003 via a petition for review under Rule 45. The Courts Resolution,
denying the petition, became final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle
this purely legal issuewhich is of transcendental importance to the national economy and a
fundamental requirement to a faithful adherence to our Constitution. The Court must forthwith
seize such opportunity, not only for the benefit of the litigants, but more significantly for the
benefit of the entire Filipino people, to ensure, in the words of the Constitution, "a self-reliant and
independent national economy effectively controlled by Filipinos."18 Besides, in the light of
vague and confusing positions taken by government agencies on this purely legal issue, present
and future foreign investors in this country deserve, as a matter of basic fairness, a categorical
ruling from this Court on the extent of their participation in the capital of public utilities and other
nationalized businesses.
Despite its far-reaching implications to the national economy, this purely legal issue has remained
unresolved for over 75 years since the 1935 Constitution. There is no reason for this Court to
evade this ever recurring fundamental issue and delay again defining the term "capital," which
appears not only in Section 11, Article XII of the Constitution, but also in Section 2, Article XII on
co-production and joint venture agreements for the development of our natural resources,19 in
Section 7, Article XII on ownership of private lands,20 in Section 10, Article XII on the reservation
of certain investments to Filipino citizens,21 in Section 4(2), Article XIV on the ownership of
educational institutions,22 and in Section 11(2), Article XVI on the ownership of advertising
companies.23
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question
the subject sale, which he claims to violate the nationality requirement prescribed in Section 11,
Article XII of the Constitution. If the sale indeed violates the Constitution, then there is a possibility
that PLDTs franchise could be revoked, a dire consequence directly affecting petitioners interest
as a stockholder.
More importantly, there is no question that the instant petition raises matters of transcendental
importance to the public. The fundamental and threshold legal issue in this case, involving the
national economy and the economic welfare of the Filipino people, far outweighs any perceived
impediment in the legal personality of the petitioner to bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of
transcendental importance to the public, thus:
In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and
the object of mandamus is to obtain the enforcement of a public duty, the people are
regarded as the real parties in interest; and because it is sufficient that petitioner is a
citizen and as such is interested in the execution of the laws, he need not show that
he has any legal or special interest in the result of the action. In the aforesaid case, the
petitioners sought to enforce their right to be informed on matters of public concern, a right then
recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws
in order to be valid and enforceable must be published in the Official Gazette or otherwise
effectively promulgated. In ruling for the petitioners legal standing, the Court declared that the
right they sought to be enforced is a public right recognized by no less than the fundamental law
of the land.
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a
mandamus proceeding involves the assertion of a public right, the requirement of
personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore,
part of the general public which possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been
involved under the questioned contract for the development, management and operation of the
Manila International Container Terminal, public interest [was] definitely involved
considering the important role [of the subject contract] . . . in the economic
development of the country and the magnitude of the financial consideration
involved. We concluded that, as a consequence, the disclosure provision in the Constitution
would constitute sufficient authority for upholding the petitioners standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public
importance, the petitioner has the requisite locus standi.
Definition of the Term "Capital" in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the
Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines, at least sixty
per centum of whose capital is owned by such citizens; nor shall such franchise, certificate,
or authorization be exclusive in character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so requires. The State
shall encourage equity participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such corporation
or association must be citizens of the Philippines. (Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:
Section 5. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least sixty
per centum of the capital of which is owned by such citizens, nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither
shall any such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the National Assembly when the public interest so requires.
The State shall encourage equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in the capital thereof. (Emphasis supplied)
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935
Constitution, viz:
Section 8. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or 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 Congress when
the public interest so requires. (Emphasis supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds
us that the Filipinization provision in the 1987 Constitution is one of the products of the spirit of
nationalism which gripped the 1935 Constitutional Convention.25 The 1987 Constitution "provides
for the Filipinization of public utilities by requiring that any form of authorization for the operation
of public utilities should be granted only to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens. The provision is [an express] recognition of the sensitive and
vital position of public utilities both in the national economy and for national
security."26 The evident purpose of the citizenship requirement is to prevent aliens from
assuming control of public utilities, which may be inimical to the national interest.27 This specific
provision explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding
economic goal of the 1987 Constitution: to "conserve and develop our patrimony" 28 and ensure
"a self-reliant and independent national economy effectively controlled by Filipinos."29
Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum
nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a
corporation to be granted authority to operate a public utility, at least 60 percent of its "capital"
must be owned by Filipino citizens.
The crux of the controversy is the definition of the term "capital." Does the term "capital" in
Section 11, Article XII of the Constitution refer to common shares or to the total outstanding
capital stock (combined total of common and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers
only to common shares because such shares are entitled to vote and it is through voting that
control over a corporation is exercised. Petitioner posits that the term "capital" in Section 11,
Article XII of the Constitution refers to "the ownership of common capital stock subscribed and
outstanding, which class of shares alone, under the corporate set-up of PLDT, can vote and elect
members of the board of directors." It is undisputed that PLDTs non-voting preferred shares are
held mostly by Filipino citizens.30 This arose from Presidential Decree No. 217,31 issued on 16 June
1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to
subscribe to non-voting preferred shares to pay for the investment cost of installing the telephone
line.32
Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners
definition of the term "capital."33 Petitioners-in-intervention allege that "the approximate foreign
ownership of common capital stock of PLDT x x x already amounts to at least 63.54% of the total
outstanding common stock," which means that foreigners exercise significant control over PLDT,
patently violating the 40 percent foreign equity limitation in public utilities prescribed by the
Constitution.
Respondents, on the other hand, do not offer any definition of the term "capital" in Section 11,
Article XII of the Constitution. More importantly, private respondents Nazareno and Pangilinan of
PLDT do not dispute that more than 40 percent of the common shares of PLDT are held by
foreigners.
In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the
procedural infirmities of the petition and the supposed violation of the due process rights of the
"affected foreign common shareholders." Respondent Nazareno does not deny petitioners
allegation of foreigners dominating the common shareholdings of PLDT. Nazareno stressed mainly
that the petition "seeks to divest foreign common shareholders purportedly exceeding
40% of the total common shareholdings in PLDT of their ownership over their shares."
Thus, "the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that
they can be heard."34 Essentially, Nazareno invokes denial of due process on behalf of the foreign
common shareholders.
While Nazareno does not introduce any definition of the term "capital," he states that "among
the factual assertions that need to be established to counter petitioners allegations
is the uniform interpretation by government agencies (such as the SEC), institutions
and corporations (such as the Philippine National Oil Company-Energy Development
Corporation or PNOC-EDC) of including both preferred shares and common shares in
"controlling interest" in view of testing compliance with the 40% constitutional
limitation on foreign ownership in public utilities."35
Similarly, respondent Manuel V. Pangilinan does not define the term "capital" in Section 11, Article
XII of the Constitution. Neither does he refute petitioners claim of foreigners holding more than
40 percent of PLDTs common shares. Instead, respondent Pangilinan focuses on the procedural
flaws of the petition and the alleged violation of the due process rights of foreigners. Respondent
Pangilinan emphasizes in his Memorandum (1) the absence of this Courts jurisdiction over the
petition; (2) petitioners lack of standing; (3) mootness of the petition; (4) non-availability of
declaratory relief; and (5) the denial of due process rights. Moreover, respondent Pangilinan
alleges that the issue should be whether "owners of shares in PLDT as well as owners of shares
in companies holding shares in PLDT may be required to relinquish their shares in PLDT and in
those companies without any law requiring them to surrender their shares and also without notice
and trial."
Respondent Pangilinan further asserts that "Section 11, [Article XII of the Constitution]
imposes no nationality requirement on the shareholders of the utility company as a
condition for keeping their shares in the utility company." According to him, "Section 11
does not authorize taking one persons property (the shareholders stock in the utility company)
on the basis of another partys alleged failure to satisfy a requirement that is a condition only for
that other partys retention of another piece of property (the utility company being at least 60%
Filipino-owned to keep its franchise)."36
The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P.
Sevilla, Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition
of the term "capital." In its Memorandum37 dated 24 September 2007, the OSG also limits its
discussion on the supposed procedural defects of the petition, i.e. lack of standing, lack of
jurisdiction, non-inclusion of interested parties, and lack of basis for injunction. The OSG does not
present any definition or interpretation of the term "capital" in Section 11, Article XII of the
Constitution. The OSG contends that "the petition actually partakes of a collateral attack on PLDTs
franchise as a public utility," which in effect requires a "full-blown trial where all the parties in
interest are given their day in court."38
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine
Stock Exchange (PSE), does not also define the term "capital" and seeks the dismissal of the
petition on the following grounds: (1) failure to state a cause of action against Lim; (2) the PSE
allegedly implemented its rules and required all listed companies, including PLDT, to make proper
and timely disclosures; and (3) the reliefs prayed for in the petition would adversely impact the
stock market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a
stockholder of record of PLDT, contended that the term "capital" in the 1987 Constitution refers
to shares entitled to vote or the common shares. Fernandez explained thus:
The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution
refers to ownership of shares of stock entitled to vote, i.e., common shares, considering that it is
through voting that control is being exercised. x x x
Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on
fully nationalized and partially nationalized activities is for Filipino nationals to be always in control
of the corporation undertaking said activities. Otherwise, if the Trial Courts ruling upholding
respondents arguments were to be given credence, it would be possible for the ownership
structure of a public utility corporation to be divided into one percent (1%) common stocks and
ninety-nine percent (99%) preferred stocks. Following the Trial Courts ruling adopting
respondents arguments, the common shares can be owned entirely by foreigners thus creating
an absurd situation wherein foreigners, who are supposed to be minority shareholders, control
the public utility corporation.
xxxx
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial
ownership and the controlling interest.
xxxx
Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed
by the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares.
Furthermore, ownership of record of shares will not suffice but it must be shown that the legal
and beneficial ownership rests in the hands of Filipino citizens. Consequently, in the case of
petitioner PLDT, since it is already admitted that the voting interests of foreigners which would
gain entry to petitioner PLDT by the acquisition of SMART shares through the Questioned
Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign
principals and the Filipino owners is likewise admitted, there is, therefore, a violation of Section
11, Article XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court
to support the proposition that the meaning of the word "capital" as used in Section 11, Article
XII of the Constitution allegedly refers to the sum total of the shares subscribed and paid-in by
the shareholder and it allegedly is immaterial how the stock is classified, whether as common or
preferred, cannot stand in the face of a clear legislative policy as stated in the FIA which took
effect in 1991 or way after said opinions were rendered, and as clarified by the above-quoted
Amendments. In this regard, suffice it to state that as between the law and an opinion rendered
by an administrative agency, the law indubitably prevails. Moreover, said Opinions are merely
advisory and cannot prevail over the clear intent of the framers of the Constitution.
In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best
merely advisory for it is the courts that finally determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A.
Arellano, Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray
C. Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the
term "capital" in Section 11, Article XII of the Constitution includes preferred shares since the
Constitution does not distinguish among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the corporations "capital," without
distinction as to classes of shares. x x x
In this connection, the Corporation Code which was already in force at the time the present
(1987) Constitution was drafted defined outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. The term "outstanding capital stock", as used in
this Code, means the total shares of stock issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or partially paid, except treasury shares.
Section 137 of the Corporation Code also does not distinguish between common and preferred
shares, nor exclude either class of shares, in determining the outstanding capital stock (the
"capital") of a corporation. Consequently, petitioners suggestion to reckon PLDTs foreign equity
only on the basis of PLDTs outstanding common shares is without legal basis. The language of
the Constitution should be understood in the sense it has in common use.
xxxx
17. But even assuming that resort to the proceedings of the Constitutional Commission is
necessary, there is nothing in the Record of the Constitutional Commission (Vol. III) which
petitioner misleadingly cited in the Petition x x x which supports petitioners view that only
common shares should form the basis for computing a public utilitys foreign equity.
xxxx
18. In addition, the SEC the government agency primarily responsible for implementing the
Corporation Code, and which also has the responsibility of ensuring compliance with the
Constitutions foreign equity restrictions as regards nationalized activities x x x has categorically
ruled that both common and preferred shares are properly considered in determining outstanding
capital stock and the nationality composition thereof.40
We agree with petitioner and petitioners-in-intervention. The term "capital" in Section 11, Article
XII of the Constitution refers only to shares of stock entitled to vote in the election of directors,
and thus in the present case only to common shares,41 and not to the total outstanding capital
stock comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into
classes or series of shares, or both, any of which classes or series of shares may have such rights,
privileges or restrictions as may be stated in the articles of incorporation: Provided, That no
share may be deprived of voting rights except those classified and issued as
"preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided,
further, That there shall always be a class or series of shares which have complete voting rights.
Any or all of the shares or series of shares may have a par value or have no par value as may be
provided for in the articles of incorporation: Provided, however, That banks, trust companies,
insurance companies, public utilities, and building and loan associations shall not be permitted to
issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the distribution
of the assets of the corporation in case of liquidation and in the distribution of dividends, or such
other preferences as may be stated in the articles of incorporation which are not violative of the
provisions of this Code: Provided, That preferred shares of stock may be issued only with a stated
par value. The Board of Directors, where authorized in the articles of incorporation, may fix the
terms and conditions of preferred shares of stock or any series thereof: Provided, That such terms
and conditions shall be effective upon the filing of a certificate thereof with the Securities and
Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable
and the holder of such shares shall not be liable to the corporation or to its creditors in respect
thereto: Provided; That shares without par value may not be issued for a consideration less than
the value of five (5.00) pesos per share: Provided, further, That the entire consideration received
by the corporation for its no-par value shares shall be treated as capital and shall not be available
for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with
constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock,
each share shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this
Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this Code;
and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to approve a
particular corporate act as provided in this Code shall be deemed to refer only to stocks with
voting rights.
Indisputably, one of the rights of a stockholder is the right to participate in the control or
management of the corporation.43 This is exercised through his vote in the election of directors
because it is the board of directors that controls or manages the corporation.44 In the absence of
provisions in the articles of incorporation denying voting rights to preferred shares, preferred
shares have the same voting rights as common shares. However, preferred shareholders are often
excluded from any control, that is, deprived of the right to vote in the election of directors and on
other matters, on the theory that the preferred shareholders are merely investors in the
corporation for income in the same manner as bondholders.45 In fact, under the Corporation Code
only preferred or redeemable shares can be deprived of the right to vote.46 Common shares cannot
be deprived of the right to vote in any corporate meeting, and any provision in the articles of
incorporation restricting the right of common shareholders to vote is invalid.47
Considering that common shares have voting rights which translate to control, as opposed to
preferred shares which usually have no voting rights, the term "capital" in Section 11, Article XII
of the Constitution refers only to common shares. However, if the preferred shares also have the
right to vote in the election of directors, then the term "capital" shall include such preferred shares
because the right to participate in the control or management of the corporation is exercised
through the right to vote in the election of directors. In short, the term "capital" in Section
11, Article XII of the Constitution refers only to shares of stock that can vote in the
election of directors.
This interpretation is consistent with the intent of the framers of the Constitution to place in the
hands of Filipino citizens the control and management of public utilities. As revealed in the
deliberations of the Constitutional Commission, "capital" refers to the voting stock or controlling
interest of a corporation, to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign
equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the
equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation"? Will the Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP
Law Center who provided us a draft. The phrase that is contained here which we adopted
from the UP draft is "60 percent of voting stock."
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with
60-40 percent equity invests in another corporation which is permitted by the Corporation Code,
does the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock
or controlling interest."
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read:
"corporations or associations at least sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to
be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if they are the minority.
Let us say 40 percent of the capital is owned by them, but it is the voting capital,
whereas, the Filipinos own the nonvoting shares. So we can have a situation where
the corporation is controlled by foreigners despite being the minority because they
have the voting capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973
and 1935 Constitutions is that according to Commissioner Rodrigo, there are
associations that do not have stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling interest."
MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)
Thus, 60 percent of the "capital" assumes, or should result in, "controlling interest" in the
corporation. Reinforcing this interpretation of the term "capital," as referring to controlling interest
or shares entitled to vote, is the definition of a "Philippine national" in the Foreign Investments
Act of 1991,50 to wit:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership
or association wholly owned by citizens of the Philippines; or a corporation organized under
the laws of the Philippines of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a
corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at least sixty
percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where
a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both corporations must be owned and held by citizens
of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of
each of both corporations must be citizens of the Philippines, in order that the corporation, shall
be considered a "Philippine national." (Emphasis supplied)
In explaining the definition of a "Philippine national," the Implementing Rules and Regulations of
the Foreign Investments Act of 1991 provide:
b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or
association wholly owned by the citizens of the Philippines; or a corporation organized under
the laws of the Philippines of which at least sixty percent [60%] of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a
trustee of funds for pension or other employee retirement or separation benefits, where the
trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the
benefit of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders
own stocks in a Securities and Exchange Commission [SEC] registered enterprise, at least sixty
percent [60%] of the capital stock outstanding and entitled to vote of both corporations must be
owned and held by citizens of the Philippines and at least sixty percent [60%] of the members of
the Board of Directors of each of both corporation must be citizens of the Philippines, in order
that the corporation shall be considered a Philippine national. The control test shall be applied for
this purpose.
Compliance with the required Filipino ownership of a corporation shall be determined
on the basis of outstanding capital stock whether fully paid or not, but only such
stocks which are generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals,
mere legal title is not enough to meet the required Filipino equity. Full beneficial
ownership of the stocks, coupled with appropriate voting rights is essential. Thus,
stocks, the voting rights of which have been assigned or transferred to aliens cannot
be considered held by Philippine citizens or Philippine nationals.
Individuals or juridical entities not meeting the aforementioned qualifications are
considered as non-Philippine nationals. (Emphasis supplied)
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with
60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of
the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]."
Under Section 10, Article XII of the Constitution, Congress may "reserve to citizens of the
Philippines or to corporations or associations at least sixty per centum of whose capital is owned
by such citizens, or such higher percentage as Congress may prescribe, certain areas of
investments." Thus, in numerous laws Congress has reserved certain areas of investments to
Filipino citizens or to corporations at least sixty percent of the "capital" of which is owned by
Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or
R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro,
Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development
Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6)
Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or
P.D. No. 1521. Hence, the term "capital" in Section 11, Article XII of the Constitution is also
used in the same context in numerous laws reserving certain areas of investments to Filipino
citizens.
To construe broadly the term "capital" as the total outstanding capital stock, including both
common and non-votingpreferred shares, grossly contravenes the intent and letter of the
Constitution that the "State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos." A broad definition unjustifiably disregards who
owns the all-important voting stock, which necessarily equates to control of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the term "capital." Let us
assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-
voting preferred shares owned by Filipinos, with both classes of share having a par value of one
peso (1.00) per share. Under the broad definition of the term "capital," such corporation would
be considered compliant with the 40 percent constitutional limit on foreign equity of public utilities
since the overwhelming majority, or more than 99.999 percent, of the total outstanding capital
stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the
election of directors, even if they hold only 100 shares. The foreigners, with a minuscule equity
of less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos,
holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence,
have no control over the public utility. This starkly circumvents the intent of the framers of the
Constitution, as well as the clear language of the Constitution, to place the control of public utilities
in the hands of Filipinos. It also renders illusory the State policy of an independent national
economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real world, and in fact exists in
the present case.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of
directors. PLDTs Articles of Incorporation expressly state that "the holders of Serial Preferred
Stock shall not be entitled to vote at any meeting of the stockholders for the election
of directors or for any other purpose or otherwise participate in any action taken by the
corporation or its stockholders, or to receive notice of any meeting of stockholders."51
On the other hand, holders of common shares are granted the exclusive right to vote in the
election of directors. PLDTs Articles of Incorporation52 state that "each holder of Common Capital
Stock shall have one vote in respect of each share of such stock held by him on all matters voted
upon by the stockholders, and the holders of Common Capital Stock shall have the
exclusive right to vote for the election of directors and for all other purposes."53
In short, only holders of common shares can vote in the election of directors, meaning only
common shareholders exercise control over PLDT. Conversely, holders of preferred shares, who
have no voting rights in the election of directors, do not have any control over PLDT. In fact,
under PLDTs Articles of Incorporation, holders of common shares have voting rights for all
purposes, while holders of preferred shares have no voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners hold a majority of the
common shares of PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS),54 which
is a document required to be submitted annually to the Securities and Exchange
Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only
66,750,622 common shares.56 In other words, foreigners hold 64.27% of the total number of
PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the common
shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of
control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities
expressly mandated in Section 11, Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per
share the SIP58preferred shares earn a pittance in dividends compared to the common shares.
PLDT declared dividends for the common shares at 70.00 per share, while the declared dividends
for the preferred shares amounted to a measly 1.00 per share.59 So the preferred shares not
only cannot vote in the election of directors, they also have very little and obviously negligible
dividend earning capacity compared to common shares.
As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares
is 5.00 per share, whereas the par value of preferred shares is 10.00 per share. In other words,
preferred shares have twice the par value of common shares but cannot elect directors and have
only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are
owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares.61 Worse,
preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares
constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the
non-voting preferred shares but with the common shares, blatantly violating the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the
hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
constitutionally required for the States grant of authority to operate a public utility. The
undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and
earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60
percent of the dividends, of PLDT. This directly contravenes the express command in Section
11, Article XII of the Constitution that "[n]o franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to x x x corporations x x
x organized under the laws of the Philippines, at least sixty per centum of whose capital is
owned by such citizens x x x."
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares
exercises the sole right to vote in the election of directors, and thus exercise control over PLDT;
(2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting
stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by
Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common
shares earn;63 (5) preferred shares have twice the par value of common shares; and (6) preferred
shares constitute 77.85% of the authorized capital stock of PLDT and common shares only
22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value of 5.00 have a current stock
market value of 2,328.00 per share,64 while PLDT preferred shares with a par value of 10.00
per share have a current stock market value ranging from only 10.92 to 11.06 per share,65 is a
glaring confirmation by the market that control and beneficial ownership of PLDT rest with the
common shares, not with the preferred shares.
Indisputably, construing the term "capital" in Section 11, Article XII of the Constitution to include
both voting and non-voting shares will result in the abject surrender of our telecommunications
industry to foreigners, amounting to a clear abdication of the States constitutional duty to limit
control of public utilities to Filipino citizens. Such an interpretation certainly runs counter to the
constitutional provision reserving certain areas of investment to Filipino citizens, such as the
exploitation of natural resources as well as the ownership of land, educational institutions and
advertising businesses. The Court should never open to foreign control what the Constitution has
expressly reserved to Filipinos for that would be a betrayal of the Constitution and of the national
interest. The Court must perform its solemn duty to defend and uphold the intent and letter of
the Constitution to ensure, in the words of the Constitution, "a self-reliant and independent
national economy effectively controlled by Filipinos."
Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly
reserving to Filipinos specific areas of investment, such as the development of natural resources
and ownership of land, educational institutions and advertising business, is self-executing.
There is no need for legislation to implement these self-executing provisions of the Constitution.
The rationale why these constitutional provisions are self-executing was explained in Manila Prince
Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a
constitutional mandate, the presumption now is that all provisions of the constitution are self-
executing. If the constitutional provisions are treated as requiring legislation instead of self-
executing, the legislature would have the power to ignore and practically nullify the mandate of
the fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always
been, that
. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-
executing. . . . Unless the contrary is clearly intended, the provisions of the Constitution
should be considered self-executing, as a contrary rule would give the legislature
discretion to determine when, or whether, they shall be effective. These provisions would
be subordinated to the will of the lawmaking body, which could make them entirely meaningless
by simply refusing to pass the needed implementing statute. (Emphasis supplied)
In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno,
later Chief Justice, agreed that constitutional provisions are presumed to be self-executing. Justice
Puno stated:
Courts as a rule consider the provisions of the Constitution as self-executing, rather than as
requiring future legislation for their enforcement. The reason is not difficult to discern. For if they
are not treated as self-executing, the mandate of the fundamental law ratified by the
sovereign people can be easily ignored and nullified by Congress. Suffused with
wisdom of the ages is the unyielding rule that legislative actions may give breath to
constitutional rights but congressional inaction should not suffocate them.
Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches
and seizures, the rights of a person under custodial investigation, the rights of an accused, and
the privilege against self-incrimination. It is recognized that legislation is unnecessary to enable
courts to effectuate constitutional provisions guaranteeing the fundamental rights of life, liberty
and the protection of property. The same treatment is accorded to constitutional provisions
forbidding the taking or damaging of property for public use without just compensation. (Emphasis
supplied)
Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied
directly the provisions of the 1935, 1973 and 1987 Constitutions limiting land ownership to
Filipinos. In Soriano v. Ong Hoo,68this Court ruled:
x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his
land to an alien, and as both the citizen and the alien have violated the law, none of them should
have a recourse against the other, and it should only be the State that should be allowed to
intervene and determine what is to be done with the property subject of the violation. We have
said that what the State should do or could do in such matters is a matter of public policy, entirely
beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-
5996, June 27, 1956.) While the legislature has not definitely decided what policy should
be followed in cases of violations against the constitutional prohibition, courts of
justice cannot go beyond by declaring the disposition to be null and void as violative
of the Constitution. x x x (Emphasis supplied)
To treat Section 11, Article XII of the Constitution as not self-executing would mean that since
the 1935 Constitution, or over the last 75 years, not one of the constitutional provisions expressly
reserving specific areas of investments to corporations, at least 60 percent of the "capital" of
which is owned by Filipinos, was enforceable. In short, the framers of the 1935, 1973 and 1987
Constitutions miserably failed to effectively reserve to Filipinos specific areas of investment, like
the operation by corporations of public utilities, the exploitation by corporations of mineral
resources, the ownership by corporations of real estate, and the ownership of educational
institutions. All the legislatures that convened since 1935 also miserably failed to enact legislations
to implement these vital constitutional provisions that determine who will effectively control the
national economy, Filipinos or foreigners. This Court cannot allow such an absurd interpretation
of the Constitution.
This Court has held that the SEC "has both regulatory and adjudicative functions."69 Under its
regulatory functions, the SEC can be compelled by mandamus to perform its statutory duty when
it unlawfully neglects to perform the same. Under its adjudicative or quasi-judicial functions, the
SEC can be also be compelled by mandamus to hear and decide a possible violation of any law it
administers or enforces when it is mandated by law to investigate such violation.1awphi1
Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or
disapprove the Articles of Incorporation of any corporation where "the required percentage of
ownership of the capital stock to be owned by citizens of the Philippines has not been
complied with as required by existing laws or the Constitution." Thus, the SEC is the
government agency tasked with the statutory duty to enforce the nationality requirement
prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities. This
Court, in a petition for declaratory relief that is treated as a petition for mandamus as in the ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.
present case, can direct the SEC to perform its statutory duty under the law, a duty that the SEC Associate Justice Associate Justice
has apparently unlawfully neglected to do based on the 2010 GIS that respondent PLDT submitted
to the SEC.
JOSE PORTUGAL PEREZ JOSE C. MENDOZA
Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the "power and Associate Justice Associate Justice
function" to "suspend or revoke, after proper notice and hearing, the franchise or
certificate of registration of corporations, partnerships or associations, upon any of
the grounds provided by law." The SEC is mandated under Section 5(d) of the same Code MARIA LOURDES P. A. SERENO
with the "power and function" to "investigate x x x the activities of persons to ensure Associate Justice
compliance" with the laws and regulations that SEC administers or enforces. The GIS that all
corporations are required to submit to SEC annually should put the SEC on guard against violations CERTIFICATION
of the nationality requirement prescribed in the Constitution and existing laws. This Court can
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
compel the SEC, in a petition for declaratory relief that is treated as a petition for mandamus as
above Decision had been reached in consultation before the case was assigned to the writer of
in the present case, to hear and decide a possible violation of Section 11, Article XII of the
the opinion of the Court.
Constitution in view of the ownership structure of PLDTs voting shares, as admitted by
respondents and as stated in PLDTs 2010 GIS that PLDT submitted to SEC. RENATO C. CORONA
Chief Justice
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11,
Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election
of directors, and thus in the present case only to common shares, and not to the total outstanding
capital stock (common and non-voting preferred shares). Respondent Chairperson of the
Securities and Exchange Commission is DIRECTED to apply this definition of the term "capital"
in determining the extent of allowable foreign ownership in respondent Philippine Long Distance
Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to
impose the appropriate sanctions under the law.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice

TERESITA J. LEONARDO-DE
PRESBITERO J. VELASCO, JR.
CASTRO
Associate Justice
Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA

Associate Justice Associate Justice

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

Associate Justice Associate Justice
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. NOS. 174457-59
EXPRESS INVESTMENTS III PRIVATE LTD. AND EXPORT DEVELOPMENT
CANADA, Petitioner,
vs.
DAYAN TELECOMMUNICATIONS, INC., THE BANK OF NEW YORK (AS TRUSTEE FOR
THE HOLDERS OF THE US$200,000,000 13.5% SENIOR NOTES OF DAYAN
TELECOMMUNICATIONS, INC.) AND ATTY. REMIGIO A. NOVAL (AS THE COURT-
APPOINTED REHABILITATION RECEIVER OF BAYANTEL), Respondents.
x---------------x
G.R. Nos. 175418-20
IN THE MATTER OF:
THE CORPORATE REHABILITATION OF DAYAN TELECOMMUNICATIONS, INC.
PURSUANT TO THE INTERIM RULES OF PROCEDURE ON CORPORATE
REHABILITATION (A.M. NO. 00-8-10-SC)
THE BANK OF NEW YORK AS TRUSTEE FOR THE HOLDERS OF THE US$200,000,000
13.5% SENIOR NOTES OF DAYAN TELECOMMUNICATIONS, INC.
DUE 2006 ACTING ON THE INSTRUCTIONS OF THE INFORMAL STEERING
COMMITTEE: AVENUE ASIA INVESTMENTS, L.P., AVENUE ASIA INTERNATIONAL,
LTD., AVENUE ASIA SPECIAL SITUATIONS FUND II, L.P. AND AVENUE ASIA CAPITAL
PARTNERS, L.P., Petitioner,
vs.
DAYAN TELECOMMUNICATIONS, INC., Respondents.
x---------------x
IN THE MATTER OF:
THE CORPORATE REHABILITATION OF BAY AN TELECOMMUNICATIONS, INC.
PURSUANT TO THE INTERIM RULES OF PROCEDURE ON CORPORATE
REHABILITATION (A.M. NO. 00-8-10-SC)
AVENUE ASIA INVESTMENTS, L.P., AVENUE ASIA INTERNATIONAL, LTD., AVENUE
ASIA SPECIAL SITUATIONS FUND II, L.P., AVENUE ASIA CAPITAL PARTNERS, L.P.
AND AVENUE ASIA SPECIAL SITUATIONS FUND III, L.P., Petitioner,
vs.
DAYAN TELECOMMUNICATIONS, INC., Respondents.
x---------------x
G.R. No. 177270 December 5, 2012
THE BANK OF NEW YORK AS TRUSTEE FOR THE HOLDERS OF THE US$200,000,000
13.5% SENIOR NOTES OF BAY AN TELECOMMUNICATIONS, INC., Petitioner,
vs.
BAY AN TELECOMMUNICATIONS, INC., Respondents.
DECISION
VILLARAMA, JR., J.:
Before us are seven consolidated petitions for review on certiorari filed m connection with the
corporate rehabilitation of Bayan Telecommunications, Inc. (Bayantel).
The Petition for Partial Review on Certiorari1 in G.R. Nos. 174457-59 was filed by Express
Investments III Private Ltd. and Export Development Canada to assail the August 18, 2006
Decision2 of the Court of Appeals in CA-G.R. SP No. 87203.
On the other hand, the Petition for Review on Certiorari3 in G.R. Nos. 175418-20 was filed by The
Bank of New York; Avenue Asia Investments, L.P.; Avenue Asia International, Ltd.; Avenue Asia
Special Situations Fund II, L.P.; Avenue Asia Capital Partners, L.P. and Avenue Asia Special
Situations Fund III, L.P. Said petition questions as well the said August 18, 2006 Court of Appeals
Decision, and also the November 8, 2006 Resolution 4 of the Court of Appeals in CA-G.R. SP Nos.
87100 and 87111 affirming the June 28, 2004 Decision5 of the Regional Trial Court (RTC) of Pasig
City, Branch 158, in SEC Case No. 03-25.
Meanwhile, the Petition for Review on Certiorari6 in G.R. No. 177270 was filed by The Bank of New
York, in its capacity as trustee for the holders of the US$200 million 13.5% Senior Notes of
Bayantel and upon the instructions of the Informal Steering Committee, to contest the
Decision7 and Resolution8 of the Court of Appeals in CA-G.R. SP No. 89894 which nullified the
November 9, 2004 and March 15, 2005 Orders of the Pasig RTC, Branch 158, in SEC Case No. 03-
25 insofar as it defined the powers and functions of the Monitoring Committee.
The facts, as culled from the records of these cases, follow:
Respondent Bayantel is a duly organized domestic corporation engaged in the business of
providing telecommunication services. It is 98.6% owned by Bayan Telecommunications Holdings
Corporation (BTHC), which in turn is 85.4% owned by the Lopez Group of Companies and Benpres
Holdings Corporation.
On various dates between the years 1995 and 2001, Bayantel entered into several credit
agreements with Express Investments III Private Ltd. And Export Development Canada
(petitioners in G.R. Nos. 174457-59), Asian Finance and Investment Corporation, Bayerische
Landesbank (Singapore Branch) and Clearwater Capital Partners Singapore Pte Ltd., as agent for
Credit Industriel et Commercial (Singapore), Deutsche Bank AG, Equitable PCI Bank, JP Morgan
Chase Bank, Metropolitan Bank and Trust Co., P.T. Bank Negara Indonesia (Persero), TBK, Hong
Kong Branch, Rizal Commercial Banking Corporation and Standard Chartered Bank. To secure said
loans, Bayantel executed an Omnibus Agreement dated September 19, 1995 and an EVTELCO
Mortgage Trust Indenture9 dated December 12, 1997.10
Pursuant to the Omnibus Agreement, Bayantel executed an Assignment Agreement in favor of the
lenders under the Omnibus Agreement (hereinafter, Omnibus Creditors, Bank Creditors, or
secured creditors). In the Assignment Agreement, Bayantel bound itself to assign, convey and
transfer to the Collateral Agent, the following properties as collateral security for the prompt and
complete payment of its obligations to the Omnibus Creditors:
(i) all monies payable to Bayantel under the Project Documents (as the term is defined by the
Omnibus Agreement);
(ii) all Project Documents and all Contract Rights arising thereunder;
(iii) all receivables;
(iv) all general intangibles;
(v) each of the Accounts (as the term is defined by the Omnibus Agreement);
(vi) all amounts maintained in the Accounts and all monies, securities and instruments deposited
or required to be deposited in the Accounts;
(vii) all other chattel paper and documents;
(viii) all other property, assets and revenues of Bayantel, whether tangible or intangible; and
(ix) all proceeds and products of any and all of the foregoing.11
In July 1999, Bayantel issued US$200 million worth of 13.5% Senior Notes pursuant to an
Indenture12 dated July 22, 1999 that it entered into with The Bank of New York (petitioner in G.R.
Nos. 175418-20) as trustee for the holders of said notes. Pursuant to the said Indenture, the
notes are due in 2006 and Bayantel shall pay interest on them semi-annually. Bayantel managed
to make two interest payments, on January 15, 2000 and July 15, 2000, before it defaulted on its
obligation.
Foreseeing the impossibility of further meeting its obligations, Bayantel sent, in October 2001, a
proposal for the restructuring of its debts to the Bank Creditors and the Holders of Notes. To
facilitate the negotiations between Bayantel and its creditors, an Informal Steering Committee
was formed composed of Avenue Asia Investments, L.P., Avenue Asia International, Ltd., Avenue
Asia Special Situations Fund II, L.P., Avenue Asia Capital Partners, L.P. (petitioners in G.R. Nos.
175418-20) and Van Eck Global Opportunity Masterfund, Ltd. The members of the Informal
Steering Committee are the assignees of the unsecured credits extended to Bayantel by J.P.
Morgan Europe, Ltd., Bayerische Landesbank Singapore Branch and Deutsche Bank AG, London
in the total principal amount of US$13,637,485.20. They are holders, as well, of the Notes issued
by Bayantel pursuant to the Indenture dated July 22, 1999.
In its initial proposal called the "First Term Sheet," Bayantel suggested a 25% write-off of the
principal owing to the Holders of Notes. The Informal Steering Committee rejected the idea, but
accepted Bayantels proposal to pay the restructured debt, pari passu,13 out of its cash
flow. This pari passu or equal treatment of debts, however, was opposed by the Bank Creditors
who invoked their security interest under the Assignment Agreement.
Bayantel continued to pay reduced interest on its debt to the Bank Creditors but stopped paying
the Holders of Notes starting July 17, 2000. By May 31, 2003, Bayantels total indebtedness had
reached US$674 million or P35.928 billion in unpaid principal and interest, based on the prevailing
conversion rate of US$1 = P53.282. Out of its total liabilities, Bayantel allegedly owes 43.2% or
US$291 million (P15.539 billion) to the Holders of the Notes.
On July 25, 2003, The Bank of New York, as trustee for the Holders of the Notes, wrote Bayantel
an Acceleration Letter declaring immediately due and payable the principal, premium interest, and
other monetary obligations on all outstanding Notes. Then, on July 30, 2003, The Bank of New
York filed a petition14 for the corporate rehabilitation of Bayantel upon the instructions of the
Informal Steering Committee.
On August 8, 2003, the Pasig RTC, Branch 158, issued a Stay Order15 which directed, among
others, the suspension of all claims against Bayantel and required the latters creditors and other
interested parties to file a comment or opposition to the petition. The court appointed Dr. Conchita
L. Manabat to act as rehabilitation receiver but the latter declined.16 In her stead, the court
appointed Atty. Remigio A. Noval (Atty. Noval) who took his oath and posted a bond on September
26, 2003.17
On November 28, 2003, the Rehabilitation Court gave due course to the petition and directed the
Rehabilitation Receiver to submit his recommendations to the court within 120 days from the
initial hearing.18 After several extensions, Atty. Noval filed on March 22, 2004 a Compliance and
Submission of the Report as Compelling Evidence that Bayantel may be Successfully
Rehabilitated.19
In his report, Atty. Noval classified Bayantels debts into three: (1) those owed to secured Bank
Creditors pursuant to the Omnibus Agreements (Omnibus Creditors) in the total amount of US$334
million or P17.781 billion; (2) those owed to Holders of the Senior Notes and Bank Creditors
combined (Chattel Creditors), comprising US$625 million, of which US$473 million (P25.214
billion) is principal and US$152 million (P8.106 billion) is accrued unpaid interest; and (3) those
that Bayantel owed to persons other than Financial Creditors/unsecured creditors in the amount
of US$49 million or P2.608 billion.
According to The Bank of New York, out of the US$674 million that respondent owes its creditors
under groups 2 and 3 above, the amount outstanding under the Senior Notes represent 43.2% of
its liabilities as of May 31, 2003. Subsequently, negotiations for the restructuring of Bayantels
debt reached an impasse when the Informal Steering Committee insisted on a pari
passu treatment of the claims of both secured and unsecured creditors.
Meanwhile, on January 20, 2004, Bayantel filed a "Motion to Include Radio Communications
Philippines, Inc. [RCPI] and Naga Telephone Company [Nagatel] as Debtor-Corporations for
Rehabilitation x x x."20
The Rehabilitation Court denied said motion in an Order21 dated April 19, 2004. The fallo of said
order reads:
WHEREFORE, the Court resolves the pending incidents as follows:
1. The Urgent Motion to Resolve of petitioner is hereby granted. The creditors of Bayantel,
whether secured or unsecured, should be treated equally and on the same footing or pari
passu until the rehabilitation proceedings is terminated in accordance with the Interim Rules;
2. The Motion of Bayantel to Include RCPI and Nagatel in the present rehabilitation proceedings
as debtor-corporations is denied;
3. The Motion of Bayantel to Exempt from the Stay Order the payment of the compensation
package of its former employees per Annex "A" attached to said motion is granted, subject to the
verification and confirmation of the items therein by the Rehabilitation Receiver;
4. The Motion of Petitioner to Strike Out the proposed rehabilitation plan of Bayantel is denied.
SO ORDERED.22
On June 28, 2004, the Pasig RTC, Branch 158, acting as a Rehabilitation Court, approved the
Report and Recommendations23 attached by the Receiver to his "Submission with Prayer for
Further Guidance from the Honorable Court,"24 subject to the following clarifications and/or
amendments:
1. The ruling on the pari passu treatment of all creditors whose claims are subject to restructuring
shall be maintained and shall extend to all payment terms and treatment of past due interest.
2. Due regard shall be given to the rights of the secured creditors and no changes in the security
positions of the creditors shall be granted as a result of the rehabilitation plan as amended and
approved herein.
3. The level of sustainable debt of the rehabilitation plan, as amended, shall be reduced to the
amount of [US]$325,000,000 for a period of 19 years.
4. Unsustainable debt shall be converted into an appropriate instrument that shall not be a
financial burden for Bayantel.
5. All provisions relating to equity in the rehabilitation plan, as approved and amended, must
strictly conform to the requirements of the Constitution limiting foreign ownership to 40%.
6. A Monitoring Committee shall be formed composed of representatives from all classes of the
restructured debt. The Rehabilitation Receivers role shall be limited to the powers of monitoring
and oversight as provided in the Interim Rules.
All powers provided for in the Report and Recommendations, which exceed the monitoring and
oversight functions mandated by the Interim Rules shall be amended accordingly.
SO ORDERED.25
Dissatisfied, The Bank of New York filed a Notice of Appeal26 on August 6, 2004. So did Avenue
Asia Investments, L.P., Avenue Asia International, Ltd., Avenue Asia Special Situations Fund II,
L.P., Avenue Asia Capital Partners, L.P., and Avenue Asia Special Situations Fund III, L.P. which
filed a Joint Record on Appeal27 on August 9, 2004.
On September 28, 2004, Bayantel submitted an Implementing Term Sheet to the Rehabilitation
Court and the Receiver. Claiming that said Term Sheet was inadequate to protect the interest of
the creditors, The Bank of New York (petitioner in G.R. No. 177270) filed a Manifestation28 dated
October 15, 2004 praying for the constitution of a Monitoring Committee and the creation of a
convertible debt instrument to cover the unsustainable portion of the restructured debt.
On November 9, 2004, the Rehabilitation Court issued an Order29 directing the creation of a
Monitoring Committee to be composed of one member each from the group of Omnibus Creditors
and unsecured creditors, and a third member to be chosen by the unanimous vote of the first two
members. In the same Order, the court defined the scope of the Monitoring Committees authority,
as follows:
x x x The Monitoring Committee shall participate with the Receiver in monitoring and overseeing
the actions of the Board of Directors of Bayantel and may, by majority vote, adopt, modify, revise
or substitute, any of the following items:
(1) any proposed Annual OPEX Budgets;
(2) any proposed Annual CAPEX Budgets;
(3) any proposed Reschedule;
(4) any proposed actions by the Receiver on a payment default;
(5) terms of Management Incentivisation Scheme and Management Targets;
(6) the EBITDA/Revenue ratios set by the Bayantel Board of Directors; and
(7) any other proposed actions by the Bayantel Board of Directors including, without limitation,
issuance of new shares, sale of core and noncore assets, change of business, etc. that will
materially affect the terms and conditions of the rehabilitation plan and its implementation.
In case of disagreement between the Monitoring Committee and the Board of Directors of Bayantel
on any of the foregoing matters, the same shall be submitted to the Court for resolution.30
On November 16, 2004, The Bank of New York filed a Petition for Review 31 before the Court of
Appeals. The petition was docketed as CAG. R. SP No. 87100 in the Fifteenth Division of the Court
of Appeals. On even date, Avenue Asia Investments, L.P., Avenue Asia International, Ltd., Avenue
Asia Special Situations Fund II, L.P., Avenue Asia Capital Partners, L.P., and Avenue Asia Special
Situations Fund III, L.P (Avenue Asia Capital Group) filed a similar petition32 which was docketed
as CA-G.R. SP No. 87111 in the Second Division of the Court of Appeals. Both petitions contest
the Rehabilitation Courts June 28, 2004 Decision for, among others, fixing the level of Bayantels
sustainable debt at US$325 million to be paid in 19 years.
Thereafter, on November 30, 2004, petitioners Express Investments III Private Ltd. and Export
Development Canada along with Bayerische Landesbank (Singapore Branch), Credit Industriel et
Commercial, Deutsche Bank AG, P.T. Bank Negara Indonesia (Persero), TBK, Hong Kong Branch
and Rizal Commercial Banking Corporation filed a Petition for Review33 which was docketed as CA-
G.R. No. 87203 in the Tenth Division of the Court of Appeals. The secured creditors likewise
assailed the Rehabilitation Courts June 28, 2004 Decision insofar as it ordered the pari
passu treatment of all claims against Bayantel. Said petitioners invoke a lien over the cash flow
and receivables of Bayantel by virtue of the Assignment Agreement.
On December 23, 2004, Bayantel filed an Omnibus Motion34 for the consolidation of CA-G.R. SP
Nos. 87111 and CA-G.R. SP No. 87203 with CA-G.R. SP No. 87100, the lowest-numbered case.
In a Resolution dated January 20, 2005, the Court of Appeals, Fifteenth Division, ordered the
consolidation of CA-G.R. SP No. 87203 with CA-G.R. SP No. 87100. This was accepted by the
Court of Appeals, Seventh Division, in a Resolution35 dated March 29, 2005. Then, in the
Resolution36 dated June 10, 2005, the Court of Appeals, First Division, ordered the consolidation
of CA-G.R. SP No. 87111 with 87100 and the transmittal of the records of the three cases to the
Seventh Division.
Meanwhile, on January 10, 2005, Atty. Noval submitted to the Rehabilitation Court an
Implementing Term Sheet37 to serve as a guide for Bayantels Rehabilitation. The same was
approved in an Order38 dated March 15, 2005. In the same Order, the Rehabilitation Court
appointed Avenue Asia Investments L.P. and Export Development Canada to represent the
unsecured and secured creditors, respectively, in the Monitoring Committee.
On May 26, 2005, Bayantel filed a petition for certiorari and Prohibition39 docketed as CA-G.R. SP
No. 89894 in the Court of Appeals. Said petition assailed the Rehabilitation Courts Orders dated
November 9, 2004 and March 15, 2005, for purportedly conferring upon the Monitoring
Committee, powers of management and control over its operations.
The Court of Appeals Decision in CA-G.R. Nos. 87100, 87111 and 87203
In the assailed August 18, 2006 Decision, the Court of Appeals dismissed the petitions in CA-G.R.
SP Nos. 87100, 87111 and 87203 for lack of merit. The appellate court upheld the Rehabilitation
Courts determination of Bayantels sustainable debt at US$325 million payable in 19 years. It
rejected the Receivers proposal to set the sustainable debt at US$370 million payable in 15 years,
and the proposal of the Avenue Asia Capital Group to set it at US$471 million payable in 12 years.
The Court of Appeals agreed with the Rehabilitation Court that it is reasonable to adopt a level of
sustainable debt that approximates respondent Bayantels proposal because the latter is in the
best position to determine the level of sustainable debt that it can manage. It found Bayantels
proposal more credible considering that it was prepared using "updated financial information with
realistic cash flow figures."[40] The appellate court noted that Bayantels proposal was drafted
without regard for its status as a "niche player" in the telecommunications market and after
factoring the cost of reorganization. In contrast, it expressed concern that the proposals submitted
by Avenue Asia Capital Group and the Receiver might eventually leave Bayantel with an
unworkable financial debt-to-revenue ratio.
The Court of Appeals also confirmed the Rehabilitation Courts authority to approve, reject,
substitute, or even change the rehabilitation plans submitted by the Receiver and the parties. It
upheld the trial court in adopting the Receivers recommendation to limit the equity conversion of
Bayantels unsustainable debt to 40% of its paid-up capital. This percentage, the appellate court
explains, is consistent with the constitutional limitation on the allowable foreign equity in Filipino
corporations. It also maintained the write-off of penalties and default interest and recomputation
of Bayantels past due interest, as a valid exercise of discretion by the Rehabilitation Court under
the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules). The appellate court
negated any violation of the pari passu principle with the use of these measures since they shall
apply to all classes of creditors.
As to the claim of the secured creditors in CA-G.R. SP No. 87203, the Court of Appeals ruled that
while rehabilitation is ongoing, the sole control over the security on the receivables and cash flow
of Bayantel is vested in the Rehabilitation Court. To allow otherwise would not only violate the
Stay Order but interfere as well with the duty of the Receiver to "take possession, control and
custody of the debtors assets." 41 Ultimately, the Court of Appeals ruled that preference in
payment cannot be accorded the secured creditors since preference applies only in liquidation
proceedings.
Discontented, The Bank of New York and the Avenue Asia Capital Group (petitioners in CA-G.R.
SP Nos. 87100 and 87111) filed a Motion for Partial Reconsideration.42 Said motion was, however,
denied in the Resolution dated November 8, 2006.
In the meantime, Express Investments III Private Ltd. and Export Development Canada had filed
before this Court a Petition for Partial Review on Certiorari of the Court of Appeals Decision
docketed as G.R. Nos. 174457-59. According to petitioners, the other secured creditors who were
also petitioners in CA-G.R. SP No. 87203 had not remained in contact with them and had not
authorized them to file further petitions on their behalf.
On December 28, 2006, The Bank of New York and the Avenue Asia Capital Group also filed their
own Petition for Review on Certiorari which was docketed as G.R. Nos. 175418-20.
The Court of Appeals Decision in CA-G.R. SP No. 89894
In CA-G.R. SP No. 89894, the Court of Appeals rendered the assailed Decision dated October 27,
2006 declaring null and void the November 9, 2004 and March 15, 2005 Orders of the
Rehabilitation Court insofar as they defined the powers and functions of the Monitoring
Committee.
The appellate court found grave abuse of discretion on the part of the Rehabilitation Court for
conferring upon the Monitoring Committee the power to modify, reverse or overrule the proposals
of Bayantels Board of Directors relative to operations. It stressed that the Committees functions
are confined to monitoring and overseeing the operations of Bayantel to ensure its compliance
with the terms and conditions of the Rehabilitation Plan. To conform therewith, the appellate court
restated the Committees powers as follows:
The Monitoring Committee shall participate with the Receiver in monitoring and overseeing the
operations of Bayantel to ensure compliance by Bayantel with the terms and conditions of the
Rehabilitation Plan. In the event Bayantel fails to meet any of the milestones under the
Rehabilitation Plan or fails to comply with any material provision thereunder, the Monitoring
Committee may, by majority vote, recommend modifications, revisions and substitutions of the
following items:
x x x x43 (Emphasis supplied)
The Court of Appeals likewise approved of the Implementing Term Sheet, clarifying that the same
is not intended to address every contingency that may arise in the implementation of the Plan. It
assured that any doubt in the interpretation of the Term Sheet shall be resolved by the
Rehabilitation Court.
Lastly, the appellate court affirmed the creation of a convertible debt instrument to cover the
unsustainable portion of respondents debt. It perceives such instrument as a tool to generate
surplus cash to satisfy Bayantels debt under Tranche B. As well, it serves as a buy-back scheme
for the assignment and transfer of credits by the Financial Creditors in a manner that will not
unduly burden Bayantel.
Issues
On October 19, 2006, Express Investments III Private Ltd. and Export Development Canada 44 filed
a Petition for Partial Review on Certiorari which was docketed as G.R. Nos. 174457-59. Said
petition, which seeks the reversal of the August 18, 2006 Decision of the Court of Appeals insofar
as it dismissed the petition of the secured creditors in CA-G.R. SP No. 87203, essentially proffers
the following issues for resolution: (1) whether the claims of secured and unsecured creditors
should be treated pari passu during rehabilitation; (2) whether the pari passu treatment of
creditors during rehabilitation impairs the Assignment Agreement between respondent and
petitioners; (3) whether an impairment in the security position of petitioners can be justified as a
valid exercise of police power.
On the other hand, The Bank of New York and the Avenue Asia Capital Group filed a Petition for
Review on Certiorari docketed as G.R. Nos. 175418-20, to question the appellate courts August
18, 2006 Decision as well as its November 8, 2006 Resolution in CA-G.R. SP Nos. 87100 and
87111. This second consolidated petition raises the following issues: (1) whether the Court of
Appeals erred in setting Bayantels sustainable debt at US$325 million, payable in 19 years; (2)
whether a debtor may submit a rehabilitation plan in a creditor-initiated rehabilitation; (3) whether
the conversion of debt to equity in excess of 40% of the outstanding capital stock in favor of
petitioners violates the constitutional limit on foreign ownership of a public utility; (4) whether the
write-off of respondents penalties and default interest and recomputation of its past due interest
violate the pari passu principle; and (5) whether petitioners are entitled to costs.
On February 22, 2007, respondent Bayantel moved for the consolidation of G.R. Nos. 174457-59
with G.R. Nos. 175418-20. In a Resolution45 dated April 23, 2007, we directed the Division Clerk
of Court to study the feasibility of consolidating said cases. In a Memorandum Report46 dated May
17, 2007, the First Division Clerk of Court recommended the consolidation of G.R. Nos. 174457-
59 with G.R. Nos. 175418-20.
On May 21, 2007, The Bank of New York, as trustee for the Holders of the Senior Notes, filed a
Petition for Review on Certiorari, docketed as G.R. No. 177270, to assail the October 27, 2006
Decision and March 23, 2007 Resolution of the Court of Appeals in CA-G.R. SP No. 89894.
Amplified, the petition presents the lone issue of whether the Monitoring Committee in this case
may exercise control over Bayantels operations.
In a Resolution47 dated June 6, 2007, we directed the Division Clerk of Court to study the feasibility
of consolidating G.R. No. 177270 with G.R. Nos. 174457-59 and G.R. Nos. 175418-20. To avoid
conflicting decisions on related cases, the Assistant Clerk of Court recommended the consolidation
of the three cases. By Resolution48 dated July 11, 2007, the Court ordered the consolidation of
G.R. No. 177270 with G.R. Nos. 174457- 59 and G.R. Nos. 175418-20.
The Parties Arguments
In G.R. Nos. 174457-59
The petitioners/secured creditors argue primarily that the pari passu treatment of creditors during
rehabilitation has no basis in law. According to petitioners, all that Presidential Decree No. 902-
A49 (PD 902-A) provides is the suspension of all claims against the debtor corporation during
rehabilitation so that the Receiver can exercise his powers free from judicial or extrajudicial
interference. If the equity policy is to be considered at all, they believe that the equity policy
should be construed to accord creditors with similar rights or uniform treatment. In line with this,
petitioners assert priority under the Assignment Agreement to receive from Bayantels surplus
cash flow and to be paid in full, ahead of all other creditors.
The petitioners/secured creditors contend that the pari passu treatment of claims impairs the
Omnibus Agreement and the Assignment Agreement. Such impairment, they posit, cannot be
justified as a proper exercise of police power for three reasons: first, there is no law which
authorizes the equal treatment of claims; second, there is no enabling law; and third, it is not
reasonably necessary for the success of the rehabilitation.
Petitioners point out that the Interim Rules mandates instead that the rehabilitation plan shall give
due regard to the interest of the secured creditors. For petitioners, the preservation of Bayantels
chattels alone is inadequate to meet said requirement since the value thereof depreciates over
time. They go on to invoke international practices on bankruptcy and rehabilitation which
purportedly recognize the distinction between the rights of secured and unsecured creditors.
Petitioners warn of dire consequences to the international credit standing of the Philippines, the
financial market, and the influx of foreign investments if the pari passu principle would be upheld.
Finally, petitioners maintain that a "Trigger Event"50 had occurred which rendered respondents
obligations due and demandable. Thus, despite their failure to notify respondent of the alleged
Events of Default, petitioners believe that they can rightfully proceed against the securities.
For its part, respondent Bayantel reasons that enforcing preference in payment at this stage of
the rehabilitation would only disrupt the progress it has made so far. It assures petitioners that
their security rights are adequately protected in case the collateral assets are disposed.
Respondent adds that no single payment scheme is applicable in all rehabilitation proceedings
and the peculiar circumstances of its case warrant the pari passu treatment of its creditors.
In G.R. Nos. 175418-20
Mainly, petitioners Bank of New York and Avenue Asia Capital Group impute error on the Court of
Appeals for affirming the Rehabilitation Courts decision which adopted the sustainable debt level
Bayantel proposed. The court a quo fixed respondents sustainable debt at US$325 million payable
within 19 years against the Receivers proposal of US$370 million payable in 15 years. Petitioners
dispute Bayantels financial projections as unreliable and contrived, designed to bear out a reduced
level of sustainable debt and justify a substantial write-off of its debts. In order to arrive at a
reasonable level of sustainable debt, they believe that the prospective cash flow of Bayantel must
be reckoned against industry standards. Petitioners point out that the Interim Rules only allows
the debtor, in a creditor-initiated petition for corporate rehabilitation, to file a comment or
opposition but not to submit its own rehabilitation plan. They warn that if the fulfillment of the
obligation would be made to depend on the sole will of Bayantel, the entire obligation would be
void.
Petitioners fault the trial court for basing the sustainable debt on the state of the
telecommunications industry in the country rather than consulting the financial projections and
business models submitted by petitioners and the Receiver. They stress that the state of the
telecommunications industry is not among those which the court may take judicial notice of by
discretion.
Petitioners maintain that converting the unsustainable debt to 77.7% equity in Bayantel will not
violate the nationality requirement of the 1987 Constitution. They aver that the debts to domestic
bank creditors51 account is US$473 million or 70.18% of Bayantels total liabilities. Considering the
substantial write-off of penalties and default interest in the amount of US$34,044,553.00 and past
due interest of US$25,243,381.07, petitioners believe that it is only fair to accord the Financial
Creditors greater equity in Bayantel to compensate for said losses.
Moreover, it is the petitioners view that the write-off contravenes the pari passu principle because
they would suffer greater losses than the Omnibus Creditors. According to petitioners,
approximately 82% of the penalties and interests shall be borne by the unsecured creditors and
the Holders of Notes. In the same vein, petitioners protest the recomputation of past due interest
in accordance with the rate proposed by the Receiver. They claim that recomputation would result
in the condonation of 89% of the accrued interest owing them. The Receivers report shows that
as of the filing of the present petition, the total accrued interest amounts to US$106,054,197.66,
of which, US$91,100,000 are due the Holders of Notes.
Finally, petitioners reiterate their claim for costs. In its Order dated March 15, 2005, the
Rehabilitation Court awarded costs of suit to petitioner Bank of New York. In particular, it granted
the latters prayer for the payment of filing fees, costs of publication and professional fees. Even
then, petitioner bank claims that a huge amount of its expenses for the professional fees of
counsels and advisers remain unpaid. More importantly, it asserts precedence in payment over
the preferred creditors. In the alternative, the Bank of New York prays that the costs of suit be
incorporated in the award to the nonfinancial or trade creditors. Similarly, the Avenue Asia Capital
Group seeks reimbursement for the docket fees, publication expenses and the professional fees
it has paid its counsels and financial adviser. It invokes Article 2208 of the Civil Code and the
provisions of the Indenture as legal bases therefor.
Meanwhile, the secured creditors in G.R. Nos. 174457-59 filed a Memorandum52 dated April 30,
2009 with a prayer for the dismissal of the bondholders petition in G.R. Nos. 175418-20. For the
secured creditors, the sustainable debt set by the Courts of Appeals is a more manageable and
realistic undertaking compared to herein petitioners proposal. They add that the fact that
Bayantels actual revenues are lower than its cash flow projections belies any scheme to avoid
paying its debts in full. The secured creditors agree with the appellate court in limiting the
conversion of the unsustainable debt to a maximum of 40% shares in Bayantel as more in keeping
with the Constitution.
Further, the secured creditors point out that there is nothing in the Interim Rules which prohibits
a debtor company from submitting an alternative rehabilitation plan in creditor-initiated
proceedings. In support of this, they cite Section 22,53 Rule 4 of said rules which permits the
debtor to modify its proposed plan or submit a revised or substitute plan. According to them,
Bayantels suggestion as to the terms of payment does not constitute a potestative condition that
would render the obligation void.
The secured creditors, however, join petitioners in protesting the condonation of penalties and
default interest. Rather than observing absolute equality, they insist that the pari passu principle
should be applied such that creditors within the same class are treated alike.
In response, respondent Bayantel submitted on May 21, 2009, a Consolidated Memorandum54 in
G.R. Nos. 175418-20 and G.R. No. 177270. It practically echoed the ratio decidendi of the Court
of Appeals in dismissing both petitions.
In G.R. Nos. 175418-20, Bayantel defends the Rehabilitation Court for adopting the sustainable
debt level it proposed. Such approval by the court alone, Bayantel reasons, did not make the
payment of its debt a condition whose fulfillment rests on its sole will, as to render the obligation
void under Article 118255 of the Civil Code. Respondent maintains that among the stakeholders, it
is in the best position to determine the level of debt that it can pay. Moreover, it believes that a
majority of the secured creditors are comfortable with the approved sustainable debt since only
two of them appealed. Respondent insists that altering the sustainable debt at this point would
be counterproductive.
Respondent equally opposes the Bondholders proposal to reduce the companys capital
expenditures to between 9% and 11% to make more funds available for debt servicing. This
approach, according to Bayantel, ignores its need to make significant investments in new
infrastructure in order to cope with competitors. Respondent disputes the value of petitioners
projections which were derived by benchmarking Bayantels income, as a company under
rehabilitation, against those of the major players, PLDT and Digitel.
Furthermore, respondent maintains that its rehabilitation plan was based on accurate financial
data and operation reports. It insists that the Interim Rules allows a debtor, in creditor-initiated
rehabilitation proceedings, to submit an alternative plan. It agrees with the Rehabilitation Courts
decision to restrict conversion of the unsustainable debt to 40% of fully paid-up capital in Bayantel.
Respondent believes that the waiver of penalties and default interest and the recomputation of
past due interest will not violate the pari passu principle because said measures shall apply equally
to all creditors. Lastly, respondent admits limited liability for costs pursuant to the Assignment
Agreement but not for those incurred by petitioners under "non-consensual scenarios."
In G.R. No. 177270
In this petition for review, the Bank of New York, as trustee for the holders of the 13.5% Senior
Notes of respondent Bayantel, challenges the Court of Appeals decision nullifying the Monitoring
Committees power to modify, reverse or overrule the decision of Bayantels Board of Directors on
certain matters. It invokes Section 23,56 Rule 4 of the Interim Rules as legal basis to justify the
Rehabilitation Courts grant of extensive powers to the Monitoring Committee. The pertinent
portion of said Rule states:
In approving the rehabilitation plan, the court shall issue the necessary orders or processes for its
immediate and successful implementation. It may impose such terms, conditions, or restrictions
as the effective implementation and monitoring thereof may reasonably require, or for the
protection and preservation of the interests of the creditors should the plan fail.
Petitioner contends that the magnitude and complexity of respondents business necessitate close
monitoring of its operations to ensure successful rehabilitation. Specifically, the Bank of New York
expresses concern over Bayantels taciturn disposition as regards its budget and expansion costs.
Petitioner believes that such lack of transparency can be addressed by empowering the Monitoring
Committee to approve measures that will ultimately affect respondents ability to settle its debts.
Moreover, petitioner assures that the Implementing Term Sheet provides safeguards against the
improvident disapproval by the Monitoring Committee of proposed measures. Petitioner is of the
view that the functions of the Monitoring Committee would be rendered illusory if all
disagreements on key areas would have to be heard by the Rehabilitation Court. Petitioner
explains that the Monitoring Committees powers do not in any way supplant those of the Board
of Directors. The Bank of New York claims that it is customary to allow creditors to monitor and
supervise the debtors operations as demonstrated by the restructuring experiences of certain
Asian countries.
Petitioner submits that the Rehabilitation Court did not intend to give the Monitoring Committee
powers that are concurrent with those of the Receiver on account of the differing interests that
they represent in rehabilitation. It argues that if at all, the court a quo committed a mere error of
judgment not correctible by certiorari. Petitioner adds that even if a petition for certiorari was
proper, the 60-day reglementary period provided by the Rules of Court had already lapsed when
Bayantel filed its petition on May 27, 2005. It contends that Bayantels Manifestation and Motion
for Clarification dated December 15, 2004 was in truth a motion for reconsideration which is a
prohibited pleading under Section 1,57 Rule 3 of the Interim Rules. Petitioner concludes that such
pleadings did not toll the period for filing a petition and, therefore, the Rehabilitation Courts
decision had become final.
In its Consolidated Memorandum dated May 21, 2009, Bayantel counters that Section 23, Rule 4
of the Interim Rules should be understood as delineating the purpose of the courts orders and
processes to mere implementation and monitoring of the plan. Respondent opposes any
interpretation of said provision which authorizes the Committee to substitute its judgment for
those of the Board or vest it with powers greater than those of the Receiver. It argues that vesting
the Committee with veto power over certain decisions of the Board would effectively give it control
and management over Bayantels operations. The necessary effect, according to Bayantel, is that
every disagreement between the Committee and the Board would have to be settled in court.
Respondent points out that petitioner failed to cite proof of its claim that it is customary among
Asian countries to allow the Monitoring Committee active participation during rehabilitation.
Bayantel perceive the instant petition as an underhanded attempt by petitioner to create a
Management Committee without satisfying the requisites therefor. It reiterates that the functions
of the Monitoring Committee are confined to ensuring that Bayantel meets the debt reduction
milestones under the plan. Respondent avers that even without a Monitoring Committee, it is
obliged under the Plan to comply with certain information covenants and reportorial requirements.
It adds that the Plan provides a mechanism for dispute resolution through which creditors can
enforce compliance.
Penultimately, respondent assails the validity of the Order dated November 9, 2004 for lack of
notice. Allegedly, Bayantel learned of said Order only after petitioner furnished it a copy of its
Compliance to which the same was made an attachment. Thus, respondent insists that the
reglementary period to file an appeal or a petition for certiorari did not run against it.
The Courts Ruling
In G.R. Nos. 174457-59
Rehabilitation is an attempt to conserve and administer the assets of an insolvent corporation in
the hope of its eventual return from financial stress to solvency.58 It contemplates the continuance
of corporate life and activities in an effort to restore and reinstate the corporation to its former
position of successful operation and liquidity. The purpose of rehabilitation proceedings is precisely
to enable the company to gain a new lease on life and thereby allow creditors to be paid their
claims from its earnings.59
Rehabilitation shall be undertaken when it is shown that the continued operation of the
corporation is economically feasible and its creditors can recover, by way of the present value of
payments projected in the plan, more, if the corporation continues as a going concern than if it is
immediately liquidated.60
The law governing rehabilitation and suspension of actions for claims against corporations is PD
902-A, as amended. On December 15, 2000, the Court promulgated A.M. No. 00-8-10-SC or the
Interim Rules of Procedure on Corporate Rehabilitation, which applies to petitions for rehabilitation
filed by corporations, partnerships and associations pursuant to PD 902-A.
In January 2004, Republic Act No. 8799 (RA 8799), otherwise known as the Securities Regulation
Code, amended Section 5 of PD 902-A, and transferred to the Regional Trial Courts the jurisdiction
of the Securities and Exchange Commission (SEC) over petitions of corporations, partnerships or
associations to be declared in the state of suspension of payments in cases where the corporation,
partnership or association possesses property to cover all its debts but foresees the impossibility
of meeting them when they respectively fall due or in cases where the corporation, partnership
or association has no sufficient assets to cover its liabilities, but is under the management of a
rehabilitation receiver or a management committee.
In order to effectively exercise such jurisdiction, Section 6(c), PD 902-A empowers the Regional
Trial Court to appoint one or more receivers of the property, real and personal, which is the
subject of the pending action before the Commission whenever necessary in order to preserve
the rights of the parties-litigants and/or protect the interest of the investing public and creditors.
Under Section 6, Rule 4 of the Interim Rules, if the court finds the petition to be sufficient in form
and substance, it shall issue, not later than five (5) days from the filing of the petition, an Order
with the following pertinent effects:
(a) appointing a Rehabilitation Receiver and fixing his bond;
(b) staying enforcement of all claims, whether for money or otherwise and whether
such enforcement is by court action or otherwise, against the debtor, its guarantors
and sureties not solidarily liable with the debtor;
(c) prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any
of its properties except in the ordinary course of business;
(d) prohibiting the debtor from making any payment of its liabilities outstanding as at the date of
filing of the petition; x x x
(Emphasis supplied)
The stay order shall be effective from the date of its issuance until the dismissal of the petition or
the termination of the rehabilitation proceedings.61 Under the Interim Rules, the petition shall be
dismissed if no rehabilitation plan is approved by the court upon the lapse of 180 days from the
date of the initial hearing. The court may grant an extension beyond this period only if it appears
by convincing and compelling evidence that the debtor may successfully be rehabilitated. In no
instance, however, shall the period for approving or disapproving a rehabilitation plan exceed 18
months from the date of filing of the petition.62
On the other hand, Section 27, Rule 4 of the Interim Rules provides when the rehabilitation
proceedings is deemed terminated:
SEC. 27. Termination of Proceedings. In case of the failure of the debtor to submit the
rehabilitation plan, or the disapproval thereof by the court, or the failure of the rehabilitation of
the debtor because of failure to achieve the desired targets or goals as set forth therein, or the
failure of the said debtor to perform its obligations under the said plan, or a determination that
the rehabilitation plan may no longer be implemented in accordance with its terms, conditions,
restrictions, or assumptions, the court shall upon motion, motu proprio, or upon the
recommendation of the Rehabilitation Receiver, terminate the proceedings. The proceedings
shall also terminate upon the successful implementation of the rehabilitation plan.
(Emphasis supplied)
Hence, unless the petition is dismissed for any reason, the stay order shall be effective until the
rehabilitation plan has been successfully implemented. In the meantime, the debtor is prohibited
from paying any of its outstanding liabilities as of the date of the filing of the petition except those
authorized in the plan under Section 24(c), Rule 4 of the Interim Rules.
In this case, in an Order dated April 19, 2004, the Rehabilitation Court held that "[t]he creditors
of Bayantel, whether secured or unsecured, should be treated equally and on the same footing
or pari passu until the rehabilitation proceedings is terminated in accordance with the Interim
Rules."63 The court reiterated this pronouncement in its Decision dated June 28, 2004.
Before us, petitioners contend that such pari passu treatment of claims violates not only the "due
regard" provision in the Interim Rules but also the Contract Clause in the 1987 Constitution.
Petitioners assert precedence in the payment of claims during rehabilitation by virtue of the
Assignment Agreement dated September 19, 1995. Under said Agreement, Bayantel assigned,
charged, conveyed and transferred to a Collateral Agent, the following properties as collateral for
the prompt and complete payment of its obligations to secured creditors:
(i) All land, buildings, machinery and equipment currently owned, and to be acquired in the future
by Bayantel;
(ii) All monies payable to Bayantel under the Project Documents (as the term is defined by the
Omnibus Agreement);
(iii) All Project Documents and all Contract Rights arising thereunder;
(iv) All receivables;
(v) Each of the Accounts (as the term is defined by the Omnibus Agreement);
(vi) All amounts maintained in the Accounts and all monies, securities and instruments deposited
or required to be deposited in the Accounts;
(vii) All other Chattel Paper and Documents;
(viii) All other property, assets and revenues of Bayantel, whether tangible or intangible;
(ix) All General Intangibles; and
(x) All proceeds and products of any and all of the foregoing.64
In particular, petitioners refer to Section 4.02 of the Assignment Agreement as basis for
demanding full payment, ahead of other creditors, out of respondents revenue from operations
during rehabilitation. The relevant provision reads:
Section 4.02. Payments Under Contracts and Receivables.
If during the continuance of a Trigger Event the Company shall receive directly from any party to
any Assigned Agreement or from any account debtor or other obligor under any Receivable, any
payments under such agreements or the Receivables, the Company shall receive such
payments in a constructive trust for the benefit of the Secured Parties, shall segregate
such payments from its other funds, and shall forthwith transmit and deliver such payments to
the Collateral Agent in the same form as so received (with any necessary endorsement) along
with a description of the sources of such payments. All amounts received by the Collateral Agent
pursuant to this Section 4.02 shall be applied as set forth in Part L and in the [Inter-creditor]
Agreement.65(Underscoring in the original; emphasis supplied)
The resolution of the issue at hand rests on a determination of whether secured creditors may
enforce preference in payment during rehabilitation by virtue of a contractual agreement.
Section 6(c), PD 902-A provides that upon the appointment of a management committee,
rehabilitation receiver, board or body, all actions for claims against corporations, partnerships or
associations under management or receivership pending before any court, tribunal, board or body
shall be suspended accordingly.66 The suspension of action for claims against the corporation
under a rehabilitation receiver or management committee embraces all phases of the suit, be it
before the trial court or any tribunal or before this Court.67
The justification for suspension of actions for claims is to enable the management committee or
rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial
interference that might unduly hinder or prevent the "rescue" of the debtor company. 68 It is
intended to give enough breathing space for the management committee or rehabilitation receiver
to make the business viable again without having to divert attention and resources to litigation in
various fora.69
In the 1990 case of Alemars Sibal & Sons, Inc. v. Judge Elbinias,70 the Court first enunciated the
prevailing principle which governs the relationship among creditors during rehabilitation. In said
case, G.A. Yupangco sought the issuance of a writ of execution to implement a final and executory
default judgment in its favor and after Alemars Sibal & Sons, Inc. was placed under rehabilitation.
In ordering the stay of execution, the Court held:
During rehabilitation receivership, the assets are held in trust for the equal benefit of
all creditors to preclude one from obtaining an advantage or preference over another
by the expediency of an attachment, execution or otherwise. For what would prevent an
alert creditor, upon learning of the receivership, from rushing posthaste to the courts to secure
judgments for the satisfaction of its claims to the prejudice of the less alert creditors.
As between the creditors, the key phrase is "equality is equity." When a corporation
threatened by bankruptcy is taken over by a receiver, all the creditors should stand
on equal footing. Not anyone of them should be given any preference by paying one
or some of them ahead of the others. This is precisely the reason for the suspension of all
pending claims against the corporation under receivership. Instead of creditors vexing the courts
with suits against the distressed firm, they are directed to file their claims with the receiver who
is a duly appointed officer of the SEC.71 (Emphasis supplied)
Since then, the principle of equality in equity has been cited as the basis for placing secured and
unsecured creditors in equal footing or in pari passu with each other during rehabilitation. In legal
parlance, pari passu is used especially of creditors who, in marshaling assets, are entitled to
receive out of the same fund without any precedence over each other.72
In Rizal Commercial Banking Corporation v. Intermediate Appellate Court, 73 the Court disallowed
the foreclosure of the debtor companys property after the latter had filed a Petition for
Rehabilitation and Declaration of Suspension of Payments with the SEC. We ruled that whenever
a distressed corporation asks the SEC for rehabilitation and suspension of payments, preferred
creditors may no longer assert preference but shall stand on equal footing with other creditors.
Foreclosure shall be disallowed so as not to prejudice other creditors, or cause discrimination
among them. In 1999, the Court qualified this ruling by stating that preferred creditors of
distressed corporations shall stand on equal footing with all other creditors only after a
rehabilitation receiver or management committee has been appointed. 74 More importantly, the
Court laid the guidelines for the treatment of claims against corporations undergoing
rehabilitation:
1. All claims against corporations, partnerships, or associations that are pending before any court,
tribunal, or board, without distinction as to whether or not a creditor is secured or unsecured,
shall be suspended effective upon the appointment of a management committee, rehabilitation
receiver, board, or body in accordance with the provisions of Presidential Decree No. 902-A.
2. Secured creditors retain their preference over unsecured creditors, but enforcement
of such preference is equally suspended upon the appointment of a management
committee, rehabilitation receiver, board, or body. In the event that the assets of the
corporation, partnership, or association are finally liquidated, however, secured and preferred
credits under the applicable provisions of the Civil Code will definitely have preference over
unsecured ones.75 (Emphasis supplied)
Basically, once a management committee or rehabilitation receiver has been appointed in
accordance with PD 902-A, no action for claims may be initiated against a distressed corporation
and those already pending in court shall be suspended in whatever stage they may be.
Notwithstanding, secured creditors shall continue to have preferred status but the enforcement
thereof is likewise held in abeyance. However, if the court later determines that the rehabilitation
of the distressed corporation is no longer feasible and its assets are liquidated, secured claims
shall enjoy priority in payment.
We perceive no good reason to depart from established jurisprudence. While Section 24(d), Rule
4 of the Interim Rules states that contracts and other arrangements between the debtor and its
creditors shall be interpreted as continuing to apply, this holds true only to the extent that they
do not conflict with the provisions of the plan.
Here, the stipulation in the Assignment Agreement to the effect that respondent Bayantel shall
pay petitioners in full and ahead of other creditors out of its cash flow during rehabilitation directly
impinges on the provision of the approved Rehabilitation Plan that "[t]he creditors of Bayantel,
whether secured or unsecured, should be treated equally and on the same footing or pari
passu until the rehabilitation proceedings is terminated in accordance with the Interim Rules."
During rehabilitation, the only payments sanctioned by the Interim Rules are those made to
creditors in accordance with the provisions of the plan. Pertinent to this is Section 5(b), Rule 4 of
the Interim Rules which states that the terms and conditions of the rehabilitation plan shall include
the manner of its implementation, giving due regard to the interests of secured creditors. This
very phrase is what petitioners invoke as basis for demanding priority in payment out of
respondents cash flow.
But petitioners reliance thereon is misplaced.
By definition, due regard means consideration in a degree appropriate to the demands of a
particular case.76 On the other hand, security interest is a form of interest in property which
provides that the property may be sold on default in order to satisfy the obligation for which the
security interest is given. Often, the term "lien" is used as a synonym, although lien most
commonly refers only to interests providing security that are created by operation of law, not
through agreement of the debtor and creditor. In contrast, the term "security interest" means any
interest in property acquired by contract for the purpose of securing payment or performance of
an obligation or indemnifying against loss or liability.77
Under the Interim Rules, the only pertinent reference to creditor security is found in Section 12,
Rule 4 on relief from, modification or termination of stay order. Said provision states that the
creditor is regarded as lacking adequate protection if it can be shown that: (a) the debtor fails or
refuses to honor a pre-existing agreement with the creditor to keep the property insured; (b) the
debtor fails or refuses to take commercially reasonable steps to maintain the property; or (c) the
property has depreciated to an extent that the creditor is undersecured.
Upon a showing that the creditor is lacking in protection, the court shall order the rehabilitation
receiver to take steps to ensure that the property is insured or maintained or to make payment
or provide replacement security such that the obligation is fully secured. If such arrangements
are not feasible, the court may allow the secured creditor to enforce its claim against the debtor.
Nonetheless, the court may deny the creditor the foregoing remedies if allowing so would prevent
the continuation of the debtor as a going concern or otherwise prevent the approval and
implementation of a rehabilitation plan.78
In the context of the foregoing provisions, "giving due regard to the interests of secured creditors"
primarily entails ensuring that the property comprising the collateral is insured, maintained or
replacement security is provided such that the obligation is fully secured. The reason for this rule
is simple, in the event that the court terminates the proceedings for reasons other than the
successful implementation of the plan, the secured creditors may foreclose the securities and the
proceeds thereof applied to the satisfaction of their preferred claims.
When the Rules of Procedure on Corporate Rehabilitation took effect on January 16, 2009, the
"due regard" provision was amended to read:
SEC. 18. Rehabilitation Plan. The rehabilitation plan shall include (a) the desired business targets
or goals and the duration and coverage of the rehabilitation; (b) the terms and conditions of such
rehabilitation which shall include the manner of its implementation, giving due regard to the
interests of secured creditors such as, but not limited, to the non-impairment of their
security liens or interests; x x x. (Emphasis supplied)
Despite the additional phrase, however, it is our view that the amendment simply amplifies the
meaning of the "due regard provision" in the Interim Rules. First, the amendment exemplifies
what giving "due regard to the interests of secured creditors" contemplates, mainly, the
nonimpairment of securities. At the same time, the specific reference to "security liens" and
"interests," separated by the disjunctive "or," describes what "the interests of secured creditors"
consist of. Again, lien pertains only to interests providing security that are created by operation
of law while security interests include those acquired by contract for the purpose of securing
payment or performance of an obligation or indemnifying against loss or liability. Lastly, the
addition of the phrase "but not limited" in the amendment shuns a rigid application of the provision
by recognizing that "giving due regard to the interest of secured creditors" may be rendered in
other ways than taking care that the security liens and interests of secured creditors are
adequately protected.
In this case, petitioners Express Investments III Private Ltd. And Export Development Canada are
concerned, not so much with the adequacy of the securities offered by respondent, but with the
devaluation of such securities over time. Petitioners fear that the proceeds of respondents
collateral would be insufficient to cover their claims in the event of liquidation.
On this point, suffice it to state that petitioners are not without any remedy to address a deficiency
in securities, if and when it comes about. Under Section 12, Rule 4 of the Interim Rules, a secured
creditor may file a motion with the Rehabilitation Court for the modification or termination of the
stay order. If petitioners can show that arrangements to insure or maintain the property or to
make payment or provide additional security therefor is not feasible, the court shall modify the
stay order to allow petitioners to enforce their claim that is, to foreclose the mortgage and apply
the proceeds thereof to their claims. Be that as it may, the court may deny the creditor this remedy
if allowing so would prevent the continuation of the debtor as a going concern or otherwise
prevent the approval and implementation of a rehabilitation plan.
Indeed, neither the "due regard provision" nor contractual arrangements can shackle the
Rehabilitation Court in determining the best means of rehabilitating a distressed corporation. Truth
be told, the Rehabilitation Court may approve a rehabilitation plan even over the opposition of
creditors holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation
of the debtor is feasible and the opposition of the creditors is manifestly unreasonable. In
determining whether or not the opposition of the creditors is manifestly unreasonable, the court
shall consider the following: (a) That the plan would likely provide the objecting class of creditors
with compensation greater than that which they would have received if the assets of the debtor
were sold by a liquidator within a three-month period; (b) That the shareholders or owners of the
debtor lose at least their controlling interest as a result of the plan; and (c) The Rehabilitation
Receiver has recommended approval of the plan.79
According to the Liquidation Analysis80 prepared by KPMG at the request of the Receiver, the Fair
Market Value of respondents fixed assets is P18.7 billion while its Forced Liquidation Value is P9.3
billion. Together with cash and receivables in the amount of P911 million, respondents total
liquidation assets are valued at P10.2 billion. From this amount, the estimated liquidation return
to the Omnibus Creditors is P6,102,150,000 or approximately 52.9% of their claims in the amount
of P11,539,776,000. Meanwhile, Chattel Creditors can recoup 61% of its claims. As regards the
Unsecured Creditors, they will share in the pool of assets that respondents have acquired since
1998, which were not specifically registered under the Omnibus Agreement Mortgage
Supplements. Said assets are estimated to have a value of P3.5 Billion. This accounts for 10.7%
of the Unsecured Creditors claims.
Reckoned from these figures, the Receiver concluded that the shareholders shall receive nothing
on respondents liquidation while the latters creditors can expect significantly less than full
repayment. Moreover, regardless of whether the shareholders will lose at least their controlling
interest as a result of the plan, petitioners, in their Memorandum dated April 30, 2009, have
signified their conformity with the Court of Appeals decision to limit the conversion of the
unsustainable debt to a maximum of 40% of the fully-paid up capital of respondent corporation.
Lastly, the Receiver not only recommended the approval of the Plan by the Rehabilitation Court,
he, himself, prepared it. The concurrence of these conditions renders the opposition of petitioners
manifestly unreasonable.
As regards the second issue, petitioners submit that the pari passu treatment of claims offends
the Contract Clause under the 1987 Constitution. Article III, Section 10 of the Constitution
mandates that no law impairing the obligation of contracts shall be passed. Any law which
enlarges, abridges, or in any manner changes the intention of the parties, necessarily impairs the
contract itself. And even when the change in the contract is done by indirection, there is
impairment nonetheless.81
At this point, it bears stressing that the non-impairment clause is a limitation on the exercise of
legislative power and not of judicial or quasijudicial power. In Lim, Sr. v. Secretary of Agriculture
& Natural Resources, et al.,82 we held:
x x x. For it is well-settled that a law within the meaning of this constitutional provision has
reference primarily to statutes and ordinances of municipal corporations. Executive orders issued
by the President whether derived from his constitutional powers or valid statutes may likewise be
considered as such. It does not cover, therefore, the exercise of the quasi-judicial power of a
department head even if affirmed by the President. The administrative process in such a case
partakes more of an adjudicatory character. It is bereft of any legislative significance. It falls
outside the scope of the non-impairment clause. x x x.83
The prohibition embraces enactments of a governmental law-making body pertaining to its
legislative functions. Strictly speaking, it does not cover the exercise by such law-making body of
quasi-judicial power.
Verily, the Decision dated June 28, 2004 of the Rehabilitation Court is not a proper subject of the
Non-impairment Clause.
In view of the foregoing, we find no need to discuss the third issue posed in this petition
In G.R. Nos. 175418-20
Prefatorily, we restate the time honored principle that in a petition for review on certiorari under
Rule 45 of the Rules of Court, only questions of law may be raised. Thus, in a petition for review
on certiorari, the scope of the Supreme Court's judicial review is limited to reviewing only errors
of law, not of fact.84 It is not our function to weigh all over again evidence already considered in
the proceedings below, our jurisdiction is limited to reviewing only errors of law that may have
been committed by the lower court.85
Before us, petitioners Bank of New York and Avenue Asia Capital Group raise a question of fact
which is not proper in a petition for review on certiorari. A question of law arises when there is
doubt as to what the law is on a certain state of facts, while there is a question of fact when the
doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the
same must not involve an examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely on what the law provides on
the given set of circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact.86
Whether the Court of Appeals erred in affirming the sustainable debt fixed by the Rehabilitation
Court is a question of fact that calls for a recalibration of the evidence presented by the parties
before the trial court. In order to resolve said issue, petitioners would have this Court reassess
the state of respondent Bayantels finances at the onset of rehabilitation and gauge the practical
value of the plans submitted by the parties vis--vis the financial models prepared by the experts
engaged by them. These tasks are certainly not for this Court to accomplish. The resolution of
factual issues is the function of lower courts, whose findings on these matters are received with
respect.87 This is especially true in rehabilitation proceedings where certain courts are designated
to hear the case on account of their expertise and specialized knowledge on the subject matter.
Though this doctrine admits of several exceptions,88none is applicable in the case at bar
Notably, the Interim Rules is silent on the manner by which the sustainable debt of the debtor
shall be determined. Yet, Section 2 of the Interim Rules prescribe that the Rules shall be liberally
construed to carry out the objectives of Sections 5(d),89 6(c)90 and 6(d)91 of PD 902-A.
Section 5(d), PD 902-A vested jurisdiction upon the SEC over petitions for rehabilitation. Later,
RA 8799 or the Securities Regulation Code, amended Section 5(d) of PD 902-A by transferring
SECs jurisdiction over said petitions to the RTC. Meanwhile, Section 6(c) of PD 902-A provides for
the appointment of a receiver of the subject property whenever necessary in order to preserve
the rights of the parties and to protect the interest of the investing public and the creditors. Upon
the appointment of such receiver, all actions for claims against the corporation pending before
any court, tribunal, board or body shall be suspended accordingly. On the other hand, Section
5(d), PD 902-A expands the power of the Commission to allow the creation and appointment of a
management committee to undertake the management of the corporation when there is imminent
danger of dissipation, loss, wastage or destruction of assets or other properties or paralyzation of
the business of the corporation which may be prejudicial to the interest of minority stockholders,
parties-litigants or the general public.
The underlying objective behind these provisions is to foster the rehabilitation of the debtor by
insulating it against claims, preserving its assets and taking steps to ensure that the rights of all
parties concerned are adequately protected.
This Court is convinced that the Court of Appeals ruled in accord with this policy when it upheld
the Rehabilitation Courts determination of respondents sustainable debt. We find the sustainable
debt of US$325 million, spread over 19 years, to be a more realistically achievable amount
considering respondents modest revenue projections. Bayantel projected a constant rise in its
revenues at the range of 1.16%-4.91% with periodic reverses every two years.92 On the other
hand, petitioners proposal of a sustainable debt of US$471 million to be paid in 12 years and the
Receivers proposal of US$370 million to be paid in 15 years betray an over optimism that could
leave Bayantel with nothing to spend for its operations.
Next, petitioners contest the admission of respondents rehabilitation plan for being filed in
violation of the Interim Rules. It is petitioners view that in a creditor-initiated petition for
rehabilitation, the debtor may only submit either a comment or opposition but not its own
rehabilitation plan.
We cannot agree.
Rule 4 of the Interim Rules treats of rehabilitation in general, without distinction as to who
between the debtor and the creditor initiated the petition. Nowhere in said Rule is there any
provision that prohibits the debtor in a creditor-initiated petition to file its own rehabilitation plan
for consideration by the court. Quite the reverse, one of the functions and powers of the
rehabilitation receiver under Section 14(m) of said Rule is to study the rehabilitation plan proposed
by the debtor or any rehabilitation plan submitted during the proceedings, together with any
comments made thereon. This provision makes particular reference to a debtor-initiated
proceeding in which the debtor principally files a rehabilitation plan. In such case, the receiver is
tasked, among other things, to study the rehabilitation plan presented by the debtor along with
any rehabilitation plan submitted during the proceedings. This implies that the creditors of the
distressed corporation, and even the receiver, may file their respective rehabilitation plans. We
perceive no good reason why the same option should not be available, by analogy, to a debtor in
creditor-initiated proceedings, which is also found in Rule 4 of the Interim Rules.
Third, petitioners fault the Court of Appeals for ruling that the debt-toequity conversion rate of
77.7%, as proposed by The Bank of New York, violates the Filipinization provision of the
Constitution. Petitioners explain that the acquisition of shares by foreign Omnibus and Financial
Creditors shall be done, both directly and indirectly in order to meet the control test principle
under RA 704293 or the Foreign Investments Act of 1991. Under the proposed structure, said
creditors shall own 40% of the outstanding capital stock of the telecommunications company on
a direct basis, while the remaining 40% of shares shall be registered to a holding company that
shall retain, on a direct basis, the other 60% equity reserved for Filipino citizens.
Moreover, petitioners maintain that it is only fair to impose upon the Omnibus and Financial
Creditors a bigger equity conversion in Bayantel considering that petitioners will bear the bulk of
the accrued interests and penalties to be written off. Initially, the Rehabilitation Court approved
the Receivers recommendation to write-off interests and penalties in the amount of
US$34,044,553.00. The Rehabilitation Court likewise ordered a re-computation of past due
interest in accordance with the rate proposed by the Receiver. Following this, petitioners estimate
the total unpaid accrued interest of Bayantel as of July 30, 2003 to be at US$140,098,750.66 while
the Rehabilitation Court arrived at the total amount of past due interest and penalties of
US$114,855,369.59 upon recomputation. This makes for a difference of US$25,243,381.07 which,
petitioners claim, represents an additional write-off to be borne by them for a total write-off of
US$59,287,934.07.
The provision adverted to is Article XII, Section 11 of the 1987 Constitution which states:
SEC. 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital is owned
by such citizens, nor shall such franchise, certificate or authorization be exclusive in character or
for a longer period than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or repeal by the Congress
when the common good so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association must be citizens of the
Philippines.
This provision explicitly reserves to Filipino citizens control over public utilities, pursuant to an
overriding economic goal of the 1987 Constitution: to "conserve and develop our patrimony" and
ensure "a selfreliant and independent national economy effectively controlled by Filipinos."94
In the recent case of Gamboa v. Teves,95 the Court settled once and for all the meaning of "capital"
in the above-quoted Constitutional provision limiting foreign ownership in public utilities. In said
case, we held that considering that common shares have voting rights which translate to control
as opposed to preferred shares which usually have no voting rights, the term "capital" in Section
11, Article XII of the Constitution refers only to common shares. However, if the preferred shares
also have the right to vote in the election of directors, then the term "capital" shall include such
preferred shares because the right to participate in the control or management of the corporation
is exercised through the right to vote in the election of directors. In short, the term "capital" in
Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election
of directors.
Applying this, two steps must be followed in order to determine whether the conversion of debt
to equity in excess of 40% of the outstanding capital stock violates the constitutional limit on
foreign ownership of a public utility: First, identify into which class of shares the debt shall be
converted, whether common shares, preferred shares that have the right to vote in the election
of directors or non-voting preferred shares; Second, determine the number of shares with voting
right held by foreign entities prior to conversion. If upon conversion, the total number of shares
held by foreign entities exceeds 40% of the capital stock with voting rights, the constitutional limit
on foreign ownership is violated. Otherwise, the conversion shall be respected.
In its Rehabilitation Plan,96 among the material financial commitments made by respondent
Bayantel is that its shareholders shall "relinquish the agreed-upon amount of common stock[s] as
payment to Unsecured Creditors as per the Term Sheet." 97 Evidently, the parties intend to convert
the unsustainable portion of respondent's debt into common stocks, which have voting rights. If
we indulge petitioners on their proposal, the Omnibus Creditors which are foreign corporations,
shall have control over 77.7% of Bayantel, a public utility company. This is precisely the scenario
proscribed by the Filipinization provision of the Constitution. Therefore, the Court of Appeals acted
correctly in sustaining the 40% debt-to-equity ceiling on conversion.
As to the fourth issue, petitioners insist that the write-off of the default interest and penalties
along with the re-computation of past due interest violate the pari passu treatment of creditors.
Petitioners argument lacks merit.
Section 5(d), Rule 4 of the Interim Rules provides that the rehabilitation plan shall include the
means for the execution of the rehabilitation plan, which may include conversion of the debts or
any portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of
the controlling interest.
Debt restructuring may involve conversion of the debt or any portion thereof to equity, sale of the
assets of the distressed company and application of the proceeds to the obligation, dacion en
pago, debt relief or reduction, modification of the terms of the loan or a combination of these
schemes.
In this case, the approved Rehabilitation Plan provided for a longer period of payment, the
conversion of debt to 40% equity in respondent company, modification of interest rates on the
restructured debt and accrued interest and a write-off or relief from penalties and default interest.
These recommendations by the Receiver are perfectly within the powers of the Rehabilitation
Court to adopt and approve, as it did adopt and approve. In so doing, no reversible error can be
attributed to the Rehabilitation Court.
The pertinent portion of the fallo of said courts Decision dated June 28, 2004 states:
1. The ruling on the pari passu treatment of all creditors whose claims are subject to
restructuring shall be maintained and shall extend to all payment terms and treatment of
past due interest.[98 (Emphasis supplied)
Thus, the court a quo provided for a uniform application of the pari passu principle among creditor
claims and the terms by which they shall be paid, including past due interest. This is consistent
with the interpretation accorded by jurisprudence to the pari passu principle that during
rehabilitation, the assets of the distressed corporation are held in trust for the equal benefit of all
creditors to preclude one from obtaining an advantage or preference over another. All creditors
should stand on equal footing. Not any one of them should be given preference by paying one or
some of them ahead of the others.99
As applied to this case, the pari passu treatment of claims during rehabilitation entitles all
creditors, whether secured or unsecured, to receive payment out of Bayantels cash flow. Despite
their preferred position, therefore, the secured creditors shall not be paid ahead of the unsecured
creditors but shall receive payment only in the proportion owing to them.
In any event, the debt restructuring schemes complained of shall be implemented among all
creditors regardless of class. Both secured and unsecured creditors shall suffer a write-off of
penalties and default interest and the escalating interest rates shall be equally imposed on them.
We repeat, the commitment embodied in the pari passu principle only goes so far as to ensure
that the assets of the distressed corporation are held in trust for the equal benefit of all creditors.
It does not espouse absolute equality in all aspects of debt restructuring.
As regards petitioners claims for costs, petitioner Bank of New York filed before the Rehabilitation
Court a Notice of Claim100 dated February 19, 2004 for the payment of US$1,255,851.30,
representing filing fee, deposit for expenses and the professional fees of its counsels and financial
advisers. Earlier, said bank had filed a claim for the payment of US$863,829.98 for professional
fees of its counsels and professional advisers and P2,850,305.00 for docket fees and publication
expenses. On its end, the Avenue Asia Capital Group claims a total of US$535,075.64 to defray
the professional fees of its financial adviser, Price Waterhouse & Cooper and the Bondholder
Communications Group.
In an Order101 dated March 15, 2005, the Rehabilitation Court approved the claims for costs of
petitioner Bank of New York as follows:
i. filing fees of P2,701,750.00 as evidenced by O.R. Nos. 18463998, 18466286 and 0480246 all
dated August 13, 2003 of the Regional Trial Court (of Pasig City);
ii. costs of publication of the Stay Order in the amount of P47,550.00 as evidenced by O.R. No.
86384 dated August 13, 2003 of the Peoples Independent Media, Inc., the same being judicial
costs authorized under Sec. 1, Rule 142 of the Rules of Court;
iii. payments of professional fees to its Philippine Counsel, Belo Gozon Elma Parel Asuncion &
Lucila, in the total amount of US$152,784.32 as evidenced by the Affidavit of Atty. Roberto Rafael
V. Lucila and the Statements of Account attached thereto;
which the Court considers to be reasonable and finds authorized under Sec. 6.11 and 6.12 of the
Indenture attached as Annex "E" to the Petition;
The Receiver is hereby directed to cause the settlement of payment of the accounts within a
period of sixteen (16) months from receipt of this Order.102
The trial court made no pronouncement on the claims for cost of petitioner Avenue Asia Capital
Group, either in the same Order or in a subsequent order.
Before us, petitioners reiterate their claims for costs based on Sections 6.11 and 6.12
103 104
of the
Indenture105 dated July 22, 1999, which was executed by respondent in their favor.
It bears stressing at this point that the subject of petitioners appeal before the Court of Appeals
was the Rehabilitation Courts Decision dated June 28, 2004. Said Decision, however, bore no
discussion on either petitioners claim for costs from which they may appeal. Notably, the assailed
Order of the Rehabilitation Court was promulgated on March 15, 2005 or four (4) months after
petitioners had appealed the Decision dated June 28, 2004 to the Court of Appeals on November
16, 2004. Evidently, the appellate court could not have acquired jurisdiction to review said Order.
Nonetheless, we doubt the propriety of the Rehabilitation Courts award for costs. A perusal of
the Order dated March 15, 2005 reveals that the award to petitioner Bank of New York was made
pursuant to Section 1, Rule 142 of the Rules of Court, which states:
SECTION 1. Costs ordinarily follow results of suit.- Unless otherwise provided in these
Rules, costs shall be allowed to the prevailing party as a matter of course, but the court
shall have power, for special reasons, to adjudge that either party shall pay the costs of an action,
or that the same be divided, as may be equitable. No costs shall be allowed against the Republic
of the Philippines unless otherwise provided by law. (Emphasis supplied)
However, there is no prevailing party in rehabilitation proceedings which is non-adversarial in
nature.106 Unlike in adversarial proceedings, the court in rehabilitation proceedings appoints a
receiver to study the best means to revive the debtor and to ensure that the value of the debtors
property is reasonably maintained pending the determination of whether or not the debtor should
be rehabilitated, as well as implement the rehabilitation plan after its approval.107 The main thrust
of rehabilitation is not to adjudicate opposing claims but to restore the debtor to a position of
successful operation and solvency. Under the Interim Rules, reasonable fees and expenses are
allowed the Receiver and the persons hired by him,108 for those expenses incurred in the ordinary
course of business of the debtor after the issuance of the stay order but excluding interest to
creditors.109
Moreover, while it is true that the Indenture between petitioners and respondent corporation
authorizes the Trustee to file proofs of claim for the payment of reasonable expenses and
disbursements of the Trustee, its agents and counsel, accountants and experts, such remedy is
available only in cases where the Trustee files a collection suit against respondent company.
Indubitably, the rehabilitation proceedings in the case at bar is not a collection suit, which is
adversarial in nature.
In G.R. No. 177270
At issue in this petition for review on certiorari is the extent of power that the Monitoring
Committee can exercise.
The pertinent portion of the fallo of the Decision dated June 28, 2004 provides:
6. A Monitoring Committee shall be formed composed of representatives from all classes of the
restructured debt. The Rehabilitation Receivers role shall be limited to the powers of monitoring
and oversight as provided in the Interim Rules. All powers provided for in the Report and
Recommendations, which exceed the monitoring and oversight functions mandated by the Interim
Rules shall be amended accordingly.110
On October 15, 2004, petitioner Bank of New York filed a Manifestation with the Rehabilitation
Court for the creation of a monitoring committee in accordance with the aforequoted
pronouncement. Petitioner espouses the view that it is essential to "provide for a strong and
effective Monitoring Committee x x x which gives the Financial Creditors meaningful and
substantial participation in Bayantel."111 It went on to propose the powers that the Monitoring
Committee should possess, specifically:
The role of the Monitoring Committee shall be to work with the Receiver (on precise terms to be
agreed as discussed below) to Oversee the actions of the BTI New Board of Directors, making key
Decisions and approving, amongst other things,
(i) Any proposed Events of Rescheduling;
(ii) Any other proposed actions by the receiver on a payment default;
(iii) Operating Expenses Budgets;
(iv) Capital Expenditure Budgets;
(v) Asset Sales Programs; and
(vi) Terms of Incentive Scheme for New Management and Management Targets.112
Subsequently, in an Order113 dated November 9, 2004, the Rehabilitation Court adopted
petitioners proposal by constituting a Monitoring Committee that
shall participate with the Receiver in monitoring and overseeing the actions of the Board of
Directors of Bayantel and may, by majority vote, adopt, modify, revise or substitute any of
the following items:
(1) any proposed Annual OPEX Budgets;
(2) any proposed Annual CAPEX Budgets;
(3) any proposed Reschedule;
(4) any proposed actions by the Receiver on a payment default;
(5) terms of Management Incentivisation Scheme and Management Targets;
(6) the EBITDA/Revenue ratios set by the Bayantel Board of Directors; and,
(7) any other proposed actions by the Bayantel Board of Directors including, without
limitation, issuance of new shares, sale of core and non-core assets, change of
business, etc. that will materially affect the terms and conditions of the rehabilitation
plan and its implementation.114 (Emphasis supplied)
From said Order, respondent Bayantel filed a Manifestation and Motion for Clarification while the
secured creditors moved for an increase in the membership of the monitoring committee from
three to five members. For his part, the Receiver submitted a Compliance and Manifestation dated
January 10, 2005.
In an Order115 dated March 15, 2005, the Rehabilitation Court affirmed the creation of a monitoring
committee but denied the motion for the appointment of additional members therein. It also made
the following dispositions relative to the functions of the Monitoring Committee:
(d) to approve the Implementing Term Sheet submitted by the Receiver subject to the following
conditions:
xxxx
ii. the Receiver shall design and formulate with the participation of the Monitoring
Committee and Bayantel the convertible debt instrument, as directed of him in the earlier
Order of November 9, 2004, for the unsustainable portion of the restructured debt of Bayantel
and submit the same to the Court within thirty (30) days from receipt of this Order. Costs,
expenses and taxes that may be due on the execution of the convertible debt instrument shall be
charged to Bayantel as costs of the rehabilitation proceedings;
xxxx
iv. the Receiver shall devise a mode or procedure whereby the Monitoring Committee can
have immediate and direct access to any information that the Receiver has obtained or
received from Bayantel or the Monitoring Accountant in regard to the management and
business operations of Bayantel;
v. the trading of debt mentioned in the Implementing Term Sheet shall be governed by the pre-
petition documents which do not conflict with the Decision of this Court and provided that no
transfer shall be made to the Bayantel Group Companies, or any controlling shareholders thereof
including Bayan Telecommunications Holdings Corporation ("BTHC"); however, any "buy back"
scheme as may be approved by the Monitoring Committee and Bayantel shall be open to
all creditors whether secured or unsecured;116 (Emphasis supplied)
On appeal, the Court of Appeals nullified the Orders dated November 9, 2004 and March 15, 2005
insofar as they defined the powers and functions of the Monitoring Committee. The appellate
court ruled that the Rehabilitation Court committed grave abuse of discretion in vesting the
Monitoring Committee with powers beyond monitoring and overseeing Bayantels operations.
Before us, petitioner contends that the Rehabilitation Court intended for the Monitoring Committee
to exercise powers greater than those of the Receiver.
We find no merit in petitioners argument.
In the Decision dated June 28, 2004, the Rehabilitation Court discussed the circumstances
surrounding the creation of the monitoring committee, thus:
Both Bayantel and the Opposing Creditors contend that the Rehabilitation Receiver, under his
Report and Recommendations, appear to be vested with too much discretion in the
implementation of his proposed rehabilitation plan. Bayantel and the Opposing Creditors for one,
argue against the power of the Rehabilitation Receiver to be able to further restructure
Restructured Debt as well as the Rehabilitation Receiver's power relating to matters of Bayantels
budget.
The [c]ourt wishes to stress that the Interim Rules prohibit the Rehabilitation Receiver from taking
over the management and control of the company under rehabilitation, and limit his role to merely
overseeing and monitoring the operations of the company (Section 14, Rule 4, Interim Rules).
However, the [c]ourt also appreciates that the Rehabilitation Receiver must oversee the
implementation of the rehabilitation plan as approved by the [c]ourt. In line with petitioners
proposal, the creation of a Monitoring Committee composed of representatives from all
classes of the restructured debt addresses the concerns raised by the
creditors.117 (Emphasis supplied)
It can be gleaned from the foregoing that the Rehabilitation Courts decision to form a monitoring
committee was borne out of creditors concerns over the possession of vast powers by the
Receiver. While the Rehabilitation Court was quick to delineate the Receivers authority, it
nevertheless, underscored the value of his role in overseeing the implementation of the Plan. It
was on this premise that the Rehabilitation Court appointed the Monitoring Committee - to
"[address] the concerns raised by the creditors." Yet, in its Orders dated November 9, 2004 and
March 15, 2005, the Rehabilitation Court equipped the Monitoring Committee with powers well
beyond those of the Receivers. Apart from control over respondents budget, the Monitoring
Committee may also adopt, modify, revise or even substitute any other proposed actions by
respondents Board of Directors, including, without limitation issuance of new shares, sale of core
and non-core assets, change of business and others that will materially affect the terms and
conditions of the rehabilitation plan and its implementation. Ironically, the court a quo diluted the
seeming concentration of power in the hands of the Receiver but appointed a Committee
possessed of even wider discretion over respondents operations.
From all indications, however, the tenor of the Rehabilitation Courts Decision dated June 28, 2004
does not contemplate the creation of a Monitoring Committee with broader powers than the
Receiver. As the name of the Monitoring Committee itself suggests, its job is "to watch, observe
or check especially for a special purpose."118 In the context of the Decision dated June 28, 2004,
the fundamental task of the Monitoring Committee herein is to oversee the implementation of the
rehabilitation plan as approved by the court. This should not be confused with the functions of
the Receiver under the Interim Rules or a management committee under PD 902-A.
corporation which may be prejudicial to the interest of the minority stockholders, the creditors or
the public. Unless petitioner satisfies these requisites, we cannot sanction the exercise by the
Monitoring Committee of powers that will amount to management of respondents operations.
WHEREFORE, the Court hereby RESOLVES to dispose of these consolidated petitions, as
follows:
(1) The petition for review on certiorari in G.R. Nos. 174457-59 is DENIED. The Decision dated
August 18, 2006 of the Court of Appeals in CA-G.R. SP No. 87203 is AFFIRMED;
(2) The petition for review on certiorari in G.R. Nos. 175418-20 is DENIED. The Decision dated
August 18, 2006 and Resolution dated November 8, 2006 of the Court of Appeals in CA-G.R. SP
Nos. 87100 and 87111 are AFFIRMED; and
(3) The petition for review on certiorari in G.R. No. 177270 is DENIED. The Decision dated
October 27, 2006 and Resolution dated March 23, 2007 of the Court of Appeals in CA-G.R. SP No.
89894 are AFFIRMED.
No pronouncement as to costs.

Under Section 14, Rule 4 of the Interim Rules, the Receiver shall not take over the management SO ORDERED.
and control of the debtor but shall closely oversee and monitor its operations during the pendency
of the rehabilitation proceeding. The Rehabilitation Receiver shall be considered an officer of the MARTIN S. VILLARAMA, JR.
court and his core duty is to assess how best to rehabilitate the debtor and to preserve its assets Associate Justice
pending the determination of whether or not it should be rehabilitated and to implement the
WE CONCUR:
approved plan.
TERESITA J. LEONARDO-DE CASTRO
It is a basic precept in Corporation Law that the corporate powers of all corporations formed
Associate Justice
under Batas Pambansa Blg. 68 or the Corporation Code shall be exercised, all business conducted
Acting Chairperson
and all property of such corporations controlled and held by the board of directors or trustees.
Nonetheless, PD 902-A presents an exception to this rule.
LUCAS P. BERSAMIN JOSE PORTUGAL PEREZ*
Section 6(d)119 of PD 902-A empowers the Rehabilitation Court to create and appoint a Associate Justice Associate Justice
management committee to undertake the management of corporations when there is imminent
danger of dissipation, loss, wastage or destruction of assets or other properties or paralyzation of BIENVENIDO L. REYES
business operations of such corporations which may be prejudicial to the interest of minority Associate Justice
stockholders, parties-litigants or the general public. In the case of corporations supervised or
ATTESTATION
regulated by government agencies, such as banks and insurance companies, the appointment
shall be made upon the request of the government agency concerned. Otherwise, the I attest that the conclusions in the above Decision had been reached in consultation before the
Rehabilitation Court may, upon petition or motu proprio, appoint such management committee. case was assigned to the writer of the opinion of the Court's Division.
The management committee or rehabilitation receiver, board or body shall have the following TERESITA J. LEONARDO-DE CASTRO
powers: (1) to take custody of, and control over, all the existing assets and property of the Associate Justice
distressed corporation; (2) to evaluate the existing assets and liabilities, earnings and operations Acting Chairperson, First Division
of the corporation; (3) to determine the best way to salvage and protect the interest of the
investors and creditors; (4) to study, review and evaluate the feasibility of continuing operations CERTIFICATION
and restructure and rehabilitate such entities if determined to be feasible by the Rehabilitation
Court; and (5) it may overrule or revoke the actions of the previous management and board of Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division Acting
directors of the entity or entities under management notwithstanding any provision of law, articles Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached
of incorporation or by-laws to the contrary.1wphi1 in consultation before the case was assigned to the writer of the opinion of the Court's Division.

In this case, petitioner neither filed a petition for the appointment of a management committee ANTONIO T. CARPIO
nor presented evidence to show that there is imminent danger of dissipation, loss, wastage or Acting Chief Justice
destruction of assets or other properties or paralyzation of business operations of respondent
 application for a Certificate of Public Convenience (CPC) is, hereby, GRANTED for a period of five
(5) years with authority to charge the proposed rates herein set effective upon approval as follows:
Republic of the Philippines
SUPREME COURT
Consumption Blocks Proposed Rates
Manila

EN BANC 0-10 cu. m. P125.00(min. charge)

G.R. No. 168914 July 4, 2007
11-20 cu. m. 13.50 per cu. m.
METROPOLITAN CEBU WATER DISTRICT (MCWD), Petitioner,
vs.
MARGARITA A. ADALA, Respondent. 21-30 cu. m. 14.50 per cu. m.

DECISION
31-40 cu. m. 35.00 per cu. m.
CARPIO MORALES, J.:

The Decision of the Regional Trial Court (RTC) of Cebu dated February 10, 2005, which affirmed in 41-50 cu. m. 37.00 per cu. m.
toto the Decision of the National Water Resources Board (NWRB) dated September 22, 2003 in
favor of Margarita A. Adala, respondent, is being challenged in the present petition for review on
certiorari. 51-60 cu. m. 38.00 per cu. m.

Respondent filed on October 24, 2002 an application with the NWRB for the issuance of a
Certificate of Public Convenience (CPC) to operate and maintain waterworks system in sitios San
Vicente, Fatima, and Sambag in Barangay Bulacao, Cebu City.
At the initial hearing of December 16, 2002 during which respondent submitted proof of
compliance with jurisdictional requirements of notice and publication, herein petitioner
Metropolitan Cebu Water District, a government-owned and controlled corporation created
pursuant to P.D. 1981 which took effect upon its issuance by then President Marcos on May 25,
1973, as amended, appeared through its lawyers to oppose the application.
While petitioner filed a formal opposition by mail, a copy thereof had not, on December 16, 2002,
yet been received by the NWRB, the day of the hearing. Counsel for respondent, who received a
copy of petitioners Opposition dated December 12, 2002 earlier that morning, volunteered to give
a copy thereof to the hearing officer.2
In its Opposition, petitioner prayed for the denial of respondents application on the following
grounds: (1) petitioners Board of Directors had not consented to the issuance of the franchise
applied for, such consent being a mandatory condition pursuant to P.D. 198, (2) the proposed
waterworks would interfere with petitioners water supply which it has the right to protect, and
(3) the water needs of the residents in the subject area was already being well served by
petitioner.
After hearing and an ocular inspection of the area, the NWRB, by Decision dated September 22,
2003, dismissed petitioners Opposition "for lack of merit and/or failure to state the cause of
action"3 and ruled in favor of respondent as follows:
PREMISES ALL CONSIDERED, and finding that Applicant is legally and financially qualified to
operate and maintain the subject waterworks system, and that said operation shall redound to
the benefit of the of the [sic] consumers of Sitios San Vicente, Fatima and Sambag at Bulacao
Pardo, Cebu City, thereby promoting public service in a proper and suitable manner, the instant
61-70 cu. m. 40.00 per cu. m.
71-100 cu. m. 45.00 per cu. m.
Over 100 cu. m. 50.00 per cu. m.
The Rules and Regulations, hereto, attached for the operation of the waterworks system should
be strictly complied with.
Since the average production is below average day demand, it is recommended to construct
another well or increase the well horsepower from 1.5 - 3.00 Hp to satisfy the water requirement
of the consumers.
Moreover, the rates herein approved should be posted by GRANTEE at conspicuous places within
the area serviced by it, within seven (7) calendar days from notice of this Decision.
SO ORDERED.4
Its motion for reconsideration having been denied by the NWRB by Resolution of May 17, 2004,
petitioner appealed the case to the RTC of Cebu City. As mentioned early on, the RTC denied the
appeal and upheld the Decision of the NWRB by Decision dated February 10, 2005. And the RTC
denied too petitioners motion for reconsideration by Order of May 13, 2005.
Hence, the present petition for review raising the following questions of law:
i. WHETHER OR NOT THE CONSENT OF THE BOARD OF DIRECTORS OF THE WATER DISTRICT
IS A CONDITION SINE QUA NON TO THE GRANT OF CERTIFICATE OF PUBLIC CONVENIENCE BY
THE NATIONAL WATER RESOURCES BOARD UPON OPERATORS OF WATERWORKS WITHIN THE
SERVICE AREA OF THE WATER DISTRICT?
ii. WHETHER THE TERM FRANCHISE AS USED IN SECTION 47 OF PRESIDENTIAL DECREE 198,
AS AMENDED MEANS A FRANCHISE GRANTED BY CONGRESS THROUGH LEGISLATION ONLY OR
DOES IT ALSO INCLUDE IN ITS MEANING A CERTIFICATE OF PUBLIC CONVENIENCE ISSUED BY
THE NATIONAL WATER RESOURCES BOARD FOR THE MAINTENANCE OF WATERWORKS SYSTEM
OR WATER SUPPLY SERVICE?5
Before discussing these substantive issues, a resolution of the procedural grounds raised by
respondent for the outright denial of the petition is in order.
By respondents claim, petitioners General Manager, Engineer Armando H. Paredes, who filed the
present petition and signed the accompanying verification and certification of non-forum
shopping, was not specifically authorized for that purpose. Respondent cites Premium Marble
Resources v. Court of Appeals6 where this Court held that, in the absence of a board resolution
authorizing a person to act for and in behalf of a corporation, the action filed in its behalf must
fail since "the power of the corporation to sue and be sued in any court is lodged with the board
of directors that exercises its corporate powers."
Respondent likewise cites ABS-CBN Broadcasting Corporation v. Court of Appeals7 where this
Court held that "[f]or such officers to be deemed fully clothed by the corporation to exercise a
power of the Board, the latter must specially authorize them to do so." (Emphasis supplied by
respondent)
That there is a board resolution authorizing Engineer Paredes to file cases in behalf of petitioner
is not disputed. Attached to the petition is petitioners Board of Directors Resolution No. 015-
2004, the relevant portion of which states:
RESOLVE[D], AS IT IS HEREBY RESOLVED, to authorize the General Manager, ENGR. ARMANDO
H. PAREDES, to file in behalf of the Metropolitan Cebu Water District expropriation and
other cases and to affirm and confirm above-stated authority with respect to previous cases filed
by MCWD.
x x x x8 (Emphasis and underscoring supplied)
To respondent, however, the board resolution is invalid and ineffective for being a roving authority
and not a specific resolution pursuant to the ruling in ABS-CBN.
That the subject board resolution does not authorize Engineer Paredes to file the instant petition in
particular but "expropriation and other cases" does not, by itself, render the authorization invalid
or ineffective.
In BA Savings Bank v. Sia,9 the therein board resolution, couched in words similar to the
questioned resolution, authorized persons to represent the corporation, not for a specific case,
but for a general class of cases. Significantly, the Court upheld its validity:
In the present case, the corporation's board of directors issued a Resolution
specifically authorizing its lawyers "to act as their agents in any action or
proceeding before the Supreme Court, the Court of Appeals, or any other tribunal or
agency[;] and to sign, execute and deliver in connection therewith the necessary pleadings,
motions, verification, affidavit of merit, certificate of non-forum shopping and other instruments
necessary for such action and proceeding." The Resolution was sufficient to vest such
persons with the authority to bind the corporation and was specific enough as to the
acts they were empowered to do. (Emphasis and underscoring supplied, italics in the original)
Nonetheless, while the questioned resolution sufficiently identifies the kind of cases which
Engineer Paredes may file in petitioners behalf, the same does not authorize him for the specific
act of signing verifications and certifications against forum shopping. For it merely authorizes
Engineer Paredes to file cases in behalf of the corporation. There is no mention of signing
verifications and certifications against forum shopping, or, for that matter, any document of
whatever nature.
A board resolution purporting to authorize a person to sign documents in behalf of the corporation
must explicitly vest such authority. BPI Leasing Corporation v. Court of Appeals10 so instructs:
Corporations have no powers except those expressly conferred upon them by the Corporation
Code and those that are implied by or are incidental to its existence. These powers are
exercised through their board of directors and/or duly authorized officers and
agents. Hence, physical acts, like the signing of documents, can be performed only by
natural persons duly authorized for the purpose by corporate bylaws or by specific act
of the board of directors.
The records are bereft of the authority of BLC's [BPI Leasing Corporation] counsel to
institute the present petition and to sign the certification of non-forum shopping. While
said counsel may be the counsel of record for BLC, the representation does not vest upon him the
authority to execute the certification on behalf of his client. There must be a resolution issued
by the board of directors that specifically authorizes him to institute the petition and
execute the certification, for it is only then that his actions can be legally binding upon
BLC. (Emphasis, italics and underscoring supplied)
It bears noting, moreover, that Rule 13 Section 2 of the Rules of Court merely defines filing as
"the act of presenting the pleading or other paper to the clerk of court." Since the signing of
verifications and certifications against forum shopping is not integral to the act of filing, this may
not be deemed as necessarily included in an authorization merely to file cases.
Engineer Paredes not having been specifically authorized to sign the verification and certification
against forum shopping in petitioners behalf, the instant petition may be dismissed outright.
Technicality aside, the petition just the same merits dismissal.
In support of its contention that the consent of its Board of Directors is a condition sine qua
non for the grant of the CPC applied for by respondent, petitioner cites Section 47 of P.D.
19811 which states:
Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person or agency
for domestic, industrial or commercial water service within the district or any portion
thereof unless and except to the extent that the board of directors of said district consents
thereto by resolution duly adopted, such resolution, however, shall be subject to review by the
Administration. (Emphasis and underscoring supplied)
There being no such consent on the part of its board of directors, petitioner concludes that
respondents application for CPC should be denied.
Both parties arguments center, in the main, on the scope of the word "franchise" as used in the
above-quoted provision.
Petitioner contends that "franchise" should be broadly interpreted, such that the prohibition
against its grant to other entities without the consent of the districts board of directors extends
to the issuance of CPCs. A contrary reading, petitioner adds, would result in absurd consequences,
for it would mean that Congress power to grant franchises for the operation of waterworks
systems cannot be exercised without the consent of water districts.
Respondent, on the other hand, proffers that the same prohibition only applies to franchises in
the strict sense those granted by Congress by means of statute and does not extend to CPCs
granted by agencies such as the NWRB.
Respondent quotes the NWRB Resolution dated May 17, 2004 which distinguished a franchise
from a CPC, thus:
A CPC is formal written authority issued by quasi-judicial bodies for the operation and maintenance
of a public utility for which a franchise is not required by law and a CPC issued by this Board is an
authority to operate and maintain a waterworks system or water supply service. On the other
hand, a franchise is privilege or authority to operate appropriate private property for public use
vested by Congress through legislation. Clearly, therefore, a CPC is different from a
franchise and Section 47 of Presidential Decree 198 refers only to franchise.
Accordingly, the possession of franchise by a water district does not bar the issuance
of a CPC for an area covered by the water district. (Emphasis and underscoring supplied by
respondent)
Petitioners position that an overly strict construction of the term "franchise" as used in Section
47 of P.D. 198 would lead to an absurd result impresses. If franchises, in this context, were strictly
understood to mean an authorization issuing directly from the legislature, it would follow that,
while Congress cannot issue franchises for operating waterworks systems without the water
districts consent, the NWRB may keep on issuing CPCs authorizing the very same act even without
such consent. In effect, not only would the NWRB be subject to less constraints than Congress in
issuing franchises. The exclusive character of the franchise provided for by Section 47 would be
illusory.
Moreover, this Court, in Philippine Airlines, Inc. v. Civil Aeronautics Board,12 has construed the
term "franchise" broadly so as to include, not only authorizations issuing directly from Congress
in the form of statute, but also those granted by administrative agencies to which the power to
grant franchises has been delegated by Congress, to wit:
Congress has granted certain administrative agencies the power to grant licenses for,
or to authorize the operation of certain public utilities. With the growing complexity of
modern life, the multiplication of the subjects of governmental regulation, and the increased
difficulty of administering the laws, there is a constantly growing tendency towards the delegation
of greater powers by the legislature, and towards the approval of the practice by the courts. 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.
In pursuance of this, it has been held that privileges conferred by grant by local
authorities as agents for the state constitute as much a legislative franchise as though
the grant had been made by an act of the Legislature.13
That the legislative authority in this instance, then President Marcos14 intended to delegate its
power to issue franchises in the case of water districts is clear from the fact that, pursuant to the
procedure outlined in P.D. 198, it no longer plays a direct role in authorizing the formation and
maintenance of water districts, it having vested the same to local legislative bodies and the Local
Water Utilities Administration (LWUA).
Sections 6 and 7 of P.D. 198, as amended, state:
SECTION 6. Formation of District. This Act is the source of authorization and power to
form and maintain a district. Once formed, a district is subject to the provisions of this Act
and not under the jurisdiction of any political subdivision. For purposes of this Act, a district shall
be considered as a quasi-public corporation performing public service and supplying public wants.
As such, a district shall exercise the powers, rights and privileges given to private corporations
under existing laws, in addition to the powers granted in, and subject to such restrictions imposed,
under this Act. To form a district, the legislative body of any city, municipality or
province shall enact a resolution containing the following:
(a) The name of the local water district, which shall include the name of the city, municipality, or
province, or region thereof, served by said system, followed by the words "Water District".
(b) A description of the boundary of the district. In the case of a city or municipality, such boundary
may include all lands within the city or municipality. A district may include one or more
municipalities, cities or provinces, or portions thereof: Provided, That such municipalities, cities or
provinces, or portions thereof, cover a contiguous area.
(c) A statement completely transferring any and all waterworks and/or sewerage facilities
managed, operated by or under the control of such city, municipality or province to such district
upon the filing of resolution forming the district.
(d) A statement identifying the purpose for which the district is formed, which shall include those
purposes outlined in Section 5 above.
(e) The names of the initial directors of the district with the date of expiration of the term of office
for each which shall be on the 31st of December of first, second, or third even-numbered year
after assuming office, as set forth in Section 11 hereof.
(f) A statement that the district may only be dissolved on the grounds and under the conditions
set forth in Section 45 of this Title.
(g) A statement acknowledging the powers, rights and obligations as set forth in Section 25 of
this Title.
Nothing in the resolution of formation shall state or infer that the local legislative body has the
power to dissolve, alter or affect the district beyond that specifically provided for in this Act.
If two or more cities, municipalities or provinces, or any combination thereof, desire to form a
single district, a similar resolution shall be adopted in each city, municipality and province; or the
city, municipality or province in which 75% of the total active service connections are situated
shall pass an initial resolution to be concurred in by the other cities, municipalities or provinces.
SECTION 7. Filing of Resolution. A certified copy of the resolution or resolutions forming
a district shall be forwarded to the office of the Secretary of Administration. If found
by the Administration to conform to the requirements of Section 6 and the policy
objectives in Section 2, the resolution shall be duly filed. The district shall be deemed
duly formed and existing upon the date of such filing. A certified copy of said resolution
showing the stamp of the Administration shall be maintained in the office of the district. Upon
such filing, the local government or governments concerned shall lose ownership, supervision and
control or any right whatsoever over the district except as provided herein. (Emphasis and
underscoring supplied)
It bears noting that once a district is "duly formed and existing" after following the above
procedure, it acquires the "exclusive franchise" referred to in Section 47. Thus, P.D. 198 itself, in
harmony with Philippine Airlines, Inc. v. Civil Aeronautics Board,15 gives the name "franchise" to CONCHITA CARPIO MORALES
an authorization that does not proceed directly from the legislature. Associate Justice

It would thus be incongruous to adopt in this instance the strict interpretation proffered by WE CONCUR:
respondent and exclude from the scope of the term "franchise" the CPCs issued by the NWRB.16
REYNATO S. PUNO
Nonetheless, while the prohibition in Section 47 of P.D. 198 applies to the issuance of Chief Justice
CPCs for the reasons discussed above, the same provision must be deemed void ab
initio for being irreconcilable with Article XIV Section 5 of the 1973 Constitution which
was ratified on January 17, 1973 the constitution in force when P.D. 198 was issued on May 25, (On leave)
(ON OFFICIAL LEAVE)
1973. Thus, Section 5 of Art. XIV of the 1973 Constitution reads: ANGELINA SANDOVAL-
LEONARDO A. QUISUMBING*
GUTIERREZ**
Associate Justice
SECTION 5. No franchise, certificate, or any other form of authorization for the operation of Associate Justice
a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of the capital of
which is owned by such citizens, nor shall such franchise, certificate, or authorization be CONSUELO YNARES-SANTIAGO ANTONIO T. CARPIO
exclusive in character or for a longer period than fifty years. Neither shall any such Associate Justice Associate Justice
franchise or right be granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the Batasang Pambansa when the public interest so requires. The State
shall encourage equity participation in public utilities by the general public. The participation of
MA. ALICIA AUSTRIA-MARTINEZ RENATO C. CORONA
foreign investors in the governing body of any public utility enterprise shall be limited to their
Associate Justice Associate Justice
proportionate share in the capital thereof. (Emphasis and underscoring supplied)

This provision has been substantially reproduced in Article XII Section 11 of the 1987 Constitution,
including the prohibition against exclusive franchises.17 ADOLFO S. AZCUNA MINITA V. CHICO-NAZARIO
Associate Justice Associate Justice
In view of the purposes for which they are established, water districts fall under the term "public
18

utility" as defined in the case of National Power Corporation v. Court of Appeals:191avvphil

A "public utility" is a business or service engaged in regularly supplying the public with some DANTE O. TINGA CANCIO C. GARCIA
commodity or service of public consequence such as electricity, gas, water, transportation, Associate Justice Associate Justice
telephone or telegraph service. x x x (Emphasis and underscoring supplied)

It bears noting, moreover, that as early as 1933, the Court held that a particular water district
PRESBITERO J. VELASCO, JR. ANTONIO EDUARDO B. NACHURA
the Metropolitan Water District is a public utility.20
Associate Justice Associate Justice
The ruling in National Waterworks and Sewerage Authority v. NWSA Consolidated Unions21 is also
instructive:
CERTIFICATION
We agree with petitioner that the NAWASA is a public utility because its primary function is
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions
to construct, maintain and operate water reservoirs and waterworks for the purpose
in the above Decision were reached in consultation before the case was assigned to the writer
of supplying
of the opinion of the Court.
water to the inhabitants, as well as consolidate and centralize all water supplies and drainage
systems in the Philippines. x x x (Emphasis supplied) REYNATO S. PUNO
Chief Justice
Since Section 47 of P.D. 198, which vests an "exclusive franchise" upon public utilities, is clearly
repugnant to Article XIV, Section 5 of the 1973 Constitution,22 it is unconstitutional and may not,
therefore, be relied upon by petitioner in support of its opposition against respondents application
for CPC and the subsequent grant thereof by the NWRB.

WHEREFORE, Section 47 of P.D. 198 is unconstitutional. The Petition is thus, in light of the
foregoing discussions, DISMISSED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-68729 May 29, 1987
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC., petitioner,
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION and KAYUMANGGI RADIO NETWORK
INCORPORATED, respondents.
GUTIERREZ, JR, J.:
This petition seeks the reversal of the decision of the National Telecommunications Commission
(NTC) which ordered petitioner Radio Communications of the Philippines, Incorporated (RCPI) to
desist from operating its radio telephone services in Catarman, Northern Samar; San Jose,
Occidental Mindoro; and Sorsogon, Sorsogon.
Petitioner has been operating a radio communications system since 1957 under its legislative
franchise granted by Republic Act No. 2036 which was enacted on June 23, 1957.
In 1968, the petitioner established a radio telegraph service in Sorsogon, Sorsogon. In 1971,
another radio telegraph service was put up in San Jose, Mindoro followed by another in Catarman,
Samar in 1976. The installation of radio telephone services started in 1971 in San Jose, Mindoro;
then in Sorsogon, Sorsogon and Catarman, Samar in 1983.
In a decision dated June 24, 1980 in NTC Case No. 80-08, private respondent Kayumanggi Radio
Network Incorporated was authorized by the public respondent to operate radio communications
systems in Catarman, Samar and in San Jose, Mindoro.
On December 14, 1983, the private respondent filed a complaint with the NTC alleging that the
petitioner was operating in Catarman, Samar and in San Jose, Mindoro without a certificate of
public covenience and necessity. The petitioner, on the other hand, counter-alleged that its
telephone services in the places subject of the complaint are covered by the legislative franchise
recognized by both the public respondent and its predecessor, the Public Service Commission. In
its supplemental reply, the petitioner further stated that it has been in operation in the questioned
places long before private respondent Kayumanggi filed its application to operate in the same
places.
After conducting a hearing, NTC, in its decision dated August 22, 1984 ordered petitioner RCPI to
immediately cease or desist from the operation of its radio telephone services in Catarman
Northern Samar; San Jose, Occidental Mindoro; and Sorsogon, Sorsogon stating that under
Executive Order No. 546, a certificate of public convenience and necessity is mandatory for the
operation of communication utilities and services including radio communications.
On September 4, 1984, the petitioner filed a motion for reconsideration which was denied in an
order dated September 12, 1984.
On October 1, 1984, the present petition was filed raising the issue of whether or not petitioner
RCPI, a grantee of a legislative franchise to operate a radio company, is required to secure a
certificate of public convenience and necessity before it can validly operate its radio stations
including radio telephone services in Catarman, Northern Samar; San Jose, Occidental Mindoro;
and Sorsogon, Sorsogon.
The petitioner's main argument states that the abolition of the Public Service Commission under
Presidential Decree No. 1 and the creation of the National Telecommunications Commission under
Executive Order No. 546 to replace the defunct Public Service Commission did not affect sections
14 and 15 of the Public Service Law (Commonwealth Act. No. 146, as amended).
The provisions of the Public Service Law pertinent to the petitioner's allegation are as follows:
Section 13. (a) the Commission shall have jurisdiction, supervision, and control over all public
services and their franchises, equipment and other properties, and in the exercise of its authority,
it shall have the necessary powers and the aid of public force: ...
Section 14. The following are exempted from the provisions of the preceding section:
xxx xxx xxx
(d) Radio companies except with respect to the fixing of rates;
xxx xxx xxx
Section 15. With the exception of those enumerated in the preceding section, no public service
shall operate in the Philippines without possessing a valid and subsisting certificate from the Public
Service Commission, known as "certificate of public convenience," or "certificate of convenience
and public necessity," as the case may be, to the effect that the operation of said service and the
authorization to do business will promote the public interests in a proper and suitable manner. ...
We find no merit in the petitioner's contention.
Pursuant to Presidential Decree No. 1 dated September 23,1972, reorganizing the executive
branch of the National Government, the Public Service Commission was abolished and its functions
were transferred to three specialized regulatory boards, as follows: the Board of Transportation,
the Board of Communications and the Board of Power and Waterworks. The functions so
transferred were still subject to the limitations provided in sections 14 and 15 of the Public Service
Law, as amended. With the enactment of Executive Order No. 546 on July 23, 1979 implementing
P.D. No.1, the Board of Communications and the Telecommunications Control Bureau were
abolished and their functions were transferred to the National Telecommunications Commission
(Sec. 19(d), Executive Order No. 546). Section 15 of said Executive Order spells out the functions
of the National Telecommunications Commission as follows:
Sec. 15. Functions of the Commission.-The Commission shall exercise the following functions:
a. Issue Certificate of Public Convenience for the operation of communications utilities and
services, radio communications petitions systems, wire or wireless telephone or telegraph system,
radio and television broadcasting system and other similar public utilities;
b. Establish, prescribe and regulate areas of operation of particular operators of public service
communications; and determine and prescribe charges or rates pertinent to the operation of such
public utility facilities and services except in cases where charges or rates are established by
international bodies or associations of which the Philippines is a participating member or by bodies
recognized by the Philippine Government as the proper arbiter of such charges or rates;
c. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems
and radio communication systems including amateur radio stations and radio and television
broadcasting systems;
d. Sub-allocate series of frequencies of bands allocated by the International Telecommunications
Union to the specific services;
e. Establish and prescribe rules, regulations, standards, specifications in all cases related to the
issued Certificate of Public Convenience and administer and enforce the same;
f. Coordinate and cooperate with government agencies and other entities concerned with any
aspect involving communications with a view to continuously improve the communications service
in the country;
g. Promulgate such rules and regulations, as public safety and interest may require, to encourage
a larger and more effective use of communications, radio and television broadcasting facilities,
and to maintain effective competition among private entities in these activities whenever the
Commission finds it reasonably feasible;
h. Supervise and inspect the operation of radio stations and telecommunications facilities;
i. Undertake the examination and licensing of radio operators;
j. Undertake, whenever necessary, the registration of radio transmitters and transceivers; and
k. Perform such other functions as may be prescribed by law.
It is clear from the aforequoted provision that the exemption enjoyed by radio companies from
the jurisdiction of the Public Service Commission and the Board of Communications no longer
exists because of the changes effected by the Reorganization Law and implementing executive
orders. The petitioner's claim that its franchise cannot be affected by Executive Order No. 546 on
the ground that it has long been in operation since 1957 cannot be sustained.
A franchise started out as a "royal privilege or (a) branch of the King's prerogative, subsisting in
the hands of a subject." This definition was given by Finch, adopted by Blackstone, and accepted
by every authority since (State v. Twin Village Water Co., 98 Me 214, 56 A 763 (1903)). Today, a
franchise, being merely a privilege emanating from the sovereign power of the state and owing
its existence to a grant, is subject to regulation by the state itself by virtue of its police power
through its administrative agencies. We ruled in Pangasinan transportation Co., Inc. v. Public
Service Commission (70 Phil. 221) that:
... statutes enacted for the regulation of public utilities, being a proper exercise by the State of its
police power, are applicable not only to those public utilities coming into existence after its
passage, but likewise to those already established and in operation ...
Executive Order No. 546, being an implementing measure of P.D. No. I insofar as it amends the
Public Service Law (CA No. 146, as amended) is applicable to the petitioner who must be bound
by its provisions. The petitioner cannot install and operate radio telephone services on the basis
of its legislative franchise alone.
The position of the petitioner that by the mere grant of its franchise under RA No. 2036 it can
operate a radio communications system anywhere within the Philippines is erroneous. Section 1
of said statute reads:
Section 1. Subject to the provisions of the Constitution, and to the provisions, not inconsistent
herewith, of Act Numbered Three thousand eight hundred and forty-six, entitled.' An Act providing
for the regulation of radio stations and radio communications in the Philippine Islands, and for
other purposes;' Commonwealth Act Numbered One hundred forty-six, known as the Public
Service Act, and their amendments, and other applicable laws, there is hereby granted to the
Radio Communications of the Philippines, its successors or assigns, the right and privilege of
constructing, installing, establishing and operating in the Philippines, at such places as the said
corporation may select and the Secretary of Public Works and Communications may approve, radio
stations for the reception and transmission of wireless messages on radiotelegraphy and/or
radiotelephone, including both coastal and marine telecommunications, each station to consist of
two radio apparatus comprising of a receiving and sending radio apparatus. (Emphasis supplied).
Section 4(a) of the same Act further provides that:
Sec. 4(a). This franchise shall not take effect nor shall any powers thereunder be exercised by the
grantee until the Secretary of Public works and Communications shall have allotted to the grantee
the frequencies and wave lengths to be used, and issued to the grantee a license for such case .
(Emphasis supplied)
Thus, in the words of R.A. No. 2036 itself, approval of the then Secretary of Public Works and
Communications was a precondition before the petitioner could put up radio stations in areas
where it desires to operate. It has been repeated time and again that where the statutory norm
speaks unequivocally, there is nothing for the courts to do except to apply it. The law, leaving no
doubt as to the scope of its operation, must be obeyed. (Gonzaga v. Court of Appeals, 51 SCRA
381).
The records of the case do not show any grant of authority from the then Secretary of Public
Works and Communications before the petitioner installed the questioned radio telephone services
in San Jose, Mindoro in 1971. The same is true as regards the radio telephone services opened in
Sorsogon, Sorsogon and Catarman, Samar in 1983. No certificate of public convenience and
necessity appears to have been secured by the petitioner from the public respondent when such
certificate,was required by the applicable public utility regulations (See executive Order No. 546,
sec. 15, supra.; Philippine Long Distance Telephone Co. v. City of Davao, 15 SCRA 75; Olongapo
Electric Light and Power Corp. v. National Power Corporation, et al., G.R. No. L-24912,
promulgated April 9, 1987.)
It was well within the powers of the public respondent to authorize the installation by the private
respondent network of radio communications systems in Catarman, Samar and San Jose, Mindoro.
Under the circumstances of this case, the mere fact that the petitioner possesses a franchise to
put up and operate a radio communications system in certain areas is not an insuperable obstacle
to the public respondent's issuing the proper certificate to an applicant desiring to extend the
same services to those areas. The Constitution mandates that a franchise cannot be exclusive in
nature nor can a franchise be granted except that it must be subject to amendment, alteration,
or even repeal by the legislature when the common good so requires. (Art. XII, sec. 11 of the
1986 Constitution). There is an express provision in the petitioner's franchise which provides
compliance with the above mandate R.A. 2036, sec. 15).
In view of the foregoing, we find no reason to disturb the public respondent's findings of fact, and
conclusions of law insofar as the private respondent was authorized to operate in Catarman,
Samar and San Jose, Mindoro. As a rule, the Commission's findings of fact, if supported by
substantial evidence, are conclusive upon this Court. We may modify or ignore them only when it
clearly appears that there is no evidence to support reasonably such a conclusion. (Halili v. Daplas,
14 SCRA 14). The petitioner has not shown why the private respondent should be denied the
authority to operate its services in Samar and Mindoro. It has not overcome the presumption that
when the public respondent disturbed the petitioner's monopoly in certain areas, it was doing so
pursuant to public interest and the common good.
WHEREFORE, the challenged order of the public respondent dated August 22, 1984 is hereby
AFFIRMED. The petition is dismissed for lack of merit.
SO ORDERED.
Fernan (Chairman), Paras, Padilla, Bidin and Cortes, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 166910 October 19, 2010
ERNESTO B. FRANCISCO, JR. and JOSE MA. O. HIZON, Petitioners,
vs.
TOLL REGULATORY BOARD, PHILIPPINE NATIONAL CONSTRUCTION CORPORATION,
MANILA NORTH TOLLWAYS CORPORATION, BENPRES HOLDINGS CORPORATION,
FIRST PHILIPPINE INFRASTRUCTURE DEVELOPMENT CORPORATION, TOLLWAY
MANAGEMENT CORPORATION, PNCC SKYWAY CORPORATION, CITRA METRO
MANILA TOLLWAYS CORPORATION and HOPEWELL CROWN INFRASTRUCTURE,
INC., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 169917
HON. IMEE R. MARCOS, RONALDO B. ZAMORA, CONSUMERS UNION OF THE
PHILIPPINES, INC., QUIRINO A. MARQUINEZ, HON. LUIS A. ASISTIO, HON. ERICO
BASILIO A. FABIAN, HON. RENATO "KA RENE" B. MAGTUBO, HON. RODOLFO G.
PLAZA, HON. ANTONIO M. SERAPIO, HON. EMMANUEL JOEL J. VILLANUEVA, HON.
ANIBAN NG MGA MANGGAGAWA SA AGRIKULTURA (AMA), INC., ANIBAN NG MGA
MAGSASAKA, MANGINGISDA AT MANGGAGAWA SA AGRIKULTURA-KATIPUNAN,
INC., KAISAHAN NG MGA MAGSASAKA SA AGRIKULTURA, INC., KILUSAN NG
MANGAGAWANG MAKABAYAN, Petitioners,
vs.
The REPUBLIC OF THE PHILIPPINES, acting by and through the TOLL REGULATORY
BOARD, MANILA NORTH TOLLWAYS CORPORATION, PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION, and FIRST PHILIPPINE INFRASTRUCTURE
DEVELOPMENT CORP., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 173630
GISING KABATAAN MOVEMENT, INC., BARANGAY COUNCIL OF SAN ANTONIO,
MUNICIPALITY OF SAN PEDRO, LAGUNA [as Represented by COUNCILOR CARLON G.
AMBAYEC], and YOUNG PROFESSIONALS AND ENTREPRENEURS OF SAN PEDRO,
LAGUNA Petitioners,
vs.
THE REPUBLIC OF THE PHILIPPINES, acting through the TOLL REGULATORY BOARD
(TRB), PHILIPPINE NATIONAL CONSTRUCTION CORPORATION (PNCC), Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 183599
THE REPUBLIC OF THE PHILIPPINES, represented by the TOLL REGULATORY
BOARD, Petitioner,
vs.
YOUNG PROFESSIONALS AND ENTREPRENEURS OF SAN PEDRO,
LAGUNA, Respondent.
DECISION
VELASCO, JR., J.:
Before us are four petitions; the first three are special civil actions under Rule 65, assailing and
seeking to nullify certain statutory provisions, presidential actions and implementing orders, toll
operation-related contracts and issuances on the construction, maintenance and operation of the
major tollway systems in Luzon. The petitions likewise seek to restrain and permanently prohibit
the implementation of the allegedly illegal toll fee rate hikes for the use of the North Luzon
Expressway ("NLEX"), South Luzon Expressway ("SLEX") and the South Metro Manila Skyway
("SMMS"). The fourth, a petition for review under Rule 45, seeks to annul and set aside the
decision dated June 23, 2008 of the Regional Trial Court ("RTC") of Pasig, in SCA No. 3138-PSG,
enjoining the original toll operating franchisee from collecting toll fees in the SLEX.
By Resolution of March 20, 2007, the Court ordered the consolidation of the first three petitions,
docketed as G.R. Nos. 166910, 169917 and 173630, respectively. The fourth petition, G.R.
No. 183599, would later be ordered consolidated with the earlier three petitions.
The Facts
The antecedent facts are as follows
On March 31, 1977, then President Ferdinand E. Marcos issued Presidential Decree No. ("P.D.")
1112, authorizing the establishment of toll facilities on public improvements.1 This issuance, in its
preamble, explicitly acknowledged "the huge financial requirements" and the necessity of tapping
"the resources of the private sector" to implement the governments infrastructure programs. In
order to attract private sector involvement, P.D. 1112 allowed "the collection of toll fees for the
use of certain public improvements that would allow a reasonable rate of return on investments."
The same decree created the Toll Regulatory Board ("TRB") and invested it under Section 3 (a)
(d) and (e) with the power to enter, for the Republic, into contracts for the construction,
maintenance and operation of tollways, grant authority to operate a toll facility, issue therefor the
necessary Toll Operation Certificate ("TOC") and fix initial toll rates, and, from time to time, adjust
the same after due notice and hearing.
On the same date, P.D. 1113 was issued, granting to the Philippine National Construction
Corporation ("PNCC"), then known as the Construction and Development Corporation of the
Philippines ("CDCP"), for a period of thirty years from May 1977 or up to May 2007 a franchise
to construct, maintain and operate toll facilities in the North Luzon and South Luzon Expressways,
with the right to collect toll fees at such rates as the TRB may fix and/or authorize. Particularly,
Section 1 of P.D. 1113 delineates the coverage of the expressways from Balintawak, Caloocan
City to Carmen, Rosales, Pangasinan and from Nichols, Pasay City to Lucena, Quezon. And
because the franchise is not self-executing, as it was in fact made subject, under Section 3 of P.D.
1113, to "such conditions as may be imposed by the Board in an appropriate contract to be
executed for such purpose," TRB and PNCC signed in October 1977, a Toll Operation Agreement
("TOA") on the North Luzon and South Luzon Tollways, providing for the detailed terms and
conditions for the construction, maintenance and operation of the expressway.2
On December 22, 1983, P.D. 1894 was issued therein further granting PNCC a franchise over the
Metro Manila Expressway ("MMEX"), and the expanded and delineated NLEX and SLEX.
Particularly, PNCC was granted the "right, privilege and authority to construct, maintain and
operate any and all such extensions, linkages or stretches, together with the toll facilities
appurtenant thereto, from any part of the North Luzon Expressway, South Luzon Expressway
and/or Metro Manila Expressway and/or to divert the original route and change the original end-
points of the North Luzon Expressway and/or South Luzon Expressway as may be approved by
the [TRB]."3 Under Section 2 of P.D. 1894, "the franchise granted the [MMEX] and all extensions,
linkages, stretches and diversions after the approval of the decree that may be constructed after
the approval of this decree [on December 22, 1983] shall likewise have a term of thirty (30) years,
commencing from the date of completion of the project."
As expressly set out in P.D. 1113 and reiterated in P.D. 1894, PNCC may sell or assign its franchise
thereunder granted or cede the usufruct4 thereof upon the Presidents approval.5 This same
provision on franchise transfer and cession of usufruct is likewise found in P.D. 1112.6
Then came the 1987 Constitution with its franchise provision. 7
In 1993, the Government Corporate Counsel ("GCC"), acting on PNCCs request, issued Opinion
No. 224, s. 1993,8later affirmed by the Secretary of Justice,9 holding that PNCC may, subject to
certain clearance and approval requirements, enter into a joint venture ("JV") agreement ("JVA")
with private entities without going into public bidding in the selection of its JV partners. PNCCs
query was evidently prompted by the need to seek out alternative sources of financing for
expanding and improving existing expressways, and to link them to economic zones in the north
and to the CALABARZON area in the south.
MOU for the construction, rehabilitation
and expansion of expressways
On February 8, 1994, the Department of Public Works and Highways ("DPWH"), TRB, PNCC,
Benpres Holdings Corporation ("Benpres") and First Philippine Holdings Corporation ("FPHC"),
among other private and government entities/agencies, executed a Memorandum of
Understanding ("MOU") envisaged to open the door for the entry of private capital in the
rehabilitation, expansion (to Subic and Clark) and extension, as flagship projects, of the
expressways north of Manila, over which PNCC has a franchise. To carry out their undertakings
under the MOU, Benpres and FPHC formed, as their infrastructure holding arm, the First Philippine
Infrastructure and Development Corporation ("FPIDC").
Consequent to the MOU execution, PNCC entered into financial and/or technical JVAs with private
entities/investors for the toll operation of its franchised areas following what may be considered
as a standard pattern, viz.: (a) after a JVA is concluded and the usual government approval of the
assignment by PNCC of the usufruct in the franchise under P.D. 1113, as amended, secured, a
new JV company is specifically formed to undertake a defined toll road project; (b) the Republic
of the Philippines, through the TRB, as grantor, PNCC, as operator, and the new corporation, as
investor/concessionaire, with its lender, as the case may be, then execute a Supplemental Toll
Operation Agreement ("STOA") to implement the TOA previously issued; and (c) once the requisite
STOA approval is given, project prosecution starts and upon the completion of the toll road project
or of a divisible phase thereof, the TRB fixes or approves the initial toll rate after which, it passes
a board resolution prescribing the periodic toll rate adjustment.
The STOA defines the scope of the road project coverage, the terminal date of the concession,
and includes provisions on initial toll rate and a built-in formula for adjustment of toll rates,
investment recovery clauses and contract termination in the event of the concessionaires, PNCCs
or TRBs default, as the case may be.
The following events or transactions, involving the personalities as indicated, transpired with
respect to the following projects:
The South Metro Manila Skyway (SMMS)
(Buendia Bicutan elevated stretch) Project
PNCC entered into a JV partnership arrangement with P.T. Citra, an Indonesian company, and
created, for the SMMS project, the Citra Metro Manila Tollways Corporation ("CMMTC").
On November 27, 1995, TRB, PNCC and CMMTC executed a STOA for the SMMS project ("CITRA
STOA"). And on April 7, 1996, then President Fidel V. Ramos approved the CITRA STOA.
Phase I of the SMMS project the Bicutan to Buendia elevated expressway stretch was
completed in December 1998, and the consequent initial toll rates for its use implemented a month
after. On November 26, 2004, the TRB passed Resolution No. 2004-53, approving the periodic toll
rate adjustment for the SMMS.
The NLEX Expansion Project (Rehabilitated and Widened NLEX, Subic Expressway,
Circumferential Road C-5)
In reply to the query of the then TRB Chairman, the Department of Justice ("DOJ") issued DOJ
Opinion No. 79, s. of 1994, echoing an earlier opinion of the GCC, that the TRB can implement
the NLEX expansion project through a JV scheme with private investors possessing the requisite
technical and financial capabilities.
On May 16, 1995, then President Ramos approved the assignment of PNCCs usufructuary rights
as franchise holder to a JV company to be formed by PNCC and FPIDC. PNCC and FPIDC would
later ink a JVA for the rehabilitation and modernization of the NLEX referred in certain pleadings
as the North Luzon Tollway project.10The Manila North Tollways Corporation ("MNTC") was formed
for the purpose.
On April 30, 1998, the Republic, through the TRB, PNCC and MNTC, executed a STOA for the
North Luzon Tollway project ("MNTC STOA") in which MNTC was authorized, inter alia, to
subcontract the operation and maintenance of the project, provided that the majority of the
outstanding shares of the contractor shall be owned by MNTC. The MNTC STOA covers three
phases comprising of ten segments, including the rehabilitated and widened NLEX, the Subic
Expressway and the circumferential Road C-5.11 The STOA is to be effective for thirty years,
reckoned from the issuance of the toll operation permit for the last completed phase or until
December 31, 2030, whichever is earlier. The Office of the President ("OP") approved the STOA
on June 15, 1998.
On August 2, 2000, pursuant to the MNTC STOA, the Tollways Management Corporation
("TMC")formerly known as the Manila North Tollways Operation and Maintenance Corporation
was created to undertake the operation and maintenance of the NLEX tollway facilities,
interchanges and related works.
On January 27, 2005, the TRB issued Resolution No. 2005-04 approving the initial authorized toll
rates for the closed and flat toll systems applicable to the new NLEX.
The South Luzon Expressway Project (Nichols to Lucena City)
For the SLEX expansion project, PNCC and Hopewell Holdings Limited ("HHL"), as JV partners,
executed a Memorandum of Agreement ("MOA"),12 which eventually led to the formation of a JV
company Hopewell Crown Infrastructure, Inc. ("HCII"), now MTD Manila Expressways, Inc.,
("MTDME"). And pursuant to the PNCC-MTDME JVA, the South Luzon Tollway Corporation
("SLTC") and the Manila Toll Expressway Systems, Inc. ("MATES") were incorporated to undertake
the financing, construction, operation and maintenance of the resulting Project Toll Roads forming
part of the SLEX. The toll road projects are divisible toll sections or segments, each segment
defined as to its starting and end points and each with the corresponding distance coverage. The
proposed JVA, as later amended, between PNCC and MTDME was approved by the OP on June
30, 2000.
Eventually, or on February 1, 2006, a STOA13 for the financing, design, construction, lane
expansion and maintenance of the Project Toll Roads (PTR) of the rehabilitated and improved
SLEX was executed by and among the Republic, PNCC, SLTC, as investor, and MATES, as operator.
To be precise, the PTRs, under the STOA, comprise and contemplated the full rehabilitation and/or
roadway widening of the following existing toll roads or facilities: PTR 1 that portion of the
tollway commencing at the end of South MM Skyway to the Filinvest exit at Alabang (1-242 km);
PTR 2 the tollway from Alabang to Calamba, Laguna (27.28 km); PTR 3 the tollway from
Calamba to Sto. Tomas, Batangas (7.6 km) and PTR 4 the tollway from Sto. Tomas to Lucena
City (54.27 km).14
Under Clause 6.03 of the STOA, the Operator, after substantially completing a TPR, shall file an
application for a Toll Operation Permit over the relevant completed TPR or segment, which shall
include a request for a review and approval by the TRB of the calculation of the new current
authorized toll rate.
G.R. No. 166910
Petitioners Francisco and Hizon, as taxpayers and expressway users, seek to nullify the various
STOAs adverted to above and the corresponding TRB resolutions, i.e. Res. Nos. 2004-53 and
2005-04, fixing initial rates and/or approving periodic toll rate adjustments therefor. To the
petitioners, the STOAs and the toll rate-fixing resolutions violate the Constitution in that they
veritably impose on the public the burden of financing tollways by way of exorbitant fees and thus
depriving the public of property without due process. These STOAs are also alleged to be infirm
as they effectively awarded purported "build-operate-transfer" ("BOT") projects without public
bidding in violation of the BOT Law (R.A. 6957, as amended by R.A. 7718).
Petitioners likewise assail the constitutionality of Sections 3 (a) and (d) of P.D. 1112 in relation to
Section 8 (b) of P.D. 1894 insofar as they vested the TRB, on one hand, toll operation awarding
power while, on the other hand, granting it also the power to issue, modify and promulgate toll
rate charges. The TRB, so petitioners bemoan, cannot be an awarding party of a TOA and, at the
same time, be the regulator of the tollway industry and an adjudicator of rate exactions disputes.
Additionally, petitioners also seek to nullify certain provisions of P.D. 1113 and P.D. 1894, which
uniformly grant the President the power to approve the transfer or assignment of usufruct or the
rights and privileges thereunder by the tollway operator to third parties, particularly the transfer
effected by PNCC to MNTC. As argued, the authority to approve partakes of an exercise of
legislative power under Article VI, Section 1 of the Constitution.15
In the meantime, or on April 8, 2010, the TRB issued a Certificate of Substantial Completion with
16
respect to PTR 1 (Alabang-Filinvest stretch) and PTR 2 (Alabang-Calamba segments) of SLEX,
signifying the completion of the full rehabilitation/expansion of both segments and the
linkages/interchanges in between pursuant to the requirements of the corresponding STOA. TRB
on even date issued a Toll Operation Permit in favor of MATES over said PTRs 1 and
2.17 Accordingly, upon due application, the TRB approved the publication of the toll rate matrix
for PTRs 1 and 2, the rate to take effect on June 30, 2010.18 The implementation of the published
rate would, however, be postponed to August 2010.
On July 5, 2010, petitioner Francisco filed a Supplemental Petition with prayer for the issuance of
a temporary restraining order ("TRO") and/or status quo order focused on the impending
collection of what was perceived to be toll rate increases in the SLEX. The assailed adjustments
were made public in a TRB notice of toll rate increases for the SLEX from Alabang to Calamba on
June 6, 2010, and were supposed to have been implemented on June 30, 2010. On August 13,
2010, the Court granted the desired TRO, enjoining the respondents in the consolidated cases
from implementing the toll rate increases in the SLEX.
In their Consolidated Comment/Opposition to the Supplemental Petition, respondents SLTC et al.,
aver that the disputed rates are actually initial and opening rates, not an increase or adjustment
of the prevailing rate, for the new expanded and rehabilitated SLEX. In fine, the new toll rates
are, per SLTC, for a new and upgraded facility, i.e. the aforementioned Project Toll Roads 1 and
2 put up pursuant to the 2006 Republic-PNCC-SLTC-MATES STOA adverted to.
G.R. No. 169917
While they raise, for the most part, the same issues articulated in G.R. No. 166910, such as the
public bidding requirement, the power of the President to approve the assignment of PNCCs
usufructuary rights to cover (as petitioners Imee R. Marcos, et al., would stress) even the
assignment of the expressway from Balintawak to Tabang, the virtual amendment and extension
of a statutory franchise by way of administrative action (e.g., the execution of a STOA or issuance
of a TOC), petitioners in G.R. No. 169917 some of them then and still are members of the
House of Representatives have, as their main focus, the North Luzon Tollway project and the
agreements and devices entered in relation therewith.
Petitioners also assail the MNTC STOA on the ground that it granted the lenders (Asian
Development Bank/World Bank) of MNTC, as project concessionaire, the unrestricted rights to
appoint a substitute entity to replace MNTC in case of an MNTC Default before prepayment of the
loans, while also granting said lenders, in appropriate cases, the option to extend the "concession
or franchise" for a period not exceeding fifty years coinciding with the full payment of the loans.
G.R. No. 173630
Apart from those taken up in the other petitions for certiorari and prohibition, petitioners, in G.R.
No. 173630, whose members and constituents allegedly traverse SLEX daily, aver that TRB ought
to have applied the provisions of R.A. 6957 [BOT Law] and R.A. 9184 [Government Procurement
Reform Act], which require public bidding for the prosecution of the SLEX project.
G.R. No. 183599
Civil Case SCA No. 3138-PSG before the RTC
On September 14, 2007, the Young Professionals and Entrepreneurs of San Pedro, Laguna
("YPES"), one of the petitioners in G.R. No. 173630, filed before the RTC, Branch 155, in Pasig
City, a special civil action for certiorari, etc., against the TRB, docketed as SCA No. 3138-PSG,
containing practically identical issues raised in G.R. No. 173630. Like its petition in G.R. No.
173630, YPES, before the RTC, assailed and sought to nullify the April 27, 2007 TOC, which TRB
issued to PNCC inasmuch as the TOC worked to extend PNCCs tollway operation franchise for the
SLEX. As YPES argued, only the Congress can extend the term of PNCCs franchise which expired
on May 1, 2007.
Ruling of the RTC in SCA No. 3138-PSG
By Decision19 dated June 23, 2008, the RTC, for the main stated reason that the authority to grant
or renew franchises belongs only to Congress, granted YPES petition, disposing as follows:
ACCORDINGLY, the instant Petition for Certiorari, Prohibition and Mandamus is hereby GRANTED
and the questioned Toll Operation Certificate (TOC) covering the [SLEX] issued by respondent
TRB in April, 2007, is hereby ordered ANNULLED and SET ASIDE.
FURTHER, respondent PNCC is hereby immediately PROHIBITED from collecting toll fess along
the SLEX facilities as it no longer has the power and authority to do so.
FINALLY, as mandated under Section 9 of PD No. 1113, respondent PNCC is hereby COMMANDED
to turn over without further delay the physical assets and facilities of the SLEX including
improvements thereon, together with the equipment and appurtenances directly related to their
operations, without any cost, to the Government through the Toll Regulatory Board x x x.20
Thus, the instant petition for review on certiorari under Rule 45, filed by the TRB on pure questions
of law, docketed as G.R. No. 183599.
In their separate comments, public and private respondents uniformly seek the dismissal of the
three special civil actions on the threshold issue of the absence of a justiciable case and lack
of locus standi on the part of the petitioners therein. Other grounds raised range from the
impropriety of certiorari to nullify toll operation agreements; the inapplicability of the public
bidding rules in the selection by PNCC of its JV partners and the authority of the President to
approve TOAs and the transfer of usufructuary rights. PNCC argues, in esse, that its continuous
toll operations did not constitute an extension of its franchise, its authority to operate after the
expiry date thereof in May 2007 being based on the valid authority of TRB to issue TOC.
The Issues
The principal consolidated but interrelated issues tendered before the Court, most of which with
constitutional undertones, may be reduced into six (6) and formulated in the following wise: first,
whether or not an actual case or controversy exists and, relevantly, whether petitioners in the
first three petitions have locus standi; second, whether the TRB is vested with the power and
authority to grant what amounts to a franchise over tollway facilities; third, corollary to the
second, whether the TRB can enter into TOAs and, at the same time, promulgate toll rates and
rule on petitions for toll rate adjustments; fourth, whether the President is duly authorized to
approve contracts, inclusive of assignment of contracts, entered into by the TRB relative to tollway
operations; fifth, whether the subject STOAs covering the NLEX, SLEX and SMMS and their
respective extensions, linkages, etc. are valid; sixth, whether a public bidding is required or
mandatory for these tollway projects.
Expressly prayed, if not subsumed, in the first three petitions, is to prohibit TRB and its
concessionaires from collecting toll fees along the Skyway and Luzon Tollways.
Preliminary Issues
Existence of an Actual Controversy, its Ripeness and
the Locus Standi to Sue
The power of judicial review can only be exercised in connection with a bona fide controversy
involving a statute, its implementation or a government action.21 Withal, courts will decline to pass
upon constitutional issues through advisory opinions, bereft as they are of authority to resolve
hypothetical or moot questions.22 The limitation on the power of judicial review to actual cases
and controversies defines the role assigned to the judiciary in a tripartite allocation of power, to
assure that the courts will not intrude into areas committed to the other branches of government.23
In The Province of North Cotabato v. The Government of the Republic of the Philippines Peace
Panel on Ancestral Domain (GRP), the Court has expounded anew on the concept of actual case
or controversy and the requirement of ripeness for judicial review, thus:
An actual case or controversy involves a conflict of legal rights, an assertion of opposite legal
claims, susceptible of judicial resolution as distinguished from a hypothetical or abstract difference
or dispute. There must be a contrariety of legal rights x x x. The Court can decide the
constitutionality of an act x x x only when a proper case between opposing parties is submitted
for judicial determination.
Related to the requirement of an actual case or controversy is the requirement of ripeness. A
question is ripe for adjudication when the act being challenged has had a direct adverse effect on
the individual challenging it. x x x [I]t is a prerequisite that something had then been accomplished
or performed by either branch before a court may come into the picture, and the petitioner must
allege the existence of an immediate or threatened injury to itself as a result of the challenged
action. He must show that he has sustained or is immediately in danger of sustaining some direct
injury as a result of the act complained of.24
But even with the presence of an actual case or controversy, the Court may refuse judicial review
unless the constitutional question or the assailed illegal government act is brought before it by a
party who possesses what in Latin is technically called locus standi or the standing to challenge
it.25 To have standing, one must establish that he has a "personal and substantial interest in the
case such that he has sustained, or will sustain, direct injury as a result of its
enforcement."26 Particularly, he must show that (1) he has suffered some actual or threatened
injury as a result of the allegedly illegal conduct of the government; (2) the injury is fairly traceable
to the challenged action; and (3) the injury is likely to be redressed by a favorable action.27
Petitions for certiorari and prohibition are, as here, appropriate remedies to raise constitutional
issues and to review and/or prohibit or nullify, when proper, acts of legislative and executive
officials.28 The present petitions allege that then President Ramos had exercised vis--vis an
assignment of franchise, a function legislative in character. As alleged, too, the TRB, in the guise
of entering into contracts or agreements with PNCC and other juridical entities, virtually enlarged,
modified to the core and/or extended the statutory franchise of PNCC, thereby usurping a
legislative prerogative. The usurpation came in the form of executing the assailed STOAs and the
issuance of TOCs. Grave abuse of discretion is also laid on the doorstep of the TRB for its act of
entering into these same contracts or agreements without the required public bidding mandated
by law, specifically the BOT Law (R.A. 6957, as amended) and the Government Procurement
Reform Act (R.A. 9184).
In fine, the certiorari petitions impute on then President Ramos and the TRB, the commission of
acts that translate inter alia into usurpation of the congressional authority to grant franchises and
violation of extant statutes. The petitions make a prima facie case for certiorari and prohibition;
an actual case or controversy ripe for judicial review exists. Verily, when an act of a branch of
government is seriously alleged to have infringed the Constitution, it becomes not only the right
but in fact the duty of the judiciary to settle the dispute. In doing so, the judiciary merely defends
the sanctity of its duties and powers under the Constitution.29
In any case, the rule on standing is a matter of procedural technicality, which may be relaxed
when the subject in issue or the legal question to be resolved is of transcendental importance to
the public.30 Hence, even absent any direct injury to the suitor, the Court can relax the application
of legal standing or altogether set it aside for non-traditional plaintiffs, like ordinary citizens, when
the public interest so requires.31 There is no doubt that individual petitioners, Marcos, et al., in
G.R. No. 169917, as then members of the House of Representatives, possess the requisite legal
standing since they assail acts of the executive they perceive to injure the institution of Congress.
On the other hand, petitioners Francisco, Hizon, and the other petitioning associations, as
taxpayers and/or mere users of the tollways or representatives of such users, would ordinarily not
be clothed with the requisite standing. While this is so, the Court is wont to presently relax the
rule on locus standi owing primarily to the transcendental importance and the paramount public
interest involved in the implementation of the laws on the Luzon tollways, a roadway complex
used daily by hundreds of thousands of motorists. What we said a century ago in Severino v.
Governor General is just as apropos today:
When the relief is sought merely for the protection of private rights, x x x [the relators] right must
clearly appear. On the other hand, when the question is one of public right and the object
of the mandamus is to procure the enforcement of a public duty, the people are
regarded as the real party in interest, and the relator at whose instigation the
proceedings are instituted need not show that he has any legal or special interest in
the result, it being sufficient to show that he is a citizen and as such interested in the execution
of the laws.32 (Words in bracket and emphasis added.)
Accordingly, We take cognizance of the present case on account of its transcendental importance
to the public.
Second Issue: TRB Empowered to Grant Authority to Operate
Toll Facility /System
It is abundantly clear that Sections 3 (a) and (e) of P.D. 1112 in relation to Section 4 of P.D. 1894
have invested the TRB with sufficient power to grant a qualified person or entity with authority to
construct, maintain, and operate a toll facility and to issue the corresponding toll operating permit
or TOC.
Sections 3 (a) and (e) of P.D. 1112 and Section 4 of P.D. 1894 amply provide the power to grant
authority to operate toll facilities:
Section 3. Powers and Duties of the Board. The Board shall have in addition to its general powers
of administration the following powers and duties:
(a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of
the Republic of the Philippines with persons, natural or juridical, for the construction, operation
and maintenance of toll facilities such as but not limited to national highways, roads, bridges, and
public thoroughfares. Said contract shall be open to citizens of the Philippines and/or to
corporations or associations qualified under the Constitution and authorized by law to engage in
toll operations;
xxxx
(e) To grant authority to operate a toll facility and to issue therefore the necessary "Toll Operation
Certificate" subject to such conditions as shall be imposed by the Board including inter alia the
following:
(1) That the Operator shall desist from collecting toll upon the expiration of the Toll Operation
Certificate.
(2) That the entire facility operated as a toll system including all operation and maintenance
equipment directly related thereto shall be turned over to the government immediately upon the
expiration of the Toll Operation Certificate.
(3) That the toll operator shall not lease, transfer, grant the usufruct of, sell or assign the rights
or privileges acquired under the Toll Operation Certificate to any person, firm, company,
corporation or other commercial or legal entity, nor merge with any other company or corporation
organized for the same purpose, without the prior approval of the President of the Philippines. In
the event of any valid transfer of the Toll Operation Certificate, the Transferee shall be subject to
all the conditions, terms, restrictions and limitations of this Decree as fully and completely and to
the same extent as if the Toll Operation Certificate has been granted to the same person, firm,
company, corporation or other commercial or legal entity.
(4) That in time of war, rebellion, public peril, emergency, calamity, disaster or disturbance of
peace and order, the President of the Philippines may cause the total or partial closing of the toll
facility or order to take over thereof by the Government without prejudice to the payment of just
compensation.
(5) That no guarantee, Certificate of Indebtedness, collateral, securities, or bonds shall be issued
by any government agency or government-owned or controlled corporation on any financing
program of the toll operator in connection with his undertaking under the Toll Operation
Certificate.
(6) The Toll Operation Certificate may be amended, modified or revoked whenever the public
interest so requires.
(a) The Board shall promulgate rules and regulations governing the procedures for the grant of
Toll Certificates. The rights and privileges of a grantee under a Toll Operation Certificate shall be
defined by the Board.
(b) To issue rules and regulations to carry out the purposes of this Decree.
SECTION 4. The Toll Regulatory Board is hereby given jurisdiction and supervision over the
GRANTEE with respect to the Expressways, the toll facilities necessarily appurtenant thereto and,
subject to the provisions of Section 8 and 9 hereof, the toll that the GRANTEE will charge the
users thereof.
By explicit provision of law, the TRB was given the power to grant administrative franchise for toll
facility projects.
The concerned petitioners would argue, however, that PNCCs [then CDCPs] franchise, as toll
operator, was granted via P.D. 1113, on the same day P.D. 1112, creating the TRB, was issued.
It is thus pointed out that P.D. 1112 could not have plausibly granted the TRB with the power and
jurisdiction to issue a similar franchise. Pushing the point, they maintain that only Congress has,
under the 1987 Constitution, the exclusive prerogative to grant franchise to operate public utilities.
We are unable to agree with petitioners stance and their undue reliance on Article XII, Section
11 of the Constitution, which states that:
SEC. 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital is owned
by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or
for a longer period than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or repeal by the Congress
when the common good so requires x x x.
The limiting thrust of the foregoing constitutional provision on the grant of franchise or other
forms of authorization to operate public utilities may, in context, be stated as follows: (a) the
grant shall be made only in favor of qualified Filipino citizens or corporations; (b) Congress can
impair the obligation of franchises, as contracts; and (c) no such authorization shall be exclusive
or exceed fifty years.
A franchise is basically a legislative grant of a special privilege to a person.33 Particularly, the term,
franchise, "includes not only authorizations issuing directly from Congress in the form of statute,
but also those granted by administrative agencies to which the power to grant franchise has been
delegated by Congress."34 The power to authorize and control a public utility is admittedly a
prerogative that stems from the Legislature. Any suggestion, however, that only Congress has the
authority to grant a public utility franchise is less than accurate. As stressed in Albano v. Reyes
a case decided under the aegis of the 1987 Constitutionthere is nothing in the Constitution
remotely indicating the necessity of a congressional franchise before "each and every public utility
may operate," thus:
That the Constitution provides x x x that the issuance of a franchise, certificate or other form of
authorization for the operation of a public utility shall be subject to amendment, alteration or
repeal by Congress does not necessarily imply x x x that only Congress has the power to grant
such authorization. Our statute books are replete with laws granting specified agencies in the
Executive Branch the power to issue such authorization for certain classes of public
utilities.35 (Emphasis ours.)
In such a case, therefore, a special franchise directly emanating from Congress is not necessary
if the law already specifically authorizes an administrative body to grant a franchise or to award
a contract.36 This is the same view espoused by the Secretary of Justice in his opinion dated
January 9, 2006, when he stated:
That the administrative agencies may be vested with the authority to grant administrative
franchises or concessions over the operation of public utilities under their respective jurisdiction
and regulation, without need of the grant of a separate legislative franchise, has been upheld by
the Supreme Court x x x.37
Under the 1987 Constitution, Congress has an explicit authority to grant a public utility franchise.
However, it may validly delegate its legislative authority, under the power of subordinate
legislation,38 to issue franchises of certain public utilities to some administrative agencies. In
Kilusang Mayo Uno Labor Center v. Garcia, Jr., We explained the reason for the validity of
subordinate legislation, thus:
Such delegation of legislative power to an administrative agency is permitted in order to adapt to
the increasing complexity of modern life. As subjects for governmental regulation multiply, so
does the difficulty of administering the laws. Hence, specialization even in legislation has become
necessary.39 (Emphasis ours.)
As aptly pointed out by the TRB and other private respondents, the Land Transportation
Franchising and Regulatory Board ("LTFRB"), the Civil Aeronautics Board ("CAB"), the National
Telecommunications Commission ("NTC"), and the Philippine Ports Authority ("PPA"), to name a
few, have been such delegates. The TRB may very well be added to the growing list, having been
statutorily endowed, as earlier indicated, the power to grant to qualified persons, authority to
construct road projects and operate thereon toll facilities. Such grant, as evidenced by the
corresponding TOC or set out in a TOA, "may be amended, modified, or revoked [by the TRB]
whenever the public interest so requires."40
In Philippine Airlines, Inc. v. Civil Aeronautics Board,41 the Court reiterated its holding
in Albano that the CAB, like the PPA, has sufficient statutory powers under R.A. 776 to issue
a Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a domestic
air transport operator who, although not possessing a legislative franchise, meets all the other
requirements prescribed by law. We held therein that "there is nothing in the law nor in the
Constitution which indicates that a legislative franchise is an indispensable requirement for an
entity to operate as a domestic air transport operator."42 We further explicated:
Congress has granted certain administrative agencies the power to grant licenses for, or to
authorize the operation of certain public utilities. With the growing complexity of modern life, the
multiplication of the subjects of governmental regulation, and the increased difficulty of
administering the laws, there is a constantly growing tendency towards the delegation of greater
powers by the legislature, and towards the approval of the practice by the courts. It is generally
recognized that a franchise may be derived indirectly from the state through a duly designated
agency, and to this extent, even the power to grant franchises has frequently been delegated,
even to agencies other than those of a legislative nature. In pursuance of this, it has been held
that privileges conferred by grant by local authorities as agents for the state constitute as much
a legislative franchise as though the grant had been made by an act of the
Legislature.43 (Emphasis ours.)
The validity of the delegation by Congress of its franchising prerogative is beyond cavil. So it was
that in Tatad v. Secretary of the Department of Energy,44 We again ruled that the delegation of
legislative power to administrative agencies is valid. In the instant case, the certiorari petitioners
assume and harp on the lack of authority of PNCC to continue with its NLEX, SLEX, MMEX
operations, in joint venture with private investors, after the lapse of its P.D. 1113 franchise. None
of these petitioners seemed to have taken due stock of and appreciated the valid delegation of
the appropriate power to TRB under P.D. 1112, as enlarged in P.D. 1894. To be sure, 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.45 Consequently, it has been held that privileges conferred by grant by
administrative agencies as agents for the state constitute as much a legislative franchise as though
the grant had been made by an act of the Legislature.46
While it may be, as held in Strategic Alliance Development Corporation v. Radstock Securities
Limited,47 that PNCCs P.D. 1113 franchise had already expired effective May 1, 2007, this fact of
expiration did not, however, carry with it the cancellation of PNCCs authority and that of its JV
partners granted under P.D. 1112 in relation to Section 1 of P.D. 1894 to construct, operate and
maintain "any and all such extensions, linkages or stretches, together with the toll facilities
appurtenant thereto, from any part of the North Luzon Expressway, South Luzon Expressway
and/or Metro Manila Expressway and/or to divert the original route and change the original end-
points of the [NLEX]and/or [SLEX] as may be approved by the [TRB]. And to highlight the point,
the succeeding Section 2 of P.D. 1894 specifically provides that the franchise for the extension
and toll road projects constructed after the approval of P.D. 1894 shall be thirty years, counted
from project completion. Indeed, prior to the expiration of PNCCs original franchise in May 2007,
the TRB, in the exercise of its special powers under P.D. 1112, signed supplemental TOAs with
PNCC and its JV partners. These STOAs covered the expansion and rehabilitation of NLEX and
SLEX, as the case may be, and/or the construction, operation and maintenance of toll road
projects contemplated in P.D.1894. And there can be no denying that the corresponding toll
operation permits have been issued.
In fine, the STOAs48 TRB entered with PNCC and its JV partners had the effect of granting
authorities to construct, operate and maintain toll facilities, but with the injection of additional
private sector investments consistent with the intent of P.D. Nos. 1112, 1113 and 1894.49 The
execution of these STOAs came in 1995, 1998 and 2006, or before the expiration of PNCCs original
franchise on May 1, 2007. In accordance with applicable laws, these transactions have actually
been authorized and approved by the President of the Philippines.50 And as a measure to ensure
the legality of the said transactions and in line with due diligence requirements, a review thereof
was secured from the GCC and the DOJ, prior to their execution.
Inasmuch as its charter empowered the TRB to authorize the PNCC and like entities to maintain
and operate toll facilities, it may be stated as a corollary that the TRB, subject to certain
qualifications, infra, can alter the conditions of such authorization. Well settled is the rule that a
legislative franchise cannot be modified or amended by an administrative body with general
delegated powers to grant authorities or franchises. However, in the instant case, the law granting
a direct franchise to PNCC51 evidently and specifically conferred upon the TRB the power to impose
conditions in an appropriate contract.52 And to reiterate, Section 3 of P.D. 1113 provides that
"[t]his [PNCC] franchise is granted subject to such conditions as may be imposed by the [TRB] in
an appropriate contract to be executed for this purpose, and with the understanding and upon
the condition that it shall be subject to amendment, alteration or repeal when public interest so
requires."53 A similarly worded proviso is found in Section 6 of P.D. 1894. It is in this light that the
TRB entered into the subject STOAs in order to allow the infusion of additional investments in the
subject infrastructure projects. Prior to the expiration of PNCCs franchise on May 1, 2007, the
STOAs merely imposed additional conditionalities, or as aptly pointed out by SLTC et al., obviously
having in mind par. 16.06 of its STOA with TRB,54 served as supplement, to the existing TOA of
PNCC with TRB. We have carefully gone over the different STOAs and discovered that the tollway
projects covered thereby were all undertaken under the P.D. 1113 franchise of PNCC. And it
cannot be over-emphasized that the respective STOAs of MNTC and SLTC each contain provisions
addressing the eventual expiration of PNCCs P.D. 1113 franchise and authorizing, thru the
issuance by the TRB of a TOC, the implementation of a given toll project even after May 1, 2007.
Thus:
MNTC STOA
2.6 CONCESSION PERIOD. In order to sustain the financial viability and integrity of the Project,
GRANTOR [TRB] hereby grants MNTC the CONCESSION for the PROJECT ROADS for a period
commencing upon the date that this [STOA] comes into effect under Clause 4.1 until 31 December
2030 or thirty years after the issuance of the corresponding TOLL OPERATION PERMIT for the
last completed phase. Accordingly, unless the PNCC FRANCHISE is further extended beyond its
expiry on 01 May 2007, GRANTOR undertakes to issue the necessary [TOC] for the rehabilitated
and refurbished [NLEX] six months prior to the expiry of the PNCC FRANCHISE on 01 May 2007.
SLTC STOA
2.03 Authority of Investor and Operator to Undertake the Project
(1) The GRANTOR [TRB] has determined that the Project Toll Roads are within the existing SLEX
and are thus covered by the PNCC Franchise that is due to expire on May 1, 2007. PNCC has
committed to exert its best efforts to obtain an extension x x x It is understood and agreed that
in the event the PNCC Franchise is not renewed beyond the said expiry date, this [STOA] and the
Concession granted x x x will stand in place of the PNCC Franchise and serve as a new concession,
or authority, pursuant to Section 3 (a) of the TRB Charter, for the Investor to undertake the
Project and for the Operator to Operate and Maintain the Project Toll Roads immediately upon
the expiration of the PNCC Franchise, without need of the execution x x x of any other document
to effect the same.
(2) x x x in the event it is subsequently decreed by competent authority that the issuance by the
Grantor of a [TOC] is necessary x x x the Grantor shall x x x cause the TRB x x x to issue such
[TOC] in favor of the Operator, embodying the terms and conditions of this Agreement.
The foregoing notwithstanding, there are to be sure certain aspects in PNCCs legislative franchise
beyond the altering reach of TRB. We refer to the coverage area of the tollways and the expiry
date of PNCCs original franchise, which is May 1, 2007, as expressly stated under Sections 1 and
2 of P.D. 1894, respectively. The fact that these two items were specifically and expressly defined
by law, i.e. P.D. 1113, indicates an intention that any alteration, modification or repeal thereof
should only be done through the same medium. We said as much in Radstock, thus: "[T]he term
of the x x x franchise, which is 30 years from 1 May 1977, shall remain the same, as expressly
provided in the first sentence of x x x Section 2 of P.D. 1894."55 It is likewise worth noting what
We further held in that case:
The TRB does not have the power to give back to PNCC the toll assets and facilities which were
automatically turned over to the Government, by operation of law, upon the expiration of the
franchise of the PNCC on 1 May 2007. Whatever power the TRB may have to grant authority to
operate a toll facility or to issue a "[TOC]," such power does not obviously include the authority
to transfer back to PNCC ownership of National Government assets, like the toll assets and
facilities, which have become National Government property upon the expiry of PNCCs franchise
x x x.56 (Emphasis in the original.)
Verily, upon the expiration of PNCCs legislative franchise on May 1, 2007, the new authorities to
construct, maintain and operate the subject tollways and toll facilities granted by the TRB pursuant
to the validly executed STOAs and TOCs, shall begin to operate and be treated as administrative
franchises or authorities. Pursuant to Section 3 (e) P.D. 1112, TRB possesses the power and duty,
inter alia to:
x x x grant authority to operate a toll facility and to issue therefore the necessary "Toll Operation
Certificate" subject to such conditions as shall be imposed by the [TRB] including inter alia x x x.
This is likewise consistent with the position of the Secretary of Justice in Opinion No. 122 on
November 24, 1995,57thus:
TRB has no authority to extend the legislative franchise of PNCC over the existing NSLE (North
and South Luzon Expressways). However, TRB is not precluded under Section 3 (e) of P.D. No.
1112 (TRB Charter) to grant PNCC and its joint venture partner the authority to operate the
existing toll facility of the NSLE and to issue therefore the necessary "Toll Operation Certificate x
x x.
It should be noted that the existing franchise of PNCC over the NSLE, which will expire on May 1,
2007, gives it the "right, privilege and authority to construct, maintain and operate" the NSLE.
The Toll Operation Certificate which TRB may issue to the PNCC and its joint venture partner after
the expiration of its franchise on May 1, 2007 is an entirely new authorization, this time for the
operation and maintenance of the NSLE x x x. In other words, the right of PNCC and its joint
venture partner, after May 7, 2007 [sic] to operate and maintain the existing NSLE will no longer
be founded on its legislative franchise which is not thereby extended, but on the new authorization
to be granted by the TRB pursuant to Section 3 (e), above quoted, of P.D. No. 1112. (Emphasis
ours.)
The same opinion was thereafter made by the Secretary of Justice on January 9, 2006, in Opinion
No. 1,58 stating that:
The existing franchise of PNCC over the NSLE, which will expire on May 1, 2007, gives it the "right,
privilege and authority to construct, maintain and operate the NSLE." The Toll Operation
Certificate which the TRB may issue to the PNCC and its joint venture partner after the expiration
of its franchise on May 1, 2007 is an entirely new authorization, this time for the operation and
maintenance of the NSLE. [T]he right of PNCC and its joint venture partner, after May 1, 2007,
to operate and maintain the existing NSLE will no longer be founded on its legislative franchise
which is not thereby extended, but on the new authorization to be granted by the TRB pursuant
to Section 3 (e) of PD No. 1112.
It appears therefore, that the effect of the STOA is not to extend the Franchise of PNCC, but
rather, to grant a new Concession over the SLEX Project and the OMCo., entities which are
separate and distinct from PNCC. While initially, the authority of SLTC and OMCo. to enter into
the STOA with the TRB and thereby become grantees of the Concession, will stem from and be
based on the JVA and the assignment by PNCC to the OMCo. of the Usufruct in the Franchise, we
submit that upon the execution by SLTC and the TRB of the STOA, the right to the Concession
will emanate from the STOA itself and from the authority of the TRB under Section 3 (a) of the
TRB Charter. Such being the case, the expiration of the Franchise on 1 May 2007, since such
Concession is an entirely new and distinct concession from the Franchise and is, as stated, granted
to entities other than PNCC.
Finally, with regards (sic) the authority of the TRB this Office in Secretary of Justice Opinion No.
92, s. 2000, stated that:
"Suffice it to say that official acts of the President enjoy full faith and confidence of the
Government of the Republic of the Philippines which he represents. Furthermore, considering that
the queries raised herein relates to the exercise by the TRB of its regulatory powers over toll road
project, the same falls squarely within the exclusive jurisdiction of TRB pursuant to P.D. No. 1112.
Consequently, it is, therefore, solely within TRBs prerogative and determination as to what rule
shall govern and is made applicable to a specific toll road project proposal."
The STOA is an explicit grant of the Concession by the Republic of the Philippines, through the
TRB pursuant to P.D. (No.) 1112 and as approved by the President xxx. The foregoing grant is in
full accord with the provisions of P.D. (No.) 1112 which authorizes TRB to enter into contracts on
behalf of the Republic of the Philippines for the construction, operation and maintenance of toll
facilities. Such being the case, we opine that no other legal requirement is necessary to make the
STOA effective of to confirm MNTCs (In this case, SLTC and the OMCO) rights and privileges
granted therein." (Emphasis in the original.)
Considering, however, that all toll assets and facilities pertaining to PNCC pursuant to its P.D.
1113 franchise are deemed to have already been turned over to the National Government on May
1, 2007,59 whatever participation that PNCC may have in the new authorities to construct, maintain
and operate the subject tollways, shall be limited to doing the same in trust for the National
Government. In Radstock, the Court held that "[w]ith the expiration of PNCCs franchise, [its]
assets and facilities were automatically turned over, by operation of law, to the government at
no cost."60 The Court went on further to state that the Governments ownership of PNCCs toll
assets inevitably resulted in its owning too of the toll fees and the net income derived, after May
1, 2007, from the toll assets and facilities.61 But as We have earlier discussed, the tollways and
toll facilities should remain functioning in accordance with the validly executed STOAs and TOCs.
However, PNCCs assets and facilities, or, in short, its very share/participation in the JVAs and the
STOAs, inclusive of its percentage share in the toll fees collected by the JV companies currently
operating the tollways shall likewise automatically accrue to the Government.
In fine, petitioners claim about PNCCs franchise being amenable to an amendment only by an
act of Congress, or, what practically amounts to the same thing, that the TRB is without authority
at all to modify the terms and conditions of PNCCs franchise, i.e. by amending its TOA/TOC, has
to be rejected. Their lament then that the TRB, through the instrumentality of mere contracts and
an administrative operating certificate, or STOAs and TOC, to be precise, effectively, but invalidly
amended PNCC legislative franchise, are untenable. For, the bottom line is, the TRB has, through
the interplay of the pertinent provisions of P.D. Nos. 1112, 1113 and 1894, the power to grant
the authority to construct and operate toll road projects and toll facilities by way of a TOA and
the corresponding TOC. What is otherwise a legislative power to grant or renew a franchise is not
usurped by the issuance by the TRB of a TOC. But to emphasize, the case of the TRB is quite
peculiarly unique as the special law conferring the legislative franchise likewise vested the TRB
with the power to impose conditions on the franchise, albeit in a limited sense, by excluding from
the investiture the power to amend or modify the stated lifetime of the franchise, its coverage
and the ownership arrangement of the toll assets following the expiration of the legislative
franchise.62
At this juncture, the Court wishes to express the observation that P.D. Nos. 1112, 1113 and 1894,
as couched and considered as a package, very well endowed the TRB with extraordinary powers.
For, subject to well-defined limitations and approval requirements, the TRB can, by way of STOAs,
allow and authorize, as it has allowed and authorized, a legislative franchisee, PNCC, to share its
concession with another entity or JV partners, the authorization effectively covering periods
beyond May 2007. However, this unpalatable reality, a leftover of the martial law regime, presents
issues on the merits and the wisdom of the economic programs, which properly belong to the
legislature or the executive to address. The TRB is not precluded from granting PNCC and its joint
venture partners authority, through a TOC for a period following the term of the proposed SMMS,
with the said TOC serving as an entirely new authorization upon the expiration of PNCCs franchise
on May 1, 2007. In short, after May 1, 2007, the operation and maintenance of the NLEX and the
other subject tollways will no longer be founded on P.D. 1113 or portions of P.D. 1894 (PNCCs
original franchise) but on an entirely new authorization, i.e. a TOC, granted by the TRB pursuant
to its statutory authority under Sections 3 (a) and (e) of P.D. 1112.
Likewise needing no extended belaboring, in the light of the foregoing dispositions, is the
untenable holding of the RTC in SCA No. 3138-PSG that the TRB is without power to issue a TOC
to PNCC, amend or renew its authority over the SLEX tollways without separate legislative
enactment. And lest it be overlooked, the TRB may validly issue an entirely new authorization to
a JV company after the lapse of PNCCs franchise under P.D. 1113. Its thirty-year concession
under P.D. 1894, however, does not have the quality of definiteness as to its start, as by the
terms of the issuance, it commences and is to be counted "from the date of approval of the
project," the term project obviously referring to "Metro Manila Expressways and all extensions,
linkages, stretches and diversions refurbishing and rehabilitation of the existing NLEX and SLEX
constructed after the approval of the decree in December 1983." The suggestion, therefore, of
the petitioners in G.R. No. 169917, citing a 1989 Court of Appeals ("CA") decision in CA-G.R.
13235 (Republic v. Guerrero, et al.), that the Balintawak to Tabang portion of the expressway no
longer forms part of PNCCs franchise and, therefore, PNCC is without any right to assign the same
to MNTC via a JVA, is specious. Firstly, in its Decision63 in G.R. No. 89557, a certiorari proceeding
commenced by PNCC to nullify the CA decision adverted to, the Court approved a compromise
agreement, which referred to (1) the PNCCs authority to collect toll and maintenance fees; and
(2) the supervision, approval and control by the DPWH64 of the construction of additional facilities,
on the questioned portion of the NLEX.65 And still in another Decision,66 the Court ruled that the
Balintawak to Tabang stretch was recognized as "part of the franchise of, or otherwise restored
as toll facilities to be operated by x x x PNCC."67 Once stamped with judicial imprimatur, and
unless amended, modified or revoked by the parties, a compromise agreement becomes more
than a mere binding contract; as thus sanctioned, the agreement constitutes the courts
determination of the controversy, enjoining the parties to faithfully comply thereto.68 Verily, like
any other judgment, it has the effect and authority of res judicata.69
At any rate, the PNCC was likewise granted temporary or interim authority by the TRB to operate
the SLEX,70 to ensure the continued development, operations and progress of the projects. We
have ruled in Oroport Cargohandling Services, Inc. v. Phividec Industrial Authority that an
administrative agency vested by law with the power to grant franchises or authority to operate
can validly grant the same in the interim when it is necessary, temporary and beneficial to the
public.71 The grant by the TRB to PNCC as interim operator of the SLEX was certainly intended to
guarantee the continued operation of the said tollway facility, and to ensure the want of any delay
and inconvenience to the motoring public.
All given, the cited CA holding is not a binding precedent. The time limitation on PNCCs franchise
under either P.D. 1113 or P.D. 1894 does not detract from or diminish the TRBs delegated
authority under P.D. 1112 to enter into separate toll concessions apart and distinct from PNCCs
original legislative franchise.
Third Issue: TRBs Power to Enter into Contracts; Issue,
Modify And Promulgate Toll Rates; and to Rule on Petitions
Relative to Toll Rates Level and Increases Valid
The petitioners in the special civil actions cases would have the Court declare as invalid (a) Section
3 (a) and (d) of P.D. 1112 (which accord the TRB, on one hand, the power to enter into contracts
for the construction, and operation of toll facilities, while, on the other hand, granting it the power
to issue and promulgate toll rates) and (b) Section 8 (b) of P.D. 1894 (granting TRB adjudicatory
jurisdiction over matters involving toll rate movements). As submitted, granting the TRB the power
to award toll contracts is inconsistent with its quasi-judicial function of adjudicating petitions for
initial toll and periodic toll rate adjustments. There cannot, so petitioners would postulate, be
impartiality in such a situation.
The assailed provisions of P.D. 1112 and P.D. 1894 read:
P.D. 1112
Section 3. Powers and Duties of the Board. The Board shall have in addition to its general powers
of administration the following powers and duties:
(a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of
the Republic of the Philippines with persons, natural or juridical, for the construction, operation
and maintenance of toll facilities such as but not limited to national highways, roads, bridges, and
public thoroughfares. Said contract shall be open to citizens of the Philippines and/or to
corporations or associations qualified under the Constitution and authorized by law to engage in
toll operations;
(d) Issue, modify and promulgate from time to time the rates of toll that will be charged the direct
users of toll facilities and upon notice and hearing, to approve or disapprove petitions for the
increase thereof. Decisions of the Board on petitions for the increase of toll rate shall be
appealable to the Office of the President within ten (10) days from the promulgation thereof. Such
appeal shall not suspend the imposition of the new rates, provided however, that pending the
resolution of the appeal, the petitioner for increased rates in such case shall deposit in a trust
fund such amounts as may be necessary to reimburse toll payers affected in case a reversal of
the decision. (Emphasis ours.)
P.D. 1894
SECTION 8. x x x
(b) For the Metro Manila Expressway and such extensions, linkages, stretches and diversions of
the Expressways which may henceforth be constructed, maintained and operated by the
GRANTEE, the GRANTEE shall collect toll at such rates as shall initially be approved by the Toll
Regulatory Board. The Toll Regulatory Board shall have the authority to approve such initial toll
rates without the necessity of any notice and hearing, except as provided in the immediately
succeeding paragraph of this Section. For such purpose, the GRANTEE shall submit for the
approval of the Toll Regulatory Board the toll proposed to be charged the users. After approval of
the toll rate(s) by the Toll Regulatory Board and publication thereof by the GRANTEE once in a
newspaper of general circulation, the toll shall immediately be enforceable and collectible upon
opening of the expressway to traffic use.
Any interested Expressways users shall have the right to file, within a period of ninety (90) days
after the date of publication of the initial toll rate, a petition with the Toll Regulatory Board for a
review of the initial toll rate; provided, however, that the filing of such petition and the pendency
of the resolution thereof shall not suspend the enforceability and collection of the toll in question.
The Toll Regulatory Board, at a public hearing called for the purpose after due notice, shall then
conduct a review of the initial toll shall be appealable (sic) to the Office of the President within
ten (10) days from the promulgation thereof. The GRANTEE may be required to post a bond in
such amount and from such surety or sureties and under such terms and conditions as the Toll
Regulatory Board shall fix in case of any petition for review of, or appeal from, decisions of the
Toll Regulatory Board.
In case it is finally determined, after a review by the Toll Regulatory Board or appeal
therefrom, that the GRANTEE is not entitled, in whole or in part, to the initial toll, the GRANTEE
shall deposit in the escrow account the amount collected under the approved initial toll fee and
such amount shall be refunded to Expressways users who had paid said toll in accordance with
the procedure as may be prescribed or promulgated by the Toll Regulatory Board. (Emphasis
ours.)
The petitioners are indulging in gratuitous, if not unfair, conclusion as to the capacity of the TRB
to act as a fair and objective tribunal on matters of toll fee fixing.
Administrative bodies have expertise in specific matters within the purview of their respective
jurisdictions. Accordingly, the law concedes to them the power to promulgate implementing rules
and regulations ("IRR") to carry out declared statutory policies provided that the IRR conforms
to the terms and standards prescribed by that statute.72
The Court does not perceive an irreconcilable clash in the enumerated TRBs statutory powers,
such that the exercise of one negates another. The ascription of impartiality on the part of the
TRB cannot, under the premises, be accorded cogency. Petitioners have not shown that the TRB
lacks the expertise, competence and capacity to implement its mandate of balancing the interests
of the toll-paying motoring public and the imperative of allowing the concessionaires to recoup
their investment with reasonable profits. As it were, Section 9 of P.D. 1894 provides a parametric
formula for adjustment of toll rates that takes into account the Peso-US Dollar exchange rate,
interest rate and construction materials price index, among other verifiable and quantifiable
variables.
While not determinative of the issue immediately at hand, the grant to and the exercise by an
administrative agency of regulating and allowing the operation of public utilities and, at the same
time, fixing the fees that they may charge their customers is now commonplace. It must be
presumed that the Congress, in creating said agencies and clothing them with both adjudicative
powers and contract-making prerogatives, must have carefully studied such dual authority and
found the same not breaching any constitutional principle or concept.73 So must it be for P.D. Nos.
1112 and 1894.
The Court can take judicial cognizance of the exercise by the LTFRB and NTC both spin-off
agencies of the now defunct Public Service Commission of similar concurrent powers. The
LTFRB, under Executive Order No. ("E.O.") 202,74 series of 1987, is empowered,75 among others,
to regulate the operation of public utilities or "for hire" vehicles and to grant franchises or
certificates of public convenience ("CPC"); and to fix rates or fares, to approve petitions for fare
rate increases and to resolve oppositions to such petitions.
The NTC, on the other hand, has been granted similar powers of granting franchises, allocating
areas of operations, rate-fixing and to rule on petitions for rate increases under E.O. 546,76 s. of
1979.
The Energy Regulatory Commission ("ERC") likewise enjoys on the one hand, the power (a) to
grant, modify or revoke an authority to operate facilities used in the generation of electricity, and
on the other, (b) to determine, fix and approve rates and tariffs of transmission, and distribution
retail wheeling charges and tariffs of franchise electric utilities and all electric power rates including
that which is charged to end-users.77 In Chamber of Real Estate and Builders Association, Inc. v.
ERC, We even categorically stated that the ERC is a "quasi-judicial and quasi-legislative regulatory
body created under Section 38 of the EPIRA, [and] x x x an administrative agency vested with
broad regulatory and monitoring functions over the Philippine electric industry to ensure its
successful restructuring and modernization x x x."78
To summarize, the fact that an administrative agency is exercising its administrative or executive
functions (such as the granting of franchises or awarding of contracts) and at the same time
exercising its quasi-legislative (e.g. rule-making) and/or quasi-judicial functions (e.g. rate-fixing),
does not support a finding of a violation of due process or the Constitution. In C.T. Torres
Enterprises, Inc. v. Hibionada,79 We explained the rationale, thus:
It is by now commonplace learning that many administrative agencies exercise and perform
adjudicatory powers and functions, though to a limited extent only. Limited delegation of judicial
or quasi-judicial authority to administrative agencies (e.g. the Securities and Exchange
Commission and the National Labor Relations Commission) is well recognized in our jurisdiction,
basically because the need for special competence and experience has been recognized as
essential in the resolution of questions of complex or specialized character and because of a
companion recognition that the dockets of our regular courts have remained crowded and clogged.
xxxx
As a result of the growing complexity of the modern society, it has become necessary to create
more and more administrative bodies to help in the regulation of its ramified activities. Specialized
in the particular fields assigned to them, they can deal with the problems thereof with more
expertise and dispatch than can be expected from the legislature or the courts of justice. This is
the reason for the increasing vesture of quasi-legislative and quasi-judicial powers in what is now
not unquestionably called the fourth department of the government.
xxxx
There is no question that a statute may vest exclusive original jurisdiction in an administrative
agency over certain disputes and controversies falling within the agency's special expertise. The
very definition of an administrative agency includes its being vested with quasi-judicial
powers. The ever increasing variety of powers and functions given to administrative agencies
recognizes the need for the active intervention of administrative agencies in matters calling for
technical knowledge and speed in countless controversies which cannot possibly be handled by
regular courts. (Emphasis ours.)
Fourth Issue: President Amply Vested With Statutory
Power To Approve TRB Contracts
Just like their parallel stance on the grant to TRB of the power to enter into toll agreements, e.g.,
TOAs or STOAs, the petitioners in the first three petitions would assert that the grant to the
President of the power to peremptorily authorize the assignment by PNCC, as franchise holder, of
its franchise or the usufruct in its franchise is unconstitutional. It is unconstitutional, so petitioners
would claim, for being an encroachment of legislative power.
As earlier indicated, Section 3 (a) of P.D. 1112 requires approval by the President of any contract
TRB may have entered into or effected for the construction and operation of toll facilities.
Complementing Section 3 (a) is 3 (e) (3) of P.D. 1112 enjoining the transfer of the usufruct of
PNCCs franchise without the Presidents prior approval. For perspective, Section 3 (e) (3) of P.D.
1112 provides:
That the toll operator shall not lease, transfer, grant the usufruct of, sell or assign the rights or
privileges acquired under the [TOC] to any person x x x or legal entity nor merge with any other
company or corporation organized for the same purpose without the prior approval of the
President of the Philippines. In the event of any valid transfer of the TOC, the Transferee shall be
subject to all the conditions, terms, restrictions and limitations of this Decree x x x.80
The Presidents approving authority is of statutory origin. To us, there is nothing illegal, let alone
unconstitutional, with the delegation to the President of the authority to approve the assignment
by PNCC of its rights and interest in its franchise, the assignment and delegation being
circumscribed by restrictions in the delegating law itself. As the Court stressed in Kilosbayan v.
Guingona, Jr.,81 the rights and privileges conferred under a franchise may be assigned if
authorized by a statute, subject to such restrictions as may be provided by law, such as the prior
approval of the grantor or a government agency.82
There can, therefore, be no serious challenge to this presidential- approving prerogative. Should
grave abuse of discretion in some way infect the exercise of the prerogative, then the approval
action may be nullified for that reason, but not on the ground that the underlying authority is
constitutionally doubtful. If the TRB may validly be empowered to grant private entities the
authority to operate toll facilities, would a delegation of a lesser authority to approve the grant to
the head of the administrative machinery of the government be objectionable?
The fact that P.D. 1112 partakes of a martial law issuance does not per se provide an objectionable
feature to the decree, albeit it may be argued with some plausibility that then President Marcos
intended to have the final say as to who shall act as the toll operators of the Luzon expressways.
Be that as it may, "all proclamations, orders, decrees, instructions, and acts promulgated, issued,
or done by the former President (Ferdinand E. Marcos) are part of the law of the land, and shall
remain valid, legal, binding, and effective, unless modified, revoked or superseded by subsequent
proclamations, orders, decrees, instructions, or other acts of the President."83 To emphasize,
Padua v. Ranada cited Association of Small Landowners in the Philippines, Inc. v. Secretary of
Agrarian Reform, quoting that:
The Court wryly observes that during the past dictatorship, every presidential issuance, by
whatever name it was called, had the force and effect of law because it came from President
Marcos. Such are the ways of despots. Hence, it is futile to argue that LOI 474 could not have
repealed P.D. No. 27 because the former was only a letter of instruction. The important thing is
that it was issued by President Marcos, whose word was law during that time.84
Fifth Issue: Assailed STOAs Validly Entered
This brings us to the issue of the validity of certain provisions of the STOAs and related agreements
entered into by the TRB, as duly approved by the President.
Relying on Clause 17.4.185 of the MNTC STOA that the lenders have the unrestricted right to
appoint a substitute entity in case of default of MNTC or of the occurrence of an event of default
in respect of the loans, petitioners argue that since MNTC is the assignee or transferee of PNCCs
franchise, then it steps into the shoes of PNCC. They contend that the act of replacing MNTC as
grantee is tantamount to an amendment or alteration of the PNCCs original franchise and hence
unconstitutional, considering that the constitutional power to appoint a new franchise holder is
reserved to Congress.86
This contention is bereft of merit.
Petitioners presupposition that only Congress has the power to directly grant franchises is
misplaced. Time and again, We have held that administrative agencies may be empowered by the
Legislature by means of a law to grant franchises or similar authorizations.87 And this, We have
sufficiently addressed in the present case.88 To reiterate, We discussed in Albano that our statute
books are replete with laws granting administrative agencies the power to issue
authorizations.89 This delegation of legislative power to administrative agencies is allowed "in
order to adapt to the increasing complexity of modern life."90 Consequently, We have held that
the "privileges conferred by grant by local authorities as agents for the state constitute as much
a legislative franchise as though the grant had been made by an act of the Legislature."91
In this case, the TRBs charter itself, or Section 3 (e) of P.D. 1112, specifically empowers it to
"grant authority to operate a toll facility and to issue therefore the necessary Toll Operation
Certificate subject to such conditions as shall be imposed by the [TRB]x x x." 92 Section 3 (a) of
the same law permits the TRB to enter into contracts for the construction, operation and
maintenance of toll facilities. Clearly, there is no question that the TRB is vested by the Legislature,
through P.D. 1112, with the power not only to grant an authority to operate a toll facility, but also
to enter into contracts for the construction, operation and maintenance thereof.
Petitioners also contend that substituting MNTC as the grantee in case of its default with respect
to its loans is tantamount to an amendment of PNCCs original franchise and is hence,
unconstitutional. We also find this assertion to be without merit. Besides holding that the
Legislature may properly empower administrative agencies to grant franchises pursuant to a law,
We have also earlier explained in this case that P.D. 1113 and the amendatory P.D. 1894 both
vested the TRB with the power to impose conditions on PNCCs franchise in an appropriate
contract and may therefore amend or alter the same when public interest so requires;93 save for
the conditions stated in Sections 1 and 2 of P.D. 1894, which relates to the coverage area of the
tollways and the expiration of PNCCs original franchise.94 P.D. 1112 provided further that the TRB
has the power to amend or modify a Toll Operation Certificate that it issued when public interest
so requires.95 Accordingly, to Our mind, there is nothing infirm much less questionable about the
provision in the STOA, allowing the substitution of MNTC in case it defaults in its loans.
Furthermore, in the subject provision (Clause 17.4.196), the "unrestricted right" of the lender to
appoint a substituted entity is never intended to afford such lender a plenary power to do so. The
subject clause states:
17.4.1 The PARTIES acknowledge that following a Notice of Substitution under clauses 17.2 or
17.3 the LENDERS have, subject to the provisions of Clause 17.4.3, the unrestricted right to
appoint a SUBSTITUTED ENTITY in place of MNTC following the declaration of the occurrence of
a MNTC DEFAULT prior to full repayment of the LOANS or of an event of default in respect of the
LOANS. GRANTOR shall extend all reasonable assistance to the AGENT to put in place a
SUBSTITUTED ENTITY. MNTC shall make available all necessary information to potential
SUBSTITUTED ENTITY to enable such entity to evaluate the Project. (Emphasis ours.)
It is clear from the above-quoted provision that Clause 17.4.1 should always be construed and
read in conjunction with Clauses 17.2, 17.3, 17.4.2, 17.4.3 and 20.12. Clauses 17.2 and 17.3
discuss the procedures that must be followed and undertaken in case of MNTCs default prior to
the full repayment of the loans, and before the substitution under Clause 17.4.1 could take place.
These clauses provide the following process:
Prior to Full Repayment of the LOANS:
17.2 Upon occurrence of an MNTC DEFAULT under Clause 17.1(a) and (e) prior to full repayment
of the LOANS, GRANTOR shall serve a written Notice of Default to MNTC with copy to the AGENT
giving a reasonable period of time to cure the MNTC DEFAULT, such period being three (3) months
from receipt of the notice or such longer period as may be approved by GRANTOR, taking due
consideration of the nature of the default and of the repair works required. If MNTC fails to remedy
such default during such three (3) month or [sic] curing period, GRANTOR may issue a Notice of
Substitution on MNTC, copy furnished to the AGENT, which shall take effect upon the assumption
and take over by the SUBSTITUTED ENTITY pursuant to the provisions of Clause 17.4 hereof;
Provided, However, that prior to such assumption and take over by the SUBSTITUTED ENTITY,
MNTC shall continue to operate and maintain the project roads and shall place in an escrow
account the toll revenues, save such amounts as may be needed to primarily cover the operating
costs and as may be owing and due to the lenders under the loans and, secondarily, to cover the
PNCC Gross Toll Revenue Share, Provided, Further, that upon the assumption and take over by
the SUBSTITUTED ENTITY, such assumption and take over shall have the effect of revoking the
rights, privileges and obligations of MNTC under this AGREEMENT in favor of the SUBSTITUTED
ENTITY and MNTC shall cease to be a PARTY to this AGREEMENT.
17.3 If prior to full repayment of the LOANS MNTC fails to remedy MNTC DEFAULT under Clause
17.1 (b) or an MNTC DEFAULT occurs under Clause 17.1 (c), (d) or (f) prior to full repayment of
the LOANS, GRANTOR shall serve a Notice of Substitution on MNTC, copy furnished to the AGENT,
as provided under Clause 17.4.97 (Emphasis ours)
It is apparent from the above-quoted provision that it is the TRB representing the Republic of
the Philippines as Grantor which has control over the situation before Clause 17.4.1 could come
into place. To stress, following the condition under Clause 17.4.1, it is only when Clauses 17.2
and 17.3 have been complied with that the entire Clause 17.4 could begin to materialize.
Clauses 17.4.2 and 17.4.3 also provide for certain parameters as to when a substituted entity
could be considered acceptable, and enumerate the conditions that should be undertaken and
complied with.98 Particularly, the subject provisions state:
17.4.2 The SUBSTITUTED ENTITY shall be required to provide evidence to GRANTOR that at the
time of substitution:
(i) it is legally and validly nominated by the AGENT as MNTCs substitute to continue the
implementation of the PROJECT.
(ii) it is legally and validly constituted and has the capability to enter into such agreement as may
be required to give effect to the substitution;
17.4.3 The AGENT shall have one (1) year to effect a substitution under Clause 17.4; Provided,
However, that during this time the AGENT shall not take any action which may jeopardize the
continuity of the service and shall take the necessary action to ensure its continuation. To effect
such substitution, the AGENT shall notify its intention to GRANTOR and shall, at the same time,
give all necessary information to GRANTOR. GRANTOR shall, within one (1) month following such
notification, inform the AGENT of its acceptance of the substitution, if the conditions set forth in
Clause 17.4.2 have been satisfied. The SUBSTITUTED ENTITY shall be permitted a reasonable
period to cure any MNTC DEFAULT under Clause 17.1 (a), (b) or (e).
From the foregoing, it is clear that the lenders do not actually have an absolute or "unrestricted"
right to appoint the SUBSTITUTED ENTITY in view of TRBs right to accept or reject the
substitution within one (1) month from notice and such right to appoint comes into force only if
and when the TRB decides to effectuate the substitution of MNTC as allowed in Clause 17.2 of
the MNTC STOA.
At the same time, Clause 17.4.4 particularizes the conditions upon which the substitution shall
become effective, to wit:
17.4.4 The Substitution shall be effective upon:
(a) the appointment of a SUBSTITUTED ENTITY in accordance with the provisions of this Clause
17.4; and,
(b) assumption by the SUBSTITUTED ENTITY of all of the rights and obligations of MNTC under
this AGREEMENT, including the payment of PNCCs Gross Toll Revenue Share under the JOINT
VENTURE AGREEMENT dated 29 August 1995 and all other agreements in connection with this
agreement signed and executed by and between PNCC and MNTC.
The afore-quoted Section (a) of Clause 17.4.4 reiterates the necessity of compliance by the
substituted entity with all the conditions provided under Clause 17.4. Furthermore, following the
above-quoted conditions veritably protects the interests of the Government. As previously
discussed supra, PNCCs assets with respect to its legislative franchise under P.D. 1113, as
amended, has already been automatically turned over to the Government. And whatever share
PNCC has in relation to the currently implemented administrative authority granted by the TRB is
merely being held in trust by it in favor of the Government. Accordingly, the fact that Section "b"
of Clause 17.4.4 ensures that the obligation to pay PNCCs Gross Toll Revenue Share is assumed
by the substituted entity, necessarily means that the Governments Gross Toll Revenue Share is
safeguarded and kept intact.
The MNTC STOA also states that only in case no substituted entity is established in accordance
with Clause 17.4 that Clause 17.5 shall be applied. Clause 17.5 grants the lenders the power to
extend the concession in case the Grantor (Republic of the Philippines) takes over the same, for
a period not exceeding fifty years, until full payment of the loans.99 Petitioners contend that the
option to extend the concession for that stated period is, however, unconstitutional.
This assertion is impressed with merit. At the outset, Clause 17.5 does not actually grant the
lenders of the defaulting concessionaire, the power to unilaterally extend the concession for a
period not exceeding fifty years. For reference, the pertinent provision states:
17.5 Only if no SUBSTITUTE ENTITY is established shall the GRANTOR [TRB] be entitled to
take-over the CONCESSION with no commitment on the LOANS in which case the OPERATION
AND MAINTENANCE CONTRACT shall be assigned to any entity that the AGENT100 may designate
provided such entity has a sufficient legal and technical capacity to perform and assume the
obligations of the OPERATION AND MAINTENANCE CONTRACT under this AGREEMENT. The
LENDERS shall receive all TOLL, excepting PNCCs revenue shareprovided for under the JOINT
INVESTMENT PROPOSAL (vide: Annex "C" hereof), for as long as required until full repayment of
the LOANS including if necessary an extension of the CONCESSION PERIOD which in no case shall
exceed fifty (50) years; Provided that the LENDERS support all amounts payable under the
OPERATION AND MAINTENANCE CONTRACT. For avoidance of doubt, the GRANTOR will have no
obligation in relation to liabilities incurred by MNTC prior to such take-over.101 (Emphasis supplied)
The afore-quoted provision should be read in conjunction with Clause 20.12, which expressly
provides that the MNTC STOA is "made under and shall be governed by and construed in
accordance with" the laws of the Philippines, and particularly, by the provisions of P.D. Nos. 1112,
1113 and 1894. Under the applicable laws, the TRB may very well amend, modify, alter or revoke
the authority/franchise "whenever the public interest so requires."102 In a word, the power to
determine whether or not to continue or extend the authority granted to a concessionaire to
operate and maintain a tollway is vested to the TRB by the applicable laws. The necessity of
whether or not to extend the concession or the authority to construct, operate and maintain a
tollway rests, by operation of law, with the TRB. As such, the lenders cannot unilaterally extend
the concession period, or, with like effect, impose upon or demand that the TRB agree to extend
such concession.
Be that as it may, it must be noted, however, that while the TRB is vested by law with the power
to extend the administrative franchise or authority that it granted, nevertheless, it cannot do so
for an accumulated period exceeding fifty years. Otherwise, it would violate the proscription under
Article XII, Section 11 of the 1987 Constitution, which states that:103
Sec. 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital is owned
by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or
for a longer period than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration or repeal by the Congress
when the common good so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or associations must be citizens of the
Philippines. (Emphasis Ours)
In this case, the MNTC STOA already has an original stipulated period of thirty years.104 Clause
17.5 allows the extension of this period if necessary to fully repay the loans made by MNTC to the
lenders, thus:
x x x The LENDERS shall receive all TOLL, excepting PNCCs revenue share provided for under the
JOINT INVESTMENT PROPOSAL (vide: Annex "C" hereof), for as long as required until full
repayment of the LOANS including if necessary an extension of the CONCESSION PERIOD which
in no case shall exceed a maximum period of fifty (50) years; x x x (Emphasis ours.)
If the maximum extension as provided for in Clause 17.5, i.e. fifty years, shall be utilized, the
accumulated concession period that would be granted in this case would effectively be eighty
years. To Us, this is a clear violation of the fifty-year franchise threshold set by the Constitution.
It is in this regard that we strike down the above-quoted clause, "including if necessary an
extension of the CONCESSION PERIOD which in no case shall exceed a maximum period of fifty
(50) years" in Clause 17.5 as void for being violative of the Constitution.105 It must be made
abundantly clear, however, that the nullity shall be limited to such extension beyond the 50-year
constitutional limit.
All told, petitioners allegations that the TRB acted with grave abuse of discretion and with gross
disadvantage to the Government with respect to Clauses 17.4.1 and 17.5 of the MNTC STOA are
unfounded and speculative.
Petitioners also allege that the MNTC STOA is grossly disadvantageous to the Government since
under Clause 11.7 thereof, the Government, through the TRB, guarantees the viability of the
financing program of a toll operator. Under Clause 11.7 of the MNTC STOA, the TRB agreed to
pay monthly, the difference in the toll fees actually collected by MNTC and that which it could
have realized under the STOA. The pertinent provisions states:
11.7 To insure the viability and integrity of the Project, the Parties recognize the necessity for
adjustments of the AUTHORIZED TOLL RATE . In the event that said adjustment are not effected
as provided under this Agreement for reasons not attributable to MNTC, the GRANTOR
[TRB] warrants and so undertakes to compensate, on a monthly basis, the resulting loss of
revenue due to the difference between the AUTHORIZED TOLL RATE actually collected and the
AUTHORIZED TOLL RATE which MNTC would have been able to collect had the
adjustments been implemented. (Emphasis ours)
As set out in the preamble of P.D. 1112, the need to encourage the infusion of private capital in
tollway projects is the underlying rationale behind the enactment of said decree. Owing to the
scarce capital available to bankroll a huge capital-intensive project, such as the North Luzon
Tollway project, it is well-nigh inevitable that the financing of these types of projects is sourced
from private investors. Quite naturally, the investors expect the regularity of the cash flow. It is
perhaps in this broad context that the obligation of the Grantor under Clause 11.7 of the MNTC
STOA was included in the STOA. To Us, Clause 11.7 is not only grossly disadvantageous to the
Government but a manifest violation of the Constitution.
Section 3 (e) (5) of P.D. 1112 explicitly states:
[t]hat no guarantee, Certificate of Indebtedness, collateral securities, or bonds shall be issued by
any government agency or government-owned or controlled corporation on any financing program
of the toll operator in connection with his undertaking under the Toll Operation Certificate.
What the law seeks to prevent in this situation is the eventuality that the Government, through
any of its agencies, could be obligated to pay or secure, whether directly or indirectly, the financing
by the private investor of the project. In this case, under Clause 11.7 of the MNTC STOA, the
Republic of the Philippines (through the TRB) guaranteed the security of the project against
revenue losses that could result, in case the TRB, based on its determination of a just and
reasonable toll fee, decides not to effect a toll fee adjustment under the STOAs periodic/interim
adjustment formula. The OSG, in its Comment, admitted that "the amounts the government
undertook to pay in case of Clause 11.7 violation is an undertaking to pay compensatory
damage for something akin to a breach of contract."106As P.D. 1112 itself expressly prohibits the
guarantee of a security in the financing of the toll operator pursuant to its tollway project, Clause
11.7 cannot be a valid stipulation in the STOA.
This is more so for being in violation of the Constitution. Article VI, Section 29 (1) of the
Constitution mandates that "[n]o money shall be paid out of the Treasury except in pursuance of
an appropriation made by law."107 We have held in Radstock that "government funds or property
shall be spent or used solely for public purposes, as expressly mandated by Section 4 (2) of PD
1445 or the Government Auditing Code."108 Particularly, We held in Radstock case that:
[t]he power to appropriate money from the General Funds of the Government belongs exclusively
to the Legislature. Any act in violation of this iron-clad rule is unconstitutional.
Reinforcing this Constitutional mandate, Sections 84 and 85 of PD 1445 require that before a
government agency can enter into a contract involving the expenditure of government funds,
there must be an appropriation law for such expenditure, thus:
Section 84. Disbursement of government funds.
1. Revenue funds shall not be paid out of any public treasury or depository except in pursuance
of an appropriation law or other specific statutory authority.
xxxx
Section 85. Appropriation before entering into contract.
No contract involving the expenditure of public funds shall be entered into unless there is an
appropriation therefor, the unexpended balance of which, free of other obligations, is sufficient to
cover the proposed expenditure.
xxxx
Section 86 of PD 1445, on the other hand, requires that the proper accounting official must certify
that funds have been appropriated for the purpose. Section 87 of PD 1445 provides that any
contract entered into contrary to the requirements of Sections 85 and 86 shall be
void.109 (Emphasis ours.)
In the instant case, the TRB, by warranting to compensate MNTC with the loss of revenue resulting
from the non-implementation of the periodic and interim toll fee adjustments, violates the very
constitutionally guaranteed power of the Legislature, to exclusively appropriate money for public
purpose from the General Funds of the Government. The TRB veritably accorded unto itself the
exclusive authority granted to Congress to appropriate money that comes from the General Funds,
by making a warranty to compensate a revenue loss under Clause 11.7 of the MNTC STOA. There
is not even a badge of indication that the aforementioned requisites under the Constitution and
P.D. 1445 in respect of appropriation of money from the General Funds of the Government have
been properly complied with. Worse, P.D. 1112 expressly prohibits the guarantee of security of
the financing of a toll operator in connection with his undertaking under the Toll Operation
Certificate. Accordingly, Clause 11.7 of the MNTC STOA, under which the TRB warrants and
undertakes to compensate MNTCs loss of revenue resulting from the non-implementation of the
periodic and interim toll fee adjustments, is illegal, unconstitutional and hence void.
Parenthetically, We also find a similar provision in the SLTC STOA under Clause 8.08 thereof,
which states that:110
(2) In the event the Authorized Toll Rate and adjustments thereto are not implemented or made
effective in accordance with the provisions of this Agreement, for reasons not attributable to the
fault of the Investor and/or the Operator, including the reversal by the TRB or by any competent
court or authority of any such adjustment in the Authorized Toll Rate previously approved by the
TRB, except where such reversal is by reason of a determination of the misapplication of the
Authorized Toll Rates, the Grantor shall compensate the Operator, on a monthly basis and within
thirty (30) days of submission by the Operator of a notice thereof, without interest, for the
resulting loss of revenue computed as the difference between:
(a) the actual traffic volume for the month in question multiplied by the Current Authorized Toll
Rate as escalated and/or adjusted, that should be in effect; and
(b) the Gross Toll Revenue for the month in question.
(3) The obligation of the Grantor to compensate the Operator shall continue until the applicable
Current Authorized Toll Rate is implemented.
Akin to what is contemplated in Clause 11.7 of the MNTC STOA, Clauses 8.08 (2) and (3) of the
SLTC STOA, under which the TRB warrants or is obligated to compensate the Operator for its loss
of revenue resulting from the non-implementation of the calculation/formula of authorized toll
price and toll rate adjustments found in Clause 8 thereof, are illegal, unconstitutional and, hence,
void. This ruling is consistent with the TRBs power to determine, without any influence or
compulsion direct or indirect as to whether a change in the toll fee rates is warranted. We will
discuss the same below.
Petitioners argue that the CITRA, SLTC and MNTC STOAs tie the hands of the TRB as it is bound
by the stipulated periodic and interim toll rate adjustments provided therein. Petitioners contend
that the SMMS (CITRA STOA), the SLTC and the MNTC STOAs provisions on initial toll rates and
periodic/interim toll rate adjustments, by using a built-in automatic toll rate adjustment
formula,111 allegedly guaranteed fixed returns for the investors and negated the public hearing
requirement.
This contention is erroneous. The requisite public hearings under Section 3 (d) of P.D. 1112 and
Section 8 (b) of P.D. 1894 are not negated by the fixing of the initial toll rates and the periodic
adjustments under the STOA.
Prefatorily, a clear distinction must be made between the statutory prescription on the fixing of
initial toll rates, on the one hand, and of periodic/interim or subsequent toll rates, on the other.
First, the hearing required under the said provisos refers to notice and hearing for the approval
or denial of petitions for toll rate adjustments or the subsequent toll rates, not to the fixing of
initial toll rates. By express legal provision, the TRB is authorized to approve the initial toll rates
without the necessity of a hearing. It is only when a challenge on the initial toll rates fixed ensues
that public hearings are required. Section 8 of P.D. 1894 says so:
x x x the GRANTEE shall collect toll at such rates as shall initially be approved by the [TRB]. The
[TRB] shall have the authority to approve such initial toll rates without the necessity of any
notice and hearing, except as provided in the immediately succeeding paragraph of
this Section. For such purpose, the GRANTEE shall submit for the approval of the [TRB] the toll
proposed to be charged the users. After approval of the toll rate(s) by the [TRB] and publication
thereof by the GRANTEE once in a newspaper of general circulation, the toll shall immediately be
enforceable and collectible upon opening of the expressway to traffic use.
Any interested Expressways users shall have the right to file, within x x x (90) days after the
date of publication of the initial toll rate, a petition with the [TRB] for a review of the
initial toll rate; provided, however, that the filing of such petition and the pendency of the
resolution thereof shall not suspend the enforceability and collection of the toll in question. The
[TRB], at a public hearing called for the purpose shall then conduct a review of the initial toll
(sic) shall be appealable to the [OP] within ten (10) days from the promulgation thereof.
(Emphasis ours.)
Of the same tenor is Section 3 (d) of P.D. 1112 stating that the TRB has the power and duty to:
[i]ssue, modify and promulgate from time to time the rates of toll that will be charged the direct
users of toll facilities and upon notice and hearing, to approve or disapprove petitions for the
increase thereof. Decisions of the [TRB] on petitions for the increase of toll rate shall be appealable
to the [OP] within ten (10) days from the promulgation thereof. Such appeal shall not suspend
the imposition of the new rates, provided however, that pending the resolution of the appeal, the
petitioner for increased rates in such case shall deposit in a trust fund such amounts as may be
necessary to reimburse toll payers affected in case a (sic) reversal of the decision.112 (Emphasis
Ours.)
Similarly in Padua v. Ranada, the fixing of provisional toll rates by the TRB without a public hearing
was held to be valid, such procedure being expressly provided by law.113 To be very clear, it is
only the fixing of the initial and the provisional toll rates where a public hearing is not a vitiating
requirement. Accordingly, subsequent toll rate adjustments are mandated by law to undergo
both the requirements of public hearing and publication.
In Manila International Airport Authority ("MIAA") v. Blancaflor, the Court expounded on the
necessity of a public hearing in rate fixing/increases scenario. There, the Court ruled that the
MIAA, being an agency attached to the Department of Transportation and Communications
("DOTC"), is governed by Administrative Code of 1987,114 Book VII, Section 9 of which specifically
mandates the conduct of a public hearing.115 Accordingly, the MIAAs resolutions, which increased
the rates and charges for the use of its facilities without the required hearing, were struck down
as void.116 Similarly, as We do concede, the TRB, being likewise an agency attached to the
DOTC,117 is governed by the same Code and consequently requires public hearing in appropriate
cases. It is, therefore, imperative that in implementing and imposing new, i.e. subsequent toll
rates arrived at using the toll rate adjustment formula, the subject tollway operators and the TRB
must necessarily comply not only with the requirement of publication but also with the equally
important public hearing. Accordingly, any fixing of the toll rate, which did not or does not comply
with the twin requirements of public hearing and publication, must therefore be struck down as
void. In such case, the previously valid toll rate shall consequently apply, pending compliance with
the twin requirements for the new toll rate.
In the instant consolidated cases, the fixing of the initial toll rates may have indeed come to pass
without any public hearing.118 Unfortunately for petitioners, and notwithstanding its presumptive
validity, they did not assail the initial toll rates within the timeframe provided in P.D. 1112 and
P.D. 1894.119 Besides, as earlier explicated, the STOA provisions on periodic rate adjustments are
not a bar to a public hearing as the formula set forth therein remains constant, serving only as a
guide in the determination of the level of toll rates that may be allowed.
It is apropos to state at this juncture that, in determining the reasonableness of the subsequent
toll rate increases, it behooves the TRB to seek out the Commission on Audit ("COA") for assistance
in examining and auditing the financial books of the public utilities concerned. Section 22, Chapter
4, Subtitle B, Title 1, Book V of the Administrative Code of 1987 expressly authorizes the COA to
examine the aforementioned documents in connection with the fixing of rates of every nature,
including as in this case, the fixing of toll fees.120 We have on certain occasions applied this
provision. Manila Electric Company, Inc. v. Lualhati easily comes to mind where this Court tasked
the Energy Regulatory Commission to seek the assistance of the COA in determining the
reasonableness of the rate increases that MERALCO intended to implement.121 We have
consistently held that "the law is deemed written into every contract."122 Being a provision of law,
this authority of the COA under the Administrative Code should therefore be deemed written in
the subject contracts i.e. the STOAs.
In this regard, during the examination and audit, the public utilities concerned are mandated to
"produce all the reports, records, books of accounts and such other papers as may be required,"
and the COA is empowered to "examine under oath any official or employee of the said public
utilit[ies]."123 Any public utility unreasonably denying COA access to the aforementioned
documents, unnecessarily obstructs the examination and audit and may be adjudged liable "of
concealing any material information concerning its financial status, shall be subject to the penalties
provided by law."124 Finally, the TRB is further obliged to take the appropriate action on the COA
Report with respect to its finding of reasonableness of the proposed rate increases.125
Furthermore, while the periodic, interim and other toll rate adjustment formulas are indicated in
the STOAs,126 it does not necessarily mean that the TRB should accept a rate adjustment
predicated on the economic data, references or assumptions adopted by the toll operator. At the
end of the day, the final figures should be those of the TRB based on its appreciation of the
relevant rate-influencing data. In fine, the TRB should exercise its rate-fixing powers vested to it
by law within the context of the agreed formula, but always having in mind that the rates should
be just and reasonable. Conversely, it is very well within the power of the TRB under the law to
approve the change in the current toll fees.127 Section 3 (d) of P.D. 1112 grants the TRB the power
to "[i]ssue, modify and promulgate from time to time the rates of toll that will be charged the
direct users of toll facilities." But the reasonableness of a possible increase in the fees must first
be clearly and convincingly established by the petitioning entities, i.e. the toll operators.
Otherwise, the same should not be granted by the approving authority concerned. In Philippine
Communications Satellite Corporation v. Alcuaz,128 the Court had the opportunity to explain what
is meant by a just and reasonable fixing of rates, thus:
Hence, the inherent power and authority of the State, or its authorized agent, to regulate the
rates charged by public utilities should be subject always to the requirement that the rates so
fixed shall be reasonable and just. A commission has no power to fix rates which are unreasonable
or to regulate them arbitrarily. This basic requirement of reasonableness comprehends such rates
which must not be so low as to be confiscatory, or too high as to be oppressive.
What is a just and reasonable rate is not a question of formula but of sound business judgment
based upon the evidence it is a question of fact calling for the exercise of discretion, good sense,
and a fair, enlightened and independent judgment. In determining whether a rate is confiscatory,
it is essential also to consider the given situation, requirements and opportunities of the utility. A
method often employed in determining reasonableness is the fair return upon the value of the
property to the public utility x x x. (Emphasis ours.)
If in case the TRB finds the change in the rates to be reasonable and therefore merited, the
increase shall then be implemented after the formalities of public hearing and publication are
complied with. In this case, it is clear that the change in the toll fees is immediately effective and
implementable. This is notwithstanding that, in case of an increase in the toll fees, an appeal
thereon is filed. The law is clear. Thus:
x x x Decisions of the [TRB] on petitions for the increase of toll rate shall be appealable to the
Office of the President within ten (10) days from the promulgation thereof. Such appeal shall not
suspend the imposition of the new rates, provided however, that pending the resolution of the
appeal, the petitioner for increased rates in such case shall deposit in a trust fund such amounts
as may be necessary to reimburse toll payers affected in case a reversal of the
decision.129 (Emphasis ours.)
Besides the settled rule under Section 3 (d) of P.D. 1112 that the power to issue, modify and
promulgate toll fees rests with the TRB, it must also be underscored that the periodic and the
interim adjustments found in Clauses 11.4 to 11.6 of the MNTC STOA do not necessarily guarantee
an increase in the toll fees. To stress, the formula is based on many variable factors that could
mean either an increase or a decrease in the toll fees, depending, inter alia, on how well certain
economies are doing; and on the projections and figures published by the Bangko Sentral ng
Pilipinas ("BSP").130 It is therefore arduous to contemplate a grossness in a disadvantage that
could only possibly arise in case of a non-implementation of a change particularly, an increase
in the toll rates.
Petitioners have not incidentally shown that it is the traveling public, the users of the expressways,
who shouldered or will shoulder the completion of the projects by way of exorbitant fees payment,
with the investors ending up with a "killing" therefrom. This conclusion, for all its factual
dimension, is too simplistic for acceptance. And it does not consider the reality that the Court is
not a trier of facts. Neither does it take stock of the nature and function of toll roads and toll fees
paid by motorists, as aptly elucidated in North Negros Sugar Co., Inc. v. Hidalgo,131 thus:
"Toll" is the price of the privilege to travel over that particular highway, and it is a quid pro quo.
It rests on the principle that he who, receives the toll does or has done something as an equivalent
to him who pays it. Every traveler has the right to use the turnpike as any other highway, but he
must pay the toll.132
A toll road is a public highway, differing from the ordinary public highways chiefly in this: that the
cost of its construction in the first instance is borne by individuals, or by a corporation, having
authority from the state to build it, and, further, in the right of the public to use the road after
completion, subject only to the payment of toll.133
Toll roads are in a limited sense public roads, and are highways for travel, but we do not regard
them as public roads in a just sense, since there is in them a private proprietary right x x
x.134 (Emphasis ours.)
Parenthetically, our review of Section 7 of the SMMS STOA readily yields the information that the
level of the initial toll rates hinges on a mix of factors. Tax holidays that may be granted and the
tax treatment of dividends may be mentioned. On the other hand, the subsequent periodic
adjustments are provided to address factors that usually weigh on the financial condition of any
business endeavor, such as currency devaluation, inflation and the usual increases in maintenance
and operational costs incorporated into the formula provided therefor. Even with the existence of
an automatic toll rate adjustment formula, compliance by the TRB and the other respondents with
the twin requirements of public hearing and publication is still mandatory. To reiterate, laws
always occupy a plane higher than mere contract provisions. In case the minimum statutory
requirements are stiffer than that of a contract, or when the contract does not expressly stipulate
the minimum requirements of the law, then We rule that compliance with such minimum legal
requirements should be done. To summarize, any toll fee increase should comply with the legal
twin requirements of publication and public hearing, the absence of which will nullify the
imposition and collection of the new toll fees.
In all, the initial toll rates and periodic adjustments appear to Us as simply predicated on the basic
rationale for investing in a toll project, which to repeat is: a reasonable rate of return for the
investment. Section 2 (o) of the BOT Law, as amended, provides for a definition for a reasonable
rate of return on investments and operating and maintenance cost.135 Running through the gamut
of our statutes providing for and encouraging partnership of the public and private sector is the
paramount common good for infrastructure projects and the equally important factor of giving a
reasonable rate of return to private sectors investments. The viability of any infrastructure project
depends on the returns which should be reasonable of the investment coming from the private
sector.
While the interests of the public are ideally to be accorded primacy in considering government
contracts, the reality on the ground is that the tollway projects may not at all be possible or would
be difficult to realize without the involvement of the investing private sector, which expects its
usual share of profit. Thus, the Court is at a loss to understand how the level of the initial toll
rates, which depended on several factors indicated above, and the subsequent adjustments
resulted in the charging of exorbitant toll fees that, to petitioners, enabled the investors to shift
the burden of financing the completion of the projects on the motoring public.
Neither does the alleged drasticif we may characterize it as suchsteep increase in the level of
toll rates for NLEX constitute a "killing" for PNCC and its partner MNTC. Petitioners make much of
the amount of the toll fees vis--vis the then prevailing minimum wage. These plays of figures
detract from the essential concern on the propriety of the level of the toll rates vis--vis the
investments sunk in the NLEX project with a view, on the part of private investors, to a reasonable
return on their investment. Where no substantial figures were provided on the investments, the
projected operating and maintenance costs vis--vis the projected revenue from the toll fees, no
substantial conclusions may reasonably be deduced therefrom. Besides, to be taken into account
in relation to the costs of the construction and rehabilitation of the NLEX is the length of the
tollway and for which motorists have to pay the corresponding toll. Certainly, the allegations and
conclusions of petitioners as to the unreasonable increase of the toll rates are without adequate
factual mooring.
The use of a tollway is a privilege that comes at a cost. The toll is a price paid for the use of a
privilege. There are to be sure alternative roads and routes, which motorists may fall back on if
they are unwilling to pay the toll. The toll, as might be expected, is pegged at a level that makes
the developmental projects and their maintenance viable; otherwise, no investment can be
expected for the furtherance of the projects.
Petitioners Francisco and Hizon alleged that, per the minutes of the TRB meetings, the Board
deliberately refrained, particularly with respect to the Skyway project, from conducting public
hearings for the grant of the initial toll rates and on the rate adjustment formula to be used in
order to accelerate the implementation of the projects. The allegation is far from correct. A perusal
of the pertinent minutes of the TRB meetings, particularly that held on August 17, 1995,136 in fact
would disclose a picture different from that depicted by said petitioners. Nothing in the minutes
of said meeting tends to indicate that the TRB resolved to dispense with public hearings. We,
therefore, find petitioners Francisco and Hizons attempt to mislead the Court by falsely citing
supposed portions137 of the August 17, 1995 TRB meeting very unfortunate. They quoted a
correction on the minutes of the Special Board Meeting No. 95-05 held on July 26, 1995, which
was taken up in the August 17, 1995 meeting for the approval of the minutes of the previous
meeting. In said special meeting of July 26, 1995,138 the Board deliberated on the recommendation
of ADG Santos for the conduct of a public hearing or soliciting the endorsement of the Metro
Manila Development Authority ("MMDA").139 But the TRB did not resolve to omit a public hearing
with respect to the toll rates. In fact, the deliberations used the words "in the event the Board
decides" and "if the Board conducts," clearly conveying the notion that the TRB had not decided
or resolved the issue of public hearings. Be that as it may, We rule that the TRB is mandated to
comply with the twin requirements of public hearing and publication.
Petitioners Francisco and Hizons lament about the TRB merely relying on, if not yielding to, the
recommendation and findings of the Technical Working Group ("TWG") of the DPWH on matters
relative to STOA stipulations and toll-rate fixing cannot be accorded cogency. In the area involving
big finance and complex project planning, banking on the data supplied by technicians and experts
is at once practical as it is inevitable. The Court cannot see its way clear to understand why
petitioners would begrudge the TRB for tapping the technical know-how of others. And it cannot
be overemphasized that a recommendation is no more than an exhortation or an urging as to
what is advisable or expedient, not binding on the person to which it is being made.140 To
recommend involves the idea that another has the final decision.141 The ultimate decision still rests
with the TRB whether or not to accept the findings of the TWG. The minutes of the TRB meetings
show that its members went through the tedious process of deliberating on the formula to be
used in computing the toll rates. The fact that the TRB might have adopted the TWGs
recommendation would not, on that ground alone, vitiate the bona fides of the formers decision
nor stain the proceedings leading to such decision. In any case, as earlier held, the toll rate
adjustment formula does not and cannot contravene the legal twin requirements of public hearing
and publication.
In another bid to nullify the STOAs in question, petitioners would foist on the Court the arguments
that, firstly, President Ramos twisted the arms of the TRB towards entering into the agreements
in question and, secondly, that the CITRA STOA contained restrictive confidentiality provisions
barring the public from knowing their contents and the details of the negotiations related thereto.
We are not persuaded by the first ground, not necessarily because the pressure brought to bear
on TRB rendered the STOAs infirm, but because the allegations on pressure-tactics allegedly
employed by President Ramos are too speculative for acceptance.
On the second ground, We fail to see how the insertion of the alleged confidentiality clause in the
CITRA STOA translates into grave abuse of discretion or a violation of the Constitution, particularly
Article III, Section 7142 thereof. First off, the Court can take judicial notice that most commercial
contracts, including finance-related project agreements carry the standard confidentiality clause
to protect proprietary data and/or intellectual property rights. This protection angle appears to be
the intent of Clause 14.04(l)143 of the CITRA STOA. And as may be noted, the succeeding Clause
14.04 (2)144 removes from the ambit of the confidentiality restriction the following: disclosure of
any information: (a) not otherwise done by the parties; (b) which is required by law to be
disclosed to any person who is authorized by law to receive the same; (c) to a tribunal
hearing pertinent proceedings relative to the contract or agreement; and (d) to confidential
entities and persons relative to the disclosing party like its banks, consultants, financiers and
advisors. The second (item b) exception provides a reasonable dimension to the assailed
confidentiality clause.
Needless to stress, the obligation of the government to make information available cannot be
exaggerated.145 The constitutional right to information does not mean that every day and every
hour is open house in government offices having custody of the desired documents.146 Petitioners
have not sufficiently shown, thus cannot really be heard to complain, that they had been
unreasonably denied access to information with regard to the MNTC or SMMS STOA. Besides, the
remedy for unreasonable denial of information that is a matter of public concern is by way of
mandamus.147
Finally, as to petitioners catch-all claim that the STOAs are disadvantageous to the government,
as therein represented by the TRB, suffice it to state for the nonce that behind these agreements
are the Boards expertise and policy determination on technical, financial and operational matters
involving expressways and tollways. It is not for courts to look into the wisdom and practicalities
behind the exercise by the TRB of its contract-making prerogatives under P.D. Nos. 1112, 1113
and 1894, absent proof of grave abuse of discretion which would justify judicial review. In this
regard, the Court recalls what it wrote in G & S Transport Corporation v. Court of Appeals,148 to
wit:
x x x courts, as a rule, refuse to interfere with proceedings undertaken by administrative bodies
or officials in the exercise of administrative functions. This is because such bodies are generally
better equipped technically to decide administrative questions and that non-legal factors, such as
government policy on the matter are usually involved in the decision.
Sixth Issue: Public Bidding Not Required
Private petitioners would finally maintain that public bidding is required for the SMMS and the
North Luzon/South Luzon Tollways, partaking as these projects allegedly do of the nature of a
BOT infrastructure undertaking under the BOT Law. Prescinding from this premise, they would
conclude that the STOAs in question and related preliminary and post-STOA agreements are null
and void for want of the necessary public bidding required for government infrastructure projects.
The contention is patently flawed.
The BOT Law does not squarely apply to the peculiar case of PNCC, which exercised its
prerogatives and obligations under its franchise to pursue the construction, rehabilitation and
expansion of the tollways with chosen partners. The tollway projects may very well qualify as a
build-operate-transfer undertaking. However, given that the projects in the instant case have been
undertaken by PNCC in the exercise of its franchise under P.D. Nos. 1113 and 1894, in joint
partnership with its chosen partners at the time when it was held valid to do so by the OGCC and
the DOJ, the public bidding provisions under the BOT Law do not strictly apply. For, as aptly noted
by the OSG, the subject STOAs are not ordinary contracts for the construction of government
infrastructure projects, which requires under the Government Procurement Reform Act or the
now-repealed P.D. 1594,149 public bidding as the preferred mode of contract award. Neither are
they contracts where financing or financial guarantees for the project are obtained from the
government. Rather, the STOAs actually constitute a statutorily-authorized transfer or assignment
of usufruct of PNCCs existing franchise to construct, maintain and operate expressways.150
The conclusion would perhaps be different if the tollway projects were to be prosecuted by an
outfit completely different from, and not related to, PNCC. In such a scenario, the entity awarded
the winning bid in a BOT-scheme infrastructure project will have to construct, operate and
maintain the tollways through an automatic grant of a franchise or TOC, in which case, public
bidding is required under the law.
Where, in the instant case, a franchisee undertakes the tollway projects of construction,
rehabilitation and expansion of the tollways under its franchise, there is no need for a public
bidding. In pursuing the projects with the vast resource requirements, the franchisee can partner
with other investors, which it may choose in the exercise of its management prerogatives. In this
case, no public bidding is required upon the franchisee in choosing its partners as such process
was done in the exercise of management prerogatives and in pursuit of its right of delectus
personae.151 Thus, the subject tollway projects were undertaken by companies, which are the
product of the joint ventures between PNCC and its chosen partners.
Petitioners Francisco and Hizons assertions about the TRB awarding the tollway projects to
favored companies, unsubstantiated as they are, need no belaboring. Suffice it to state that the
discretion to choose who shall stand as critical JV partners remained all along with PNCC, at least
theoretically. Needless to say, the records do not show that the TRB committed an oversight as
an administrative body over any aspect of tollway operations with regard to PNCCs selection of
partners.
The foregoing disquisitions considered, there is no more point in passing upon the propriety of
prohibiting or enjoining, on the ground of unconstitutionality or grave abuse of discretion, the
implementation of the initial toll rates and/or the adjusted toll rates for the SMSS, expanded NLEX
and SLEX, as authorized by the separate TRB resolutions, subject of and originally challenged in
these proceedings.
These TRB resolutions and the STOAs upon which they are predicated have long been in effect.
The parties have acted on these issuances and contracts whose existence, as an operative fact,
cannot be ignored, let alone erased, even if the charge of unconstitutionality is given currency.
While not exactly of governing applicability in this case, what the Court wrote in De Agbayani v.
Philippine National Bank,152 on the operative fact doctrine is apropos:
x x x When the courts declare a law to be inconsistent with the Constitution, the former shall be
void and the latter shall govern. Administrative or executive acts, orders and regulations shall be
valid only when they are not contrary to the laws of the Constitution." .
Such a view has support in logic and possesses the merit of simplicity. It may not however be
sufficiently realistic. It does not admit of doubt that prior to the declaration of nullity
such challenged legislative or executive act must have been in force and had to be
complied with. This is so as until after the judiciary, in an appropriate case, declares its invalidity,
it is entitled to obedience and respect. Parties may have acted under it and may have changed
their positions. What could be more fitting than that in a subsequent litigation regard be had to
what has been done while such legislative or executive act was in operation and presumed to be
valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its existence
as a fact must be reckoned with. This is merely to reflect awareness that precisely because the
judiciary is the governmental organ which has the final say on whether or not a legislative or
executive measure is valid, a period of time may have elapsed before it can exercise the power
of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its
quality of fairness and justice then, if there be no recognition of what had transpired prior to such
adjudication.
In the language of an American Supreme Court decision: "The actual existence of a statute,
prior to such a determination [of constitutionality], is an operative fact and may have
consequences which cannot justly be ignored. The past cannot always be erased by a
new judicial declaration x x x." (Emphasis in the original.)
The petitioners in the first three (3) petitions and the respondent in the fourth have not so said
explicitly, but their brief is against the issuance of P.D. Nos. 1112, 1113 and 1894, which conferred
a package of express and implied powers and discretion to the TRB and the President resulting in
the execution of what is perceived to be offending STOAs and the runaway collection of illegal toll
fees. And they have come to the Court to strike down all these issuances, agreements and
exactions. While the Court is not insensitive to their concerns, the rule is that all reasonable doubts
should be resolved in favor of the constitutionality of a statute,153 and the validity of the acts taken
in pursuant thereof. It follows, therefore, that the Court will not set aside a law as violative of the
Constitution except in a clear case of breach154 and only as a last resort.155 And as the theory of
separation of powers prescribes, the Court does not pass upon questions of wisdom, expediency
and justice of legislation. To Us, petitioners and respondent YPES in the fourth petition have not
discharged the heavy burden of demonstrating in a clear and convincing manner the
unconstitutionality of the decrees challenged or the invalidity of assailed acts of the President and
the TRB. Because they failed to do so, the Court must uphold the presumptive constitutionality
and validity of the provisions of the three decrees in question, and the subject contracts and TOCs.
Regarding petitioner Franciscos Supplemental Petition, the toll rates, the collection of which in
the amount based on the formula and assumptions set forth in the law, and the adverted STOA
dated February 1, 2006 and subject of the TRO issued on August 13, 2010, has been duly
published156 and approved by the TRB, as required by Section 5 of P.D. 1112.157 And the party-
concessionaires have adequately demonstrated, and the TRB has virtually acknowledged158 that
the said rates subject of the TRO partake of the nature of opening or initial toll rates, which have
not yet been implemented since the time the SLTC STOA took effect.159 To note, the toll rates
subject of the TRO were approved and are to be implemented in connection with the new facility,
such as Project Toll Roads 1 and 2 pursuant to the new SLTC STOA and the expanded and
rehabilitated SLEX.160 As earlier discussed, public hearing is not required in the fixing and
implementation of initial toll rates. But an interested party aggrieved by the initial rates imposed
is not without any resource as he may, within the time frame provided by Section 8 (b) of P.D.
1894, repair to the TRB for review and thereafter to the OP.161 As expressly provided in the same
section, however, the pendency of the petition for review, if there be any, shall not suspend the
enforceability and collection of the toll in question. In net effect, the challenge before the Court
of the SLEX toll rate imposition is premature. However, the Court treats this Supplemental Petition
assailing the toll rates covered by the TRB Notice of Toll Rates published on June 6, 2010 as a
petition for review filed under P.D. 1894, and hereby remands the same to the TRB for a review
of the questioned rates to determine the propriety thereof.
WHEREFORE, the petitions in G.R. Nos. 166910 and 173630 are hereby DENIED for lack of
merit. Accordingly, We declare as VALID AND CONSTITUTIONAL the following:
1. the Supplemental Toll Operation Agreement dated April 30, 1998 covering the North Luzon
Tollway Project and the TRB Board Resolution No. 2005-4 issued pursuant thereto;
2. the Supplemental Toll Operation Agreement dated November 27, 1995 covering the South
Metro Manila Skyway and the TRB Board Resolution No. 2004-53 and previous TRB resolutions
issued pursuant thereto;
3. the Supplemental Toll Operation Agreement covering the South Luzon Tollway Project or South
Luzon Expressway and the TRB Board resolutions issued pursuant to the said agreement,
particularly the TRB Board resolutions allowing the toll rate increases that are supposed to have
been implemented on June 30, 2010;
4. Section 3, paragraph (a) of Presidential Decree No. 1112, otherwise known as the "Toll
Operation Decree," in relation to Section 3, paragraph (d) thereof and Section 8, paragraph (b)
of Presidential Decree No. 1894; and
5. Section 3, paragraph (e) 3 of P.D. No. 1112 and Section 13 of P.D. No. 1894.
We however declare Clause 11.7 of the Supplemental Toll Operation Agreement between the
Republic of the Philippines, represented by respondent TRB, as grantor, the Philippine National
Construction Corporation, as franchisee, and the Manila North Tollways Corporation ("MNTC")
dated April 30, 1998; and the clause "including if necessary an extension of the CONCESSION
PERIOD which in no case shall exceed a maximum period of fifty (50) years" in Clause 17.5 of the
same STOA, as VOID and UNCONSTITUTIONAL for being contrary to Section 2, Article XII of the
1987 Constitution. We likewise declare Clauses 8.08 (2) & (3) of the Supplemental Toll Operation
Agreement between the Republic of the Philippines, represented by respondent TRB, as grantor,
the Philippine National Construction Corporation as franchisee, the South Luzon Tollway
Corporation as investor, and the Manila Toll Expressway Systems, Inc. as operator, dated February
1, 2006, as VOID and UNCONSTITUTIONAL.
The petition in G.R. No. 169917 is likewise hereby DENIED for lack of merit. We declare as VALID
and CONSTITUTIONAL the following:
1. Notice of Approval dated May 16, 1995 by former President Fidel V. Ramos on the assignment
of PNCCs usufructuary rights;
2. the Joint Venture Agreement dated August 29, 1995;
3. the Joint Investment Proposal, etc. dated June 16, 1996;
4. the Supplemental Toll Operation Agreement ("STOA") dated April 30, 1998 and the Notice of
Approval of said STOA dated June 15, 1998 by former President Fidel V. Ramos; and
5. the provisional toll rate increases published February 9, 2005, granted by the TRB.
The petition in G.R. No. 183599 is GRANTED. Accordingly, the Decision dated June 23, 2008
of the Regional Trial Court, Branch 155 in Pasig City, docketed as SCA No. 3138-PSG, annulling
the TOC covering the SLEX, enjoining the original toll operating franchisee from collecting toll fees
in the SLEX, and ordering the turnover of related assets to the Government, is
hereby REVERSED and SET ASIDE, and the petition filed therein by the Young Professionals
and Entrepreneurs of San Pedro, Laguna with the RTC of Pasig is DISMISSED for lack of merit.
In view of the foregoing dispositions in the petitions at bar, the TRO issued by the Court on August
13, 2010 is hereby ordered lifted, with respect to the petitions in G.R. Nos. 166910, 169917,
173630 and 183599.
The challenge contained in the Supplemental Petition in G.R. No. 166910 against the toll rates
subject of the TRB Notice of Toll Rates published on June 6, 2010, for the SLEX projects, Toll
Road Projects 1 and 2 of the new SLTC STOA, and the expanded and rehabilitated SLEX, is
remanded to the TRB for a review of the assailed toll rates to determine whether SLTC and MATES
are entitled to the toll fees.
No Cost.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
 (On leave)
ANTONIO T. CARPIO
CONCHITA CARPIO MORALES*
Associate Justice
Associate Justice

TERESITA J. LEONARDO-DE
ANTONIO EDUARDO B. NACHURA
CASTRO
Associate Justice
Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA

Associate Justice Associate Justice

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

(On leave)
MARTIN S. VILLARAMA, JR.
ROBERTO A. ABAD*
Associate Justice
Associate Justice

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA

Associate Justice Associate Justice

MARIA LOURDES P.A. SERENO

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court En Banc.

RENATO C. CORONA
Chief Justice
 G.R. No. 171396 May 3, 2006
PROF. RANDOLF S. DAVID, LORENZO TAADA III, RONALD LLAMAS, H. HARRY L.
ROQUE, JR., JOEL RUIZ BUTUYAN, ROGER R. RAYEL, GARY S. MALLARI, ROMEL
REGALADO BAGARES, CHRISTOPHER F.C. BOLASTIG, Petitioners,
vs.
GLORIA MACAPAGAL-ARROYO, AS PRESIDENT AND COMMANDER-IN-CHIEF,
EXECUTIVE SECRETARY EDUARDO ERMITA, HON. AVELINO CRUZ II, SECRETARY OF
NATIONAL DEFENSE, GENERAL GENEROSO SENGA, CHIEF OF STAFF, ARMED FORCES
OF THE PHILIPPINES, DIRECTOR GENERAL ARTURO LOMIBAO, CHIEF, PHILIPPINE
NATIONAL POLICE, Respondents.
x-------------------------------------x
G.R. No. 171409 May 3, 2006
NIEZ CACHO-OLIVARES AND TRIBUNE PUBLISHING CO., INC., Petitioners,
vs.
HONORABLE SECRETARY EDUARDO ERMITA AND HONORABLE DIRECTOR GENERAL
ARTURO C. LOMIBAO, Respondents.
x-------------------------------------x
G.R. No. 171485 May 3, 2006
FRANCIS JOSEPH G. ESCUDERO, JOSEPH A. SANTIAGO, TEODORO A. CASINO,
AGAPITO A. AQUINO, MARIO J. AGUJA, SATUR C. OCAMPO, MUJIV S. HATAMAN,
JUAN EDGARDO ANGARA, TEOFISTO DL. GUINGONA III, EMMANUEL JOSEL J.
VILLANUEVA, LIZA L. MAZA, IMEE R. MARCOS, RENATO B. MAGTUBO, JUSTIN MARC
SB. CHIPECO, ROILO GOLEZ, DARLENE ANTONINO-CUSTODIO, LORETTA ANN P.
ROSALES, JOSEL G. VIRADOR, RAFAEL V. MARIANO, GILBERT C. REMULLA,
FLORENCIO G. NOEL, ANA THERESIA HONTIVEROS-BARAQUEL, IMELDA C. NICOLAS,
MARVIC M.V.F. LEONEN, NERI JAVIER COLMENARES, MOVEMENT OF CONCERNED
CITIZENS FOR CIVIL LIBERTIES REPRESENTED BY AMADO GAT INCIONG, Petitioners,
vs.
EDUARDO R. ERMITA, EXECUTIVE SECRETARY, AVELINO J. CRUZ, JR., SECRETARY,
DND RONALDO V. PUNO, SECRETARY, DILG, GENEROSO SENGA, AFP CHIEF OF
STAFF, ARTURO LOMIBAO, CHIEF PNP, Respondents.
x-------------------------------------x
G.R. No. 171483 May 3, 2006
KILUSANG MAYO UNO, REPRESENTED BY ITS CHAIRPERSON ELMER C. LABOG AND
SECRETARY GENERAL JOEL MAGLUNSOD, NATIONAL FEDERATION OF LABOR
UNIONS KILUSANG MAYO UNO (NAFLU-KMU), REPRESENTED BY ITS NATIONAL
PRESIDENT, JOSELITO V. USTAREZ, ANTONIO C. PASCUAL, SALVADOR T.
CARRANZA, EMILIA P. DAPULANG, MARTIN CUSTODIO, JR., AND ROQUE M.
TAN, Petitioners,
vs.
HER EXCELLENCY, PRESIDENT GLORIA MACAPAGAL-ARROYO, THE HONORABLE
EXECUTIVE SECRETARY, EDUARDO ERMITA, THE CHIEF OF STAFF, ARMED FORCES
OF THE PHILIPPINES, GENEROSO SENGA, AND THE PNP DIRECTOR GENERAL,
ARTURO LOMIBAO, Respondents.
x-------------------------------------x
G.R. No. 171400 May 3, 2006
ALTERNATIVE LAW GROUPS, INC. (ALG), Petitioner,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, LT. GEN. GENEROSO SENGA, AND
DIRECTOR GENERAL ARTURO LOMIBAO, Respondents.
G.R. No. 171489 May 3, 2006
JOSE ANSELMO I. CADIZ, FELICIANO M. BAUTISTA, ROMULO R. RIVERA, JOSE AMOR
M. AMORADO, ALICIA A. RISOS-VIDAL, FELIMON C. ABELITA III, MANUEL P.
LEGASPI, J.B. JOVY C. BERNABE, BERNARD L. DAGCUTA, ROGELIO V. GARCIA AND
INTEGRATED BAR OF THE PHILIPPINES (IBP), Petitioners,
vs.
HON. EXECUTIVE SECRETARY EDUARDO ERMITA, GENERAL GENEROSO SENGA, IN
HIS CAPACITY AS AFP CHIEF OF STAFF, AND DIRECTOR GENERAL ARTURO
LOMIBAO, IN HIS CAPACITY AS PNP CHIEF, Respondents.
x-------------------------------------x
G.R. No. 171424 May 3, 2006
LOREN B. LEGARDA, Petitioner,
vs.
GLORIA MACAPAGAL-ARROYO, IN HER CAPACITY AS PRESIDENT AND
COMMANDER-IN-CHIEF; ARTURO LOMIBAO, IN HIS CAPACITY AS DIRECTOR-
GENERAL OF THE PHILIPPINE NATIONAL POLICE (PNP); GENEROSO SENGA, IN HIS
CAPACITY AS CHIEF OF STAFF OF THE ARMED FORCES OF THE PHILIPPINES (AFP);
AND EDUARDO ERMITA, IN HIS CAPACITY AS EXECUTIVE SECRETARY, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
All powers need some restraint; practical adjustments rather than rigid formula are
necessary.1 Superior strength the use of force cannot make wrongs into rights. In this regard,
the courts should be vigilant in safeguarding the constitutional rights of the citizens, specifically
their liberty.
Chief Justice Artemio V. Panganibans philosophy of liberty is thus most relevant. He said: "In
cases involving liberty, the scales of justice should weigh heavily against government
and in favor of the poor, the oppressed, the marginalized, the dispossessed and the
weak." Laws and actions that restrict fundamental rights come to the courts "with a heavy
presumption against their constitutional validity."2
These seven (7) consolidated petitions for certiorari and prohibition allege that in issuing
Presidential Proclamation No. 1017 (PP 1017) and General Order No. 5 (G.O. No. 5), President
Gloria Macapagal-Arroyo committed grave abuse of discretion. Petitioners contend that
respondent officials of the Government, in their professed efforts to defend and preserve
democratic institutions, are actually trampling upon the very freedom guaranteed and protected
by the Constitution. Hence, such issuances are void for being unconstitutional.
Once again, the Court is faced with an age-old but persistently modern problem. How does the
Constitution of a free people combine the degree of liberty, without which, law becomes tyranny,
with the degree of law, without which, liberty becomes license?3
On February 24, 2006, as the nation celebrated the 20th Anniversary of the Edsa People Power I,
President Arroyo issued PP 1017 declaring a state of national emergency, thus:
NOW, THEREFORE, I, Gloria Macapagal-Arroyo, President of the Republic of the Philippines and
Commander-in-Chief of the Armed Forces of the Philippines, by virtue of the powers vested upon
me by Section 18, Article 7 of the Philippine Constitution which states that: "The President. . .
whenever it becomes necessary, . . . may call out (the) armed forces to prevent or suppress. .
.rebellion. . .," and in my capacity as their Commander-in-Chief, do hereby command the
Armed Forces of the Philippines, to maintain law and order throughout the Philippines,
prevent or suppress all forms of lawless violence as well as any act of insurrection or
rebellion and to enforce obedience to all the laws and to all decrees, orders and
regulations promulgated by me personally or upon my direction; and as provided in
Section 17, Article 12 of the Constitution do hereby declare a State of National
Emergency.
She cited the following facts as bases:
WHEREAS, over these past months, elements in the political opposition have conspired
with authoritarians of the extreme Left represented by the NDF-CPP-NPA and the
extreme Right, represented by military adventurists the historical enemies of the
democratic Philippine State who are now in a tactical alliance and engaged in a concerted
and systematic conspiracy, over a broad front, to bring down the duly constituted Government
elected in May 2004;
WHEREAS, these conspirators have repeatedly tried to bring down the President;
WHEREAS, the claims of these elements have been recklessly magnified by certain
segments of the national media;
WHEREAS, this series of actions is hurting the Philippine State by obstructing governance
including hindering the growth of the economy and sabotaging the peoples confidence
in government and their faith in the future of this country;
WHEREAS, these actions are adversely affecting the economy;
WHEREAS, these activities give totalitarian forces of both the extreme Left and
extreme Right the opening to intensify their avowed aims to bring down the
democratic Philippine State;
WHEREAS, Article 2, Section 4 of the our Constitution makes the defense and preservation of
the democratic institutions and the State the primary duty of Government;
WHEREAS, the activities above-described, their consequences, ramifications and collateral
effects constitute a clear and present danger to the safety and the integrity of the Philippine
State and of the Filipino people;
On the same day, the President issued G. O. No. 5 implementing PP 1017, thus:
WHEREAS, over these past months, elements in the political opposition have conspired with
authoritarians of the extreme Left, represented by the NDF-CPP-NPA and the extreme Right,
represented by military adventurists - the historical enemies of the democratic Philippine State
and who are now in a tactical alliance and engaged in a concerted and systematic conspiracy,
over a broad front, to bring down the duly-constituted Government elected in May 2004;
WHEREAS, these conspirators have repeatedly tried to bring down our republican government;
WHEREAS, the claims of these elements have been recklessly magnified by certain segments of
the national media;
WHEREAS, these series of actions is hurting the Philippine State by obstructing governance,
including hindering the growth of the economy and sabotaging the peoples confidence in the
government and their faith in the future of this country;
WHEREAS, these actions are adversely affecting the economy;
WHEREAS, these activities give totalitarian forces; of both the extreme Left and extreme Right
the opening to intensify their avowed aims to bring down the democratic Philippine State;
WHEREAS, Article 2, Section 4 of our Constitution makes the defense and preservation of the
democratic institutions and the State the primary duty of Government;
WHEREAS, the activities above-described, their consequences, ramifications and collateral
effects constitute a clear and present danger to the safety and the integrity of the Philippine State
and of the Filipino people;
WHEREAS, Proclamation 1017 date February 24, 2006 has been issued declaring a State of
National Emergency;
NOW, THEREFORE, I GLORIA MACAPAGAL-ARROYO, by virtue of the powers vested in me
under the Constitution as President of the Republic of the Philippines, and Commander-in-Chief
of the Republic of the Philippines, and pursuant to Proclamation No. 1017 dated February 24,
2006, do hereby call upon the Armed Forces of the Philippines (AFP) and the Philippine National
Police (PNP), to prevent and suppress acts of terrorism and lawless violence in the country;
I hereby direct the Chief of Staff of the AFP and the Chief of the PNP, as well as the officers and
men of the AFP and PNP, to immediately carry out the necessary and appropriate actions
and measures to suppress and prevent acts of terrorism and lawless violence.
On March 3, 2006, exactly one week after the declaration of a state of national emergency and
after all these petitions had been filed, the President lifted PP 1017. She issued Proclamation No.
1021 which reads:
WHEREAS, pursuant to Section 18, Article VII and Section 17, Article XII of the Constitution,
Proclamation No. 1017 dated February 24, 2006, was issued declaring a state of national
emergency;
WHEREAS, by virtue of General Order No.5 and No.6 dated February 24, 2006, which were
issued on the basis of Proclamation No. 1017, the Armed Forces of the Philippines (AFP) and the
Philippine National Police (PNP), were directed to maintain law and order throughout the
Philippines, prevent and suppress all form of lawless violence as well as any act of rebellion and
to undertake such action as may be necessary;
WHEREAS, the AFP and PNP have effectively prevented, suppressed and quelled the acts lawless
violence and rebellion;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the
Philippines, by virtue of the powers vested in me by law, hereby declare that the state of
national emergency has ceased to exist.
In their presentation of the factual bases of PP 1017 and G.O. No. 5, respondents stated that the
proximate cause behind the executive issuances was the conspiracy among some military officers,
leftist insurgents of the New Peoples Army (NPA), and some members of the political opposition
in a plot to unseat or assassinate President Arroyo.4 They considered the aim to oust or
assassinate the President and take-over the reigns of government as a clear and present danger.
During the oral arguments held on March 7, 2006, the Solicitor General specified the facts leading
to the issuance of PP 1017 and G.O. No. 5. Significantly, there was no refutation from
petitioners counsels.
The Solicitor General argued that the intent of the Constitution is to give full discretionary
powers to the President in determining the necessity of calling out the armed forces. He
emphasized that none of the petitioners has shown that PP 1017 was without factual bases. While
he explained that it is not respondents task to state the facts behind the questioned Proclamation,
however, they are presenting the same, narrated hereunder, for the elucidation of the issues.
On January 17, 2006, Captain Nathaniel Rabonza and First Lieutenants Sonny Sarmiento,
Lawrence San Juan and Patricio Bumidang, members of the Magdalo Group indicted in the
Oakwood mutiny, escaped their detention cell in Fort Bonifacio, Taguig City. In a public statement,
they vowed to remain defiant and to elude arrest at all costs. They called upon the people to
"show and proclaim our displeasure at the sham regime. Let us demonstrate our disgust, not only
by going to the streets in protest, but also by wearing red bands on our left arms." 5
On February 17, 2006, the authorities got hold of a document entitled " Oplan Hackle I " which
detailed plans for bombings and attacks during the Philippine Military Academy Alumni
Homecoming in Baguio City. The plot was to assassinate selected targets including some cabinet
members and President Arroyo herself.6 Upon the advice of her security, President Arroyo decided
not to attend the Alumni Homecoming. The next day, at the height of the celebration, a bomb
was found and detonated at the PMA parade ground.
On February 21, 2006, Lt. San Juan was recaptured in a communist safehouse in Batangas
province. Found in his possession were two (2) flash disks containing minutes of the meetings
between members of the Magdalo Group and the National Peoples Army (NPA), a tape recorder,
audio cassette cartridges, diskettes, and copies of subversive documents.7 Prior to his arrest, Lt.
San Juan announced through DZRH that the "Magdalos D-Day would be on February 24, 2006,
the 20th Anniversary of Edsa I."
On February 23, 2006, PNP Chief Arturo Lomibao intercepted information that members of the
PNP- Special Action Force were planning to defect. Thus, he immediately ordered SAF
Commanding General Marcelino Franco, Jr. to "disavow" any defection. The latter promptly
obeyed and issued a public statement: "All SAF units are under the effective control of responsible
and trustworthy officers with proven integrity and unquestionable loyalty."
On the same day, at the house of former Congressman Peping Cojuangco, President Cory Aquinos
brother, businessmen and mid-level government officials plotted moves to bring down the Arroyo
administration. Nelly Sindayen of TIME Magazine reported that Pastor Saycon, longtime Arroyo
critic, called a U.S. government official about his groups plans if President Arroyo is ousted.
Saycon also phoned a man code-named Delta. Saycon identified him as B/Gen. Danilo Lim,
Commander of the Armys elite Scout Ranger. Lim said "it was all systems go for the planned
movement against Arroyo."8
B/Gen. Danilo Lim and Brigade Commander Col. Ariel Querubin confided to Gen. Generoso Senga,
Chief of Staff of the Armed Forces of the Philippines (AFP), that a huge number of soldiers would
join the rallies to provide a critical mass and armed component to the Anti-Arroyo protests to be
held on February 24, 2005. According to these two (2) officers, there was no way they could
possibly stop the soldiers because they too, were breaking the chain of command to join the
forces foist to unseat the President. However, Gen. Senga has remained faithful to his
Commander-in-Chief and to the chain of command. He immediately took custody of B/Gen. Lim
and directed Col. Querubin to return to the Philippine Marines Headquarters in Fort Bonifacio.
Earlier, the CPP-NPA called for intensification of political and revolutionary work within the military
and the police establishments in order to forge alliances with its members and key officials. NPA
spokesman Gregorio "Ka Roger" Rosal declared: "The Communist Party and revolutionary
movement and the entire people look forward to the possibility in the coming year of
accomplishing its immediate task of bringing down the Arroyo regime; of rendering it to weaken
and unable to rule that it will not take much longer to end it."9
On the other hand, Cesar Renerio, spokesman for the National Democratic Front (NDF) at North
Central Mindanao, publicly announced: "Anti-Arroyo groups within the military and police are
growing rapidly, hastened by the economic difficulties suffered by the families of AFP officers and
enlisted personnel who undertake counter-insurgency operations in the field." He claimed that
with the forces of the national democratic movement, the anti-Arroyo conservative political
parties, coalitions, plus the groups that have been reinforcing since June 2005, it is probable that
the Presidents ouster is nearing its concluding stage in the first half of 2006.
Respondents further claimed that the bombing of telecommunication towers and cell sites in
Bulacan and Bataan was also considered as additional factual basis for the issuance of PP 1017
and G.O. No. 5. So is the raid of an army outpost in Benguet resulting in the death of three (3)
soldiers. And also the directive of the Communist Party of the Philippines ordering its front
organizations to join 5,000 Metro Manila radicals and 25,000 more from the provinces in mass
protests.10
By midnight of February 23, 2006, the President convened her security advisers and several
cabinet members to assess the gravity of the fermenting peace and order situation. She directed
both the AFP and the PNP to account for all their men and ensure that the chain of command
remains solid and undivided. To protect the young students from any possible trouble that might
break loose on the streets, the President suspended classes in all levels in the entire National
Capital Region.
For their part, petitioners cited the events that followed after the issuance of PP 1017
and G.O. No. 5.
Immediately, the Office of the President announced the cancellation of all programs and activities
related to the 20th anniversary celebration of Edsa People Power I; and revoked the permits to
hold rallies issued earlier by the local governments. Justice Secretary Raul Gonzales stated that
political rallies, which to the Presidents mind were organized for purposes of destabilization, are
cancelled.Presidential Chief of Staff Michael Defensor announced that "warrantless arrests and
take-over of facilities, including media, can already be implemented."11
Undeterred by the announcements that rallies and public assemblies would not be allowed, groups
of protesters (members of Kilusang Mayo Uno [KMU] and National Federation of Labor Unions-
Kilusang Mayo Uno [NAFLU-KMU]), marched from various parts of Metro Manila with the intention
of converging at the EDSA shrine. Those who were already near the EDSA site were violently
dispersed by huge clusters of anti-riot police. The well-trained policemen used truncheons, big
fiber glass shields, water cannons, and tear gas to stop and break up the marching groups, and
scatter the massed participants. The same police action was used against the protesters marching
forward to Cubao, Quezon City and to the corner of Santolan Street and EDSA. That same evening,
hundreds of riot policemen broke up an EDSA celebration rally held along Ayala Avenue and Paseo
de Roxas Street in Makati City.12
According to petitioner Kilusang Mayo Uno, the police cited PP 1017 as the ground for the dispersal
of their assemblies.
During the dispersal of the rallyists along EDSA, police arrested (without warrant) petitioner
Randolf S. David, a professor at the University of the Philippines and newspaper columnist. Also
arrested was his companion, Ronald Llamas, president of party-list Akbayan.
At around 12:20 in the early morning of February 25, 2006, operatives of the Criminal
Investigation and Detection Group (CIDG) of the PNP, on the basis of PP 1017 and G.O. No. 5,
raided the Daily Tribune offices in Manila. The raiding team confiscated news stories by reporters,
documents, pictures, and mock-ups of the Saturday issue. Policemen from Camp Crame in Quezon
City were stationed inside the editorial and business offices of the newspaper; while policemen
from the Manila Police District were stationed outside the building.13
A few minutes after the search and seizure at the Daily Tribune offices, the police surrounded the
premises of another pro-opposition paper, Malaya, and its sister publication, the tabloid Abante.
The raid, according to Presidential Chief of Staff Michael Defensor, is "meant to show a strong
presence, to tell media outlets not to connive or do anything that would help the rebels in bringing
down this government." The PNP warned that it would take over any media organization that
would not follow "standards set by the government during the state of national
emergency." Director General Lomibao stated that "if they do not follow the standards and the
standards are - if they would contribute to instability in the government, or if they do not subscribe
to what is in General Order No. 5 and Proc. No. 1017 we will recommend a takeover." National
Telecommunications Commissioner Ronald Solis urged television and radio networks
to "cooperate" with the government for the duration of the state of national emergency. He asked
for "balanced reporting" from broadcasters when covering the events surrounding the coup
attempt foiled by the government. He warned that his agency will not hesitate to recommend the
closure of any broadcast outfit that violates rules set out for media coverage when the national
security is threatened.14
Also, on February 25, 2006, the police arrested Congressman Crispin Beltran, representing
the Anakpawis Party and Chairman of Kilusang Mayo Uno (KMU), while leaving his farmhouse in
Bulacan. The police showed a warrant for his arrest dated 1985. Beltrans lawyer explained that
the warrant, which stemmed from a case of inciting to rebellion filed during the Marcos regime,
had long been quashed. Beltran, however, is not a party in any of these petitions.
When members of petitioner KMU went to Camp Crame to visit Beltran, they were told they could
not be admitted because of PP 1017 and G.O. No. 5. Two members were arrested and detained,
while the rest were dispersed by the police.
Bayan Muna Representative Satur Ocampo eluded arrest when the police went after him during a
public forum at the Sulo Hotel in Quezon City. But his two drivers, identified as Roel and Art, were
taken into custody.
Retired Major General Ramon Montao, former head of the Philippine Constabulary, was arrested
while with his wife and golfmates at the Orchard Golf and Country Club in Dasmarias, Cavite.
Attempts were made to arrest Anakpawis Representative Satur Ocampo, Representative Rafael
Mariano, Bayan Muna Representative Teodoro Casio and Gabriela Representative Liza
Maza. Bayan Muna Representative Josel Virador was arrested at the PAL Ticket Office in Davao
City. Later, he was turned over to the custody of the House of Representatives where the "Batasan
5" decided to stay indefinitely.
Let it be stressed at this point that the alleged violations of the rights of Representatives Beltran,
Satur Ocampo, et al., are not being raised in these petitions.
On March 3, 2006, President Arroyo issued PP 1021 declaring that the state of national emergency
has ceased to exist.
In the interim, these seven (7) petitions challenging the constitutionality of PP 1017 and G.O. No.
5 were filed with this Court against the above-named respondents. Three (3) of these petitions
impleaded President Arroyo as respondent.
In G.R. No. 171396, petitioners Randolf S. David, et al. assailed PP 1017 on the grounds
that (1) it encroaches on the emergency powers of Congress; (2) itis a subterfuge to avoid the
constitutional requirements for the imposition of martial law; and (3) it violates the constitutional
guarantees of freedom of the press, of speech and of assembly.
In G.R. No. 171409, petitioners Ninez Cacho-Olivares and Tribune Publishing Co.,
Inc. challenged the CIDGs act of raiding the Daily Tribune offices as a clear case of "censorship"
or "prior restraint." They also claimed that the term "emergency" refers only to tsunami, typhoon,
hurricane and similar occurrences, hence, there is "absolutely no emergency" that warrants the
issuance of PP 1017.
In G.R. No. 171485, petitioners herein are Representative Francis Joseph G. Escudero, and
twenty one (21) other members of the House of Representatives, including Representatives Satur
Ocampo, Rafael Mariano, Teodoro Casio, Liza Maza, and Josel Virador. They asserted that PP
1017 and G.O. No. 5 constitute "usurpation of legislative powers"; "violation of freedom of
expression" and "a declaration of martial law." They alleged that President Arroyo "gravely abused
her discretion in calling out the armed forces without clear and verifiable factual basis of the
possibility of lawless violence and a showing that there is necessity to do so."
In G.R. No. 171483,petitioners KMU, NAFLU-KMU, and their members averred that PP 1017 and
G.O. No. 5 are unconstitutional because (1) they arrogate unto President Arroyo the power to
enact laws and decrees; (2) their issuance was without factual basis; and (3) they violate
freedom of expression and the right of the people to peaceably assemble to redress their
grievances.
In G.R. No. 171400, petitioner Alternative Law Groups, Inc. (ALGI) alleged that PP 1017 and
G.O. No. 5 are unconstitutional because they violate (a) Section 415 of Article II, (b) Sections
1,16 2,17 and 418 of Article III, (c)Section 2319 of Article VI, and (d) Section 1720 of Article XII of
the Constitution.
In G.R. No. 171489, petitioners Jose Anselmo I. Cadiz et al., alleged that PP 1017 is an "arbitrary
and unlawful exercise by the President of her Martial Law powers." And assuming that PP 1017 is
not really a declaration of Martial Law, petitioners argued that "it amounts to an exercise by the
President of emergency powers without congressional approval." In addition, petitioners asserted
that PP 1017 "goes beyond the nature and function of a proclamation as defined under the Revised
Administrative Code."
And lastly, in G.R. No. 171424,petitionerLoren B. Legarda maintained that PP 1017 and G.O.
No. 5 are "unconstitutional for being violative of the freedom of expression, including its cognate
rights such as freedom of the press and the right to access to information on matters of public
concern, all guaranteed under Article III, Section 4 of the 1987 Constitution." In this regard, she
stated that these issuances prevented her from fully prosecuting her election protest pending
before the Presidential Electoral Tribunal.
In respondents Consolidated Comment, the Solicitor General countered that: first, the petitions
should be dismissed for being moot; second,petitioners in G.R. Nos. 171400 (ALGI), 171424
(Legarda), 171483 (KMU et al.), 171485 (Escudero et al.) and 171489 (Cadiz et al.) have no legal
standing; third, it is not necessary for petitioners to implead President Arroyo as
respondent; fourth, PP 1017 has constitutional and legal basis; and fifth, PP 1017 does not violate
the peoples right to free expression and redress of grievances.
On March 7, 2006, the Court conducted oral arguments and heard the parties on the above
interlocking issues which may be summarized as follows:
A. PROCEDURAL:
1) Whether the issuance of PP 1021 renders the petitions moot and academic.
2) Whether petitioners in 171485 (Escudero et al.), G.R. Nos.
171400 (ALGI), 171483 (KMU et al.), 171489(Cadiz et al.), and 171424 (Legarda) have legal
standing.
B. SUBSTANTIVE:
1) Whetherthe Supreme Court can review the factual bases of PP 1017.
2) Whether PP 1017 and G.O. No. 5 are unconstitutional.
a. Facial Challenge
b. Constitutional Basis
c. As Applied Challenge
A. PROCEDURAL
First, we must resolve the procedural roadblocks.
I- Moot and Academic Principle
One of the greatest contributions of the American system to this country is the concept of judicial
review enunciated in Marbury v. Madison.21 This concept rests on the extraordinary simple
foundation --
The Constitution is the supreme law. It was ordained by the people, the ultimate source of all
political authority. It confers limited powers on the national government. x x x If the
government consciously or unconsciously oversteps these limitations there must be
some authority competent to hold it in control, to thwart its unconstitutional attempt,
and thus to vindicate and preserve inviolate the will of the people as expressed in the
Constitution. This power the courts exercise. This is the beginning and the end of the
theory of judicial review.22
But the power of judicial review does not repose upon the courts a "self-starting
capacity."23 Courts may exercise such power only when the following requisites are
present: first, there must be an actual case or controversy; second, petitioners have to raise a
question of constitutionality; third, the constitutional question must be raised at the earliest
opportunity; and fourth, the decision of the constitutional question must be necessary to the
determination of the case itself.24
Respondents maintain that the first and second requisites are absent, hence, we shall limit our
discussion thereon.
An actual case or controversy involves a conflict of legal right, an opposite legal claims susceptible
of judicial resolution. It is "definite and concrete, touching the legal relations of parties having
adverse legal interest;" a real and substantial controversy admitting of specific relief.25 The
Solicitor General refutes the existence of such actual case or controversy, contending that the
present petitions were rendered "moot and academic" by President Arroyos issuance of PP 1021.
Such contention lacks merit.
A moot and academic case is one that ceases to present a justiciable controversy by virtue of
supervening events,26so that a declaration thereon would be of no practical use or
value.27 Generally, courts decline jurisdiction over such case28 or dismiss it on ground of
mootness.29
The Court holds that President Arroyos issuance of PP 1021 did not render the present petitions
moot and academic. During the eight (8) days that PP 1017 was operative, the police officers,
according to petitioners, committed illegal acts in implementing it. Are PP 1017 and G.O. No.
5 constitutional or valid? Do they justify these alleged illegal acts? These are the vital
issues that must be resolved in the present petitions. It must be stressed that "an
unconstitutional act is not a law, it confers no rights, it imposes no duties, it affords
no protection; it is in legal contemplation, inoperative."30
The "moot and academic" principle is not a magical formula that can automatically dissuade the
courts in resolving a case. Courts will decide cases, otherwise moot and academic, if: first, there
is a grave violation of the Constitution;31second, the exceptional character of the situation and the
paramount public interest is involved;32 third, when constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar, and the public;33and fourth, the
case is capable of repetition yet evading review.34
All the foregoing exceptions are present here and justify this Courts assumption of jurisdiction
over the instant petitions. Petitioners alleged that the issuance of PP 1017 and G.O. No. 5 violates
the Constitution. There is no question that the issues being raised affect the publics interest,
involving as they do the peoples basic rights to freedom of expression, of assembly and of the
press. Moreover, the Court has the duty to formulate guiding and controlling constitutional
precepts, doctrines or rules. It has the symbolic function of educating the bench and the bar, and
in the present petitions, the military and the police, on the extent of the protection given by
constitutional guarantees.35 And lastly, respondents contested actions are capable of repetition.
Certainly, the petitions are subject to judicial review.
In their attempt to prove the alleged mootness of this case, respondents cited Chief Justice
Artemio V. Panganibans Separate Opinion in Sanlakas v. Executive Secretary.36 However, they
failed to take into account the Chief Justices very statement that an otherwise "moot" case may
still be decided "provided the party raising it in a proper case has been and/or continues to be
prejudiced or damaged as a direct result of its issuance." The present case falls right within this
exception to the mootness rule pointed out by the Chief Justice.
II- Legal Standing
In view of the number of petitioners suing in various personalities, the Court deems it imperative
to have a more than passing discussion on legal standing or locus standi.
Locus standi is defined as "a right of appearance in a court of justice on a given question." 37 In
private suits, standing is governed by the "real-parties-in interest" rule as contained in Section 2,
Rule 3 of the 1997 Rules of Civil Procedure, as amended. It provides that "every action must
be prosecuted or defended in the name of the real party in interest." Accordingly, the
"real-party-in interest" is "the party who stands to be benefited or injured by the
judgment in the suit or the party entitled to the avails of the suit."38 Succinctly put, the
plaintiffs standing is based on his own right to the relief sought.
The difficulty of determining locus standi arises in public suits. Here, the plaintiff who asserts a
"public right" in assailing an allegedly illegal official action, does so as a representative of the
general public. He may be a person who is affected no differently from any other person. He could
be suing as a "stranger," or in the category of a "citizen," or taxpayer." In either case, he has to
adequately show that he is entitled to seek judicial protection. In other words, he has to make
out a sufficient interest in the vindication of the public order and the securing of relief as a "citizen"
or "taxpayer.
Case law in most jurisdictions now allows both "citizen" and "taxpayer" standing in public actions.
The distinction was first laid down in Beauchamp v. Silk,39 where it was held that the plaintiff in a
taxpayers suit is in a different category from the plaintiff in a citizens suit. In the former, the
plaintiff is affected by the expenditure of public funds, while in the latter, he is but
the mere instrument of the public concern. As held by the New York Supreme Court
in People ex rel Case v. Collins:40 "In matter of mere public right, howeverthe people are
the real partiesIt is at least the right, if not the duty, of every citizen to interfere
and see that a public offence be properly pursued and punished, and that a public
grievance be remedied." With respect to taxpayers suits, Terr v. Jordan41 held that "the right
of a citizen and a taxpayer to maintain an action in courts to restrain the unlawful use
of public funds to his injury cannot be denied."
However, to prevent just about any person from seeking judicial interference in any official policy
or act with which he disagreed with, and thus hinders the activities of governmental agencies
engaged in public service, the United State Supreme Court laid down the more stringent "direct
injury" test in Ex Parte Levitt,42 later reaffirmed in Tileston v. Ullman.43 The same Court ruled
that for a private individual to invoke the judicial power to determine the validity of an executive
or legislative action, he must show that he has sustained a direct injury as a result of
that action, and it is not sufficient that he has a general interest common to all
members of the public.
This Court adopted the "direct injury" test in our jurisdiction. In People v. Vera,44 it held that
the person who impugns the validity of a statute must have "a personal and substantial
interest in the case such that he has sustained, or will sustain direct injury as a result."
The Vera doctrine was upheld in a litany of cases, such as, Custodio v. President of the
Senate,45 Manila Race Horse Trainers Association v. De la Fuente,46 Pascual v. Secretary of Public
Works47 and Anti-Chinese League of the Philippines v. Felix.48
However, being a mere procedural technicality, the requirement of locus standi may be waived
by the Court in the exercise of its discretion. This was done in the 1949 Emergency Powers
Cases, Araneta v. Dinglasan,49 where the "transcendental importance" of the cases prompted
the Court to act liberally. Such liberality was neither a rarity nor accidental. In Aquino v.
Comelec,50 this Court resolved to pass upon the issues raised due to the "far-reaching
implications" of the petition notwithstanding its categorical statement that petitioner therein had
no personality to file the suit. Indeed, there is a chain of cases where this liberal policy has been
observed, allowing ordinary citizens, members of Congress, and civic organizations to prosecute
actions involving the constitutionality or validity of laws, regulations and rulings.51
Thus, the Court has adopted a rule that even where the petitioners have failed to show direct
injury, they have been allowed to sue under the principle of "transcendental importance."
Pertinent are the following cases:
(1) Chavez v. Public Estates Authority,52 where the Court ruled that the enforcement of the
constitutional right to information and the equitable diffusion of natural resources are
matters of transcendental importance which clothe the petitioner with locus standi;
(2) Bagong Alyansang Makabayan v. Zamora,53 wherein the Court held that "given the
transcendental importance of the issues involved, the Court may relax the standing
requirements and allow the suit to prosper despite the lack of direct injury to the
parties seeking judicial review" of the Visiting Forces Agreement;
(3) Lim v. Executive Secretary,54 while the Court noted that the petitioners may not file suit in
their capacity as taxpayers absent a showing that "Balikatan 02-01" involves the exercise of
Congress taxing or spending powers, it reiterated its ruling in Bagong Alyansang Makabayan v.
Zamora,55that in cases of transcendental importance, the cases must be settled
promptly and definitely and standing requirements may be relaxed.
By way of summary, the following rules may be culled from the cases decided by this Court.
Taxpayers, voters, concerned citizens, and legislators may be accorded standing to sue, provided
that the following requirements are met:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax
measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the election law in
question;
(4) for concerned citizens, there must be a showing that the issues raised are of transcendental
importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of infringes upon
their prerogatives as legislators.
Significantly, recent decisions show a certain toughening in the Courts attitude toward legal
standing.
In Kilosbayan, Inc. v. Morato,56 the Court ruled that the status of Kilosbayan as a peoples
organization does not give it the requisite personality to question the validity of the on-line lottery
contract, more so where it does not raise any issue of constitutionality. Moreover, it cannot sue
as a taxpayer absent any allegation that public funds are being misused. Nor can it sue as a
concerned citizen as it does not allege any specific injury it has suffered.
In Telecommunications and Broadcast Attorneys of the Philippines, Inc. v. Comelec,57 the Court
reiterated the "direct injury" test with respect to concerned citizens cases involving constitutional
issues. It held that "there must be a showing that the citizen personally suffered some actual or
threatened injury arising from the alleged illegal official act."
In Lacson v. Perez,58 the Court ruled that one of the petitioners, Laban ng Demokratikong
Pilipino (LDP), is not a real party-in-interest as it had not demonstrated any injury to itself or to
its leaders, members or supporters.
In Sanlakas v. Executive Secretary,59 the Court ruled that only the petitioners who are members
of Congress have standing to sue, as they claim that the Presidents declaration of a state of
rebellion is a usurpation of the emergency powers of Congress, thus impairing their
legislative powers. As to petitioners Sanlakas, Partido Manggagawa, and Social Justice Society,
the Court declared them to be devoid of standing, equating them with the LDP in Lacson.
Now, the application of the above principles to the present petitions.
The locus standi of petitioners in G.R. No. 171396, particularly David and Llamas, is beyond
doubt. The same holds true with petitioners in G.R. No. 171409, Cacho-Olivares
and Tribune Publishing Co. Inc. They alleged "direct injury" resulting from "illegal arrest" and
"unlawful search" committed by police operatives pursuant to PP 1017. Rightly so, the Solicitor
General does not question their legal standing.
In G.R. No. 171485, the opposition Congressmen alleged there was usurpation of legislative
powers. They also raised the issue of whether or not the concurrence of Congress is necessary
whenever the alarming powers incident to Martial Law are used. Moreover, it is in the interest of
justice that those affected by PP 1017 can be represented by their Congressmen in bringing to
the attention of the Court the alleged violations of their basic rights.
In G.R. No. 171400, (ALGI), this Court applied the liberality rule in Philconsa v.
Enriquez,60 Kapatiran Ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan,61 Association
of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform,62 Basco v. Philippine
Amusement and Gaming Corporation,63 and Taada v. Tuvera,64 that when the issue concerns a
public right, it is sufficient that the petitioner is a citizen and has an interest in the execution of
the laws.
In G.R. No. 171483, KMUs assertion that PP 1017 and G.O. No. 5 violated its right to peaceful
assembly may be deemed sufficient to give it legal standing. Organizations may be granted
standing to assert the rights of their members.65 We take judicial notice of the
announcement by the Office of the President banning all rallies and canceling all permits for public
assemblies following the issuance of PP 1017 and G.O. No. 5.
In G.R. No. 171489, petitioners, Cadiz et al., who are national officers of the Integrated Bar of
the Philippines (IBP) have no legal standing, having failed to allege any direct or potential injury
which the IBP as an institution or its members may suffer as a consequence of the issuance of PP
No. 1017 and G.O. No. 5. In Integrated Bar of the Philippines v. Zamora,66 the Court held that the
mere invocation by the IBP of its duty to preserve the rule of law and nothing more, while
undoubtedly true, is not sufficient to clothe it with standing in this case. This is too general an
interest which is shared by other groups and the whole citizenry. However, in view of the
transcendental importance of the issue, this Court declares that petitioner have locus standi.
In G.R. No. 171424, Loren Legarda has no personality as a taxpayer to file the instant petition
as there are no allegations of illegal disbursement of public funds. The fact that she is a former
Senator is of no consequence. She can no longer sue as a legislator on the allegation that her
prerogatives as a lawmaker have been impaired by PP 1017 and G.O. No. 5. Her claim that she is
a media personality will not likewise aid her because there was no showing that the enforcement
of these issuances prevented her from pursuing her occupation. Her submission that she has
pending electoral protest before the Presidential Electoral Tribunal is likewise of no relevance. She
has not sufficiently shown that PP 1017 will affect the proceedings or result of her case. But
considering once more the transcendental importance of the issue involved, this Court may relax
the standing rules.
It must always be borne in mind that the question of locus standi is but corollary to the bigger
question of proper exercise of judicial power. This is the underlying legal tenet of the "liberality
doctrine" on legal standing. It cannot be doubted that the validity of PP No. 1017 and G.O. No. 5
is a judicial question which is of paramount importance to the Filipino people. To paraphrase
Justice Laurel, the whole of Philippine society now waits with bated breath the ruling of this Court
on this very critical matter. The petitions thus call for the application of the "transcendental
importance" doctrine, a relaxation of the standing requirements for the petitioners in the "PP
1017 cases."1avvphil.net
This Court holds that all the petitioners herein have locus standi.
Incidentally, it is not proper to implead President Arroyo as respondent. Settled is the doctrine
that the President, during his tenure of office or actual incumbency,67 may not be sued in any civil
or criminal case, and there is no need to provide for it in the Constitution or law. It will degrade
the dignity of the high office of the President, the Head of State, if he can be dragged into court
litigations while serving as such. Furthermore, it is important that he be freed from any form of
harassment, hindrance or distraction to enable him to fully attend to the performance of his official
duties and functions. Unlike the legislative and judicial branch, only one constitutes the executive
branch and anything which impairs his usefulness in the discharge of the many great and
important duties imposed upon him by the Constitution necessarily impairs the operation of the
Government. However, this does not mean that the President is not accountable to anyone. Like
any other official, he remains accountable to the people68 but he may be removed from office only
in the mode provided by law and that is by impeachment.69
B. SUBSTANTIVE
I. Review of Factual Bases
Petitioners maintain that PP 1017 has no factual basis. Hence, it was not "necessary" for President
Arroyo to issue such Proclamation.
The issue of whether the Court may review the factual bases of the Presidents exercise of his
Commander-in-Chief power has reached its distilled point - from the indulgent days of Barcelon
v. Baker70 and Montenegro v. Castaneda71 to the volatile era of Lansang v. Garcia,72 Aquino, Jr. v.
Enrile,73 and Garcia-Padilla v. Enrile.74 The tug-of-war always cuts across the line defining "political
questions," particularly those questions "in regard to which full discretionary authority has been
delegated to the legislative or executive branch of the government."75 Barcelon and
Montenegro were in unison in declaring that the authority to decide whether an exigency
has arisen belongs to the President and his decision is final and conclusive on the
courts. Lansang took the opposite view. There, the members of the Court were unanimous in
the conviction that the Court has the authority to inquire into the existence of factual bases in
order to determine their constitutional sufficiency. From the principle of separation of
powers, it shifted the focus to the system of checks and balances, "under which the
President is supreme, x x x only if and when he acts within the sphere allotted to him
by the Basic Law, and the authority to determine whether or not he has so acted is
vested in the Judicial Department, which in this respect, is, in turn,
constitutionally supreme."76 In 1973, the unanimous Court of Lansang was divided in Aquino
v. Enrile.77 There, the Court was almost evenly divided on the issue of whether the validity of the
imposition of Martial Law is a political or justiciable question.78 Then came Garcia-Padilla v.
Enrile which greatly diluted Lansang. It declared that there is a need to re-examine the latter
case, ratiocinating that "in times of war or national emergency, the President must be
given absolute control for the very life of the nation and the government is in great
peril. The President, it intoned, is answerable only to his conscience, the People, and
God."79
The Integrated Bar of the Philippines v. Zamora80 -- a recent case most pertinent to these cases
at bar -- echoed a principle similar to Lansang. While the Court considered the Presidents
"calling-out" power as a discretionary power solely vested in his wisdom, it stressed that "this
does not prevent an examination of whether such power was exercised within
permissible constitutional limits or whether it was exercised in a manner constituting
grave abuse of discretion."This ruling is mainly a result of the Courts reliance on Section 1,
Article VIII of 1987 Constitution which fortifies the authority of the courts to determine in an
appropriate action the validity of the acts of the political departments. Under the new definition
of judicial power, the courts are authorized not only "to settle actual controversies involving rights
which are legally demandable and enforceable," but also "to determine whether or not there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the government." The latter part of the
authority represents a broadening of judicial power to enable the courts of justice to review what
was before a forbidden territory, to wit, the discretion of the political departments of the
government.81 It speaks of judicial prerogative not only in terms of power but also of duty.82
As to how the Court may inquire into the Presidents exercise of power, Lansang adopted the test
that "judicial inquiry can go no further than to satisfy the Court not that the Presidents decision
is correct," but that "the President did not act arbitrarily." Thus, the standard laid down is not
correctness, but arbitrariness.83 In Integrated Bar of the Philippines, this Court further ruled that
"it is incumbent upon the petitioner to show that the Presidents decision is totally
bereft of factual basis" and that if he fails, by way of proof, to support his assertion, then "this
Court cannot undertake an independent investigation beyond the pleadings."
Petitioners failed to show that President Arroyos exercise of the calling-out power, by issuing PP
1017, is totally bereft of factual basis. A reading of the Solicitor Generals Consolidated Comment
and Memorandum shows a detailed narration of the events leading to the issuance of PP 1017,
with supporting reports forming part of the records. Mentioned are the escape of the Magdalo
Group, their audacious threat of the Magdalo D-Day, the defections in the military, particularly in
the Philippine Marines, and the reproving statements from the communist leaders. There was also
the Minutes of the Intelligence Report and Security Group of the Philippine Army showing the
growing alliance between the NPA and the military. Petitioners presented nothing to refute such
events. Thus, absent any contrary allegations, the Court is convinced that the President was
justified in issuing PP 1017 calling for military aid.
Indeed, judging the seriousness of the incidents, President Arroyo was not expected to simply
fold her arms and do nothing to prevent or suppress what she believed was lawless violence,
invasion or rebellion. However, the exercise of such power or duty must not stifle liberty.
II. Constitutionality of PP 1017 and G.O. No. 5
Doctrines of Several Political Theorists
on the Power of the President in Times of Emergency
This case brings to fore a contentious subject -- the power of the President in times of
emergency. A glimpse at the various political theories relating to this subject provides an adequate
backdrop for our ensuing discussion.
John Locke, describing the architecture of civil government, called upon the English doctrine of
prerogative to cope with the problem of emergency. In times of danger to the nation, positive law
enacted by the legislature might be inadequate or even a fatal obstacle to the promptness of
action necessary to avert catastrophe. In these situations, the Crown retained a prerogative
"power to act according to discretion for the public good, without the proscription of
the law and sometimes even against it."84 But Locke recognized that this moral restraint
might not suffice to avoid abuse of prerogative powers. Who shall judge the need for
resorting to the prerogative and how may its abuse be avoided? Here, Locke readily
admitted defeat, suggesting that "the people have no other remedy in this, as in all other
cases where they have no judge on earth, but to appeal to Heaven."85
Jean-Jacques Rousseau also assumed the need for temporary suspension of democratic processes
of government in time of emergency. According to him:
The inflexibility of the laws, which prevents them from adopting themselves to circumstances,
may, in certain cases, render them disastrous and make them bring about, at a time of crisis, the
ruin of the State
It is wrong therefore to wish to make political institutions as strong as to render it impossible to
suspend their operation. Even Sparta allowed its law to lapse...
If the peril is of such a kind that the paraphernalia of the laws are an obstacle to their preservation,
the method is to nominate a supreme lawyer, who shall silence all the laws and suspend for a
moment the sovereign authority. In such a case, there is no doubt about the general will, and it
clear that the peoples first intention is that the State shall not perish.86
Rosseau did not fear the abuse of the emergency dictatorship or "supreme magistracy" as he
termed it. For him, it would more likely be cheapened by "indiscreet use." He was unwilling to rely
upon an "appeal to heaven." Instead, he relied upon a tenure of office of prescribed duration
to avoid perpetuation of the dictatorship.87
John Stuart Mill concluded his ardent defense of representative government: "I am far from
condemning, in cases of extreme necessity, the assumption of absolute power in the
form of a temporary dictatorship."88
Nicollo Machiavellis view of emergency powers, as one element in the whole scheme of limited
government, furnished an ironic contrast to the Lockean theory of prerogative. He recognized and
attempted to bridge this chasm in democratic political theory, thus:
Now, in a well-ordered society, it should never be necessary to resort to extra constitutional
measures; for although they may for a time be beneficial, yet the precedent is pernicious, for if
the practice is once established for good objects, they will in a little while be disregarded under
that pretext but for evil purposes. Thus, no republic will ever be perfect if she has not by law
provided for everything, having a remedy for every emergency and fixed rules for applying it.89
Machiavelli in contrast to Locke, Rosseau and Mill sought to incorporate into the constitution
a regularized system of standby emergency powers to be invoked with suitable checks and
controls in time of national danger. He attempted forthrightly to meet the problem of combining
a capacious reserve of power and speed and vigor in its application in time of emergency, with
effective constitutional restraints.90
Contemporary political theorists, addressing themselves to the problem of response to emergency
by constitutional democracies, have employed the doctrine of constitutional
dictatorship.91 Frederick M. Watkins saw "no reason why absolutism should not be used as
a means for the defense of liberal institutions," provided it "serves to protect
established institutions from the danger of permanent injury in a period of temporary
emergency and is followed by a prompt return to the previous forms of political
life."92 He recognized the two (2) key elements of the problem of emergency governance, as well
as all constitutional governance: increasing administrative powers of the executive, while
at the same time "imposing limitation upon that power."93Watkins placed his real faith in
a scheme of constitutional dictatorship. These are the conditions of success of such a
dictatorship: "The period of dictatorship must be relatively shortDictatorship should
always be strictly legitimate in characterFinal authority to determine the need for
dictatorship in any given case must never rest with the dictator himself"94 and the
objective of such an emergency dictatorship should be "strict political conservatism."
Carl J. Friedrich cast his analysis in terms similar to those of Watkins.95 "It is a problem of
concentrating power in a government where power has consciously been divided to cope
with situations of unprecedented magnitude and gravity. There must be a broad grant of
powers, subject to equally strong limitations as to who shall exercise such powers, when, for how
long, and to what end."96 Friedrich, too, offered criteria for judging the adequacy of any of scheme
of emergency powers, to wit: "The emergency executive must be appointed by
constitutional means i.e., he must be legitimate; he should not enjoy power to
determine the existence of an emergency; emergency powers should be exercised
under a strict time limitation; and last, the objective of emergency action must be the
defense of the constitutional order."97
Clinton L. Rossiter, after surveying the history of the employment of emergency powers in Great
Britain, France, Weimar, Germany and the United States, reverted to a description of a scheme of
"constitutional dictatorship" as solution to the vexing problems presented by emergency.98 Like
Watkins and Friedrich, he stated a priori the conditions of success of the "constitutional
dictatorship," thus:
1) No general regime or particular institution of constitutional dictatorship should be initiated
unless it is necessary or even indispensable to the preservation of the State and its constitutional
order
2) the decision to institute a constitutional dictatorship should never be in the hands of the man
or men who will constitute the dictator
3) No government should initiate a constitutional dictatorship without making specific provisions
for its termination
4) all uses of emergency powers and all readjustments in the organization of the government
should be effected in pursuit of constitutional or legal requirements
5) no dictatorial institution should be adopted, no right invaded, no regular procedure altered
any more than is absolutely necessary for the conquest of the particular crisis . . .
6) The measures adopted in the prosecution of the a constitutional dictatorship should never be
permanent in character or effect
7) The dictatorship should be carried on by persons representative of every part of the citizenry
interested in the defense of the existing constitutional order. . .
8) Ultimate responsibility should be maintained for every action taken under a constitutional
dictatorship. . .
9) The decision to terminate a constitutional dictatorship, like the decision to institute one should
never be in the hands of the man or men who constitute the dictator. . .
10) No constitutional dictatorship should extend beyond the termination of the crisis for which it
was instituted
11) the termination of the crisis must be followed by a complete return as possible to the
political and governmental conditions existing prior to the initiation of the constitutional
dictatorship99
Rossiter accorded to legislature a far greater role in the oversight exercise of emergency powers
than did Watkins. He would secure to Congress final responsibility for declaring the existence or
termination of an emergency, and he places great faith in the effectiveness of congressional
investigating committees.100
Scott and Cotter, in analyzing the above contemporary theories in light of recent experience, were
one in saying that, "the suggestion that democracies surrender the control of
government to an authoritarian ruler in time of grave danger to the nation
is not based upon sound constitutional theory." To appraise emergency power in terms of
constitutional dictatorship serves merely to distort the problem and hinder realistic analysis. It
matters not whether the term "dictator" is used in its normal sense (as applied to authoritarian
rulers) or is employed to embrace all chief executives administering emergency powers. However
used, "constitutional dictatorship" cannot be divorced from the implication of suspension of the
processes of constitutionalism. Thus, they favored instead the "concept of constitutionalism"
articulated by Charles H. McIlwain:
A concept of constitutionalism which is less misleading in the analysis of problems of emergency
powers, and which is consistent with the findings of this study, is that formulated by Charles H.
McIlwain. While it does not by any means necessarily exclude some indeterminate limitations upon
the substantive powers of government, full emphasis is placed upon procedural limitations,
and political responsibility. McIlwain clearly recognized the need to repose adequate power in
government. And in discussing the meaning of constitutionalism, he insisted that the historical
and proper test of constitutionalism was the existence of adequate processes for
keeping government responsible. He refused to equate constitutionalism with the enfeebling
of government by an exaggerated emphasis upon separation of powers and substantive limitations
on governmental power. He found that the really effective checks on despotism have consisted
not in the weakening of government but, but rather in the limiting of it; between which there is
a great and very significant difference. In associating constitutionalism with "limited" as
distinguished from "weak" government, McIlwain meant government limited to the
orderly procedure of law as opposed to the processes of force. The two fundamental
correlative elements of constitutionalism for which all lovers of liberty must yet fight
are the legal limits to arbitrary power and a complete political responsibility of
government to the governed.101
In the final analysis, the various approaches to emergency of the above political theorists - from
Locks "theory of prerogative," to Watkins doctrine of "constitutional dictatorship" and, eventually,
to McIlwains "principle of constitutionalism" --- ultimately aim to solve one real problem in
emergency governance, i.e., that of allotting increasing areas of discretionary power to
the Chief Executive, while insuring that such powers will be exercised with a sense of
political responsibility and under effective limitations and checks.
Our Constitution has fairly coped with this problem. Fresh from the fetters of a repressive regime,
the 1986 Constitutional Commission, in drafting the 1987 Constitution, endeavored to create a
government in the concept of Justice Jacksons "balanced power structure."102 Executive,
legislative, and judicial powers are dispersed to the President, the Congress, and the Supreme
Court, respectively. Each is supreme within its own sphere. But none has the monopoly of
power in times of emergency. Each branch is given a role to serve as limitation or
check upon the other. This system does not weaken the President, it just limits his power,
using the language of McIlwain. In other words, in times of emergency, our Constitution
reasonably demands that we repose a certain amount of faith in the basic integrity and wisdom
of the Chief Executive but, at the same time, it obliges him to operate within carefully
prescribed procedural limitations.
a. "Facial Challenge"
Petitioners contend that PP 1017 is void on its face because of its "overbreadth." They claim that
its enforcement encroached on both unprotected and protected rights under Section 4, Article III
of the Constitution and sent a "chilling effect" to the citizens.
A facial review of PP 1017, using the overbreadth doctrine, is uncalled for.
First and foremost, the overbreadth doctrine is an analytical tool developed for testing "on their
faces" statutes in free speech cases, also known under the American Law as First Amendment
cases.103
A plain reading of PP 1017 shows that it is not primarily directed to speech or even speech-related
conduct. It is actually a call upon the AFP to prevent or suppress all forms
of lawless violence. In United States v. Salerno,104the US Supreme Court held that "we have
not recognized an overbreadth doctrine outside the limited context of the First
Amendment" (freedom of speech).
Moreover, the overbreadth doctrine is not intended for testing the validity of a law that "reflects
legitimate state interest in maintaining comprehensive control over harmful, constitutionally
unprotected conduct." Undoubtedly, lawless violence, insurrection and rebellion are considered
"harmful" and "constitutionally unprotected conduct." In Broadrick v. Oklahoma,105 it was held:
It remains a matter of no little difficulty to determine when a law may properly be held void on
its face and when such summary action is inappropriate. But the plain import of our cases
is, at the very least, that facial overbreadth adjudication is an exception to our
traditional rules of practice and that its function, a limited one at the outset,
attenuates as the otherwise unprotected behavior that it forbids the State to sanction
moves from pure speech toward conduct and that conduct even if expressive falls
within the scope of otherwise valid criminal laws that reflect legitimate state interests
in maintaining comprehensive controls over harmful, constitutionally unprotected
conduct.
Thus, claims of facial overbreadth are entertained in cases involving statutes which, by their
terms, seek to regulate only "spoken words" and again, that "overbreadth claims, if
entertained at all, have been curtailed when invoked against ordinary criminal laws
that are sought to be applied to protected conduct."106 Here, the incontrovertible fact
remains that PP 1017 pertains to a spectrum of conduct, not free speech, which is manifestly
subject to state regulation.
Second, facial invalidation of laws is considered as "manifestly strong medicine," to be used
"sparingly and only as a last resort," and is "generally disfavored;"107 The reason for this
is obvious. Embedded in the traditional rules governing constitutional adjudication is the principle
that a person to whom a law may be applied will not be heard to challenge a law on the ground
that it may conceivably be applied unconstitutionally to others, i.e., in other situations not
before the Court.108 A writer and scholar in Constitutional Law explains further:
The most distinctive feature of the overbreadth technique is that it marks an exception
to some of the usual rules of constitutional litigation. Ordinarily, a particular litigant
claims that a statute is unconstitutional as applied to him or her; if the litigant
prevails, the courts carve away the unconstitutional aspects of the law by invalidating
its improper applications on a case to case basis. Moreover, challengers to a law are
not permitted to raise the rights of third parties and can only assert their own
interests. In overbreadth analysis, those rules give way; challenges are permitted to
raise the rights of third parties; and the court invalidates the entire statute "on its face," not
merely "as applied for" so that the overbroad law becomes unenforceable until a properly
authorized court construes it more narrowly. The factor that motivates courts to depart from the
normal adjudicatory rules is the concern with the "chilling;" deterrent effect of the overbroad
statute on third parties not courageous enough to bring suit. The Court assumes that an overbroad
laws "very existence may cause others not before the court to refrain from constitutionally
protected speech or expression." An overbreadth ruling is designed to remove that deterrent effect
on the speech of those third parties.
In other words, a facial challenge using the overbreadth doctrine will require the Court to examine
PP 1017 and pinpoint its flaws and defects, not on the basis of its actual operation to petitioners,
but on the assumption or prediction that its very existence may cause others not before the
Court to refrain from constitutionally protected speech or expression. In Younger v. Harris,109 it
was held that:
[T]he task of analyzing a proposed statute, pinpointing its deficiencies, and requiring correction
of these deficiencies before the statute is put into effect, is rarely if ever an appropriate task for
the judiciary. The combination of the relative remoteness of the controversy, the impact
on the legislative process of the relief sought, and above all the speculative and
amorphous nature of the required line-by-line analysis of detailed statutes,...ordinarily
results in a kind of case that is wholly unsatisfactory for deciding constitutional questions,
whichever way they might be decided.
And third, a facial challenge on the ground of overbreadth is the most difficult challenge to mount
successfully, since the challenger must establish that there can be no instance when the
assailed law may be valid. Here, petitioners did not even attempt to show whether this
situation exists.
Petitioners likewise seek a facial review of PP 1017 on the ground of vagueness. This, too, is
unwarranted.
Related to the "overbreadth" doctrine is the "void for vagueness doctrine" which holds that "a
law is facially invalid if men of common intelligence must necessarily guess at its
meaning and differ as to its application."110 It is subject to the same principles governing
overbreadth doctrine. For one, it is also an analytical tool for testing "on their faces" statutes in
free speech cases. And like overbreadth, it is said that a litigant may challenge a statute on its
face only if it is vague in all its possible applications. Again, petitioners did not even
attempt to show that PP 1017 is vague in all its application. They also failed to establish
that men of common intelligence cannot understand the meaning and application of PP 1017.
b. Constitutional Basis of PP 1017
Now on the constitutional foundation of PP 1017.
The operative portion of PP 1017 may be divided into three important provisions, thus:
First provision:
"by virtue of the power vested upon me by Section 18, Artilce VII do hereby command the
Armed Forces of the Philippines, to maintain law and order throughout the Philippines, prevent or
suppress all forms of lawless violence as well any act of insurrection or rebellion"
Second provision:
"and to enforce obedience to all the laws and to all decrees, orders and regulations promulgated
by me personally or upon my direction;"
Third provision:
"as provided in Section 17, Article XII of the Constitution do hereby declare a State of National
Emergency."
First Provision: Calling-out Power
The first provision pertains to the Presidents calling-out power. In Sanlakas v. Executive
Secretary,111 this Court, through Mr. Justice Dante O. Tinga, held that Section 18, Article VII of
the Constitution reproduced as follows:
Sec. 18. The President shall be the Commander-in-Chief of all armed forces of the Philippines
and whenever it becomes necessary, he may call out such armed forces to prevent or
suppress lawless violence, invasion or rebellion. In case of invasion or rebellion, when the
public safety requires it, he may, for a period not exceeding sixty days, suspend the privilege of
the writ of habeas corpus or place the Philippines or any part thereof under martial law. Within
forty-eight hours from the proclamation of martial law or the suspension of the privilege of the
writ of habeas corpus, the President shall submit a report in person or in writing to the Congress.
The Congress, voting jointly, by a vote of at least a majority of all its Members in regular or special
session, may revoke such proclamation or suspension, which revocation shall not be set aside by
the President. Upon the initiative of the President, the Congress may, in the same manner, extend
such proclamation or suspension for a period to be determined by the Congress, if the invasion
or rebellion shall persist and public safety requires it.
The Congress, if not in session, shall within twenty-four hours following such proclamation or
suspension, convene in accordance with its rules without need of a call.
The Supreme Court may review, in an appropriate proceeding filed by any citizen, the sufficiency
of the factual bases of the proclamation of martial law or the suspension of the privilege of the
writ or the extension thereof, and must promulgate its decision thereon within thirty days from its
filing.
A state of martial law does not suspend the operation of the Constitution, nor supplant the
functioning of the civil courts or legislative assemblies, nor authorize the conferment of jurisdiction
on military courts and agencies over civilians where civil courts are able to function, nor
automatically suspend the privilege of the writ.
The suspension of the privilege of the writ shall apply only to persons judicially charged for
rebellion or offenses inherent in or directly connected with invasion.
During the suspension of the privilege of the writ, any person thus arrested or detained shall be
judicially charged within three days, otherwise he shall be released.
grants the President, as Commander-in-Chief, a "sequence" of graduated powers. From the most
to the least benign, these are: the calling-out power, the power to suspend the privilege of the
writ of habeas corpus, and the power to declare Martial Law. Citing Integrated Bar of the
Philippines v. Zamora,112 the Court ruled that the only criterion for the exercise of the calling-out
power is that "whenever it becomes necessary," the President may call the armed forces "to
prevent or suppress lawless violence, invasion or rebellion." Are these conditions present
in the instant cases? As stated earlier, considering the circumstances then prevailing, President
Arroyo found it necessary to issue PP 1017. Owing to her Offices vast intelligence network, she
is in the best position to determine the actual condition of the country.
Under the calling-out power, the President may summon the armed forces to aid him in
suppressing lawless violence, invasion and rebellion. This involves ordinary police action.
But every act that goes beyond the Presidents calling-out power is considered illegal or ultra vires.
For this reason, a President must be careful in the exercise of his powers. He cannot invoke a
greater power when he wishes to act under a lesser power. There lies the wisdom of our
Constitution, the greater the power, the greater are the limitations.
It is pertinent to state, however, that there is a distinction between the Presidents authority to
declare a "state of rebellion" (in Sanlakas) and the authority to proclaim a state of national
emergency. While President Arroyos authority to declare a "state of rebellion" emanates from her
powers as Chief Executive, the statutory authority cited in Sanlakas was Section 4, Chapter 2,
Book II of the Revised Administrative Code of 1987, which provides:
SEC. 4. Proclamations. Acts of the President fixing a date or declaring a status or condition of
public moment or interest, upon the existence of which the operation of a specific law or regulation
is made to depend, shall be promulgated in proclamations which shall have the force of an
executive order.
President Arroyos declaration of a "state of rebellion" was merely an act declaring a status or
condition of public moment or interest, a declaration allowed under Section 4 cited above. Such
declaration, in the words of Sanlakas, is harmless, without legal significance, and deemed not
written. In these cases, PP 1017 is more than that. In declaring a state of national emergency,
President Arroyo did not only rely on Section 18, Article VII of the Constitution, a provision calling
on the AFP to prevent or suppress lawless violence, invasion or rebellion. She also relied on Section
17, Article XII, a provision on the States extraordinary power to take over privately-owned public
utility and business affected with public interest. Indeed, PP 1017 calls for the exercise of
an awesome power. Obviously, such Proclamation cannot be deemed harmless, without legal
significance, or not written, as in the case of Sanlakas.
Some of the petitioners vehemently maintain that PP 1017 is actually a declaration of Martial Law.
It is no so. What defines the character of PP 1017 are its wordings. It is plain therein that what
the President invoked was her calling-out power.
The declaration of Martial Law is a "warn[ing] to citizens that the military power has been called
upon by the executive to assist in the maintenance of law and order, and that, while the
emergency lasts, they must, upon pain of arrest and punishment, not commit any acts which will
in any way render more difficult the restoration of order and the enforcement of law."113
In his "Statement before the Senate Committee on Justice" on March 13, 2006, Mr. Justice Vicente
V. Mendoza,114an authority in constitutional law, said that of the three powers of the President as
Commander-in-Chief, the power to declare Martial Law poses the most severe threat to civil
liberties. It is a strong medicine which should not be resorted to lightly. It cannot be used to stifle
or persecute critics of the government. It is placed in the keeping of the President for the purpose
of enabling him to secure the people from harm and to restore order so that they can enjoy their
individual freedoms. In fact, Section 18, Art. VII, provides:
A state of martial law does not suspend the operation of the Constitution, nor supplant the
functioning of the civil courts or legislative assemblies, nor authorize the conferment of jurisdiction
on military courts and agencies over civilians where civil courts are able to function, nor
automatically suspend the privilege of the writ.
Justice Mendoza also stated that PP 1017 is not a declaration of Martial Law. It is no more than a
call by the President to the armed forces to prevent or suppress lawless violence. As such, it
cannot be used to justify acts that only under a valid declaration of Martial Law can be done. Its
use for any other purpose is a perversion of its nature and scope, and any act done contrary to
its command is ultra vires.
Justice Mendoza further stated that specifically, (a) arrests and seizures without judicial warrants;
(b) ban on public assemblies; (c) take-over of news media and agencies and press censorship;
and (d) issuance of Presidential Decrees, are powers which can be exercised by the President as
Commander-in-Chief only where there is a valid declaration of Martial Law or suspension of the
writ of habeas corpus.
Based on the above disquisition, it is clear that PP 1017 is not a declaration of Martial Law. It is
merely an exercise of President Arroyos calling-out power for the armed forces to assist
her in preventing or suppressing lawless violence.
Second Provision: "Take Care" Power
The second provision pertains to the power of the President to ensure that the laws be faithfully
executed. This is based on Section 17, Article VII which reads:
SEC. 17. The President shall have control of all the executive departments, bureaus, and
offices. He shall ensure that the laws be faithfully executed.
As the Executive in whom the executive power is vested,115 the primary function of the President
is to enforce the laws as well as to formulate policies to be embodied in existing laws. He sees to
it that all laws are enforced by the officials and employees of his department. Before assuming
office, he is required to take an oath or affirmation to the effect that as President of the Philippines,
he will, among others, "execute its laws."116 In the exercise of such function, the President, if
needed, may employ the powers attached to his office as the Commander-in-Chief of all the armed
forces of the country,117 including the Philippine National Police118 under the Department of
Interior and Local Government.119
Petitioners, especially Representatives Francis Joseph G. Escudero, Satur Ocampo, Rafael
Mariano, Teodoro Casio, Liza Maza, and Josel Virador argue that PP 1017 is unconstitutional as
it arrogated upon President Arroyo the power to enact laws and decrees in violation of Section 1,
Article VI of the Constitution, which vests the power to enact laws in Congress. They assail the
clause "to enforce obedience to all the laws and to all decrees, orders and regulations
promulgated by me personally or upon my direction."
\
Petitioners contention is understandable. A reading of PP 1017 operative clause shows that it was
lifted120 from Former President Marcos Proclamation No. 1081, which partly reads:
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines by virtue of the
powers vested upon me by Article VII, Section 10, Paragraph (2) of the Constitution, do hereby
place the entire Philippines as defined in Article 1, Section 1 of the Constitution under martial law
and, in my capacity as their Commander-in-Chief, do hereby command the Armed Forces of
the Philippines, to maintain law and order throughout the Philippines, prevent or
suppress all forms of lawless violence as well as any act of insurrection or rebellion
and to enforce obedience to all the laws and decrees, orders and regulations
promulgated by me personally or upon my direction.
We all know that it was PP 1081 which granted President Marcos legislative power. Its enabling
clause states: "to enforce obedience to all the laws and decrees, orders and regulations
promulgated by me personally or upon my direction." Upon the other hand, the enabling
clause of PP 1017 issued by President Arroyo is: to enforce obedience to all the laws and to
all decrees, orders and regulations promulgated by me personally or upon my
direction."
Is it within the domain of President Arroyo to promulgate "decrees"?
PP 1017 states in part: "to enforce obedience to all the laws and decrees x x x promulgated
by me personally or upon my direction."
The President is granted an Ordinance Power under Chapter 2, Book III of Executive Order No.
292 (Administrative Code of 1987). She may issue any of the following:
Sec. 2. Executive Orders. Acts of the President providing for rules of a general or permanent
character in implementation or execution of constitutional or statutory powers shall be
promulgated in executive orders.
Sec. 3. Administrative Orders. Acts of the President which relate to particular aspect of
governmental operations in pursuance of his duties as administrative head shall be promulgated
in administrative orders.
Sec. 4. Proclamations. Acts of the President fixing a date or declaring a status or condition of
public moment or interest, upon the existence of which the operation of a specific law or regulation
is made to depend, shall be promulgated in proclamations which shall have the force of an
executive order.
Sec. 5. Memorandum Orders. Acts of the President on matters of administrative detail or of
subordinate or temporary interest which only concern a particular officer or office of the
Government shall be embodied in memorandum orders.
Sec. 6. Memorandum Circulars. Acts of the President on matters relating to internal
administration, which the President desires to bring to the attention of all or some of the
departments, agencies, bureaus or offices of the Government, for information or compliance, shall
be embodied in memorandum circulars.
Sec. 7. General or Special Orders. Acts and commands of the President in his capacity as
Commander-in-Chief of the Armed Forces of the Philippines shall be issued as general or special
orders.
President Arroyos ordinance power is limited to the foregoing issuances. She cannot
issue decrees similar to those issued by Former President Marcos under PP 1081. Presidential
Decrees are laws which are of the same category and binding force as statutes because they were
issued by the President in the exercise of his legislative power during the period of Martial Law
under the 1973 Constitution.121
This Court rules that the assailed PP 1017 is unconstitutional insofar as it grants
President Arroyo the authority to promulgate "decrees." Legislative power is peculiarly
within the province of the Legislature. Section 1, Article VI categorically states that "[t]he
legislative power shall be vested in the Congress of the Philippines which shall consist
of a Senate and a House of Representatives." To be sure, neither Martial Law nor a state of
rebellion nor a state of emergency can justify President Arroyos exercise of legislative power by
issuing decrees.
Can President Arroyo enforce obedience to all decrees and laws through the military?
As this Court stated earlier, President Arroyo has no authority to enact decrees. It follows that
these decrees are void and, therefore, cannot be enforced. With respect to "laws," she cannot call
the military to enforce or implement certain laws, such as customs laws, laws governing family
and property relations, laws on obligations and contracts and the like. She can only order the
military, under PP 1017, to enforce laws pertinent to its duty to suppress lawless violence.
Third Provision: Power to Take Over
The pertinent provision of PP 1017 states:
x x x and to enforce obedience to all the laws and to all decrees, orders, and regulations
promulgated by me personally or upon my direction; and as provided in Section 17, Article
XII of the Constitution do hereby declare a state of national emergency.
The import of this provision is that President Arroyo, during the state of national emergency under
PP 1017, can call the military not only to enforce obedience "to all the laws and to all decrees x x
x" but also to act pursuant to the provision of Section 17, Article XII which reads:
Sec. 17. In times of national emergency, when the public interest so requires, the State may,
during the emergency and under reasonable terms prescribed by it, temporarily take over or direct
the operation of any privately-owned public utility or business affected with public interest.
What could be the reason of President Arroyo in invoking the above provision when she issued PP
1017?
The answer is simple. During the existence of the state of national emergency, PP 1017 purports
to grant the President, without any authority or delegation from Congress, to take over or direct
the operation of any privately-owned public utility or business affected with public interest.
This provision was first introduced in the 1973 Constitution, as a product of the "martial law"
thinking of the 1971 Constitutional Convention.122 In effect at the time of its approval was
President Marcos Letter of Instruction No. 2 dated September 22, 1972 instructing the Secretary
of National Defense to take over "the management, control and operation of the Manila Electric
Company, the Philippine Long Distance Telephone Company, the National Waterworks and
Sewerage Authority, the Philippine National Railways, the Philippine Air Lines, Air Manila (and)
Filipinas Orient Airways . . . for the successful prosecution by the Government of its effort to
contain, solve and end the present national emergency."
Petitioners, particularly the members of the House of Representatives, claim that President
Arroyos inclusion of Section 17, Article XII in PP 1017 is an encroachment on the legislatures
emergency powers.
This is an area that needs delineation.
A distinction must be drawn between the Presidents authority to declare "a state of national
emergency" and to exercise emergency powers. To the first, as elucidated by the Court, Section
18, Article VII grants the President such power, hence, no legitimate constitutional objection can
be raised. But to the second, manifold constitutional issues arise.
Section 23, Article VI of the Constitution reads:
SEC. 23. (1) The Congress, by a vote of two-thirds of both Houses in joint session assembled,
voting separately, shall have the sole power to declare the existence of a state of war.
(2) In times of war or other national emergency, the Congress may, by law, authorize the
President, for a limited period and subject to such restrictions as it may prescribe, to exercise
powers necessary and proper to carry out a declared national policy. Unless sooner withdrawn by
resolution of the Congress, such powers shall cease upon the next adjournment thereof.
It may be pointed out that the second paragraph of the above provision refers not only to war
but also to "other national emergency." If the intention of the Framers of our Constitution was
to withhold from the President the authority to declare a "state of national emergency" pursuant
to Section 18, Article VII (calling-out power) and grant it to Congress (like the declaration of the
existence of a state of war), then the Framers could have provided so. Clearly, they did not intend
that Congress should first authorize the President before he can declare a "state of national
emergency." The logical conclusion then is that President Arroyo could validly declare the
existence of a state of national emergency even in the absence of a Congressional enactment.
But the exercise of emergency powers, such as the taking over of privately owned public utility
or business affected with public interest, is a different matter. This requires a delegation from
Congress.
Courts have often said that constitutional provisions in pari materia are to be construed together.
Otherwise stated, different clauses, sections, and provisions of a constitution which relate to the
same subject matter will be construed together and considered in the light of each
other.123 Considering that Section 17 of Article XII and Section 23 of Article VI, previously quoted,
relate to national emergencies, they must be read together to determine the limitation of the
exercise of emergency powers.
Generally, Congress is the repository of emergency powers. This is evident in the tenor
of Section 23 (2), Article VI authorizing it to delegate such powers to the President. Certainly, a
body cannot delegate a power not reposed upon it. However, knowing that during grave
emergencies, it may not be possible or practicable for Congress to meet and exercise its powers,
the Framers of our Constitution deemed it wise to allow Congress to grant emergency powers to
the President, subject to certain conditions, thus:
(1) There must be a war or other emergency.
(2) The delegation must be for a limited period only.
(3) The delegation must be subject to such restrictions as the Congress may prescribe.
(4) The emergency powers must be exercised to carry out a national policy declared by
Congress.124
Section 17, Article XII must be understood as an aspect of the emergency powers clause. The
taking over of private business affected with public interest is just another facet of the emergency
powers generally reposed upon Congress. Thus, when Section 17 states that the "the State may,
during the emergency and under reasonable terms prescribed by it, temporarily take
over or direct the operation of any privately owned public utility or business affected
with public interest," it refers to Congress, not the President. Now, whether or not the President
may exercise such power is dependent on whether Congress may delegate it to him pursuant to
a law prescribing the reasonable terms thereof. Youngstown Sheet & Tube Co. et al. v.
Sawyer,125 held:
It is clear that if the President had authority to issue the order he did, it must be found in some
provision of the Constitution. And it is not claimed that express constitutional language grants this
power to the President. The contention is that presidential power should be implied from the
aggregate of his powers under the Constitution. Particular reliance is placed on provisions in Article
II which say that "The executive Power shall be vested in a President . . . .;" that "he shall take
Care that the Laws be faithfully executed;" and that he "shall be Commander-in-Chief of the Army
and Navy of the United States.
The order cannot properly be sustained as an exercise of the Presidents military power as
Commander-in-Chief of the Armed Forces. The Government attempts to do so by citing a number
of cases upholding broad powers in military commanders engaged in day-to-day fighting in a
theater of war. Such cases need not concern us here. Even though "theater of war" be an
expanding concept, we cannot with faithfulness to our constitutional system hold that
the Commander-in-Chief of the Armed Forces has the ultimate power as such to take
possession of private property in order to keep labor disputes from stopping
production. This is a job for the nations lawmakers, not for its military authorities.
Nor can the seizure order be sustained because of the several constitutional provisions
that grant executive power to the President. In the framework of our Constitution,
the Presidents power to see that the laws are faithfully executed refutes the idea that
he is to be a lawmaker. The Constitution limits his functions in the lawmaking process
to the recommending of laws he thinks wise and the vetoing of laws he thinks bad.
And the Constitution is neither silent nor equivocal about who shall make laws which
the President is to execute. The first section of the first article says that "All legislative
Powers herein granted shall be vested in a Congress of the United States. . ."126
Petitioner Cacho-Olivares, et al. contends that the term "emergency" under Section 17, Article XII
refers to "tsunami," "typhoon," "hurricane"and"similar occurrences." This is a limited view
of "emergency."
Emergency, as a generic term, connotes the existence of conditions suddenly intensifying the
degree of existing danger to life or well-being beyond that which is accepted as normal. Implicit
in this definitions are the elements of intensity, variety, and perception.127 Emergencies, as
perceived by legislature or executive in the United Sates since 1933, have been occasioned by a
wide range of situations, classifiable under three (3) principal heads: a)economic,128 b) natural
disaster,129 and c) national security.130
"Emergency," as contemplated in our Constitution, is of the same breadth. It may include
rebellion, economic crisis, pestilence or epidemic, typhoon, flood, or other similar catastrophe of
nationwide proportions or effect.131 This is evident in the Records of the Constitutional
Commission, thus:
MR. GASCON. Yes. What is the Committees definition of "national emergency" which appears in
Section 13, page 5? It reads:
When the common good so requires, the State may temporarily take over or direct the operation
of any privately owned public utility or business affected with public interest.
MR. VILLEGAS. What I mean is threat from external aggression, for
example, calamities or natural disasters.
MR. GASCON. There is a question by Commissioner de los Reyes. What about strikes and riots?
MR. VILLEGAS. Strikes, no; those would not be covered by the term "national emergency."
MR. BENGZON. Unless they are of such proportions such that they would paralyze government
service.132
xxxxxx
MR. TINGSON. May I ask the committee if "national emergency" refers to military national
emergency or could this be economic emergency?"
MR. VILLEGAS. Yes, it could refer to both military or economic dislocations.
MR. TINGSON. Thank you very much.133
It may be argued that when there is national emergency, Congress may not be able to convene
and, therefore, unable to delegate to the President the power to take over privately-owned public
utility or business affected with public interest.
In Araneta v. Dinglasan,134 this Court emphasized that legislative power, through which
extraordinary measures are exercised, remains in Congress even in times of crisis.
"x x x
After all the criticisms that have been made against the efficiency of the system of the separation
of powers, the fact remains that the Constitution has set up this form of government, with all its
defects and shortcomings, in preference to the commingling of powers in one man or group of
men. The Filipino people by adopting parliamentary government have given notice that they share
the faith of other democracy-loving peoples in this system, with all its faults, as the ideal. The
point is, under this framework of government, legislation is preserved for Congress all the time,
not excepting periods of crisis no matter how serious. Never in the history of the United States,
the basic features of whose Constitution have been copied in ours, have specific functions of the
legislative branch of enacting laws been surrendered to another department unless we regard
as legislating the carrying out of a legislative policy according to prescribed standards; no, not
even when that Republic was fighting a total war, or when it was engaged in a life-and-death
struggle to preserve the Union. The truth is that under our concept of constitutional government,
in times of extreme perils more than in normal circumstances the various branches, executive,
legislative, and judicial, given the ability to act, are called upon to perform the duties and
discharge the responsibilities committed to them respectively."
Following our interpretation of Section 17, Article XII, invoked by President Arroyo in issuing PP
1017, this Court rules that such Proclamation does not authorize her during the emergency to
temporarily take over or direct the operation of any privately owned public utility or business
affected with public interest without authority from Congress.
Let it be emphasized that while the President alone can declare a state of national emergency,
however, without legislation, he has no power to take over privately-owned public utility or
business affected with public interest. The President cannot decide whether exceptional
circumstances exist warranting the take over of privately-owned public utility or business affected
with public interest. Nor can he determine when such exceptional circumstances have ceased.
Likewise, without legislation, the President has no power to point out the types of businesses
affected with public interest that should be taken over. In short, the President has no absolute
authority to exercise all the powers of the State under Section 17, Article VII in the absence of an
emergency powers act passed by Congress.
c. "AS APPLIED CHALLENGE"
One of the misfortunes of an emergency, particularly, that which pertains to security, is that
military necessity and the guaranteed rights of the individual are often not compatible. Our history
reveals that in the crucible of conflict, many rights are curtailed and trampled upon. Here,
the right against unreasonable search and seizure; the right against warrantless
arrest; and the freedom of speech, of expression, of the press, and of assembly under
the Bill of Rights suffered the greatest blow.
Of the seven (7) petitions, three (3) indicate "direct injury."
In G.R. No. 171396, petitioners David and Llamas alleged that, on February 24, 2006, they were
arrested without warrants on their way to EDSA to celebrate the 20th Anniversary of People Power
I. The arresting officers cited PP 1017 as basis of the arrest.
In G.R. No. 171409, petitioners Cacho-Olivares and Tribune Publishing Co., Inc. claimed that on
February 25, 2006, the CIDG operatives "raided and ransacked without warrant" their office. Three
policemen were assigned to guard their office as a possible "source of destabilization." Again, the
basis was PP 1017.
And in G.R. No. 171483, petitioners KMU and NAFLU-KMU et al. alleged that their members
were "turned away and dispersed" when they went to EDSA and later, to Ayala Avenue, to
celebrate the 20th Anniversary of People Power I.
A perusal of the "direct injuries" allegedly suffered by the said petitioners shows that they resulted
from the implementation, pursuant to G.O. No. 5, of PP 1017.
Can this Court adjudge as unconstitutional PP 1017 and G.O. No 5 on the basis of these illegal
acts? In general, does the illegal implementation of a law render it unconstitutional?
Settled is the rule that courts are not at liberty to declare statutes invalid although they may
be abused and misabused135 and may afford an opportunity for abuse in the manner of
application.136 The validity of a statute or ordinance is to be determined from its general purpose
and its efficiency to accomplish the end desired, not from its effects in a particular case.137 PP
1017 is merely an invocation of the Presidents calling-out power. Its general purpose is to
command the AFP to suppress all forms of lawless violence, invasion or rebellion. It had
accomplished the end desired which prompted President Arroyo to issue PP 1021. But there is
nothing in PP 1017 allowing the police, expressly or impliedly, to conduct illegal arrest, search or
violate the citizens constitutional rights.
Now, may this Court adjudge a law or ordinance unconstitutional on the ground that its
implementor committed illegal acts? The answer is no. The criterion by which the validity of the
statute or ordinance is to be measured is the essential basis for the exercise of power, and not
a mere incidental result arising from its exertion.138 This is logical. Just imagine the
absurdity of situations when laws maybe declared unconstitutional just because the officers
implementing them have acted arbitrarily. If this were so, judging from the blunders committed
by policemen in the cases passed upon by the Court, majority of the provisions of the Revised
Penal Code would have been declared unconstitutional a long time ago.
President Arroyo issued G.O. No. 5 to carry into effect the provisions of PP 1017. General orders
are "acts and commands of the President in his capacity as Commander-in-Chief of the Armed
Forces of the Philippines." They are internal rules issued by the executive officer to his
subordinates precisely for the proper and efficientadministration of law. Such rules and
regulations create no relation except between the official who issues them and the official who
receives them.139 They are based on and are the product of, a relationship in which power is their
source, and obedience, their object.140 For these reasons, one requirement for these rules to be
valid is that they must be reasonable, not arbitrary or capricious.
G.O. No. 5 mandates the AFP and the PNP to immediately carry out the "necessary and
appropriate actions and measures to suppress and prevent acts of terrorism and
lawless violence."
Unlike the term "lawless violence" which is unarguably extant in our statutes and the Constitution,
and which is invariably associated with "invasion, insurrection or rebellion," the phrase "acts of
terrorism" is still an amorphous and vague concept. Congress has yet to enact a law defining and
punishing acts of terrorism.
In fact, this "definitional predicament" or the "absence of an agreed definition of terrorism"
confronts not only our country, but the international community as well. The following
observations are quite apropos:
In the actual unipolar context of international relations, the "fight against terrorism" has become
one of the basic slogans when it comes to the justification of the use of force against certain
states and against groups operating internationally. Lists of states "sponsoring terrorism" and of
terrorist organizations are set up and constantly being updated according to criteria that are not
always known to the public, but are clearly determined by strategic interests.
The basic problem underlying all these military actions or threats of the use of force as the most
recent by the United States against Iraq consists in the absence of an agreed definition of
terrorism.
Remarkable confusion persists in regard to the legal categorization of acts of violence either by
states, by armed groups such as liberation movements, or by individuals.
The dilemma can by summarized in the saying "One countrys terrorist is another countrys
freedom fighter." The apparent contradiction or lack of consistency in the use of the term
"terrorism" may further be demonstrated by the historical fact that leaders of national liberation
movements such as Nelson Mandela in South Africa, Habib Bourgouiba in Tunisia, or Ahmed Ben
Bella in Algeria, to mention only a few, were originally labeled as terrorists by those who controlled
the territory at the time, but later became internationally respected statesmen.
What, then, is the defining criterion for terrorist acts the differentia specifica distinguishing those
acts from eventually legitimate acts of national resistance or self-defense?
Since the times of the Cold War the United Nations Organization has been trying in vain to reach
a consensus on the basic issue of definition. The organization has intensified its efforts recently,
but has been unable to bridge the gap between those who associate "terrorism" with any violent
act by non-state groups against civilians, state functionaries or infrastructure or military
installations, and those who believe in the concept of the legitimate use of force when resistance
against foreign occupation or against systematic oppression of ethnic and/or religious groups
within a state is concerned.
The dilemma facing the international community can best be illustrated by reference to the
contradicting categorization of organizations and movements such as Palestine Liberation
Organization (PLO) which is a terrorist group for Israel and a liberation movement for Arabs and
Muslims the Kashmiri resistance groups who are terrorists in the perception of India, liberation
fighters in that of Pakistan the earlier Contras in Nicaragua freedom fighters for the United
States, terrorists for the Socialist camp or, most drastically, the Afghani Mujahedeen (later to
become the Taliban movement): during the Cold War period they were a group of freedom fighters
for the West, nurtured by the United States, and a terrorist gang for the Soviet Union. One could
go on and on in enumerating examples of conflicting categorizations that cannot be reconciled in
any way because of opposing political interests that are at the roots of those perceptions.
How, then, can those contradicting definitions and conflicting perceptions and evaluations of one
and the same group and its actions be explained? In our analysis, the basic reason for these
striking inconsistencies lies in the divergent interest of states. Depending on whether a state is in
the position of an occupying power or in that of a rival, or adversary, of an occupying power in a
given territory, the definition of terrorism will "fluctuate" accordingly. A state may eventually see
itself as protector of the rights of a certain ethnic group outside its territory and will therefore
speak of a "liberation struggle," not of "terrorism" when acts of violence by this group are
concerned, and vice-versa.
The United Nations Organization has been unable to reach a decision on the definition of terrorism
exactly because of these conflicting interests of sovereign states that determine in each and every
instance how a particular armed movement (i.e. a non-state actor) is labeled in regard to the
terrorists-freedom fighter dichotomy. A "policy of double standards" on this vital issue of
international affairs has been the unavoidable consequence.
This "definitional predicament" of an organization consisting of sovereign states and not of
peoples, in spite of the emphasis in the Preamble to the United Nations Charter! has become
even more serious in the present global power constellation: one superpower exercises the
decisive role in the Security Council, former great powers of the Cold War era as well as medium
powers are increasingly being marginalized; and the problem has become even more acute since
the terrorist attacks of 11 September 2001 I the United States.141
The absence of a law defining "acts of terrorism" may result in abuse and oppression on the part
of the police or military. An illustration is when a group of persons are merely engaged in a
drinking spree. Yet the military or the police may consider the act as an act of terrorism and
immediately arrest them pursuant to G.O. No. 5. Obviously, this is abuse and oppression on their
part. It must be remembered that an act can only be considered a crime if there is a law defining
the same as such and imposing the corresponding penalty thereon.
So far, the word "terrorism" appears only once in our criminal laws, i.e., in P.D. No. 1835 dated
January 16, 1981 enacted by President Marcos during the Martial Law regime. This decree is
entitled "Codifying The Various Laws on Anti-Subversion and Increasing The Penalties for
Membership in Subversive Organizations." The word "terrorism" is mentioned in the following
provision: "That one who conspires with any other person for the purpose of overthrowing the
Government of the Philippines x x x by force, violence, terrorism, x x x shall be punished
by reclusion temporal x x x."
P.D. No. 1835 was repealed by E.O. No. 167 (which outlaws the Communist Party of the
Philippines) enacted by President Corazon Aquino on May 5, 1985. These two (2) laws, however,
do not define "acts of terrorism." Since there is no law defining "acts of terrorism," it is President
Arroyo alone, under G.O. No. 5, who has the discretion to determine what acts constitute
terrorism. Her judgment on this aspect is absolute, without restrictions. Consequently, there can
be indiscriminate arrest without warrants, breaking into offices and residences, taking over the
media enterprises, prohibition and dispersal of all assemblies and gatherings unfriendly to the
administration. All these can be effected in the name of G.O. No. 5. These acts go far beyond the
calling-out power of the President. Certainly, they violate the due process clause of the
Constitution. Thus, this Court declares that the "acts of terrorism" portion of G.O. No. 5 is
unconstitutional.
Significantly, there is nothing in G.O. No. 5 authorizing the military or police to commit acts beyond
what are necessary and appropriate to suppress and prevent lawless violence, the
limitation of their authority in pursuing the Order. Otherwise, such acts are considered illegal.
We first examine G.R. No. 171396 (David et al.)
The Constitution provides that "the right of the people to be secured in their persons, houses,
papers and effects against unreasonable search and seizure of whatever nature and for any
purpose shall be inviolable, and no search warrant or warrant of arrest shall issue except
upon probable cause to be determined personally by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and particularly describing the
place to be searched and the persons or things to be seized."142 The plain import of the language
of the Constitution is that searches, seizures and arrests are normally unreasonable unless
authorized by a validly issued search warrant or warrant of arrest. Thus, the fundamental
protection given by this provision is that between person and police must stand the protective
authority of a magistrate clothed with power to issue or refuse to issue search warrants or
warrants of arrest.143
In the Brief Account144 submitted by petitioner David, certain facts are established: first, he was
arrested without warrant; second, the PNP operatives arrested him on the basis of PP
1017; third, he was brought at Camp Karingal, Quezon City where he was fingerprinted,
photographed and booked like a criminal suspect; fourth,he was treated brusquely by policemen
who "held his head and tried to push him" inside an unmarked car; fifth, he was charged with
Violation of Batas Pambansa Bilang No. 880145 and Inciting to Sedition; sixth, he was
detained for seven (7) hours; and seventh,he was eventually released for insufficiency of
evidence.
Section 5, Rule 113 of the Revised Rules on Criminal Procedure provides:
Sec. 5. Arrest without warrant; when lawful. - A peace officer or a private person may,
without a warrant, arrest a person:
(a) When, in his presence, the person to be arrested has committed, is actually committing, or is
attempting to commit an offense.
(b) When an offense has just been committed and he has probable cause to believe based on
personal knowledge of facts or circumstances that the person to be arrested has committed it;
and
x x x.
Neither of the two (2) exceptions mentioned above justifies petitioner Davids warrantless arrest.
During the inquest for the charges of inciting to sedition and violation of BP 880, all that the
arresting officers could invoke was their observation that some rallyists were wearing t-shirts with
the invective "Oust Gloria Now" and their erroneous assumption that petitioner David was the
leader of the rally.146 Consequently, the Inquest Prosecutor ordered his immediate release on the
ground of insufficiency of evidence. He noted that petitioner David was not wearing the subject
t-shirt and even if he was wearing it, such fact is insufficient to charge him with inciting to
sedition. Further, he also stated that there is insufficient evidence for the charge of violation
of BP 880 as it was not even known whether petitioner David was the leader of the rally.147
But what made it doubly worse for petitioners David et al. is that not only was their right against
warrantless arrest violated, but also their right to peaceably assemble.
Section 4 of Article III guarantees:
No law shall be passed abridging the freedom of speech, of expression, or of the press, or the
right of the people peaceably to assemble and petition the government for redress of grievances.
"Assembly" means a right on the part of the citizens to meet peaceably for consultation in respect
to public affairs. It is a necessary consequence of our republican institution and complements the
right of speech. As in the case of freedom of expression, this right is not to be limited, much less
denied, except on a showing of a clear and present danger of a substantive evil that Congress
has a right to prevent. In other words, like other rights embraced in the freedom of expression,
the right to assemble is not subject to previous restraint or censorship. It may not be conditioned
upon the prior issuance of a permit or authorization from the government authorities except, of
course, if the assembly is intended to be held in a public place, a permit for the use of such place,
and not for the assembly itself, may be validly required.
The ringing truth here is that petitioner David, et al. were arrested while they were exercising
their right to peaceful assembly. They were not committing any crime, neither was there a showing
of a clear and present danger that warranted the limitation of that right. As can be gleaned from
circumstances, the charges of inciting to sedition and violation of BP 880 were mere
afterthought. Even the Solicitor General, during the oral argument, failed to justify the arresting
officers conduct. In De Jonge v. Oregon,148 it was held that peaceable assembly cannot be made
a crime, thus:
Peaceable assembly for lawful discussion cannot be made a crime. The holding of meetings for
peaceable political action cannot be proscribed. Those who assist in the conduct of such meetings
cannot be branded as criminals on that score. The question, if the rights of free speech and
peaceful assembly are not to be preserved, is not as to the auspices under which the meeting was
held but as to its purpose; not as to the relations of the speakers, but whether their utterances
transcend the bounds of the freedom of speech which the Constitution protects. If the persons
assembling have committed crimes elsewhere, if they have formed or are engaged in a conspiracy
against the public peace and order, they may be prosecuted for their conspiracy or other violations
of valid laws. But it is a different matter when the State, instead of prosecuting them
for such offenses, seizes upon mere participation in a peaceable assembly and a lawful
public discussion as the basis for a criminal charge.
On the basis of the above principles, the Court likewise considers the dispersal and arrest of the
members of KMU et al. (G.R. No. 171483) unwarranted. Apparently, their dispersal was done
merely on the basis of Malacaangs directive canceling all permits previously issued by local
government units. This is arbitrary. The wholesale cancellation of all permits to rally is a blatant
disregard of the principle that "freedom of assembly is not to be limited, much less denied,
except on a showing of a clear and present danger of a substantive evil that the State
has a right to prevent."149 Tolerance is the rule and limitation is the exception. Only upon a
showing that an assembly presents a clear and present danger that the State may deny the
citizens right to exercise it. Indeed, respondents failed to show or convince the Court that the
rallyists committed acts amounting to lawless violence, invasion or rebellion. With the blanket
revocation of permits, the distinction between protected and unprotected assemblies was
eliminated.
Moreover, under BP 880, the authority to regulate assemblies and rallies is lodged with the local
government units. They have the power to issue permits and to revoke such permits after due
notice and hearing on the determination of the presence of clear and present danger. Here,
petitioners were not even notified and heard on the revocation of their permits.150 The first time
they learned of it was at the time of the dispersal. Such absence of notice is a fatal defect. When
a persons right is restricted by government action, it behooves a democratic government to see
to it that the restriction is fair, reasonable, and according to procedure.
G.R. No. 171409, (Cacho-Olivares, et al.) presents another facet of freedom of speech i.e., the
freedom of the press. Petitioners narration of facts, which the Solicitor General failed to refute,
established the following: first, the Daily Tribunes offices were searched without
warrant;second, the police operatives seized several materials for publication; third, the search
was conducted at about 1:00 o clock in the morning of February 25, 2006; fourth, the search was
conducted in the absence of any official of the Daily Tribune except the security guard of the
building; and fifth, policemen stationed themselves at the vicinity of the Daily Tribune offices.
Thereafter, a wave of warning came from government officials. Presidential Chief of Staff Michael
Defensor was quoted as saying that such raid was "meant to show a strong presence, to
tell media outlets not to connive or do anything that would help the rebels in bringing
down this government." Director General Lomibao further stated that "if they do not follow
the standards and the standards are if they would contribute to instability in the
government, or if they do not subscribe to what is in General Order No. 5 and Proc.
No. 1017 we will recommend a takeover." National Telecommunications Commissioner
Ronald Solis urged television and radio networks to "cooperate" with the government for the
duration of the state of national emergency. He warned that his agency will not hesitate to
recommend the closure of any broadcast outfit that violates rules set out for media
coverage during times when the national security is threatened.151
The search is illegal. Rule 126 of The Revised Rules on Criminal Procedure lays down the steps in
the conduct of search and seizure. Section 4 requires that a search warrant be issued upon
probable cause in connection with one specific offence to be determined personally by the judge
after examination under oath or affirmation of the complainant and the witnesses he may
produce. Section 8 mandates that the search of a house, room, or any other premise be made in
the presence of the lawful occupant thereof or any member of his family or in the absence
of the latter, in the presence of two (2) witnesses of sufficient age and discretion residing in the
same locality. And Section 9 states that the warrant must direct that it be served in the daytime,
unless the property is on the person or in the place ordered to be searched, in which case a
direction may be inserted that it be served at any time of the day or night. All these rules were
violated by the CIDG operatives.
Not only that, the search violated petitioners freedom of the press. The best gauge of a free and
democratic society rests in the degree of freedom enjoyed by its media. In the Burgos v. Chief of
Staff152 this Court held that --
As heretofore stated, the premises searched were the business and printing offices of the
"Metropolitan Mail" and the "We Forum" newspapers. As a consequence of the search and
seizure, these premises were padlocked and sealed, with the further result that the
printing and publication of said newspapers were discontinued.
Such closure is in the nature of previous restraint or censorship abhorrent to the
freedom of the press guaranteed under the fundamental law, and constitutes a virtual
denial of petitioners' freedom to express themselves in print. This state of being is
patently anathematic to a democratic framework where a free, alert and even militant
press is essential for the political enlightenment and growth of the citizenry.
While admittedly, the Daily Tribune was not padlocked and sealed like the "Metropolitan Mail" and
"We Forum" newspapers in the above case, yet it cannot be denied that the CIDG operatives
exceeded their enforcement duties. The search and seizure of materials for publication, the
stationing of policemen in the vicinity of the The Daily Tribune offices, and the arrogant warning
of government officials to media, are plain censorship. It is that officious functionary of the
repressive government who tells the citizen that he may speak only if allowed to do so, and no
more and no less than what he is permitted to say on pain of punishment should he be so rash
as to disobey.153Undoubtedly, the The Daily Tribune was subjected to these arbitrary intrusions
because of its anti-government sentiments. This Court cannot tolerate the blatant disregard of a
constitutional right even if it involves the most defiant of our citizens. Freedom to comment on
public affairs is essential to the vitality of a representative democracy. It is the duty of the courts
to be watchful for the constitutional rights of the citizen, and against any stealthy encroachments
thereon. The motto should always be obsta principiis.154
Incidentally, during the oral arguments, the Solicitor General admitted that the search of
the Tribunes offices and the seizure of its materials for publication and other papers are illegal;
and that the same are inadmissible "for any purpose," thus:
JUSTICE CALLEJO:
You made quite a mouthful of admission when you said that the policemen, when inspected the
Tribune for the purpose of gathering evidence and you admitted that the policemen were able to
get the clippings. Is that not in admission of the admissibility of these clippings that were taken
from the Tribune?
SOLICITOR GENERAL BENIPAYO:
Under the law they would seem to be, if they were illegally seized, I think and I know, Your Honor,
and these are inadmissible for any purpose.155
xxxxxxxxx
SR. ASSO. JUSTICE PUNO:
These have been published in the past issues of the Daily Tribune; all you have to do is to get
those past issues. So why do you have to go there at 1 oclock in the morning and without any
search warrant? Did they become suddenly part of the evidence of rebellion or inciting to sedition
or what?
SOLGEN BENIPAYO:
Well, it was the police that did that, Your Honor. Not upon my instructions.
SR. ASSO. JUSTICE PUNO:
Are you saying that the act of the policeman is illegal, it is not based on any law, and it is not
based on Proclamation 1017.
SOLGEN BENIPAYO:
It is not based on Proclamation 1017, Your Honor, because there is nothing in 1017 which says
that the police could go and inspect and gather clippings from Daily Tribune or any other
newspaper.
SR. ASSO. JUSTICE PUNO:
Is it based on any law?
SOLGEN BENIPAYO:
As far as I know, no, Your Honor, from the facts, no.
SR. ASSO. JUSTICE PUNO:
So, it has no basis, no legal basis whatsoever?
SOLGEN BENIPAYO:
Maybe so, Your Honor. Maybe so, that is why I said, I dont know if it is premature to say this, we
do not condone this. If the people who have been injured by this would want to sue
them, they can sue and there are remedies for this.156
Likewise, the warrantless arrests and seizures executed by the police were, according to the
Solicitor General, illegal and cannot be condoned, thus:
CHIEF JUSTICE PANGANIBAN:
There seems to be some confusions if not contradiction in your theory.
SOLICITOR GENERAL BENIPAYO:
I dont know whether this will clarify. The acts, the supposed illegal or unlawful acts committed
on the occasion of 1017, as I said, it cannot be condoned. You cannot blame the President for,
as you said, a misapplication of the law. These are acts of the police officers, that is their
responsibility.157
The Dissenting Opinion states that PP 1017 and G.O. No. 5 are constitutional in every aspect and
"should result in no constitutional or statutory breaches if applied according to their letter."
The Court has passed upon the constitutionality of these issuances. Its ratiocination has been
exhaustively presented. At this point, suffice it to reiterate that PP 1017 is limited to the calling
out by the President of the military to prevent or suppress lawless violence, invasion or rebellion.
When in implementing its provisions, pursuant to G.O. No. 5, the military and the police committed
acts which violate the citizens rights under the Constitution, this Court has to declare such acts
unconstitutional and illegal.
In this connection, Chief Justice Artemio V. Panganibans concurring opinion, attached hereto, is
considered an integral part of this ponencia.
SUMMATION
In sum, the lifting of PP 1017 through the issuance of PP 1021 a supervening event would
have normally rendered this case moot and academic. However, while PP 1017 was still operative,
illegal acts were committed allegedly in pursuance thereof. Besides, there is no guarantee that PP
1017, or one similar to it, may not again be issued. Already, there have been media reports on
April 30, 2006 that allegedly PP 1017 would be reimposed "if the May 1 rallies" become "unruly
and violent." Consequently, the transcendental issues raised by the parties should not be
"evaded;" they must now be resolved to prevent future constitutional aberration.
The Court finds and so holds that PP 1017 is constitutional insofar as it constitutes a call by the
President for the AFP to prevent or suppress lawless violence. The proclamation is sustained by
Section 18, Article VII of the Constitution and the relevant jurisprudence discussed earlier.
However, PP 1017s extraneous provisions giving the President express or implied power (1) to
issue decrees; (2) to direct the AFP to enforce obedience to all laws even those not related to
lawless violence as well as decrees promulgated by the President; and (3) to impose standards
on media or any form of prior restraint on the press, are ultra vires and unconstitutional. The
Court also rules that under Section 17, Article XII of the Constitution, the President, in the absence
of a legislation, cannot take over privately-owned public utility and private business affected with
public interest.
In the same vein, the Court finds G.O. No. 5 valid. It is an Order issued by the President acting
as Commander-in-Chief addressed to subalterns in the AFP to carry out the provisions of PP
1017. Significantly, it also provides a valid standard that the military and the police should take
only the "necessary and appropriate actions and measures to suppress and prevent
acts of lawless violence."But the words "acts of terrorism" found in G.O. No. 5 have not
been legally defined and made punishable by Congress and should thus be deemed deleted from
the said G.O. While "terrorism" has been denounced generally in media, no law has been enacted
to guide the military, and eventually the courts, to determine the limits of the AFPs authority in
carrying out this portion of G.O. No. 5.
On the basis of the relevant and uncontested facts narrated earlier, it is also pristine clear that
(1) the warrantless arrest of petitioners Randolf S. David and Ronald Llamas; (2) the dispersal of
the rallies and warrantless arrest of the KMU and NAFLU-KMU members; (3) the imposition of
standards on media or any prior restraint on the press; and (4) the warrantless search of
the Tribune offices and the whimsical seizures of some articles for publication and other materials,
are not authorized by the Constitution, the law and jurisprudence. Not even by the valid provisions
of PP 1017 and G.O. No. 5.
Other than this declaration of invalidity, this Court cannot impose any civil, criminal or
administrative sanctions on the individual police officers concerned. They have not been
individually identified and given their day in court. The civil complaints or causes of action and/or
relevant criminal Informations have not been presented before this Court. Elementary due process
bars this Court from making any specific pronouncement of civil, criminal or administrative
liabilities.
It is well to remember that military power is a means to an end and substantive civil
rights are ends in themselves. How to give the military the power it needs to protect
the Republic without unnecessarily trampling individual rights is one of the eternal
balancing tasks of a democratic state.During emergency, governmental action may vary in
breadth and intensity from normal times, yet they should not be arbitrary as to unduly restrain
our peoples liberty.
Perhaps, the vital lesson that we must learn from the theorists who studied the various competing
political philosophies is that, it is possible to grant government the authority to cope with crises
without surrendering the two vital principles of constitutionalism: the maintenance of legal
limits to arbitrary power, and political responsibility of the government to the
governed.158
WHEREFORE, the Petitions are partly granted. The Court rules that PP 1017
is CONSTITUTIONAL insofar as it constitutes a call by President Gloria Macapagal-Arroyo on the
AFP to prevent or suppress lawless violence. However, the provisions of PP 1017
commanding the AFP to enforce laws not related to lawless violence, as well as decrees
promulgated by the President, are declared UNCONSTITUTIONAL. In addition, the provision in
PP 1017 declaring national emergency under Section 17, Article VII of the Constitution
is CONSTITUTIONAL, but such declaration does not authorize the President to take over
privately-owned public utility or business affected with public interest without prior legislation.
G.O. No. 5 is CONSTITUTIONAL since it provides a standard by which the AFP and the PNP
should implement PP 1017, i.e. whatever is "necessary and appropriate actions and
measures to suppress and prevent acts of lawless violence." Considering that "acts of
terrorism" have not yet been defined and made punishable by the Legislature, such portion of
G.O. No. 5 is declared UNCONSTITUTIONAL.
The warrantless arrest of Randolf S. David and Ronald Llamas; the dispersal and warrantless
arrest of the KMU and NAFLU-KMU members during their rallies, in the absence of proof that these
petitioners were committing acts constituting lawless violence, invasion or rebellion and violating
BP 880; the imposition of standards on media or any form of prior restraint on the press, as well
as the warrantless search of the Tribune offices and whimsical seizure of its articles for publication
and other materials, are declared UNCONSTITUTIONAL.
No costs.
SO ORDERED.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Chief Justice
 (On leave)
REYNATO S. PUNO LEONARDO A. QUISUMBING
Associate Justice Asscociate Justice

CONSUELO YNARES-SANTIAGO ANTONIO T. CARPIO

Associate Justice Asscociate Justice

MA. ALICIA AUSTRIA-MARTINEZ RENATO C. CORONA

Associate Justice Asscociate Justice

CONCHITA CARPIO MORALES ROMEO J. CALLEJO, SR.

Associate Justice Asscociate Justice

ADOLFO S. AZCUNA DANTE O. TINGA

Associate Justice Asscociate Justice

MINITA V. CHICO-NAZARIO CANCIO C. GARCIA

Associate Justice Asscociate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions
in the above Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Court.

ARTEMIO V. PANGANIBAN
Chief Justice
G.R. No. 155001 January 21, 2004
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA,
MANUEL ANTONIO B. BOE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V.
DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO,
BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION-NATIONAL LABOR UNION
(MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION
(PALEA),petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS
and SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department
of Transportation and Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS
CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES
AIRPORT SERVICES CORPORATION, MIASCOR CATERING SERVICES CORPORATION,
MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR LOGISTICS
CORPORATION, Petitioners-in-Intervention,
FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE ANG, EUGENE
ARADA, NENETTE BARREIRO, NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE
DIVINE BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA CAILAO, ERWIN
CALAR, MARIFEL CONSTANTINO, JANETTE CORDERO, ARNOLD FELICITAS, MARISSA
GAYAGOY, ALEX GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE
IGNACIO, THELMA INFANTE, JOEL JUMAO-AS, MARIETTA LINCHOCO, ROLLY
LORICO, FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT, DENNIS MANALO, RAUL
MANGALIMAN, JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA,
NICHOLS MORALES, ALLEN OLAO, CESAR ORTAL, MICHAEL ORTEGA, WAYNE
PLAZA, JOSELITO REYES, ROLANDO REYES, AILEEN SAPINA, RAMIL TAMAYO,
PHILLIPS TAN, ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI YUPANO,
MARY JANE ONG, RICHARD RAMIREZ, CHERYLE MARIE ALFONSO, LYNDON
BAUTISTA, MANUEL CABOCAN AND NEDY LAZO, Respondents-in-Intervention,
NAGKAISANG MARALITA NG TAONG ASSOCIATION, INC., Respondents-in-
Intervention,
x-------------------------x
G.R. No. 155547 January 21, 2004
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G.
JARAULA, petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation
and Communications, and SECRETARY SIMEON A. DATUMANONG, in his capacity as
Head of the Department of Public Works and Highways, respondents, JACINTO V.
PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA,
PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and
BENASING O. MACARANBON, Respondents-Intervenors,
FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE ANG, EUGENE
ARADA, NENETTE BARREIRO, NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE
DIVINE BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA CAILAO, ERWIN
CALAR, MARIFEL CONSTANTINO, JANETTE CORDERO, ARNOLD FELICITAS, MARISSA
GAYAGOY, ALEX GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE
IGNACIO, THELMA INFANTE, JOEL JUMAO-AS, MARIETTA LINCHOCO, ROLLY
LORICO, FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT, DENNIS MANALO, RAUL
MANGALIMAN, JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA,
NICHOLS MORALES, ALLEN OLAO, CESAR ORTAL, MICHAEL ORTEGA, WAYNE
PLAZA, JOSELITO REYES, ROLANDO REYES, AILEEN SAPINA, RAMIL TAMAYO,
PHILLIPS TAN, ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI YUPANO,
MARY JANE ONG, RICHARD RAMIREZ, CHERYLE MARIE ALFONSO, LYNDON
BAUTISTA, MANUEL CABOCAN AND NEDY LAZO, Respondents-in-Intervention,
NAGKAISANG MARALITA NG TAONG ASSOCIATION, INC., Respondents-in-
Intervention,
x-------------------------x
G.R. No. 155661 January 21, 2004
CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V.
GAERLAN, LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN, RONALD
SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and SAMAHANG
MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of
the Department of Transportation and Communications, respondents,
FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE ANG, EUGENE
ARADA, NENETTE BARREIRO, NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE
DIVINE BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA CAILAO, ERWIN
CALAR, MARIFEL CONSTANTINO, JANETTE CORDERO, ARNOLD FELICITAS, MARISSA
GAYAGOY, ALEX GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE
IGNACIO, THELMA INFANTE, JOEL JUMAO-AS, MARIETTA LINCHOCO, ROLLY
LORICO, FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT, DENNIS MANALO, RAUL
MANGALIMAN, JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA,
NICHOLS MORALES, ALLEN OLAO, CESAR ORTAL, MICHAEL ORTEGA, WAYNE
PLAZA, JOSELITO REYES, ROLANDO REYES, AILEEN SAPINA, RAMIL TAMAYO,
PHILLIPS TAN, ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI YUPANO,
MARY JANE ONG, RICHARD RAMIREZ, CHERYLE MARIE ALFONSO, LYNDON
BAUTISTA, MANUEL CABOCAN AND NEDY LAZO, Respondents-in-Intervention,
NAGKAISANG MARALITA NG TAONG ASSOCIATION, INC., Respondents-in-
Intervention.
RESOLUTION
PUNO, J.:
Before this Court are the separate Motions for Reconsideration filed by respondent Philippine
International Air Terminals Co., Inc. (PIATCO), respondents-intervenors Jacinto V. Paras, Rafael
P. Nantes, Eduardo C. Zialcita, Willie Buyson Villarama, Prospero C. Nograles, Prospero A. Pichay,
Jr., Harlin Cast Abayon and Benasing O. Macaranbon, all members of the House of Representatives
(Respondent Congressmen),1 respondents-intervenors who are employees of PIATCO and other
workers of the Ninoy Aquino International Airport International Passenger Terminal III (NAIA IPT
III) (PIATCO Employees)2 and respondents-intervenors Nagkaisang Maralita ng Taong
Association, Inc., (NMTAI)3 of the Decision of this Court dated May 5, 2003 declaring the contracts
for the NAIA IPT III project null and void.
Briefly, the proceedings. On October 5, 1994, Asias Emerging Dragon Corp. (AEDC) submitted an
unsolicited proposal to the Philippine Government through the Department of Transportation and
Communication (DOTC) and Manila International Airport Authority (MIAA) for the construction
and development of the NAIA IPT III under a build-operate-and-transfer arrangement pursuant
to R.A. No. 6957, as amended by R.A. No. 7718 (BOT Law).4 In accordance with the BOT Law
and its Implementing Rules and Regulations (Implementing Rules), the DOTC/MIAA invited the
public for submission of competitive and comparative proposals to the unsolicited proposal of
AEDC. On September 20, 1996 a consortium composed of the Peoples Air Cargo and Warehousing
Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security
Bank) (collectively, Paircargo Consortium), submitted their competitive proposal to the
Prequalification Bids and Awards Committee (PBAC).
After finding that the Paircargo Consortium submitted a bid superior to the unsolicited proposal
of AEDC and after failure by AEDC to match the said bid, the DOTC issued the notice of award for
the NAIA IPT III project to the Paircargo Consortium, which later organized into herein respondent
PIATCO. Hence, on July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile,
and PIATCO, through its President, Henry T. Go, signed the "Concession Agreement for the Build-
Operate-and-Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal
III" (1997 Concession Agreement). On November 26, 1998, the 1997 Concession Agreement was
superseded by the Amended and Restated Concession Agreement (ARCA) containing certain
revisions and modifications from the original contract. A series of supplemental agreements was
also entered into by the Government and PIATCO. The First Supplement was signed on August
27, 1999, the Second Supplement on September 4, 2000, and the Third Supplement on June 22,
2001 (collectively, Supplements) (the 1997 Concession Agreement, ARCA and the Supplements
collectively referred to as the PIATCO Contracts).
On September 17, 2002, various petitions were filed before this Court to annul the 1997
Concession Agreement, the ARCA and the Supplements and to prohibit the public
respondents DOTC and MIAA from implementing them.
In a decision dated May 5, 2003, this Court granted the said petitions and declared the 1997
Concession Agreement, the ARCA and the Supplements null and void.
Respondent PIATCO, respondent-Congressmen and respondents-intervenors now seek the
reversal of the May 5, 2003 decision and pray that the petitions be dismissed. In the alternative,
PIATCO prays that the Court should not strike down the entire 1997 Concession Agreement, the
ARCA and its supplements in light of their separability clause. Respondent-Congressmen and
NMTAI also pray that in the alternative, the cases at bar should be referred to arbitration pursuant
to the provisions of the ARCA. PIATCO-Employees pray that the petitions be dismissed and
remanded to the trial courts for trial on the merits or in the alternative that the 1997 Concession
Agreement, the ARCA and the Supplements be declared valid and binding.
I
Procedural Matters
a. Lack of Jurisdiction
Private respondents and respondents-intervenors reiterate a number of procedural issues which
they insist deprived this Court of jurisdiction to hear and decide the instant cases on its merits.
They continue to claim that the cases at bar raise factual questions which this Court is ill-equipped
to resolve, hence, they must be remanded to the trial court for reception of evidence. Further,
they allege that although designated as petitions for certiorari and prohibition, the cases at bar
are actually actions for nullity of contracts over which the trial courts have exclusive jurisdiction.
Even assuming that the cases at bar are special civil actions for certiorari and prohibition, they
contend that the principle of hierarchy of courts precludes this Court from taking primary
jurisdiction over them.
We are not persuaded.
There is a question of fact when doubt or difference arises as to the truth or falsity of the facts
alleged.5 Even a cursory reading of the cases at bar will show that the Court decided them by
interpreting and applying the Constitution, the BOT Law, its Implementing Rules and other
relevant legal principles on the basis of clearly undisputed facts. All the operative facts were
settled, hence, there is no need for a trial type determination of their truth or falsity by a trial
court.
We reject the unyielding insistence of PIATCO Employees that the following factual issues are
critical and beyond the capability of this Court to resolve, viz: (a) whether the National Economic
Development Authority- Investment Coordinating Committee (NEDA-ICC) approved the
Supplements; (b) whether the First Supplement created ten (10) new financial obligations on the
part of the government; and (c) whether the 1997 Concession Agreement departed from the draft
Concession Agreement contained in the Bid Documents.6
The factual issue of whether the NEDA-ICC approved the Supplements is hardly relevant. It is
clear in our Decision that the PIATCO contracts were invalidated on other and more substantial
grounds. It did not rely on the presence or absence of NEDA-ICC approval of the Supplements.
On the other hand, the last two issues do not involve disputed facts. Rather, they involve
contractual provisions which are clear and categorical and need only to be interpreted.
The interpretation of contracts and the determination of whether their provisions violate our laws
or contravene any public policy is a legal issue which this Court may properly pass upon.
Respondents corollary contention that this Court violated the hierarchy of courts when it
entertained the cases at bar must also fail. The rule on hierarchy of courts in cases falling within
the concurrent jurisdiction of the trial courts and appellate courts generally applies to cases
involving warring factual allegations. For this reason, litigants are required to repair to the trial
courts at the first instance to determine the truth or falsity of these contending allegations on the
basis of the evidence of the parties. Cases which depend on disputed facts for decision cannot be
brought immediately before appellate courts as they are not triers of facts.
It goes without saying that when cases brought before the appellate courts do not involve factual
but legal questions, a strict application of the rule of hierarchy of courts is not necessary. As
the cases at bar merely concern the construction of the Constitution, the interpretation of the BOT
Law and its Implementing Rules and Regulations on undisputed contractual provisions and
government actions, and as the cases concern public interest, this Court resolved to take primary
jurisdiction over them. This choice of action follows the consistent stance of this Court to settle
any controversy with a high public interest component in a single proceeding and to leave no root
or branch that could bear the seeds of future litigation. The suggested remand of the cases at bar
to the trial court will stray away from this policy.7
b. Legal Standing
Respondent PIATCO stands pat with its argument that petitioners lack legal personality to file the
cases at bar as they are not real parties in interest who are bound principally or subsidiarily to the
PIATCO Contracts. Further, respondent PIATCO contends that petitioners failed to show any
legally demandable or enforceable right to justify their standing to file the cases at bar.
These arguments are not difficult to deflect. The determination of whether a person may institute
an action or become a party to a suit brings to fore the concepts of real party in interest, capacity
to sue and standing to sue. To the legally discerning, these three concepts are different although
commonly directed towards ensuring that only certain parties can maintain an action.8 As defined
in the Rules of Court, a real party in interest is the party who stands to be benefited or injured by
the judgment in the suit or the party entitled to the avails of the suit.9 Capacity to sue deals with
a situation where a person who may have a cause of action is disqualified from bringing a suit
under applicable law or is incompetent to bring a suit or is under some legal disability that would
prevent him from maintaining an action unless represented by a guardian ad litem. Legal standing
is relevant in the realm of public law. In certain instances, courts have allowed private parties to
institute actions challenging the validity of governmental action for violation of private rights or
constitutional principles.10 In these cases, courts apply the doctrine of legal standing by
determining whether the party has a direct and personal interest in the controversy and
whether such party has sustained or is in imminent danger of sustaining an injury as
a result of the act complained of, a standard which is distinct from the concept of real party
in interest.11 Measured by this yardstick, the application of the doctrine on legal standing
necessarily involves a preliminary consideration of the merits of the case and is not purely a
procedural issue.12
Considering the nature of the controversy and the issues raised in the cases at bar, this Court
affirms its ruling that the petitioners have the requisite legal standing. The petitioners in G.R. Nos.
155001 and 155661 are employees of service providers operating at the existing international
airports and employees of MIAA while petitioners-intervenors are service providers with existing
contracts with MIAA and they will all sustain direct injury upon the implementation of the PIATCO
Contracts. The 1997 Concession Agreement and the ARCA both provide that upon the
commencement of operations at the NAIA IPT III, NAIA Passenger Terminals I and II will cease
to be used as international passenger terminals.13 Further, the ARCA provides:
(d) For the purpose of an orderly transition, MIAA shall not renew any expired concession
agreement relative to any service or operation currently being undertaken at the Ninoy Aquino
International Airport Passenger Terminal I, or extend any concession agreement which may expire
subsequent hereto, except to the extent that the continuation of the existing services and
operations shall lapse on or before the In-Service Date.14
Beyond iota of doubt, the implementation of the PIATCO Contracts, which the petitioners and
petitioners-intervenors denounce as unconstitutional and illegal, would deprive them of their
sources of livelihood. Under settled jurisprudence, one's employment, profession, trade, or calling
is a property right and is protected from wrongful interference.15 It is also self evident that the
petitioning service providers stand in imminent danger of losing legitimate business investments
in the event the PIATCO Contracts are upheld.
Over and above all these, constitutional and other legal issues with far-reaching economic and
social implications are embedded in the cases at bar, hence, this Court liberally granted legal
standing to the petitioning members of the House of Representatives. First, at stake is the build-
operate-andtransfer contract of the countrys premier international airport with a projected
capacity of 10 million passengers a year. Second, the huge amount of investment to complete the
project is estimated to be P13,000,000,000.00. Third, the primary issues posed in the cases at
bar demand a discussion and interpretation of the Constitution, the BOT Law and its implementing
rules which have not been passed upon by this Court in previous cases. They can chart the future
inflow of investment under the BOT Law.
Before writing finis to the issue of legal standing, the Court notes the bid of new parties to
participate in the cases at bar as respondents-intervenors, namely, (1) the PIATCO Employees
and (2) NMTAI (collectively, the New Respondents-Intervenors). After the Courts Decision, the
New Respondents-Intervenors filed separate Motions for Reconsideration-In-Intervention alleging
prejudice and direct injury. PIATCO employees claim that "they have a direct and personal interest
[in the controversy]... since they stand to lose their jobs should the governments contract with
PIATCO be declared null and void."16 NMTAI, on the other hand, represents itself as a corporation
composed of responsible tax-paying Filipino citizens with the objective of "protecting and
sustaining the rights of its members to civil liberties, decent livelihood, opportunities for social
advancement, and to a good, conscientious and honest government."17
The Rules of Court govern the time of filing a Motion to Intervene. Section 2, Rule 19 provides
that a Motion to Intervene should be filed "before rendition of judgment...." The New
Respondents-Intervenors filed their separate motions after a decision has been promulgated in
the present cases. They have not offered any worthy explanation to justify their late intervention.
Consequently, their Motions for Reconsideration-In-Intervention are denied for the rules cannot
be relaxed to await litigants who sleep on their rights. In any event, a sideglance at these late
motions will show that they hoist no novel arguments.
c. Failure to Implead an Indispensable Party
PIATCO next contends that petitioners should have impleaded the Republic of the Philippines as
an indispensable party. It alleges that petitioners sued the DOTC, MIAA and the DPWH in their
own capacities or as implementors of the PIATCO Contracts and not as a contract party or as
representatives of the Government of the Republic of the Philippines. It then leapfrogs to the
conclusion that the "absence of an indispensable party renders ineffectual all the proceedings
subsequent to the filing of the complaint including the judgment."18
PIATCOs allegations are inaccurate. The petitions clearly bear out that public respondents DOTC
and MIAA were impleaded as parties to the PIATCO Contracts and not merely as their
implementors. The separate petitions filed by the MIAA employees19 and members of the House
of Representatives20 alleged that "public respondents are impleaded herein because they
either executed the PIATCO Contracts or are undertaking acts which are related to the
PIATCO Contracts. They are interested and indispensable parties to this Petition."21 Thus, public
respondents DOTC and MIAA were impleaded as parties to the case for having executed the
contracts.
More importantly, it is also too late in the day for PIATCO to raise this issue. If PIATCO seriously
views the non-inclusion of the Republic of the Philippines as an indispensable party as fatal to the
petitions at bar, it should have raised the issue at the onset of the proceedings as a ground to
dismiss. PIATCO cannot litigate issues on a piecemeal basis, otherwise, litigations shall be like a
shore that knows no end. In any event, the Solicitor General, the legal counsel of the Republic,
appeared in the cases at bar in representation of the interest of the government.
II
Pre-qualification of PIATCO
The Implementing Rules provide for the unyielding standards the PBAC should apply to determine
the financial capability of a bidder for pre-qualification purposes: (i) proof of the ability of the
project proponent and/or the consortium to provide a minimum amount of equity to the
project and (ii) a letter testimonial from reputable banks attesting that the project proponent
and/or members of the consortium are banking with them, that they are in good
financial standing, and that they have adequate resources.22 The evident intent of these
standards is to protect the integrity and insure the viability of the project by seeing to it that the
proponent has the financial capability to carry it out. As a further measure to achieve this intent,
it maintains a certain debt-to-equity ratio for the project.
At the pre-qualification stage, it is most important for a bidder to show that it has the financial
capacity to undertake the project by proving that it can fulfill the requirement on minimum amount
of equity. For this purpose, the Bid Documents require in no uncertain terms:
The minimum amount of equity to which the proponents financial capability will be based shall
be thirty percent (30%) of the project cost instead of the twenty percent (20%)
specified in Section 3.6.4 of the Bid Documents. This is to correlate with the required debt-
to-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt portion of
the project financing should not exceed 70% of the actual project cost.23
In relation thereto, section 2.01 (a) of the ARCA provides:
Section 2.01 Project Scope.
The scope of the project shall include:
(a) Financing the project at an actual Project cost of not less than Three Hundred Fifty Million
United States Dollars (US$350,000,000.00) while maintaining a debt-to-equity ratio of 70:30,
provided that if the actual Project costs should exceed the aforesaid amount, Concessionaire shall
ensure that the debt-to-equity ratio is maintained;24
Under the debt-to-equity restriction, a bidder may only seek financing of the NAIA IPT III Project
up to 70% of the project cost. Thirty percent (30%) of the cost must come in the form of equity
or investment by the bidder itself. It cannot be overly emphasized that the rules require a
minimum amount of equity to ensure that a bidder is not merely an operator or implementor of
the project but an investor with a substantial interest in its success. The minimum equity
requirement also guarantees the Philippine government and the general public, who are the
ultimate beneficiaries of the project, that a bidder will not be indifferent to the completion of the
project. The discontinuance of the project will irreparably damage public interest more than
private interest.
In the cases at bar, after applying the investment ceilings provided under the General Banking
Act and considering the maximum amounts that each member of the consortium may validly
invest in the project, it is daylight clear that the Paircargo Consortium, at the time of pre-
qualification, had a net worth equivalent to only 6.08% of the total estimated project
cost.25 By any reckoning, a showing by a bidder that at the time of pre-qualification its maximum
funds available for investment amount to only 6.08% of the project cost is insufficient to satisfy
the requirement prescribed by the Implementing Rules that the project proponent must have the
ability to provide at least 30% of the total estimated project cost. In peso and centavo terms, at
the time of pre-qualification, the Paircargo Consortium had maximum funds available for
investment to the NAIA IPT III Project only in the amount of P558,384,871.55, when it had to
show that it had the ability to provide at least P2,755,095,000.00. The huge disparity cannot be
dismissed as of de minimis importance considering the high public interest at stake in the project.
PIATCO nimbly tries to sidestep its failure by alleging that it submitted not only audited financial
statements but also testimonial letters from reputable banks attesting to the good financial
standing of the Paircargo Consortium. It contends that in adjudging whether the Paircargo
Consortium is a pre-qualified bidder, the PBAC should have considered not only its financial
statements but other factors showing its financial capability.
Anent this argument, the guidelines provided in the Bid Documents are instructive:
3.3.4 FINANCING AND FINANCIAL PREQUALIFICATIONS REQUIREMENTS
Minimum Amount of Equity
Each member of the proponent entity is to provide evidence of networth in cash and assets
representing the proportionate share in the proponent entity. Audited financial statements for
the past five (5) years as a company for each member are to be provided.
Project Loan Financing
Testimonial letters from reputable banks attesting that each of the members of the
ownership entity are banking with them, in good financial standing and having adequate resources
are to be provided.26
It is beyond refutation that Paircargo Consortium failed to prove its ability to provide the
amount of at least P2,755,095,000.00, or 30% of the estimated project cost. Its
submission of testimonial letters attesting to its good financial standing will not cure this failure.
At best, the said letters merely establish its credit worthiness or its ability to obtain loans to finance
the project. They do not, however, prove compliance with the aforesaid requirement of minimum
amount of equity in relation to the prescribed debt-to-equity ratio. This equity cannot be satisfied
through possible loans.
In sum, we again hold that given the glaring gap between the net worth of Paircargo and PAGS
combined with the amount of maximum funds that Security Bank may invest by equity in a non-
allied undertaking, Paircargo Consortium, at the time of pre-qualification, failed to show that it
had the ability to provide 30% of the project cost and necessarily, its financial capability for the
project cannot pass muster.
III
Concession Agreement
Again, we brightline the principle that in public bidding, bids are submitted in accord with the
prescribed terms, conditions and parameters laid down by government and pursuant to the
requirements of the project bidded upon. In light of these parameters, bidders formulate
competing proposals which are evaluated to determine the bid most favorable to the government.
Once the contract based on the bid most favorable to the government is awarded, all that is left
to be done by the parties is to execute the necessary agreements and implement them. There
can be no substantial or material change to the parameters of the project, including the essential
terms and conditions of the contract bidded upon, after the contract award. If there were changes
and the contracts end up unfavorable to government, the public bidding becomes a mockery and
the modified contracts must be struck down.
Respondents insist that there were no substantial or material amendments in the 1997 Concession
Agreement as to the technical aspects of the project, i.e., engineering design, technical
soundness, operational and maintenance methods and procedures of the project or the technical
proposal of PIATCO. Further, they maintain that there was no modification of the financial
features of the project, i.e., minimum project cost, debt-to-equity ratio, the operations and
maintenance budget, the schedule and amount of annual guaranteed payments, or the financial
proposal of PIATCO. A discussion of some of these changes to determine whether they altered
the terms and conditions upon which the bids were made is again in order.
a. Modification on Fees and Charges to be collected by PIATCO
PIATCO clings to the contention that the removal of the groundhandling fees, airline office rentals
and porterage fees from the category of fees subject to MIAA regulation in the 1997 Concession
Agreement does not constitute a substantial amendment as these fees are not really public utility
fees. In other words, PIATCO justifies the re-classification under the 1997 Concession
Agreement on the ground that these fees are non-public utility revenues.
We disagree. The removal of groundhandling fees, airline office rentals and porterage fees from
the category of "Public Utility Revenues" under the draft Concession Agreement and its re-
classification to "Non-Public Utility Revenues" under the 1997 Concession Agreement is significant
and has far reaching consequence. The 1997 Concession Agreement provides that with respect
to Non-Public Utility Revenues, which include groundhandling fees, airline office rentals and
porterage fees,27 "[PIATCO] may make any adjustments it deems appropriate without need for
the consent of GRP or any government agency."28 In contrast, the draft Concession
Agreement specifies these fees as part of Public Utility Revenues and can be adjusted "only once
every two yearsand in accordance with the Parametric Formula" and "the adjustments shall be
made effective only after the written express approval of the MIAA."29 The Bid Documents
themselves clearly provide:
4.2.3 Mechanism for Adjustment of Fees and Charges
4.2.3.1 Periodic Adjustment in Fees and Charges
Adjustments in the fees and charges enumerated hereunder, whether or not falling within
the purview of public utility revenues, shall be allowed only once every two years in
accordance with the parametric formula attached hereto as Annex 4.2f. Provided that the
adjustments shall be made effective only after the written express approval of MIAA. Provided,
further, that MIAAs approval, shall be contingent only on conformity of the adjustments to the
said parametric formula.
The fees and charges to be regulated in the above manner shall consist of the following:
....
c) groundhandling fees;
d) rentals on airline offices;
....
(f) porterage fees;
. . . .30
The plain purpose in re-classifying groundhandling fees, airline office rentals and porterage fees
as non-public utility fees is to remove them from regulation by the MIAA. In excluding these
fees from government regulation, the danger to public interest cannot be downplayed.
We are not impressed by the effort of PIATCO to depress this prejudice to public interest by its
contention that in the 1997 Concession Agreement governing Non-Public Utility Revenues, it is
provided that "[PIATCO] shall at all times be judicious in fixing fees and charges constituting
Non-Public Utility Revenues in order to ensure that End Users are not unreasonably deprived of
services."31 PIATCO then peddles the proposition that the said provision confers upon MIAA "full
regulatory powers to ensure that PIATCO is charging non-public utility revenues
at judicious rates."32 To the trained eye, the argument will not fly for it is obviously non sequitur.
Fairly read, it is PIATCO that wields the power to determine the judiciousness of the said fees and
charges. In the draft Concession Agreement the power was expressly lodged with the MIAA and
any adjustment can only be done once every two years. The changes are not insignificant specks
as interpreted by PIATCO.
PIATCO further argues that there is no substantial change in the 1997 Concession Agreement with
respect to fees and charges PIATCO is allowed to impose which are not covered by Administrative
Order No. 1, Series of 199333as the "relevant provision of the 1997 Concession Agreement is
practically identical with the draft Concession Agreement."34
We are not persuaded. Under the draft Concession Agreement, PIATCO may impose fees and
charges other than those fees and charges previously imposed or collected at the Ninoy Aquino
International Airport Passenger Terminal I, subject to the written approval of MIAA.35 Further, the
draft Concession Agreement provides that MIAA reserves the right to regulate these new fees
and charges if in its judgment the users of the airport shall be deprived of a free option for the
services they cover.36 In contrast, under the 1997 Concession Agreement, the MIAA merely
retained the right to approve any imposition of new fees and charges which were not
previously collected at the Ninoy Aquino International Airport Passenger Terminal I. The
agreement did not contain an equivalent provision allowing MIAA to reserve the right
to regulate the adjustments of these new fees and charges.37 PIATCO justifies the amendment
by arguing that MIAA can establish terms before approval of new fees and charges, inclusive of
the mode for their adjustment.
PIATCOs stance is again a strained one. There would have been no need for an amendment if
there were no change in the power to regulate on the part of MIAA. The deletion of MIAAs
reservation of its right to regulate the price adjustments of new fees and charges can have no
other purpose but to dilute the extent of MIAAs regulation in the collection of these fees. Again,
the amendment diminished the authority of MIAA to protect the public interest in case of abuse
by PIATCO.
b. Assumption by the Government of the liabilities of PIATCO in the event of the
latters default
PIATCO posits the thesis that the new provisions in the 1997 Concession Agreement in case of
default by PIATCO on its loans were merely meant to prescribe and limit the rights of PIATCOs
creditors with regard to the NAIA Terminal III. PIATCO alleges that Section 4.04 of the 1997
Concession Agreement simply provides that PIATCOs creditors have no right to foreclose the
NAIA Terminal III.
We cannot concur. The pertinent provisions of the 1997 Concession Agreement state:
Section 4.04 Assignment.
....
(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the
default has resulted in the acceleration of the payment due date of the Attendant Liability prior to
its stated date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP
in writing of such default. GRP shall, within one hundred eighty (180) Days from receipt of the
joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the
Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors,
if qualified, to be substituted as concessionaire and operator of the Development Facility in
accordance with the terms and conditions hereof, or designate a qualified operator acceptable to
GRP to operate the Development Facility, likewise under the terms and conditions of this
Agreement; Provided that if at the end of the 180-day period GRP shall not have served the Unpaid
Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to
take over the Development Facility with the concomitant assumption of Attendant
Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as
concessionaire, the latter shall form and organize a concession company qualified to take over the
operation of the Development Facility. If the concession company should elect to designate an
operator for the Development Facility, the concession company shall in good faith identify and
designate a qualified operator acceptable to GRP within one hundred eighty (180) days from
receipt of GRPs written notice. If the concession company, acting in good faith and with due
diligence, is unable to designate a qualified operator within the aforesaid period, then GRP shall
at the end of the 180-day period take over the Development Facility and assume Attendant
Liabilities.
A plain reading of the above provision shows that it spells out in limpid language the obligation of
government in case of default by PIATCO on its loans. There can be no blinking from the fact that
in case of PIATCOs default, the government will assume PIATCOs Attendant Liabilities as defined
in the 1997 Concession Agreement.38 This obligation is not found in the draft Concession
Agreement and the change runs roughshod to the spirit and policy of the BOT Law which was
crafted precisely to prevent government from incurring financial risk.
In any event, PIATCO pleads that the entire agreement should not be struck down as the 1997
Concession Agreement contains a separability clause.
The plea is bereft of merit. The contracts at bar which made a mockery of the bidding process
cannot be upheld and must be annulled in their entirety for violating law and public policy. As
demonstrated, the contracts were substantially amended after their award to the successful bidder
on terms more beneficial to PIATCO and prejudicial to public interest. If this flawed process would
be allowed, public bidding will cease to be competitive and worse, government would not be
favored with the best bid. Bidders will no longer bid on the basis of the prescribed terms and
conditions in the bid documents but will formulate their bid in anticipation of the execution of a
future contract containing new and better terms and conditions that were not previously available
at the time of the bidding. Such a public bidding will not inure to the public good. The resulting
contracts cannot be given half a life but must be struck down as totally lawless.
IV.
Direct Government Guarantee
The respondents further contend that the PIATCO Contracts do not contain direct government
guarantee provisions. They assert that section 4.04 of the ARCA, which superseded sections
4.04(b) and (c), Article IV of the 1997 Concession Agreement, is but a "clarification and
explanation"39 of the securities allowed in the bid documents. They allege that these provisions
merely provide for "compensation to PIATCO"40 in case of a government buy-out or takeover of
NAIA IPT III. The respondents, particularly respondent PIATCO, also maintain that the guarantee
contained in the contracts, if any, is an indirect guarantee allowed under the BOT Law, as
amended.41
We do not agree. Section 4.04(c), Article IV42 of the ARCA should be read in conjunction with
section 1.06, Article I,43 in the same manner that sections 4.04(b) and (c), Article IV of the 1997
Concession Agreement should be related to Article 1.06 of the same contract. Section 1.06, Article
I of the ARCA and its counterpart provision in the 1997 Concession Agreement define in no
uncertain terms the meaning of "attendant liabilities." They tell us of the amounts that the
Government has to pay in the event respondent PIATCO defaults in its loan payments to its Senior
Lenders and no qualified transferee or nominee is chosen by the Senior Lenders or is willing to
take over from respondent PIATCO.
A reasonable reading of all these relevant provisions would reveal that the ARCA made the
Government liable to pay "all amounts ... from time to time owed or which may become
owing by Concessionaire [PIATCO] to Senior Lenders or any other persons or entities
who have provided, loaned, or advanced funds or provided financial facilities to
Concessionaire [PIATCO] for the Project [NAIA Terminal 3]."44 These amounts include
"without limitation, all principal, interest, associated fees, charges, reimbursements,
and other related expenses... whether payable at maturity, by acceleration or
otherwise."45 They further include amounts owed by respondent PIATCO to its "professional
consultants and advisers, suppliers, contractors and sub-contractors" as well as "fees, charges
and expenses of any agents or trustees" of the Senior Lenders or any other persons or entities
who have provided loans or financial facilities to respondent PIATCO in relation to NAIA IPT
III.46 The counterpart provision in the 1997 Concession Agreement specifying the attendant
liabilities that the Government would be obligated to pay should PIATCO default in its loan
obligations is equally onerous to the Government as those contained in the ARCA. According to
the 1997 Concession Agreement, in the event the Government is forced to prematurely take over
NAIA IPT III as a result of respondent PIATCOs default in the payment of its loan obligations to
its Senior Lenders, it would be liable to pay the following amounts as "attendant liabilities":
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in
the books of the Concessionaire as owing to Unpaid Creditors who have provided, loaned
or advanced funds actually used for the Project, including all interests, penalties, associated
fees, charges, surcharges, indemnities, reimbursements and other related
expenses, and further including amounts owed by Concessionaire to its suppliers, contractors
and sub-contractors.47
These provisions reject respondents contention that what the Government is obligated to pay, in
the event that respondent PIATCO defaults in the payment of its loans, is merely termination
payment or just compensation for its takeover of NAIA IPT III. It is clear from said section 1.06
that what the Government would pay is the sum total of all the debts, including all
interest, fees and charges, that respondent PIATCO incurred in pursuance of the NAIA IPT III
Project. This reading is consistent with section 4.04 of the ARCA itself which states that the
Government "shall make a termination payment to Concessionaire [PIATCO] equal to the
Appraised Value (as hereinafter defined) of the Development Facility [NAIA Terminal III] or the
sum of the Attendant Liabilities, if greater." For sure, respondent PIATCO will not
receive any amount less than sufficient to cover its debts, regardless of whether or
not the value of NAIA IPT III, at the time of its turn over to the Government, may
actually be less than the amount of PIATCOs debts. The scheme is a form of direct
government guarantee for it is undeniable that it leaves the government no option but to pay the
"attendant liabilities" in the event that the Senior Lenders are unable or unwilling to appoint a
qualified nominee or transferee as a result of PIATCOs default in the payment of its Senior Loans.
As we stressed in our Decision, this Court cannot depart from the legal maxim that "those that
cannot be done directly cannot be done indirectly."
This is not to hold, however, that indirect government guarantee is not allowed under the BOT
Law, as amended. The intention to permit indirect government guarantee is evident from the
Senate deliberations on the amendments to the BOT Law. The idea is to allow for reasonable
government undertakings, such as to authorize the project proponent to undertake related
ventures within the project area, in order to encourage private sector participation in development
projects.48 An example cited by then Senator Gloria Macapagal-Arroyo, one of the sponsors of
R.A. No. 7718, is the Mandaluyong public market which was built under the Build-and-Transfer
("BT") scheme wherein instead of the government paying for the transfer, the project proponent
was allowed to operate the upper floors of the structure as a commercial mall in order to recoup
their investments.49 It was repeatedly stressed in the deliberations that in allowing indirect
government guarantee, the law seeks to encourage both the government and the private sector
to formulate reasonable and innovative government undertakings in pursuance of BOT projects.
In no way, however, can the government be made liable for the debts of the project proponent
as this would be tantamount to a direct government guarantee which is prohibited by the law.
Such liability would defeat the very purpose of the BOT Law which is to encourage the use of
private sector resources in the construction, maintenance and/or operation of development
projects with no, or at least minimal, capital outlay on the part of the government.
The respondents again urge that should this Court affirm its ruling that the PIATCO Contracts
contain direct government guarantee provisions, the whole contract should not be nullified. They
rely on the separability clause in the PIATCO Contracts.
We are not persuaded.
The BOT Law and its implementing rules provide that there are three (3) essential requisites for
an unsolicited proposal to be accepted: (1) the project involves a new concept in technology
and/or is not part of the list of priority projects, (2) no direct government guarantee, subsidy
or equity is required, and (3) the government agency or local government unit has invited by
publication other interested parties to a public bidding and conducted the same.50 The failure to
fulfill any of the requisites will result in the denial of the proposal. Indeed, it is further provided
that a direct government guarantee, subsidy or equity provision will "necessarily disqualify a
proposal from being treated and accepted as an unsolicited proposal."51 In fine, the mere inclusion
of a direct government guarantee in an unsolicited proposal is fatal to the proposal. There is more
reason to invalidate a contract if a direct government guarantee provision is inserted later in the
contract via a backdoor amendment. Such an amendment constitutes a crass circumvention of
the BOT Law and renders the entire contract void.
Respondent PIATCO likewise claims that in view of the fact that other BOT contracts such as the
JANCOM contract, the Manila Water contract and the MRT contract had been considered valid,
the PIATCO contracts should be held valid as well.52 There is no parity in the cited cases. For
instance, a reading of Metropolitan Manila Development Authority v. JANCOM
Environmental Corporation53 will show that its issue is different from the issues in the cases
at bar. In the JANCOM case, the main issue is whether there is a perfected contract between
JANCOM and the Government. The resolution of the issue hinged on the following: (1) whether
the conditions precedent to the perfection of the contract were complied with; (2) whether there
is a valid notice of award; and (3) whether the signature of the Secretary of the Department of
Environment and Natural Resources is sufficient to bind the Government. These issue and sub-
issues are clearly distinguishable and different. For one, the issue of direct government guarantee
was not considered by this Court when it held the JANCOM contract valid, yet, it is a key reason
for invalidating the PIATCO Contracts. It is a basic principle in law that cases with dissimilar facts
cannot have similar disposition.
This Court, however, is not unmindful of the reality that the structures comprising the NAIA IPT
III facility are almost complete and that funds have been spent by PIATCO in their construction.
For the government to take over the said facility, it has to compensate respondent PIATCO as
builder of the said structures. The compensation must be just and in accordance with law and
equity for the government can not unjustly enrich itself at the expense of PIATCO and its investors.
II.
Temporary takeover of business affected with public interest in times of national
emergency
Section 17, Article XII of the 1987 Constitution grants the State in times of national emergency
the right to temporarily take over the operation of any business affected with public interest. This
right is an exercise of police power which is one of the inherent powers of the State.
Police power has been defined as the "state authority to enact legislation that may interfere with
personal liberty or property in order to promote the general welfare."54 It consists of two essential
elements. First, it is an imposition of restraint upon liberty or property. Second, the power is
exercised for the benefit of the common good. Its definition in elastic terms underscores its all-
encompassing and comprehensive embrace.55 It is and still is the "most essential, insistent, and
illimitable"56 of the States powers. It is familiar knowledge that unlike the power of eminent
domain, police power is exercised without provision for just compensation for its
paramount consideration is public welfare.57
It is also settled that public interest on the occasion of a national emergency is the primary
consideration when the government decides to temporarily take over or direct the operation of a
public utility or a business affected with public interest. The nature and extent of the emergency
is the measure of the duration of the takeover as well as the terms thereof. It is the State that
prescribes such reasonable terms which will guide the implementation of the temporary takeover
as dictated by the exigencies of the time. As we ruled in our Decision, this power of the State can
not be negated by any party nor should its exercise be a source of obligation for the State.
Section 5.10(c), Article V of the ARCA provides that respondent PIATCO "shall be entitled to
reasonable compensation for the duration of the temporary takeover by GRP, which compensation
shall take into account the reasonable cost for the use of the Terminal and/or Terminal
Complex."58 It clearly obligates the government in the exercise of its police power to compensate
respondent PIATCO and this obligation is offensive to the Constitution. Police power can not be
diminished, let alone defeated by any contract for its paramount consideration is public welfare
and interest.59
Again, respondent PIATCOs reliance on the case of Heirs of Suguitan v. City of
Mandaluyong60 to justify its claim for reasonable compensation for the Governments temporary
takeover of NAIA IPT III in times of national emergency is erroneous. What was involved in Heirs
of Suguitan is the exercise of the states power of eminent domain and not of police power,
hence, just compensation was awarded. The cases at bar will not involve the exercise of the power
of eminent domain.
III.
Monopoly

Section 19, Article XII of the 1987 Constitution mandates that the State prohibit or regulate
monopolies when public interest so requires. Monopolies are not per se prohibited. Given its
susceptibility to abuse, however, the State has the bounden duty to regulate monopolies to protect
public interest. Such regulation may be called for, especially in sensitive areas such as the
operation of the countrys premier international airport, considering the public interest at stake.

By virtue of the PIATCO contracts, NAIA IPT III would be the only international passenger airport
operating in the Island of Luzon, with the exception of those already operating in Subic Bay
Freeport Special Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in Laoag
City. Undeniably, the contracts would create a monopoly in the operation of an international
commercial passenger airport at the NAIA in favor of PIATCO.

The grant to respondent PIATCO of the exclusive right to operate NAIA IPT III should not exempt
it from regulation by the government. The government has the right, indeed the duty, to protect
the interest of the public. Part of this duty is to assure that respondent PIATCOs exercise of its
right does not violate the legal rights of third parties. We reiterate our ruling that while the service
providers presently operating at NAIA Terminals I and II do not have the right to demand for the
renewal or extension of their contracts to continue their services in NAIA IPT III, those who have
subsisting contracts beyond the In-Service Date of NAIA IPT III can not be arbitrarily or
unreasonably treated.

Finally, the Respondent Congressmen assert that at least two (2) committee reports by the House
of Representatives found the PIATCO contracts valid and contend that this Court, by taking
cognizance of the cases at bar, reviewed an action of a co-equal body.61 They insist that the Court
must respect the findings of the said committees of the House of Representatives.62 With due
respect, we cannot subscribe to their submission. There is a fundamental difference between a
case in court and an investigation of a congressional committee. The purpose of a judicial
proceeding is to settle the dispute in controversy by adjudicating the legal rights and obligations
of the parties to the case. On the other hand, a congressional investigation is conducted in aid of
legislation.63 Its aim is to assist and recommend to the legislature a possible action that the body
may take with regard to a particular issue, specifically as to whether or not to enact a new law or
amend an existing one. Consequently, this Court cannot treat the findings in a congressional
committee report as binding because the facts elicited in congressional hearings are not subject
to the rigors of the Rules of Court on admissibility of evidence. The Court in assuming jurisdiction
over the petitions at bar simply performed its constitutional duty as the arbiter of legal disputes
properly brought before it, especially in this instance when public interest requires nothing less.

WHEREFORE, the motions for reconsideration filed by the respondent PIATCO, respondent
Congressmen and the respondents-in-intervention are DENIED with finality.

SO ORDERED.

Davide, Jr., C.J., Austria-Martinez, Corona, and Carpio-Morales, JJ., concur.

Vitug, J., maintains his separate opinion in the main ponencia, promulgated on 05 May 2003.
Panganiban, J., reiterate his separate opinion in the main case, promulgated on May 5, 2003.
Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, and Azcuna, JJ., joins J. Vitugs opinion.
Carpio, and Tinga, JJ., no part.
Callejo, Sr., J., joins J. Panganiban in his concurring opinion
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 156087 May 8, 2009
KUWAIT AIRWAYS, CORPORATION, Petitioner,
vs.
PHILIPPINE AIRLINES, INC., Respondent.
DECISION
TINGA, J.:
This petition for review1 filed by the duly designated air carrier of the Kuwait Government assails
a decision2 dated 25 October 2002 of the Makati Regional Trial Court (RTC), Branch 60, ordering
Kuwait Airways to pay respondent Philippine Airlines the amount of US$1,092,690.00, plus
interest, attorneys fees, and cost of suit.3 The principal liability represents the share to Philippine
Airlines in the revenues the foreign carrier had earned for the uplift of passengers and cargo in
its flights to and from Kuwait and Manila which the foreign carrier committed to remit as a
contractual obligation.
On 21 October 1981, Kuwait Airways and Philippine Airlines entered into a Commercial
Agreement,4 annexed to which was a Joint Services Agreement5 between the two airlines. The
Commercial Agreement covered a twice weekly Kuwait Airways flight on the route Kuwait-
Bangkok-Manila and vice versa.6 The agreement stipulated that "only 3rd and 4th freedom traffic
rights between Kuwait and Manila and vice versa will be exercised. No 5th freedom traffic rights
will be exercised between Manila on the one hand and Bangkok on the other."7
The "freedom traffic rights" referred to in the Agreement are the so-called "five freedoms"
contained in the International Air Transport Agreement (IATA) signed in Chicago on 7 December
1944. Under the IATA, each contracting State agreed to grant to the other contracting states, five
"freedoms of air." Among these freedoms were "[t]he privilege to put down passengers, mail and
cargo taken on in
the territory of the State whose nationality the aircraft possesses" (Third Freedom); "[t]he
privilege to take on passengers, mail or cargo destined for the territory of the State whose
nationality the aircraft possesses" (Fourth Freedom); and the right to carry passengers from one's
own country to a second country, and from that country to a third country (Fifth Freedom). In
essence, the Kuwait Airways flight was authorized to board passengers in Kuwait and deplane
them in Manila, as well as to board passengers in Manila and deplane them in Kuwait. At the same
time, with the limitation in the exercise of Fifth Freedom traffic rights, the flight was barred from
boarding passengers in Bangkok and deplaning them in Manila, or boarding passengers in Manila
and deplaning them in Bangkok.
The Commercial Agreement likewise adverted to the annexed Joint Services Agreement covering
the Kuwait-Manila (and vice versa) route, which both airlines had entered into "[i]n order to reflect
the high level of friendly relationships between [Kuwait Airways] and [Philippine Airlines] and to
assist each other to develop traffic on the route."8 The Agreement likewise stipulated that "[u]ntil
such time as [Philippine Airlines] commences its operations to or via Kuwait, the Joint Services
shall be operated with the use of [Kuwait Airways] aircraft and crew."9 By virtue of the Joint
Services Agreement, Philippine Airlines was entitled to seat allocations on specified
Kuwait Airways sectors, special prorates for use by Philippine Airlines to specified Kuwait Airways
sectors, joint advertising by both carriers in each others timetables and other general advertising,
and mutual assistance to each other with respect to the development of traffic on the route.10
Most pertinently for our purposes, under Article 2.1 of the Commercial Agreement, Kuwait Airways
obligated itself to "share with Philippine Airlines revenue earned from the uplift of passengers
between Kuwait and Manila and vice versa."11 The succeeding paragraphs of Article 2 stipulated
the basis for the shared revenue earned from the uplift of passengers.
The Commercial Agreement and the annexed Joint Services Agreement was subsequently
amended by the parties six times between 1981 and 1994. At one point, in 1988, the agreement
was amended to authorize Philippine Airlines to operate provisional services, referred to as "ad
hoc joint services," on the Manila-Kuwait (and vice versa) route for the period between April to
June 1988.12 In 1989, another amendment was agreed to by the parties, subjecting the uplift of
cargo between Kuwait and Manila to the same revenue sharing arrangement as the uplift of
passengers.13From 1981 until when the present incidents arose in 1995, there seems to have been
no serious disagreements relating to the contract.
In April of 1995, delegations from the Philippines and Kuwait (Philippine Panel and Kuwait Panel)
met in Kuwait. The talks culminated in a Confidential Memorandum of Understanding (CMU)
entered into in Kuwait on 12 April 1995. Among the members of the Philippine Panel were officials
of the Civil Aeronautics Board (CAB), the Department of Foreign Affairs (DFA), and four officials
of Philippine Airlines: namely its Vice-President for Marketing, Director for International Relations,
Legal Counsel, and a Senior International Relations Specialist. Dr. Victor S. Linlingan, the Head of
the Delegation and Executive Director of the CAB, signed the CMU in behalf of the Government
of the Republic of the Philippines.
The present controversy stems from the fourth paragraph of the CMU, which read:
4. The two delegations agreed that the unilateral operation and the exercise of third and fourth
freedom traffic rights shall not be subject to any royalty payment or commercial arrangements,
as from the date of signing of this [CMU].
The aeronautical authorities of the two Contracting Parties will bless and encourage any
cooperation between the two designated airlines.
The designated airlines shall enter into commercial arrangements for the unilateral exercise of
fifth freedom traffic rights. Such arrangements will be subject to the approval of the aeronautical
authorities of both contracting parties.14
On 15 May 1995, Philippine Airlines received a letter from Dawoud M. Al-Dawoud, the Deputy
Marketing & Sales Director for International Affairs of Kuwait Airways, addressed to Ms. Socorro
Gonzaga, the Director for International Relations of Philippine Airlines.15 Both Al-Dawoud and
Gonzaga were members of their countrys respective delegations that had met in Kuwait the
previous month. The letter stated in part:
Regarding the [Kuwait Airways/Philippine Airlines] Commercial Agreement, pursuant to item 4 of
the new MOU[,] we will advise our Finance Department that the Agreement concerning royalty
for 3rd/4th freedom traffic will be terminated effective April 12, 1995. Although the royalty
agreement will no longer be valid, we are very keen on seeing that [Philippine Airlines] continues
to enjoy direct participation in the Kuwait/Philippines market through the Block Space Agreement
and to that extent we would like to maintain the Jt. Venture (Block Space) Agreement, although
with some minor modifications.16
To this, Gonzaga replied to Kuwait Airways in behalf of Philippine Airlines in a letter dated 22 June
1995.17 Philippine Airlines called attention to Section 6.5 of the Commercial Agreement, which
read:
This agreement may be terminated by either party by giving ninety (90) days notice in writing to
the other party. However, any termination date must be the last day of any traffic period, e.g.[,]
31st March or 31st October.18
Pursuant to this clause, Philippine Airlines acknowledged the 15 May 1995 letter as the requisite
notice of termination. However, it also pointed out that the agreement could only be effectively
terminated on 31 October 1995, or the last day of the then current traffic period. Thus, Philippine
Airlines insisted that the provisions of the Commercial Agreement "shall continue to be enforced
until such date."19
Subsequently, Philippine Airlines insisted that Kuwait Airways pay it the principal sum of
US$1,092,690.00 as revenue for the uplift of passengers and cargo for the period 13 April 1995
until 28 October 1995.20 When Kuwait Airways refused to pay, Philippine Airlines filed a
Complaint21 against the foreign airline with the Regional Trial Court (RTC) of Makati City, seeking
the payment of the aforementioned sum with interest, attorneys fees, and costs of suit. In its
Answer,22 Kuwait Airways invoked the CMU and argued that its obligations under the Commercial
Agreement were terminated as of the effectivity date of the CMU, or on 12 April 1995. Philippine
Airlines countered in its Reply that it was "not privy to the [CMU]," 23 though it would eventually
concede the existence of the CMU.24
An exhaustive trial on the merits was had. On 25 October 2002, the RTC rendered a Decision in
favor of Philippine Airlines. The RTC noted that "the only issue to resolve in this case is a legal
one," particularly whether Philippine Airlines is entitled to the sums claimed under the terms of
the Commercial Agreement. The RTC also considered as a corollary issue whether Kuwait Airways
"validly terminated the Commercial Agreement x x x, plaintiffs contention being that [Kuwait
Airways] had not complied with the terms of termination provided for in the Commercial
Agreement."
The bulk of the RTCs discussion centered on the Philippine Airlines claim that the execution of
the CMU could not prejudice its existing rights under the Commercial Agreement, and that the
CMU could only be deemed effective only after 31 October 1995, the purported effectivity date of
termination under the Commercial Agreement. The rationale for this position of Philippine Airlines
was that the execution of the CMU could not divest its proprietary rights under the Commercial
Agreement.
On this crucial point, the RTC agreed with Philippine Airlines. It asserted the obligatory force of
contracts between contracting parties as the source of vested rights which may not be modified
or impaired. After recasting Kuwait Airways arguments on this point as being that "the
Confidential Memorandum of Understanding is superior to the Commercial Agreement[,] the same
having been supposedly executed by virtue of the states sovereign power," the RTC rejected the
argument, holding that "[t]he fact that the [CMU] may have been executed by a Philippine Panel
consisting of representative [sic] of CAB, DFA, etc. does not necessarily give rise to the conclusion
that the [CMU] is a superior contract[,] for the exercise of the States sovereign power cannot be
arbitrarily and indiscriminately utilized specifically to impair contractual vested rights."25
Instead, the RTC held that "[t]he Commercial Agreement and its specific provisions on revenue
sharing having been freely and voluntarily agreed upon by the affected parties x x x has the force
of law between the parties and they are bound to the fulfillment of what has been expressly
stipulated therein."26 Accordingly, "the provision of the [CMU] must be applied in such a manner
that it does not impair the vested rights of the parties."
From this Decision, Kuwait Airways directly filed with this Court the present Petition for Review,
raising pure questions of law. Kuwait Airways poses three questions of law for resolution: whether
the designated air carrier of the Republic of the Philippines can have better rights than the
government itself; whether the bilateral agreement between the Republic of the Philippines and
the State of Kuwait is superior to the Commercial Agreement; and whether the enforcement of
the CMU violates the non-impairment clause of the Constitution.
Let us review the factual backdrop to appreciate the underlying context behind the Commercial
Agreement and the CMU. The Commercial Agreement was entered into in 1981 at a time when
Philippine Airlines had not provided a route to Kuwait while Kuwait Airways had a route to Manila.
The Commercial Agreement established a joint commercial arrangement whereby Philippine
Airlines and Kuwait Airways were to jointly operate the Manila-Kuwait (and vice versa) route,
utilizing the planes and services of Kuwait Airways. Based on the preambular paragraphs of the
Joint Services Agreement, as of 1981, Kuwait Airways was interested in establishing a "second
frequency" (or an increase of its Manila flights to two) and that "as a result of cordial and frank
discussions the concept of a joint service emerged as the most desirable alternative option."27
As a result, the revenue-sharing agreement was reached between the two airlines, an agreement
which stood as an alternative to both carriers offering competing flights servicing the Manila-
Kuwait route. An apparent concession though by Philippine Airlines was the preclusion of the
exercise of one of the fundamental air traffic rights, the Fifth Freedom traffic rights with respect
to the Manila-Bangkok-Kuwait, thereby precluding the deplaning of passengers from Manila in
Bangkok and the boarding in Bangkok of passengers bound for Manila.
The CMU effectively sought to end the 1981 agreement between Philippine Airlines and Kuwait
Airways, by precluding any commercial arrangements in the exercise of the Third and Fourth
freedom traffic rights. As a result, both Kuwait and the Philippines had the respective right to
board passengers from their respective countries and deplane them in the other country, without
having to share any revenue or enter into any commercial arrangements to exercise such rights.
In exchange, the designated airline or airlines of each country was entitled to operate six
frequencies per week in each direction. In addition, the designated airlines were allowed to enter
into commercial arrangements for the unilateral exercise of the Fifth Freedom traffic rights.
Another notable point, one not touched upon by the parties or the trial court. It is well known that
at the time of the execution of the 1981 agreements, Philippine Airlines was controlled by the
Philippine government, with the Government Service Insurance System (GSIS) holding the
majority of shares. However, in 1992, Philippine Airlines was privatized, with a private consortium
acquiring 67% of the shares of the carrier.28 Thus, at the time of the signing of the CMU, Philippine
Airlines was a private corporation no longer controlled by the Government. This fact is significant.
Had Philippine Airlines remained a government owned or controlled corporation at the time the
CMU was executed in 1995, its status as such would have bound Philippine Airlines to the
commitments made in the document by no less than the Philippine government. However, since
Philippine Airlines had already become a private corporation at that juncture, the question of
impairment of private rights may come into consideration.
In this regard, we observe that the RTC appears to have been under the impression that the CMU
was brought about by machinations of the Philippine Panel and the Kuwait Panel of which
Philippine Airlines was not aware or in which it had a part. This impression is not exactly borne by
the record since no less than four of the nine members of the Philippine Panel were officials of
Philippine Airlines. It should be noted though that one of these officials, Senior International
Relations Specialist Arnel Vibar, testified for Philippine Airlines that the airline voiced its opposition
to the withdrawal of the commercial agreements under the CMU even months before the signing
of the CMU, but the objections were overruled.
Now, the arguments raised in the petition.
One line of argument raised by Kuwait Airways can be dismissed outright. Kuwait Airways points
out that the third Whereas clause of the 1981 Commercial Agreement stated: "NOW, it is hereby
agreed, subject to and without prejudice to any existing or future agreements between the
Government Authorities of the Contracting Parties hereto " That clause, it is argued, evinces
acknowledgement that from the beginning Philippine Airlines had known fully well that its rights
under the Commercial Agreement would be limited by whatever agreements the Philippine and
Kuwait governments may enter into later.
But can a perambulatory clause, which is what the adverted "Whereas" clause is, impose a binding
obligation or limitation on the contracting parties? In the case of statutes, while a preamble
manifests the reasons for the passage of the statute and aids in the interpretation of any
ambiguities within the statute to which it is prefixed, it nonetheless is not an essential part of an
act, and it neither enlarges nor confers powers.29 Philippine Airlines submits that the same holds
true as to the preambular whereas clauses of a contract.
What was the intention of the parties in forging the "Whereas" clause and the contexts the parties
understood it in 1981? In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered,30 and in doing so, the
courts may consider the relations existing between the parties and the purpose of the
contract.31 In 1981, Philippine Airlines was still owned by the Philippine government. In that
context, it is evident that the Philippine government, as owner Philippine Airlines, could enter into
agreements with the Kuwait government that would supersede the Commercial Agreement
entered into by one of its GOCCs, a scenario that changed once Philippine Airlines fell to private
ownership. Philippine Airlines argues before us that the cited preambular stipulation is in fact
superfluous, and we can agree in the sense that as of the time of the execution of the Commercial
Agreement, it was evident, without need of stipulation, that the Philippine government could enter
into an agreement with the Kuwait government that would prejudice the terms of the commercial
arrangements between the two airlines. After all, Philippine Airlines then would not have been in
a position to challenge the wishes of its then majority stockholder the Philippine government.
Yet by the time ownership of Philippine Airlines was transferred into private hands, the
controverted "Whereas" clause had taken on a different complexion, for it was newly evident that
an act of the Philippine government negating the commercial arrangement between the two
airlines would infringe the vested rights of a private individual. The original intention of the
"Whereas" clause was to reflect what was then a given fact relative to the nationalized status of
Philippine Airlines. With the change of ownership of Philippine Airlines, the "Whereas" clause had
ceased to be reflective of the current situation as it now stands as a seeming invitation to the
Philippine government to erode private vested rights. We would have no problem according the
interpretation preferred by Kuwait Airways of the "Whereas" clause had it been still reflective of
the original intent to waive vested rights of private persons, rather than the rights in favor of the
government by a GOCC. That is not the case, and we are not inclined to give effect to the
"Whereas" clause in a manner that does not reflect the original intention of the contracting parties.
Thusly, the proper focus of our deliberation should be whether the execution of the CMU between
the Philippine and Kuwait governments could have automatically terminated the Commercial
Agreement, as well as the Joint Services Agreement between Philippine Airlines and Kuwait
Airways.
Philippine Airlines is the grantee of a legislative franchise authorizing it to provide domestic and
international air services.32 Its initial franchise was granted in 1935 through Act No. 4271, which
underwent substantial amendments in 1959 through Republic Act No. 2360.33 It was granted a
new franchise in 1979 through Presidential Decree No. 1590, wherein statutory recognition was
accorded to Philippine Airlines as the "national flag carrier." P.D. No. 1590 also recognized that
the "ownership, control, and management" of Philippine Airlines had been reacquired by the
Government. Section 19 of P.D. No. 1590 authorized Philippine Airlines to contract loans, credits
and indebtedness from foreign sources, including foreign governments, with the unconditional
guarantee of the Republic of the Philippines.
At the same time, Section 8 of P.D. No. 1590 subjects Philippine Airlines "to the laws of the
Philippines now existing or hereafter enacted." After pointing to this provision, Kuwait Airways
correlates it to Republic Act (R.A.) No. 776, or the Civil Aeronautics Act of the Philippines, which
grants the Civil Aeronautics Board (CAB) "the power to regulate the economic aspect of air
transportation, [its] general supervision and regulation of, and jurisdiction and control over, air
carriers as well as their property, property rights, equipment, facilities, and franchise." R.A. No.
776 also mandates that the CAB "shall take into consideration the obligation assumed by the
Republic of the Philippines in any treaty, convention or agreement with foreign countries on
matters affecting civil aviation."
There is no doubt that Philippine Airlines forebears under several regulatory perspectives. First,
its authority to operate air services in the Philippines derives from its legislative franchise and is
accordingly bound by whatever limitations that are presently in place or may be subsequently
incorporated in its franchise. Second, Philippine Airlines is subject to the other laws of the
Philippines, including R.A. No. 776, which grants regulatory power to the CAB over the economic
aspect of air transportation. Third, there is a very significant public interest in state regulation of
air travel in view of considerations of public safety, domestic and international commerce, as well
as the fact that air travel necessitates steady traversal of international boundaries, the amity
between nations.
At the same time, especially since Philippine Airlines was already under private ownership at the
time the CMU was entered into, we cannot presume that any and all commitments made by the
Philippine government are unilaterally binding on the carrier even if this comes at the expense of
diplomatic embarrassment. While it may have been, prior to the privatization of Philippine Airlines,
that the Philippine Government had the authority to bind the airline in its capacity as owner of the
airline, under the post-privatization era, however, whatever authority of the Philippine
Government to bind Philippine Airlines can only come in its capacity as regulator.1awphi1
As with all regulatory subjects of the government, infringement of property rights can only avail
with due process of law. Legislative regulation of public utilities must not have the effect of
depriving an owner of his property without due process of law, nor of confiscating or appropriating
private property without due process of law, nor of confiscating or appropriating private property
without just compensation, nor of limiting or prescribing irrevocably vested rights or privileges
lawfully acquired under a charter or franchise. The power to regulate is subject to these
constitutional limits.34
We can deem that the CAB has ample power under its organizing charter, to compel Philippine
Airlines to terminate whatever commercial agreements the carrier may have. After all, Section 10
of R.A. No. 776 grants to the CAB the "general supervision and regulation of, and jurisdiction and
control over, air carriers as well as their property, property rights, equipment, facilities and
franchise," and this power correlates to Section 4(c) of the same law, which mandates that the
Board consider in the exercise of its functions "the regulation of air transportation in such manner
as to recognize and preserve the inherent advantages of, assure the highest degree of safety in,
and foster sound economic condition in, such transportation, and to improve the relations of contractswhich could have been availed of to effect the immediate termination of the
between, and coordinate transportation by air carriers." Commercial Agreement. No such remedy was attempted by the government.

We do not doubt that the CAB, in the exercise of its statutory mandate, has the power to compel
Philippine Airlines to immediately terminate its Commercial Agreement with Kuwait Airways
pursuant to the CMU. Considering that it is the Philippine government that has the sole authority
to charter air policy and negotiate with foreign governments with respect to air traffic rights, the
government through the CAB has the indispensable authority to compel local air carriers to comply
with government determined policies, even at the expense of economic rights. The airline industry
is a sector where government abjuration is least desired.
Nor can we presume, simply because Dr. Linlingan, Executive Director of the CAB had signed the
CMU in behalf of the Philippine Panel, that he could have done so bearing the authority of the
Board, in the exercise of regulatory jurisdiction over Philippine Airlines. For one, the CAB is a
collegial body composed of five members,35 and no one membereven the chairmancan act in
behalf of the entire Board. The Board is disabled from performing as such without a quorum. For
another, the Executive Director of the CAB is not even a member of the Board, per R.A. No. 776,
as amended.

However, this is not a case where the CAB had duly exercised its regulatory authority over a local
airline in order to implement or further government air policy. What happened instead was an
officer of the CAB, acting in behalf not of the Board but of the Philippine government, had
committed to a foreign nation the immediate abrogation of Philippine Airliness commercial
agreement with Kuwait Airways. And while we do not question that ability of that member of the
CAB to represent the Philippine government in signing the CMU, we do question whether such
member could have bound Philippine Airlines in a manner that can be accorded legal recognition
by our courts.
Even granting that the police power of the State, as given flesh in the various laws governing the
regulation of the airline industry in the Philippines, may be exercised to impair the vested rights
of privately-owned airlines, the deprivation of property still requires due process of law. In order
to validate petitioners position, we will have to concede that the right to due process may be
extinguished by executive command. While we sympathize with petitioner, who reasonably could
rely on the commitment made to it by the Philippine government, we still have to respect the
segregate identity of the government and that of a private corporation and give due meaning to
that segregation, vital as it is to the very notion of democracy.

Imagine if the President of the Philippines, or one of his alter egos, acceded to the demands of a WHEREFORE, the petition is DENIED. No pronouncement as to costs.
foreign counterpart and agreed to shut down a particular Filipino business or enterprise, going as
far as to co-sign a document averring that the business "will be shut down immediately." Granting SO ORDERED.
that there is basis in Philippine law for the closure of such business, could the mere declaration
DANTE O. TINGA
of the President have the legal effect of immediately rendering business operations illegal? We,
Associate Justice
as magistrates in a functioning democratic State with a fully fleshed Bill of Rights and a
Constitution that emphatically rejects "letat cest moi" as the governing philosophy, think not. WE CONCUR:
There is nothing to prevent the Philippine government from utilizing all the proper channels under
law to enforce such closure, but unless and until due process is observed, it does not have legal CONCHITA CARPIO MORALES*
effect in this jurisdiction. Even granting that the "agreement" between the two governments or Associate Justice
their representatives creates a binding obligation under international law, it remains incumbent Acting Chairperson
for each contracting party to adhere to its own internal law in the process of complying with its
obligations. TERESITA J. LEONARDO-DE
PRESBITERO J. VELASCO, JR.
CASTRO**
The promises made by a Philippine president or his alter egos to a foreign monarch are not Associate Justice
Associate Justice
transubstantiated by divine right so as to ipso facto render legal rights of private persons obviated.
Had Philippine Airlines remained a government-owned or controlled corporation, it would have ARTURO D. BRION
been bound, as part of the executive branch, to comply with the dictates of the President or his Associate Justice
alter egos since the President has executive control and supervision over the components of the ATTESTATION
executive branch. Yet Philippine Airlines has become, by this time, a private corporation one I attest that the conclusions in the above Decision had been reached in consultation before the
that may have labored under the conditions of its legislative franchise that allowed it to conduct case was assigned to the writer of the opinion of the Courts Division.
air services, but private in character nonetheless. The President or his alter egos do not have the CONCHITA CARPIO MORALES
legal capacity to dictate insuperable commands to private persons. And that undesirable trait Associate Justice
would be refuted on the President had petitioners position prevailed, since it is imbued with the Acting Chairperson, Second Division
presumption that the commitment made to a foreign government becomes operative without
complying with the internal processes for the divestiture of private rights. CERTIFICATION

Herein, we do not see why the Philippine government could not have observed due process of
law, should it have desired to see the Commercial Agreement immediately terminated in order to
adhere to its apparent commitment to the Kuwait government. The CAB, with its ample regulatory
power over the economic affairs of local airliners, could have been called upon to exercise its
jurisdiction to make it so. A remedy even exists in civil lawthe judicial annulment or reformation
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice