Transpo Cases

EN BANC
[G.R. No. L-5458. September 16, 1953.]
LUZON STEVEDORING CO., INC., and VISAYAN STEVEDORE

TRANSPORTATION CO. , petitioners, vs . THE PUBLIC SERVICE
COMMISSION and THE PHILIPPINE SHIPOWNERS ASSOCIATION ,
respondents.
Perkins, Ponce Enrile, Contreras and Enrique Belo for petitioners.

Ozaeta, Roxas, Lichauco, Picazo, Juan H. Paulino and Gerardo M. Alfonso for
respondent Philippine Shipowners Association.
SYLLABUS
1. CONTRACTS AND OBLIGATIONS; ADMIRALTY LAW; HIRE OF VESSEL,

DISTINGUISHED FROM LEASE THEREOF. — Where the lighters and tugboats in question
were not leased, but used to carry goods for compensation at a xed rate for a xed
weight, they must be deemed to have been hired, hired in the sense that the shippers
did not have direction, control, and maintenance thereof, which is a characteristic
feature of lease.
2. PUBLIC UTILITY; DETERMINATION WHETHER A FIRM OR COMPANY IS A
PUBLIC UTILITY. — Public Utility, even where the term is not de ned by statute, is not
determined by the number of people actually served. Nor does the mere fact that
service is rendered only under contract prevent a company from being a public utility.
[43 Am. Jur., 573; Luzon Brokerage Co. vs. Public Service Commission, 40 Off. Gaz.,
Supp. 7, p. 271.] On the other hand, causal or incidental service devoid of public
character and interest is not brought within the category of public utility. The
demarkation line is not susceptible of exact description or de nition, each being
governed by its circumstance.
3. ID.; ID.; CASE AT BAR. — The transportation service which was the subject
of complaint was not casual or incidental. It had been carried on regularly for years at
almost uniform rates of charges. Although the number of the company's customers
was limited, the value of goods, transported was not inconsiderable. It did not have the
same customers all the time embraced in the complaint, and there was no reason to
believe that it would not accept, and there was nothing to prevent it from accepting,
new customers that might be willing to avail of its services to the extent of its capacity.
Held: Applying the plain letter of Commonwealth Act No. 146, it is a public utility, and to
restrain it from further operating its watercraft to transport goods for hire or
compensation between points in the Philippines until the rates it proposes to charge
are approved by the Public Service Commission, does not invade private rights of
property or contract. The constitutionality of Commonwealth Act No. 146 was upheld,
implicity in Luzon Brokerage Co. vs. Public Service Commission [40 Off. Gaz., Supp. 7, p.
271] and explicitly in Pangasinan Transportation Co. vs. Public Service Commission [70
Phil., 221].
4. ID.; RUINOUS; COMPETITION; ITS PREVENTION, ONE OF THE PURPOSES
OF THE PUBLIC SERVICE LAW. — The Public Service Law was enacted not only to
CD Technologies Asia, Inc. 2018 cdasiaonline.com
protect the public against unreasonable charges and poor, ine cient service, but also
to prevent ruinous competition. That is the main purpose in bringing under the
jurisdiction of the Public Service Commission Motor Vehicles, other means of
transportation, ice plants, etc., which cater to a limited portion of the public under
private agreements. To the extent that such agreements may tend to wreek or impair
the nancial stability and e ciency of public utilities who do offer service to the public
in general, they are affected with public interest and come within the police power of
the state to regulate.
5. PUBLIC SERVICE COMMISSION; HEARINGS THEREIN; DESIGNATION OF
COMMISSION TO TAKE EVIDENCE; WAIVER OF OBJECTION TO SUCH DESIGNATION.
— It was tardy to object, for the rst time to the designation of a commissioner to take
the evidence, after decision was rendered. The point is procedural, not jurisdictional,
and may be waived by express consent or acquiescence [Everett Steamship Corpn. vs.
Chua Hiong, 90 Phil., 64; La Paz Ice Plant vs. Comision de Utilidades Publicas, 89 Phil.,
109]. Where in a prolonged hearing before a commissioner, a party crossexamined his
adversary's witnesses and presented his own evidence, he has waived objection to
such designation.
DECISION
TUASON , J : p
Petitioners apply for review of a decision of the Public Service Commission

restraining them "from further operating their watercraft to transport goods for hire or
compensation between points in the Philippines until the rates they propose to charge
are approved by this Commission."
The facts are summarized by the Commission as follows:
". . . respondents are corporations duly organized and existing under the
laws of the Philippines, mainly engaged in the stevedoring or lighterage and
harbor towage business. At the same time, they are engaged in interisland service
which consists of hauling cargoes such as sugar, oil, fertilizer and other
commercial commodities which are loaded in their barges and towed by their
tugboats from Manila to various points in the Visayan Islands, particularly in the
Provinces of Negros Occidental and Capiz, and from said places to Manila. For
this service respondents charge freightage on a unit price with rates ranging from
P0.50 to P0.62 1/2 per bag or picul of sugar loaded or on a unit price per ton in
the case of fertilizer or sand. There is no xed route in the transportation of these
cargoes, the same being left at the indication of the owner or shipper of the
goods. The barge and the tugboats are manned by the crew of respondents and,
in case of damage to the goods in transit caused by the negligence of said crews,
respondents are liable therefor. The service for which respondents charge
freightage covers the hauling or carriage of the goods from the point of
embarkation to the point of disembarkation either in Manila or in any point in the
Visayan Islands, as the case may be.
"The evidence also su ciently establishes that respondents are regularly
engaged in this hauling business serving a limited portion of the public.
Respondent Luzon Stevedoring Company, Inc., has among its regular customers
the San Miguel Glass Factory, PRATRA, Shell Co., of P.I., Ltd., Standard Oil Co., of
New York and Philippine-Hawaiian; while respondent Visayan Stevedore
Transportation Co., has among its regular customers the Insular Lumber, Shell
Company, Ltd., Kim Kee Chua Yu & Co., PRATRA and Luzon Merchandising
Corporation. During the period from January, 1949 and up to the present,
respondent Luzon Stevedoring Co. Inc., has been rendering to PRATRA regularly
and on many occasions such service by carrying fertilizer from Manila to various
points in the Provinces of Negros Occidental and Capiz, such as Hinigatan, Silay,
Fabrica, Marayo, Mambaquid, Victorias and Pilar, and on the return trip sugar was
loaded from said provinces to Manila. For these services, as evidenced by
Exhibits A, A-1, A-2, A-3 and A-4, respondent Luzon Stevedoring Company, Inc.,
charged PRATRA at the rate of P0.60 per picul or bag of sugar and, according to
Mr. Mauricio Rodriguez, chief of the division in charge of sugar and fertilizer of
the PRATRA, for the transportation of fertilizer, this respondent charged P12 per
metric ton. During practically the same period, respondent Visayan Stevedore
Transportation Company transported in its barges and towed by its tugboats
sugar for Kim Kee Chua Yu & Company coming from Victorias, Marayo and Pilar
to Manila, and for Luzon Merchandising Corporation, from Hinigaran, Bacolod,
Marayo and Victorias to Manila. For such service respondent Visayan Stevedore
Transportation Company charge Kim Kee Chua Yu Company for freightage P0.60
per picul or bag as shown in Exhibits C, C-1, C-2, C-3, C-4, C- 5, C-6, C-7 and C-8,
and Luzon Merchandising Corporation was also charged for the same service and
at the same rate as shown in Exhibits B, B-1 and B-2."
It was upon these ndings that the Commission made the order now sought to
be reviewed, upon complaint of the Philippine Shipowners' Association charging that
the then respondents were engaged in the transportation of cargo in the Philippines for
hire or compensation without authority or approval of the Commission, having adopted,
led and collected freight charges at the rate of P0.60 per bag or picul, particularly
sugar, loaded and transported in their lighters and towed by their tugboats between
different points in the Province of Negros Occidental and Manila, which said rates
resulted in ruinous competition with complainant.
Section 13 (b ) of the Public Service Law (Commonwealth Act No. 146) de nes
public service thus:
"The term 'public service' includes every person that now or hereafter may
own, operate, manage, or control in the Philippines, for hire or compensation, with
general or limited clientele, whether permanent, occasional or accidental, and
done for general business purposes any common carrier, railroad, street railway,
traction railway, subway, motor vehicle, either for freight or passenger, or both,
with or without xed route and whatever may be its classi cation, freight or
carrier service of any class, express service, steamboat, or steamship line,
pontines, ferries, and small water craft, engaged in the transportation of
passengers and freight, shipyard, marine railway, marine repair shop, warehouse,
wharf or dock, ice plant, ice-refrigeretion plant, canal, irrigation system, sewerage,
gas, electric light, heat and power, water supply and power, petroleum, sewerage
system, telephone, wire or wireless telegraph system and broadcasting radio
stations."
It is not necessary, under this de nition, that one holds himself out as serving or
willing to serve the public in order to be considered public service.
In Luzon Brokerage Company vs. Public Service Commission (40 Off. Gaz., 7th
Supplement, p. 271), this court declared that "Act 454 is clear in including in the
de nition of a public service that which is rendered for compensation, although limited
exclusively to the customers of the petitioner."

In that case, the Luzon Brokerage Company, a customs broker, had been
receiving, depositing and delivering goods discharged from ships at the pier to its
customers. As here, the Luzon Brokerage was then rendering transportation service for
compensation to a limited clientele, not to the public at large.
In the United States where, it is said, there is no xed de nition of what
constitutes public service or public utility, it is also held that it is not always necessary,
in order to be a public service, that an organization be dedicated to public use, i.e., ready
and willing to serve the public as a class. It is only necessary that it must in some way
be impressed with a public interest; and whether the operation of a given business is a
public utility depends upon whether or not the service rendered by it is of a public
character and of public consequence and concern. (51 C. J. 5.) Thus, a business may be
affected with public interest and regulated for public good although not under any duty
to serve the public. (43 Am. Jur., 572.)
It can scarcely be denied that the contracts between the owners of the barges
and the owners of the cargo at bar were ordinary contracts of transportation and not of
lease. Petitioners' watercraft was manned entirely by crews in their employ and payroll,
and the operation of the said craft was under their direction and control, the customers
assuming no responsibility for the goods handled on the barges. The great
preponderance of the evidence contradicts the assertion that there was any physical or
symbolic conveyance of the possession of the tugboats and barges to the shippers.
Whether the agreements were written or verbal, the manner of payment of freight
charges, the question who loaded and unloaded the cargo, the propriety of the
admission of certain receipts in evidence, etc., to all of which the parties have given
much attention — these are matters of form which do not alter the essential nature of
the relationship of the parties to the transactions as revealed by the fundamental facts
of record.
It is contended that "if the Public Service Act were to be construed in such
manner as to include private lease contracts, said law would be unconstitutional,"
seemingly implying that, to prevent the law from being in contravention of the
Constitution, it should be so read as to embrace only those persons and companies
that are in fact engaged in public service" with its corresponding quali cation of an
offer to serve indiscriminately the public."
It has been already shown that the petitioners' lighters and tugboats were not
leased, but used to carry goods for compensation at a xed rate for a xed weight. At
the very least, they were hired, hired in the sense that the shippers did not have
direction, control, and maintenance thereof, which is a characteristic feature of lease.
On the second proposition, the Public Service Commission has, in our judgment,
interpreted the law in accordance with legislative intent. Commonwealth Act No. 146
declares in unequivocal language that an enterprise of any of the kinds therein
enumerated is a public service if conducted for hire or compensation even if the
operator deals only with a portion of the public or limited clientele.
It has been seen that public utility, even where the term is not de ned by statute,
is not determined by the number of people actually served. Nor does the mere fact that
service is rendered only under contract prevent a company from being a public utility.
(43 Am. Jur., 573.) On the other hand, casual or incidental service devoid of public
character and interest, it must be admitted, is not brought within the category of public
utility. The demarkation line is not susceptible of exact description or de nitions, each
case being governed by its peculiar circumstances.
"It is impossible to lay down any general rule on the subject whether the
rendering of incidental service to members of the public by an individual or corporation
whose principal business is of a different nature constitute such person a public utility.
In the result reached, the cases are in con ict, as the question involved depends on
such factors as the extent of service, whether such person or company has held himself
or itself out as ready to serve the public or a portion of the public generally, or in other
ways conducted himself or itself as a public utility. Tn several cases, it has been held
that the incidental service rendered to others constituted such person or corporation a
public utility, but in other cases, a contrary decision has been reached." (43 Am. Jur.,
573.)
The transportation service which was the subject of complaint was not casual or
incidental. It had been carried on regularly for years at almost uniform rates of charges.
Although the number of the petitioners' customers was limited, the value of goods
transported was not inconsiderable. Petitioners did not have the same customers all
the time embraced in the complaint, and there was no reason to believe that they would
not accept, and there was nothing to prevent them from accepting, new customers that
might be willing to avail of their service to the extent of their capacity. Upon the well-
established facts as applied to the plain letter of Commonwealth Act No. 146, we are of
the opinion that the Public Service Commission's order does not invade private rights
of property or contract.
In at least one respect, the business complained of was a matter of public
concern. The Public Service Law was enacted not only to protect the public against
unreasonable charges and poor, ine cient service, but also to prevent ruinous
competition. That, we venture to say, is the main purpose in bringing under the
jurisdiction of the Public Service Commission motor vehicles, other means of
transportation, ice plants, etc., which cater to a limited portion of the public under
private agreements. To the extent that such agreements may tend to wreck or impair
the nancial stability and e ciency of public utilities who do offer service to the public
in general, they are affected with public interest and come within the police power of
the state to regulate.
Just as the legislature may not "declare a company or enterprise to be a public
utility when it is not inherently such," a public utility may not evade control and
supervision of its operation by the government by selecting its customers under the
guise of private transactions.
For the rest, the constitutionality of Commonwealth Act No. 146 was upheld,
implicitly in Luzon Brokerage Company vs. Public Service Commission, supra, and
explicitly in Pangasinan Transportation Company vs. Public Service Commission (70
Phil., 221).
Were there serious doubts, the courts should still be reluctant to invalidate the
Public Service Law or any provision thereof. Although the legislature can not, by its
mere declaration, make something a public utility which is not in fact such, "the public
policy of the state as announced by the legislature will be given due weight, and the
determination of the legislature that a particular business is subject to the regulatory
power, because the public welfare is dependent upon its proper conduct and regulation,
will not lightly be disregarded by the courts." (51 C. J. 5.)
The objection to the designation of Attorney Aspillera as commissioner to take
the evidence was tardy. It was made for the rst time after decision was rendered,
following a prolonged hearing in which the petitioners crossexamined the
complainant's witnesses and presented their own evidence.
The point is procedural, not jurisdictional, and may be waived by express consent
or acquiescence. So it was held in Everett Steamship Corporation vs. Chua Hiong, 90
Phil. 64 and La Paz Ice Plant and Cold Storage Company vs. Comision de Utilidades
Públicas et al., 89 Phil., 109.
Upon the foregoing considerations, the appealed order of the Public Service
Commission is affirmed, with costs against the petitioners.
Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo, Bautista Angelo
and Labrador, JJ., concur.

EN BANC
[G.R. No. 83551. July 11, 1989.]
RODOLFO B. ALBANO , petitioner, vs. HON. RAINERIO O. REYES,

PHILIPPINE PORTS AUTHORITY, INTERNATIONAL CONTAINER
TERMINAL SERVICES, INC., E. RAZON, INC., ANSCOR CONTAINER
CORPORATION, and SEALAND SERVICES. LTD. , respondents.
Vicente Abad Santos for petitioner.

Bautista, Picazo, Buyco & Tan for private respondents.
SYLLABUS
1. ADMINISTRATIVE LAW; PHILIPPINE PORTS AUTHORITY; AUTHORIZED TO

CONTRACT WITH PRIVATE ENTITY TO HANDLE CARGOES AND OTHER PORT RELATED
SERVICES. — While the PPA has been tasked, under E.O. No. 30, with the management
and operation of the Manila International Port Complex and to undertake the providing
of cargo handling and port related services thereat, the law provides that such shall be
"in accordance with P.D. 857 and other applicable laws and regulations." On the other
hand, P.D. No. 857 expressly empowers the PPA to provide services within Port
Districts "whether on its own, by contract, or otherwise" [Sec. 6(a) (v)]. Therefore, under
the terms of E.O. No. 30 and P.D. No. 857, the PPA may contract with the International
Container Terminal Services, Inc. (ICTSI) for the management, operation and
development of the MICP. In the instant case, the PPA, in the exercise of the option
granted it by P.D. No. 857, chose to contract out the operation and management of the
MICP to a private corporation. This is clearly within its power to do. Thus, PPA's acts of
privatizing the MICT and awarding the MICT contract to ICTSI are wholly within the
jurisdiction of the PPA under its Charter which empowers the PPA to "supervise,
control, regulate, construct, maintain, operate and provide such facilities or services as
are necessary in the ports vested in, or belonging to the PPA." (Section 6(a) ii, P.D. 857).
2. MERCANTILE LAW; PUBLIC SERVICE ACT; LEGISLATIVE FRANCHISE, NOT
ALWAYS NECESSARY IN THE OPERATION OF PUBLIC UTILITY. — Franchises issued by
Congress are not required before each and every public utility may operate. Thus, the
law has granted certain administrative agencies the power to grant licenses for or to
authorize the operation of certain public utilities. (See E.O. Nos. 172 and 202)
3. CONSTITUTIONAL LAW; NATIONAL ECONOMY AND PATRIMONY; POWER
TO AMEND, ALTER OR REPEAL AUTHORIZATION BY CONGRESS FOR OPERATION OF
PUBLIC UTILITY, NOT AN IMPLICATION THAT ONLY CONGRESS HAS POWER TO
GRANT AUTHORIZATION. — That the Constitution provides in Art. XII, Sec. 11 that the
issuance of a franchise, certi cate or other form of authorization for the operation of a
public utility shall be subject to amendment, alteration or repeal by Congress does not
necessarily imply, as petitioner posits, that only Congress has the power to grant such
authorization. Our statute books are replete with laws granting speci ed agencies in
the Executive Branch the power to issue such authorization for certain classes of public
utilities.
4. REMEDIAL LAW; ACTIONS; CAPACITY TO SUE; A TAXPAYER AND
MEMBER OF CONGRESS, WITH CAPACITY TO ASSAIL CONTRACT ENTERED INTO BY
THE PHILIPPINE PORTS AUTHORITY. — That petitioner herein is suing as a citizen and
taxpayer and as a Member of the House of Representatives, su ciently clothes him
with the standing to institute the instant suit questioning the validity of the assailed
contract. While the expenditure of public funds may not be involved under the contract,
public interest is de nitely involved considering the important role of the MICP in the
economic development of the country and the magnitude of the nancial consideration
involved. Consequently, the disclosure provision in the Constitution would constitute
su cient authority for upholding petitioner's standing. [Cf. Tañada v. Tuvera, G.R. No.
63915, April 24, 1985, 136 SCRA 27, citing Severino v. Governor General, 16 Phil. 366
(1910), where the Court considered the petitioners with su cient standing to institute
an action where a public right is sought to be enforced.]
5. ID.; COURTS; AS A RULE, WILL REFUSE TO INTERFERE WITH
ADMINISTRATIVE PROCEEDINGS. — The determination of whether or not the winning
bidder is quali ed to undertake the contracted service should be left to the sound
judgment of the PPA. The PPA, having been tasked with the formulation of a plan for
the development of port facilities and its implementation [Sec. 6(a) (i)], is the agency in
the best position to evaluate the feasibility of the projections of the bidders and to
decide which bid is compatible with the development plan. Neither the Court, nor
Congress, has the time and the technical expertise to look into this matter. (Manuel v.
Villena G.R. No. L-28218, February 27, 1971, 37 SCRA 745)
GUTIERREZ, JR., J., concurring:
1. ADMINISTRATIVE LAW; PHILIPPINE PORTS AUTHORITY; AUTHORITY TO
CONTRACT ARRASTRE SERVICES; QUALIFICATIONS OF BIDDER, LEFT TO THE SOUND
DISCRETION. — The determination of whether or not the winning bidder is quali ed to
undertake the contracted service should be left to the sound judgment of the Philippine
Ports Authority (PPA). I agree that the PPA is the agency which can best evaluate the
comparative quali cations of the various bidding contractors and that in making such
evaluation it has the technical expertise which neither this Court nor Congress
possesses.
DECISION
PARAS , J : p
This is a Petition for Prohibition with prayer for Preliminary Injunction or

Restraining Order seeking to restrain the respondents Philippine Ports Authority (PPA)
and the Secretary of the Department of Transportation and Communications Rainerio
O. Reyes from awarding to the International Container Terminal Services, Inc. (ICTSI)
the contract for the development, management and operation of the Manila
International Container Terminal (MICT).
On April 20, 1987, the PPA Board adopted its Resolution No. 850 directing PPA
management to prepare the Invitation to Bid and all relevant bidding documents and
technical requirements necessary for the public bidding of the development,
management and operation of the MICT at the Port of Manila, and authorizing the
Board Chairman, Secretary Rainerio O. Reyes, to oversee the preparation of the
technical and the documentation requirements for the MICT leasing as well as to
implement this project.
Accordingly, respondent Secretary Reyes, by DOTC Special Order 87-346, created
a seven (7) man "Special MICT Bidding Committee" charged with evaluating all bid
proposals, recommending to the Board the best bid, and preparing the corresponding
contract between the PPA and the winning bidder or contractor. The Bidding
Committee consisted of three (3) PPA representatives, two (2) Department of
Transportation and Communications (DOTC) representatives, one (1) Department of
Trade and Industry (DTI) representative and one (1) private sector representative. The
PPA management prepared the terms of reference, bid documents and draft contract
which materials were approved by the PPA Board. Cdpr
The PPA published the Invitation to Bid several times in a newspaper of general
circulation which publication included the reservation by the PPA of "the right to reject
any or all bids and to waive any informality in the bids or to accept such bids which may
be considered most advantageous to the government."
Seven (7) consortia of companies actually submitted bids, which bids were
opened on July 17, 1987 at the PPA Head O ce. After evaluation of the several bids,
the Bidding Committee recommended the award of the contract to develop, manage
and operate the MICT to respondent International Container Terminal Services, Inc.
(ICTSI) as having offered the best Technical and Financial Proposal. Accordingly,
respondent Secretary declared the ICTSI consortium as the winning bidder.
Before the corresponding MICT contract could be signed, two successive cases
were led against the respondents which assailed the legality or regularity of the MICT
bidding. The first was Special Civil Action 55489 for "Prohibition with Preliminary
Injunction" led with the RTC of Pasig by Basilio H. Alo, an alleged "concerned taxpayer",
and, the second was Civil Case 88-43616 for "Prohibition with Prayer for Temporary
Restraining Order (TRO)" led with the RTC of Manila by C.F. Sharp Co., Inc., a member
of the nine (9) rm consortium — "Manila Container Terminals, Inc." which had actively
participated in the MICT Bidding.
Restraining Orders were issued in Civil Case 88-43616 but these were
subsequently lifted by this Court in Resolutions dated March 17, 1988 (in G.R. No.
82218 captioned "Hon. Rainerio O. Reyes etc., et al. vs. Hon. Doroteo N. Caneba, etc., et
al.) and April 14, 1988 (in G.R. No. 81947 captioned "Hon. Rainerio O. Reyes etc., et al.
vs. Court of Appeals, et al.")
On May 18, 1988, the President of the Philippines approved the proposed MICT
Contract, with directives that "the responsibility for planning, detailed engineering,
construction, expansion, rehabilitation and capital dredging of the port, as well as the
determination of how the revenues of the port system shall be allocated for future port
works, shall remain with the PPA; and the contractor shall not collect taxes and duties
except that in the case of wharfage or tonnage dues and harbor and berthing fees,
payment to the Government may be made through the contractor who shall issue
provisional receipts and turn over the payments to the Government which will issue the
official receipts." (Annex "I").
The next day, the PPA and the ICTSI perfected the MICT Contract (Annex "3")
incorporating therein by "clari catory guidelines" the aforementioned presidential
directives. (Annex "4").
Meanwhile, the petitioner, Rodolfo A. Albano led the present petition as citizen
and taxpayer and as a member of the House of Representatives, assailing the award of
the MICT contract to the ICTSI by the PPA. The petitioner claims that since the MICT is
a public utility, it needs a legislative franchise before it can legally operate as a public
utility, pursuant to Article 12, Section 11 of the 1987 Constitution.
The petition is devoid of merit.
A review of the applicable provisions of law indicates that a franchise specially
granted by Congress is not necessary for the operation of the Manila International
Container Port (MICP) by a private entity, a contract entered into by the PPA and such
entity constituting substantial compliance with the law.
1.Executive Order No. 30, dated July 16, 1986, provides:
WHEREFORE, I, CORAZON C. AQUINO, President of the Republic of the
Philippines, by virtue of the powers vested in me by the Constitution and the law,
do hereby order the immediate recall of the franchise granted to the Manila
International Port Terminals, Inc. (MIPTI) and authorize the Philippine Ports
Authority (PPA) to take over, manage and operate the Manila International Port
Complex at North Harbor, Manila and undertake the provision of cargo handling
and port related services thereat, in accordance with P.D. 857 and other
applicable laws and regulations.
Section 6 of Presidential Decree No. 857 (the Revised Charter of the Philippine
Ports Authority) states:
a) The corporate duties of the Authority shall be:
xxx xxx xxx
(ii) To supervise, control, regulate, construct, maintain, operate, and

provide such facilities or services as are necessary in the ports vested in, or
belonging to the Authority.
xxx xxx xxx
(v) To provide services ( whether on its own, by contract, or otherwise)

within the Port Districts and the approaches thereof, including but not limited to —
— berthing, towing, mooring, moving, slipping, or docking of any
vessel;
— loading or discharging any vessel;
— sorting, weighing, measuring, storing, warehousing, or otherwise

handling goods.
xxx xxx xxx

b) The corporate powers of the Authority shall be as follows:
xxx xxx xxx
(vi) To make or enter into contracts of any kind or nature to enable it to
discharge its functions under this Decree.
xxx xxx xxx
[Emphasis supplied.]
Thus, while the PPA has been tasked, under E.O. No. 30, with the management
and operation of the Manila International Port Complex and to undertake the providing
of cargo handling and port related services thereat, the law provides that such shall be
"in accordance with P.D. 857 and other applicable laws and regulations." On the other
hand, P.D. No. 857 expressly empowers the PPA to provide services within Port
Districts "whether on its own, by contract, or otherwise" [Sec. 6(a) (v)]. Therefore, under
the terms of E.O. No. 30 and P.D. No. 857, the PPA may contract with the International
Container Terminal Services, Inc. (ICTSI) for the management, operation and
development of the MICP.
2. Even if the MICP be considered a public utility, 1 or a public service 2 on the
theory that it is a "wharf" or a "dock" 3 as contemplated under the Public Service Act, its
operation would not necessarily call for a franchise from the Legislative Branch.
Franchises issued by Congress are not required before each and every public utility may
operate. Thus, the law has granted certain administrative agencies the power to grant
licenses for or to authorize the operation of certain public utilities. (See E.O. Nos. 172
and 202)
That the Constitution provides in Art. XII, Sec. 11 that the issuance of a franchise,
certi cate or other form of authorization for the operation of a public utility shall be
subject to amendment, alteration or repeal by Congress does not necessarily imply, as
petitioner posits, that only Congress has the power to grant such authorization. Our
statute books are replete with laws granting speci ed agencies in the Executive Branch
the power to issue such authorization for certain classes of public utilities. 4
As stated earlier, E.O. No. 30 has tasked the PPA with the operation and
management of the MICP, in accordance with P.D. 857 and other applicable laws and
regulations. However, P.D. 857 itself authorizes the PPA to perform the service by itself,
by contracting it out, or through other means. Reading E.O. No. 30 and P.D. No. 857
together, the inescapable conclusion is that the lawmaker has empowered the PPA to
undertake by itself the operation and management of the MICP or to authorize its
operation and management by another by contract or other means, at its option. The
latter power having been delegated to the PPA, a franchise from Congress to authorize
an entity other than the PPA to operate and manage the MICP becomes unnecessary.
In the instant case, the PPA, in the exercise of the option granted it by P.D. No.
857, chose to contract out the operation and management of the MICP to a private
corporation. This is clearly within its power to do. Thus, PPA's acts of privatizing the
MICT and awarding the MICT contract to ICTSI are wholly within the jurisdiction of the
PPA under its Charter which empowers the PPA to "supervise, control, regulate,
construct, maintain, operate and provide such facilities or services as are necessary in
the ports vested in, or belonging to the PPA." (Section 6(a) ii, P.D. 857).
The contract between the PPA and ICTSI, coupled with the President's written
approval, constitute the necessary authorization for ICTSI's operation and management
of the MICP. The award of the MICT contract approved by no less than the President of
the Philippines herself enjoys the legal presumption of validity and regularity of o cial
action. In the case at bar, there is no evidence which clearly shows the constitutional
infirmity of the questioned act of government. cdphil
For these reasons the contention that the contract between the PPA and ICTSI is
illegal in the absence of a franchise from Congress appears bereft of any legal basis.
3. On the peripheral issues raised by the party, the following observations
may be made:
A.That petitioner herein is suing as a citizen and taxpayer and as a Member of the
House of Representatives, su ciently clothes him with the standing to institute the
instant suit questioning the validity of the assailed contract. While the expenditure of
public funds may not be involved under the contract, public interest is de nitely
involved considering the important role of the MICP in the economic development of
the country and the magnitude of the nancial consideration involved. Consequently,
the disclosure provision in the Constitution 5 would constitute su cient authority for
upholding petitioner's standing. [Cf. Tañada v. Tuvera, G.R. No. 63915, April 24, 1985,
136 SCRA 27, citing Severino v. Governor General, 16 Phil. 366 (1910), where the Court
considered the petitioners with su cient standing to institute an action where a public
right is sought to be enforced.]
B. That certain committees in the Senate and the House of Representatives
have, in their respective reports, and the latter in a resolution as well, declared their
opinion that a franchise from Congress is necessary for the operation of the MICP by a
private individual or entity, does not necessarily create a con ict between the Executive
and the Legislative Branches needing the intervention of the Judicial Branch. The court
is not faced with a situation where the Executive Branch has contravened an enactment
of Congress. As discussed earlier, neither is the Court confronted with a case of one
branch usurping a power pertaining to another.
C. Petitioner's contention that what was bid out, i.e., the development,
management and operation of the MICP, was not what was subsequently contracted,
considering the conditions imposed by the President in her letter of approval, thus
rendering the bids and projections immaterial and the procedure taken ineffectual, is
not supported by the established facts. The conditions imposed by the President did
not materially alter the substance of the contract, but merely dealt on the details of its
implementation.
D. The determination of whether or not the winning bidder is quali ed to
undertake the contracted service should be left to the sound judgment of the PPA. The
PPA, having been tasked with the formulation of a plan for the development of port
facilities and its implementation [Sec. 6(a) (i)], is the agency in the best position to
evaluate the feasibility of the projections of the bidders and to decide which bid is
compatible with the development plan. Neither the Court, nor Congress, has the time
and the technical expertise to look into this matter.
Thus, the Court in Manuel v. Villena (G.R. No. L-28218, February 27, 1971, 37
SCRA 745] stated:
[C]ourts, as a rule, refuse to interfere with proceedings undertaken by
administrative bodies or o cials in the exercise of administrative functions. This
is so because such bodies are generally better equipped technically to decide
administrative questions and that non-legal factors, such as government policy
on the matter, are usually involved in the decisions. rat p. 750.]
In conclusion, it is evident that petitioner has failed to show a clear case of grave
abuse of discretion amounting to lack or excess of jurisdiction as to warrant the
issuance of the writ of prohibition.
WHEREFORE, the petition is hereby DISMISSED.
SO ORDERED.
Fernan (C.J.), Narvasa, Melencio-Herrera, Cruz, Gancayco, Bidin, Cortes, Griño-
Aquino, Medialdea and Regalado, JJ., concur.
Feliciano, J., In the result.
Padilla, J., No part in the deliberations.
Sarmiento, J., No part. One of the respondents was my client.
Separate Opinions
GUTIERREZ, JR., J., concurring:
I concur in the Court's decision that the determination of whether or not the
winning bidder is quali ed to undertake the contracted service should be left to the
sound judgment of the Philippine Ports Authority (PPA). I agree that the PPA is the
agency which can best evaluate the comparative quali cations of the various bidding
contractors and that in making such evaluation it has the technical expertise which
neither this Court nor Congress possesses.
However, I would feel more comfortable in the thought that the above rulings are
not only grounded on rm legal foundations but are also factually accurate if the PPA
shows greater consistency in its submissions to this Court.
I recall that in E. Razon, Inc. v. Philippine Ports Authority (151 SCRA 233 [1977]),
this Court decided the case in favor of the PPA because, among others, of its
submissions that: (1) the petitioner therein committed violations as to outside
stevedoring services, inadequate equipment, delayed submission of reports, and non-
compliance with certain port regulations; (2) respondent Marina Port Services and not
the petitioner was better quali ed to handle arrastre services; (3) the petitioner being
controlled by Alfredo Romualdez could not enter into a management contract with PPA
and any such contract would be null and void; and (4) even if the petitioner may not
have shared in the illegal intention behind the transfer of majority shares, it shared in the
benefits of the violation of law.
I was surprised during the oral arguments of the present petition to hear the
counsel for PPA submit diametrically different statements regarding the capabilities
and worth of E. Razon, Inc., as an arrastre operator. It now turns out that the Manila
International Container Terminal will depend a great deal on the expertise, reliability and
competence of E. Razon, Inc., for its successful operations. The time difference
between the two petitions is insubstantial. After going over the pleadings of the
present petition, I am now convinced that it is the submissions of PPA in this case and
not its contentions in G.R. No. 75197 which are accurate and meritorious. There is the
distinct possibility that we may have been unfair in the earlier petition because of
assertions made therein which are contradictory to the submissions in the instant
petition. No such doubts would exist if the Government is more consistent in its
pleadings on such important factual matters as those raised in these two petitions.
Footnotes
1.A "public utility" is a business or service engaged in regularly supplying the public with some
commodity or service of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service. Apart from statutes which define the
public utilities that are within the purview of such statutes, it would be difficult to
construct a definition of a public utility which would fit every conceivable case. As its
name indicates, however, the term public utility implies a public use and service to the
public. (Am. Jur. 2d V. 64, p. 549).
2.The Public Service Act (C.A. No. 146, as amended) provides that the term public service
"includes every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, sub-way motor vehicle, either for
freight or passenger, or both with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries, and water craft, engaged in the transportation of
passengers and freight or both, shipyard, marine railway, refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and power, petroleum,
sewerage system, wire or wireless communications system, wire or wireless
broadcasting stations and other similar public services.." [Sec. 13 (b).].
3.Under P.D. 857 the term dock "includes locks, cuts entrances, graving docks, inclined planes,
slipways, quays, and other works and things appertaining to any dock", while wharf
"means a continuous structure built parallel to along the margin of the sea or alongside
riverbanks, canals, or waterways where vessels may lie alongside to receive or discharge
cargo, embark or disembark passengers, or lie at rest." [Sec. 3(j) and (o).].
4.Examples of such agencies are:
1. The Land Transportation Franchising and Regulatory Board created under E.O. No.
202, which is empowered to "issue, amend, revise, suspend or cancel Certificates of
Public Convenience or permits authorizing the operation of public land transportation
services provided by motorized vehicles, and to prescribe the appropriate terms and
conditions therefor." [Sec. 5(b).].
2. The Board of Energy, reconstituted into the Energy Regulatory Board created under
E.O. No. 172, is empowered to license refineries and regulate their capacities and to
issue certificates of public convenience for the operation of electric power utilities and
services, except electric cooperatives [Sec. 9 (d) and (e), P.D. No. 1206.].
5.Art. II, Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and
implements a policy of full disclosure of all its transactions involving public interest.

THIRD DIVISION
[G.R. No. 141314. November 15, 2002.]
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGY

REGULATORY BOARD , petitioner, vs . MANILA ELECTRIC COMPANY ,
respondent.
[G.R. No. 141369. November 15, 2002.]
LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP) consisting

of CEFERINO PADUA, Chairman, G. FULTON ACOSTA, GALILEO
BRION, ANATALIA BUENAVENTURA, PEDRO CASTILLO, NAPOLEON
CORONADO, ROMEO ECHAUZ, FERNANDO GAITE, ALFREDO DE
GUZMAN, ROGELIO KARAGDAG, JR., MA. LUZ ARZAGA-MENDOZA,
ANSBERTO PAREDES, AQUILINO PIMENTEL III, MARIO REYES,
EMMANUEL SANTOS, RUDEGELIO TACORDA, members, and
ROLANDO ARZAGA, Secretary-General, JUSTICE ABRAHAM
SARMIENTO, SENATOR AQUILINO PIMENTEL, JR. and
COMMISSIONER BARTOLOME FERNANDEZ, JR., Board of
Consultants, and Lawyer GENARO LUALHATI , petitioners, vs . MANILA
ELECTRIC COMPANY (MERALCO) , respondent.
The Solicitor General for petitioner in G.R. No. 141314.

Ceferino Padua Law Office for LAMP.
Quiason Makalintal Barot Torres & Ibarra for MERALCO.
SYNOPSIS
The Court here resolves the following issues: 1. Whether the income tax paid by
Meralco should be treated as part of its operating expenses and thus considered in
determining the amount of increase in the electric rates. 2. Whether it is the net average
investment method of the COA and the ERB, or the average investment method of the
Meralco that should be used.
On the first issue, the Court ruled in the negative. Income tax paid by a public utility is
inconsistent with the nature of operating expenses. Operating expenses are those which
are reasonably incurred in connection with business operations to yield revenue or income.
Income tax is imposed on the entity, for the privilege of earning income and for the
bene ts received by the taxpayer from the State. On the second issue, the Court ruled on
the propriety of using the net average investment method in the determination of the rate
base. The ERB did not abuse its discretion when it applied the method as its
reasonableness is borne by the records of the case. Meralco had not adequately shown
that the rates prescribed by the ERB are unjust or con scatory as to deprive its
stockholders a reasonable return on investment.
SYLLABUS
1. POLITICAL LAW; INHERENT POWERS OF THE STATE; POLICE POWER;
REGULATION OF RATES TO BE CHARGED BY PUBLIC UTILITIES FOUNDED THEREON. —
The regulation of rates to be charged by public utilities is founded upon the police powers
of the State and statutes prescribing rules for the control and regulation of public utilities
are a valid exercise thereof. When private property is used for a public purpose and is
affected with public interest, it ceases to be juris privati only and becomes subject to
regulation. The regulation is to promote the common good. Submission to regulation may
be withdrawn by the owner by discontinuing use; but as long as use of the property is
continued, the same is subject to public regulation. In regulating rates charged by public
utilities, the State protects the public against arbitrary and excessive rates while
maintaining the e ciency and quality of services rendered. However, the power to regulate
rates does not give the State the right to prescribe rates which are so low as to deprive the
public utility of a reasonable return on investment. Thus, the rates prescribed by the State
must be one that yields a fair return on the public utility upon the value of the property
performing the service and one that is reasonable to the public for the services rendered.
The xing of just and reasonable rates involves a balancing of the investor and the
consumer interests.
2. REMEDIAL LAW; EVIDENCE; FINDINGS OF THE ENERGY REGULATORY
BOARD ON THE DETERMINATION OF PROPER ENERGY RATES; RESPECTED. — While the
power to x rates is a legislative function, whether exercised by the legislature itself or
delegated through an administrative agency, a determination of whether the rates so xed
are reasonable and just is a purely judicial question and is subject to the review of the
courts. Settled jurisprudence holds that factual ndings of administrative bodies on
technical matters within their area of expertise should be accorded not only respect but
even nality if they are supported by substantial evidence even if not overwhelming or
preponderant. In one case, we cautioned that courts should "refrain from substituting their
discretion on the weight of the evidence for the discretion of the Public Service
Commission on questions of fact and will only reverse or modify such orders of the Public
Service Commission when it really appears that the evidence is insu cient to support their
conclusions." In the cases at bar, ndings and conclusions of the ERB on the rate that can
be charged by MERALCO to the public should be respected. The function of the court, in
exercising its power of judicial review, is to determine whether under the facts and
circumstances, the nal order entered by the administrative agency is unlawful or
unreasonable. Thus, to the extent that the administrative agency has not been arbitrary or
capricious in the exercise of its power, the time-honored principle is that courts should not
interfere. The principle of separation of powers dictates that courts should hesitate to
review the acts of administrative o cers except in clear cases of grave abuse of
discretion. DTIaCS
3. POLITICAL LAW; ADMINISTRATIVE LAW; ENERGY REGULATORY BOARD; ON

FIXING RATES TO BE CHARGED IN THE DISTRIBUTION OF ELECTRICITY; DETERMINES
WHAT IS REASONABLE AND JUST. — The ERB was created under Executive Order No. 172
to regulate, among others, the distribution of energy resources and to x rates to be
charged by public utilities involved in the distribution of electricity. In the xing of rates, the
only standard which the legislature is required to prescribe for the guidance of the
administrative authority is that the rate be reasonable and just. It has been held that even in
the absence of an express requirement as to reasonableness, this standard may be
implied. What is a just and reasonable rate is a question of fact calling for the exercise of
discretion, good sense, and a fair, enlightened and independent judgment . The requirement
of reasonableness comprehends such rates which must not be so low as to be
con scatory, or too high as to be oppressive: In determining whether a rate is
con scatory, it is essential also to consider the given situation, requirements and
opportunities of the utility. In determining the just and reasonable rates to; be charged by a
public utility, three major factors are considered by the regulating agency: a) rate of return;
b) rate base; and c) the return itself or the computed revenue to be earned by the public
utility based on the rate of return and rate base. The rate of return is a judgment
percentage which, if multiplied with the rate base, provides a fair return on the public utility
for the use of its property for service to the public: The rate of return of a public utility is
not prescribed by statute but by administrative and judicial pronouncements. This Court
has consistently adopted a 12% rate of return for public utilities. The rate base, on the
other hand, is an evaluation of the property devoted by the utility to the public service or
the value of invested capital or property which the utility is entitled to a return.
4. ID.; ID.; ID.; ID.; INCOME TAX NOT INCLUDED IN THE COMPUTATION OF
OPERATING EXPENSES OF A PUBLIC UTILITY. — In determining whether or not a rate
yields a fair return to the utility, the operating expenses of the utility must be considered.
The return allowed to a public utility in accordance with the prescribed rate must be
su cient to provide for the payment of such reasonable operating expenses incurred by
the public utility in the provision of its services to the public. Thus, the public utility is
allowed a return on capital over and above operating expenses. However, only such
expenses and in such amounts as are reasonable for the e cient operation of the utility
should be allowed for determination of the rates to be charged by a public utility. The ERB
correctly ruled that income tax should not be included in the computation of operating
expenses of a public utility. Income tax paid by a public utility is inconsistent with the
nature of operating expenses. In general, operating expenses are those which are
reasonably incurred in connection with business operations to yield revenue or income.
They are items of expenses which contribute or are attributable to the production of
income or revenue. As correctly put by the ERB, operating expenses "should be a requisite
of or necessary in the operation of a utility, recurring, and that it redounds to the service or
bene t of customers." Income tax, it should be stressed, is imposed on an individual or
entity as a form of excise tax or a tax on the privilege of earning income. In exchange for
the protection extended by the State to the taxpayer, the government collects taxes as a
source of revenue to nance its activities. Clearly, by its nature, income tax payments of a
public utility are not expenses which contribute to or are incurred in connection with the
production of pro t of a public utility. Income tax should be borne by the taxpayer alone as
they are payments made in exchange for bene ts received by the taxpayer from the State.
No bene t is derived by the customers of a public utility for the taxes paid by such entity
and no direct contribution is made by the payment of income tax to the operation of a
public utility for purposes of generating revenue or pro t. Accordingly, the burden of
paying income tax should be Meralco's alone and should not be shifted to the consumers
by including the same in the computation of its operating expenses. ETDSAc
5. ID.; ID.; ID.; DETERMINATION OF THE RATE BASE ON THE PROPERTY USED IN
THE OPERATION OF THE PUBLIC UTILITY; NET AVERAGE INVESTMENT METHOD AND
AVERAGE INVESTMENT METHOD. — In the determination of the rate base, property used
in the operation of the public utility must be subject to appraisal and evaluation to
determine the fair value thereof entitled to a fair return. With respect to those properties
which have not been used by the public utility for the entire duration of the test year, i.e., the
year subject to audit examination for rate-making purposes, a valuation method must be
adopted to determine the proportionate value of the property. Under the " net average
investment method," properties and equipment used in the operation of a public utility are
entitled to a return only on the actual number of months they are in service during the
period. In contrast, the "average investment method" computes the proportionate value of
the property by adding the value of the property at the beginning and at the end of the test
year with the resulting sum divided by two.
6. ID.; ID.; ID.; ID.; ID.; PROPRIETY OF THE NET AVERAGE INVESTMENT
METHOD. — The ERB did not abuse its discretion when it applied the net average
investment method. The reasonableness of net average investment method is borne by
the records of the case. In its report, the COA explained that the computation of the
proportionate value of the property and equipment in accordance with the actual number
of months such property or equipment is in service for purposes of determining the rate
base is favored, as against the trending method employed by MERALCO, "to re ect the real
status of the property." By using the net average investment method, the ERB and the COA
considered for determination of the rate base the value of properties and equipment used
by MERALCO in proportion to the period that the same were actually used during the
period in question. This treatment is consistent with the settled rule in rate regulation that
the determination of the rate base of a public utility entitled to a return must be based on
properties and equipment actually being used or are useful to the operations of the public
utility.
DECISION
PUNO , J : p
In third world countries like the Philippines, equal justice will have a synthetic ring
unless the economic rights of the people, especially the poor, are protected with the same
resoluteness as their right to liberty. The cases at bar are of utmost signi cance for they
concern the right of our people to electricity and to be reasonably charged for their
consumption. In con guring the contours of this economic right to a basic necessity of
life, the Court shall de ne the limits of the power of respondent MERALCO, a giant public
utility and a monopoly, to charge our people for their electric consumption. The question
is: should public interest prevail over private profits?
The facts are brief and undisputed. On December 23, 1993, MERALCO led with the
ERB an application for the revision of its rate schedules. The application re ected an
average increase of 21 centavos per kilowatt hour (kwh) in its distribution charge. The
application also included a prayer for provisional approval of the increase pursuant to
Section 16(c) of the Public Service Act and Section 8 of Executive Order No. 172. HCTDIS
On January 28, 1994, the ERB issued an Order granting a provisional increase of
P0.184 per kwh, subject to the following condition:
"In the event, however, that the Board nds, after hearing and submission
by the Commission on Audit of an audit report on the books and records of the
applicant that the latter is entitled to a lesser increase in rates, all excess amounts
collected from the applicant's customers as a result of this Order shall either be
refunded to them or correspondingly credited in their favor for application to
electric bills covering future consumptions." 1
In the same Order, the ERB requested the Commission on Audit (COA) to conduct an
"audit and examination of the books and other records of account of the applicant for such
period of time, which in no case shall be less than 12 consecutive months, as it may deem
appropriate" and to submit a copy thereof to the ERB immediately upon completion. 2
On February 11, 1997, the COA submitted its Audit Report SAO No. 95-07 (the "COA
Report") which contained, among others, the recommendation not to include income taxes
paid by MERALCO as part of its operating expenses for purposes of rate determination
and the use of the net average investment method for the computation of the
proportionate value of the properties used by MERALCO during the test year for the
determination of the rate base. 3
Subsequently, the ERB rendered its decision adopting the above recommendations
and authorized MERALCO to implement a rate adjustment in the average amount of
P0.017 per kwh, effective with respect to MERALCO's billing cycles beginning February
1994. The ERB further ordered that "the provisional relief in the amount of P0.184 per
kilowatt hour granted under the Board's Order dated January 28, 1994 is hereby
superseded and modi ed and the excess average amount of P0.167 per kilowatt hour
starting with MERALCO's billing cycles beginning February 1994 until its billing cycles
beginning February 1998, be refunded to MERALCO's customers or correspondingly
credited in their favor for future consumption." 4
The ERB held that income tax should not be treated as operating expense as this
should be "borne by the stockholders who are recipients of the income or pro ts realized
from the operation of their business" hence, should not be passed on to the consumers. 5
Further, in applying the net average investment method, the ERB adopted the
recommendation of COA that in computing the rate base, only the proportionate value of
the property should be included, determined in accordance with the number of months the
same was actually used in service during the test year. 6
On appeal, the Court of Appeals set aside the ERB decision insofar as it directed the
reduction of the MERALCO rates by an average of P0.167 per kwh and the refund of such
amount to MERALCO's customers beginning February 1994 and until its billing cycle
beginning February 1998. 7 Separate Motions for Reconsideration led by the petitioners
were denied by the Court of Appeals. 8
Petitioners are now before the Court seeking a reversal of the decision of the Court
of Appeals by arguing primarily that the Court of Appeals erred: a) in ruling that income tax
paid by MERALCO should be treated as part of its operating expenses and thus
considered in determining the amount of increase in rates imposed by MERALCO and b) in
rejecting the net average investment method used by the COA and the ERB and instead
adopted the average investment method used by MERALCO.
We grant the petition.
The regulation of rates to be charged by public utilities is founded upon the police
powers of the State and statutes prescribing rules for the control and regulation of public
utilities are a valid exercise thereof. When private property is used for a public purpose and
is affected with public interest, it ceases to be juris privati only and becomes subject to
regulation. The regulation is to promote the common good. Submission to regulation may
be withdrawn by the owner by discontinuing use; but as long as use of the property is
continued, the same is subject to public regulation. 9
In regulating rates charged by public utilities, the State protects the public against
arbitrary and excessive rates while maintaining the e ciency and quality of services
rendered. However, the power to regulate rates does not give the State the right to
prescribe rates which are so low as to deprive the public utility of a reasonable return on
investment. Thus, the rates prescribed by the State must be one that yields a fair return on
the public utility upon the value of the property performing the service and one that is
reasonable to the public for the services rendered. 1 0 The xing of just and reasonable
rates involves a balancing of the investor and the consumer interests. 1 1
In his famous dissenting opinion in the 1923 case of Southwestern Bell Tel . Co. v.
Public Service Commission, 1 2 Mr. Justice Brandeis wrote:
"The thing devoted by the investor to the public use is not speci c property,
tangible and intangible, but capital embarked in an enterprise. Upon the capital so
invested, the Federal Constitution guarantees to the utility the opportunity to earn
a fair return. . . . The Constitution does not guarantee to the utility the opportunity
to earn a return on the value of all items of property used by the utility, or of any
of them.
xxx xxx xxx
The investor agrees, by embarking capital in a utility, that its charges to the
public shall be reasonable. His company is the substitute for the State in the
performance of the public service, thus becoming a public servant. The
compensation which the Constitution guarantees an opportunity to earn is the
reasonable cost of conducting the business."
While the power to x rates is a legislative function, whether exercised by the

legislature itself or delegated through an administrative agency, a determination of
whether the rates so xed are reasonable and just is a purely judicial question and is
subject to the review of the courts. 1 3
The ERB was created under Executive Order No. 172 to regulate, among others, the
distribution of energy resources and to x rates to be charged by public utilities involved in
the distribution of electricity. In the xing of rates, the only standard which the legislature
is required to prescribe for the guidance of the administrative authority is that the rate be
reasonable and just. It has been held that even in the absence of an express requirement
as to reasonableness, this standard may be implied. 1 4 What is a just and reasonable rate
is a question of fact calling for the exercise of discretion, good sense, and a fair,
enlightened and independent judgment. The requirement of reasonableness comprehends
such rates which must not be so low as to be con scatory, or too high as to be
oppressive. In determining whether a rate is con scatory, it is essential also to consider
the given situation, requirements and opportunities of the utility. 1 5
Settled jurisprudence holds that factual ndings of administrative bodies on
technical matters within their area of expertise should be accorded not only respect but
even nality if they are supported by substantial evidence even if not overwhelming or
preponderant. 1 6 In one case, 1 7 we cautioned that courts should "refrain from substituting
their discretion on the weight of the evidence for the discretion of the Public Service
Commission on questions of fact and will only reverse or modify such orders of the Public
Service Commission when it really appears that the evidence is insu cient to support their
conclusions." 1 8
In the cases at bar, ndings and conclusions of the ERB on the rate that can be
charged by MERALCO to the public should be respected. 1 9 The function of the court, in
exercising its power of judicial review, is to determine whether under the facts and
circumstances, the nal order entered by the administrative agency is unlawful or
unreasonable. 2 0 Thus, to the extent that the administrative agency has not been arbitrary
or capricious in the exercise of its power, the time-honored principle is that courts should
not interfere. The principle of separation of powers dictates that courts should hesitate to
review the acts of administrative o cers except in clear cases of grave abuse of
discretion. 2 1
In determining the just and reasonable rates to be charged by a public utility, three
major factors are considered by the regulating agency: a) rate of return; b) rate base; and
c) the return itself or the computed revenue to be earned by the public utility based on the
rate of return and rate base. 2 2 The rate of return is a judgment percentage which, if
multiplied with the rate base, provides a fair return on the public utility for the use of its
property for service to the public. 2 3 The rate of return of a public utility is not prescribed
by statute but by administrative and judicial pronouncements. This Court has consistently
adopted a 12% rate of return for public utilities. 2 4 The rate base, on the other hand, is an
evaluation of the property devoted by the utility to the public service or the value of
invested capital or property which the utility is entitled to a return. 2 5
In the cases at bar, the resolution of the issues involved hinges on the determination
of the kind and the amount of operating expenses that should be allowed to a public utility
to generate a fair return and the proper valuation of the rate base or the value of the
property entitled to a return.
I
Income Tax as Operating Expense
Cannot be Allowed
For Rate-Determination Purposes
In determining whether or not a rate yields a fair return to the utility, the operating
expenses of the utility must be considered. The return allowed to a public utility in
accordance with the prescribed rate must be su cient to provide for the payment of such
reasonable operating expenses incurred by the public utility in the provision of its services
to the public. Thus, the public utility is allowed a return on capital over and above operating
expenses. However, only such expenses and in such amounts as are reasonable for the
e cient operation of the utility should be allowed for determination of the rates to be
charged by a public utility.
The ERB correctly ruled that income tax should not be included in the computation
of operating expenses of a public utility. Income tax paid by a public utility is inconsistent
with the nature of operating expenses. In general, operating expenses are those which are
reasonably incurred in connection with business operations to yield revenue or income.
They are items of expenses which contribute or are attributable to the production of
income or revenue. As correctly put by the ERB, operating expenses "should be a requisite
of or necessary in the operation of a utility, recurring, and that it redounds to the service or
benefit of customers." 2 6
Income tax, it should be stressed, is imposed on an individual or entity as a form of
excise tax or a tax on the privilege of earning income. 2 7 In exchange for the protection
extended by the State to the taxpayer, the government collects taxes as a source of
revenue to nance its activities. Clearly, by its nature, income tax payments of a public
utility are not expenses which contribute to or are incurred in connection with the
production of pro t of a public utility. Income tax should be borne by the taxpayer alone as
they are payments made in exchange for bene ts received by the taxpayer from the State.
No bene t is derived by the customers of a public utility for the taxes paid by such entity
and no direct contribution is made by the payment of income tax to the operation of a
public utility for purposes of generating revenue or pro t. Accordingly, the burden of
paying income tax should be Meralco's alone and should not be shifted to the consumers
by including the same in the computation of its operating expenses. CASIEa
The principle behind the inclusion of operating expenses in the determination of a

just and reasonable rate is to allow the public utility to recoup the reasonable amount of
expenses it has incurred in connection with the services it provides. It does not give the
public utility the license to indiscriminately charge any and all types of expenses incurred
without regard to the nature thereof, i.e., whether or not the expense is attributable to the
production of services by the public utility. To charge consumers for expenses incurred by
a public utility which are not related to the service or bene t derived by the customers
from the public utility is unjustified and inequitable.
While the public utility is entitled to a reasonable return on the fair value of the
property being used for the service of the public, no less than the Federal Supreme Court
of the United States emphasized: "[t]he public cannot properly be subjected to
unreasonable rates in order simply that stockholders may earn dividends. . . . If a
corporation cannot maintain such a [facility] and earn dividends for stockholders, it is a
misfortune for it and them which the Constitution does not require to be remedied by
imposing unjust burdens on the public." 2 8
We are not impressed by the reliance by MERALCO on some American case law
allowing the treatment of income tax paid by a public utility as operating expense for rate-
making purposes. Su ce to state that with regard to rate-determination, the government
is not hidebound to apply any particular method or formula. 2 9 The question of what
constitutes a reasonable return for the public utility is necessarily determined and
controlled by its peculiar environmental milieu. Aside from the nancial condition of the
public utility, there are other critical factors to consider for purposes of rate regulation.
Among others, they are: particular reasons involved for the request of the rate increase, the
quality of services rendered by the public utility, the existence of competition, the element
of risk or hazard involved in the investment, the capacity of consumers, etc. 3 0 Rate
regulation is the art of reaching a result that is good for the public utility and is best for the
public.
For these reasons, the Court cannot give in to the importunings of MERALCO that we
blindly apply the rulings of American courts on the treatment of income tax as operating
expenses in rate regulation cases. An approach allowing the indiscriminate inclusion of
income tax payments as operating expenses may create an undesirable precedent and
serve as a blanket authority for public utilities to charge their income tax payments to
operating expenses and unjustly shift the tax burden to the customer. To be sure, public
utility taxation in the United States is going through the eye of criticism. Some
commentators are of the view that by allowing the public utility to collect its income tax
payment from its customers, a form of "sales tax" is, in effect, imposed on the public for
consumption of public utility services. By charging their income tax payments to their
customers, public utilities virtually become "tax collectors" rather than taxpayers. 3 1 In the
cases at bar, MERALCO has not justi ed why its income tax should be treated as an
operating expense to enable it to derive a fair return for its services.
It is also noteworthy that under American laws, public utilities are taxed differently
from other types of corporations and thus carry a heavier tax burden. Moreover, different
types of taxes, charges, tolls or fees are assessed on a public utility depending on the
state or locality where it operates. At a federal level, public utilities are subject to
corporate income taxes and Social Security taxes — in the same manner as other business
corporations. At the state and local levels, public utilities are subject to a wide variety of
taxes, not all of which are imposed on each state. Thus, it is not unusual to nd different
taxes or combinations of taxes applicable to respective utility industries within a particular
state. 3 2 A signi cant aspect of state and local taxation of public utilities in the United
States is that they have been singled out for special taxation, i.e., they are required to pay
one or more taxes that are not levied upon other industries. In contrast, in this jurisdiction,
public utilities are subject to the same tax treatment as any other corporation and local
taxes paid by it to various local government units are substantially the same. The reason
for this is that the power to tax resides in our legislature which may prescribe the limits of
both national and local taxation, unlike in the federal system of the United States where
state legislature may prescribe taxes to be levied in their respective jurisdictions.AcSEHT
MERALCO likewise cites decisions of the ERB 3 3 allowing the application of a tax
recovery clause for the imposition of an additional charge on consumers for taxes paid by
the public utility. A close look at these decisions will show they are in appropos. In the said
cases, the ERB approved the adoption of a formula which will allow the public utility to
recover from its customers taxes already paid by it. However, in the cases at bar, the
income tax component added to the operating expenses of a public utility is based on an
estimate or approximate gure of income tax to be paid by the public utility. It is this
estimated amount of income tax to be paid by MERALCO which is included in the amount
of operating expenses and used as basis in determining the reasonable rate to be charged
to the customers. Accordingly, the varying factual circumstances in the said cases prohibit
a square application of the rule under the previous ERB decisions.
II
Use of "Net Average Investment
Method" is Not Unreasonable
In the determination of the rate base, property used in the operation of the public
utility must be subject to appraisal and evaluation to determine the fair value thereof
entitled to a fair return. With respect to those properties which have not been used by the
public utility for the entire duration of the test year, i.e., the year subject to audit
examination for rate-making purposes, a valuation method must be adopted to determine
the proportionate value of the property. Petitioners maintain that the net average
investment method (also known as "actual number of months use method") recommended
by COA and adopted by the ERB should be used, while MERALCO argues that the average
investment method (also known as the "trending method") to determine the proportionate
value of properties should be applied.
Under the "net average investment method," properties and equipment used in the
operation of a public utility are entitled to a return only on the actual number of months
they are in service during the period. 3 4 In contrast, the "average investment method"
computes the proportionate value of the property by adding the value of the property at
the beginning and at the end of the test year with the resulting sum divided by two. 3 5
The ERB did not abuse its discretion when it applied the net average investment
method. The reasonableness of net average investment method is borne by the records of
the case. In its report, the COA explained that the computation of the proportionate value
of the property and equipment in accordance with the actual number of months such
property or equipment is in service for purposes of determining the rate base is favored,
as against the trending method employed by MERALCO, "to re ect the real status of the
property." 3 6 By using the net average investment method, the ERB and the COA
considered for determination of the rate base the value of properties and equipment used
by MERALCO in proportion to the period that the same were actually used during the
period in question. This treatment is consistent with the settled rule in rate regulation that
the determination of the rate base of a public utility entitled to a return must be based on
properties and equipment actually being used or are useful to the operations of the public
utility. 3 7
MERALCO does not seriously contest this treatment of actual usage of property but
opposes the method of computation or valuation thereof adopted by the ERB and the COA
on the ground that the net average investment method "assumes an ideal situation where a
utility, like MERALCO, is able to record in its books within any given month the value of all
the properties actually placed in service during that month." 3 8 MERALCO contends that
immediate recordal in its books of the property or equipment is not possible as
MERALCO's franchise covers a wide area and that due to the volume of properties and
equipment put into service and the amount of paper work required to be accomplished for
recording in the books of the company, "it takes three to six months (often longer) before
an asset placed in service is recorded in the books" of MERALCO. 3 9 Hence, MERALCO
adopted the "average investment method" or the "trending method" which computes the
average value of the property at the beginning and at the end of the test year to
compensate for the irregular recording in its books.
MERALCO'S stance is belied by the COA Report which states that the "veri cation of
the records, as con rmed by the Management Staff, disclosed that properties are
recorded in the books as these are actually placed in service." 4 0 Moreover, while the case
was pending trial before the ERB, the ERB conducted an ocular inspection to examine the
assets in service, records and books of accounts of MERALCO to ascertain the physical
existence, ownership, valuation and usefulness of the assets contained in the COA Report.
4 1 Thus, MERALCO's contention that the date of recordal in the books does not re ect the
date when the asset is placed in service is baseless.
Further, computing the proportionate value of assets used in service in accordance
with the actual number of months the same is used during the test year is a more accurate
method of determining the value of the properties of a public utility entitled to a return. If,
as determined by COA, the date of recordal in the books of MERALCO re ects the actual
date the equipment or property is used in service, there is no reason for the ERB to adopt
the trending method applied by MERALCO if a more precise method is available for
determining the proportionate value of the assets placed in service.
If we were to sustain the application of the "trending method," the public utility may
easily manipulate the valuation of its property entitled to a return (rate base) by simply
including a highly capitalized asset in the computation of the rate base even if the same
was used for a limited period of time during the test year. With the inexactness of the
trending method and the possibility that the valuation of certain properties may be subject
to the control of and abuse by the public utility, the Court nds no reasonable basis to
overturn the recommendation of COA and the decision of the ERB.
MERALCO further insists that the Court should sustain the "trending method" in view
of previous decisions by the Public Service Commission and of this Court which "upheld"
the use of this method. By refusing to adopt the trending method, MERALCO argues that
the ERB violated the rule on stare decisis.
Again, we are not impressed. It is a settled rule that the goal of rate-making is to
arrive at a just and reasonable rate for both the public utility and the public which avails of
the former's products and services. 4 2 However, what is a just and reasonable rate cannot
be xed by any immutable method or formula. Hence, it has been held that no public utility
has a vested right to any particular method of valuation. 4 3 Accordingly, with respect to a
determination of the proper method to be used in the valuation of property and equipment
used by a public utility for rate-making purposes, the administrative agency is not bound to
apply any one particular formula or method simply because the same method has been
previously used and applied. In fact, nowhere in the previous decisions cited by MERALCO
which applied the trending method did the Court rule that the same should be the only
method to be applied in all instances.
At any rate, MERALCO has not adequately shown that the rates prescribed by the
ERB are unjust or con scatory as to deprive its stockholders a reasonable return on
investment. In the early case of Ynchausti S.S. Co. v. Public Utility Commissioner, this Court
held: "there is a legal presumption that the rates xed by an administrative agency are
reasonable, and it must be conceded that the fixing of rates by the Government, through its
authorized agents, involves the exercise of reasonable discretion and, unless there is an
abuse of that discretion, the courts will not interfere." 4 4 Thus, the burden is upon the
oppositor, MERALCO, to prove that the rates xed by the ERB are unreasonable or
otherwise con scatory as to merit the reversal of the ERB. In the instant cases, MERALCO
was unable to discharge this burden.
WHEREFORE, in view of the foregoing, the instant petitions are GRANTED and the
decision of the Court of Appeals in C.A. G.R. SP No. 46888 is REVERSED. Respondent
MERALCO is authorized to adopt a rate adjustment in the amount of P0.017 per kilowatt
hour, effective with respect to MERALCO's billing cycles beginning February 1994. Further,
in accordance with the decision of the ERB dated February 16, 1998, the excess average
amount of P0.167 per kilowatt hour starting with the applicant's billing cycles beginning
February 1998 is ordered to be refunded to MERALCO's customers or correspondingly
credited in their favor for future consumption.
SO ORDERED.
Panganiban, Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.
Footnotes
1. Rollo, G.R. No. 141314, p. 116.
2. Id.
3. Id. at 164–66 and 168.
4. Id. at 589.
5. Id. at 587.
6. Id. at 569-570.
7. Id. at 88.
8. Id. at 90–95.
9. Munn v. People of the State of Illinois, 94 U.S. 113, 126 (1877).
10. IV A. F. Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the
Philippines 500 (1993).
11. Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591.
12. 262 U.S. 290-91, 43 S.Ct. 544, 547 (1923).
13. IV A. F. Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the

Philippines 500 (1993), citing Ynchausti SS Co. v. Public Utility Commission, 42 Phil. 624
and Manila Electric Co. v. De Vera, et al., 66 Phil. 161.
14. Philippine Communications Satellite Corporation v. Alcuaz, et al., 180 SCRA 218, 226
(1989).
15. Id. at 232.

16. Casa Filipina Realty Corporation v. Office of the President, 241 SCRA 165 (1995).
Substantial evidence is more than a mere scintilla. It means such relevant evidence which
a reasonable mind might accept as adequate to form a conclusion. (Ang Tibay v. Court
of Industrial Relations, 69 Phil. 635 (1940).
17. Batangas Transportation Company, et al. v. Laguna Transportation Company , 104 Phil.
992 (1958).
18. Id., citing Manila Yellow Taxicab Co . and Acro Taxicab Co . vs. Danon, 58 Phil. 75
(1933).
19. Province of Zamboanga del Norte v. Court of Appeals, 342 SCRA 549, 560 (2000).
20. City of Cincinnati v. Public Utilities Commission, 90 N.E.2d 681 (1950).
21. A. Sibal, Administrative Law 145 (1999).
22. P. Garfield and W. Lovejoy, Public Utility , p. 116.
23. Nichols and Welch, Ruling Principles of Utility Regulations, Rate of Return, Supp. A, 1
(1964).
24. Manila Electric Company v. Public Service Commission, 18 SCRA 651, 665–666 (1966).
25. Susan F. Fendell, Public Ownership of Public Utilities: Have Stockholders Outlived Their
Useful Economic Lives? 43 Ohio St. L. J. 821 (1982); 64 Am Jur 2d § 138.
26. Rollo, G.R. No. 141314, p. 581.
27. H. De Leon, The Fundamentals of Taxation 79 (1993).
28. Smyth v. Ames, 169 U.S. 466, 545 (1898).

29. Republic v. Medina, 41 SCRA 643, 662 (1971); 64 Am Jur 2d 666.
30. II O. Pond, Public Utilities 1037–1038 (1932).
31. P. Garfield and W. Lovejoy, Public Utility Economics 386, 393 (1964).
32. Id. at 385–386.

33. Cotabato Light & Power Plant (ERB Case No. 91–70); Davao Light and Power Co., Inc.
(ERB Case No. 92–105); and San Fernando Electric Light and Power Co. Inc. (ERB Case
No. 97–11).
34. Section 608 (7), Article IX of the National Accounting and Auditing Manual.
35. Rollo of G.R. No. 141314, p. 59.

36. Id. at 168.
37. II O. Pond, Public Utilities 1154 (1932).
38. Petition for Review, p. 22; Rollo, C.A.-G.R. No. 46888, p. 23.
39. Id.
40. Rollo, G.R. No. 141314, p. 168 (emphasis supplied).
41. Id. at 560.
42. Rate-Making for Public Utilities, 169 SCRA 175, 192 (1989)
43. 64 Am Jur 2d 666–667.
44. 42 Phil. 621 (1922).

FIRST DIVISION
[G.R. No. 115381. December 23, 1994.]
KILUSANG MAYO UNO LABOR CENTER , petitioner, vs. HON. JESUS B.

GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND
REGULATORY BOARD, and the PROVINCIAL BUSES OPERATORS
ASSOCIATION OF THE PHILIPPINES , respondents.
DECISION
KAPUNAN , J : p
Public utilities are privately owned and operated businesses whose service are
essential to the general public. They are enterprises which specially cater to the needs
of the public and conduce to their comfort and convenience. As such, public utility
services are impressed with public interest and concern. The same is true with respect
to the business of common carrier which holds such a peculiar relation to the public
interest that there is superinduced upon it the right of public regulation when private
properties are affected with public interest, hence, they cease to be juris privati only.
When, therefore, one devotes his property to a use in which the public has an interest,
he, in effect grants to the public an interest in that use, and must submit to the control
by the public for the common good, to the extent of the interest he has thus created. 1
An abdication of the licensing and regulatory government agencies of their
functions as the instant petition seeks to show, is indeed lamentable. Not only is it an
unsound administrative policy but it is inimical to public trust and public interest as
well.
The instant petition for certiorari assails the constitutionality and validity of
certain memoranda, circulars and/or orders of the Department of Transportation and
Communications (DOTC) and the Land Transportation Franchising and Regulatory
Board LTFRB) 2 which, among others, (a) authorize provincial bus and jeepney
operators to increase or decrease the prescribed transportation fares without
application therefor with the LTFRB and without hearing and approval thereof by said
agency in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise
known as the Public Service Act, and in derogation of LTFRB's duty to x and determine
just and reasonable fares by delegating that function to bus operators, and (b)
establish a presumption of public need in favor of applicants for certi cates of public
convenience (CPC) and place on the oppositor the burden of proving that there is no
need for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as
amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just
and reasonable." It is, likewise, violative of the Rules of Court which places upon each
party the burden to prove his own a rmative allegations. 3 The offending provisions
contained in the questioned issuances pointed out by petitioner, have resulted in the
introduction into our highways and thoroughfares thousands of old and smoke-
belching buses, many of which are right-hand driven, and have exposed our consumers
to the burden of spiraling costs of public transportation without hearing and due
process. cdrep
CD Technologies Asia, Inc. © 2018 cdasiaonline.com

The following memoranda, circulars and/or orders are sought to be nulli ed by
the instant petition, viz: (a) DOTC Memorandum Order 90-395, dated June 26, 1990
relative to the implementation of a fare range scheme for provincial bus services in the
country; (b) DOTC Department Order No. 92-587, dated March 30, 1992, de ning the
policy framework on the regulation of transport services; (c) DOTC Memorandum
dated October 8, 1992, laying down rules and procedures to implement Department
Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009, providing
implementing guidelines on the DOTC Department Order No. 92-587; and (e) LTFRB
Order dated March 24, 1994 in Case No. 94-3112.
The relevant antecedents are as follows:
On June 26, 1990, then Secretary of DOTC, Oscar M. Orbos, issued Memorandum
Circular No. 90-395 to then LTFRB Chairman, Remedios A.S. Fernando allowing
provincial bus operators to charge passengers rates within a range of 15% above and
15% below the LTFRB o cial rate for a period of one (1) year. The text of the
memorandum order reads in full:
One of the policy reforms and measures that is in line with the thrusts and
the priorities set out in the Medium-Term Philippine Development Plan (MTPDP)
1987 — 1992) is the liberalization of regulations in the transport sector. Along this
line, the Government intends to move away gradually from regulatory policies and
make progress towards greater reliance on free market forces.
Based on several surveys and observations, bus companies are already

charging passenger rates above and below the o cial fare declared by LTFRB on
many provincial routes. It is in this context that some form of liberalization on
public transport fares is to be tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately publicize a

fare range scheme for all provincial bus routes in country (except those operating
within Metro Manila). Transport operators shall be allowed to charge passengers
within a range of fteen percent (15%) above and fteen percent (15%) below the
LTFRB official rate for a period of one year.
Guidelines and procedures for the said scheme shall be prepared by LTFRB
in coordination with the DOTC Planning Service.
The implementation of the said fare range scheme shall start on 6 August
1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally feasible,"
Remedios A.S. Fernando submitted the following memorandum to Oscar M. Orbos on
July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated 26 June
1990 which the LTFRB received on 19 July 1990, directing the Board "to
immediately publicize a fare range scheme for all provincial bus routes in the
country (except those operating within Metro Manila)" that will allow operators "to
charge passengers within a range of fteen percent (15%) above and fteen
percent (15%) below the LTFRB o cial rate for a period of one year" the
undersigned is respectfully adverting the Secretary's attention to the following for
his consideration:
1. Section 16 (c) of the Public Service Act prescribes the
following for the xing and determination of rates -- (a) the rates to be
approved should be proposed by public service operators; (b) there should
be a publication and notice to concerned or affected parties in the territory
affected; (c) a public hearing should be held for the xing of the rates;
hence, implementation of the proposed fare range scheme on August 6
without complying with the requirements of the Public Service Act may not
be legally feasible.
2. To allow bus operators in the country to charge fares fteen
(15%) above the present LTFRB fares in the wake of the devastation, death
and suffering caused by the July 16 earthquake will not be socially
warranted and will be politically unsound; most likely public criticism
against the DOTC and the LTFRB will be triggered by the untimely motu
propio implementation of the proposal by the mere expedient of
publicizing the fare range scheme without calling a public hearing, which
scheme many as early as during the Secretary's predecessor know through
newspaper reports and columnists' comments to be Asian Development
Bank and World Bank inspired.
3. More than inducing a reduction in bus fares by fteen
percent (15%) the implementation of the proposal will instead trigger an
upward adjustment in bus fares by fteen percent (15%) at a time when
hundreds of thousands of people in Central and Northern Luzon,
particularly in Central Pangasinan, La Union, Baguio City, Nueva Ecija, and
the Cagayan Valley are suffering from the devastation and havoc caused
by the recent earthquake.
4. In lieu of the said proposal, the DOTC with its agencies
involved in public transportation can consider measures and reforms in the
industry that will be socially uplifting, especially for the people in the areas
devastated by the recent earthquake.
In view of the foregoing considerations, the undersigned respectfully
suggests that the implementation of the proposed fare range scheme this year be
further studied and evaluated.
On December 5, 1990, private respondent Provincial Bus Operators Association
of the Philippines, Inc. (PBOAP) led an application for fare rate increase. An across-
the-board increase of eight and a half centavos (P0.085) per kilometer for all types of
provincial buses with a minimum-maximum fare range of fifteen (15%) percent over and
below the proposed basic per kilometer fare rate, with the said minimum-maximum
fare range applying only to ordinary, rst class and premium class buses and a fty-
centavo (P0.50) minimum per kilometer fare for aircon buses, was sought.
On December 6, 1990, private respondent PBOAP reduced its applied proposed
fare to an across-the-board increase of six and a half (P0.065) centavos per kilometer
for ordinary buses. The decrease was due to the drop in the expected price of diesel. llcd
The application was opposed by the Philippine Consumers Foundation, Inc. and
Perla C. Bautista alleging that the proposed rates were exorbitant and unreasonable
and that the application contained no allegation on the rate of return of the proposed
increase in rates.
On December 14, 1990, public respondent LTFRB rendered a decision granting
the fare rate increase in accordance with the following schedule of fares on a straight
computation method, viz:
AUTHORIZED FARES
LUZON
MIN. OF 5 SUCCEEDING KM.
KMS.
REGULAR P1.50 P0.37
STUDENT P1.15 P0.28
VISAYAS/MINDANAO
REGULAR P1.60 P0.375
STUDENT P1.20 P0.285
FIRST CLASS (PER KM.)
LUZON P0.385
VISAYAS/MINDANAO P0.395
PREMIERE CLASS (PER KM.)
LUZON P0.395
VISAYAS/ MINDANAO P0.405
AIRCON (PER KM.) P0.415. 4
On March 30, 1992, then Secretary of the Department of Transportation and

Communications Pete Nicomedes Prado issued Department Order No. 92-587 de ning
the policy framework on the regulation of transport services. The full text of the said
order is reproduced below in view of the importance of the provisions contained
therein:
WHEREAS, Executive Order No. 125 as amended, designates the
Department of Transportation and Communications (DOTC) as the primary
policy, planning, regulating and implementing agency on transportation;
WHEREAS, to achieve the objective of a viable, e cient, and dependable
transportation system, the transportation regulatory agencies under or attached to
the DOTC have to harmonize their decisions and adopt a common philosophy
and direction;
WHEREAS, the government proposes to build on the successful
liberalization measures pursued over the last ve years and bring the transport
sector nearer to a balanced longer term regulatory framework;
NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC,
the following policies and principles in the economic regulation of land, air, and
water transportation services are hereby adopted:
1. Entry into and exit out of the industry. Following the Constitutional
dictum against monopoly, no franchise holder shall be permitted to maintain a
monopoly on any route. A minimum of two franchise holders shall be permitted to
operate on any route.
The requirements to grant a certi cate to operate, or certi cate of public
convenience, shall be: proof of Filipino citizenship, nancial capability, public
need, and sufficient insurance cover to protect the riding public.
In determining public need, the presumption of need for a service shall be
deemed in favor of the applicant. The burden of proving that there is no need for
a proposed service shall be with the oppositor(s).
In the interest of providing e cient public transport services, the use of the
'prior operator' and the 'priority of ling' rules shall be discontinued. The route
measured capacity test or other similar tests of demand for vehicle/vessel eet
on any route shall be used only as a guide in weighing the merits of each
franchise application and not as a limit to the services offered.
Where there are limitations in facilities, such as congested road space in
urban areas, or at airports and ports, the use of demand management measures
in conformity with market principles may be considered.
The right of an operator to leave the industry is recognized as a business
decision, subject only to the ling of appropriate notice and following a phase-out
period, to inform the public and to minimize disruption of services.
2. Rate and Fare Setting. Freight rates shall be freed gradually from
government controls. Passenger fares shall also be deregulated, except for the
lowest class of passenger service (normally third class passenger transport) for
which the government will x indicative or reference fares. Operators of particular
services may x their own fares within a range 15% above and below the
indicative or reference rate.
Where there is lack of effective competition for services, or on speci c
routes, or for the transport of particular commodities, maximum mandatory
freight rates or passenger fares shall be set temporarily by the government
pending actions to increase the level of competition.
For unserved or single operator routes, the government shall contract such
services in the most advantageous terms to the public and the government,
following public bids for the services. The advisability of bidding out the services
or using other kinds of incentives on such routes shall be studied by the
government.
3. Special Incentives and Financing for Fleet Acquisition. As a matter
of policy, the government shall not engage in special nancing and incentive
programs, including direct subsidies for eet acquisition and expansion. Only
when the market situation warrants government intervention shall programs of
this type be considered. Existing programs shall be phased out gradually.
The Land Transportation Franchising and Regulatory Board, the Civil
Aeronautics Board, the Maritime Industry Authority are hereby directed to submit
to the o ce of the Secretary, within forty- ve (45) days of this Order, the detailed
rules and procedures for the Implementation of the policies herein set forth. In the
formulation of such rules, the concerned agencies shall be guided by the most
recent studies on the subjects, such as the Provincial Road Passenger Transport
Study, the Civil Aviation Master Plan, the Presidential Task Force on the Inter-
island Shipping Industry, and the Inter-island Liner Shipping Rate Rationalization
Study.
For the compliance of all concerned. (Emphasis ours)
On October 8, 1992, public respondent Secretary of the Department of
Transportation and Communications Jesus B. Garcia, Jr. issued a memorandum to the
Acting Chairman of the LTFRB suggesting swift action on the adoption of rules and
procedures to implement above-quoted Department Order No. 92-587 that laid down
deregulation and other liberalization policies for the transport sector. Attached to the
said memorandum was a revised draft of the required rules and procedures covering (i)
Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting, with comments and
suggestions from the World Bank incorporated therein. Likewise, resplendant from the
said memorandum is the statement of the DOTC Secretary that the adoption of the
rules and procedures is a pre-requisite to the approval of the Economic Integration
Loan from the World Bank. 5
On February 17, 1993, the LTFRB issued Memorandum Circular No. 92-009
promulgating the guidelines for the implementation of DOTC Department Order No. 92-
587. The Circular provides, among others, the following challenged portions:
xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public Convenience:
The issuance of a Certi cate of Public Convenience is determined by
public need. The presumption of public need for a service shall be deemed in
favor of the applicant, while burden of proving that there is no need for the
proposed service shall be the oppositor's.
xxx xxx xxx
V. Rate and Fare Setting
The control in pricing shall be liberalized to introduce price competition
complementary with the quality of service, subject to prior notice and public
hearing. Fares shall not be provisionally authorized without public hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus
15 per cent for provincial buses and jeepneys shall be widened to 20% and
-25% limit in 1994 with the authorized fare to be replaced by an indicative
or reference rate as the basis for the expanded fare range.
2. Fare systems for aircon buses are liberalized to cover rst
class and premier services.
xxx xxx xxx
(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing itself of the
deregulation policy of the DOTC allowing provincial bus operators to collect plus 20%
and minus 25% of the prescribed fare without rst having led a petition for the
purpose and without the bene t of a public hearing, announced a fare increase of
twenty (20%) percent of the existing fares. Said increased fares were to be made
effective on March 16, 1994.
On March 16, 1994, petitioner KMU led a petition before the LTFRB opposing
the upward adjustment of bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the
petition for lack of merit. The dispositive portion reads:
PREMISES CONSIDERED, this Board after considering the arguments of
the parties, hereby DISMISSES FOR LACK OF MERIT the petition led in the
above-entitled case. This petition in this case was resolved with dispatch at the
request of petitioner to enable it to immediately avail of the legal remedies or
options it is entitled under existing laws.
SO ORDERED.6
Hence, the instant petition for certiorari with an urgent prayer for issuance of a
temporary restraining order.
The Court, on June 20, 1994, issued a temporary restraining order enjoining,
prohibiting and preventing respondents from implementing the bus fare rate increase
as well as the questioned orders and memorandum circulars. This meant that provincial
bus fares were rolled back to the levels duly authorized by the LTFRB prior to March 16,
1994. A moratorium was likewise enforced on the issuance of franchises for the
operation of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by
respondent LTFRB to provincial bus operators to set a fare range of plus or minus
fteen (15) percent, later increased to plus twenty (20%) and minus twenty- ve (-25%)
percent, over and above the existing authorized fare without having to le a petition for
the purpose, is unconstitutional, invalid and illegal. Second, the establishment of a
presumption of public need in favor of an applicant for a proposed transport service
without having to prove public necessity, is illegal for being violative of the Public
Service Act and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching upon the
issues raised by the petitioner, questions the wisdom and the manner by which the
instant petition was led. It asserts that the petitioner has no legal standing to sue or
has no real interest in the case at bench and in obtaining the reliefs prayed for.
In their Comment led by the O ce of the Solicitor General, public respondents
DOTC Secretary Jesus B. Garcia, Jr. and the LTFRB asseverate that the petitioner does
not have the standing to maintain the instant suit. They further claim that it is within
DOTC and LTFRB's authority to set a fare range scheme and establish a presumption of
public need in applications for certificates of public convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be struck. Petitioner KMU
has the standing to sue.
The requirement of locus standi inheres from the de nition of judicial power.
Section 1 of Article VIII of the Constitution provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and
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.
In Lamb v. Phipps ,7 we ruled that judicial power is the power to hear and decide
causes pending between parties who have the right to sue in the courts of law and
equity. Corollary to this provision is the principle of locus standi of a party litigant. One
who is directly affected by and whose interest is immediate and substantial in the
controversy has the standing to sue. The rule therefore requires that a party must show
a personal stake in the outcome of the case or an injury to himself that can be
redressed by a favorable decision so as to warrant an invocation of the court's
jurisdiction and to justify the exercise of the court's remedial powers in his behalf. 8
In the case at bench, petitioner, whose members had suffered and continue to
suffer grave and irreparable injury and damage from the implementation of the
questioned memoranda, circulars and/or orders, has shown that it has a clear legal
right that was violated and continues to be violated with the enforcement of the
challenged memoranda, circulars and/or orders. KMU members, who avail of the use of
buses, trains and jeepneys everyday, are directly affected by the burdensome cost of
arbitrary increase in passenger fares. They are part of the millions of commuters who
comprise the riding public. Certainly, their rights must be protected, not neglected nor
ignored. cdll
Assuming arguendo that petitioner is not possessed of the standing to sue, this
court is ready to brush aside this barren procedural in rmity and recognize the legal
standing of the petitioner in view of the transcendental importance of the issues raised.
And this act of liberality is not without judicial precedent. As early as the Emergency
Powers Cases, this Court had exercised its discretion and waived the requirement of
proper party. In the recent case of Kilosbayan, Inc., et al. v. Teo sto Guingona, Jr., et a l.,
9 we ruled in the same lines and enumerated some of the cases where the same policy
was adopted, viz:
. . . A party's standing before this Court is a procedural technicality which it
may, in the exercise of its discretion, set aside in view of the importance of the
issues raised. In the landmark Emergency Powers Cases, [G.R. No. L-2044
(Araneta v. Dinglasan); G.R. No. L-2756 (Araneta v. Angeles); G.R. No. L-3054
(Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of
Customs); and G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil.
368 (1949)], this Court brushed aside this technicality because 'the transcendental
importance to the public of these cases demands that they be settled promptly
and de nitely, brushing aside, if we must, technicalities of procedure. (Avelino vs.
Cuenco, G.R. No. L-2621).' Insofar as taxpayers' suits are concerned, this Court
had declared that it 'is not devoid of discretion as to whether or not it should be
entertained,' (Tan v. Macapagal, 43 SCRA 677, 680 [1972]) or that it 'enjoys an
open discretion to entertain the same or not.' [Sanidad v. COMELEC, 73 SCRA 333
(1976)].
xxx xxx xxx
In line with the liberal policy of this Court on locus standi, ordinary
taxpayers, members of Congress, and even association of planters, and non-pro t
civic organizations were allowed to initiate and prosecute actions before this
court to question the constitutionality or validity of laws, acts, decisions, rulings,
or orders of various government agencies or instrumentalities. Among such cases
were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows
retirement gratuity and commutation of vacation and sick leave to Senators and
Representatives and to elective o cials of both Houses of Congress (Philippine
Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive
Order No. 284, issued by President Corazon C. Aquino on 25 July 1987, which
allowed members of the cabinet, their undersecretaries, and assistant secretaries
to hold other government o ces or positions (Civil Liberties Union v. Executive
Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for debt service
in the General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d)
R.A. No. 7056 on the holding of desynchronized elections (Osmeña v.
Commission on Elections, 199 SCRA 750 [1991]; (e) P.D. No. 1869 (the charter of
the Philippine Amusement and Gaming Corporation) on the ground that it is
contrary to morals, public policy, and order (Basco v. Philippine Gaming and
Amusement Corp., 197 SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the
Philippine National Police. (Carpio v. Executive Secretary, 206 SCRA 290 [1992]).
Other cases where we have followed a liberal policy regarding locus standi
include those attacking the validity or legality of (a) an order allowing the
importation of rice in the light of the prohibition imposed by R.A. No. 3452 (Iloilo
Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b)
P.D. Nos. 991 and 1033 insofar as they proposed amendments to the
Constitution and P.D. No. 1031 insofar as it directed the COMELEC to supervise,
control, hold, and conduct the referendum-plebiscite on 16 October 1976 (Sanidad
v. Commission on Elections, supra); (c) the bidding for the sale of the 3,179
square meters of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia,
187 SCRA 797 [1990]); (d) the approval without hearing by the Board of
Investments of the amended application of the Bataan Petrochemical Corporation
to transfer the site of its plant from Bataan to Batangas and the validity of such
transfer and the shift of feedstock from naphtha only to naphtha and/or lique ed
petroleum gas (Garcia v. Board of Investments, 177 SCRA 374 [1989]; Garcia v.
Board of Investments, 191 SCRA 288 [1990]); (e) the decisions, orders, rulings,
and resolutions of the Executive Secretary, Secretary of Finance, Commissioner of
Internal Revenue, Commissioner of Customs, and the Fiscal Incentives Review
Board exempting the National Power Corporation from indirect tax and duties
(Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of the Energy
Regulatory Board of 5 and 6 December 1990 on the ground that the hearings
conducted on the second provisional increase in oil prices did not allow the
petitioner substantial cross-examination; (Maceda v. Energy Regulatory Board,
199 SCRA 454 [1991]); (g) Executive Order No. 478 which levied a special duty of
P0.95 per liter of imported oil products (Garcia v. Executive Secretary, 211 SCRA
219 [1992]); (h) resolutions of the Commission on Elections concerning the
apportionment, by district, of the number of elective members of Sanggunians
(De Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and (i)
memorandum orders issued by a Mayor affecting the Chief of Police of Pasay
City (Pasay Law and Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275
[1975]), this Court, despite its unequivocal ruling that the petitioners therein had
no personality to le the petition, resolved nevertheless to pass upon the issues
raised because of the far-reaching implications of the petition. We did no less in
De Guia v. COMELEC (Supra) where, although we declared that De Guia 'does not
appear to have locus standi, a standing in law, a personal or substantial interest,'
we brushed aside the procedural infirmity 'considering the importance of the issue
involved, concerning as it does the political exercise of quali ed voters affected
by the apportionment, and petitioner alleging abuse of discretion and violation of
the Constitution by respondent.'
Now on the merits of the case.

On the fare range scheme.
Section 16 (c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and hearing. —
The Commission shall have power, upon proper notice and hearing in accordance
with the rules and provisions of this Act, subject to the limitations and exceptions
mentioned and saving provisions to the contrary:
xxx xxx xxx
(c) To x and determine individual or joint rates, tolls, charges,
classi cations, or schedules thereof, as well as commutation, mileage
kilometrage, and other special rates which shall be imposed, observed, and
followed thereafter by any public service: Provided, That the Commission may, in
its discretion, approve rates proposed by public services provisionally and without
necessity of any hearing; but it shall call a hearing thereon within thirty days
thereafter, upon publication and notice to the concerns operating in the territory
affected: Provided, further, That in case the public service equipment of an
operator is used principally or secondarily for the promotion of a private business,
the net pro ts of said private business shall be considered in relation with the
public service of such operator for the purpose of xing the rates. (Emphasis
ours).
xxx xxx xxx
Under the foregoing provision, the Legislature delegated to the defunct Public Service
Commission the power of xing the rates of public services. Respondent LTFRB, the
existing regulatory body today, is likewise vested with the same under Executive Order
No. 202 dated June 19, 1987. Section 5 (c) of the said executive order authorizes
LTFRB "to determine, prescribe, approve and periodically review and adjust, reasonable
fares, rates and other related charges, relative to the operation of public land
transportation services provided by motorized vehicles."
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 di culty of administering the laws.
Hence, specialization even in legislation has become necessary. Given the task of
determining sensitive and delicate matters as route- xing and rate-making for the
transport sector, the responsible regulatory body is entrusted with the power of
subordinate legislation. With this authority, an administrative body and in this case, the
LTFRB, may implement broad policies laid down in a statute by " lling in" the details
which the Legislature may neither have time or competence to provide. However,
nowhere under the aforesaid provisions of law are the regulatory bodies, the PSC and
LTFRB alike, authorized to delegate that power to a common carrier, a transport
operator, or other public service.
In the case at bench, the authority given by the LTFRB to the provincial bus
operators to set a fare range over and above the authorized existing fare, is illegal and
invalid as it is tantamount to an undue delegation of legislative authority. Potestas
delegata non delegari potest. What has been delegated cannot be delegated. This
doctrine is based on the ethical principle that such as delegated power constitutes not
only a right but a duty to be performed by the delegate through the instrumentality of
his own judgment and not through the intervening mind of another. 1 0 A further
delegation of such power would indeed constitute a negation of the duty in violation of
the trust reposed in the delegate mandated to discharge it directly. 11 The policy of
allowing the provincial bus operators to change and increase their fares at will would
result not only to a chaotic situation but to an anarchic state of affairs. This would leave
the riding public at the mercy of transport operators who may increase fares every
hour, every day, every month or every year, whenever it pleases them or whenever they
deem it "necessary" to do so. In Panay Autobus Co. v. Philippine Railway Co. , 12 where
respondent Philippine Railway Co. was granted by the Public Service Commission the
authority to change its freight rates at will, this Court categorically declared that:
In our opinion, the Public Service Commission was not authorized by law
to delegate to the Philippine Railway Co. the power of altering its freight rates
whenever it should nd it necessary to do so in order to meet the competition of
road trucks and autobuses, or to change its freight rates at will, or to regard its
present rates as maximum rates, and to x lower rates whenever in the opinion of
the Philippine Railway Co. it would be to its advantage to do so.
The mere recital of the language of the application of the Philippine
Railway Co. is enough to show that it is untenable. The Legislature has delegated
to the Public Service Commission the power of xing the rates of public services,
but it has not authorized the Public Service Commission to delegate that power to
a common carrier or other public service. The rates of public services like the
Philippine Railway Co. have been approved or xed by the Public Service
Commission, and any change in such rates must be authorized or approved by
the Public Service Commission after they have been shown to be just and
reasonable. The public service may, of course, propose new rates, as the
Philippine Railway Co. did in case No. 31827, but it cannot lawfully make said
new rates effective without the approval of the Public Service Commission, and
the Public Service Commission itself cannot authorize a public service to enforce
new rates without the prior approval of said rates by the commission. The
commission must approve new rates when they are submitted to it, if the
evidence shows them to be just and reasonable, otherwise it must disapprove
them. Clearly, the commission cannot determine in advance whether or not the
new rates of the Philippine Railway Co. will be just and reasonable, because it
does not know what those rates will be.
In the present case the Philippine Railway Co. in effect asked for
permission to change its freight rates at will. It may change them every day or
every hour, whenever it deems it necessary to do so in order to meet competition
or whenever in its opinion it would be to its advantage. Such a procedure would
create a most unsatisfactory state of affairs and largely defeat the purposes of
the public service law. 1 3 (Emphasis ours).
One veritable consequence of the deregulation of transport fares is a
compounded fare. If transport operators will be authorized to impose and collect an
additional amount equivalent to 20% over and above the authorized fare over a period
of time, this will unduly prejudice a commuter who will be made to pay a fare that has
been computed in a manner similar to those of compounded bank interest rates.
Picture this situation. On December 14, 1990, the LTFRB authorized provincial
bus operators to collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary
buses. At the same time, they were allowed to impose and collect a fare range of plus
or minus 15% over the authorized rate. Thus P0.37 centavo per kilometer authorized
fare plus P0.05 centavos (which is 15% of P0.37 centavo) is equivalent to P0.42
centavos, the allowed rate in 1990. Supposing the LTFRB grants another ve (P0.05)
centavo increase per kilometer in 1994, then, the base or reference for computation
would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators
will exercise their authority to impose an additional 20% over and above the authorized
fare, then the fare to be collected shall amount to P0.56 (that is, P0.47 authorized
LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will be
continuously subject, not only to a double fare adjustment but to a compounding fare
as well. On their part, transport operators shall enjoy a bigger chunk of the pie. Aside
from fare increase applied for, they can still collect an additional amount by virtue of the
authorized fare range. Mathematically, the situation translates into the following:
Year * LTFRB Fare Range Fare to be
authorized collected
rate ** per kilometer
1990 P0.37 15% (P0.05) P0.42

1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94
Moreover, rate making or rate xing is not an easy task. It is a delicate and
sensitive government function that requires dexterity of judgment and sound discretion
with the settled goal of arriving at a just and reasonable rate acceptable to both the
public utility and the public. Several factors, in fact, have to be taken into consideration
before a balance could be achieved. A rate should not be con scatory as would place
an operator in a situation where he will continue to operate at a loss. Hence, the rate
should enable public utilities to generate revenues su cient to cover operational costs
and provide reasonable return on the investments. On the other hand, a rate which is
too high becomes discriminatory. It is contrary to public interest. A rate, therefore,
must be reasonable and fair and must be affordable to the end user who will utilize the
services.
Given the complexity of the nature of the function of rate- xing and its far-
reaching effects on millions of commuters, government must not relinquish this
important function in favor of those who would bene t and pro t from the industry.
Neither should the requisite notice and hearing be done away with. The people,
represented by reputable oppositors, deserve to be given full opportunity to be heard in
their opposition to any fare increase.
The present administrative procedure, 1 4 to our mind, already mirrors an orderly
and satisfactory arrangement for all parties involved. To do away with such a procedure
and allow just one party, an interested party at that, to determine what the rate should
be will undermine the right of the other parties to due process. The purpose of a
hearing is precisely to determine what a just and reasonable rate is. 15 Discarding such
procedural and constitutional right is certainly inimical to our fundamental law and to
public interest.
On the presumption of public need.
A certi cate of public convenience (CPC) is an authorization granted by the
LTFRB for the operation of land transportation services for public use as required by
law. Pursuant to Section 16(a) of the Public Service Act, as amended, the following
requirements must be met before a CPC may be granted, to wit: (i) the applicant must
be a citizen of the Philippines, or a corporation or co-partnership, association or joint-
stock company constituted and organized under the laws of the Philippines, at least 60
per centum of its stock or paid-up capital must belong entirely to citizens of the
Philippines; (ii) the applicant must be nancially capable of undertaking the proposed
service and meeting the responsibilities incident to its operation; and (iii) the applicant
must prove that the operation of the public service proposed and the authorization to
do business will promote the public interest in a proper and suitable manner. It is
understood that there must be proper notice and hearing before the PSC can exercise
its power to issue a CPC.
While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB
Memorandum Circular No. 92-009, Part IV, provides for yet incongruous and
contradictory policy guideline on the issuance of a CPC. The guidelines states:
The issuance of a Certi cate of Public Convenience is determined by
public need. The presumption of public need for a service shall be deemed in
favor of the applicant, while the burden of proving that there is no need for the
proposed service shall be the oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent with
Section 16(c)(iii) of the Public Service Act which requires that before a CPC will be
issued, the applicant must prove by proper notice and hearing that the operation of the
public service proposed will promote public interest in a proper and suitable manner.
On the contrary, the policy guideline states that the presumption of public need for a
public service shall be deemed in favor of the applicant. In case of con ict between a
statute and an administrative order, the former must prevail.
By its terms, public convenience or necessity generally means something tting
or suited to the public need. 1 6 As one of the basic requirements for the grant of a CPC,
public convenience and necessity exists when the proposed facility or service meets a
reasonable want of the public and supply a need which the existing facilities do not
adequately supply. The existence or non-existence of public convenience and necessity
is therefore a question of fact that must be established by evidence, real and/or
testimonial; empirical data; statistics and such other means necessary, in a public
hearing conducted for that purpose. The object and purpose of such procedure, among
other things, is to look out for, and protect, the interests of both the public and the
existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the condition
that after full-dress hearing and investigation, it shall nd, as a fact, that the proposed
operation is for the convenience of the public. 1 7 Basic convenience is the primary
consideration for which a CPC is issued, and that fact alone must be consistently borne
in mind. Also, existing operators is subject routes must be given an opportunity to offer
proof and oppose the application. Therefore, an applicant must, at all times, be required
to prove his capacity and capability to furnish the service which he has undertaken to
render. 1 8 And all this will be possible only if a public hearing were conducted for that
purpose. LLjur
Otherwise stated, the establishment of public need in favor of an applicant

reverses well-settled and institutionalized judicial, quasi-judicial and administrative
procedures. It allows the party who initiates the proceedings to prove, by mere
application, his a rmative allegations. Moreover, the offending provisions of the LTFRB
memorandum circular in question would in effect amend the Rules of Court by adding
another disputable presumption in the enumeration of 37 presumptions under Rule
131, Section 5 of the Rules of Court. Such usurpation of this Court's authority cannot be
countenanced as only this Court is mandated by law to promulgate rules concerning
pleading, practice and procedure. 1 9
Deregulation, while it may be ideal in certain situations, may not be ideal at all in
our country given the present circumstances. Advocacy of liberalized franchising and
regulatory process is tantamount to an abdication by the government of its inherent
right to exercise police power, that is, the right of government to regulate public utilities
for protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB to issue
administrative orders to regulate the transport sector, we nd that they committed
grave abuse of discretion in issuing DOTC Department Order No. 92-587 de ning the
policy framework on the regulation of transport services and LTFRB Memorandum
Circular No. 92-009 promulgating the implementing guidelines on DOTC Department
Order No. 92-587, the said administrative issuances being amendatory and violative of
the Public Service Act and the Rules of Court. Consequently, we rule that the twenty
(20%) per centum fare increase imposed by respondent PBOAP on March 16, 1994
without the bene t of a petition and a public hearing is null and void and of no force and
effect. No grave abuse of discretion however was committed in the issuance of DOTC
Memorandum Order No. 90-395 and DOTC Memorandum dated October 8, 1992, the
same being merely internal communications between administrative officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED
and the challenged administrative issuances and orders, namely: DOTC Department
Order No. 92-587, LTFRB Memorandum Circular No. 92-009, and the order dated March
24, 1994 issued by respondent LTFRB are hereby DECLARED contrary to law and invalid
insofar as they affect provisions therein (a) delegating to provincial bus and jeepney
operators the authority to increase or decrease the duly prescribed transportation
fares; and (b) creating a presumption of public need for a service in favor of the
applicant for a certi cate of public convenience and placing the burden of proving that
there is no need for the proposed service to the oppositor. LexLib
The Temporary Restraining Order issued on June 20, 1994 is hereby MADE
PERMANENT insofar as it enjoined the bus fare rate increase granted under the
provisions of the aforementioned administrative circulars, memoranda and/or orders
declared invalid.
No pronouncement as to costs.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Quiason, JJ., concur.
Footnotes
1. Pantranco v. Public Service Commission, 70 Phil. 221.

2. The 20th century ushered in the birth and growth of public utility regulation in the
country. After the Americans introduced public utility regulation at the turn of the
century, various regulatory bodies were created. They were the Coastwise Rate
Commission under Act No. 520 passed by the Philippine Commission on November 17,
1902; the Board of Rate Regulation under Act No. 1779 dated October 12, 1907; the
Board of Public Utility Commission under Act No. 2307 dated December 19, 1913; and
the Public Utility Commission under Act No. 3108 dated March 19, 1923.
During the Commonwealth period, the National Assembly passed a more

comprehensive public utility law. This was Commonwealth Act No. 146, as amended or
the Public Service Act, as amended. Said law created a regulatory and franchising
body known as the Public Service Commission (PSC). The Commission (PSC) existed
for thirty-six (36) years from 1936 up to 1972.
On September 24, 1972, Presidential Decree No. 1 was issued and declared "part of the
law of the land." The same effected a major revamp of the executive department.
Under Article III, Part X of P.D. No. 1, the Public Service Commission (PSC) was
abolished and replaced by three (3) specialized regulatory boards. These were the
Board of Transportation, the Board of Communications, and the Board of Power and
Waterworks.
The Board of Transportation (BOT) lasted for thirteen (13) years. On March 20, 1985,
Executive Order No. 1011 was issued abolishing the Board of Transportation and the
Bureau of Land Transportation. Their powers and functions were merged into the Land
Transportation Commission (LTC).
Two (2) years later, LTC was abolished by Executive Order Nos. 125 dated January 30,
1987 and 125-A dated April 13, 1987 which reorganized the Department of
Transportation and Communications. On June 19, 1987, the Land Transportation
Franchising and Regulatory Board (LTFRB) was created by Executive Order No. 202.
The LTFRB, successor of LTC, is the existing franchising and regulatory body for
overland transportation today.
3. Sec. 1, Rule 131, Rules of Court.
4. Decision of LTFRB in Case No. 90-4794, p. 4; Rollo, p. 59.

5. Rollo, p. 42.
6. Order of LTFRB, p. 4; Rollo, p. 55.
7. 22 Phil. 456 [1912].
8. Warth v. Seldin, 422 U.S. 490, 498-499, 45 L. Ed. 2d 343, 95 S. Ct. 2197 [1975]; Guzman
v. Marrero, 180 U.S. 81, 45 L. Ed. 436, 21 S.Ct. 293 [1901]; McMicken v. United States,
97 U.S. 204, 24 L.Ed. 947 [1978]; Silver Star Citizens' Committee v. Orlando Fla. 194 So.
2d 681 [1967]; In Re Kenison's Guardianship, 72 S.D. 180, 31 N.W. 2d 326 [1948].
9. G.R. No. 113375, May 5, 1994.
10. United States v. Barrias, 11 Phil. 327, 330 [1908]; People v. Vera, 65 Phil. 56, 113
[1937].
11. Cruz, Philippine Political Law, 1991 Edition, p. 84.
12. 57 Phil. 872 [1933].

13. Id., at pp. 878-879.
* Assume a four-year interval in fare adjustment as a constant.
** Assume further a constant P0.05 centavo increase in fare every four (4) years.
14. Steps in the Filing of Petition for Rate Increase:
A Petition For Adjustment of Rate (either for increase or reduction) may be filed only by
a grantee of a CPC. Therefore, when franchise/CPC grantees or existing public utility
operators foresee that the new oil price increase, wage hikes or similar factors would
threaten the survival and viability of their operations, they may then institute a petition
for increase of rates. Thus in the case of public utilities engaged in transportation,
telecommunications, energy supply (electricity) and others, the following steps are
usually undertaken in seeking, particularly upwards adjustments of rates:
1. Filing of formal Petition for Rate Increase. — This petition alleges therein among
others, the present schedule of rates, the reasons why the same is no longer
economically viable and the revised schedule of rates it proposes to charge. Attached
to said Petition for financial statements, projections/studies showing possible losses
from oil price or wage hikes under the old or existing rates and the possible margin of
profit (which should be within the 12% allowable limit) under the new or revised rates;
2. After the petition is docketed, a date is set for hearing for which a Notice of Hearing
is issued, the same to be published in a newspaper of general circulation in the area;
3. The parties affected by the application are required to be furnished copies of the
petition and the Notice of Hearing usually by registered mail with return card. The
Solicitor General is also separately notified since he is the counsel for the Government;
4. The Technical Staff of the regulatory body concerned evaluates the documentary
evidence attached to the petition to determine whether there is warrant to the request
for rate revision;
5. The Commission on Audit (COA) is requested by the regulatory body to conduct an

audit and examination of the books of accounts and other pertinent financial records
of the public utility operator seeking the rate revision if the applicants/petitioners are
numerous, a representative number for examination purposes would do; and the period
of operation covered usually ranges from six (6) months to one (1) year;
COA audit report is compared with that of the regulatory body. Copies of these audit
reports are furnished the petitioners and oppositors may submit their exceptions or
objections thereto.
6. Then hearings are conducted. The petitioners may present accountants or such rate
experts to explain their plea for rate revision. Oppositors are also allowed to rebut such
evidence-in-chief with their own witnesses and documents. After the hearings, the
corresponding resolution is issued.
To obviate protracted hearings, the parties may agree to submit their respective
Position Papers in lieu of oral testimonies.
15. Ynchausti Steamship Co. v. Public Utility Commissioner, 42 Phil. 621, 631 [1922]).
16. Black's Law Dictionary, 5th Edition, p. 1105.

17. Batangas Transportation Co. v. Orlanes, 52 Phil. 455 [1928]).
18. Manila Electric Co. v. Pasay Transportation Co., 57 Phil. 825 [1932]; Please see also
Raymundo Transportation v. Perez, 56 Phil. 274 [1931]; Pampanga Bus Co. v. Enriquez,
38 O.G. 374; Dela Rosa v. Corpus, 38 O.G. 2069.
19. Article VIII, Section 6, 1987 Constitution.

EN BANC
[G.R. No. 138810. September 29, 2004.]
BATANGAS CATV, INC. , petitioner, vs . THE COURT OF APPEALS, THE

BATANGAS CITY SANGGUNIANG PANLUNGSOD and BATANGAS
CITY MAYOR , respondents.
DECISION
SANDOVAL-GUTIERREZ , J : p
In the late 1940s, John Walson, an appliance dealer in Pennsylvania, suffered a

decline in the sale of television (tv) sets because of poor reception of signals in his
community. Troubled, he built an antenna on top of a nearby mountain. Using coaxial cable
lines, he distributed the tv signals from the antenna to the homes of his customers.
Walson's innovative idea improved his sales and at the same time gave birth to a new
telecommunication system — the Community Antenna Television (CATV) or Cable
Television. 1
This technological breakthrough found its way in our shores and, like in its country
of origin, it spawned legal controversies, especially in the eld of regulation. The case at
bar is just another occasion to clarify a shady area. Here, we are tasked to resolve the
inquiry — may a local government unit (LGU) regulate the subscriber rates charged by
CATV operators within its territorial jurisdiction?
This is a petition for review on certiorari led by Batangas CATV, Inc. (petitioner
herein) against the Sangguniang Panlungsod and the Mayor of Batangas City (respondents
herein) assailing the Court of Appeals (1) Decision 2 dated February 12, 1999 and (2)
Resolution 3 dated May 26, 1999, in CA-G.R. CV No. 52361. 4 The Appellate Court reversed
and set aside the Judgment 5 dated October 29, 1995 of the Regional Trial Court (RTC),
Branch 7, Batangas City in Civil Case No. 4254, 6 holding that neither of the respondents
has the power to x the subscriber rates of CATV operators, such being outside the scope
of the LGU's power.
The antecedent facts are as follows: SEAHID
On July 28, 1986, respondent Sangguniang Panlungsod enacted Resolution No. 210
7 granting petitioner a permit to construct, install, and operate a CATV system in Batangas
City. Section 8 of the Resolution provides that petitioner is authorized to charge its
subscribers the maximum rates speci ed therein, "provided, however, that any increase of
rates shall be subject to the approval of the Sangguniang Panlungsod." 8
Sometime in November 1993, petitioner increased its subscriber rates from P88.00
to P180.00 per month. As a result, respondent Mayor wrote petitioner a letter 9 threatening
to cancel its permit unless it secures the approval of respondent Sangguniang
Panlungsod, pursuant to Resolution No. 210.
Petitioner then led with the RTC, Branch 7, Batangas City, a petition for injunction
docketed as Civil Case No. 4254. It alleged that respondent Sangguniang Panlungsod has
no authority to regulate the subscriber rates charged by CATV operators because under
Executive Order No. 205, the National Telecommunications Commission (NTC) has the
sole authority to regulate the CATV operation in the Philippines.
On October 29, 1995, the trial court decided in favor of petitioner, thus:
"WHEREFORE, as prayed for, the defendants, their representatives, agents,
deputies or other persons acting on their behalf or under their instructions, are
hereby enjoined from canceling plaintiff's permit to operate a Cable Antenna
Television (CATV) system in the City of Batangas or its environs or in any manner,
from interfering with the authority and power of the National
Telecommunications Commission to grant franchises to operate CATV systems
to quali ed applicants, and the right of plaintiff in xing its service rates which
needs no prior approval of the Sangguniang Panlungsod of Batangas City.
The counterclaim of the plaintiff is hereby dismissed. No pronouncement
as to costs.
IT IS SO ORDERED." 1 0
The trial court held that the enactment of Resolution No. 210 by respondent violates
the State's deregulation policy as set forth by then NTC Commissioner Jose Luis A. Alcuaz
in his Memorandum dated August 25, 1989. Also, it pointed out that the sole agency of the
government which can regulate CATV operation is the NTC, and that the LGUs cannot
exercise regulatory power over it without appropriate legislation. aIcCTA
Unsatis ed, respondents elevated the case to the Court of Appeals, docketed as
CA-G.R. CV No. 52361.
On February 12, 1999, the Appellate Court reversed and set aside the trial court's
Decision, ratiocinating as follows:
"Although the Certi cate of Authority to operate a Cable Antenna
Television (CATV) System is granted by the National Telecommunications
Commission pursuant to Executive Order No. 205, this does not preclude the
Sangguniang Panlungsod from regulating the operation of the CATV in their
locality under the powers vested upon it by Batas Pambansa Bilang 337,
otherwise known as the Local Government Code of 1983. Section 177 (now
Section 457 paragraph 3(ii) of Republic Act 7160) provides:
'Section 177. Powers and Duties. — The Sangguniang
Panlungsod shall:
a) Enact such ordinances as may be necessary to carry into
effect and discharge the responsibilities conferred upon it by law, and such
as shall be necessary and proper to provide for health and safety, comfort
and convenience, maintain peace and order, improve the morals, and
promote the prosperity and general welfare of the community and the
inhabitants thereof, and the protection of property therein;
xxx xxx xxx
d) Regulate, x the license fee for, and tax any business or

profession being carried on and exercised within the territorial jurisdiction
of the city, except travel agencies, tourist guides, tourist transports, hotels,
resorts, de luxe restaurants, and tourist inns of international standards
which shall remain under the licensing and regulatory power of the
Ministry of Tourism which shall exercise such authority without
infringement on the taxing and regulatory powers of the city government;'
Under cover of the General Welfare Clause as provided in this section,
Local Government Units can perform just about any power that will bene t their
constituencies. Thus, local government units can exercise powers that are: (1)
expressly granted; (2) necessarily implied from the power that is expressly
granted; (3) necessary, appropriate or incidental for its e cient and effective
governance; and (4) essential to the promotion of the general welfare of their
inhabitants. (Pimentel, The Local Government Code of 1991, p. 46)
Verily, the regulation of businesses in the locality is expressly provided in
the Local Government Code. The xing of service rates is lawful under the
General Welfare Clause. IDSEAH
Resolution No. 210 granting appellee a permit to construct, install and

operate a community antenna television (CATV) system in Batangas City as
quoted earlier in this decision, authorized the grantee to impose charges which
cannot be increased except upon approval of the Sangguniang Bayan. It further
provided that in case of violation by the grantee of the terms and
conditions/requirements speci cally provided therein, the City shall have the right
to withdraw the franchise.
Appellee increased the service rates from EIGHTY EIGHT PESOS (P88.00)
to ONE HUNDRED EIGHTY PESOS (P180.00) (Records, p. 25) without the approval
of appellant. Such act breached Resolution No. 210 which gives appellant the
right to withdraw the permit granted to appellee." 1 1
Petitioner filed a motion for reconsideration but was denied. 1 2
Hence, the instant petition for review on certiorari anchored on the following
assignments of error:
"I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE GENERAL WELFARE

CLAUSE of the LOCAL GOVERNMENT CODE AUTHORIZES RESPONDENT
SANGGUNIANG PANLUNGSOD TO EXERCISE THE REGULATORY FUNCTION
SOLELY LODGED WITH THE NATIONAL TELECOMMUNICATIONS COMMISSION
UNDER EXECUTIVE ORDER NO. 205, INCLUDING THE AUTHORITY TO FIX
AND/OR APPROVE THE SERVICE RATES OF CATV OPERATORS; AND
II
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION APPEALED

FROM AND DISMISSING PETITIONER'S COMPLAINT." 1 3
Petitioner contends that while Republic Act No. 7160, the Local Government Code of
1991, extends to the LGUs the general power to perform any act that will bene t their
constituents, nonetheless, it does not authorize them to regulate the CATV operation.
Pursuant to E.O. No. 205, only the NTC has the authority to regulate the CATV operation,
including the fixing of subscriber rates. TAaHIE
Respondents counter that the Appellate Court did not commit any reversible error in
rendering the assailed Decision. First, Resolution No. 210 was enacted pursuant to Section
177(c) and (d) of Batas Pambansa Bilang 337, the Local Government Code of 1983, which
authorizes LGUs to regulate businesses. The term "businesses" necessarily includes the
CATV industry. And second, Resolution No. 210 is in the nature of a contract between
petitioner and respondents, it being a grant to the former of a franchise to operate a CATV
system. To hold that E.O. No. 205 amended its terms would violate the constitutional
prohibition against impairment of contracts. 1 4
The petition is impressed with merit.
Earlier, we posed the question — may a local government unit (LGU) regulate the
subscriber rates charged by CATV operators within its territorial jurisdiction? A review of
pertinent laws and jurisprudence yields a negative answer.
President Ferdinand E. Marcos was the rst one to place the CATV industry under
the regulatory power of the national government. 1 5 On June 11, 1978, he issued
Presidential Decree (P.D.) No. 1512 1 6 establishing a monopoly of the industry by granting
Sining Makulay, Inc., an exclusive franchise to operate CATV system in any place within the
Philippines. Accordingly, it terminated all franchises, permits or certi cates for the
operation of CATV system previously granted by local governments or by any
instrumentality or agency of the national government. 1 7 Likewise, it prescribed the
subscriber rates to be charged by Sining Makulay, Inc. to its customers. 1 8
On July 21, 1979, President Marcos issued Letter of Instruction (LOI) No . 894
vesting upon the Chairman of the Board of Communications direct supervision over the
operations of Sining Makulay, Inc . Three days after, he issued E.O. No. 546 1 9 integrating
the Board of Communications 2 0 and the Telecommunications Control Bureau 2 1 to form a
single entity to be known as the "National Telecommunications Commission." Two of its
assigned functions are: DEScaT
"a. Issue Certi cate of Public Convenience for the operation of

communications utilities and services, radio communications systems, wire or
wireless telephone or telegraph systems, 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;"
Although Sining Makulay Inc.'s exclusive franchise had a life term of 25 years, it was
cut short by the advent of the 1986 Revolution. Upon President Corazon C. Aquino's
assumption of power, she issued E.O. No. 205 2 2 opening the CATV industry to all citizens
of the Philippines. It mandated the NTC to grant Certi cates of Authority to CATV
operators and to issue the necessary implementing rules and regulations.
On September 9, 1997, President Fidel V. Ramos issued E.O. No. 436 2 3 prescribing
policy guidelines to govern CATV operation in the Philippines. Cast in more de nitive
terms, it restated the NTC's regulatory powers over CATV operations, thus:
"SECTION 2. T h e regulation and supervision of the cable television
industry in the Philippines shall remain vested solely with the National
Telecommunications Commission (NTC).
SECTION 3. Only persons, associations, partnerships, corporations or
cooperatives, granted a Provisional Authority or Certi cate of Authority by the
Commission may install, operate and maintain a cable television system or render
cable television service within a service area."
Clearly, it has been more than two decades now since our national government,
through the NTC, assumed regulatory power over the CATV industry. Changes in the
political arena did not alter the trend. Instead, subsequent presidential issuances further
reinforced the NTC's power. Signi cantly, President Marcos and President Aquino, in the
exercise of their legislative power, issued P.D. No. 1512, E.O. No. 546 and E.O. No. 205.
Hence, they have the force and effect of statutes or laws passed by Congress. 2 4 That the
regulatory power stays with the NTC is also clear from President Ramos' E.O. No. 436
mandating that the regulation and supervision of the CATV industry shall remain vested
"solely" in the NTC. Black's Law Dictionary de nes "sole" as "without another or others." 2 5
The logical conclusion, therefore, is that in light of the above laws and E.O. No. 436, the
NTC exercises regulatory power over CATV operators to the exclusion of other bodies. SEHaDI
But, lest we be misunderstood, nothing herein should be interpreted as to strip LGUs

of their general power to prescribe regulations under the general welfare clause of the
Local Government Code. It must be emphasized that when E.O. No. 436 decrees that the
"regulatory power" shall be vested "solely" in the NTC, it pertains to the "regulatory power"
over those matters which are peculiarly within the NTC's competence, such as, the: (1)
determination of rates, (2) issuance of "certi cates of authority, (3) establishment of areas
of operation, (4) examination and assessment of the legal, technical and nancial
quali cations of applicant operators, (5) granting of permits for the use of frequencies, (6)
regulation of ownership and operation, (7) adjudication of issues arising from its functions,
and (8) other similar matters. 2 6 Within these areas, the NTC reigns supreme as it
possesses the exclusive power to regulate — a power comprising varied acts, such as "to
x, establish, or control; to adjust by rule, method or established mode; to direct by rule or
restriction; or to subject to governing principles or laws." 2 7
Coincidentally, respondents justify their exercise of regulatory power over
petitioner's CATV operation under the general welfare clause of the Local Government
Code of 1983. The Court of Appeals sustained their stance.
There is no dispute that respondent Sangguniang Panlungsod, like other local
legislative bodies, has been empowered to enact ordinances and approve resolutions
under the general welfare clause of B.P. Blg. 337, the Local Government Code of 1983.
That it continues to posses such power is clear under the new law, R.A. No. 7160 (the
Local Government Code of 1991). Section 16 thereof provides:
"SECTION 16. General Welfare. — Every local government unit shall
exercise the powers expressly granted, those necessarily implied therefrom, as
well as powers necessary, appropriate, or incidental for its e cient and effective
governance, and those which are essential to the promotion of the general
welfare. Within their respective territorial jurisdictions, local government units
shall ensure and support, among others, the preservation and enrichment of
culture, promote health and safety, enhance the right of the people to a balanced
ecology, encourage and support the development of appropriate and self-reliant,
scienti c and technological capabilities, improve public morals, enhance
economic prosperity and social justice, promote full employment among their
residents, maintain peace and order, and preserve the comfort and convenience of
their inhabitants."
In addition, Section 458 of the same Code specifically mandates:

"SECTION 458. Powers, Duties, Functions and Compensation. — (a)
T h e Sangguniang Panlungsod, as the legislative body of the city, shall enact
ordinances, approve resolutions and appropriate funds for the general welfare of
the city and its inhabitants pursuant to Section 16 of this Code and in the proper
exercise of the corporate powers of the city as provided for under Section 22 of
this Code, . . ."
The general welfare clause is the delegation in statutory form of the police power of
the State to LGUs . 2 8 Through this, LGUs may prescribe regulations to protect the lives,
health, and property of their constituents and maintain peace and order within their
respective territorial jurisdictions. Accordingly, we have upheld enactments providing, for
instance, the regulation of gambling, 2 9 the occupation of rig drivers, 3 0 the installation and
operation of pinball machines, 3 1 the maintenance and operation of cockpits, 3 2 the
exhumation and transfer of corpses from public burial grounds, 3 3 and the operation of
hotels, motels, and lodging houses 3 4 as valid exercises by local legislatures of the police
power under the general welfare clause.
Like any other enterprise, CATV operation may be regulated by LGUs under the
general welfare clause. This is primarily because the CATV system commits the
indiscretion of crossing public properties. (It uses public properties in order to reach
subscribers.) The physical realities of constructing CATV system — the use of public
streets, rights of ways, the founding of structures, and the parceling of large regions —
allow an LGU a certain degree of regulation over CATV operators . 3 5 This is the same
regulation that it exercises over all private enterprises within its territory.
But, while we recognize the LGUs' power under the general welfare clause, we
cannot sustain Resolution No. 210. We are convinced that respondents strayed from the
well recognized limits of its power. The aws in Resolution No. 210 are: (1) it violates the
mandate of existing laws and (2) it violates the State's deregulation policy over the CATV
industry.
I.
Resolution No. 210 is an enactment of an LGU acting only as agent of the national
legislature. Necessarily, its act must re ect and conform to the will of its principal. To test
its validity, we must apply the particular requisites of a valid ordinance as laid down by the
accepted principles governing municipal corporations. 3 6
Speaking for the Court in the leading case of United States vs. Abendan, 3 7 Justice
Moreland said: "An ordinance enacted by virtue of the general welfare clause is valid,
unless it contravenes the fundamental law of the Philippine Islands, or an Act of the
Philippine Legislature, or unless it is against public policy, or is unreasonable, oppressive,
partial, discriminating, or in derogation of common right." In De la Cruz vs. Paraz, 3 8 we laid
the general rule "that ordinances passed by virtue of the implied power found in the general
welfare clause must be reasonable, consonant with the general powers and purposes of
the corporation, and not inconsistent with the laws or policy of the State." ITECSH
The apparent defect in Resolution No. 210 is that it contravenes E.O. No. 205 and
E.O. No. 436 insofar as it permits respondent Sangguniang Panlungsod to usurp a power
exclusively vested in the NTC, i.e., the power to x the subscriber rates charged by CATV
operators. As earlier discussed, the xing of subscriber rates is de nitely one of the
matters within the NTC's exclusive domain.
In this regard, it is appropriate to stress that where the state legislature has made
provision for the regulation of conduct, it has manifested its intention that the subject
matter shall be fully covered by the statute, and that a municipality, under its general
powers, cannot regulate the same conduct. 3 9 In Keller vs. State, 4 0 it was held that: "Where
there is no express power in the charter of a municipality authorizing it to adopt
ordinances regulating certain matters which are speci cally covered by a general statute, a
municipal ordinance, insofar as it attempts to regulate the subject which is completely
covered by a general statute of the legislature, may be rendered invalid. . . . Where the
subject is of statewide concern, and the legislature has appropriated the field and declared
the rule, its declaration is binding throughout the State." A reason advanced for this view is
that such ordinances are in excess of the powers granted to the municipal corporation. 4 1
Since E.O. No. 205, a general law, mandates that the regulation of CATV operations
shall be exercised by the NTC, an LGU cannot enact an ordinance or approve a resolution in
violation of the said law.
It is a fundamental principle that municipal ordinances are inferior in status and
subordinate to the laws of the state. An ordinance in con ict with a state law of general
character and statewide application is universally held to be invalid. 4 2 The principle is
frequently expressed in the declaration that municipal authorities, under a general grant of
power, cannot adopt ordinances which infringe the spirit of a state law or repugnant to the
general policy of the state. 4 3 In every power to pass ordinances given to a municipality,
there is an implied restriction that the ordinances shall be consistent with the general law.
4 4 In the language of Justice Isagani Cruz (ret.), this Court, in Magtajas vs. Pryce Properties
Corp., Inc., 4 5 ruled that:
"The rationale of the requirement that the ordinances should not
contravene a statute is obvious. Municipal governments are only agents of the
national government. Local councils exercise only delegated legislative powers
conferred on them by Congress as the national lawmaking body. The delegate
cannot be superior to the principal or exercise powers higher than those of the
latter. It is a heresy to suggest that the local government units can undo the acts
of Congress, from which they have derived their power in the rst place, and
negate by mere ordinance the mandate of the statute.
'Municipal corporations owe their origin to, and derive their powers
and rights wholly from the legislature. It breathes into them the breath of
life, without which they cannot exist. As it creates, so it may destroy. As it
may destroy, it may abridge and control. Unless there is some
constitutional limitation on the right, the legislature might, by a single act,
and if we can suppose it capable of so great a folly and so great a wrong,
sweep from existence all of the municipal corporations in the State, and
the corporation could not prevent it. We know of no limitation on the right
so far as to the corporation themselves are concerned. They are, so to
phrase it, the mere tenants at will of the legislature.'
This basic relationship between the national legislature and the local
government units has not been enfeebled by the new provisions in the
Constitution strengthening the policy of local autonomy. Without meaning to
detract from that policy, we here con rm that Congress retains control of the local
government units although in signi cantly reduced degree now than under our
previous Constitutions. The power to create still includes the power to destroy.
The power to grant still includes the power to withhold or recall. True, there are
certain notable innovations in the Constitution, like the direct conferment on the
local government units of the power to tax, which cannot now be withdrawn by
mere statute. By and large, however, the national legislature is still the principal of
the local government units, which cannot defy its will or modify or violate it." EACIcH
Respondents have an ingenious retort against the above disquisition. Their theory is
that the regulatory power of the LGUs is granted by R.A. No. 7160 (the Local Government
Code of 1991), a handiwork of the national lawmaking authority. They contend that R.A.
No. 7160 repealed E.O. No. 205 (issued by President Aquino). Respondents' argument
espouses a bad precedent. To say that LGUs exercise the same regulatory power over
matters which are peculiarly within the NTC's competence is to promote a scenario of
LGUs and the NTC locked in constant clash over the appropriate regulatory measure on
the same subject matter. LGUs must recognize that technical matters concerning CATV
operation are within the exclusive regulatory power of the NTC .
At any rate, we nd no basis to conclude that R.A. No. 7160 repealed E.O. No. 205,
either expressly or impliedly. It is noteworthy that R.A. No. 7160 repealing clause, which
painstakingly mentions the speci c laws or the parts thereof which are repealed, does not
include E.O. No. 205, thus:
"SECTION 534. Repealing Clause. — (a) Batas Pambansa Blg. 337,
otherwise known as the Local Government Code." Executive Order No. 112 (1987),
and Executive Order No. 319 (1988) are hereby repealed.
(b) Presidential Decree Nos. 684, 1191, 1508 and such other decrees,
orders, instructions, memoranda and issuances related to or concerning the
barangay are hereby repealed.
(c) The provisions of Sections 2, 3, and 4 of Republic Act No. 1939
regarding hospital fund; Section 3, a (3) and b (2) of Republic Act. No. 5447
regarding the Special Education Fund; Presidential Decree No. 144 as amended
by Presidential Decree Nos. 559 and 1741; Presidential Decree No. 231 as
amended; Presidential Decree No. 436 as amended by Presidential Decree No.
558; and Presidential Decree Nos. 381, 436, 464, 477, 526, 632, 752, and 1136 are
hereby repealed and rendered of no force and effect.
(d) Presidential Decree No. 1594 is hereby repealed insofar as it
governs locally-funded projects.
(e) The following provisions are hereby repealed or amended insofar
as they are inconsistent with the provisions of this Code: Sections 2, 16, and 29 of
Presidential Decree No. 704; Section 12 of Presidential Decree No. 87, as
amended; Sections 52, 53, 66, 67, 68, 69, 70, 71, 72, 73, and 74 of Presidential
Decree No. 463, as amended; and Section 16 of Presidential Decree No. 972, as
amended, and
(f) All general and special laws, acts, city charters, decrees, executive
orders, proclamations and administrative regulations, or part or parts thereof
which are inconsistent with any of the provisions of this Code are hereby repealed
or modified accordingly."

Neither is there an indication that E.O. No. 205 was impliedly repealed by R.A. No.
7160. It is a settled rule that implied repeals are not lightly presumed in the absence of a
clear and unmistakable showing of such intentions. In Mecano vs. Commission on Audit, 4 6
we ruled:
"Repeal by implication proceeds on the premise that where a statute of
later date clearly reveals an intention on the part of the legislature to abrogate a
prior act on the subject, that intention must be given effect. Hence, before there
can be a repeal, there must be a clear showing on the part of the lawmaker that
the intent in enacting the new law was to abrogate the old one. The intention to
repeal must be clear and manifest; otherwise, at least, as a general rule, the later
act is to be construed as a continuation of, and not a substitute for, the rst act
and will continue so far as the two acts are the same from the time of the rst
enactment."
As previously stated, E.O. No. 436 (issued by President Ramos) vests upon the NTC
the power to regulate the CATV operation in this country. So also Memorandum Circular
No. 8-9-95, the Implementing Rules and Regulations of R.A. No. 7925 (the "Public
Telecommunications Policy Act of the Philippines "). This shows that the NTC's regulatory
power over CATV operation is continuously recognized.
It is a canon of legal hermeneutics that instead of pitting one statute against
another in an inevitably destructive confrontation, courts must exert every effort to
reconcile them, remembering that both laws deserve a becoming respect as the
handiwork of coordinate branches of the government. 4 7 On the assumption of a con ict
between E.O. No. 205 and R.A. No. 7160, the proper action is not to uphold one and annul
the other but to give effect to both by harmonizing them if possible. This recourse nds
application here. Thus, we hold that the NTC, under E.O. No. 205, has exclusive jurisdiction
over matters affecting CATV operation, including speci cally the xing of subscriber rates,
but nothing herein precludes LGUs from exercising its general power, under R.A. No. 7160,
to prescribe regulations to promote the health, morals, peace, education, good order or
safety and general welfare of their constituents. In effect, both laws become equally
effective and mutually complementary.
The grant of regulatory power to the NTC is easily understandable. CATV system is
not a mere local concern. The complexities that characterize this new technology demand
that it be regulated by a specialized agency. This is particularly true in the area of rate-
xing. Rate xing involves a series of technical operations. 4 8 Consequently, on the hands
of the regulatory body lies the ample discretion in the choice of such rational processes as
might be appropriate to the solution of its highly complicated and technical problems.
Considering that the CATV industry is so technical a eld, we believe that the NTC, a
specialized agency, is in a better position than the LGU, to regulate it. Notably, in United
States vs. Southwestern Cable Co. , 4 9 the US Supreme Court a rmed the Federal
Communications Commission's (FCC's) jurisdiction over CATV operation. The Court held
that the FCC's authority over cable systems assures the preservation of the local
broadcast service and an equitable distribution of broadcast services among the various
regions of the country.
II.
Resolution No. 210 violated the State's deregulation policy. DTAESI
Deregulation is the reduction of government regulation of business to permit freer

markets and competition. 5 0 Oftentimes, the State, through its regulatory agencies, carries
out a policy of deregulation to attain certain objectives or to address certain problems. In
the eld of telecommunications, it is recognized that many areas in the Philippines are still
"unserved" or "underserved." Thus, to encourage private sectors to venture in this eld and
be partners of the government in stimulating the growth and development of
telecommunications, the State promoted the policy of deregulation.
In the United States, the country where CATV originated, the Congress observed,
when it adopted the Telecommunications Act of 1996, that there was a need to provide a
pro-competitive, deregulatory national policy framework designed to accelerate rapidly
private sector deployment of advanced telecommunications and information technologies
and services to all Americans by opening all telecommunications markets to competition.
The FCC has adopted regulations to implement the requirements of the 1996 Act and the
intent of the Congress.
Our country follows the same policy. The fth Whereas Clause of E.O. No. 436
states:
"WHEREAS, professionalism and self-regulation among existing operators,
through a nationally recognized cable television operator's association, have
enhanced the growth of the cable television industry and must therefore be
maintained along with minimal reasonable government regulations;"
This policy rea rms the NTC's mandate set forth in the Memorandum dated August
25, 1989 of Commissioner Jose Luis A. Alcuaz, to wit:
"In line with the purpose and objective of MC 4-08-88, Cable Television
System or Community Antenna Television (CATV) is made part of the broadcast
media to promote the orderly growth of the Cable Television Industry it being in its
developing stage. Being part of the Broadcast Media, the service rates of CATV
are likewise considered deregulated in accordance with MC 06-2-81 dated 25
February 1981, the implementing guidelines for the authorization and operation
of Radio and Television Broadcasting stations/systems.
Further, the Commission will issue Provisional Authority to existing CATV
operators to authorize their operations for a period of ninety (90) days until such
time that the Commission can issue the regular Certificate of Authority."
When the State declared a policy of deregulation, the LGUs are bound to follow. To
rule otherwise is to render the State's policy ineffective. Being mere creatures of the State,
LGUs cannot defeat national policies through enactments of contrary measures. Verily, in
the case at bar, petitioner may increase its subscriber rates without respondents'
approval.
At this juncture, it bears emphasizing that municipal corporations are bodies politic
and corporate, created not only as local units of local self-government, but as
governmental agencies of the state. 5 1 The legislature, by establishing a municipal
corporation, does not divest the State of any of its sovereignty; absolve itself from its right
and duty to administer the public affairs of the entire state; or divest itself of any power
over the inhabitants of the district which it possesses before the charter was granted. 5 2
Respondents likewise argue that E.O. No. 205 violates the constitutional prohibition
against impairment of contracts, Resolution No. 210 of Batangas City Sangguniang
Panlungsod being a grant of franchise to petitioner.
We are not convinced.
There is no law speci cally authorizing the LGUs to grant franchises to operate
CATV system. Whatever authority the LGUs had before, the same had been withdrawn
when President Marcos issued P.D. No. 1512 " terminating all franchises, permits or
certi cates for the operation of CATV system previously granted by local governments ."
Today, pursuant to Section 3 of E.O. No. 436, " only persons, associations, partnerships,
corporations or cooperatives granted a Provisional Authority or Certi cate of Authority by
the NTC may install, operate and maintain a cable television system or render cable
television service within a service area." It is clear that in the absence of constitutional or
legislative authorization, municipalities have no power to grant franchises. 5 3 Consequently,
the protection of the constitutional provision as to impairment of the obligation of a
contract does not extend to privileges, franchises and grants given by a municipality in
excess of its powers, or ultra vires. 5 4
One last word. The devolution of powers to the LGUs, pursuant to the Constitutional
mandate of ensuring their autonomy, has bred jurisdictional tension between said LGUs
and the State. LGUs must be reminded that they merely form part of the whole. Thus, when
the Drafters of the 1987 Constitution enunciated the policy of ensuring the autonomy of
local governments, 5 5 it was never their intention to create an imperium in imperio and
install an intra-sovereign political subdivision independent of a single sovereign state. SHTaID
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of

Appeals dated February 12, 1999 as well as its Resolution dated May 26, 1999 in CA-G.R.
CV No. 52461, are hereby REVERSED. The RTC Decision in Civil Case No. 4254 is
AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C .J ., Puno, Panganiban, Quisumbing, Ynares-Santiago, Carpio, Austria-
Martinez, Corona, Carpio Morales, Callejo, Sr. and Tinga, JJ ., concur.
Azcuna and Chico-Nazario, JJ ., are on leave.
Footnotes
1. Mary Alice Mayer, John Walson: An Oral History, August 1987 (USA).
2. Rollo at 51–56. Per Associate Justice Buenaventura O. Guerrero (retired) and concurred
in by Associate Justices Portia Aliño-Hormachuelos and Teodoro P. Regino (retired).
3. Rollo at 58.
4. Entitled "Batangas CATV, Inc. versus The Batangas City Sangguniang Panlungsod and
Batangas City Mayor."
5. Rollo at 86–90.
6. Entitled “Batangas CATV, Inc. vs. The Batangas City Sangguniang Panlungsod and the
Batangas City Mayor.
7. Rollo at 70–73.

8. Id. at 72.
9. Id. at 84, dated April 26, 1994.
10. Rollo at 89–90.
11. Id. at 56.
12. Id. at 58.
13. Id. at 19.
14. Section 10. Article III of the 1987 Constitution provides that: "No law impairing the
obligation of contracts shall be passed."
15. The fourth Whereas Clause of P.D. 1512 reads:
"WHEREAS, because of technological advances in equipment and facilities, CATV

systems have acquired a more significant role in the socio-political life of the nation,
requiring the exercise of regulatory power by the national government."
16. "Decree Creating an Exclusive Franchise to Construct, Operate and Maintain a
Community Antenna Television System in the Philippines in favor of Sining Makulay,
Incorporated."
17. Section 10 of P.D. No. 1512.

18. Section 6 of P.D. No. 1512.
19. "Creating a Ministry of Public Works and a Ministry of Transportation and

Communications."
20. Created under Article III, Chapter I, Part X of the Integrated Reorganization Plan, as
amended.
21. Created under Article IX, id.

22. Dated June 30, 1987.
23. "Prescribing Policy Guidelines to Govern the Operations of Cable Television in the
Philippines."
24. Miners Association of the Philippines vs. Factoran, G.R. No. 98332, January 16, 1995,
240 SCRA 100.
25. Sixth Edition at 1391.

26. See National Telecommunications Commission Practices & Procedures Manual, April
27,1992; PLDT vs. National Telecommunication Commission, G.R. No. 94374, February
21, 1995, 241 SCRA 486.
27. Black's Law Dictionary, Sixth Edition at 1286.

28. US vs. Salaveria, 39 Phil. 102 (1918).
29. Id.
30. People vs. Felisarta, G.R. No. 15346, June 29, 1962, 5 SCRA 389.
31. Miranda vs. City of Manila, G.R. Nos. L-17252 & L-17276, May 31, 1961, 2 SCRA 613.

32. Chief of the Philippine Constabulary vs. Sabungan Bagong Silang, Inc., G.R. No. L-
22609, February 28, 1966, 16 SCRA 336; Chief of P.C. vs. Judge of CFI of Rizal, G.R. Nos.
L-22308 & L-22343-4, March 31, 1966, 16 SCRA 607.
33. Viray vs. City of Caloocan, G.R. No. L-23118, July 26, 1967, 20 SCRA 791.
34. Ermita-Malate Hotel and Motel Operators Association, Inc. vs. City Mayor of Manila¸
G.R. No. L-24693, July 31, 1967, 20 SCRA 849.
35. See New York State Commission on Cable Television vs. Federal Communication
Commission.
36. According to Elliot, a municipal ordinance, to be valid: 1) must not contravene the
Constitution or any statute; 2) must not be unfair or oppressive; 3) must not be partial or
discriminatory; 4) must not prohibit but may regulate trade; 5) must not be unreasonable;
and 6) must be general and consistent with public policy. The Solicitor General vs. The
Metropolitan Manila Authority, G.R. No. 102782, December 11, 1991, 204 SCRA 837.
Though designated as resolution, Resolution No. 210 is actually an ordinance as it
concerns a subject that is inherently legislative in character, 37 Am. Jur. p. 667. Dillon
comments, thus: "A resolution concerning a subject which is inherently legislative in its
character and for which an ordinance is required, will, if adopted with all the formalities
required in the case of an ordinance, be regarded as an ordinance and given effect
accordingly. The substance, and not the form, of the corporate act is what governs.
Dillon, Municipal Corporations, 5th ed., Vol. II, pp. 594–897.
37. 24 Phil 165 (1913).
38. G.R. No. L-41053, February 27, 1976, 69 SCRA 556.

39. 56 Sm Jur 2d Sec. 375 citing Birmingham vs. Allen, 251 Ala 198, 36 So 2d 297; Ex parte
Daniels, 183 Cal 636, 192 P442, 21 ALR 1172; Thrower vs. Atlanta, 124 Ga 1, 52 SE 76.
40. 46 Ariz 106, 47 P2d 442.
41. 56 Sm Jur 2d Sec. 375 citing Savannah vs. Hussey , 21 Ga 80; Corvallis vs. Carlile, 10 Or
139; Judy vs. Lashley , 50 W Va 628, 41 SE 197.
42. 56 Am Jur 2d Sec. 374 citing West Chicago Street R. Co. vs. Illinois, 201 US 506, 50 L
Ed 845, 26 S Ct 518; Ex parte Byrd, 84 Ala 17,4 So 397; Mclaughlin vs. Retherford, 207
Ark 1094, 184 SW2d 461.
43. 56 Am Jur 2d Sec. 374 citing Sims vs. Alabama Water Co., 205 Ala 378, 87 So 688, 28
ALR 461; Abbot vs. Los Angeles, 53 Cal 2d 674, 3 Cal Rptr 158, 349 P2d 974, 82 ALR 2d
385; Phillips vs. Denver, 19 Colo 179, 34 P 902; Miami Beach vs. Texas Co., 141 Fla 616,
194 So 368, 128 ALR 350.
44. Johnson vs. Philadelphia, 94 Miss 34, 47 So 526, see also Kraus vs. Cleveland, 135
Ohio St 43, 13 Ohio Ops 323, 19 NE2d 159.
45. G.R. No. 111097, July 20, 1994, 234 SCRA 255.
46. G.R. No. 103982, December 11, 1992, 216 SCRA 500.
47. Magtajas vs. Pryce Properties, Corp. Inc., supra.
48. Republic vs. Medina, L-32068, October 4, 1971, 41 SCRA 643.
49. 392 U.S. 157 (1968).
50. Black's Law Dictionary, Sixth Ed. at 443.
51. Carolina-Virginia Coastal Highway vs. Coastal Turnpike Authority, 237 NC 52, 74 SE2d
310; Othello vs. Harder, 46 Wash 2d 747, 284 P2d 1099.
52. Laramie County vs. Albany County, 92 US 307, 23 Led 552; People ex rel. Raymond
Community High School Dist. vs. Bartlett, 304 Ill 283, 136 NE 654.
53. 36 Am Jur 2d Sec. 11.
54. 36 Am Jur 2d Sec. 7 citing Grand Trunk W.R. Co. vs. South Bend, 227 US 544, 57 L ed
633, 33 S Ct. 303; Murray vs. Pocatello, 226 US 318, 57 Led 239, 33 S Ct 107; Home Tel.
& Tel. Co. vs. Los Angeles, 211 US 265, 53 L ed 176, 29 S Ct 50; Birmingham & P.M.
Street R. Co. vs. Birmingham Street R. Co. 79 Ala 465; Westminster Water Co. vs.
Westminster, 98 Md 551, 56 A 990; Elizabeth City vs. Bank, 150 NC 407, 64 SE 189; State
ex rel. Webster vs. Superior, Ct. 67 Wash 37, 120 P 861.
55. Section 25, Article II of the 1987 Constitution.

EN BANC
[G.R. No. 206020. April 14, 2015]
1-UNITED TRANSPORT KOALISYON (1-UTAK) , petitioner, vs.

COMMISSION ON ELECTIONS , respondent.
DECISION
REYES , J : p
The right to participate in electoral processes is a basic and fundamental right in

any democracy. It includes not only the right to vote, but also the right to urge others to
vote for a particular candidate. The right to express one's preference for a candidate is
likewise part of the fundamental right to free speech. Thus, any governmental
restriction on the right to convince others to vote for a candidate carries with it a heavy
presumption of invalidity.
This is a petition for certiorari 1 under Rule 64 and Rule 65 of the Rules of Court
led by 1-United Transport Koalisyon (petitioner), a party-list organization, assailing
Section 7 (g) items (5) and (6), in relation to Section 7 (f) of Resolution No. 9615 2 of
the Commission on Elections (COMELEC).
The Facts
On February 12, 2001, Republic Act (R.A.) No. 9006, otherwise known as the "Fair
Elections Act", was passed. Section 9 thereof provides:
Sec. 9. Posting of Campaign Materials. — The COMELEC may authorize
political parties and party-list groups to erect common poster areas for their
candidates in not more than ten (10) public places such as plazas, markets,
barangay centers and the like, wherein candidates can post, display or exhibit
election propaganda: Provided that the size of the poster areas shall not exceed
twelve (12) by sixteen (16) feet or its equivalent.
Independent candidates with no political parties may likewise be
authorized to erect common poster areas in not more than ten (10) public
places, the size of which shall not exceed four (4) by six (6) feet or its
equivalent.
Candidates may post any lawful propaganda material in private places
with the consent of the owner thereof, and in public places or property which
shall be allocated equitably and impartially among the candidates.
On January 15, 2013, the COMELEC promulgated Resolution No. 9615, which
provided for the rules implementing R.A. No. 9006 in connection with the May 13, 2013
national and local elections and subsequent elections. Section 7 thereof, which
enumerates the prohibited forms of election propaganda, pertinently provides:
SEC. 7. Prohibited Forms of Election Propaganda . — During the
campaign period, it is unlawful:
xxx xxx xxx
(f) To post, display or exhibit any election campaign or propaganda
material outside of authorized common poster areas, in public places, or in
private properties without the consent of the owner thereof.
(g) Public places referred to in the previous subsection (f) include any of
the following:
xxx xxx xxx
5. Public utility vehicles such as buses, jeepneys, trains, taxi
cabs, ferries, pedicabs and tricycles, whether motorized or not;
6. Within the premises of public transport terminals, such
as bus terminals, airports, seaports, docks, piers, train stations,
and the like.
The violation of items [5 and 6] under subsection (g) shall be a cause for
the revocation of the public utility franchise and will make the owner and/or
operator of the transportation service and/or terminal liable for an election
offense under Section 9 of Republic Act No. 9006 as implemented by Section 18
(n) of these Rules. 3
In its letter 4 dated January 30, 2013, the petitioner, through its president,
Melencio F. Vargas, sought clari cation from the COMELEC as regards the application
of Resolution No. 9615, particularly Section 7 (g) items (5) and (6), in relation to Section
7 (f), vis-à-vis privately owned public utility vehicles (PUVs) and transport terminals. The
petitioner explained that the prohibition stated in the aforementioned provisions
impedes the right to free speech of the private owners of PUVs and transport
terminals. The petitioner then requested the COMELEC to reconsider the
implementation of the assailed provisions and allow private owners of PUVs and
transport terminals to post election campaign materials on their vehicles and transport
terminals.
On February 5, 2013, the COMELEC en banc issued Minute Resolution No. 13-
0214, 5 which denied the petitioner's request to reconsider the implementation of
Section 7 (g) items (5) and (6), in relation to Section 7 (f) of Resolution No. 9615. The
COMELEC en banc, adopting the recommendation of Commissioner Christian Robert S.
Lim, opined that:
From the foregoing, . . . the primary fact in consideration here is actually
whether 1-UTAK or any other [PUV] owners in the same position do in fact
possess a franchise and/or certi cate of public convenience and
operate as a public utility . If it does not, then the ruling in Adiong applies
squarely. If it does, then its operations, pursuant to Section 4, Article IX-C of the
Constitution, will be placed directly under the supervision and regulation of the
Commission for the duration of the election period so as to ensure equality of
opportunity, time, and space for all candidates in the placement of political
advertisements. Having placed their property for use by the general public and
having secured a license or permit to do so, 1-UTAK and other PUV owners, as
well as transport terminal owners, cannot now complain that their property is
subject to regulation by the State. Securing a franchise or a certi cate of public
convenience in their favor does not exempt them from the burdens imposed by
the Constitution, Republic Act No. 9006 . . ., and other related statutes. It must be
stressed that the Constitution itself, under Section 6, Article XII, commands that
the use of property bears a social function and all economic agents
shall contribute to the common good ; and there is no higher common good
than that as espoused in R.A. No. 9006 — the equalization of opportunities for
all candidates for political o ce during elections — a policy which Res. No.
9615 merely implements.
As required in Adi ong , and in compliance with the O'Brien standards,
the prohibition furthers two important and substantial governmental interests —
equalizing opportunity, time, and space for all candidates, and putting to a stop
excessive campaign spending. The regulation bears a clear and reasonable
nexus with these Constitutionally- and statutorily-sanctioned objectives, and the
infringement of freedom is merely incidental and limited as to time. The
Commission has not taken away all avenues of expression available to PUV
and transport terminal owners. They may express their political preferences
elsewhere.
The exact purpose for placing political advertisements on a PUV or in
transport terminals is exactly because it is public and can be seen by all ;
and although it is true that private vehicles ply the same route as public
vehicles, the exposure of a [PUV] servicing the general, riding public is much
more compared to private vehicles. Categorizing PUVs and transport
terminals as 'public places' under Section 7 (f) of Reso. No. 9615 is
therefore logical . The same reasoning for limiting political advertisements in
print media, in radio, and in television therefore holds true for political
advertisements in PUVs and transport terminals. 6
Hence, the instant petition.
Arguments of the Petitioner
The petitioner maintains that Section 7 (g) items (5) and (6), in relation to Section
7 (f) of Resolution No. 9615 violate the right to free speech of the owners of PUVs and
transport terminals; that the prohibition curtails their ideas of who should be voted by
the public. The petitioner also claims that there is no substantial public interest
threatened by the posting of political advertisements on PUVs and transport terminals
to warrant the prohibition imposed by the COMELEC. Further, the petitioner posits that
the ownership of the PUVs per se, as well as the transport terminals, remains private
and, hence, the owners thereof could not be prohibited by the COMELEC from
expressing their political opinion lest their property rights be unduly intruded upon.
Further, assuming that substantial public interest exists in the said prohibition
imposed under Resolution No. 9615, the petitioner claims that the curtailment of the
right to free speech of the owners of PUVs and transport terminals is much greater
than is necessary to achieve the desired governmental purpose, i.e., ensuring equality of
opportunity to all candidates in elective office.
Arguments of COMELEC
On the other hand, the COMELEC posits that privately-owned PUVs and transport
terminals are public spaces that are subject to its regulation. It explains that under the
Constitution, the COMELEC has the power to enforce and administer all laws and
regulations relative to the conduct of an election, including the power to regulate the
enjoyment or utilization of all franchises and permits for the operation of transportation
utilities.
The COMELEC points out that PUVs and private transport terminals hold a
captive audience — the commuters, who have no choice but be subjected to the blare of
political propaganda. Thus, the COMELEC avers, it is within its constitutional authority
to prevent privately-owned PUVs and transport terminals from concurrently serving
campaign materials to the captive audience that they transport.
The COMELEC further claims that Resolution No. 9615 is a valid content-neutral
regulation and, thus, does not impinge on the constitutional right to freedom of speech.
It avers that the assailed regulation is within the constitutional power of the COMELEC
pursuant to Section 4, Article IX-C of the Constitution. The COMELEC alleges that the
regulation simply aims to ensure equal campaign opportunity, time, and space for all
candidates — an important and substantial governmental interest, which is totally
unrelated to the suppression of free expression; that any restriction on free speech is
merely incidental and is no greater than is essential to the furtherance of the said
governmental interest.
The Issue
The petitioner presents the following issues for the Court's resolution:
I. [WHETHER] RESOLUTION NO. 9615 VIOLATES THE RIGHT TO FREE SPEECH
OF THE OWNERS OF [PUVs] AND TRANSPORT TERMINALS.
II. [WHETHER] RESOLUTION NO. 9615 IS VOID AS A RESTRAINT TO FREE
SPEECH AND EXPRESSION FOR FAILURE TO SATISFY THE O'BRIEN TEST.
III. [WHETHER] THE CONSTITUTIONAL OBJECTIVE TO GIVE AN EQUAL
OPPORTUNITY TO INFORM THE ELECTORATE IS NOT IMPAIRED BY POSTING
POLITICAL ADVERTISEMENTS ON PUVs AND TRANSPORT TERMINALS.
IV. [WHETHER] THE OWNERSHIP OF FACILITIES IS DIFFERENT AND
INDEPENDENT FROM THE FRANCHISE OR OPERATION OF THE PUBLIC
UTILITY, THE FORMER BEING BEYOND THE POWER OF REGULATION BY THE
COMELEC. 7
In sum, the issue presented for the Court's resolution is whether Section 7 (g)
items (5) and (6), in relation to Section 7 (f) of Resolution No. 9615, which prohibits the
posting of any election campaign or propaganda material, inter alia, in PUVs and public
transport terminals are valid regulations.
Ruling of the Court
The petition is meritorious.
Resolution No. 9615, which was promulgated pursuant to Section 4, Article IX-C
of the Constitution and the provisions of R.A. No. 9006, lays down the administrative
rules relative to the COMELEC's exercise of its supervisory and regulatory powers over
all franchises and permits for the operation of transportation and other public utilities,
media of communication or information, and all grants, special privileges, or
concessions granted by the Government.
Like any other administrative regulations, Resolution No. 9615, or any part
thereof, must not run counter to the Constitution. It is basic that if a law or an
administrative rule violates any norm of the Constitution, that issuance is null and void
and has no effect. The Constitution is the basic law to which all laws must conform; no
act shall be valid if it con icts with the Constitution. 8 In this regard, an administrative
regulation, even if it purports to advance a legitimate governmental interest, may not be
permitted to run roughshod over the cherished rights of the people enshrined in the
Constitution.
Section 7 (g) items (5) and (6), in
relation to Section 7 (f) of
Resolution No. 96 15 are prior
restraints on speech.
Free speech may be identi ed with the liberty to discuss publicly and truthfully
any matter of public concern without prior restraint or censorship and subsequent
punishment. 9 Prior restraint refers to o cial governmental restrictions on the press or
other forms of expression in advance of actual publication or dissemination. Freedom
from prior restraint is largely freedom from government censorship of publications,
whatever the form of censorship, and regardless of whether it is wielded by the
executive, legislative or judicial branch of the government. 1 0 Any system of prior
restraints of expression comes to this Court bearing a heavy presumption against its
validity. 1 1
Section 7 (g) items (5) and (6), in relation to Section 7 (f) of Resolution No. 9615
unduly infringe on the fundamental right of the people to freedom of speech. Central to
the prohibition is the freedom of individuals, i.e., the owners of PUVs and private
transport terminals, to express their preference, through the posting of election
campaign material in their property, and convince others to agree with them.
Pursuant to the assailed provisions of Resolution No. 9615, posting an election
campaign material during an election period in PUVs and transport terminals carries
with it the penalty of revocation of the public utility franchise and shall make the owner
thereof liable for an election offense. The prohibition constitutes a clear prior restraint
on the right to free expression of the owners of PUVs and transport terminals. As a
result of the prohibition, owners of PUVs and transport terminals are forcefully and
effectively inhibited from expressing their preferences under the pain of indictment for
an election offense and the revocation of their franchise or permit to operate.
It is now deeply embedded in our jurisprudence that freedom of speech and of
the press enjoys a preferred status in our hierarchy of rights. The rationale is that the
preservation of other rights depends on how well we protect our freedom of speech
and of the press. 1 2 It has been our constant holding that this preferred freedom calls
all the more for utmost respect when what may be curtailed is the dissemination of
information to make more meaningful the equally vital right of suffrage. 1 3
Thus, in Adiong v. COMELEC , 1 4 the Court struck down the COMELEC's
prohibition against the posting of decals and stickers on "mobile places." The Court
ratiocinated that:
Signi cantly, the freedom of expression curtailed by the questioned
prohibition is not so much that of the candidate or the political party. The
regulation strikes at the freedom of an individual to express his
preference and, by displaying it on his car, to convince others to agree
with him . A sticker may be furnished by a candidate but once the car owner
agrees to have it placed on his private vehicle, the expression becomes a
statement by the owner, primarily his own and not of anybody else. If, in the
National Press Club case, the Court was careful to rule out restrictions on
reporting by newspaper or radio and television stations and commentators or
columnists as long as these are not correctly paid-for advertisements or
purchased opinions with less reason can we sanction the prohibition
against a sincere manifestation of support and a proclamation of
belief by an individual person who pastes a sticker or decal on his
private property . 1 5 (Emphases ours)
The assailed prohibition on posting
election campaign materials is an
invalid content-neutral regulation
repugnant to the free speech clause.
The COMELEC claims that while Section 7 (g) items (5) and (6) of Resolution No.
9615 may incidentally restrict the right to free speech of owners of PUVs and transport
terminals, the same is nevertheless constitutionally permissible since it is a valid
content-neutral regulation.
The Court does not agree.
A content-neutral regulation, i.e., which is merely concerned with the incidents of
the speech, or one that merely controls the time, place or manner, and under well-
de ned standards, 1 6 is constitutionally permissible, even if it restricts the right to free
speech, provided that the following requisites concur: first, the government regulation
is within the constitutional power of the Government; second, it furthers an important
or substantial governmental interest; third, the governmental interest is unrelated to the
suppression of free expression; and fourth, the incidental restriction on freedom of
expression is no greater than is essential to the furtherance of that interest. 1 7
Section 7 (g) items (5) and (6) of Resolution No. 9615 are content-neutral
regulations since they merely control the place where election campaign materials may
be posted. However, the prohibition is still repugnant to the free speech clause as it
fails to satisfy all of the requisites for a valid content-neutral regulation.
It is conceded that Resolution No. 9615, including the herein assailed provisions,
furthers an important and substantial governmental interest, i.e., ensuring equal
opportunity, time and space among candidates aimed at the holding of free, orderly,
honest, peaceful, and credible elections. It is further conceded that the governmental
interest in imposing the said prohibition is unrelated to the suppression of free
expression. However, Section 7 (g) items (5) and (6), in relation to Section 7 (f) of
Resolution No. 9615, are not within the constitutionally delegated power of the
COMELEC under Section 4, Article IX-C of the Constitution. Also, there is absolutely no
necessity to restrict the right to free speech of the owners of PUVs and transport
terminals.
The COMELEC may only regulate
the franchise or permit to operate
and not the ownership per se of
PUVs and transport terminals.
The prohibition under Section 7 (g) items (5) and (6), in relation to Section 7 (f) of
Resolution No. 9615 is not within the COMELEC's constitutionally delegated power of
supervision or regulation. It is not disputed that the COMELEC has the power to
supervise or regulate the enjoyment or utilization of all franchises or permits for the
operation of transportation utilities during an election period. Section 4, Article IX-C of
the Constitution, thus provides:
Section 4. The Commission may, during the election period, supervise or
regulate the enjoyment or utilization of all franchises or permits for the
operation of transportation and other public utilities, media of communication
or information, all grants, special privileges, or concessions granted by the
Government or any subdivision, agency, or instrumentality thereof, including any
government-owned or controlled corporation or its subsidiary. Such supervision
or regulation shall aim to ensure equal opportunity, time, and space, and the
right to reply, including reasonable, equal rates therefor, for public information
campaigns and forums among candidates in connection with the objective of
holding free, orderly, honest, peaceful, and credible elections.
Nevertheless, the constitutional grant of supervisory and regulatory powers to
the COMELEC over franchises and permits to operate, though seemingly unrestrained,
has its limits. Notwithstanding the ostensibly broad supervisory and regulatory powers
granted to the COMELEC during an election period under Section 4, Article IX-C of the
Constitution, the Court had previously set out the limitations thereon. In Adiong , the
Court, while recognizing that the COMELEC has supervisory power vis-à-vis the conduct
and manner of elections under Section 4, Article IX-C of the Constitution, nevertheless
held that such supervisory power does not extend to the very freedom of an individual
to express his preference of candidates in an election by placing election campaign
stickers on his vehicle.
I n National Press Club v. COMELEC , 1 8 while the Court upheld the
constitutionality of a prohibition on the selling or giving free of charge, except to the
COMELEC, of advertising space and commercial time during an election period, it was
emphasized that the grant of supervisory and regulatory powers to the COMELEC
under Section 4, Article IX-C of the Constitution, is limited to ensuring equal opportunity,
time, space, and the right to reply among candidates.
Further, in Social Weather Stations, Inc. v. COMELEC , 1 9 the Court,
notwithstanding the grant of supervisory and regulatory powers to the COMELEC under
Section 4, Article IX-C of the Constitution, declared unconstitutional a regulation
prohibiting the release of election surveys prior to the election since it "actually
suppresses a whole class of expression, while allowing the expression of opinion
concerning the same subject matter by newspaper columnists, radio and [television
(TV)] commentators, armchair theorists, and other opinion makers." 2 0
In the instant case, the Court further delineates the constitutional grant of
supervisory and regulatory powers to the COMELEC during an election period. As
worded, Section 4, Article IX-C of the Constitution only grants COMELEC supervisory
and regulatory powers over the enjoyment or utilization "of all franchises or permits for
the operation," inter alia, of transportation and other public utilities. The COMELEC's
constitutionally delegated powers of supervision and regulation do not extend to the
ownership per se of PUVs and transport terminals, but only to the franchise or permit
to operate the same.
There is a marked difference between the franchise or permit to operate
transportation for the use of the public and the ownership per se of the vehicles used
for public transport. Thus, in Tatad v. Garcia, Jr., 2 1 the Court explained that:
What private respondent owns are the rail tracks, rolling stocks like the coaches,
rail stations, terminals and the power plant, not a public utility. While a franchise
is needed to operate these facilities to serve the public, they do not by
themselves constitute a public utility. What constitutes a public utility is not
their ownership but their use to serve the public . . . .
T h e Constitution, in no uncertain terms, requires a franchise for the
operation of a public utility. However, it does not require a franchise before one
can own the facilities needed to operate a public utility so long as it does not
operate them to serve the public.
xxx xxx xxx
In law, there is a clear distinction between the "operation" of a
public utility and the ownership of the facilities and equipment used
to serve the public.
xxx xxx xxx
The right to operate a public utility may exist independently and
separately from the ownership of the facilities thereof. One can own
said facilities without operating them as a public utility, or conversely,
one may operate a public utility without owning the facilities used to
serve the public. The devotion of property to serve the public may be done by
the owner or by the person in control thereof who may not necessarily be the
owner thereof.
This dichotomy between the operation of a public utility and the
ownership of the facilities used to serve the public can be very well appreciated
when we consider the transportation industry. Enfranchised airline and shipping
companies may lease their aircraft and vessels instead of owning them
themselves. 2 2 (Emphases ours)
The franchise or permit to operate transportation utilities is a privilege granted to
certain persons to engage in the business of transporting people or goods; it does not
refer to the ownership of the vehicle per se. Ownership is a relation in private law by
virtue of which a thing pertaining to one person is completely subjected to his will in
everything not prohibited by public law or the concurrence with the rights of another. 2 3
Thus, the owner of a thing has the right to enjoy and dispose of a thing, without other
limitations than those established by law. 2 4
One such limitation established by law, as regards PUVs, is the franchise or
permit to operate. However, a franchise or permit to operate a PUV is a limitation only
on certain aspects of the ownership of the vehicle pertinent to the franchise or permit
granted, but not on the totality of the rights of the owner over the vehicle. Otherwise
stated, a restriction on the franchise or permit to operate transportation utilities is
necessarily a limitation on ownership, but a limitation on the rights of ownership over
the PUV is not necessarily a regulation on the franchise or permit to operate the same.
A franchise or permit to operate transportation utilities pertains to
considerations affecting the operation of the PUV as such, e.g., safety of the
passengers, routes or zones of operation, maintenance of the vehicle, of reasonable
fares, rates, and other charges, or, in certain cases, nationality. 2 5 Thus, a government
issuance, which purports to regulate a franchise or permit to operate PUVs, must
pertain to the considerations affecting its operation as such. Otherwise, it becomes a
regulation or supervision not on the franchise or permit to operate, but on the very
ownership of the vehicle used for public transport.
The expression of ideas or opinion of an owner of a PUV, through the posting of
election campaign materials on the vehicle, does not affect considerations pertinent to
the operation of the PUV. Surely, posting a decal expressing support for a certain
candidate in an election will not in any manner affect the operation of the PUV as such.
Regulating the expression of ideas or opinion in a PUV, through the posting of an
election campaign material thereon, is not a regulation of the franchise or permit to
operate, but a regulation on the very ownership of the vehicle.
The dichotomy between the regulation of the franchise or permit to operate of a
PUV and that of the very ownership thereof is better exempli ed in the case of
commercial advertisements posted on the vehicle. A prohibition on the posting of
commercial advertisements on a PUV is considered a regulation on the ownership of
the vehicle per se; the restriction on the enjoyment of the ownership of the vehicle does
not have any relation to its operation as a PUV.
On the other hand, prohibitions on the posting of commercial advertisements on
windows of buses, because it hinders police authorities from seeing whether the
passengers inside are safe, is a regulation on the franchise or permit to operate. It has
a direct relation to the operation of the vehicle as a PUV, i.e., the safety of the
passengers.
In the same manner, the COMELEC does not have the constitutional power to
regulate public transport terminals owned by private persons. The ownership of
transport terminals, even if made available for use by the public commuters, likewise
remains private. Although owners of public transport terminals may be required by
local governments to obtain permits in order to operate, the permit only pertains to
circumstances affecting the operation of the transport terminal as such. The regulation
of such permit to operate should similarly be limited to circumstances affecting the
operation of the transport terminal. A regulation of public transport terminals based on
extraneous circumstances, such as prohibiting the posting of election campaign
materials thereon, amounts to regulating the ownership of the transport terminal and
not merely the permit to operate the same.
Accordingly, Section 7 (g) items (5) and (6) of Resolution No. 9615 are not within
the constitutionally delegated power of the COMELEC to supervise or regulate the
franchise or permit to operate of transportation utilities. The posting of election
campaign material on vehicles used for public transport or on transport terminals is not
only a form of political expression, but also an act of ownership — it has nothing to do
with the franchise or permit to operate the PUV or transport terminal.
The rulings in National Press Club
and Osme&ntil de;a v. COME LEC 2 6 find no
application to this case.
The COMELEC pointed out that the issue presented in the instant case is akin to
the Court's rulings in National Press Club and Osmeña. It explained that in both cases,
the Court sustained Section 11 (b) of R.A. No. 6646 or the Electoral Reforms Law of
1997, which prohibits newspapers, radio broadcasting or TV stations, and other mass
media from selling or giving print space or airtime for campaign or other political
purposes, except to the COMELEC, during the election campaign. The COMELEC
averred that if the legislature can empower it to impose an advertising ban on mass
media, it could likewise empower it to impose a similar ban on PUVs and transport
terminals.
The Court does not agree.
The restriction imposed under Section 11 (b) of R.A. No. 6646 has a direct
relation to the enjoyment and utilization of the franchise or permit to operate of
newspapers, radio broadcasting and TV stations, and other mass media, which the
COMELEC has the power to regulate pursuant to Section 4, Article IX-C of the
Constitution. The print space or airtime is an integral part of the franchise or permit to
operate of mass media utilities. Thus, the restriction under Section 11 (b) of R.A. No.
6646 is within the con nes of the constitutionally delegated power of the COMELEC
under Section 4, Article IX-C of the Constitution.
On the other hand, the prohibition on the posting of election campaign materials
under Section 7 (g) items (5) and (6) of Resolution No. 9615, as already explained, does
not have any relation to the franchise or permit of PUVs and transport terminals to
operate as such and, hence, is beyond the power of the COMELEC under Section 4,
Article IX-C of the Constitution.
The restriction on free speech of
owners of PUVs and transport
terminals is not necessary to further
the stated governmental interest.
Section 7 (g) items (5) and (6) of Resolution No. 9615 likewise failed to satisfy
the fourth requisite of a valid content-neutral regulation, i.e., the incidental restriction on
freedom of expression is no greater than is essential to the furtherance of that interest.
There is absolutely no necessity to restrict the right of the owners of PUVs and
transport terminals to free speech to further the governmental interest. While ensuring
equality of time, space, and opportunity to candidates is an important and substantial
governmental interest and is essential to the conduct of an orderly election, this lofty
aim may be achieved sans any intrusion on the fundamental right of expression.
First, while Resolution No. 9615 was promulgated by the COMELEC to implement
the provisions of R.A. No. 9006, the prohibition on posting of election campaign
materials on PUVs and transport terminals was not provided for therein.
Second, there are more than su cient provisions in our present election laws
that would ensure equal time, space, and opportunity to candidates in elections.
Section 6 of R.A. No. 9006 mandates that "all registered parties and bona de
candidates shall have equal access to media time and space" and outlines the
guidelines to be observed in the implementation thereof, viz.:
Section 6. Equal Access to Media Time and Space. — All registered
parties and bona de candidates shall have equal access to media time and
space. The following guidelines may be amplified on by the COMELEC:
6.1 Print advertisements shall not exceed one-fourth (1/4) page in
broadsheet and one-half (1/2) page in tabloids thrice a week per newspaper,
magazine or other publications, during the campaign period.
6.2 a. Each bona de candidate or registered political party for a
nationally elective o ce shall be entitled to not more than one hundred twenty
(120) minutes of television advertisement and one hundred eighty (180)
minutes of radio advertisement whether by purchase or donation.
b. Each bona de candidate or registered political party for a locally
elective o ce shall be entitled to not more than sixty (60) minutes of television
advertisement and ninety (90) minutes of radio advertisement whether by
purchase or donation.
For this purpose, the COMELEC shall require any broadcast station or
entity to submit to the COMELEC a copy of its broadcast logs and certi cates of
performance for the review and veri cation of the frequency, date, time and
duration of advertisements broadcast for any candidate or political party.
6.3 All mass media entities shall furnish the COMELEC with a copy of all
contracts for advertising, promoting or opposing any political party or the
candidacy of any person for public office within five (5) days after its signing. In
every case, it shall be signed by the donor, the candidate concerned or by the
duly authorized representative of the political party.
6.4 No franchise or permit to operate a radio or television station shall be
granted or issued, suspended or cancelled during the election period. In all
instances, the COMELEC shall supervise the use and employment of press, radio
and television facilities insofar as the placement of political advertisements is
concerned to ensure that candidates are given equal opportunities under equal
circumstances to make known their quali cations and their stand on public
issues within the limits set forth in the Omnibus Election Code and Republic Act
No. 7166 on election spending.
The COMELEC shall ensure that radio or television or cable television
broadcasting entities shall not allow the scheduling of any program or permit
any sponsor to manifestly favor or oppose any candidate or political party by
unduly or repeatedly referring to or including said candidate and/or political
party in such program respecting, however, in all instances the right of said
broadcast entities to air accounts of signi cant news or news worthy events
and views on matters of public interest.
6.5 All members of media, television, radio or print, shall scrupulously
report and interpret the news, taking care not to suppress essential facts nor to
distort the truth by omission or improper emphasis. They shall recognize the
duty to air the other side and the duty to correct substantive errors promptly.
6.6 Any mass media columnist, commentator, announcer, reporter, on-air
correspondent or personality who is a candidate for any elective public o ce or
is a campaign volunteer for or employed or retained in any capacity by any
candidate or political party shall be deemed resigned, if so required by their
employer, or shall take a leave of absence from his/her work as such during the
campaign period: Provided, That any media practitioner who is an o cial of a
political party or a member of the campaign staff of a candidate or political
party shall not use his/her time or space to favor any candidate or political
party.
6.7 No movie, cinematograph or documentary portraying the life or
biography of a candidate shall be publicly exhibited in a theater, television
station or any public forum during the campaign period.
6.8 No movie, cinematograph or documentary portrayed by an actor or
media personality who is himself a candidate shall likewise be publicly
exhibited in a theater or any public forum during the campaign period.
Section 9 of R.A. No. 9006 authorizes political parties and party-list groups and
independent candidates to erect common poster areas and candidates to post lawful
election campaign materials in private places, with the consent of the owner thereof,
and in public places or property, which are allocated equitably and impartially.
Further, Section 13 2 7 of R.A. No. 7166 2 8 provides for the authorized expenses
of registered political parties and candidates for every voter; it affords candidates
equal opportunity in their election campaign by regulating the amount that should be
spent for each voter. Likewise, Section 14 2 9 of R.A. No. 7166 requires all candidates
and treasurers of registered political parties to submit a statement of all contributions
and expenditures in connection with the election. Section 14 is a post-audit measure
that aims to ensure that the candidates did not overspend in their election campaign,
thereby enforcing the grant of equal opportunity to candidates under Section 13.
A strict implementation of the foregoing provisions of law would su ce to
achieve the governmental interest of ensuring equal time, space, and opportunity for
candidates in elections. There is thus no necessity of still curtailing the right to free
speech of the owners of PUVs and transport terminals by prohibiting them from
posting election campaign materials on their properties.
Section 7 (g) items (5) and (6) of
Resolution No. 96 15 are not
justified under the captive-audience
doctrine.
The COMELEC further points out that PUVs and transport terminals hold a
"captive audience" — commuters who have no choice but be subjected to the blare of
political propaganda. The COMELEC further claims that while owners of privately
owned PUVs and transport terminals have a right to express their views to those who
wish to listen, they have no right to force their message upon an audience incapable of
declining to receive it.
The COMELEC's claim is untenable.
The captive-audience doctrine states that when a listener cannot, as a practical
matter, escape from intrusive speech, the speech can be restricted. 3 0 The "captive-
audience" doctrine recognizes that a listener has a right not to be exposed to an
unwanted message in circumstances in which the communication cannot be avoided.
31
A regulation based on the captive-audience doctrine is in the guise of censorship,

which undertakes selectively to shield the public from some kinds of speech on the
ground that they are more offensive than others. Such selective restrictions have been
upheld only when the speaker intrudes on the privacy of the home or the degree of
captivity makes it either impossible or impractical for the unwilling viewer or auditor to
avoid exposure. 3 2
In Consolidated Edison Co. v. Public Service Commission , 3 3 the Supreme Court
of the United States of America (U.S. Supreme Court) struck down the order of New
York Public Service Commission, which prohibits public utility companies from
including inserts in monthly bills discussing controversial issues of public policy. The
U.S. Supreme Court held that "[t]he prohibition cannot be justi ed as being necessary to
avoid forcing appellant's views on a captive audience, since customers may escape
exposure to objectionable material simply by throwing the bill insert into a
wastebasket." 3 4
Similarly, in Erznoznik v. City of Jacksonville , 3 5 the U.S. Supreme Court nulli ed a
city ordinance, which made it a public nuisance and a punishable offense for a drive-in
movie theater to exhibit lms containing nudity, when the screen is visible from a public
street or place. The U.S. Supreme Court opined that the degree of captivity is not so
great as to make it impracticable for an unwilling viewer to avoid exposure, thus:
The Jacksonville ordinance discriminates among movies solely on the
basis of content. Its effect is to deter drive-in theaters from showing movies
containing any nudity, however innocent or even educational. This
discrimination cannot be justi ed as a means of preventing signi cant
intrusions on privacy. The ordinance seeks only to keep these lms from being
seen from public streets and places where the offended viewer readily can avert
his eyes. In short, the screen of a drive-in theater is not "so obtrusive as
to make it impossible for an unwilling individual to avoid exposure to
it." . . . Thus, we conclude that the limited privacy interest of persons on the
public streets cannot justify this censorship of otherwise protected speech on
the basis of its content. 3 6 (Emphasis ours)
Thus, a government regulation based on the captive-audience doctrine may not
be justi ed if the supposed "captive audience" may avoid exposure to the otherwise
intrusive speech. The prohibition under Section 7 (g) items (5) and (6) of Resolution No.
9615 is not justified under the captive-audience doctrine; the commuters are not forced
or compelled to read the election campaign materials posted on PUVs and transport
terminals. Nor are they incapable of declining to receive the messages contained in the
posted election campaign materials since they may simply avert their eyes if they nd
the same unbearably intrusive.
The COMELEC, in insisting that it has the right to restrict the posting of election
campaign materials on PUVs and transport terminals, cites Lehman v. City of Shaker
Heights, 3 7 a case decided by the U.S. Supreme Court. In Lehman, a policy of the city
government, which prohibits political advertisements on government-run buses, was
upheld by the U.S. Supreme Court. The U.S. Supreme Court held that the advertising
space on the buses was not a public forum, pointing out that advertisement space on
government-run buses, "although incidental to the provision of public transportation, is
a part of commercial venture." 3 8 In the same way that other commercial ventures need
not accept every proffer of advertising from the general public, the city's transit system
has the discretion on the type of advertising that may be displayed on its vehicles.
Concurring in the judgment, Justice Douglas opined that while Lehman, a
candidate for state o ce who sought to avail himself of advertising space on
government-run buses, "clearly has a right to express his views to those who wish to
listen, he has no right to force his message upon an audience incapable of declining to
receive it." 3 9 Justice Douglas concluded: "the right of the commuters to be free from
forced intrusions on their privacy precludes the city from transforming its vehicles of
public transportation into forums for the dissemination of ideas upon this captive
audience." 4 0
The COMELEC's reliance on Lehman is utterly misplaced.
In Lehman, the political advertisement was intended for PUVs owned by the city
government; the city government, as owner of the buses, had the right to decide which
type of advertisements would be placed on its buses. The U.S. Supreme Court gave
primacy to the city government's exercise of its managerial decision, viz.:
Revenue earned from long-term commercial advertising could be jeopardized by
a requirement that short-term candidacy or issue-oriented advertisements be
displayed on car cards. Users would be subjected to the blare of political
propaganda. There could be lurking doubts about favoritism, and sticky
administrative problems might arise in parceling out limited space to eager
politicians. In these circumstances, the managerial decision to limit car
card space to innocuous and less controversial commercial and
service-oriented advertising does not rise to the dignity of First
Amendment violation . Were we to hold to the contrary, display cases in public
hospitals, libraries, o ce buildings, military compounds, and other public
facilities immediately would become Hyde Parks open to every would-be
pamphleteer and politician. This the Constitution does not require. 4 1 (Emphasis
ours)
Lehman actually upholds the freedom of the owner of the utility vehicles, i.e., the
city government, in choosing the types of advertisements that would be placed on its
properties. In stark contrast, Section 7 (g) items (5) and (6) of Resolution No. 9615
curtail the choice of the owners of PUVs and transport terminals on the advertisements
that may be posted on their properties.
Also, the city government in Lehman had the right, nay the duty, to refuse political
advertisements on their buses. Considering that what were involved were facilities
owned by the city government, impartiality, or the appearance thereof, was a necessity.
In the instant case, the ownership of PUVs and transport terminals remains private;
there exists no valid reason to suppress their political views by proscribing the posting
of election campaign materials on their properties.
Prohibiting owners of PUVs and
transport terminals from posting
election campaign materials violates
the equal protection clause.
Section 7 (g) items (5) and (6) of Resolution No. 9615 do not only run afoul of the
free speech clause, but also of the equal protection clause. One of the basic principles
on which this government was founded is that of the equality of right, which is
embodied in Section 1, Article III of the 1987 Constitution. 4 2 "Equal protection requires
that all persons or things similarly situated should be treated alike, both as to rights
conferred and responsibilities imposed. Similar subjects, in other words, should not be
treated differently, so as to give undue favor to some and unjustly discriminate against
others." 4 3
"The equal protection clause is aimed at all official state actions, not just those of
the legislature. Its inhibitions cover all the departments of the government including the
political and executive departments, and extend to all actions of a state denying equal
protection of the laws, through whatever agency or whatever guise is taken." 4 4
Nevertheless, the guaranty of equal protection of the laws is not a guaranty of
equality in the application of the laws to all citizens of the state. Equality of operation of
statutes does not mean their indiscriminate operation on persons merely as such, but
on persons according to the circumstances surrounding them. It guarantees equality,
not identity of rights. The Constitution does not require that things, which are different
in fact, be treated in law as though they were the same. The equal protection clause
does not forbid discrimination as to things that are different. 4 5
In order that there can be valid classi cation so that a discriminatory
governmental act may pass the constitutional norm of equal protection, it is necessary
that the four requisites of valid classi cation be complied with, namely: (1) it must be
based upon substantial distinctions; (2) it must be germane to the purposes of the law;
(3) it must not be limited to existing conditions only; and (4) it must apply equally to all
members of the class. 4 6
It is conceded that the classi cation under Section 7 (g) items (5) and (6) of
Resolution No. 9615 is not limited to existing conditions and applies equally to the
members of the purported class. However, the classi cation remains constitutionally
impermissible since it is not based on substantial distinction and is not germane to the
purpose of the law.
A distinction exists between PUVs and transport terminals and private vehicles
and other properties in that the former, to be considered as such, needs to secure from
the government either a franchise or a permit to operate. Nevertheless, as pointed out
earlier, the prohibition imposed under Section 7 (g) items (5) and (6) of Resolution No.
9615 regulates the ownership per se of the PUV and transport terminals; the
prohibition does not in any manner affect the franchise or permit to operate of the PUV
and transport terminals.
As regards ownership, there is no substantial distinction between owners of
PUVs and transport terminals and owners of private vehicles and other properties. As
already explained, the ownership of PUVs and transport terminals, though made
available for use by the public, remains private. If owners of private vehicles and other
properties are allowed to express their political ideas and opinion by posting election
campaign materials on their properties, there is no cogent reason to deny the same
preferred right to owners of PUVs and transport terminals. In terms of ownership, the
distinction between owners of PUVs and transport terminals and owners of private
vehicles and properties is merely super cial. Super cial differences do not make for a
valid classification. 4 7
The fact that PUVs and transport terminals are made available for use by the
public is likewise not substantial justi cation to set them apart from private vehicles
and other properties. Admittedly, any election campaign material that would be posted
on PUVs and transport terminals would be seen by many people. However, election
campaign materials posted on private vehicles and other places frequented by the
public, e.g., commercial establishments, would also be seen by many people. Thus,
there is no reason to single out owners of PUVs and transport terminals in the
prohibition against posting of election campaign materials.
Further, classifying owners of PUVs and transport terminals apart from owners
of private vehicles and other properties bears no relation to the stated purpose of
Section 7 (g) items (5) and (6) of Resolution No. 9615, i.e., to provide equal time, space
and opportunity to candidates in elections. To stress, PUVs and transport terminals are
private properties. Indeed, the nexus between the restriction on the freedom of
expression of owners of PUVs and transport terminals and the government's interest in
ensuring equal time, space, and opportunity for candidates in elections was not
established by the COMELEC.
In sum, Section 7 (g) items (5) and (6), in relation to Section 7 (f) of Resolution
No. 9615 violate the free speech clause; they are content-neutral regulations, which are
not within the constitutional power of the COMELEC issue and are not necessary to
further the objective of ensuring equal time, space and opportunity to the candidates.
They are not only repugnant to the free speech clause, but are also violative of the equal
protection clause, as there is no substantial distinction between owners of PUVs and
transport terminals and owners of private vehicles and other properties.
On a nal note, it bears stressing that the freedom to advertise one's political
candidacy is clearly a signi cant part of our freedom of expression. A restriction on this
freedom without rhyme or reason is a violation of the most valuable feature of the
democratic way of life. 4 8
WHEREFORE , in light of the foregoing disquisitions, the instant petition is hereby
GRANTED . Section 7 (g) items (5) and (6), in relation to Section 7 (f) of Resolution No.
9615 issued by the Commission on Elections are hereby declared NULL and VOID for
being repugnant to Sections 1 and 4, Article III of the 1987 Constitution.
SO ORDERED .
Sereno, C.J., Carpio, Brion, Peralta, Bersamin, Del Castillo, Perez, Mendoza, Perlas-
Bernabe and Leonen, JJ., concur.
Velasco, Jr. * and Jardeleza, * JJ., took no part.
Leonardo-de Castro ** and Villarama, Jr.,** JJ., are on official leave.
Footnotes
* No Part.
** On Official Leave.
1. Rollo, pp. 3-31.
2. Id. at 31-59.
3. Id. at 37-39.
4. Id. at 95-99.
5. Id. at 103-105.
6. Id. at 104-105.
7. Id. at 11-12.
8. Social Justice Society (SJS) v. Dangerous Drugs Board, et al., 591 Phil. 393, 405 (2008).
9. Reyes, etc. v. Bagatsing, etc., 210 Phil. 457, 465-466 (1983).

10. Chavez v. Gonzalez, et al., 569 Phil. 155, 203 (2008).
11. See Bantam Books v. Sullivan, 372 US 58 (1963).

12. J. Puno, Concurring Opinion, Social Weather Stations, Inc. v. COMELEC, G.R. No. 147571,
May 5, 2001, 357 SCRA 496, 512.
13. Mutuc v. COMELEC, 146 Phil. 798, 805-806 (1970).
14. G.R. No. 103956, March 31, 1992, 207 SCRA 712.
15. Id. at 719.
16. Chavez v. Gonzalez, et al., supra note 10, at 204.

17. Social Weather Stations, Inc. v. COMELEC, supra note 12, at 504, citing United States v.
O'Brien, 391 U.S. 367, 377.
18. G.R. No. 102653, March 5, 1992, 207 SCRA 1.
19. G.R. No. 147571, May 5, 2001, 357 SCRA 496.
20. Id. at 505.
21. 313 Phil. 296 (1995).

22. Id. at 321-323.
23. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. II,
1992 ed., p. 45.
24. CIVIL CODE OF THE PHILIPPINES, Article 428.
25. 1987 CONSTITUTION, Article XII, Section 11.
26. 351 Phil. 692 (1998).

27. Section 13. Authorized Expenses of Candidates and Political Parties. — The agreement
amount that a candidate or registered political party may spend for election
campaign shall be as follows:
For candidates. — Ten pesos (P10.00) for President and Vice-President; and for other
candidates Three Pesos (P3.00) for every voter currently registered in the
constituency where he filed his certificate of candidacy: Provided, That a candidate
without any political party and without support from any political party may be
allowed to spend Five Pesos (P5.00) for every such voter; and
For political parties. — Five pesos (P5.00) for every voter currently registered in the
constituency or constituencies where it has official candidates.
Any provision of law to the contrary notwithstanding any contribution in cash or in kind to
any candidate or political party or coalition of parties for campaign purposes, duly
reported to the Commission shall not be subject to the payment of any gift tax.
28. AN ACT PROVIDING FOR SYNCHRONIZED NATIONAL AND LOCAL ELECTIONS AND
ELECTORAL REFORMS, AUTHORIZING APPROPRIATIONS THEREFOR, AND FOR
OTHER PURPOSES.
29. Section 14. Statement of Contributions and Expenditures; Effect of Failure to File
Statement. — Every candidate and treasurer of the political party shall, within thirty
(30) days after the day of the election, file in duplicate with the offices of the
Commission the full, true and itemized statement of all contributions and
expenditures in connection with the election.
No person elected to any public offices shall enter upon the duties of his office until he has
filed the statement of contributions and expenditures herein required.
The same prohibition shall apply if the political party which nominated the winning
candidate fails to file the statement required herein within the period prescribed by
this Act.
Except candidates for elective barangay office, failure to file the statements or reports in
connection with electoral contributions and expenditures are required herein shall
constitute an administrative offense for which the offenders shall be liable to pay an
administrative fine ranging from One thousand pesos (P1,000.00) to Thirty thousand
pesos (P30,000.00), in the discretion of the Commission.
The fine shall be paid within thirty (30) days from receipt of notice of such failure; otherwise,
it shall be enforceable by a writ of execution issued by the Commission against the
properties of the offender.
It shall be the duty of every city or municipal election registrar to advise in writing, by
personal delivery or registered mail, within five (5) days from the date of election all
candidates residing in his jurisdiction to comply with their obligation to file their
statements of contributions and expenditures.
For the commission of a second or subsequent offense under this section, the administrative
fine shall be from Two thousand pesos (P2,000.00) to Sixty thousand pesos
(P60,000.00), in the discretion of the Commission. In addition, the offender shall be
subject to perpetual disqualification to hold public office.
30. Black's Law Dictionary, 8th Edition, p. 224.
31. See Pro-Choice Network v. Project Rescue, 799 F. Supp. 1417 (W.D.N.Y. 1992).
32. See Erznoznik v. City of Jacksonville, 422 U.S. 205, 209 (1975).
33. 447 U.S. 530 (1980).
34. Id. at 530-531.

35. 422 U.S. 205 (1975).
36. Id. at 212.
37. 418 U.S. 298 (1974).
38. Id. at 303.

39. Id. at 307.
40. Id.
41. Id. at 304.

42. Philippine Judges Association v. Prado, G.R. No. 105371, November 11, 1993, 227 SCRA
703, 711.
43. City of Manila v. Hon. Laguio, Jr., 495 Phil. 289, 326 (2005).
44. Biraogo v. The Philippine Truth Commission of 2010, 651 Phil. 374, 459 (2010).
45. See Central Bank Employees Association, Inc. v. Bangko Sentral ng Pilipinas, G.R. No.
148208, December 15, 2004, 446 SCRA 299.
46. Quinto, et al. v. COMELEC, 621 Phil. 236, 273 (2009).
47. Cruz, Constitutional Law, 2003 ed., p. 128.
48. J. Paras, Dissenting Opinion, National Press Club v. COMELEC, supra note 18, at 43.

EN BANC
[G.R. No. 114222. April 6, 1995.]
FRANCISCO S. TATAD, JOHN H. OSMEÑA and RODOLFO G. BIAZON ,

petitioners, vs. HON. JESUS B. GARCIA, JR., in his capacity as the
Secretary of the Department of Transportation and
Communications, and EDSA LRT CORPORATION, LTD. , respondents.
Brillantes (Nachura) Navarro Jumamil Arcilla & Bello Law Offices for petitioners.
The Solicitor General for respondents.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; TAXPAYER'S SUITS; PREVAILING

DOCTRINE. — The prevailing doctrines in taxpayer's suits are to allow taxpayers to
question contracts entered into by the national government or government-owned or
controlled corporations allegedly in contravention of the law (Kilosbayan, Inc. v. Guingona ,
232 SCRA 110 [1994]) and to disallow the same when only municipal contracts are
involved (Bugnay Construction and Development Corporation v. Laron , 176 SCRA 240
[1989]). For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no
choice but to follow it and uphold the legal standing of petitioners as taxpayers to institute
the present action.
2. POLITICAL LAW; NATIONAL ECONOMY AND PATRIMONY; PUBLIC UTILITY;
FACILITIES TO OPERATE A PUBLIC UTILITY DO NOT NEED A FRANCHISE. — Private
respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT
III was awarded by public respondent Secretary of DOTC, is admittedly a foreign
corporation "duly incorporated and existing under the laws of Hongkong." However, there
is also no dispute that once the EDSA LRT III is constructed, private respondent, as lessor,
will turn it over to DOTC, as lessee, for the latter to operate the system and pay rentals for
said use. What private respondent owns are the rail tracks, rolling stocks like the coaches,
rail stations, terminals and the power plant, not a public utility. While a franchise is needed
to operate these facilities to serve the public, they do not by themselves constitute a
public utility. What constitutes a public utility is not their ownership but their use to serve
the public (Iloilo Ice & Cold Storage Co. v. Public Service Board , 44 Phil. 551, 557–558
[1923]). The Constitution, in no uncertain terms, requires a franchise for the operation of a
public utility. However, it does not require a franchise before one can own the facilities
needed to operate a public utility so long as it does not operate them to serve the public.
3. ID.; ID.; ID.; ID.; OPERATION OF PUBLIC UTILITY AND OWNERSHIP OF
FACILITIES, DISTINGUISHED. — In law, there is a clear distinction between the "operation"
of a public utility and the ownership of the facilities and equipment used to serve the
public. Ownership is de ned as a relation in law by virtue of which a thing pertaining to one
person is completely subjected to his will in everything not prohibited by law or the
concurrence with the rights of another (Tolentino, II Commentaries and Jurisprudence on
the Civil Code of the Philippines 45 [1992]). The exercise of the rights encompassed in
ownership is limited by law so that a property cannot be operated and used to serve the
public as a public utility unless the operator has a franchise. The operation of a rail system
as a public utility includes the transportation of passengers from one point to another
point, their loading and unloading at designated places and the movement of the trains at
pre-scheduled times. The right to operate a public utility may exist independently and
separately from the ownership of the facilities thereof. One can own said facilities without
operating them as a public utility, or conversely, one may operate a public utility without
owning the facilities used to serve the public. The devotion of property to serve the public
may be done by the owner or by the person in control thereof who may not necessarily be
the owner thereof. This dichotomy between the operation of a public utility and the
ownership of the facilities used to serve the public can be very well appreciated when we
consider the transportation industry. Enfranchised airline and shipping companies may
lease their aircraft and vessels instead of owning them themselves.
4. ID.; ID.; ID.; ID.; REQUISITE FILIPINO NATIONALITY DETERMINED WHEN
ENTITY APPLIES FOR FRANCHISE. — Private respondent will not run the light rail vehicles
and collect fees from the riding public. It will have no dealings with the public and the
public will have no right to demand any services from it. Indeed, a mere owner and lessor
of the facilities used by a public utility is not a public utility. Neither are owners of tank,
refrigerator, wine, poultry and beer cars who supply cars under contract to railroad
companies considered as public utilities. Even the mere formation of a public utility
corporation does not ipso facto characterize the corporation as one operating a public
utility. The moment for determining the requisite Filipino nationality is when the entity
applies for a franchise, certificate or any other form of authorization for that purpose.
5. ID.; ID.; ID.; BUILD-OPERATE-AND-TRANSFER (BOT) SCHEME; BUILD-AND-
TRANSFER (BT) SCHEME; DEFINED AND DISTINGUISHED. — The BOT scheme is expressly
de ned as one where the contractor undertakes the construction and nancing of an
infrastructure facility, and operates and maintains the same. The contractor operates the
facility for a xed period during which it may recover its expenses and investment in the
project plus a reasonable rate of return thereon. After the expiration of the agreed term,
the contractor transfers the ownership and operation of the project to the government. In
the BT scheme, the contractor undertakes the construction and financing of the facility, but
after completion, the ownership and operation thereof are turned over to the government.
The government, in turn, shall pay the contractor its total investment on the project in
addition to a reasonable rate of return. If payment is to be effected through amortization
payments by the government infrastructure agency or local government unit concerned,
this shall be made in accordance with a scheme proposed in the bid and incorporated in
the contract (R.A. No. 6957, Sec. 6). Emphasis must be made that under the BOT scheme,
the owner of the infrastructure facility must comply with the citizenship requirement of the
Constitution on the operation of a public utility. No such a requirement is imposed in the
BT scheme.
6. ID.; ID.; ID.; BUILD-LEASE-AND-TRANSFER (BLT) SCHEME AND RELATED
AGREEMENTS; NOT BARRED IN THE BOT LAW (RA 6957). — There is no mention in the
BOT Law that the BOT and BT schemes bar any other arrangement for the payment by the
government of the project cost. The law must not be read in such a way as to rule out or
unduly restrict any variation within the context of the two schemes. Indeed, no statute can
be enacted to anticipate and provide all the ne points and details for the multifarious and
complex situations that may be encountered in enforcing the law. The BLT scheme in the
challenged agreements is but a variation of the BT scheme under the law. As a matter of
fact, the burden on the government in raising funds to pay for the project is made lighter by
allowing it to amortize payments out of the income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals are to be paid on a
monthly basis according to a schedule of rates through and under the terms of a
con rmed Irrevocable Revolving Letter of Credit. At the end of 25 years and when full
payment shall have been made to and received by private respondent, it shall transfer to
DOTC, free from any lien or encumbrances, all its title to, rights and interest in, the project
for only U.S. $1.00 (Revised and Restated Agreement). A lease is a contract where one of
the parties binds himself to give to another the enjoyment or use of a thing for certain
price and for a period which may be de nite or inde nite but not longer than 99 years (Civil
Code of the Philippines, Art. 1643). There is no transfer of ownership at the end of the
lease period. But if the parties stipulate that title to the leased premises shall be
transferred to the lessee at the end of the lease period upon the payment of an agreed
sum, the lease becomes a lease-purchase agreement. Furthermore, it is of no signi cance
that the rents shall be paid in United States currency, not Philippine pesos. The EDSA LRT
III Project is a high priority project certi ed by Congress and the National Economic and
Development Authority as falling under the Investment Priorities Plan of Government. It is,
therefore, outside the application of the Uniform Currency Act (R.A. No. 529).
7. ID.; ID.; ID.; AWARD OF CONSTRUCTION MAY BE MADE BY NEGOTIATION. —
The fact that the contract for the construction of the EDSA LRT III was awarded through
negotiation and before congressional approval on January 22 and 23, 1992 of the List of
National Projects to be undertaken by the private sector pursuant to the BOT Law does not
su ce to invalidate the award. Subsequent congressional approval of the list including
"rail-based projects packaged with commercial development opportunities" under which
the EDSA LRT III project falls, amounts to a rati cation of the prior award of the EDSA LRT
III contract under the BOT Law. Indeed, where there is a lack of quali ed bidders or
contractors, the award of government infrastructure contracts may be made by
negotiation. Presidential Decree No. 1594 is the general law on government infrastructure
contracts while the BOT Law governs particular arrangements or schemes aimed at
encouraging private sector participation in government infrastructure projects. The two
laws are not inconsistent with each other but are in pari materia and should be read
together accordingly.
8. ID.; ID.; RA 7718; QUALIFIED APPLICANT MAY ENTER INTO ANY SCHEME
INCLUDING A BLT ARRANGEMENT. — Republic Act No. 7718 recognizes and defines a BLT
scheme in Section 2 thereof. Section 5-A of the law, expressly allows direct negotiation of
contracts. From the law itself, once an applicant has prequali ed, it can enter into any of
the schemes enumerated in Section 2, RA 7718, including a BLT arrangement, enumerated
and de ned therein (Sec. 3). Republic Act No. 7718 is a curative statute. It is intended to
provide nancial incentives and "a climate of minimum government regulations and
procedures and speci c government undertakings in support of the private sector" (Sec.
1). A curative statute makes valid that which before enactment of the statute was invalid.
Thus, whatever doubts and alleged procedural lapses private respondent and DOTC may
have engendered and committed in entering into the questioned contracts, these have now
been cured by R.A. No. 7718.
9. ID.; ID.; ID.; AGREEMENTS BETWEEN PRIVATE RESPONDENT AND DOTC,
PRESUMED WELL-TAKEN AND TO THE ADVANTAGE OF BOTH PARTIES; GOVERNMENT
OFFICIALS CONCERNED, PRESUMED TO HAVE PERFORMED THEIR FUNCTIONS
REGULARLY. — The determination by the proper administrative agencies and o cials who
have acquired expertise, specialized skills and knowledge in the performance of their
functions should be accorded respect, absent any showing of grave abuse of discretion.
Government o cials are presumed to perform their functions with regularity and strong
evidence is necessary to rebut this presumption. Petitioners have not presented evidence
on the reasonable rentals to be paid by the parties to each other. The matter of valuation is
an esoteric eld which is better left to the experts and which this Court is not eager to
undertake. That the grantee of a government contract will pro t therefrom and to that
extent the government is deprived of the pro ts if it engages in the business itself, is not
worthy of being raised as an issue. In all cases where a party enters into a contract with
the government, he does so, not out of charity and not to lose money, but to gain
pecuniarily. De nitely, the agreements in question have been entered into by DOTC in the
exercise of its governmental function. DOTC is the primary policy, planning, programming,
regulating and administrative entity of the Executive branch of government in the
promotion, development and regulation of dependable and coordinated networks of
transportation and communications systems as well as in the fast, safe, e cient and
reliable postal, transportation and communications services (Administrative Code of 1987,
Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in particular, that has the
power, authority and technical expertise to determine whether or not a speci c
transportation or communications project is necessary, viable and beneficial to the people.
The discretion to award a contract is vested in the government agencies entrusted with
that function.
MENDOZA, J., concurring :
1. REMEDIAL LAW; CIVIL PROCEDURE; PARTIES; MEMBERS OF CONGRESS, NO
LEGAL STANDING TO SUE IF THEY ALLEGE NO INFRINGEMENT OF PREROGATIVES AS
LEGISLATORS. — J. Mendoza holds that petitioners do not have standing to sue. He joins
to dismiss the petition in this case. Petitioners do not have the right to sue, whether as
legislators, taxpayers or citizens. As members of Congress, because they allege no
infringement of prerogatives as legislators. As taxpayers because petitioners allege
neither an unconstitutional exercise of the taxing or spending powers of Congress (Art. VI,
24-25 and 29) nor an illegal disbursement of public money. As this Court pointed out in
Bugnay Const. and Dev. Corp. v. Laron, 176 SCRA 240, 251-2-(1989) a party suing as
taxpayer "must speci cally prove that he has su cient interest in preventing the illegal
expenditure of money raised by taxation and that he will sustain a direct injury as a result
of the enforcement of the questioned statute or contract. It is not su cient that he has
merely a general interest common to all members of the public." In that case, it was held
that a contract, whereby a local government leased property to a private party with the
understanding that the latter would build a market building and at the end of the lease
would transfer the building to the lessor, did not involve a disbursement of public funds so
as to give a taxpayer standing to question the legality of the contract. He sees no
substantial difference, as far as the standing of taxpayers to question public contracts is
concerned, between the contract there and the build-lease-transfer (BLT) contract being
questioned by petitioners in this case. Nor do petitioners have standing to bring this suit
as citizens. In the cases in which citizens were authorized to sue, this Court found standing
because it thought the constitutional claims pressed for decision to be of "transcendental
importance," as in fact it subsequently granted relief to petitioners by invalidating the
challenged statutes or governmental actions. But in the case at bar, the Court precisely
nds the opposite by nding petitioners' substantive contentions to be without merit. To
the extent therefore that a party's standing is affected by a determination of the
substantive merit of the case or a preliminary estimate thereof, petitioners in the case at
bar must be held to be without standing. This is in line with our ruling in Lawyers League
for a Better Philippines v. Aquino (G.R. Nos. 73748, 73972, 73990, May 22, 1986) and In re
Bermudez (145 SCRA 160, 1986) where we dismissed citizens' actions on the ground that
petitioners had no personality to sue and their petitions did not state a cause of action.
The holding that petitioners did not have standing followed from the nding that they did
not have a cause of action. In order that citizens' actions may be allowed a party must
show that he personally has suffered some actual or threatened injury as a result of the
allegedly illegal conduct of the government; the injury is fairly traceable to the challenged
action; and the injury is likely to be redressed by a favorable action. Todays's holding that a
citizen, qua citizen, has standing to question a government contract unduly expands the
scope of public actions and sweeps away the case and controversy requirement so
carefully embodied in Art. VIII, §5 in de ning the jurisdiction of this Court. The result is to
convert the Court into an o ce of ombudsman for the ventilation of generalized
grievances.
FELICIANO, J., dissenting :
1. POLITICAL LAW; NATIONAL ECONOMY AND PATRIMONY; PUBLIC UTILITY
(EDSA LRT III); PD 1594 ON BIDDING AND RELATED PROVISIONS; NOT APPLICABLE TO
RA 6957 AND RA 7718. — Presidential Decree No. 1594 dated 11 June 1978 entitled:
"Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure
Contracts." More speci cally, the majority opinion invokes paragraph 1 of Section 4 of this
Degree which refers to Bidding. I understand the unspoken theory in the majority opinion
to be that above Section 4 and presumably the rest of Presidential Decree No. 1594
continue to exist and to run parallel to the provisions of Republic Act No. 6957, whether in
its original form or as amended by Republic Act No. 7718. A principal di culty with this
approach is that Presidential Decree No. 1594 purports to apply to all "government
contracts for infrastructure and other construction projects." But Republic Act No. 6957 as
amended by Republic Act No. 7718, relates only to "infrastructure projects" which are
nanced, constructed, operated and maintained "by the private sector " "through the
build/operate-and-transfer or build-and-transfer scheme" under Republic Act No. 6597 and
under a series of other comparable schemes under Republic Act No. 7718. In other words,
Republic Act No. 6957 and Republic Act No. 7718 must be held, in my view, to be special
statutes applicable to a more limited eld of "infrastructure projects" than the wide-
ranging scope of application of the general statute, i.e., Presidential Decree No. 1594.
Thus, the high relevance of the point made by Mr. Justice Davide that Republic Act No.
6957 in speci c connection with BOT- and BLT-type of contracts imposed an unqualified
requirement of public bidding set out in Section 5 thereof. It should also be pointed out
that under Presidential Decree No. 1594, projects may be undertaken "by administration or
force account or by negotiated contract only" (1) "in exceptional cases where time is of the
essence"; or (2) "where there is lack of bidders or contractors"; or (3) "where there is a
conclusive evidence that greater economy and e ciency would be achieved through these
arrangements, and in accordance with provision[s] of laws and acts of the matter." It must,
upon the one hand, be noted that the special law Republic Act No. 6957 made absolutely
no mention of negotiated contracts being permitted to displace the requirement of public
bidding. Upon the other hand, Section 5-a, inserted in Republic Act No. 6957 by the
amending statute Republic Act No. 7718, does not purport to authorize direct negotiation
of contracts except in four (4) situations where there is a lack of pre-quali ed contractors
or complying bidders. Thus, even under the amended special statute, entering into
contracts by negotiation is not permissible in the other two (2) categories of cases
referred to in Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases where
time is of the essence" and "when there is conclusive evidence that greater economy and
e ciency would be achieved through these arrangements, etc." The result I reach is that
insofar as BOT, etc . — types of contracts are concerned, the applicable public bidding
requirement is that set out in Republic Act No. 6957 and, with respect to such type of
contracts opened for pre-quali cation and bidding after the date of effectivity of republic
Act No. 7718, the provisions of Republic Act No. 7718. The assailed contract was entered
into before Republic Act No. 7718 was enacted. The di culties of applying the provisions
of Presidential Decree No. 1594 to the Edsa LRT-type of contracts are aggravated when
one considers the detailed "Implementing Rules and Regulations as amended April 1988"
issued under that Presidential Decree. There is no reference at all in these Presidential
Decree No. 1594 Implementing Rules and Regulations to absence of pre-quali ed
applicants and bidders as justifying negotiation of contracts as distinguished from
requiring public bidding or a second public bidding. Note also the following provision of
the same Implementing Rules and Regulations: "IB 1 Prequalification. The following may
become contractors for government projects: 1. Filipino a. Citizens (single proprietorship)
b. Partnership or corporation duly organized under the laws of the Philippines, and at least
seventy ve percent (75%) of the capital stock of which belongs to Filipino citizens . 2.
Contractors forming themselves into a joint venture, i.e., a group of two or more
contractors that intend to be jointly and severally responsible for a particular contract,
shall for purposes of bidding/tendering comply with LOI 630, and, aside from being
currently and properly accredited by the Philippine Contractors Accreditation Board, shall
comply with the provisions of R.A. 4566, provided that joint ventures in which Filipino
ownership is less than seventy five percent (75%) may be prequalified where the structures
to be built require the application of techniques and/or technologies which are not
adequately possessed by a Filipino entity as de ned above . The record of this case is
entirely silent on the extent of Philippine equity in the Edsa LRT Corporation; there is no
suggestion that this corporation is organized under Philippine law and is at least seventy-
five (75%) percent owned by Philippine citizens.
2. ID.; ID.; ID.; PUBLIC BIDDING, AN IMPORTANT REQUIREMENT. — Public
bidding is the normal method by which a government keeps contractors honest and is able
to assure itself that it would be getting the best possible value for its money in any
construction or similar project. It is not for nothing that multilateral nancial organizations
like the World Bank and the Asian Development Bank uniformly require projects nanced
by them to be implemented and carried out by public bidding. Public bidding is much too
important a requirement casually to loosen by a latitudinarian exercise in statutory
construction.
DAVIDE, JR., J., dissenting opinion:
1. POLITICAL LAW; NATIONAL ECONOMY AND PATRIMONY; PUBLIC UTILITY
(EDSA LRT III); RA 6957 (BOT LAW); BUILD-LEASE-AND-TRANSFER (BLT) SCHEME, NOT
INCLUDED THEREIN. — Respondents admit that the assailed contract was entered into
under R.A. 6957. This law, ttingly entitled "An Act Authorizing the Financing, Construction,
Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other
Purposes," recognizes only two (2) kinds of contractual arrangements between the private
sector and government infrastructure agencies: (a) the Build-Operate-and-Transfer (BOT)
scheme and (b) the Build-and-Transfer (BT) scheme. This conclusion nds support in
Section 2 thereof which de nes only the BOT and BT schemes, in Section 3 which explicitly
provides for said schemes and in Section 5 which requires public bidding of projects under
both schemes. All prior acts and negotiations leading to the perfection of the challenged
contract were clearly intended and pursued for such schemes. A Build-Lease-and-Transfer
(BLT) scheme is not authorized under the said law, and none of the aforesaid prior acts
and negotiations were designed for such unauthorized scheme. Hence, the DOTC is
without any power or authority to enter into the BLT contract in question. If it is intended to
include a BLT scheme in RA 6957, then it should have so stated, for contracts of lease are
not unknown in our jurisdiction, and Congress has enacted several laws relating to leases.
That the BLT scheme was never intended as a permissible variation "within the context" of
the BOT and BT schemes is conclusively established by the passage of R.A. No. 7718
which amends: a) Section 2 by adding to the original BOT and BT schemes the following
schemes: (1) Build-own-and operate (BOO) (2) Build-Lease-and-transfer (BLT) (3) Build-
transfer-and-operate (BTO) (4) Contract-add-and-operate (CAO) (5) Develop-operate-and-
transfer (DOT) (6) Rehabilitate-operate-and-transfer (ROT) (7) Rehabilitate-own-and-
operate (ROO) b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the
build-operate-and-transfer or build-and-transfer scheme."
2. ID.; ID.; ID.; PUBLIC BIDDING THEREIN, MANDATORY ; RA 7718 FOREGOING
THE SAME DOES NOT PROVIDE FOR RETROACTIVE APPLICATION. — Public bidding is
mandatory in R.A. No. 6957 under Section 5 thereof. The requirement of public bidding is
not an idle ceremony. It has been aptly said that in our jurisdiction "public bidding is the
policy and medium adhered to in Government procurement and construction contracts
under existing laws and regulations. It is the accepted method for arriving at a fair and
reasonable price and ensures that overpricing, favoritism and other anomalous practices
are eliminated or minimized. And any Government contract entered into without the
required bidding is null and void and cannot adversely affect the rights of third parties."
(Bartolome C. Fernandez, Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER
PHILIPPINE LAW 25 [rev. ed. 1991], citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).
The O ce of the President, through then Executive Secretary Franklin Drilon correctly
disapproved the contract because no public bidding in strict compliance with Section 5 of
R.A. No. 6957 was conducted. Secretary Drilon further bluntly stated that the provision of
the Implementing Rules of said law authorizing negotiated contracts was of doubtful
legality. Indeed, it is null and void because the law itself does not recognize or allow
negotiated contracts. The mandatory requirement of public bidding cannot be legally
dispensed with simply because only one was quali ed to bid during the prequali cation
proceedings. Section 5 mandates that the BOT or BT contract should be awarded "to the
lowest complying bidder," which logically means that there must at least be two (2)
bidders. If this minimum requirement is not met, then the proposed bidding should be
deferred and a new prequali cation proceeding be scheduled. Even those who were earlier
disquali ed may by then have quali ed because they may have, in the meantime, exerted
efforts to meet all the quali cations. This view of the majority would open the oodgates
to the rigging of prequali cation proceedings or to unholy conspiracies among
prospective bidders, which would even include dishonest government o cials. They could
just agree, for a certain consideration, that only one of them would qualify in order that the
latter would automatically corner the contract and obtain the award. That Section 5 admits
of no exception and that no bidding could be validly had with only one bidder is likewise
conclusively shown by the amendments introduced by R.A. No. 7718. Per Section 7
thereof, a new section denominated as Section 5-A was introduced in R.A. No. 6957 to
allow direct negotiation of contracts. Can this amendment be given retroactive effect to
the challenged contract so that it may now be considered a permissible negotiated
contract? I submit that it cannot be. R.A. No. 7718 does not provide that it should be given
retroactive effect to pre-existing contracts. Section 18 thereof says that it "shall take
effect fteen (15) days after its publication in at least two (2) newspapers of general
circulation." If it were the intention of Congress to give said act retroactive effect then it
would have so expressly provided. Article 4 of the Civil Code provides that "[l]aws shall
have no retroactive effect, unless the contrary is provided." The presumption is that all
laws operate prospectively, unless the contrary clearly appears or is clearly, plainly, and
unequivocally expressed or necessarily implied. In every case of doubt, the doubt will be
resolved against the retroactive application of laws. (Ruben E. Agpalo, STATUTORY
CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an
existing statute, Sutherland states: In accordance with the rule applicable to original acts, it
is presumed that provisions added by the amendment affecting substantive rights are
intended to operate prospectively. Provisions added by the amendment that affect
substantive rights will not be construed to apply to transactions and events completed
prior to its enactment unless the legislature has expressed its intent to that effect or such
intent is clearly implied by the language of the amendment or by the circumstances
surrounding its enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND
STATUTORY CONSTRUCTION 434-436 [1943 ed.]).
DECISION
QUIASON , J : p
This is a petition under Rule 65 of the Revised Rules of Court to prohibit

respondents from further implementing and enforcing the "Revised and Restated
Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" dated
April 22, 1992, and the "Supplemental Agreement to the 22 April 1992 Revised and
Restated Agreement To Build, Lease and Transfer a Light Rail Transit System for EDSA"
dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are
members of the Philippine Senate and are suing in their capacities as Senators and as
taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of the
Department of Transportation and Communications (DOTC), while private respondent
EDSA LRT Corporation, Ltd. is a private corporation organized under the laws of
Hongkong. cdll
I
In 1989, DOTC planned to construct a light railway transit line along EDSA, a
major thoroughfare in Metropolitan Manila, which shall traverse the cities of Pasay,
Quezon, Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit III
(EDSA LRT III), was intended to provide a mass transit system along EDSA and alleviate
the congestion and growing transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc.,
represented by Elijahu Levin, to DOTC Secretary Oscar Orbos, proposing to construct
the EDSA LRT III on a Build-Operate-Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to
discuss the project with DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by the Private
Sector, and For Other Purposes," was signed by President Corazon C. Aquino. Referred
to as the Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the nancing, construction
and operation of government projects through private initiative and investment: Build-
Operate-Transfer (BOT) or Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III
project underway, DOTC, on January 22, 1991 and March 14, 1991, issued Department
Orders Nos. 91-494 and 91-496, respectively creating the Prequali cation Bids and
Awards Committee (PBAC) and the Technical Committee.
After its constitution, the PBAC issued guidelines for the prequali cation of
contractors for the nancing and implementation of the project. The notice, advertising
the prequali cation of bidders, was published in three newspapers of general
circulation once a week for three consecutive weeks starting February 21, 1991.
The deadline set for submission of prequali cation documents was March 21,
1991, later extended to April 1, 1991. Five groups responded to the invitation: namely,
ABB Trazione of Italy, Hopewell Holdings, Ltd. of Hongkong, Mansteel International of
Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium, composed of
ten foreign and domestic corporations: namely, Kaiser Engineers International, Inc.,
ACER Consultants (Far East) Ltd., Freeman Fox, Tradeinvest/CKD Tatra of the Czech
and Slovak Federal Republics, TCGI Engineering, All Asia Capital and Leasing
Corporation, The Salim Group of Jakarta, E.L. Enterprises, Inc., A.M. Oreta & Co., Inc.,
Capitol Industrial Construction Group, Inc. and F.F. Cruz & Co., Inc. cdrep
On the last day for submission of prequali cation documents, the

prequali cation criteria proposed by the Technical Committee were adopted by the
PBAC. The criteria, totalling 100 percent, are as follows: (a) Legal aspects — 10
percent; (b) Management/Organizational capability — 30 percent; (c) Financial
capability — 30 percent; and (d) Technical capability — 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the
formulation of the Implementing Rules and Regulations thereof, approved the same.
After evaluating the prequalification bids, the PBAC issued a Resolution on May 9,
1991 declaring that of the ve applicants, only the EDSA LRT Consortium "met the
requirements of garnering at least 21 points per criteria [sic], except for Legal Aspects,
and obtaining an over-all passing mark of at least 82 points" (Rollo, p. 146). The Legal
Aspects referred to provided that the BOT/BT contractor-applicant meet the
requirements specified in the Constitution and other pertinent laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the
President of the Philippines and was replaced by Secretary Pete Nicomedes Prado. The
latter sent to President Aquino two letters dated May 31, 1991 and June 14, 1991,
respectively recommending the award of the EDSA LRT III project to the sole complying
bidder, the EDSA LRT Consortium, and requesting for authority to negotiate with the
said rm for the contract pursuant to paragraph 14(b) of the Implementing Rules and
Regulations of the BOT Law (Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President,
issued a directive to the DOTC to proceed with the negotiations. On July 16, 1991, the
EDSA LRT Consortium submitted its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and
respondent EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium,
entered into an "Agreement to Build, Lease and Transfer a Light Rail Transit System for
EDSA" under the terms of the BOT Law (Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract. LibLex
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who
replaced Executive Secretary Orbos, informed Secretary Prado that the President could
not grant the requested approval for the following reasons: (1) that DOTC failed to
conduct actual public bidding in compliance with Section 5 of the BOT Law; (2) that the
law authorized public bidding as the only mode to award BOT projects, and the
prequali cation proceedings was not the public bidding contemplated under the law;
(3) that Item 14 of the Implementing Rules and Regulations of the BOT Law which
authorized negotiated award of contract in addition to public bidding was of doubtful
legality; and (4) that congressional approval of the list of priority projects under the
BOT or BT Scheme provided in the law had not yet been granted at the time the
contract was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private
respondents re-negotiated the agreement. On April 22, 1992, the parties entered into a
"Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit
System for EDSA" ( Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the fact
the DOTC has full authority to sign the Agreement without need of approval by the
President pursuant to the provisions of Executive Order No. 380 and that certain events
[had] supervened since November 7, 1991 which necessitate[d] the revision of the
Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary Jesus
Garcia vice Secretary Prado, and private respondent entered into a "Supplemental
Agreement to the 22 April 1992 Revised and Restated Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA" so as to "clarify their respective rights
and responsibilities" and to "submit [the] Supplemental Agreement to the President of
the Philippines for his approval" (Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for
his consideration and approval. In a Memorandum to Secretary Garcia on May 6, 1993,
President Ramos approved the said Agreements (Rollo, p. 194).
According to the agreements, the EDSA-LRT III will use light rail vehicles from the
Czech and Slovak Federal Republics and will have a maximum carrying capacity of
450,000 passengers a day, or 150 million a year to be achieved through 54 such
vehicles operating simultaneously. The EDSA LRT III will run at grade, or street level, on
the mid-section of EDSA for a distance of 17.8 kilometers from F.B. Harrison, Pasay
City to North Avenue, Quezon City. The system will have its own power facility (Revised
and Restated Agreement, Sec. 2.3 (ii); Rollo, p. 55). It will also have thirteen (13)
passenger stations and one depot in the 16-hectare government property at North
Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
Private respondent shall undertake and nance the entire project required for a
complete operational light rail transit system (Revised and Restated Agreement, Sec.
4.1; Rollo, p. 58). Target completion date is 1,080 days or approximately three years
from the implementation date of the contract inclusive of mobilization, site works,
initial and nal testing of the system (Supplemental Agreement, Sec. 5; Rollo, p. 83).
Upon full or partial completion and viability thereof, private respondent shall deliver the
use and possession of the completed portion to DOTC which shall operate the same
(Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp.
61-62, 84). DOTC shall pay private respondent rentals on a monthly basis through an
Irrevocable Letter of Credit. The rentals shall be determined by an independent and
internationally accredited inspection rm to be appointed by the parties (Supplemental
Agreement, Sec. 6; Rollo, pp. 85-86). As agreed upon, private respondent's capital shall
be recovered from the rentals to be paid by the DOTC which, in turn, shall come from
the earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p.
54). After 25 years and DOTC shall have completed payment of the rentals, ownership
of the project shall be transferred to the latter for a consideration of only U.S.$1.00
(Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67). LibLex
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic
Act No. 6957, Entitled 'An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector, and for Other Purposes'"
was signed into law by the President. The law was published in two newspapers of
general circulation on May 12, 1994, and took effect 15 days thereafter or on May 28,
1994. The law expressly recognizes a BLT scheme and allows direct negotiation of BLT
contracts.
II
In their petition, petitioners argued that:
"(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE
SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS
EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE
OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE
CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
"(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE
AGREEMENTS IS NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR
ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS ILLEGAL;
"(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES
R.A. NO. 6957 AND, HENCE, IS UNLAWFUL;
"(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT

CORPORATION, LTD. VIOLATES THE REQUIREMENTS PROVIDED IN THE
IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND,
HENCE, IS ILLEGAL;
"(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO. 380 FOR THEIR
FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL
AND INEFFECTIVE; AND
"(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE

GOVERNMENT" (Rollo, pp. 15-16).
Secretary Garcia and private respondent led their comments separately and
claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal standing
to institute the present petition;
(2) The writ of prohibition is not the proper remedy and the petition requires
ascertainment of facts;
(3) The scheme adopted in the Agreements is actually a build-transfer
scheme allowed by the BOT Law;
(4) The nationality requirement for public utilities mandated by the
Constitution does not apply to private respondent;
(5) The Agreements executed by and between respondents have been
approved by President Ramos and are not disadvantageous to the government;
(6) The award of the contract to private respondent through negotiation and
not public bidding is allowed by the BOT Law; and
(7) Granting that the BOT Law requires public bidding, this has been
amended by R.A. No. 7718 passed by the Legislature on May 12, 1994, which provides
for direct negotiation as a mode of award of infrastructure projects. LexLib
III
Respondents claimed that petitioners had no legal standing to initiate the instant
action. Petitioners, however, countered that the action was led by them in their
capacity as Senators and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question
contracts entered into by the national government or government-owned or controlled
corporations allegedly in contravention of the law (Kilosbayan, Inc. v. Guingona, 232
SCRA 110 [1994]) and to disallow the same when only municipal contracts are involved
(Bugnay Construction and Development Corporation v. Laron, 176 SCRA 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no
choice but to follow it and uphold the legal standing of petitioners as taxpayers to
institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of
April 22, 1992 and the Supplemental Agreement of May 6, 1993 are unconstitutional
and invalid for the following reasons:
(1) the EDSA LRT III is a public utility, and the ownership and operation
thereof is limited by the Constitution to Filipino citizens and domestic
corporations, not foreign corporations like private respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements

is not the BOT or BT scheme under the law;
(3) the contract to construct the EDSA LRT III was awarded to private
respondent not through public bidding which is the only mode of awarding
infrastructure projects under the BOT law; and
(4) the agreements are grossly disadvantageous to the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to

construct the EDSA LRT III was awarded by public respondent, is admittedly a foreign
corporation "duly incorporated and existing under the laws of Hongkong" (Rollo, pp. 50,
79). There is also no dispute that once the EDSA LRT III is constructed, private
respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to operate the
system and pay rentals for said use.
The question posed by petitioners is:
"Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own
EDSA LRT III, a public utility?" (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent

owns are the rail tracks, rolling stocks like the coaches, rail stations, terminals and the
power plant, not a public utility. While a franchise is needed to operate these facilities to
serve the public, they do not by themselves constitute a public utility. What constitutes
a public utility is not their ownership but their use to serve the public (Iloilo Ice & Cold
Storage Co. v. Public Service Board, 44 Phil. 551, 557-558 [1923]). LexLib
The Constitution, in no uncertain terms, requires a franchise for the operation of a

public utility. However, it does not require a franchise before one can own the facilities
needed to operate a public utility so long as it does not operate them to serve the
public.
Section 11 of Article XII of the Constitution provides:
"No franchise, certi cate 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, certi cate or authorization be exclusive in character or for a longer
period than fifty years . . ." (Italics supplied).
In law, there is a clear distinction between the "operation" of a public utility and
the ownership of the facilities and equipment used to serve the public.
Ownership is de ned as a relation in law by virtue of which a thing pertaining to
one person is completely subjected to his will in everything not prohibited by law or the
concurrence with the rights of another (Tolentino, II Commentaries and Jurisprudence
on the Civil Code of the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law so that a
property cannot be operated and used to serve the public as a public utility unless the
operator has a franchise. The operation of a rail system as a public utility includes the
transportation of passengers from one point to another point, their loading and
unloading at designated places and the movement of the trains at pre-scheduled times
(cf. Arizona Eastern R.R. Co. v. J.A. Matthews, 20 Ariz 282, 180 P. 159, 7 A.L.R. 1149
[1919]; United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868,
2 A.L.R. 2d 1065 [1948]). cdphil
The right to operate a public utility may exist independently and separately from
the ownership of the facilities thereof. One can own said facilities without operating
them as a public utility, or conversely, one may operate a public utility without owning
the facilities used to serve the public. The devotion of property to serve the public may
be done by the owner or by the person in control thereof who may not necessarily be
the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the
facilities used to serve the public can be very well appreciated when we consider the
transportation industry. Enfranchised airline and shipping companies may lease their
aircraft and vessels instead of owning them themselves.
While private respondent is the owner of the facilities necessary to operate the
EDSA LRT III, it admits that it is not enfranchised to operate a public utility. (Revised and
Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity, private
respondent and DOTC agreed that on completion date, private respondent will
immediately deliver possession of the LRT system by way of lease for 25 years, during
which period DOTC shall operate the same as a common carrier and private respondent
shall provide technical maintenance and repair services to DOTC (Revised and Restated
Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance
consists of providing (1) repair and maintenance facilities for the depot and rail lines,
services for routine clearing and security; and (2) producing and distributing
maintenance manuals and drawings for the entire system (Revised and Restated
Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the
operation, use, maintenance and repair of the rolling stock, power plant, substations,
electrical, signalling, communications and all other equipment as supplied in the
agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training
consists of theoretical and live training of DOTC operational personnel which includes
actual driving of light rail vehicles under simulated operating conditions, control of
operations, dealing with emergencies, collection, counting and securing cash from the
fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3).
Personnel of DOTC will work under the direction and control of private respondent only
during training (Revised and Restated Agreement, Annex E, Sec. 3.1). The training
objectives, however, shall be such that upon completion of the EDSA LRT III and upon
opening of normal revenue operation, DOTC shall have in their employ personnel
capable of undertaking training of all new and replacement personnel (Revised and
Restated Agreement, Annex E, Sec. 5.1). In other words, by the end of the three-year
construction period and upon commencement of normal revenue operation, DOTC shall
be able to operate the EDSA LRT III on its own and train all new personnel by itself. Cdpr
Fees for private respondent's services shall be included in the rent, which
likewise includes the project cost, cost of replacement of plant equipment and spare
parts, investment and nancing cost, plus a reasonable rate of return thereon (Revised
and Restated Agreement, Sec. 1; Rollo, p. 54).
Since, DOTC shall operate the EDSA LRT III, it shall assume all the obligations and
liabilities of a common carrier. For this purpose, DOTC shall indemnify and hold
harmless private respondent from any losses, damages, injuries or death which may be
claimed in the operation or implementation of the system, except losses, damages,
injury or death due to defects in the EDSA LRT III on account of the defective condition
of equipment or facilities or the defective maintenance of such equipment or facilities
(Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from
the riding public. It will have no dealings with the public and the public will have no right
to demand any services from it.
It is well to point out that the role of private respondent as lessor during the
lease period must be distinguished from the role of the Philippine Gaming Management
Corporation (PGMC) in the case of Kilosbayan, Inc. v. Guingona , 232-SCRA 110 (1994).
Therein, the Contract of Lease between PGMC and the Philippine Charity Sweepstakes
O ce (PCSO) was actually a collaboration or joint venture agreement prescribed under
the charter of the PCSO. In the Contract of Lease, PGMC, the lessor obligated itself to
build, at its own expense, all the facilities necessary to operate and maintain a
nationwide on-line lottery system from whom PCSO was to lease the facilities and
operate the same. Upon due examination of the contract, the Court found that PGMC's
participation was not con ned to the construction and setting up of the on-line lottery
system. It spilled over to the actual operation thereof, becoming indispensable to the
pursuit, conduct, administration and control of the highly technical and sophisticated
lottery system. In effect, the PCSO leased out its franchise to PGMC which actually
operated and managed the same. LLphil
Indeed, a mere owner and lessor of the facilities used by a public utility is not a
public utility (Providence and W.R. Co. v. United States , 46 F. 2d 149, 152 [1930];
Chippewa Power Co. v. Railroad Commission of Wisconsin , 205 N.W. 900, 903, 188
Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill. 35 S. Ct. 645, 646, 237
U.S. 434, 59 L. Ed. 1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry
and beer cars who supply cars under contract to railroad companies considered as
public utilities (Crystal Car Line v. State Tax Commission, 174 P. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto
characterize the corporation as one operating a public utility. The moment for
determining the requisite Filipino nationality is when the entity applies for a franchise,
certi cate or any other form of authorization for that purpose ( People v. Quasha, 93
Phil. 333 (1953]).
2. Petitioners further assert that the BLT scheme under the Agreements in
question is not recognized in the BOT Law and its implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
"(a) Build-operate-and-transfer scheme — A contractual arrangement
whereby the contractor undertakes the construction, including nancing, of a
given infrastructure facility, and the operation and maintenance thereof. The
contractor operates the facility over a xed term during which it is allowed to
charge facility users appropriate tolls, fees, rentals, and charges su cient to
enable the contractor to recover its operating and maintenance expenses and its
investment in the project plus a reasonable rate of return thereon. The contractor
transfers the facility to the government agency or local government unit
concerned at the end of the xed term which shall not exceed fty (50) years. For
the construction stage, the contractor may obtain nancing from foreign and/or
domestic sources and/or engage the services of a foreign and/or Filipino
constructor [sic]: Provided, That the ownership structure of the contractor of an
infrastructure facility whose operation requires a public utility franchise must be
in accordance with the Constitution: Provided, however, That in the case of
corporate investors in the build-operate-and-transfer corporation, the citizenship
of each stockholder in the corporate investors shall be the basis for the
computation of Filipino equity in the said corporation: Provided, further, That, in
the case of foreign constructors [sic], Filipino labor shall be employed or hired in
the different phases of the construction where Filipino skills are available:
Provided, furthermore, that the nancing of a foreign or foreign-controlled
contractor from Philippine government nancing institutions shall not exceed
twenty percent (20%) of the total cost of the infrastructure facility or project:
Provided, nally, That nancing from foreign sources shall not require a
guarantee by the Government or by government-owned or controlled corporations.
The build-operate-and-transfer scheme shall include a supply-and-operate
situation which is a contractual arrangement whereby the supplier of equipment
and machinery for a given infrastructure facility, if the interest of the Government
so requires, operates the facility providing in the process technology transfer and
training to Filipino nationals.
cdphil
(b) Build-and-transfer scheme — A contractual arrangement whereby

the contractor undertakes the construction including nancing, of a given
infrastructure facility, and its turnover after completion to the government agency
or local government unit concerned which shall pay the contractor its total
investment expended on the project, plus a reasonable rate of return thereon. This
arrangement may be employed in the construction of any infrastructure project
including critical facilities which for security or strategic reasons, must be
operated directly by the government" (Italics supplied).
The BOT scheme is expressly de ned as one where the contractor undertakes
the construction and nancing of an infrastructure facility, and operates and maintains
the same. The contractor operates the facility for a xed period during which it may
recover its expenses and investment in the project plus a reasonable rate of return
thereon. After the expiration of the agreed term, the contractor transfers the ownership
and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction and nancing of
the facility, but after completion, the ownership and operation thereof are turned over to
the government. The government, in turn, shall pay the contractor its total investment
on the project in addition to a reasonable rate of return. If payment is to be effected
through amortization payments by the government infrastructure agency or local
government unit concerned, this shall be made in accordance with a scheme proposed
in the bid and incorporated in the contract (R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the
infrastructure facility must comply with the citizenship requirement of the Constitution
on the operation of a public utility. No such a requirement is imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other
arrangement for the payment by the government of the project cost. The law must not
be read in such a way as to rule out or unduly restrict any variation within the context of
the two schemes. Indeed, no statute can be enacted to anticipate and provide all the
ne points and details for the multifarious and complex situations that may be
encountered in enforcing the law (Director of Forestry v. Muñoz, 23 SCRA 1183 [1968];
People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119
[1914]).
The BLT scheme in the challenged agreements is but a variation of the BT
scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for the
project is made lighter by allowing it to amortize payments out of the income from the
operation of the LRT System. LibLex
In form and substance, the challenged agreements provide that rentals are to be
paid on a monthly basis according to a schedule of rates through and under the terms
of a con rmed Irrevocable Revolving Letter of Credit (Supplemental Agreement, Sec. 6;
Rollo, p. 85). At the end of 25 years and when full payment shall have been made to and
received by private respondent, it shall transfer to DOTC, free from any lien or
encumbrances, all its title to, rights and interest in, the project for only U.S. $1.00
(Revised and Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec. 7; Rollo,
pp. 67, 87).
A lease is a contract where one of the parties binds himself to give to another the
enjoyment or use of a thing for a certain price and for a period which may be de nite or
indefinite but not longer than 99 years (Civil Code of the Philippines, Art. 1643). There is
no transfer of ownership at the end of the lease period. But if the parties stipulate that
title to the leased premises shall be transferred to the lessee at the end of the lease
period upon the payment of an agreed sum, the lease becomes a lease-purchase
agreement. LLjur
Furthermore, it is of no signi cance that the rents shall be paid in United States
currency, not Philippine pesos. The EDSA LRT III Project is a high priority project
certi ed by Congress and the National Economic and Development Authority as falling
under the Investment Priorities Plan of Government (Rollo, pp. 310-311). It is, therefore,
outside the application of the Uniform Currency Act (R.A. No. 529), which reads as
follows:
"Sec. 1. Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the Philippines which
provisions purports to give the obligee the right to require payment in gold or in a
particular kind of coin or currency other than Philippine currency or in an amount
of money of the Philippines measured thereby, be as it is hereby declared against
public policy, and null, void, and of no effect, and no such provision shall be
contained in, or made with respect to, any obligation hereafter incurred. The
above prohibition shall not apply to (a) . . .; (b) transactions affecting high-priority
economic projects for agricultural, industrial and power development as may be
determined by the National Economic Council which are nanced by or through
foreign funds; . . . ."
3. The fact that the contract for the construction of the EDSA LRT III was
awarded through negotiation and before congressional approval on January 22 and 23,
1992 of the List of National Projects to be undertaken by the private sector pursuant to
the BOT Law (Rollo, pp. 309-312) does not suffice to invalidate the award.
Subsequent congressional approval of the list including "rail-based projects
packaged with commercial development opportunities" (Rollo, p. 310) under which the
EDSA LRT III project falls, amounts to a rati cation of the prior award of the EDSA LRT
III contract under the BOT Law.
Petitioners insist that the prequali cation process which led to the negotiated
award of the contract appears to have been rigged from the very beginning to do away
with the usual open international public bidding where quali ed internationally known
applicants could fairly participate.
The records show that only one applicant passed the prequali cation process.
Since only one was left, to conduct a public bidding in accordance with Section 5 of the
BOT Law for that lone participant will be an absurd and pointless exercise (cf. Deloso v.
Sandiganbayan, 217 SCRA 49, 61 [1993]).
Contrary to the comments of then Executive Secretary Drilon, Section 5 of the
BOT Law in relation to Presidential Decree No. 1594 allows the negotiated award of
government infrastructure projects. Presidential Decree No. 1594, "Prescribing Policies,
Guidelines, Rules and Regulations for Government Infrastructure Contracts," allows the
negotiated award of government projects in exceptional cases. Section 4 of the said
law reads as follows:
"Bidding. — Construction projects shall generally be undertaken by contract
after competitive public bidding. Projects may be undertaken by administration or
force account or by negotiated contract only in exceptional cases where time is of
the essence, or where there is lack of quali ed bidders or contractors, or where
there is conclusive evidence that greater economy and e ciency would be
achieved through this arrangement, and in accordance with provision of laws and
acts on the matter, subject to the approval of the Minister of Public Works and
Transportation and Communications, the Minister of Public Highways, or the
Minister of Energy, as the case may be, if the project cost is less than P1 Million,
and the President of the Philippines, upon recommendation of the Minister, if the
project cost is P1 Million or more (Italics supplied).
xxx xxx xxx
Indeed, where there is a lack of quali ed bidders or contractors, the award of

government infrastructure contracts may be made by negotiation. Presidential Decree
No. 1594 is the general law on government infrastructure contracts while the BOT Law
governs particular arrangements or schemes aimed at encouraging private sector
participation in government infrastructure projects. The two laws are not inconsistent
with each other but are in pari materia and should be read together accordingly. LibLex

In the instant case, if the prequali cation process was actually tainted by foul
play, one wonders why none of the competing rms ever brought the matter before the
PBAC, or intervened in this case before us (cf. Malayan Integrated Industries Corp. v.
Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. O ce of the President, 205
SCRA 705 [1992]). The challenged agreements have been approved by President
Ramos himself. Although then Executive Secretary Drilon may have disapproved the
"Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA," there is
nothing in our laws that prohibits parties to a contract from renegotiating and
modifying in good faith the terms and conditions thereof so as to meet legal, statutory
and constitutional requirements. Under the circumstances, to require the parties to go
back to step one of the prequali cation process would just be an idle ceremony.
Useless bureaucratic "red tape" should be eschewed because it discourages private
sector participation, the "main engine" for national growth and development (R.A. No.
6957, Sec. 1), and renders the BOT Law nugatory.
Republic Act No. 7718 recognizes and de nes a BLT scheme in Section 2 thereof
as:
"(e) Build-lease-and-transfer — A contractual arrangement whereby a
project proponent is authorized to nance and construct an infrastructure or
development facility and upon its completion turns it over to the government
agency or local government unit concerned on a lease arrangement for a xed
period after which ownership of the facility is automatically transferred to the
government agency or local government unit concerned."
Section 5-A of the law, which expressly allows direct negotiation of contracts,
provides:
"Direct Negotiation of Contracts. — Direct negotiation shall be resorted to
when there is only one complying bidder left as defined hereunder.
"(a) If, after advertisement, only one contractor applies for
prequali cation and it meets the prequali cation requirements, after which it is
required to submit a bid proposal which is subsequently found by the
agency/local government unit (LGU) to be complying.
"(b) If, after advertisement, more than one contractor applied for
prequali cation but only one meets the prequali cation requirements, after which
it submits bid/proposal which is found by the agency/local government unit
(LGU) to be complying.
"(c) If, after prequali cation of more than one contractor, only one
submits a bid which is found by the agency/LGU to be complying.
"(d) If, after prequali cation, more than one contractor submit bids but
only one is found by the agency/LGU to be complying. Provided, That, any of the
disquali ed prospective bidder [sic] may appeal the decision of the implementing
agency/LGUs prequali cation bids and awards committee within fteen (15)
working days to the head of the agency, in case of national projects or to the
Department of the Interior and Local Government, in case of local projects from
the date the disquali cation was made known to the disquali ed bidder:
Provided, furthermore, That the implementing agency/LGUs concerned should act
on the appeal within forty-five (45) working days from receipt thereof."
cdrep
Petitioners' claim that the BLT scheme and direct negotiation of contracts are
not contemplated by the BOT Law has now been rendered moot and academic by R.A.
No. 7718. Sec. 3 of this law authorizes all government infrastructure agencies,
government-owned and controlled corporations and local government units to enter
into contract with any duly prequali ed proponent for the nancing, construction,
operation and maintenance of any nancially viable infrastructure or development
facility through a BOT, BT, BLT, BOO (Build-own-and-operate), BTO (Build-transfer-and-
operate), CAO (Contract-add-operate), DOT (Develop-operate-and-transfer), ROT
(Rehabilitate-operate-and-transfer), and ROO (Rehabilitate-own-operate) (R.A. No. 7718,
Sec. 2 [b-j]).
From the law itself, once an applicant has prequali ed, it can enter into any of the
schemes in Section 2 thereof, including a BLT arrangement, enumerated and de ned
therein (Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide nancial
incentives and "a climate of minimum government regulations and procedures and
speci c government undertakings in support of the private sector" (Sec. 1). A curative
statute makes valid that which before enactment of the statute was invalid. Thus,
whatever doubts and alleged procedural lapses private respondent and DOTC may have
engendered and committed in entering into the questioned contracts, these have now
been cured by R.A. No. 7718 (cf. Development Bank of the Philippines v. Court of
Appeals, 96 SCRA 342 [1980]; Santos v. Duata, 14 SCRA 1041 [1965]; Adong v. Cheong
Seng Gee, 43 Phil. 43 [1922]).
4. Lastly, petitioners claim that the agreements are grossly disadvantageous
to the government because the rental rates are excessive and private respondent's
development rights over the 13 stations and the depot will rob DOTC of the best terms
during the most productive years of the project.
It must be noted that as part of the EDSA LRT III project, private respondent has
been granted, for a period of 25 years, exclusive rights over the depot and the air space
above the stations for development into commercial premises for lease, sublease,
transfer, or advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in
consideration of these development rights, private respondent shall pay DOTC in
Philippine currency guaranteed revenues generated therefrom in the amounts set forth
in the Supplemental Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC shall be
unable to collect the guaranteed revenues, DOTC shall be allowed to deduct any
shortfalls from the monthly rent due private respondent for the construction of the
EDSA LRT III. (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles,
interests and income over all contracts on the commercial spaces shall revert to DOTC
upon expiration of the 25-year period (Supplemental Agreement, Sec. 11; Rollo, pp. 91-
92).
The terms of the agreements were arrived at after a painstaking study by DOTC.
The determination by the proper administrative agencies and o cials who have
acquired expertise, specialized skills and knowledge in the performance of their
functions should be accorded respect, absent any showing of grave abuse of discretion
(Felipe Ysmael, Jr. & Co. v Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of
Medical Education v. Alfonso, 176 SCRA 304 [1989]).
Government o cials are presumed to perform their functions with regularity and
strong evidence is necessary to rebut this presumption. Petitioners have not presented
evidence on the reasonable rentals to be paid by the parties to each other. The matter
of valuation is an esoteric eld which is better left to the experts and which this Court is
not eager to undertake.
That the grantee of a government contract will profit therefrom and to that extent
the government is deprived of the pro ts if it engages in the business itself, is not
worthy of being raised as an issue. In all cases where a party enters into a contract with
the government, he does so, not out of charity and not to lose money, but to gain
pecuniarily. cdrep
5. De nitely, the agreements in question have been entered into by DOTC in

the exercise of its governmental function. DOTC is the primary policy, planning,
programming, regulating and administrative entity of the Executive branch of
government in the promotion, development and regulation of dependable and
coordinated networks of transportation and communications systems as well as in the
fast, safe, e cient and reliable postal, transportation and communications services
(Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department,
DOTC in particular, that has the power, authority and technical expertise to determine
whether or not a speci c transportation or communications project is necessary, viable
and bene cial to the people. The discretion to award a contract is vested in the
government agencies entrusted with that function (Bureau Veritas v. O ce of the
President, 205 SCRA 705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
Bellosillo and Kapunan, JJ., concur.
Narvasa, C.J., Bidin, Melo, Puno, Vitug, and Francisco, JJ., join Justice Mendoza's
concurring opinion.
Feliciano and Davide, Jr., JJ., see dissenting opinion.
Padilla and Regalado, JJ., concur in the result.
Romero, J., is on leave.
Mendoza, J., see concurring opinion.
Separate Opinions
DAVIDE, JR., J., dissenting :
After wading through the record of the vicissitudes of the challenged contract
and evaluating the issues raised and the arguments adduced by the parties, I nd
myself unable to join the majority in the well-written ponencia of Mr. Justice Camilo P.
Quiason. cdll
I most respectfully submit that the challenged contract is void for at least two
reasons: (a) it is an ultra-vires act of the Department of Transportation and
Communications (DOTC) since under R.A. 6957 the DOTC has no authority to enter into
a Build-Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo that it has,
the contract was entered into without complying with the mandatory requirement of
public bidding.
I
Respondents admit that the assailed contract was entered into under R.A. 6957.
This law, ttingly entitled "An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes,"
recognizes only two (2) kinds of contractual arrangements between the private sector
and government infrastructure agencies: (a) the Build-Operate-and-Transfer (BOT)
scheme and (b) the Build-and-Transfer (BT) scheme. This conclusion nds support in
Section 2 thereof which de nes only the BOT and BT schemes, in Section 3 which
explicitly provides for said schemes thus:
SEC. 3. Private Initiative in Infrastructure. — All government
infrastructure agencies, including government-owned and controlled corporations
and local government units, are hereby authorized to enter into contract with any
duly prequali ed private contractor for the nancing, construction, operation and
maintenance of any nancially viable infrastructure facilities through the build-
operate-and-transfer or build-and-transfer scheme, subject to the terms and
conditions hereinafter set forth. (Italics supplied).
and in Section 5 which requires public bidding of projects under both schemes.
All prior acts and negotiations leading to the perfection of the challenged
contract were clearly intended and pursued for such schemes.
A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law,
and none of the aforesaid prior acts and negotiations were designed for such
unauthorized scheme. Hence, the DOTC is without any power or authority to enter into
the BLT contract in question.
The majority opinion maintains, however, that since "[t]here is no mention in the
BOT Law and that the BOT and the BT schemes bar any other arrangement for the
payment by the government of the project cost," then "[t]he law must not be read in
such a way as to rule out or unduly restrict any variation within the context of the two
schemes." This interpretation would be correct if the law itself provides room for
exibility. We nd no such provision in R.A. No. 6957. If it intended to include a BLT
scheme, then it should have so stated, for contracts of lease are not unknown in our
jurisdiction, and Congress has enacted several laws relating to leases. That the BLT
scheme was never intended as a permissible variation "within the context" of the BOT
and BT schemes is conclusively established by the passage of R.A. No. 7718 which
amends:
a) Section 2 by adding to the original BOT and BT schemes the
following schemes:
(1) Build-own-and operate (BOO)
(2) Build-lease-and transfer (BLT)

(3) Build-transfer-and-operate (BTO)
(4) Contract-add-and-operate (CAO)

(5) Develop-operate-and-transfer (DOT)
(6) Rehabilitate-operate-and-transfer (ROT)
(7) Rehabilitate-own-and-operate (ROO)

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase
"through the build-operate-and-transfer or build-and-transfer scheme".
LLphil
II
Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:
SEC. 5. Public Bidding of Projects. — Upon approval of the projects
mentioned in Section 4 of this Act, the concerned head of the infrastructure
agency or local government unit shall forthwith cause to be published, once every
week for three (3) consecutive weeks, in at least two (2) newspapers of general
circulation and in at least one (1) local newspaper which is circulated in the
region, province, city or municipality in which the project is to be constructed a
notice inviting all duly prequali ed infrastructure contractors to participate in the
public bidding for the projects so approved. In the case of a build-operate-and-
transfer arrangement, the contract shall be awarded to the lowest complying
bidder based on the present value of its proposed tolls, fees, rentals, and charges
over a xed term for the facility to be constructed, operated, and maintained
according to the prescribed minimum design and performance standards, plans,
and speci cations. For this purpose, the winning contractor shall be
automatically granted by the infrastructure agency or local government unit the
franchise to operate and maintain the facility, including the collection of tolls,
fees, rentals, and charges in accordance with Section 6 hereof.
In the case of a build-and-transfer arrangement, the contract shall be
awarded to the lowest complying bidder based on the present value of its
proposed, schedule of amortization payments for the facility to be constructed
according to the prescribed minimum design and performance standards, plans
and specifications: Provided, however, That a Filipino constructor who submits an
equally advantageous bid shall be given preference.
A copy of each build-operate-and-transfer or build-and-transfer contract
shall forthwith be submitted to Congress for its information.
The requirement of public bidding is not an idle ceremony. It has been aptly said
that in our jurisdiction "public bidding is the policy and medium adhered to in
Government procurement and construction contracts under existing laws and
regulations. It is the accepted method for arriving at a fair and reasonable price and
ensures that overpricing, favoritism and other anomalous practices are eliminated or
minimized. And any Government contract entered into without the required bidding is
null and void and cannot adversely affect the rights of third parties." (Bartolome C.
Fernandez, Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW
25 [rev. ed. 1991], citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).
The O ce of the President, through then Executive Secretary Franklin Drilon
correctly disapproved the contract because no public bidding in strict compliance with
Section 5 of R.A. No. 6957 was conducted. Secretary Drilon further bluntly stated that
the provision of the Implementing Rules of said law authorizing negotiated contracts
was of doubtful legality. Indeed, it is null and void because the law itself does not
recognize or allow negotiated contracts.
However, the majority opinion posits the view that since only private respondent
EDSA LRT was prequali ed, then a public bidding would be "an absurd and pointless
exercise." I submit that the mandatory requirement of public bidding cannot be legally
dispensed with simply because only one was quali ed to bid during the prequali cation
proceedings. Section 5 mandates that the BOT or BT contract should be awarded "to
the lowest complying bidder," which logically means that there must at least be two (2)
bidders. If this minimum requirement is not met, then the proposed bidding should be
deferred and a new prequali cation proceeding be scheduled. Even those who were
earlier disquali ed may by then have quali ed because they may have, in the meantime,
exerted efforts to meet all the qualifications.
This view of the majority would open the oodgates to the rigging of
prequali cation proceedings or to unholy conspiracies among prospective bidders,
which would even include dishonest government o cials. They could just agree, for a
certain consideration, that only one of them would qualify in order that the latter would
automatically corner the contract and obtain the award.
That Section 5 admits of no exception and that no bidding could be validly had
with only one bidder is likewise conclusively shown by the amendments introduced by
R.A. No. 7718. Per Section 7 thereof, a new section denominated as Section 5-A was
introduced in R.A. No. 6957 to allow direct negotiation of contracts. This new section
reads:
SEC. 5-A. Direct Negotiation of Contracts. — Direct negotiation shall be
resorted to when there is only one complying bidder left as defined hereunder. LLpr
(a) If, after advertisement, only one contractor applies for

prequali cation requirements, after which it is required to submit a bid/proposal
which is subsequently found by the agency/local government unit (LGU) to be
complying.
(b) If, after advertisement, more than one contractor applied for
prequali cation but only one meets the prequali cation requirements, after which
it submits bid/proposal which is found by the agency/local government unit
(LGU) to be complying.
(c) If, after prequali cation of more than one contractor, only one
submits a bid which is found by the agency/LGU to be complying.
(d) If, after prequali cation, more than one contractor submit bids but
only one is found by the agency/LGU to be complying: Provided, That, any of the
disquali ed prospective bidder may appeal the decision of the implementing
agency/LGUs prequali cation bids and awards committee within fteen (15)
working days to the head of the agency, in case of national projects or to the
Department of the Interior and Local Government, in case of local projects from
the date the disquali cation was made known to the disquali ed bidder:
Provided, furthermore, That the implementing agency/LGUs concerned should act
on the appeal within forty-five (45) working days from receipt thereof.
Can this amendment be given retroactive effect to the challenged contract so

that it may now be considered a permissible negotiated contract? I submit that it
cannot be R.A. No. 7718 does not provide that it should be given retroactive effect to
pre-existing contracts. Section 18 thereof says that it "shall take effect fifteen (15) days
after its publication in at least two (2) newspapers of general circulation." If it were the
intention of Congress to give said act retroactive effect then it would have so expressly
provided. Article 4 of the Civil Code provides that "[l]aws shall have no retroactive
effect, unless the contrary is provided."
The presumption is that all laws operate prospectively, unless the contrary
clearly appears or is clearly, plainly, and unequivocally expressed or necessarily implied.
In every case of doubt, the doubt will be resolved against the retroactive application of
laws. (Ruben E. Agpalo, STATUTORY CONSTRUCTION 225 [2D. ed, 1990]). As to
amendatory acts, or acts which change an existing statute, Sutherland states:
In accordance with the rule applicable to original acts, it is presumed that
provisions added by the amendment that affecting substantive rights will not be
construed to apply to transactions and events completed prior to its enactment
unless the legislature has expressed its intent to that effect or such intent is
clearly implied by the language of the amendment or by the circumstances
surrounding its enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES
AND STATUTORY CONSTRUCTION 434-436 [1943 ed.])
I vote then to grant the instant petition and to declare void the challenged
contract and its supplement. cdrep
FELICIANO, J ., dissenting :
After considerable study and effort, and with much reluctance, I nd I must
dissent in the instant case. I agree with many of the things set out in the majority
opinion written by my distinguished brother in the Court Quiason, J. At the end of the
day, however, I find myself unable to join in the result reached by the majority.
I join in the dissenting opinion written by Mr. Justice Davide, Jr. which is
appropriately drawn on fairly narrow grounds. At the same time, I wish to address
brie y one of the points made by Mr. Justice Quiason in the majority opinion in his
effort to meet the difficulties posed by Davide, Jr., J.
I refer to the invocation of the provisions of Presidential Decree No. 1594 dated
11 June 1978 entitled: "Prescribing Policies, Guidelines, Rules and Regulations for
Government Infrastructure Contracts." More speci cally, the majority opinion invokes
paragraph 1 of Section 4 of this Decree which reads as follows:
"Sec. 4. Bidding. — Construction projects shall generally be undertaken
by contract after competitive public bidding. Projects may be undertaken by
administration or force account or by negotiated contract only in exceptional
cases where time is of the essence, or where there is lack of quali ed bidders or
contractors, or where there is a conclusive evidence that greater economy and
e ciency would be achieved through this arrangement, and in accordance with
provisions of laws and acts on the matter, subject to the approval of the Ministry
of Public Works, Transportation and Communications, the Minister of Public
Highways, or the Minister of Energy, as the case may be, if the project cost is less
than P1 Million, and of the President of the Philippines, upon the recommendation
of the Minister, if the project cost is P1 Million or more.
xxx xxx xxx
I understand the unspoken theory in the majority opinion to be that above Section
4 and presumably the rest of Presidential Decree No. 1594 continue to exist and to run
parallel to the provisions of Republic Act No. 6957, whether in its original form or as
amended by Republic Act No. 7718.
A principal di culty with this approach is that Presidential Decree No. 1594
purports to apply to all "government contracts for infrastructure and other construction
projects." But Republic Act No. 6957 as amended by Republic Act No. 7718, relates
only to "infrastructure projects" which are nanced, constructed, operated and
maintained "by the private sector" "through the build/operate-and-transfer or build-and-
transfer scheme" under Republic Act No. 6597 and under a series of other comparable
schemes under Republic Act No. 7718. In other words, Republic Act No. 6957 and
Republic Act No. 7718 must be held, in my view, to be special statutes applicable to a
more limited eld of "infrastructure projects" than the wide-ranging scope of
application of the general statute, i.e., Presidential Decree No. 1594. Thus, the high
relevance of the point made by Mr. Justice Davide that Republic Act No. 6957 in
speci c connection with BOT- and BLT-type of contracts imposed an unqualified
requirement of public bidding set out in Section 5 thereof. prLL
It should also be pointed out that under Presidential Decree No. 1594, projects
may be undertaken "by administration or force account or by negotiated contract only"
(1) "in exceptional cases where time is of the essence"; or
(2) "where there is lack of bidders or contractors"; or
(3) "where there is a conclusive evidence that greater economy and
e ciency would be achieved through these arrangements, and in
accordance with provision[s] of laws and acts on the matter."
It must, upon the one hand, be noted that the special law Republic Act No. 6957 made
absolutely no mention of negotiated contracts being permitted to displace the
requirement of public bidding. Upon the other hand, Section 5-a, inserted in Republic
Act No. 6957 by the amending statute Republic Act No. 7718, does not purport to
authorize direct negotiation of contracts except in four (4) situations where there is a
lack of pre-quali ed contractors or complying bidders. Thus, even under the amended
special statute, entering into contracts by negotiation is not permissible in the other
two (2) categories of cases referred to in Section 4 of Presidential Decree No. 1594,
i.e., "in exceptional cases where time is of the essence" and "when there is conclusive
evidence that greater economy and e ciency would be achieved through these
arrangements, etc."
The result I reach is that insofar as BOT, etc.-types of contracts are concerned,
the applicable public bidding requirement is that set out in Republic Act No. 6957 and,
with respect to such type of contracts opened for pre-quali cation and bidding after
the date of effectivity of Republic Act No. 7718, the provisions of Republic Act No.
7718. The assailed contract was entered into before Republic Act No. 7718 was
enacted.
The di culties of applying the provisions of Presidential Decree No. 1594 to the
Edsa LRT-type of contracts are aggravated when one considers the detailed
"Implementing Rules and Regulations as amended April 1988" issued under that
Presidential Decree. 1 For instance:
"IB [2.5.2] 2.4.2 By Negotiated Contract
xxx xxx xxx'
a. In times of emergencies arising from natural calamities where

immediate action is necessary to prevent imminent loss of life
and/or property.
b. Failure to award the contract after competitive public bidding for

valid cause or causes [such as where the prices obtained through
public bidding are all above the AAE and the bidders refuse to
reduce their prices to the AAE].
In these cases, bidding may be undertaken through sealed canvass of at
least three (3) quali ed contractors. Authority to negotiate contracts for projects
under these exceptional cases shall be subject to prior approval by heads of
agencies within their limits of approving authority.
c. Where the subject project is adjacent or contiguous to an on-going
project and it could be economically prosecuted by the same
contractor provided that he has no negative slippage and has
demonstrated a satisfactory performance." (Emphasis supplied)
Note that there is no reference at all in these Presidential Decree No. 1594
Implementing Rules and Regulations to absence of pre-quali ed applicants and bidders
as justifying negotiation of contracts as distinguished from requiring public bidding or
a second public bidding. prcd
Note also the following provision of the same Implementing Rules and
Regulations:
"IB 1. Prequalification
The following may become contractors for government projects:
1. Filipino
a. Citizens (single proprietorship)
b. Partnership or corporation duly organized under the laws of
the Philippines, and at least seventy ve percent (75%) of the
capital stock of which belongs to Filipino citizens.
2. Contractors forming themselves into a joint venture, i.e., a group of
two or more contractors that intend to be jointly and severally responsible for a
particular contract, shall for purposes of bidding/tendering comply with LOI 630,
and, aside from being currently and properly accredited by the Philippine
Contractors Accreditation Board, shall comply with the provisions of R.A. 4566,
provided that joint ventures in which Filipino ownership is less than seventy ve
percent (75%) may be prequali ed where the structures to be built require the
application of techniques and/or technologies which are not adequately
possessed by a Filipino entity as defined above.
[The foregoing shall not negate any existing and future commitments with
respect to the bidding and aware of contracts financed partly or wholly with funds
from international lending institutions like the Asian Development Bank and the
World Bank as well as from bilateral and other similar sources.]" (Italics supplied)
The record of this case is entirely silent on the extent of Philippine equity in the Edsa
LRT Corporation; there is no suggestion that this corporation is organized under
Philippine law and is at least seventy-five (75%) percent owned by Philippine citizens.
Public bidding is the normal method by which a government keeps contractors
honest and is able to assure itself that it would be getting the best possible value for its
money in any construction or similar project. It is not for nothing that multilateral
nancial organizations like the World Bank and the Asian Development Bank uniformly
require projects nanced by them to be implemented and carried out by public bidding.
Public bidding is much too important a requirement casually to loosen by a
latitudinarian exercise in statutory construction. LLjur
The instant Petition should be granted and the challenged contract and its
supplement should be nulli ed and set aside. A true public bidding, complete with a
new prequalification proceeding, should be required for the Edsa LRT Project.
MENDOZA, J ., concurring :
I concur in all but Part III of the majority opinion. Because I hold that petitioners
do not have standing to sue, I join to dismiss the petition in this case. I write only to set
forth what I understand the grounds for our decisions on the doctrine of standing are
and, why in accordance with these decisions, petitioners do not have the right to sue,
whether as legislators, taxpayers or citizens. As members of Congress, because they
allege no infringement of prerogatives as legislators. 1 As taxpayers because
petitioners allege neither an unconstitutional exercise of the taxing or spending powers
of Congress (Art. VI, 24-25 and 29) 2 nor an illegal disbursement of public money. 3 As
this Court pointed out in Bugnay Const. and Dev. Corp . v. Laron, 4 a party suing as
taxpayer "must speci cally prove that he has su cient interest in preventing the illegal
expenditure of money raised by taxation and that he will sustain a direct injury as a
result of the enforcement of the questioned statute or contract. It is not su cient that
he has merely a general interest common to all members of the public." In that case, it
was held that a contract, whereby a local government leased property to a private party
with the understanding that the latter would build a market building and at the end of
the lease would transfer the building to the lessor, did not involve a disbursement of
public funds so as to give a taxpayer standing to question the legality of the contract. I
see no substantial difference, as far as the standing of taxpayers to question public
contracts is concerned, between the contract there and the build-lease-transfer (BLT)
contract being questioned by petitioners in this case.
Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in
which citizens were authorized to sue, this Court found standing because it thought the
constitutional claims pressed for decision to be of "transcendental importance," as in
fact it subsequently granted relief to petitioners by invalidating the challenged statutes
or governmental actions. Thus in the Lotto case 6 relied upon by the majority for
upholding petitioners' standing, this Court took into account the "paramount public
interest" involved which "immeasurably affect[ed] the social, economic, and moral well-
being of the people . . . and the counter-productive and retrogressive effects of the
envisioned on-line lottery system." 7 Accordingly, the Court invalidated the contract for
the operation of lottery. cdrep
But in the case at bar, the Court precisely nds the opposite by nding
petitioners' substantive contentions to be without merit. To the extent therefore that a
party's standing is affected by a determination of the substantive merit of the case or a
preliminary estimate thereof, petitioners in the case at bar must be held to be without
standing. This is in line with our ruling in Lawyers League for a Better Philippines v.
Aquino 8 and In re Bermudez 9 where we dismissed citizens' actions on the ground that
petitioners had no personality to sue and their petitions did not state a cause of action.
The holding that petitioners did not have standing followed from the nding that they
did not have a cause of action.
In order that citizens' actions may be allowed a party must show that he
personally has suffered some actual or threatened injury as a result of the allegedly
illegal conduct of the government; the injury is fairly traceable to the challenged action;
and the injury is likely to be redressed by a favorable action. 1 0 As the U.S. Supreme
Court has held:
Typically, . . . the standing inquiry requires careful judicial examination of a
complaint's allegation to ascertain whether the particular plaintiff is entitled to an
adjudication of the particular claims asserted. Is the injury too abstract, or
otherwise not appropriate, to be considered judicially cognizable? Is the line of
causation between the illegal conduct and injury too attenuated? Is the prospect
of obtaining relief from the injury as a result of a favorable ruling too speculative?
These questions and any others relevant to the standing inquiry must be
answered by reference to the Art III notion that federal courts may exercise power
only "in the last resort, and as a necessity," Chicago & Grand Trunk R. Co. v.
Wellman, 143 US 339, 345, 36 L Ed 176, 12 S Ct 400 (1892), and only when
adjudication is "consistent with a system of separated powers and the [dispute is
one] traditionally thought to be capable of resolution through the judicial process,"
Flast v. Cohen, 392 US 83, 97, 20 L. Ed 2d, 88 S Ct 1942 (1968). See Valley Forge,
454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752. 11
Today's holding that a citizen, qua citizen, has standing to question a government
contract unduly expands the scope of public actions and sweeps away the case and
controversy requirement so carefully embodied in Art. VIII, Sec. 5 in de ning the
jurisdiction of this Court. The result is to convert the Court into an o ce of
Ombudsman for the ventilation of generalized grievances. Consistent with the view that
this case has no merit I submit with respect that petitioners, as representatives of the
public interest, have no standing. prLL
Footnotes
FELICIANO, J., dissenting:
1. Text in 84 Official Gazette, No. 23, pp. 33-37, et seq. (6 June 1988).
MENDOZA, J., concurring:

1. Philconsa v. Enriquez, 235 SCRA 508 (1994); Gonzales v. Macaraig, 191 SCRA 452
(1990); Tolentino v. Comelec, 41 SCRA 702 (1971).
2. Flast v. Cohen, 392 U.S. 83, 20 L. Ed. 2d 947 (1968), cited in Igot v. Comelec, 95 SCRA
392 (1980).
3. Pascual v. Secretary of Public Works, 110 Phil. 331 (1960); Sanidad v. Comelec, 73 SCRA
333 (1976).
4. 176 SCRA 240, 251-2 (1989).

5. Emergency Powers Cases [Araneta v. Dinglasan], 84 Phil. 368 (1949), Iloilo Palay and
Corn Planters Ass'n. v. Feliciano, 121 Phil. 358 (1965); Philconsa v. Gimenez, 122 Phil.
894 (1965); CLU v. Executive Secretary , 194 SCRA 317 (1991)
6. Kilosbayan, Inc. v. Guingona, 232 SCRA 110 (1994).
7. Id. at 139.
8. G.R. Nos. 73748, 73972, and 73990, May 22, 1986. (Questioning the legitimacy of the
Provisional Government of President Aquino).
9. 145 SCRA 160 (1986). (Questioning whether President Aquino and Vice President Laurel
were the "President and Vice-President elected in the February 7, 1986 election" within
the meaning of Art. XVIII, 5 of the Constitution).
10. Valley Forge College v. Americans United, 454 U.S. 464, 70 L. Ed. 2d 700 (1982);
Bugnay Const. and Dev. Corp. v. Laron, supra, note 4.
11. Allen v. Wright, 468 U.S. 737, 752, 82 l. ed. 2d 556, 170 (1984).
FIRST DIVISION
[G.R. No. 19857. March 2, 1923.]
THE ILOILO ICE AND COLD STORAGE COMPANY , petitioner, vs .

PUBLIC UTILITY BOARD , respondent.
John Bordman for petitioner.

Attorney-General Villa-Real for respondent.
SYLLABUS
1. PUBLIC UTILITIES; ACT No. 2694, SECTION 9, construed; "PUBLIC USE,"

THE ILOILO ICE AND COLD STORAGE COMPANY, WHETHER A PUBLIC UTILITY. — The
term "public UTILITY," in this jurisdiction, includes every individual, copartnership,
association, corporation, or joint stock company that now or hereafter may own,
operate, manage, or control, within the plant, or equipment, for public use.
2. ID.; ID.; ID.; ID. — The criterion by which to judge of the character of the use
is whether the public may enjoy it by right or only by permission.
3. ID.; ID.; ID.; ID. — The essential feature of a public use is that it is not
confined to privileged individuals, but is open to the indefinite public.
4. ID.; ID.; ID.; ID. — The use is public if all persons have the right to the use
under the same circumstances.
5. ID.; ID.; ID.; ID. — If an individual, copartnership, association, corporation, or
joint stock company dies, in truth, sell ice to all persons seeking its services, it is a
public utility, But if, on the other hand, the individual, copartnership, association,
corporation, or joint stock company was organized solely for was devoted by its
owners to public use, it could not be held to be a public utility without violating the due
process of law clause of the Constitution.
6. ID.; ID.; ID.; ID. — Held: That upon the facts shown in the record, the Iloilo
Ice and Cold Storage Company is not a public utility within the meaning of the law.
7. ID.; ID.; ID.; ID. — Sympathetic consideration should always be given by the
court to the facts laid before the Public Utility Commissioner and the Public Utility
Board, with reference to the law under which the Commissioner and the Board are
acting.
DECISION
MALCOLM , J : p
This action in certiorari is for the purpose of reviewing a decision of the Public
Utility Commissioner, a rmed by the Public Utility Board, holding that the petitioner,
the Iloilo Ice and Cold Storage Company, is a public utility and, such as, subject to the
control and jurisdiction of the Public Utility Commissioner.
The case can be best understood by a consideration of its various phases, under
the following topics: Statement of the issue, statement of the case, statement of the
facts, statement of the law, statement of the authorities, statement of the petitioner's
case, and of the government's case and judgment.
STATEMENT OF THE ISSUE
The issue is whether the Iloilo Ice and Cold Storage Company is a public utility, as
that term is defined by section 9 of Act No. 2694.
STATEMENT OF THE CASE
Francisco Villanueva, jr., secretary of the Public Utility Commission, investigated
the operation of ice plants in Iloilo early in November, 1921. He reported to the Public
Utility Commissioner that the Iloilo Ice and Cold Storage Company should be
considered a public utility, and that, accordingly, the proper order should issue.
Agreeable to the recommendation of Secretary Villanueva, the Public Utility
Commissioner promulgated an order on December 19, 1921, reciting the facts above
mentioned, and directing the Iloilo Ice and cold Storage Company to show cause why it
should not be considered a public utility and as such required to comply with each and
every duty of public utilities provided in Act No. 2307, as amended by Act No. 2694. To
this order, John Bordman, treasurer of the Iloilo Ice and Cold Storage Company,
interposed a special answer, in which it was alleged that the company is, and always
has been, operated as a private enterprise.
Hearing was then had, at which the testimonies of Francisco Villanueva, jr., and of
John Bordman were received. Various exhibits were presented and received in
evidence. Mr. Bordman, as the managing director and treasurer of the company. later
submitted an affidavit.
The Public Utility Commissioner rendered a decision, holding in effect that the
Iloilo Ice and Cold Storage Company was a public utility, and that, accordingly, it should
le in the o ce of the Public Utility Commissioner, a statement of its charges for ice.
This decision was a rmed on appeal to the Public Utility Board. From this last
decision, petitioner has come before this court, asking that the proceedings below be
reviewed, and the decisions set aside.
STATEMENT OF THE FACTS
The petitioner, the Iloilo Ice and Cold Storage Company, Islands in 1908, with a
capital stock of P60,000. Continuously since that date, the company has maintained
and operated a plant for the manufacture and sale of ice in the City of Iloilo. It also does
business to a certain extent in the Provinces of Negros, Capiz, and Antique, and with
boats which stop at the port of Iloilo. At the time its operating in Iloilo. Subsequently,
however, the other plants ceased to operate, so that the petitioner now has no
competitor in the field.
The normal production of ice of the Iloilo Ice and Cold Storage Company is about
3 tons per day. In the month of January, 1922, a total of 83,837 kilos, of ice were sold,
of which 56,400 kilos were on written contracts in the City of Iloilo and adjoining
territory, 14,214 kilos, also on written contract, to steamers calling at the port of Iloilo,
and 13,233 kilos on verbal contracts. Although new machinery has been installed in the
plant, this was merely for replacement purposes, and did not add to its capacity, The
demand for ice has usually been much more than the plant could produce and no effort
has been made to provide sufficient ice to supply all who might apply.
Since 1908, the business of the Iloilo Ice and Cold Storage Company, according
to its managing director and treasurer, has been carried or with selected customers
only. Preference, however, is always given to hospitals, the requests of practicing
physicians, and the needs of sick persons. The larger part of the company's business is
perfected by written contracts signed by the parties served, which, in the present form,
includes an agreement that no right to future service is involved.
The coupon books of the company contain on the outside the Following:
"This agreement witnesseth, that The Iloilo Ice and Cold Storage Co. will
furnish the undersigned with ice as indicated herein at the rate of one coupon per
day. These coupons are not transferable. It is further agreed future except by
special agreement.
"Iloilo,______________, 192 _____
(Signed) ______________________
"No. ______"
Cash sales of ice are accomplished on forms reading: "In receiving the ice
represented by this ticket I hereby agree that the Iloilo & Cold Storage Co. is not bound
in future to extend to me further service." A notice posted in the Iloilo store reads: "No
ice is sold to the public by this plant. Purchases can only be made by private contracts."
In August, 1918, all storage facilities were abolished, and resumed in 1920 only with
contracts, a copy of the form at present in use waiting any right to continued service.
On only one point of fact is there any divergence, and this is relatively
unimportant. Secretary Villanueva reported, and the Public Utility Commissioner found,
that the Iloilo Ice and Cold Storage Company sold ice to the public, and advertised its
sale through the papers; while managing director Bordman claims that only once have
the instructions of the board of directors prohibiting public advertising been violated.
STATEMENT OF THE LAW
The original public utility law, Act No. 2307, in its section 14, in speaking of the
jurisdiction of the Board of Public Utility Commissioners, and in de ning the term
"public utility," failed to include ice, refrigeration, and cold storage plants. This
de ciency was, however, remedied by Act No. 2694, enacted in 1917, which amended
section 14 of Act No. 2307, to read as follows:
". . . The term 'public utility' is hereby de ned to include every individual,
copartnership, association, corporation or joint stock company, whether domestic
or foreign, their lessees, trustees or receivers appointed by any court whatsoever,
or any municipality, province or other department of the Government of the
Philippine Islands, that now or hereafter may own, operate, manage or controls
within the Philippine Islands any common carrier, railroad, street railway, traction
railway, steamboat or steamship line, small water craft, such as bancas, virais,
lorchas, and others, engaged in the transportation of passengers and cargo, line
of freight and passenger automobiles, shipyard, marine railway, marine repair
shop, ferry, freight or any other car service, public warehouse, public wharf or dock
not under the jurisdiction of the Insular Collector of Customs, ice, refrigeration,
cold storage, canal, irrigation, express, pipe line, gas, electric light, heat, power,
water, oil, sewer, telephone, wire or wireless telegraph system, plant or equipment,
for public use: Provided, That the Commission or Commissioner shall have no
jurisdiction over ice plants, cold storage plants, or any other kind of public utilities
operated by the Federal Government exclusively for its own and not for public
use." . . .
It will thus be noted that the term "public utility," in this jurisdiction, corporation,
or joint stock company that now or hereafter may own, operate, manage, or control,
within the Philippine Islands, any ice, refrigeration, cold storage system, plant, or
equipment, for public use . Particular attention is invited to the last phrase, "for public
use."
STATEMENT OF THE AUTHORITIES
The authorities are abundant, although some of them are not overly instructive.
Selection is made of the pertinent decisions coming from our own Supreme Court, the
Supreme Court of the United States, and the Supreme Court of California.
In the case of United States vs. Tan Piaco ([1920], 40 Phil., 853), the facts were
that the trucks of the defendant furnished service under special agreements to carry
particular persons and property. Following the case of Terminal Taxicab Co. vs. Kutz
([1916], 241 U.S., 252), it was held that since the defendant did not hold himself out to
carry all passengers and freight for all persons who might offer, he was not a public
utility and, therefore, was not criminally liable for his failure to obtain a license from the
Public Utility Commissioner. It was said:
"Under the provisions of said section, two things are necessary: (a) The
individual, copartnership, etc., etc., must be a public utility; and (b) the business in
which such individual, copartnership, etc., etc., is engaged must be for public use.
So long as the individual or copartnership, etc., etc., is engaged in a purely private
enterprise, without attempting to render service to all who may apply, he can in no
sense be considered a public utility, for public use.
" 'Public use' means the same as 'use by the public.' The essential feature
of the public use is that it is not con ned to privileged individuals, but is open to
the inde nite public. It is this inde nite or unrestricted quality that gives it its
public character. In determining whether a use is public, we must look not only to
the character of the business to be done, but also to the proposed mode of doing
it. If the use is merely optional with the owners, or the public bene t is merely
incidental, it is not a public use, authorizing the exercise of the jurisdiction of the
public utility commission. There must be, in general, a right which the law
compels the owner to give to the general public. It is not enough that the general
prosperity of the public is promoted. Public use is not synonymous with public
interest. the true criterion by which to judge of the character of the use is whether
the public may enjoy it by right or only by right or only by permission."
In the decision of the Supreme Court of the United States in Terminal Taxicab vs.
Kutz, supra, it was held: "A taxicab company is a common carrier within the meaning of
the Act of March 4, 1913 (37 Stat. at L., 938, chap. 150), sec. 8, and hence subject to
the jurisdiction of the Public Utilities Commission of the District of Columbia as a
'public utility' in respect of its exercise of its exclusive right under lease from the
Washington Terminal Company, the owner of the Washington Union Railway Station, to
solicit livery and taxicab business from persons passing to or from trains, and of its
business which consists in furnishing automobiles from its central garage on individual
orders, generally by telephone, cannot be regarded as a public utility, and the rates
charged for such service are therefore not open to inquiry by the Commission." Mr.
Justice Holmes, delivering the opinion of the court, in part said:
"The rest of the plaintiff's business, amounting to four tenths, consists
mainly in furnishing automobiles from its central garage on orders, generally by
telephone. It asserts the right to refuse the service, and no doubt would do so if
the pay was uncertain, but it advertises extensively solvent customer. Still, the
bargains are individual, and however much they may tend towards uniformity in
price, probably have not quite the mechanical xity of charges that attends the
use of taxicabs from the station and hotels. There is no contract with a third
person to serve the public generally. The question whether, as to this part of its
business, it is an agency for public use within the meaning of the statute, is more
di cult . . . the court is of opinion that this part of the business is not to be
regarded as a public utility. It is true that all business, and, for the matter of that,
every life in all its details, has a public aspect, some bearing upon the welfare of
the community in which it is passed. But, however it may have been in earlier
days as to the common callings, it is assumed in our time that an invitation to the
public to buy does not necessarily entail an obligation to sell. It is assumed that
an ordinary shopkeeper may refuse his wares arbitrarily to a customer whom he
dislikes, and although that consideration is not conclusive (233 U.S., 407), it is
assumed that such a calling is not public as the word is used. In the absence of
clear language to the contrary it would be assumed that an ordinary livery stable
stood on the same footing as a common shop, and there stood on the same
footing as a common shop, and there seems to be no difference between the
plaintiff's service from its garage and that of a livery stable. It follows that the
plaintiff is not bound to give information as to its garages rates."
The Supreme Court of California in the case of Thayer and Thayer vs. California
Development Company ([1912], 164 Cal., 117), announced, among other things, that the
essential feature of a public use is that "it is not con ned to privileged individual, but is
open to the inde nite public. It is this inde niteness or unrestricted quality that gives it
its public character." Continuing, reference was made to the decision of the United
States Supreme Court in Fallbrook Irrigation District vs. Bradley ([1896], 164 U.S., 161),
where the United State Supreme Court considered the question of whether or not the
water belonging to an irrigation district organized under the California statute of 1887,
and acquired for and applied to its authorized used and purpose, was water dedicated
to a public use. Upon this question, the Supreme Court on appeal said:
"The fact that the use of the water is limited to the landowner is not
therefore a fatal objection to this legislation. It is not essential that the entire
community, or even any considerable portion thereof, should directly enjoy or
participate in an improvement in order to constitute a public use. All landowners
in the district have the right to a proportionate share of the water, and no one
landowner is favored above his fellow in his right to the use of the water. It is not
necessary, in order that the use should be public, that every resident in the district
should have the right to the use of the water. The water is not used for general,
domestic, or for drinking purposes, and it is plain from the scheme of the act that
the water is intended for the use of those who will have occasion to use it on their
lands . . . We think it clearly appears that all who by reason of their ownership of
or connection with any portion of the lands would have occasion to use the water,
would in truth have the opportunity to use it upon the same terms as all others
similarly situated, is public because all persons have the rights to use the water
under the same circumstances. This is sufficient."
The latest pronouncement of the United States Supreme Court here available is
found in the case of producers Transportation Company vs. Railroad Commission of
the State of California ([1920], 251 U.S., 228). Mr. Justice Van Devanter, delivering the
opinion of the court, in part said:
"It is, of course, true that if the pipe line was constructed solely to carry oil
for particular producers under strictly private contracts and never was devoted by
its owner to public use, that is, to carrying for the public, the State could not by
mere legislative at or by any regulating order of a commission convert it into a
public utility or make its owner a common carrier; for that would be taking private
property for public use without just compensation, which no State can do
consistently with the due process of law clause of the Fourteenth Amendment . . .
On the other hand, if in the beginning or during its subsequent operation the pipe
line was devoted by its owner to public use, and if the right thus extended to the
public has not been withdrawn, there can be no doubt that the pipe line is a public
utility and its owner a common carrier whose rates and practices are subject to
public regulation. Munn vs. Illinois, supra.
"The state court, upon examining the evidence, concluded that the
company voluntarily had devoted the pipe line to the use of the public in
transporting oil, and it rested this conclusion upon the grounds . . . that, looking
through the maze of contracts, agency agreements and the like, under which the
transportation was effected, subordinating form to substance, and having due
regard to the agency's ready admission of new members and its exclusion of
none, it was apparent that the company did in truth carry oil for all producers
seeking its service, in other words, for the public. (See Pipe Line Cases, 234 U.S.,
548.)"
Lastly, we take note of the case of Allen vs. Railroad Commission of the State of
California ([1918], 179 Cal., 68; 8 A. L. R., 249). It was here held that a water company
does not, by undertaking to furnish a water supply to a municipality which will require
only a small percentage of its product, become a public utility as to the remainder,
which it sells under private contracts. The court observed that its decisions fully
recognize that a private water company may be organized to sell water for purposes of
private gain, and that in so doing, it does not become a public utility. "To hold that
property has been dedicated to a public use," reads the opinion, "is not a trivial thing,
and such dedication is never presumed without evidence of unequivocal intention."
Continuing, the court discusses what is a public utility in the following language:
"What is a public utility, over which the state may exercise its regulatory
control without regard to the private interests which may be affected thereby? In
its broadest sense everything upon which man bestows labor for purposes other
than those for the bene t of his immediate family is impressed with a public use.
No occupation escapes it, no merchant can avoid it, no professional man can
deny it. As an illustrative type one may instance the butcher. He deals with the
public; he invites and is urgent that the public should deal with him. The character
of his business is such that, under the police power of the state, it may well be
subject to regulation, and in many places and instances is so regulated. The
preservation of cleanliness, the inspection of meats to see that they are
wholesome, all such matters are within the due and reasonable regulatory powers
of the state or nation. But these regulatory powers are not called into exercise
because the butcher has devoted his property to public service so as to make it a
public utility. He still has the unquestioned right to x his prices; he still has the
unquestioned right to say that he will or will not contract with any member of the
public. What differentiates all such activities from a true public utility is this, and
this only: That the devotion to public use must be of such character that the
public generally, or that part of it which has been served and which has accepted
the service, has the right to demand that service shall be conducted, so long as it
is continued, with reasonable e ciency under reasonable charges. Public use,
then, means the use by the public and by every individual member of it, as a legal
right."
STATEMENT OF THE PETITIONER'S CASE AND OF THE GOVERNMENT'S CASE
Petitioner contends on the facts, that the evidence shows that the petitioner is
operating a small ice plant in Iloilo; that no attempt has been made to supply the needs
of all who may apply for accommodation or to expand the plant to meet all demands;
that sales have been made to selected customers only, and that the right has been
freely exercised to refuse sales not only to whole districts, but constantly to individuals
as well; that the greater portion of the business is conducted through signed contracts
with selected individuals, and on occasions, when there is a surplus, the same is sold
for cash to selected applicants; that no sales are made except to persons who have
waived all claim of right to similar accommodation in the future; and that no offer,
agreement, or tender of service to the public has ever been made. Petitioner contends,
as to the law, that the decisions heretofore referred to are controlling.
The Government has no quarrel with the petitioner as to the facts. But the
Attorney-General attempts to differentiate the authorities from the instant situation.
The Attorney-General also argues that to sanction special contracts would "open a
means of escape from the application of the law."
The result is, therefore, that we have substantial agreement between the
petitioner and the government as to the issue, as to the facts, as to the law, and as to
the applicable authorities. The question, however, remains as puzzling as before.
Planting ourselves on the authorities, which discuss the subject of public use, the
criterion by which to judge of the character of the use is whether the public may enjoy it
by right or only by permission. (U.S. vs. Tan Piaco, supra.) The essential feature of a
public use is that it is not con ned to privileged individuals, but is open to the inde nite
public. (Thayer and Thayer vs. California Development Company, supra.) The use is
public if all persons have the right to the use under the same circumstances. (Fall brook
Irrigation District vs. Bradley, supra.) If the company did in truth sell ice to all persons
seeking its service, it would be a public utility. But if on the other hand, it was organized
solely for particular persons under strictly private contracts, and never was devoted by
its owners to public use, it could not be held to be a public utility without violating the
due process of law clause of the Constitution. (Producers Transportation Co. vs.
Railroad Commission, supra.) And the apparent and continued purpose of the Iloilo Ice
and Cold Storage Company has been, and is, to remain a private enterprise and to avoid
submitting to the Public Utility law.
The argument for the Government, nevertheless, merits serious consideration.
The attempt of the Public Utility Commissioner to intervene in corporate affairs, to
protect the public, is commendable. Sympathetic thought should always be given to the
facts laid before the Commissioner, with reference to the law under which he is acting.
Aware of the foregoing situation, the members of the Court are of the opinion
that the present case is governed by the authorities mentioned in this decision, which
means, of course, that, upon the facts shown in the record, the Iloilo Ice and Cold
Storage Company is not a public utility within the meaning of the law. Like Mr. Justice
Holmes, in his opinion in Terminal Taxicab Company vs. Kutz, supra, when, in speaking
for himself personally, he admitted that he had not been able to free his mind from
doubt, so has the writer not been able to free his mind from doubt, but is nally led to
accept the authorities as controlling.
JUDGMENT
It is declared that the business of the Iloilo Ice and Cold Storage Company is not
a Public Utility Commissioner, and that, accordingly, the decisions of the Public Utility
Commissioner and of the Public Utility Board must be revoked, without special nding
as to costs. So ordered.
Araullo, C.J., Street, Avanceña, Johns and Romualdez, JJ., concur.
Separate Opinions
OSTRAND , J., concurring :
I concur in the result on the ground that an ice plant is not a public utility by
common law, but is only made so by statute; that in the present case the plant existed
in approximately its present form and as, in a then legal sense, a private enterprise,
before the statute making such plants public utilities was enacted; and that under these
circumstances to deprive the owner of a part of the control over his property amounts
to a taking of property without compensation and without due process of law, and
cannot be regarded as being within the police power of the State.
I nd it di cult to agree to the proposition that an ice plant, the product of which
is not intended primarily for the use of the owners thereof but for general consumption,
is for private use, merely, and not for "public use" within the meaning of Act No. 2307,
the Public Utilities Act. The fact that sales of ice are made under special contracts and
that some individuals have been denied the privilege of purchasing cannot alter the fact
that the plant is designed to supply the trade and to serve the public as far s the
quantity of ice produced permits and the purchasers are acceptable. To hold that a
utility of a public character can escape regulatory control by the simple expedient of
arbitrarily excluding a limited number of persons from the enjoyment of its bene ts and
by posting notices to the effect that it does not deal with the public, will seriously
impair the e cacy of the Public Utilities Act. I think a tendency may be discerned in
later decisions to give the expression "public use" a broader signi cance than that given
it by the earlier authorities.

EN BANC
[G.R. No. L-21804. September 25, 1967.]
TERESA ELECTRIC AND POWER CO., INC. , petitioner, vs. PUBLIC

SERVICE COMMISSION AND FILIPINAS CEMENT CORPORATION ,
respondents.
Lino B. Azicate & Associates for petitioner.

G. A. Borja for respondents.
SYLLABUS
1. PUBLIC SERVICE COMMISSION; ISSUANCE OF CERTIFICATES OF PUBLIC

CONVENIENCE; MUNICIPAL OR LEGISLATIVE FRANCHISE; WHEN NOT A CONDITION
PRECEDENT; CASE AT BAR. — The requirement of a municipal franchise under the
provisions of Act No. 667 was intended to apply exclusively to any person or
corporation who desires a franchise to construct and maintain an electric line or power
plant and line, for business purposes; it should not be made to apply to Filipinas who
applied for a certi cate of public convenience and service to operate and maintain an
electric plant exclusively for its own use in connection with the operation of its cement
factory and for free use of its employees living within the compound of the factory.
2. PUBLIC UTILITIES; PRIMORDIAL CONSIDERATIONS. — While it is true that
operators of public convenience and service deserve protection from unlawful or
unnecessary competition, yet the rule is that nobody has any exclusive right to secure a
franchise or a certi cate of public convenience. Public service and interest are the
primordial considerations taken into account in the granting of franchises and
certificates of public convenience and service.
DECISION
DIZON , J : p
This is a petition to review and set aside the decision of the Public Service
Commission dated March 15, 1963 in Case No. 62-3521 granting to the Filipinas
Cement Corporation — hereinafter referred to as Filipinas — a certi cate of public
convenience and necessity to establish, maintain and operate an electric plant in its
factory site at Teresa, Rizal, for a period of fty years from June 26, 1958. By resolution
of September 11, 1963, We denied petitioner's petition for the issuance of a writ of
preliminary mandatory and prohibitory injunction restraining the Commission from
enforcing its decision during the pendency of the appeal.
The Teresa Electric Light and Power Co., Inc., — hereinafter referred to as
petitioner — is a domestic corporation operating an electric plant in Teresa, Rizal, under
a subsisting certi cate of public convenience and necessity issued on June 2, 1960
(PSC Case No. 129940), while the respondent Filipinas is likewise a domestic
corporation engaged in the manufacture and sale of cement.
On May 24, 1962 Filipinas led an application with the Public Service
Commission for a certi cate of public convenience to install, maintain and operate an
electric plant in sitio Kaysapon of barrio Pamanaan, municipality of Teresa, Rizal, for the
purpose of supplying electric power and light to its cement factory and its employees
living within its compound.
Petitioner led its written opposition alleging: that it is the duly authorized
operator of an electric light, heat and power service in Teresa, Rizal; that Filipinas is not
authorized by its articles of incorporation to operate an electric plant; that the
Municipal Council of Teresa had not authorized it either to operate the proposed
service; that it is willing to supply Filipinas' need for electricity; and that Filipinas'
principal business does not come within the jurisdiction of the respondent
Commission.
Answering the opposition, Filipinas averred that, under paragraph 7 of its articles
of incorporation, it is authorized to operate the proposed electric plant; that there is no
need for securing the approval of the Municipal Council before operating its electric
plant as this is not a necessary requisite for the issuance of a certi cate of public
convenience inasmuch as it already possesses the 3 basic requirements of law, namely:
Filipino citizenship, nancial capacity and the need for the service in the interest and
convenience of the consuming public.
During the hearings before the Commission Filipinas presented its evidence and
petitioner's counsel cross-examined the witnesses. Upon the resumption of the hearing
on December 17, 1962, petitioner's counsel led an urgent motion for the
postponement of the presentation of its evidence that day alleging that he was to
attend a preliminary hearing at Caloocan City. As the date agreed upon by the parties
was se only after the attorneys for the parties had consulted their respective calendar,
the Commission, in open court, denied said motion and considered the application as
submitted for resolution.
Upon consideration of the evidence, oral and documentary, adduced by Filipinas
to the effect that the proposed electric service will be limited to the exclusive needs of
its cement factory and to give light facilities to its employees living in the compound
only, without adversely affecting the interests and services of petitioner; that like the
latter, Filipinas will not generate its own electric current but buy it from the MERALCO;
and that no municipal streets will be traversed by its electric wires and posts except
small portions of private properties, the Commission, pursuant to section 15 of
Commonwealth Act 146, as amended, issued a certificate of public convenience to it on
March 15, 1963, subject to the conditions set forth therein.
Petitioner led a motion to set aside the above decision and re- open the case
but the same was denied en banc on August 12, 1963. Hence the instant petition for
review filed on September 9 of the same year.
Considering the assignment of errors made in petitioner's brief, the following are
the questions to be resolved in this appeal: rstly, whether or not Filipinas should have
secured either a municipal or legislative franchise before it could be entitled to a
certi cate of public convenience and necessity to operate and maintain an electric
plant; secondly, whether under its articles of incorporation Filipinas is authorized to
operate and maintain an electric plant; and lastly, whether Filipinas could be granted a
certi cate of public convenience and necessity to operate and maintain an electric
plant notwithstanding the existence of an electric plant operator in the same
municipality.
In relation to the rst question petitioner contends that under the provisions of
Act No. 667 of the Philippine Commission, a municipal or legislative franchise is a
condition precedent to the granting to Filipinas of a certi cate of public convenience
and necessity to operate and maintain an electric plant.
Section 1 of the act mentioned above requires the ling of a formal application
with the Council of the municipality in which or through which the petitioner desires to
construct or maintain its line, stating, among other things, the rate per month to be
charged for electric light by lamp of speci ed standard candle-power, and by amount
of electricity consumed where a meter is used, and the rate per centum of the gross
receipts which petitioner is willing to pay into the provincial treasury for the franchise.
Paragraphs 2 and 3, section 2 of the same act also provide that not less than one-half
of one per centum of the gross earnings shall be paid into the provincial treasury, and
that the rates to be charged shall always be subject to regulations by act of the
Philippine Commission or the legislative body of the Islands.
The above requirements show that the act was intended to apply exclusively to
any person or corporation who desires a franchise to construct and maintain an electric
line or power plant and line for business purposes, that is, to render service to the
general public at such rate of compensation as may be approved and regulated by the
government. Clearly, therefore, it should not be made to apply to Filipinas who applied
for a certi cate of public convenience and service to operate and maintain an electric
plant exclusively for its own use in connection with the operation of its cement factory
and for the use of its employees living within the compound of the factory — the latter
to receive service free of charge.
It is, consequently, our view that all that Filipinas needs for the purpose above
mentioned is a certi cate of public convenience and necessity such as the one granted
to it by the respondent Public Service Commission.
In relation to the second question, it appears that the Articles of Incorporation of
Filipinas (paragraph 7) provide for authority to secure from any governmental, state,
municipality, or provincial, city or other authority, and to utilize and dispose of in any
lawful manner, rights, powers, and privileges, franchises and concessions — obviously
necessary or at least related to the operation of its cement factory. Moreover, said
Articles of Incorporation also provide that the corporation may generally perform any
and all acts connected with the business of manufacturing portland cement or arising
therefrom or incidental thereto.
It can not be denied that the operation of an electric light, heat and power plant is
necessarily connected with the business of manufacturing cement. If in the modern
world where we live today electricity is virtually a necessity for our daily needs, it is
more so in the case of industries like the manufacture of cement.
Upon the last question, petitioner claims that Filipinas is not entitled to a
certi cate of public convenience to maintain and operate electric service for its cement
plant and its employees because petitioner is operating an electric plant in the same
municipality where Filipinas cement plant is located.
While it is true that operators of public convenience and service deserve some
protection from unnecessary or unlawful competition, yet the rule is that nobody has
any exclusive right to secure a franchise or a certi cate of public convenience. Above
any or all considerations, the grant of franchises and certi cates of public convenience
and service should be guided by public service and interest; the latter are the primordial
considerations to be taken into account.
Moreover, it has been established in this case that petitioner was in no condition
to supply the power needs of Filipinas, because its load capacity was only 200
kilowatts while Filipinas was in need of 6,000 kilowatts power to operate its cement
factory.
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez,
Castro, Angeles and Fernando, JJ., concur.

SPECIAL FIRST DIVISION
[G.R. No. 124293. September 24, 2003.]
JG SUMMIT HOLDINGS, INC. , petitioner, vs . COURT OF APPEALS,

COMMITTEE ON PRIVATIZATION, its Chairman and Members;
ASSET PRIVATIZATION TRUST and PHILYARDS HOLDINGS, INC. ,
respondents.
Romulo Mabanta Buenaventura Sayoc & Delos Angeles for petitioner.

Sycip Salazar Hernandez & Galmailan for PHILYARDS HOLDINGS, Inc.
Raid B. Villanueva and Dinah Bal for Privatization & Management Office.
SYNOPSIS
Petitioner JG Summit Holdings, Inc. (JGSMI) was declared the highest bidder of
the National Government's share in Philippine Shipyard Engineering Corporation
(PHILSECO). The Committee on Privatization (COP) approved the sale subject to the
right of government's business partner Kawasaki Heavy Industries, Ltd. or its assignee,
Philyards Holdings, Inc. (PHI) to top JGSMI's bid by 5% as specified in the bidding rules.
PHI exercised its option to top the highest bid. Petitioner led a petition for mandamus
to the Court of Appeals but was dismissed by the latter on the grounds, among others,
that the right of first refusal and the right to top are prima facie legal and that petitioner,
by participating in the public bidding, with full knowledge of the right to top granted to
KAWASAKI/ Philyards is estopped from questioning the validity of the award given to
Philyards. Thus, petitioner raised the issue to this Court. The Court reversed the
decision of the Court of Appeals. It ruled, among others, that a shipyard like PHILSECO
is a public utility whose capitalization must be sixty percent (60%) Filipino owned.
Consequently, the right to top granted to KAWASAKI under Asset Speci c Bidding
Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in
PHILSECO was illegal — not only because it violates the rules on competitive bidding —
but more so, because it allows foreign corporations to own more than 40% equity in the
shipyard. Hence, in the motions for reconsideration, respondents questioned (a)
whether a shipyard is a public utility; and (2) whether the right to top granted to
KAWASAKI violates the principles of competitive bidding. TAHcCI
In granting the motions, the Court ruled that a shipyard is not a public utility. Its
nature dictates that it serves but a limited clientele whom it may choose to serve at its
discretion. While it offers its facilities to whoever may wish to avail of its services, a
shipyard is not legally obliged to render its services indiscriminately to the public. It has
no legal obligation to render the services sought by each and every client. The fact that
it publicly offers its services does not give the public a legal right to demand that such
services be rendered. Thus, the theory that KAWASAKI can acquire, as a maximum, only
40% of PHILSECO's shares is correct only if a shipyard is a public utility. But then
PHILSECO is not a public utility and no other restriction is present that would limit the
right of KAWASAKI to purchase the Government's share to 40% of Philseco's total
capitalization.
Moreover, the obvious consideration for the exchange of the right of rst refusal
with the right to top is that KAWASAKI can name a nominee, which is a shareholder, to
exercise the right to top. This is a valid contractual stipulation; the right to top is an
assignable right and both parties are aware of the full legal consequences of its
exercise. As aforesaid, all bidders were aware of the existence of the right to top, and
its possible effects on the result of the public bidding was fully disclosed to them. The
petitioner, thus, cannot feign ignorance nor can it be allowed to repudiate its acts and
question the proceedings it had fully adhered to.
SYLLABUS
1. MERCANTILE LAW; CORPORATION LAW; PUBLIC UTILITY; ELUCIDATED. — A

"public utility" is "a business or service engaged in regularly supplying the public with
some commodity or service of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service." To constitute a public utility, the facility
must be necessary for the maintenance of life and occupation of the residents.
However, the fact that a business offers services or goods that promote public good
and serve the interest of the public does not automatically make it a public utility.
Public' use is not synonymous with public interest. As its name indicates, the term
"public utility" implies public use and service to the public. The principal determinative
characteristic of a public utility is that of service to, or readiness to serve, an inde nite
public or portion of the public as such which has a legal right to demand and receive its
services or commodities. Stated otherwise, the owner or person in control of a public
utility must have devoted it to such use that the public generally or that part of the
public which has been served and has accepted the service, has the right to demand
that use or service so long as it is continued, with reasonable e ciency and under
proper charges. Unlike a private enterprise which independently determines whom it
will serve, a "public utility holds out generally and may not refuse legitimate demand for
service."
2. ID.; ID.; ID.; PUBLIC USE; DEFINED. — Thus, in Iloilo Ice and Cold Storage Co. vs.
Public Utility Board, this Court de ned "public use," viz: "Public use" means the same as
"use by the public." The essential feature of the public use is that it is not con ned to
privileged individuals, but is open to the inde nite public. It is this inde nite or
unrestricted quality that gives it its public character. In determining whether a use is
public, we must look not only to the character of the business to be done, but also to
the proposed mode of doing it. If the use is merely optional with the owners, or the
public bene t is merely incidental, it is not a public use, authorizing the exercise of
jurisdiction of the public utility commission. There must be, in general, a right which the
law compels the owner to give to the general public. It is not enough that the general
prosperity of the public is promoted. Public use is not synonymous with public interest.
The true criterion by which to judge the character of the use is whether the public may
enjoy it by right or only by permission.
3. ID.; ID.; SHIPYARD; NOT A PUBLIC UTILITY. — [I]t is crystal clear that a shipyard
cannot be considered a public utility. A "shipyard" is "a place or enclosure where ships
are built or repaired." Its nature dictates that it serves but a limited clientele whom it
may choose to serve at its discretion. While it offers its facilities to whoever may wish
to avail of its services, a shipyard is not legally obliged to render its services
indiscriminately to the public. It has no legal obligation to render the services sought by
each and every client. The fact that it publicly offers its services does not give the
public a legal right to demand that such services be rendered.
4. ID.; ID.; ID.; REGULATION FOR PUBLIC GOOD CANNOT JUSTIFY THE
CLASSIFICATION OF A PURELY PRIVATE ENTERPRISE AS A PUBLIC UTILITY. — There
can be no disagreement that the shipbuilding and ship repair industry is imbued with
public interest as it involves the maintenance of the seaworthiness of vessels
dedicated to the transportation of either persons or goods. Nevertheless, the fact that
a business is affected with public interest does not imply that it is under a duty to serve
the public. While the business may be regulated for public good, the regulation cannot
justify the classi cation of a purely private enterprise as a public utility. The legislature
cannot, by its mere declaration, make something a public utility which is not in fact
such; and a private business operated under private contracts with selected customers
and not devoted to public use cannot, by legislative at or by order of a public service
commission, be declared a public utility, since that would be taking private property for
public use without just compensation, which cannot be done consistently with the due
process clause. It is worthy to note that automobile and aircraft manufacturers, which
are of similar nature to shipyards, are not considered public utilities despite the fact
that their operations greatly impact on land and air transportation. The reason is
simple. Unlike commodities or services traditionally regarded as public utilities such as
electricity, gas, water, transportation, telephone or telegraph service, automobile and
aircraft manufacturing - and for that matter ship building and ship repair- serve the
public only incidentally.
5. ID.; ID.; ID.; CANNOT BE CLASSIFIED AS PUBLIC UTILITY BASED ON A
REPEALED STATUTE. — We rule that the express repeal of Batas Pambansa Blg. 391 by
E.O. No. 226 did not revive Section I of P.D. No. 666. But more importantly, it also put a
period to the existence of Sections 13 (b) and 15 of C.A. No. 146. It bears emphasis
that Sections 13 (b) and 15 of C.A. No. 146, as originally written, owed their continued
existence to Batas Pambansa Big. 391. Had the latter not repealed P.D. No. 666, the
former should have been modi ed accordingly and shipyards effectively removed from
the list of public utilities. Ergo, with the express repeal of Batas Pambansa Blg. 391 by
E.O. No. 226, the revival of Sections 13 (b) and 15 of C.A. No. 146 had no more leg to
stand on. A law that has been expressly repealed ceases to exist and becomes
inoperative from the moment the repealing law becomes effective. Hence, there is
simply no basis in the conclusion that shipyards remain to be a public utility. A repealed
statute cannot be the basis for classifying shipyards as public utilities. In view of the
foregoing, there can be no other conclusion than to hold that a shipyard is not a public
utility. A shipyard has been considered a public utility merely by legislative declaration.
Absent this declaration, there is no more reason why it should continuously be regarded
as such. The fact that the legislature did not clearly and unambiguously express its
intention to include shipyards in the list of public utilities indicates that that it did not
intend to do so. Thus, a shipyard reverts back to its status as nonpublic utility prior to
the enactment of the Public Service Law.
6. ID.; ID.; ID.; PART OF THE MANUFACTURING SECTOR — This interpretation is in
accord with the uniform interpretation placed upon it by the Board of Investments
(BOI), which was entrusted by the legislature with the preparation of annual Investment
Priorities Plan (IPPs). The BOI has consistently classi ed shipyards as part of the
manufacturing sector and not of the public utilities sector. The enactment of Batas
Pambansa Blg. 391 did not alter the treatment of the BOl on shipyards. It has been, as
at present, classified as part of the manufacturing and not of the public utilities sector.
7. ID.; ID.; ID.; ITS OPERATION DOES NOT NEED A FRANCHISE. — Furthermore, of
the 441 Ship Building and Ship Repair (SBSR) entities registered with the MARINA, none
appears to have an existing franchise. If we continue to hold that a shipyard is a public
utility, it is a necessary consequence that all these entities should have obtained a
franchise as was the rule prior to the enactment of P.D. No. 666. But MARINA remains
without authority, pursuant to P.D. No. 474 to issue franchises for the operation of
shipyards. Surely, the legislature did not intend to create a vacuum by continuously
treating a shipyard as a public utility without giving MARINA the power to issue a
Certi cate of Public Convenience (CPC) or a Certi cate of Public Convenience and
Necessity (CPCN) as required by Section 15 of C.A. No. 146.
8. CIVIL LAW; PARTNERSHIP; 60%-40% PROPORTION DOES NOT BIND THE
PARTIES TO MAINTAIN THE SHARING SCHEME ALL THROUGHOUT THE EXISTENCE
THEREOF; CASE AT BAR. — Under Section 1.3, the parties agreed to the amount of
P330 million as the total capitalization of their joint venture. There was no mention of
the amount of their initial subscription. What is clear is that they are to infuse the
needed capital from time to time until the total subscribed and paid-up capital reaches
P312 million. The phrase "maintaining a proportion of 60%-40%" refers to their
respective share of the burden each time the Board of Directors decides to increase the
subscription to reach the target paid-up capital of P312 million. It does not bind the
parties to maintain the sharing scheme all throughout the existence of their partnership.
9. ID.; ID.; RIGHT OF FIRST REFUSAL; BASED ON DELECTUS PERSONAE; CASE AT
BAR. — The parties likewise agreed to arm themselves with protective mechanisms to
preserve their respective interests in the partnership in the event that (a) one party
decides to sell its shares to third parties; and (b) new Philseco shares are issued. Anent
the first situation, the nonselling party is given the right of first refusal under Section 1.4
to have a preferential right to buy or to refuse the selling party's shares. The right of
rst refusal is meant to protect the original or remaining joint venturer(s) or
shareholder(s) from the entry of third persons who are not acceptable to it as
coventurer(s) or co-shareholder(s). The joint venture between the Philippine
Government and KAWASAKI is in the nature of a partnership which, unlike an ordinary
corporation, is based on delectus personae. No one can become a member of the
partnership association without the consent of all the other associates. The right of
first refusal thus ensures that the parties are given control over who may become a new
partner in substitution of or in addition to the original partners. Should the selling
partner decide to dispose all its shares, the nonselling partner may acquire all these
shares and terminate the partnership.
10. ID.; ID.; ID.; THE LIMITATION OF 40% AS MAXIMUM SHARE OF FOREIGN
CORPORATION IS CORRECT ONLY IF THE SHIPYARD IS A PUBLIC UTILITY. — No
person or corporation can be compelled to remain or to continue the partnership. Of
course, this presupposes that there are no other restrictions in the maximum allowable
share that the non-selling partner may acquire such as the constitutional restriction on
foreign ownership in public utility. The theory that KAWASAKI can acquire, as a
maximum, only 40% of PHILSECO's shares is correct only if a shipyard is a public utility.
In such instance, the non-selling partner who is an alien can acquire only a maximum of
40% of the total capitalization of a public utility despite the grant of rst refusal. The
partners cannot, by mere agreement, avoid the constitutional proscription. But as afore
discussed, PHILSECO is not a public utility and no other restriction is present that
would limit the right of KAWASAKI to purchase the Government's share to 40% of
Philseco's total capitalization.
11. ID.; ID.; ID.; "UNDER THE SAME TERMS" IN THE JOINT VENTURE
AGREEMENT, CONSTRUED. — [T]hephrase "under the same terms" in Section 1.4
cannot be given an interpretation that would limit the right of KAWASAKI to purchase
PHILSECO shares only to the extent of its original proportionate contribution of 40% to
the total capitalization of the PHILSECO. Taken together with the whole of Section 1.4,
the phrase "under the same terms" means that a partner to the joint venture that
decides to sell its shares to a third party shall make a similar offer to the non-selling
partner. The selling partner cannot make a different or a more onerous offer to the non-
selling partner.
12. ID.; ID.; ID.; DOES NOT DEPRIVE THE OTHER PARTNER THE RIGHT TO SELL
ITS SHARES TO THIRD PERSONS IF, UNDER THE SAME OFFER, IT DOES NOT BUY THE
SHARES. — The exercise of rst refusal presupposes that the non-selling partner is
aware of the terms of the conditions attendant to the sale for it to have a guided
choice. While the right of rst refusal protects the non-selling partner from the entry of
third persons, it cannot also deprive the other partner the right to sell its shares to third
persons if, under the same offer, it does not buy the shares.
13. ID.; ID.; PREEMPTIVE RIGHT; GIVES A PARTNER PREFERENTIAL RIGHT OVER
THE NEWLY ISSUED SHARES ONLY TO THE EXTENT THAT IT RETAINS ITS ORIGINAL
PROPORTIONATE SHARE IN THE JOINT VENTURE. — Apart from the r ight of rst
refusal, the parties also have preemptive rights under Section 1.5 in the unissued
shares of Philseco. Unlike the former, this situation does not contemplate transfer of a
partner's shares to third parties but the issuance of new Philseco shares. The grant of
preemptive rights preserves the proportionate shares of the original partners so as not
to dilute their respective interests with the issuance of the new shares. Unlike the right
of rst refusal, a preemptive right gives a partner a preferential right over the newly
issued shares only to the extent that it retains its original proportionate share in the
joint venture.
14. POLITICAL LAW; ADMINISTRATIVE LAW; PUBLIC BIDDING; ELUCIDATED. —
The word "bidding" in its comprehensive sense means making an offer or an invitation
to prospective contractors whereby the government manifests its intention to make
proposals for the purpose of supplies, materials and equipment for o cial business or
public use, or for public works or repair. The three principles of public bidding are: (1)
the offer to the public; (2) an opportunity for competition; and (3) a basis for
comparison of bids.
15. ID.; ID.; ID.; NOT NECESSARY THAT THE HIGHEST BIDDER BE
AUTOMATICALLY ACCEPTED. — As long as these three principles are complied with,
the public bidding can be' considered valid and legal. It is not necessary that the highest
bid be automatically accepted. The bidding rules may specify other conditions or the
bidding process be subjected to certain reservation or quali cation such as when the
owner reserves to himself openly at the time of the sale the right to bid upon the
property, or openly announces a price below which the property will not be sold. Hence,
where the seller reserves the right to refuse to accept any bid made, a binding sale is
not consummated between the seller and the bidder until the seller accepts the bid.
Furthermore, where a right is reserved in the seller to reject any and all bids received,
the owner may exercise the right even after the auctioneer has accepted a bid, and this
applies to the auction of public as well as private property. Thus: It is a settled rule that
where the invitation to bid contains a reservation for the Government to reject any or all
bids, the lowest or the highest bidder, as the case may be, is not entitled to an award as
a matter of right for it does not become a ministerial duty of the Government to make
such an award. Thus, it has been held that where the right to reject is so reserved, the
lowest bid or any bid for that matter may be rejected on a mere technicality, that all
bids may be rejected, even if arbitrarily and unwisely, or under a mistake, and that in the
exercise of a sound discretion, the award may be made to another than the lowest
bidder. And so, where the Government as advertiser, availing itself of that right, makes
its choice in rejecting any or all bids, the losing bidder has no cause to complain nor
right to dispute that choice, unless an unfairness or injustice is shown. Accordingly, he
has no ground of action to compel the Government to award the contract in his favor,
nor compel it to accept his bid.
16. ID.; ID.; ID.; BIDDERS ARE PLACED ON EQUAL FOOTING; PRESENT IN CASE
AT BAR. — The essence of competition in public bidding is that the bidders are placed
on equal footing. This means that all quali ed bidders have an equal chance of winning
the auction through their bids. In the case at bar, all of the bidders were exposed to the
same risk and were subjected to the same condition, i, e., the existence of KAWASAKI's
right to top. Under the ASBR, the Government expressly reserved the right to reject any
or all bids, and manifested its intention not to accept the highest bid should KAWASAKI
decide to exercise its right to top under the ABSR. This reservation or quali cation was
made known to the bidders in a pre-bidding conference held on September 28, 1993.
They all expressly accepted this condition in writing without any quali cation.
Furthermore, when the Committee on Privatization noti ed petitioner of the approval of
the sale of the National Government shares of stock in PHILSECO, it speci cally stated
that such approval was subject to the right of KAWASAKI Heavy Industries,
Inc./Philyards Holdings, Inc. to top JGSMI's bid by 5% as speci ed in the bidding rules.
Clearly, the approval of the sale was a conditional one. Since Philyards eventually
exercised its right to top petitioner's bid by 5%, the sale was not consummated.
Parenthetically, it cannot be argued that the existence of the right to top "set for naught
the entire public bidding." Had Philyards Holdings, Inc. failed or refused to exercise its
right to top, the sale between the petitioner and the National Government would have
been consummated.
17. ID.; ID.; ID.; EXISTENCE OF THE RIGHT TO TOP CANNOT BE LIKENED TO A
SECOND BIDDING. — In like manner, the existence of the right to top cannot be likened
to a second bidding, which is countenanced, except when there is failure to bid as when
there is only one bidder or none at all. A prohibited second bidding presupposes that
based on the terms and conditions of the sale, there is already a highest bidder with the
right to demand that the seller accept its bid. In the instant case, the highest bidder was
well aware that the acceptance of its bid was conditioned upon the non-exercise of the
right to top. To be sure, respondents did not circumvent the requirements for bidding
by granting KAWASAKI, a non-bidder, the right to top the highest bidder. The fact that
KAWASAKI's nominee to exercise the right to top has among its stockholders some
losing bidders cannot also be deemed "unfair."
18. CIVIL LAW; PARTNERSHIP; RIGHT OF FIRST REFUSAL; THE BASIS FOR THE
RIGHT TO TOP. — It must be emphasized that none of the parties questions the
existence of KAWASAKI's right of rst refusal, which is concededly the basis for the
grant of the right to top. Under KAWASAKI's right of rst refusal, the National
Government is under the obligation to give preferential right to KAWASAKI in the event
it decides to sell its shares in PHILSECO. It has to offer to KAWASAKI the shares and
give it the option to buy or refuse under the same terms for which it is willing to sell the
said shares to third parties. KAWASAKI is not a mere non-bidder. It is a partner in the
joint venture; the incidents of which are governed by the law on contracts and on
partnership.
19. ID.; ID.: ID.; PUBLIC BIDDING IS AN ESSENTIAL FIRST STEP IN THE EXERCISE
THEREOF CONCERNING THE PROPERTIES OF THE GOVERNMENT. — It is true that
properties of the National Government, as a rule, may be sold only after a public bidding
is held. Public bidding is the accepted method in arriving at a fair and reasonable price
and ensures that overpricing, favoritism and other anomalous practices are eliminated
or minimized. But the requirement for public bidding does not negate the exercise of
the right of rst 'refusal. In fact, public bidding is an essential rst step in the exercise
of the right of first refusal because it is only after the public bidding that the terms upon
which the Government may be said to be willing to sell its shares to third parties may
be known. It is only after the public bidding that the Government will have a basis with
which to offer KAWASAKI the option to buy or forego the shares.
20. ID.; ID.; RIGHT TO TOP; NATIONAL GOVERNMENT WAS BENEFITED. —
Assuming that the parties did not swap KAWASAKI's right of rst refusal with the right
to top, KAWASAKI would have been able to buy the National Government's shares in
PHILSECO under the same terms as offered by the highest bidder. Stated otherwise, by
exercising its right of rst refusal, KAWASAKI could have bought the shares for only
P2.03 billion and not the higher amount of P2.1315 billion. There is, thus, no basis in the
submission that the right to top unfairly favored KAWASAKI. In fact, with the right to
top, KAWASAKI stands to pay higher than it should had it settled with its right of rst
refusal. The obvious beneficiary of the scheme is the National Government.
21. ID.; ID.; ID.; AN ASSIGNABLE RIGHT. — If at all, the obvious consideration for
the exchange of the right of rst refusal with the right to top is that KAWASAKI can
name a nominee, which it is a shareholder, to exercise the right to top. This is a valid
contractual stipulation; the right to top is an assign able right and both parties are
aware of the full legal consequences of its exercise. As aforesaid, all bidders were
aware of the existence of the right to top, and its possible effects on the result of the
public bidding was fully disclosed to them. The petitioner, thus, cannot feign ignorance
nor can it be allowed to repudiate its acts and question the proceedings it had fully
adhered to.
22. ID.; ID.; ID.; NOT CONTRARY TO LAW, PUBLIC POLICY OR PUBLIC MORALS
FOR THE LOSING BIDDERS TO JOIN A PARTICULAR CORPORATION IN THE EXERCISE
THEREOF. — The fact that the losing bidder, Keppel Consortium (composed of Keppel,
SM Group, Insular Life Assurance, Mitsui and ICTSI), has joined Philyards in the latter's
effort to raise P2.131 billion necessary in exercising the right to top is not contrary to
law, public policy or public morals. There is nothing in the ASBR that bars the losing
bidders from joining either the winning bidder (should the right to top is not exercised)
or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase
price. The petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with fraudulent intent.
Absent any proof of fraud, the formation by Philyards of a consortium is legitimate in a
free enterprise system. The appellate court is thus correct in holding the petitioner
estopped from questioning the validity of the transfer of the National Government's
shares in PHILSECO to respondent.
23. REMEDIAL LAW; EVIDENCE; PRESUMPTIONS; REGULARITY IN THE
PERFORMANCE OF OFFICIAL DUTIES IS PRESUMED. — Finally, no factual basis exists
to support the view that the drafting of the ASBR was illegal because no prior approval
was given by the COA for it, speci cally the provision on the right to top the highest
bidder and that the public auction on December 2, 1993 was not witnessed by a COA
representative. No evidence was proffered to prove these allegations and the Court
cannot make legal conclusions out of mere allegations. Regularity in the performance
of o cial duties is presumed and in the absence of competent evidence to rebut this
presumption, this Court is duty bound to uphold this presumption.
TINGA, J., separate opinion:
1. MERCANTILE LAW; CORPORATION LAW; SHIPYARD; NOT A PUBLIC UTILITY
WHETHER BY LEGISLATIVE DECLARATION OR EXECUTIVE FIAT.- Since the enactment
of Commonwealth Act No. 454 on June 8, 1939, shipyards have never been considered
public utilities, whether by legislative declaration or executive at, or even in
administrative practice. . . . The test, therefore, in determining if a service is a public
utility, is whether the public may enjoy it by right or only by permission. A shipyard fails
this test. As Justice Puno points out, a shipyard is not, by nature or tradition, a public
utility in much the same way as automobile or airplane manufacturers are not public
utilities. x x x Still on the legislative side, to the best of my knowledge, no person or rm
has secured a legislative franchise to operate a shipyard or even applied for one. On the
administrative side, as noted by Mr. Justice Puno, the Maritime Industry Authority
(MARINA) has not been empowered to issue franchise for shipyard operation. It is
authorized under Executive Orders No. 124 and No. 125-A, effective as of January 10
and April 13, 1987, respectively, to issue certi cates of public convenience to domestic
and water carriers. But the presidential issuances have no similar provision with
respect to shipyard operation.
2. ID.; ID.; PUBLIC SERVICE DIFFERENTIATED FROM PUBLIC UTILITY. — True,
"shipyard" is mentioned along with other business operations in the course of the
de nition by enumeration of "public service" in the Public Service Act. The terms "public
service" and "public utility," however, do not have the same legal meaning. at least since
the enactment of C.A. No. 454. The terms are related though. The de nition of "public
service" in the Public Service Act, as last amended by Republic Act No. 2677, includes
every person who owns, operates, manages or controls, for hire or compensation, and
done for general business purposes, any common carrier, railroad, street railway,
traction railway, sub-way motor vehicle, either for freight of passenger, or both with or
without xed route and whatever may be its classi cation, freight or carrier service of
any class, express service, steamboat, or steamship line, pontines, ferries, and water
craft, engaged in the transportation of passengers or freight, or both, shipyard, marine
railway, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and power,
petroleum, sewerage system, wire or wireless communications system, broadcasting
stations and other similar public services. A "public utility," on the other hand, is a
business or service engaged in regularly supplying the public with some commodity or
service of public consequence such as electricity, gas, water, transportation, telephone
or telegraph service. Simply stated, a public utility provides a service or facility needed
for present day living which cannot be denied to anyone who is willing to pay for it. . . .
Another dissimilarity is that a public utility requires a franchise, aside from a certi cate
of public necessity and convenience, for its operation, while a public service which is
not a public utility requires only a certi cate of public convenience. The dichotomy in
requirements ows from the enforced indeterminacy of the market for the service
provided by a public utility. Thus, it may be pointed out that all public utilities are public
services but the converse is not true. This is so because the term "public utility"
connotes public use and service to the public.
3. ID.; ID.; CATEGORIZATION OF BUSINESS OR SERVICE AS PUBLIC UTILITY OR
OTHERWISE IS A JUDICIAL PREROGATIVE. — A legislative declaration such as the
de nition by enumeration in the Public Service Act does not ipso facto render a
business or service a public utility. For, as this Court held in North Negros Sugar Co. v.
Hidalgo, whether or not one is a public utility is a matter of judicial, not legislative
determination. " . . Whether or not a given business, industry, or service is a public utility
does not depend upon legislative de nition, but upon the nature of the business or
service rendered, and an attempt to declare a company or enterprise to be a public
utility, where it is inherently not such, is, by virtue of the guaranties of the federal
constitution, void whenever it interferes with private rights of property or contract. So a
legislature cannot by mere at or regulatory order convert a private business or
enterprise into a public utility, and the question whether or not a particular company or
service is a public utility is a judicial one, and must be determined as such by a court of
competent jurisdiction; . . ." (51 C.J., Sec. 3, p.5) Paraphrasing a decision of the United
States Supreme Court, a private enterprise doing business under private contracts with
customers of its choice and therefore not devoted to public use cannot by legislative
enactment or administrative order be converted into a public utility, for that would
constitute taking of private property for public use without just compensation in
derogation of the Constitution. Again, the categorization of a business or service as a
public utility or otherwise is a judicial prerogative. Hence, this Court held in a signi cant
number of cases that the businesses or services involved were not public utilities
despite contradicting legislative classifications.
RESOLUTION
PUNO , J : p
The core issue posed by the Motions for Reconsideration is whether a shipyard
is a public utility whose capitalization must be sixty percent (60%) owned by Filipinos.
Our resolution of this issue will determine the fate of the shipbuilding and ship repair
industry. It can either spell the industry's demise or breathe new life to the struggling
but potentially healthy partner in the country's bid for economic growth. It can either kill
an initiative yet in its infancy, or harness creativity in the productive disposition of
government assets. aIAHcE
The facts are undisputed and can be summarized briefly as follows:

On January 27, 1977, the National Investment and Development Corporation
(NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with
Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction,
operation and management of the Subic National Shipyard, Inc. (SNS) which
subsequently became the Philippine Shipyard and Engineering Corporation
(PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute P330 million for
the capitalization of PHILSECO in the proportion of 60%-40% respectively. 1 One of its
salient features is the grant to the parties of the right of rst refusal should either of
them decide to sell, assign or transfer its interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in
SNS [PHILSECO] to any third party without giving the other under the same terms
the right of rst refusal. This provision shall not apply if the transferee is a
corporation owned or controlled by the GOVERNMENT or by a KAWASAKI
affiliate. 2
On November 25, 1986, NIDC transferred all its rights, title and interest in
PHILSECO to the Philippine National Bank (PNB). Such interests were subsequently
transferred to the National Government pursuant to Administrative Order No. 14. On
December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50
establishing the Committee on Privatization (COP) and the Asset Privatization Trust
(APT) to take title to, and possession of, conserve, manage and dispose of non-
performing assets of the National Government. Thereafter, on February 27, 1987, a
trust agreement was entered into between the National Government and the APT
wherein the latter was named the trustee of the National Government's share in
PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to settle its huge
obligations to PNB, the National Government's shareholdings in PHILSECO increased to
97.41% thereby reducing KAWASAKI's shareholdings to 2.59%. 3
In the interest of the national economy and the government, the COP and the APT
deemed it best to sell the National Government's share in PHILSECO to private entities.
After a series of negotiations between the APT and KAWASAKI, they agreed that the
latter's right of rst refusal under the JVA be "exchanged" for the right to top by ve
percent (5%) the highest bid for the said shares. They further agreed that KAWASAKI
would be entitled to name a company in which it was a stockholder, which could
exercise the right to top. On September 7, 1990, KAWASAKI informed APT that
Philyards Holdings, Inc. (PHI) would exercise its right to top. 4
At the pre-bidding conference held on September 18, 1993, interested bidders
were given copies of the JVA between NIDC and KAWASAKI, and of the Asset Speci c
Bidding Rules (ASBR) drafted for the National Government's 87.6% equity share in
PHILSECO. 5 The provisions of the ASBR were explained to the interested bidders who
were noti ed that the bidding would be held on December 2, 1993. A portion of the
ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public
bidding is the National Government's equity in PHILSECO consisting of
896,869,942 shares of stock (representing 87.67% of PHILSECO's outstanding
capital stock), which will be sold as a whole block in accordance with the rules
herein enumerated.
xxx xxx xxx

2.0 The highest bid, as well as the buyer, shall be subject to the nal
approval of both the APT Board of Trustees and the Committee on Privatization
(COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The
Indicative price set for the National Government's 87.67% equity in PHILSECO is
PESOS: ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00).
xxx xxx xxx
6.0 The highest quali ed bid will be submitted to the APT Board of
Trustees at its regular meeting following the bidding, for the purpose of
determining whether or not it should be endorsed by the APT Board of Trustees to
the COP, and the latter approves the same. The APT shall advise Kawasaki Heavy
Industries, Inc. and/or its nominee, Philyards Holdings, Inc., that the highest bid is
acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or
Philyards Holdings, Inc. shall then have a period of thirty (30) calendar days from
the date of receipt of such advice from APT within which to exercise their "Option
to Top the Highest Bid" by offering a bid equivalent to the highest bid plus ve
(5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc.
exercise their "Option to Top the Highest Bid," they shall so notify the APT about
such exercise of their option and deposit with APT the amount equivalent to ten
percent (10%) of the highest bid plus ve percent (5%) thereof within the thirty
(30)-day period mentioned in paragraph 6.0 above. APT will then serve notice
upon Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. declaring
them as the preferred bidder and they shall have a period of ninety (90) days from
the receipt of the APT's notice within which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc.
fail to exercise their "Option to Top the Highest Bid" within the thirty (30)-day
period, APT will declare the highest bidder as the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate
care these rules, the o cial bid forms, including any addenda or amendments
thereto issued during the bidding period. The bidder shall likewise be responsible
for informing itself with respect to any and all conditions concerning the
PHILSECO Shares which may, in any manner, affect the bidder's proposal. Failure
on the part of the bidder to so examine and inform itself shall be its sole risk and
no relief for error or omission will be given by APT or COP. . . . 6
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.
submitted a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an
acknowledgment of KAWASAKI/Philyards' right to top, viz: DEHaTC
4. I/We understand that the Committee on Privatization (COP) has up to

thirty (30) days to act on APT's recommendation based on the result of this
bidding. Should the COP approve the highest bid, APT shall advise Kawasaki
Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc. that the highest
bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc.
and/or Philyards Holdings, Inc. shall then have a period of thirty (30) calendar
days from the date of receipt of such advice from APT within which to exercise
their "Option to Top the Highest Bid" by offering a bid equivalent to the highest bid
plus five (5%) percent thereof. 7
As petitioner was declared the highest bidder, the COP approved the sale on
December 3, 1993 "subject to the right of Kawasaki Heavy Industries, Inc./Philyards
Holdings, Inc. to top JGSMI's bid by 5% as specified in the bidding rules." 8
On December 29, 1993, petitioner informed APT that it was protesting the offer
of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed
of Kawasaki, Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the
ASBR because the last four (4) companies were the losing bidders thereby
circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI
could exercise the right to top; (c) giving the same option to top to PHI constituted
unwarranted bene t to a third party; (d) no right of rst refusal can be exercised in a
public bidding or auction sale; and (e) the JG Summit consortium was not estopped
from questioning the proceedings. 9
On February 2, 1994, petitioner was noti ed that PHI had fully paid the balance of
the purchase price of the subject bidding. On February 7, 1994, the APT noti ed
petitioner that PHI had exercised its option to top the highest bid and that the COP had
approved the same on January 6, 1994. On February 24, 1994, the APT and PHI
executed a Stock Purchase Agreement. 1 0 Consequently, petitioner led with this Court
a Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said petition was
referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the
same for lack of merit. It ruled that the petition for mandamus was not the proper
remedy to question the constitutionality or legality of the right of rst refusal and the
right to top that was exercised by KAWASAKI/PHI, and that the matter must be brought
"by the proper party in the proper forum at the proper time and threshed out in a full
blown trial." The Court of Appeals further ruled that the right of first refusal and the right
to top are prima facie legal and that the petitioner, "by participating in the public
bidding, with full knowledge of the right to top granted to KAWASAKI/Philyards is . . .
estopped from questioning the validity of the award given to Philyards after the latter
exercised the right to top and had paid in full the purchase price of the subject shares,
pursuant to the ASBR." Petitioner led a Motion for Reconsideration of said Decision
which was denied on March 15, 1996. Petitioner thus led a Petition for Certiorari with
this Court alleging grave abuse of discretion on the part of the appellate court. 1 1
On November 20, 2000, this Court rendered the now assailed Decision ruling
among others that the Court of Appeals erred when it dismissed the petition on the
sole ground of the impropriety of the special civil action of mandamus because the
petition was also one of certiorari. 1 2 It further ruled that a shipyard like PHILSECO is a
public utility whose capitalization must be sixty percent (60%) Filipino-owned. 1 3
Consequently, the right to top granted to KAWASAKI under the Asset Speci c Bidding
Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in
PHILSECO is illegal — not only because it violates the rules on competitive bidding —
but more so, because it allows foreign corporations to own more than 40% equity in the
shipyard. 1 4 It also held that "although the petitioner had the opportunity to examine the
ASBR before it participated in the bidding, it cannot be estopped from questioning the
unconstitutional, illegal and inequitable provisions thereof." 1 5 Thus, this Court voided
the transfer of the national government's 87.67% share in PHILSECO to Philyard
Holdings, Inc., and upheld the right of JG Summit, as the highest bidder, to take title to
the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The
assailed Decision and Resolution of the Court of Appeals are REVERSED and SET
ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million
Pesos (P2,030,000,000.00), less its bid deposit plus interests upon the nality of
this Decision. In turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and
interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certi cates of stocks
representing 87.6% of PHILSECO's total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One
Hundred Thirty-One Million Five Hundred Thousand Pesos
(P2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED. 1 6
In separate Motions for Reconsideration, 1 7 respondents submit three basic

issues for our resolution: (1) Whether PHILSECO is a public utility; (2) Whether under
the 1977 JVA, KAWASAKI can exercise its right of rst refusal only up to 40% of the
total capitalization of PHILSECO; and (3) Whether the right to top granted to
KAWASAKI violates the principles of competitive bidding.
I.
Whether PHILSECO is a Public Utility.
After carefully reviewing the applicable laws and jurisprudence, we hold that
PHILSECO is not a public utility for the following reasons:
First. By nature, a shipyard is not a public utility.
A "public utility" is "a business or service engaged in regularly supplying the public
with some commodity or service of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service." 1 8 To constitute a public utility, the
facility must be necessary for the maintenance of life and occupation of the residents.
However, the fact that a business offers services or goods that promote public good
and serve the interest of the public does not automatically make it a public utility.
Public use is not synonymous with public interest. As its name indicates, the term
"public utility" implies public use and service to the public. The principal determinative
characteristic of a public utility is that of service to, or readiness to serve, an inde nite
public or portion of the public as such which has a legal right to demand and receive its
services or commodities. Stated otherwise, the owner or person in control of a public
utility must have devoted it to such use that the public generally or that part of the
public which has been served and has accepted the service, has the right to demand
that use or service so long as it is continued, with reasonable e ciency and under
proper charges. 1 9 Unlike a private enterprise which independently determines whom it
will serve, a "public utility holds out generally and may not refuse legitimate demand for
service." 2 0 Thus, in Iloilo Ice and Cold Storage Co. vs. Public Utility Board, 2 1 this Court
defined "public use," viz:
"Public use" means the same as "use by the public." The essential feature
of the public use is that it is not con ned to privileged individuals, but is open to
the inde nite public. It is this inde nite or unrestricted quality that gives it its
public character. In determining whether a use is public, we must look not only to
the character of the business to be done, but also to the proposed mode of doing
it. If the use is merely optional with the owners, or the public bene t is merely
incidental, it is not a public use, authorizing the exercise of jurisdiction of the
public utility commission. There must be, in general, a right which the law
compels the owner to give to the general public. It is not enough that the general
prosperity of the public is promoted. Public use is not synonymous with public
interest. The true criterion by which to judge the character of the use is whether
the public may enjoy it by right or only by permission. 2 2 (emphasis supplied)
Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a
shipyard cannot be considered a public utility.
A "shipyard" is "a place or enclosure where ships are built or repaired." 2 3 Its
nature dictates that it serves but a limited clientele whom it may choose to serve at its
discretion. While it offers its facilities to whoever may wish to avail of its services, a
shipyard is not legally obliged to render its services indiscriminately to the public. It has
no legal obligation to render the services sought by each and every client. The fact that
it publicly offers its services does not give the public a legal right to demand that such
services be rendered. SDAcaT
There can be no disagreement that the shipbuilding and ship repair industry is
imbued with public interest as it involves the maintenance of the seaworthiness of
vessels dedicated to the transportation of either persons or goods. Nevertheless, the
fact that a business is affected with public interest does not imply that it is under a duty
to serve the public. While the business may be regulated for public good, the regulation
cannot justify the classi cation of a purely private enterprise as a public utility. The
legislature cannot, by its mere declaration, make something a public utility which is not
in fact such; and a private business operated under private contracts with selected
customers and not devoted to public use cannot, by legislative at or by order of a
public service commission, be declared a public utility, since that would be taking
private property for public use without just compensation, which cannot be done
consistently with the due process clause. 2 4
It is worthy to note that automobile and aircraft manufacturers, which are of
similar nature to shipyards, are not considered public utilities despite the fact that their
operations greatly impact on land and air transportation. The reason is simple. Unlike
commodities or services traditionally regarded as public utilities such as electricity,
gas, water, transportation, telephone or telegraph service, automobile and aircraft
manufacturing — and for that matter ship building and ship repair — serve the public
only incidentally.
Second. There is no law declaring a shipyard as a public utility.
History provides us hindsight and hindsight ought to give us a better view of the
intent of any law. The succession of laws affecting the status of shipyards ought not to
obliterate, but rather, give us full picture of the intent of the legislature. The totality of
the circumstances, including the contemporaneous interpretation accorded by the
administrative bodies tasked with the enforcement of the law all lead to a singular
conclusion: that shipyards are not public utilities.
Since the enactment of Act No. 2307 which created the Public Utility
Commission (PUC) until its repeal by Commonwealth Act No. 146, establishing the
Public Service Commission (PSC), a shipyard, by legislative declaration, has been
considered a public utility. 2 5 A Certificate of Public Convenience (CPC) from the PSC to
the effect that the operation of the said service and the authorization to do business
will promote the public interests in a proper and suitable manner is required before any
person or corporation may operate a shipyard. 2 6 In addition, such persons or
corporations should abide by the citizenship requirement provided in Article XIII,
section 8 of the 1935 Constitution, 2 7 viz:
Sec. 8. No franchise, certi cate, or any other form or authorization for the
operation of a public utility shall be granted except to citizens of the Philippines
or to corporations or other entities organized under the laws of the Philippines,
sixty per centum of the capital of which is owned by citizens of the Philippines,
nor shall such franchise, certi cate or authorization be exclusive in character or
for a longer period than fty years. No franchise or right shall be granted to any
individual, rm or corporation, except under the condition that it shall be subject
to amendment, alteration, or repeal by the National Assembly when the public
interest so requires. (emphasis supplied)
To accelerate the development of shipbuilding and ship repair industry, former

President Ferdinand E. Marcos issued P.D. No. 666 granting the following incentives:
SECTION 1. Shipbuilding and ship repair yards duly registered with the
Maritime Industry Authority shall be entitled to the following incentive benefits:
(a) Exemption from import duties and taxes. — The importation of

machinery, equipment and materials for shipbuilding, ship repair and/or
alteration, including indirect import, as well as replacement and spare parts for
the repair and overhaul of vessels such as steel plates, electrical machinery and
electronic parts, shall be exempt from the payment of customs duty and
compensating tax: Provided, however, That the Maritime Industry Authority
certi es that the item or items imported are not produced locally in su cient
quantity and acceptable quality at reasonable prices, and that the importation is
directly and actually needed and will be used exclusively for the construction,
repair, alteration, or overhaul of merchant vessels, and other watercrafts; Provided,
further, That if the above machinery, equipment, materials and spare parts are
sold to non-tax exempt persons or entities, the corresponding duties and taxes
shall be paid by the original importer; Provided, nally, That local dealers and/or
agents who sell machinery, equipment, materials and accessories to shipyards for
shipbuilding and ship repair are entitled to tax credits, subject to approval by the
total tariff duties and compensating tax paid for said machinery, equipment,
materials and accessories.
(b) Accelerated depreciation. — Industrial plant and equipment may, at the
option of the shipbuilder and ship repairer, be depreciated for any number of
years between five years and expected economic life.
(c) Exemption from contractor's percentage tax . — The gross receipts

derived by shipbuilders and ship repairers from shipbuilding and ship repairing
activities shall be exempt from the Contractor's Tax provided in Section 91 of the
National Internal Revenue Code during the rst ten years from registration with
the Maritime Industry Authority, provided that such registration is effected not
later than the year 1990; Provided, That any and all amounts which would
otherwise have been paid as contractor's tax shall be set aside as a separate
fund, to be known as "Shipyard Development Fund", by the contractor for the
purpose of expansion, modernization and/or improvement of the contractor's
own shipbuilding or ship repairing facilities; Provided, That, for this purpose, the
contractor shall submit an annual statement of its receipts to the Maritime
Industry Authority; and Provided, further, That any disbursement from such fund
for any of the purposes hereinabove stated shall be subject to approval by the
Maritime Industry Authority.
In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from
the list of public utilities, thereby freeing the industry from the 60% citizenship
requirement under the Constitution and from the need to obtain Certi cate of Public
Convenience pursuant to section 15 of C.A. No. 146. Section 1 (d) of P.D. 666 reads:
(d) Registration required but not as a Public Utility . — The business of
constructing and repairing vessels or parts thereof shall not be considered a
public utility and no Certi cate of Public Convenience shall be required therefor .
However, no shipyard, graving dock, marine railway or marine repair shop and no
person or enterprise shall engage in construction and/or repair of any vessel, or
any phase or part thereof, without a valid Certi cate of Registration and license
for this purpose from the Maritime Industry Authority, except those owned or
operated by the Armed Forces of the Philippines or by foreign governments
pursuant to a treaty or agreement. (emphasis supplied)
Any law, decree, executive order, or rules and regulations inconsistent with P.D.
No. 666 were repealed or modi ed accordingly. 2 8 Consequently, sections 13 (b) and
15 of C.A. No. 146 were repealed in so far as the former law included shipyards in the
list of public utilities and required the certi cate of public convenience for their
operation. Simply stated, the repeal was due to irreconcilable inconsistency, and by
definition, this kind of repeal falls under the category of an implied repeal. 2 9
On April 28, 1983, Batas Pambansa Blg. 391, also known as the "Investment
Incentive Policy Act of 1983," was enacted. It laid down the general policy of the
government to encourage private domestic and foreign investments in the various
sectors of the economy, to wit:
Sec. 2. Declaration of Investment Policy . — It is the policy of the State to
encourage private domestic and foreign investments in industry, agriculture,
mining and other sectors of the economy which shall: provide signi cant
employment opportunities relative to the amount of the capital being invested;
increase productivity of the land, minerals, forestry, aquatic and other resources
of the country, and improve utilization of the products thereof; improve technical
skills of the people employed in the enterprise; provide a foundation for the future
development of the economy; accelerate development of less developed regions
of the country; and result in increased volume and value of exports for the
economy.
It is the policy of the State to extend to projects which will signi cantly
contribute to the attainment of these objectives, scal incentives without which
said projects may not be established in the locales, number and/or pace required
for optimum national economic development. Fiscal incentive systems shall be
devised to compensate for market imperfections, reward performance of making
contributions to economic development, cost-e cient and be simple to
administer.
The scal incentives shall be extended to stimulate establishment and
assist initial operations of the enterprise, and shall terminate after a period of not
more than 10 years from registration or start-up of operation unless a special
period is otherwise stated.
The foregoing declaration shall apply to all investment incentive schemes

and in particular will supersede article 2 of Presidential Decree No. 1789.
(emphases supplied)
With the new investment incentive regime, Batas Pambansa Blg. 391 repealed
the following laws, viz:
Sec. 20. The following provisions are hereby repealed:
1) Section 53, P.D. 463 (Mineral Resources Development Decree);
2) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry) ;
3) Section 6, P.D. 1101 (Radioactive Minerals);

4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and
5) The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30,
39, 49 (d), 62, and 77. Articles 45, 46 and 48 are hereby amended
only with respect to domestic and export producers.
All other laws, decrees, executive orders, administrative orders, rules and
regulations or parts thereof which are inconsistent with the provisions of this Act
are hereby repealed, amended or modified accordingly.
All other incentive systems which are not in any way affected by the
provisions of this Act may be restructured by the President so as to render them
cost-e cient and to make them conform with the other policy guidelines in the
declaration of policy provided in Section 2 of this Act. (emphasis supplied)
From the language of the afore-quoted provision, the whole of P.D. No. 666,
section 1 was expressly and categorically repealed. As a consequence, the provisions
of C.A. No. 146, which were impliedly repealed by P.D. No. 666, section 1 were revived.
3 0 In other words, with the enactment of Batas Pambansa Blg. 391, a shipyard reverted
back to its status as a public utility and as such, requires a CPC for its operation.
The crux of the present controversy is the effect of the express repeal of Batas
Pambansa Blg. 391 by Executive Order No. 226 issued by former President Corazon C.
Aquino under her emergency powers.
We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did
not revive Section 1 of P.D. No. 666. But more importantly, it also put a period to the
existence of sections 13 (b) and 15 of C.A. No. 146. It bears emphasis that sections 13
(b) and 15 of C.A. No. 146, as originally written, owed their continued existence to Batas
Pambansa Blg. 391. Had the latter not repealed P.D. No. 666, the former should have
been modi ed accordingly and shipyards effectively removed from the list of public
utilities. Ergo, with the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226, the
revival of sections 13 (b) and 15 of C.A. No. 146 had no more leg to stand on. A law that
has been expressly repealed ceases to exist and becomes inoperative from the
moment the repealing law becomes effective. 3 1 Hence, there is simply no basis in the
conclusion that shipyards remain to be a public utility. A repealed statute cannot be the
basis for classifying shipyards as public utilities.
In view of the foregoing, there can be no other conclusion than to hold that a
shipyard is not a public utility. A shipyard has been considered a public utility merely by
legislative declaration. Absent this declaration, there is no more reason why it should
continuously be regarded as such. The fact that the legislature did not clearly and
unambiguously express its intention to include shipyards in the list of public utilities
indicates that that it did not intend to do so. Thus, a shipyard reverts back to its status
as non-public utility prior to the enactment of the Public Service Law.
This interpretation is in accord with the uniform interpretation placed upon it by
the Board of Investments (BOI), which was entrusted by the legislature with the
preparation of annual Investment Priorities Plan (IPPs). The BOI has consistently
classi ed shipyards as part of the manufacturing sector and not of the public utilities
sector. The enactment of Batas Pambansa Blg. 391 did not alter the treatment of the
BOI on shipyards. It has been, as at present, classi ed as part of the manufacturing and
not of the public utilities sector. 3 2
Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered
with the MARINA, 3 3 none appears to have an existing franchise. If we continue to hold
that a shipyard is a public utility, it is a necessary consequence that all these entities
should have obtained a franchise as was the rule prior to the enactment of P.D. No. 666.
But MARINA remains without authority, pursuant to P.D. No. 474 3 4 to issue franchises
for the operation of shipyards. Surely, the legislature did not intend to create a vacuum
by continuously treating a shipyard as a public utility without giving MARINA the power
to issue a Certi cate of Public Convenience (CPC) or a Certi cate of Public
Convenience and Necessity (CPCN) as required by section 15 of C.A. No. 146.
II.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%
of PHILSECO's total capitalization.
A careful reading of the 1977 Joint Venture Agreement reveals that there is
nothing that prevents KAWASAKI from acquiring more than 40% of PHILSECO's total
capitalization. Section 1 of the 1977 JVA states:
1.3 The authorized capital stock of Philseco shall be P330 million. The
parties shall thereafter increase their subscription in Philseco as may be
necessary and as called by the Board of Directors, maintaining a proportion of
60%-40% for NIDC and KAWASAKI respectively, up to a total subscribed and paid-
up capital stock of P312 million.
1.4 Neither party shall sell, transfer or assign all or any part of its interest in
SNS [renamed PHILSECO] to any third party without giving the other under the
same terms the right of rst refusal. This provision shall not apply if the
transferee is a corporation owned and controlled by the GOVERNMENT [of the
Philippines] or by a Kawasaki affiliate.
1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive
rights to unissued shares of SNS [PHILSECO]. 3 5
Under section 1.3, the parties agreed to the amount of P330 million as the total
capitalization of their joint venture. There was no mention of the amount of their initial
subscription. What is clear is that they are to infuse the needed capital from time to
time until the total subscribed and paid-up capital reaches P312 million. The phrase
"maintaining a proportion of 60%-40%" refers to their respective share of the burden
each time the Board of Directors decides to increase the subscription to reach the
target paid-up capital of P312 million. It does not bind the parties to maintain the
sharing scheme all throughout the existence of their partnership.
The parties likewise agreed to arm themselves with protective mechanisms to
preserve their respective interests in the partnership in the event that (a) one party
decides to sell its shares to third parties; and (b) new Philseco shares are issued. Anent
the rst situation, the non-selling party is given the right of rst refusal under section
1.4 to have a preferential right to buy or to refuse the selling party's shares. The right of
rst refusal is meant to protect the original or remaining joint venturer(s) or
shareholder(s) from the entry of third persons who are not acceptable to it as co-
venturer(s) or co-shareholder(s). The joint venture between the Philippine Government
and KAWASAKI is in the nature of a partnership 3 6 which, unlike an ordinary corporation,
is based on delectus personae. 3 7 No one can become a member of the partnership
association without the consent of all the other associates. The right of rst refusal
thus ensures that the parties are given control over who may become a new partner in
substitution of or in addition to the original partners. Should the selling partner decide
to dispose all its shares, the non-selling partner may acquire all these shares and
terminate the partnership. No person or corporation can be compelled to remain or to
continue the partnership. Of course, this presupposes that there are no other
restrictions in the maximum allowable share that the non-selling partner may acquire
such as the constitutional restriction on foreign ownership in public utility. The theory
that KAWASAKI can acquire, as a maximum, only 40% of PHILSECO's shares is correct
only if a shipyard is a public utility. In such instance, the non-selling partner who is an
alien can acquire only a maximum of 40% of the total capitalization of a public utility
despite the grant of rst refusal. The partners cannot, by mere agreement, avoid the
constitutional proscription. But as afore-discussed, PHILSECO is not a public utility and
no other restriction is present that would limit the right of KAWASAKI to purchase the
Government's share to 40% of Philseco's total capitalization.
Furthermore, the phrase "under the same terms" in section 1.4 cannot be given an
interpretation that would limit the right of KAWASAKI to purchase PHILSECO shares
only to the extent of its original proportionate contribution of 40% to the total
capitalization of the PHILSECO. Taken together with the whole of section 1.4, the
phrase "under the same terms" means that a partner to the joint venture that decides to
sell its shares to a third party shall make a similar offer to the non-selling partner. The
selling partner cannot make a different or a more onerous offer to the non-selling
partner.
The exercise of rst refusal presupposes that the non-selling partner is aware of
the terms of the conditions attendant to the sale for it to have a guided choice. While
the right of rst refusal protects the non-selling partner from the entry of third persons,
it cannot also deprive the other partner the right to sell its shares to third persons if,
under the same offer, it does not buy the shares.
Apart from the right of first refusal, the parties also have preemptive rights under
section 1.5 in the unissued shares of Philseco. Unlike the former, this situation does not
contemplate transfer of a partner's shares to third parties but the issuance of new
Philseco shares. The grant of preemptive rights preserves the proportionate shares of
the original partners so as not to dilute their respective interests with the issuance of
the new shares. Unlike the right of rst refusal, a preemptive right gives a partner a
preferential right over the newly issued shares only to the extent that it retains its
original proportionate share in the joint venture.
The case at bar does not concern the issuance of new shares but the transfer of
a partner's share in the joint venture. Verily, the operative protective mechanism is the
right of rst refusal which does not impose any limitation in the maximum shares that
the non-selling partner may acquire.
III.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates
the principles of competitive bidding.
We also hold that the right to top granted to KAWASAKI and exercised by private
respondent did not violate the rules of competitive bidding. cCESaH
The word "bidding" in its comprehensive sense means making an offer or an

invitation to prospective contractors whereby the government manifests its intention to
make proposals for the purpose of supplies, materials and equipment for o cial
business or public use, or for public works or repair. 3 8 The three principles of public
bidding are: (1) the offer to the public; (2) an opportunity for competition; and (3) a
basis for comparison of bids. 3 9 As long as these three principles are complied with,
the public bidding can be considered valid and legal. It is not necessary that the highest
bid be automatically accepted. The bidding rules may specify other conditions or the
bidding process be subjected to certain reservation or quali cation such as when the
owner reserves to himself openly at the time of the sale the right to bid upon the
property, or openly announces a price below which the property will not be sold. Hence,
where the seller reserves the right to refuse to accept any bid made, a binding sale is
not consummated between the seller and the bidder until the seller accepts the bid.
Furthermore, where a right is reserved in the seller to reject any and all bids received,
the owner may exercise the right even after the auctioneer has accepted a bid, and this
applies to the auction of public as well as private property. 4 0 Thus:
It is a settled rule that where the invitation to bid contains a reservation for
the Government to reject any or all bids, the lowest or the highest bidder, as the
case may be, is not entitled to an award as a matter of right for it does not
become a ministerial duty of the Government to make such an award. Thus, it has
been held that where the right to reject is so reserved, the lowest bid or any bid for
that matter may be rejected on a mere technicality, that all bids may be rejected,
even if arbitrarily and unwisely, or under a mistake, and that in the exercise of a
sound discretion, the award may be made to another than the lowest bidder. And
so, where the Government as advertiser, availing itself of that right, makes its
choice in rejecting any or all bids, the losing bidder has no cause to complain nor
right to dispute that choice, unless an unfairness or injustice is shown.
Accordingly, he has no ground of action to compel the Government to award the
contract in his favor, nor compel it to accept his bid. 4 1
In the instant case, the sale of the Government shares in PHILSECO was publicly
known. All interested bidders were welcomed. The basis for comparing the bids were
laid down. All bids were accepted sealed and were opened and read in the presence of
the COA's o cial representative and before all interested bidders. The only question
that remains is whether or not the existence of KAWASAKI's right to top destroys the
essence of competitive bidding so as to say that the bidders did not have an
opportunity for competition. We hold that it does not.
The essence of competition in public bidding is that the bidders are placed on
equal footing. This means that all quali ed bidders have an equal chance of winning the
auction through their bids. In the case at bar, all of the bidders were exposed to the
same risk and were subjected to the same condition, i.e., the existence of KAWASAKI's
right to top. Under the ASBR, the Government expressly reserved the right to reject any
or all bids, and manifested its intention not to accept the highest bid should KAWASAKI
decide to exercise its right to top under the ABSR. This reservation or quali cation was
made known to the bidders in a pre-bidding conference held on September 28, 1993.
They all expressly accepted this condition in writing without any quali cation.
Furthermore, when the Committee on Privatization noti ed petitioner of the approval of
the sale of the National Government shares of stock in PHILSECO, it speci cally stated
that such approval was subject to the right of KAWASAKI Heavy Industries,
Inc./Philyards Holdings, Inc. to top JGSMI's bid by 5% as speci ed in the bidding rules.
Clearly, the approval of the sale was a conditional one. Since Philyards eventually
exercised its right to top petitioner's bid by 5%, the sale was not consummated.
Parenthetically, it cannot be argued that the existence of the right to top "set for naught
the entire public bidding." Had Philyards Holdings, Inc. failed or refused to exercise its
right to top, the sale between the petitioner and the National Government would have
been consummated. In like manner, the existence of the right to top cannot be likened
to a second bidding, which is countenanced, except when there is failure to bid as when
there is only one bidder or none at all. A prohibited second bidding presupposes that
based on the terms and conditions of the sale, there is already a highest bidder with the
right to demand that the seller accept its bid. In the instant case, the highest bidder was
well aware that the acceptance of its bid was conditioned upon the non-exercise of the
right to top.
To be sure, respondents did not circumvent the requirements for bidding by
granting KAWASAKI, a non-bidder, the right to top the highest bidder. The fact that
KAWASAKI's nominee to exercise the right to top has among its stockholders some
losing bidders cannot also be deemed "unfair."
It must be emphasized that none of the parties questions the existence of
KAWASAKI's right of rst refusal, which is concededly the basis for the grant of the
right to top. Under KAWASAKI's right of rst refusal, the National Government is under
the obligation to give preferential right to KAWASAKI in the event it decides to sell its
shares in PHILSECO. It has to offer to KAWASAKI the shares and give it the option to
buy or refuse under the same terms for which it is willing to sell the said shares to third
parties. KAWASAKI is not a mere non-bidder. It is a partner in the joint venture; the
incidents of which are governed by the law on contracts and on partnership.
It is true that properties of the National Government, as a rule, may be sold only
after a public bidding is held. Public bidding is the accepted method in arriving at a fair
and reasonable price and ensures that overpricing, favoritism and other anomalous
practices are eliminated or minimized. 4 2 But the requirement for public bidding does
not negate the exercise of the right of rst refusal. In fact, public bidding is an essential
rst step in the exercise of the right of rst refusal because it is only after the public
bidding that the terms upon which the Government may be said to be willing to sell its
shares to third parties may be known. It is only after the public bidding that the
Government will have a basis with which to offer KAWASAKI the option to buy or forego
the shares.
Assuming that the parties did not swap KAWASAKI's right of first refusal with the
right to top, KAWASAKI would have been able to buy the National Government's shares
in PHILSECO under the same terms as offered by the highest bidder. Stated otherwise,
by exercising its right of rst refusal, KAWASAKI could have bought the shares for only
P2.03 billion and not the higher amount of P2.1315 billion. There is, thus, no basis in the
submission that the right to top unfairly favored KAWASAKI. In fact, with the right to
top, KAWASAKI stands to pay higher than it should had it settled with its right of rst
refusal. The obvious beneficiary of the scheme is the National Government. HAaScT
If at all, the obvious consideration for the exchange of the right of rst refusal
with the right to top is that KAWASAKI can name a nominee, which it is a shareholder, to
exercise the right to top. This is a valid contractual stipulation; the right to top is an
assignable right and both parties are aware of the full legal consequences of its
exercise. As aforesaid, all bidders were aware of the existence of the right to top, and
its possible effects on the result of the public bidding was fully disclosed to them. The
petitioner, thus, cannot feign ignorance nor can it be allowed to repudiate its acts and
question the proceedings it had fully adhered to. 4 3
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM
Group, Insular Life Assurance, Mitsui and ICTSI), has joined Philyards in the latter's
effort to raise P2.131 billion necessary in exercising the right to top is not contrary to
law, public policy or public morals. There is nothing in the ASBR that bars the losing
bidders from joining either the winning bidder (should the right to top is not exercised)
or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase
price. The petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with fraudulent intent.
Absent any proof of fraud, the formation by Philyards of a consortium is legitimate in a
free enterprise system. The appellate court is thus correct in holding the petitioner
estopped from questioning the validity of the transfer of the National Government's
shares in PHILSECO to respondent.
Finally, no factual basis exists to support the view that the drafting of the ASBR
was illegal because no prior approval was given by the COA for it, speci cally the
provision on the right to top the highest bidder and that the public auction on December
2, 1993 was not witnessed by a COA representative. No evidence was proffered to
prove these allegations and the Court cannot make legal conclusions out of mere
allegations. Regularity in the performance of o cial duties is presumed 4 4 and in the
absence of competent evidence to rebut this presumption, this Court is duty bound to
uphold this presumption.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby
GRANTED. The impugned Decision and Resolution of the Court of Appeals are
AFFIRMED.
SO ORDERED.
Davide, Jr., C .J ., Ynares-Santiago and Corona, JJ ., concur.
Separate Opinions
TINGA, J.:
Whether a shipyard is a public utility is at the heart of the present controversy.

Although I take a different route, I reach the same result as Mr. Justice Puno.
Since the enactment of Commonwealth Act No. 454 on June 8, 1939, shipyards
have never been considered public utilities, whether by legislative declaration or
executive fiat, or even in administrative practice.
True, "shipyard" is mentioned along with other business operations in the course
of the de nition by enumeration of "public service" in the Public Service Act. 1 The terms
"public service" and "public utility," however, do not have the same legal meaning, at
least since the enactment of C.A. No. 454. 2 The terms are related though. TEDHaA
The de nition of "public service" in the Public Service Act, as last amended by
Republic Act No. 2677, includes every person who owns, operates, manages or
controls, for hire or compensation, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, sub-way motor vehicle, either
for freight or passenger, or both with or without xed route and whatever may be its
classi cation, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries, and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine railway, marine repair shop, wharf or
dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat
and power, water supply and power, petroleum, sewerage system, wire or wireless
communications systems, broadcasting stations and other similar public services. 3 A
"public utility," on the other hand, is a business or service engaged in regularly supplying
the public with some commodity or service of public consequence such as electricity,
gas, water, transportation, telephone or telegraph service . 4 Simply stated, a public
utility provides a service or facility needed for present day living which cannot be denied
to anyone who is willing to pay for it. 5
Formerly, there was a statutory de nition of "public utility," but it was abandoned
in C.A. No. 454. 6 The de nition was instead solely applied to "public service" apparently
because it did not exactly t the concept of public utility. It is signi cant in this regard
that while the 1935 Constitution which took effect on February 2, 1935 speci cally
mentioned "public utility," 7 C.A. No. 454 shifted from "public utility" to "public service" as
the sole reference term in the Public Service Act.
Another dissimilarity is that a public utility requires a franchise, aside from a
certi cate of public necessity and convenience, for its operation, while a public service
which is not a public utility requires only a certi cate of public convenience. 8 The
dichotomy in requirements ows from the enforced indeterminacy of the market for
the service provided by a public utility. Thus, it may be pointed out that all public utilities
are public services but the converse is not true. This is so because the term "public
utility" connotes public use and service to the public. 9
A legislative declaration such as the de nition by enumeration in the Public
Service Act 1 0 does not ipso facto render a business or service a public utility. For, as
this Court held in North Negros Sugar Co. v. Hidalgo , 1 1 whether or not one is a public
utility is a matter of judicial, not legislative determination.
". . . Whether or not a given business, industry, or service is a public utility
does not depend upon legislative de nition, but upon the nature of the business
or service rendered, and an attempt to declare a company or enterprise to be a
public utility, where it is inherently not such, is, by virtue of the guaranties of the
federal constitution, void whenever it interferes with private rights of property or
contract. So a legislature cannot by mere at or regulatory order convert a private
business or enterprise into a public utility, and the question whether or not a
particular company or service is a public utility is a judicial one, and must be
determined as such by a court of competent jurisdiction; . . . ." (51 CJ., sec. 3, p. 5)
1 2 [Emphasis supplied.]
Paraphrasing a decision 1 3 of the United States Supreme Court, a private

enterprise doing business under private contracts with customers of its choice and
therefore not devoted to public use cannot by legislative enactment or administrative
order be converted into a public utility, for that would constitute taking of private
property for public use without just compensation in derogation of the Constitution.
Again, the categorization of a business or service as a public utility or otherwise
is a judicial prerogative. Hence, this Court held in a signi cant number of cases that the
businesses or services involved were not public utilities despite contradicting
legislative classifications.
In one case, 1 4 we declared that an oil company is n o t a public utility,
notwithstanding the law 1 5 which categorizes petroleum operation, including refining, as
a public utility:
A "public utility" under the Constitution and the Public Service Law is one
organized "for hire or compensation" to serve the public, which is given the right to
demand its service. PETRON is not engaged in oil re ning to process the oil of
other parties. 1 6
In another case, 1 7 we intimated that a "wharf" or "dock" as contemplated under

the Public Service Act is not necessarily a public utility. 1 8
An operator of trucks who furnished service under special agreements to carry
particular persons and property was held to be not a public utility as he did not hold
himself out to serve any and all persons. 1 9 So is a mere owner and lessor of the
equipment and facilities needed to operate a rail system not a public utility since the
right to operate a public utility may exist independently of and separately from the
ownership of the facilities thereof. 2 0
An ice plant, although included in the de nition of a public service under Act No.
2307, 2 1 is not a public utility if it is organized solely for particular persons under strictly
private contracts, and never was devoted by its owner to public use. However, it is
treated as a public utility if the ice it produces is sold to the public. 2 2
The test, therefore, in determining if a service is a public utility, is whether the
public may enjoy it by right or only by permission. 2 3 A shipyard fails this test. As
Justice Puno points out, a shipyard is not, by nature or tradition, a public utility in much
the same way as automobile or airplane manufacturers are not public utilities. 2 4
Apart from shipyards, marine repair shops, wharves or docks, canals, irrigation
systems, petroleum supply and wire or wireless broadcasting stations, although
included in the de nition of "public service" in the Public Service Act, as amended, are
clearly not public utilities. Services which were once included in the de nition of "public
service" were later on excluded from the statutory enumeration, 2 5 indicating the
impermanence of "public service" as a concept in the law on utilities.
Still on the legislative side, to the best of my knowledge, 2 6 no person or rm has
secured a legislative franchise to operate a shipyard or even applied for one. On the
administrative side, as noted by Mr. Justice Puno, 2 7 the Maritime Industry Authority
(MARINA) has not been empowered to issue franchise for shipyard operation. It is
authorized under Executive Orders No. 124 and No. 125-A, effective as of January 10
and April 13, 1987, respectively, to issue certi cates of public convenience to domestic
and water carriers. 2 8 But the presidential issuances have no similar provision with
respect to shipyard operation.
To reiterate, shipyards have never been in legal contemplation considered as
public utilities. The promulgation of P.D. No. 666 in 1975 which required, in Section 1(d)
2 9 thereof, the registration of shipyards merely as such, de nitely not as public utilities,
served simply to remove any doubt as to their non-public utility status. Note in this
regard that MARINA was created by P.D. No. 474 3 0 on June 1, 1974, or prior to the
promulgation of P.D. No. 666. And P.D. No. 474 did not authorize MARINA to issue
franchise for shipyard operation, not unlike E.O. Nos. 125 and 125-A which were
promulgated after it.
The repeal of Section 1 of P.D. No. 666 by Batas Pambansa Blg . 391, enacted in
1983, did not convert shipyards into public utilities. Of course, the subsequent repeal of
Batas Pambansa Blg. 391 by E.O. No. 226 3 1 in 1987 has effectively laid the issue to
rest once and for all.
Except for this divergence, I concur in Mr. Justice Puno's well-reasoned opinion.
I vote to GRANT respondents' motions for reconsideration.
Footnotes
1. JG Summit Holdings, Inc. v. Court of Appeals, et al ., 345 SCRA 143, 145 (2000). The Decision
was penned by Associate Justice Consuelo Ynares-Santiago and concurred in by Chief
Justice Hilario G. Davide, Jr. and Associate Justices Reynato S. Puno, Santiago M.
Kapunan and Bernardo P. Pardo.
2. Ibid.
3. Id. at 146.
4. Ibid.
5. The heading of the ASBR states that the rules were speci cally set up for "97.4 equity of the
national government in Philippine Shipyard & Engineering Corporation (PHILSECO),"
Rollo, p. 1146. However, only 87.67% of the shares were offered for sale since "the
remaining 9.73% of the National Government's equity in PHILSECO will be offered
separately to PHILSECO's employees and to local small investors," Id. at par. 1.1.
6. Rollo, pp. 1146–1151.

7. Id. at 1144–1145. The bid, as well as the acknowledgment of its conformity with the ASBR
was signed by Johnson Robert I. Go, Executive Vice President of J.G. Summit Holdings,
Inc.
8. Supra note 1 at 148.
9. Id. at 147–148.
10. Id. at 148.
11. Id. at 148–149.
12. Id. at 153.
13. Id. at 156.

14. Id. at 157–158.
15. Id. at 166.
16. Ibid.
17. Private respondent Philyard Holdings, Inc., through counsel led its Motion for
Reconsideration on December 28, 2000, Rollo, pp. 936–980. On the other hand, public
respondents Committee on Privatization (COP) and Asset Privatization Trust (APT),
represented by the O ce of the Solicitor General, jointly led their Motions for
Reconsideration on January 2, 2001, Rollo, pp. 1053–1068.
18. Almario, Generoso O., "Transportation and the Public Service Law," 3rd ed. (1977), p. 267
citing 73 CJS 990–991; Albano v. Reyes, 175 SCRA 264 (1989) citing Am Jur. 2d v. 64, p.
549; NAPOCOR v. Court of Appeals, 279 SCRA 506 (1997).
19. Ibid.
20. Commonwealth v. Lafferty , 426 Pa 541, 233 A2d 256.
21. Iloilo Ice and Cold Storage Co. vs. Public Utility Board, 44 Phil. 551, 557 (1923).
22. Id. at 557–558.
23. Webster's Third New International Dictionary (1993), p. 2098.

25. Act No. 2307 was amended by Act No. 2694. It was subsequently repealed by Act No. 3108.
Later however, Act No. 3108 was also repealed by Commonwealth Act No. 146. The
series of amendments and repeals did not alter the character of shipyards as public
utilities. Section 13 (b) of C.A. No. 146 provides that:
"The term 'public service' includes every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or compensation, with general or limited
clientele, whether permanent, occasional or accidental, and done for general business
purposes, any common carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without xed route and whatever
may be its classi cation, freight or carrier service of any class, express service,
steamboat, or steamship, or steamship line, pontines, ferries and water craft, engaged in
the transportation of passengers or freight or both, shipyard, marine railway, marine
repair shop, wharf or dock, ice plant, ice refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage system, wire
or wireless communications systems, wire or wireless broadcasting stations and other
similar public services. . . ." (Emphasis supplied).
26. See C.A. No. 146, section 15.

27. This provision is substantially reproduced in Article XIV, section 5 of the 1973 Constitution
and in Article XII, section 11 of the 1987 Constitution.
28. See Section 4, P.D. No. 666.
29. A declaration in the statute, usually in its repealing clause, that a particular and speci c law,
identi ed by its number of title, is repealed is an express repeal; all other repeals are
implied repeals. See Mecano v. Commission on Audit , 216 SCRA 500 (1992) citing
Agpalo, Statutory Construction, 289 (1986).
30. Book I, Chapter 5, section 22 provides: "Revival of Law Impliedly Repealed. When a law
which impliedly repeals a prior law is itself repealed, the prior law shall thereby be
revived, unless the repealing law provides otherwise."
31. Agpalo, Statutory Construction (1995), p. 330.

32. Annexes 1–5 of the Motion for Reconsideration, Rollo, pp. 982–1043.
33. Industry Profile, Shipbuilding and Ship Repair Industry 2001, p. 3; Rollo, p. 1721.
34. "An Act for the Reorganization of Maritime functions in the Philippines, creating the
Maritime Industry Authority, and for other purposes," June 1, 1974.
35. 1977 Joint Venture Agreement as amended by Addendum No. 2 dated December 8, 1983.
36. Supra note 1 at 157–158. The assailed Decision reads: "A joint venture is an association of
persons or companies jointly undertaking some commercial enterprise with all of them
generally contributing assets and risks. It requires a community of interest in the
performance of the subject matter, a right to direct and govern the policy in connection
therewith, and duty, which may be altered by agreement to share both in pro t or losses.
Persons and business enterprises enter into a joint venture because it is exempt from
corporate income tax. Considered more of a partnership, a joint venture is governed by
the laws on contracts and on partnership."
37. Literally, choice of person(s).

39. Ibid.
40. 7 Am Jur 2d § 21, p. 238.
41. B. Fernandez, Treatise on Government Contracts Under Philippine Law (1991), p. 26, citing
Gutierrez v. Ins. Life Assurance Co., Ltd ., 102 Phil. 524 (1957); C & C Commercial Corp. v.
Menor, 120 SCRA 112 (1982); A.C. Esguerra v. Sons Aytona, 4 SCRA 1245 (1962).
42. Fernandez, supra at 25.
43. Medina v. Patcho, 132 SCRA 551 (1984).
44. Rules of Court, Rule 131, section 3(m).
TINGA, J.:
1. C.A. No. 146, as amended.
2. "Public utility" was used in Act No. 2307, Act No. 269 and Act No. 3108. "Public service" and
"public utility" were interchangeably used in C.A. No. 146. "Public utility" was abandoned
and "public service" used in its place in CA No. 454. The subsequent enactments, R.A.
No. 1270 and R.A. No. 2677, also defined "public service" only.
3. Sec. 1, R.A. No. 2677, amending Sec. 13(b), C.A. No. 146 as amended.
4. National Power Corporation v. Court of Appeals , 345 Phil. 9 (1997), citing Albano v. Reyes ,
G.R. No. 83551, July 11, 1989, 175 SCRA 264, and 64 Am. Jur. 2d, p. 549.
5. A more comprehensive de nition of "public utility" has been offered by a noted American
author:
In its most extended sense the term public utilities is designed to cover certain industries which
in the course of time have been classi ed apart from industry in general and have
likewise been distinguished from governmental services with which, however, they often
are intimately related. The basis of the classi cation is essentially economic and
technological, although the meaning of the term is derived from the law.
(Martin G. Glaeser, PUBLIC UTILITIES IN AMERICAN CAPITALISM [New York: The MacMillan
Co., 1957], p. 8)
6. See note 2, supra.

7. 1935 CONST., Art. XIV, Sec. 8.
8. See Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines,
1972 ed. Vol. 4, p. 307; Sec. 14(i), Act No. 3108.
9. 64 Am Jur 2d, p. 549, cited in Albano v. Reyes and National Power Corporation v. Court of
Appeals, supra, note 4.
10. See note 3, supra.
11. 63 Phil. 664 (1936).
12. Id. at 691.
13. Pipe Line Cases, 234 U.S. 548, cited in Iloilo Ice and Cold Storage Co. v. Public Utility Board ,
44 Phil. 551, at 560 (1923).
14. Bagatsing v. Committee on Privatization , G.R. No. 112399, Gonzales v. Lazaro , G.R. No.
115334, July 14, 1995, 246 SCRA 334.
15. R.A. No. 387, otherwise known as the Petroleum Act of 1949. Act No. 3108 and C.A. No. 146,
included "oil" in the de nition of "public utility" while the de nition of "public service" in
C.A. No. 146 and No. 454, R.A. No. 1270 and No. 2677 covered "petroleum."
16. Supra note 13, at 358.

17. Albano v. Reyes, supra 8.
18. Id. at 270–271.
19. United States v. Tan Piaco , 40 Phil. 853, 855 (1949). Under Sec. 13 (b), C.A. No. 146, as
amended, a "freight or carrier service of any class . . . engaged in the transportation of
passenger or freight or both" is a public service.
20. Tatad v. Garcia , G.R. No. 114222, April 6, 1995, 243 SCRA 436. Also under Sec. 13(b), C.A.
No. 146, as amended, a railway "engaged in the transportation of passengers or freight
or both" is a public service.
21. This Act is one of the precursors of C.A. No. 146.
22. La Paz Ice Plant & Cold Storage Co., Inc. v. John Bordman and Iloilo Commercial & Ice Co .,
65 Phil. 401 (1938).
23. United States v. Tan Piaco, supra, note 16.

24. Resolution, J. Puno, p. 13.
25. E.g., Warehouses, radio companies, small watercraft, plant or equipment.
26. This writer was the chairman of the House Committee on Corporations and Franchises in
the Eighth Congress (1987–1992).
27. Resolution, J. Puno, p. 21.

28. Sec. 14(c), E.O. No. 125; Sec. 3, E.O. No. 125-A, amending Sec. 14, E.O. No. 125.
29. Sec. 1(d). Registration required but not as Public Utility . — The business of constructing and
repairing vessels or parts thereof shall not be considered a public utility and no
Certi cate of Public Convenience shall be required therefor. However, no shipyard,
graving dock, marine railway or marine repair shop and no person or enterprise shall
engage in the construction and/or repair of any vessel, or any phase or part thereof,
without a valid Certi cate of Registration and license for this purpose from the Maritime
Industry Authority, except those owned or operated by the Armed Forces of the
Philippines or by foreign governments pursuant to a treaty or agreement (P.D. No. 666).
30. "An Act for the Reorganization of Maritime Functions in the Philippines," creating the
Maritime Industry Authority, and for other purposes.
31. This Order, otherwise known as the "Omnibus Investments Code of 1987," was promulgated
by then President Corazon C. Aquino in the exercise of her residual legislative powers.

EN BANC
[G.R. No. 173044. December 10, 2007.]
FREEDOM FROM DEBT COALITION, AKBAYAN CITIZENS' ACTION

PARTY, ALLIANCE OF PROGRESSIVE LABOR, MARIO JOYO AGUJA,
ANA THERESIA HONTIVEROS-BARAQUEL, RENATO B. MAGTUBO,
EMMANUEL JOEL J. VILLANUEVA, EDUARDO C. ZIALCITA, MA.
THERESA DIOKNO-PASCUAL, MARY ANN B. MANAHAN AND
PATROCINIO JUDE ESGUERRA III , petitioners, vs . METROPOLITAN
WATERWORKS AND SEWERAGE SYSTEM (MWSS) and the MWSS
REGULATORY OFFICE (MWSS-RO) , respondents.
DECISION
SANDOVAL-GUTIERREZ , J : p
Before us for resolution is the instant Petition for Certiorari and Prohibition (with
prayer for the issuance of a temporary restraining order and a writ of preliminary
injunction) assailing (a) Resolution No. 2004-201 of the Metropolitan Waterworks and
Sewerage System (MWSS) Board of Trustees, respondent; and (b) Resolution No. 04-
006-CA of the MWSS Regulatory O ce (MWSS-RO), another respondent, both dated
July 30, 2004.
The facts as culled from the petition are:
Respondent MWSS is a government corporation created in 1971 under Republic
Act No. 6234, 1 as amended, for the purpose of owning and/or having jurisdiction,
supervision and control over all waterworks and sewerage systems in Metro Manila
and the provinces of Rizal and Cavite.
In 1995, the government embarked upon the privatization of the waterworks and
sewerage system of MWSS. Among the range of privatization options, MWSS chose to
enter into concession arrangement with private entities. The area of Metro Manila was
divided into two (2) concession areas — Service Area East and Service Area West. ScaCEH
After a process of public bidding and selection, the Service Area East was
awarded to Manila Water Company, Inc. , while the Service Area West was awarded
to Maynilad Water Services, Inc.
On February 21, 1997, respondent MWSS executed separate Concession
Agreements with the Manila Water Company, Inc. and Maynilad Water Services, Inc. (the
concessionaires). Each Concession Agreement is effective for a 25-year period, or from
August 1, 1997 to May 6, 2022, subject to early termination. Under the Concession
Agreements, the concessionaires act as contractors to perform certain functions, and
as agents to exercise certain rights and powers for the operation of the waterworks
and sewerage system. The concessionaires are required to expand the supply of water
coverage and sewerage services, provide uninterrupted water supply, and increase
water pressure during the concession period. The ownership of the facilities and
movable properties existing at the beginning of the concession period remain with
respondent MWSS.
As consideration for the performance of their obligations, the concessionaires
are empowered to charge and collect water and sewerage services based on standard
rates. Article 9 2 of the Concession Agreements provides inter alia that the standard
rates may be adjusted from time to time subject to the limitation that the
concessionaires' rate of net return shall not exceed twelve percent (12%) per
annum , as required in Section 12 3 of the MWSS Charter (R.A. No. 6234).
On August 3, 2000, the MWSS Board of Trustees, pursuant to Article 13.2 4 of the
Concession Agreements, passed Resolution No. 277-2000 directing the Commission
on Audit (COA) to conduct a rate audit of the concessionaires' operations for the
purpose of ensuring that their rate of return does not exceed the 12% cap mandated in
Section 12 of the MWSS Charter. cDEICH
On September 15, 2003 and December 2, 2003, the COA submitted to the MWSS
its two audit Reports with a nding that from January 1 to December 31, 1999, the
Maynilad Water Services, Inc. had a net Rate of Return (ROR) of 7.71%, while the Manila
Water Company, Inc. had an ROR of 40.92%. The pertinent portions of the COA Reports
state:
Report No. 2000-38 (for Maynilad Water Services, Inc. [MWSI])
Result of the Audit
The audit, after considering the adjustments for rate determination,

resulted in an actual rate of return of 7.71% during the period January 1 to
December 31, 1999 on MWSI's invested capital of P3.999 billion inclusive of
Concession Fees of P3.36 billion pertaining to completed projects. The return is
4.29% below the allowable Rate of Return Base (RORB) of 12%.
xxx xxx xxx

Report No. 2000-39 (for Manila Water Company, Inc. [MWCI])
Result of the Audit
The audit, after considering the adjustments for rate determination,

resulted in an actual rate of return of 40.92% during the period January 1 to
December 31, 1999 on MWCI's invested capital of P971.93 million inclusive of
Concession Fees of P556.12 million pertaining to completed projects. The return
is 28.92% above the allowable RORB of 12%. CDISAc
xxx xxx xxx
According to the COA Reports, "in the rate determination, only those properties
acquired, owned, and actually used in the operation of the concessionaires were
included in the computation of the invested capital."
On March 31, 2004, the MWSS Regulatory O ce issued a Notice of Extraordinary
Price Adjustment (NEPA) to both concessionaires, stating that "pursuant to Article
9.3.1 of the Concession Agreements, the Regulatory O ce has determined that
Grounds for Extraordinary Price Adjustment (GEPA) have occurred," consisting in a
purported "change in law, government regulation, rule or order or interpretation thereof,
that affects or is likely to affect the Cash Flow of the concessionaires." According to
the NEPA, the "change in law, rule or interpretation thereof" was brought about by the
Supreme Court Resolution dated April 9, 2003 in Republic v. Manila Electric Company
(MERALCO) 5 holding that "income tax payments of a utility are not expenses which
contribute to or are incurred in connection with the production of pro t of a public
utility." The NEPA further stated that "the Regulatory O ce shall soon determine the
Extraordinary Price Adjustment which shall be made effective January 1st of the
Charging Year 2005."
The concessionaires opposed the NEPA and requested that it be set aside on the
grounds that (a) they are not public utilities but mere agents and contractors of MWSS
by virtue of the Concession Agreements; (b) their income tax payments are considered
expenditures under the Concession Agreements; (c) in the case of the Manila Water
Company, Inc., the MWSS Regulatory O ce had approved its Business Plan dated
September 18, 2002 and granted it a Rate Rebasing; and that the said Plan treats
income tax payments as expenditures; (d) the premise of the GEPA is that the
concessionaires are public utilities; (e) the COA conducted the rate audit on the
premise that the concessionaires are public utilities even if they maintain they are not of
such character; and (f) the MERALCO ruling does not involve the GEPA contemplated in
clause 9.3.1 (ii) of the Concession Agreements. ETIcHa
On June 2, 2004, the MWSS Board of Trustees, pursuant to Article 12.1 6 of the
Concession Agreements, directed its Regulatory O ce and the concessionaires to
create a Technical Working Group (TWG) which will discuss the issues raised by the
concessionaires in order to nd a mutually acceptable resolution to avoid arbitration
before the Appeals Panel.
Thus, the TWG was created composed of representatives from the MWSS
Regulatory O ce, the concessionaires, and the MWSS Corporate O ce. On July 9,
2004, the TWG invited resource persons 7 to shed light on what should be the status of
the MWSS and the concessionaires under the privatization program, as well as the
proper interpretation and application that should be given to Section 12 of the MWSS
Charter and Section 9.1 of the Concession Agreements insofar as the rate of return set
in the Charter and the tariff adjustments are concerned. DHETIS
On July 27, 2004, the TWG submitted its Report. Among the ndings of the TWG,
with the assistance of the resource persons, are: (1) the intent of the Concession
Agreements is for the MWSS to remain as a public utility providing waterworks and
sewerage services, while the concessionaires are its agents and contractors,
consistent with the framework of the concession arrangements; (2) it is the MWSS that
has the legislative franchise under its Charter, while the concessionaires do not have a
franchise: (3) in its operation, the MWSS contracted the services of the concessionaires
to perform certain functions and authorized them, by way of agency, to exercise certain
rights in performing their obligations; (4) during the bidding and selection of
concessionaires, the latter had submitted their bids on the basis of MWSS
representation that it would retain its status as a public utility having jurisdiction,
supervision and control over all waterworks and sewerage system within Metro Manila,
Rizal and Cavite; and (5) based on the framework of the Concession Agreements
(speci cally on Art. 1 "De nitions", Art. 2.1 "Grant of Concession", and Art. 9.4 "General
Rate Setting Policy/Rate Rebasing Determination"), the MERALCO ruling has no
relevance to the concessionaires' situation.
On July 30, 2004, the MWSS Regulatory O ce issued the assailed Resolution No.
04-006-CA 8 approving and adopting the ndings and recommendations of the TWG,
thus:
NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved:

1. The RO hereby APPROVES and adopts all the ndings, conclusions, and
recommendations of the Joint Technical Working Group as contained in its
memorandum to the MWSS Board of Trustees dated July 29, 2004;
2. The RO shall consider and treat the Concessionaires as mere agents
and contractors of MWSS, which is and still remains to be the
public utility. The Supreme Court Decision in the Meralco case is
not applicable to the Concessionaires, thus the NEPA Notice
dated 31 March 2004 has no further force and effect. The
appropriate procedure in the conduct of rate audit of MWSS has
been established by the National Water Resources Board (NWRB) .
HCaEAT
3. The RO shall provide COA with a copy of the TWG Report per Assistant
Commissioner Cuenco's request, as well as inform the COA of the
appropriate framework for the conduct of the rate audit.
4. The RO shall inform the COA of the appropriate framework for the conduct of
the rate audit of MWSS such that: a) the rate audit of MWSS as public
utility shall observe the procedures/guidelines set out in the
MWSS letter to NWRB dated 21 November 1996 and NWRB letter
to MWSS dated 02 December 1996, i.e., "The procedure for rate of
return (ROR) calculation and, the 12% ceiling shall be applicable
to the entire waterworks system, including both the income and
assets held respectively by the Concessionaires and MWSS ," and
the formula that the ROR is equal to income after interest and taxes
divided by the base of Net revalued xed assets in operation + 2 months
operating capital; and b) MWSS and its Concessionaires shall ensure
that actual tariff rates as adjusted by Article 9.1 of the CA shall
not exceed the maximum tariff rates consisted with the 12% ROR
limit , and in case actual rates exceed the tariff ceiling consistent
with 12% ROR limit, RO shall propose a service obligation
deferment to adjust actual rates or compute Expiration Payment
due to Concessionaires . ACcaET
The following were also identified as continuing guiding principles :

1. Any dispute between MWSS and its Concessionaires on rate audits shall be
resolved through Dispute Resolution procedures (Art. 12) set in the CA.
2. The Concessionaires, as agents and contractors of MWSS are to submit annual

audited Financial Statements (F/S) relating to the Concession. Said F/S,
which will be treated as nal inputs, shall be consolidated for purposes of
rate audit determination as per NWRB guidelines.
3. The Concessionaires shall engage an independent Auditor who will be tasked

to prepare the audited F/S. The Concessionaires shall ensure that the
independent Auditor shall have competence and international experience
auditing water projects.
4. Prior to the implementation of any Rate Rebasing tariff adjustment for a Rate
Rebasing Period, the RO shall:
a) Determine the indicative tariff consistent with the 12% return limit for
said RR period; acCITS
b) Determine the actual RR tariff adjustment consistent with the

Concessionaires' Business Plan and ADR as reviewed and approved
by RO;
c) Prepare a "trial or test rate audit" to indicate level and trend of actual
rates vis-à-vis the tariff ceiling in each year of the Rate Rebasing.
5. The KPI/BEM mutually agreed between the Concessionaires and MWSS/RO
shall serve as basis for determining the prudent and e cient expenditures
of the Concessionaires. Other mechanism to determine prudence and
efficiency will be explored by the RO with the Concessionaires.
6. The RO shall take the lead role to conduct a revaluation/reappraisal of the
assets of both MWSS and its Concessionaires use for the provision of
water supply and sewerage services. This shall be conducted by reputable
appraisal firms and shall be done at least once a year.
7. The COA (or any Independent Auditor of RO's choice) shall facilitate the
consolidation of audited F/S of both MWSS and Concessionaires. HDcaAI
8. The audit of MWSS as the public utility by COA shall be based on the
framework developed by NWRB. The audit of Concessionaires shall be
conducted by an Independent Auditor in accordance with KPI/BEM
framework.
On the same day (July 30, 2004), respondent MWSS Board of Trustees, in its
assailed Resolution No. 2004-201, 9 approved Regulatory Office Resolution No. 04-006-
CA.
On June 29, 2006, the above-named petitioners led the present petition alleging
that they received copies of the two assailed Resolutions only on May 25, 2006; 1 0 that
respondents, in issuing the assailed Resolutions, acted with grave abuse of discretion
amounting to lack or in excess of jurisdiction; that the nding by respondents that the
concessionaires are not public utilities, but mere agents/contractors of the MWSS, has
"the effect of excluding the rates set by such concessionaires from the limitation in
Section 12 of R.A. 6234 (MWSS Charter);" and that this, in turn, "will have the effect of
increasing the rates that can be charged against them and the subscribers to the water
service provided by the concessionaires." 1 1
For their part, respondents, in their Comment, pray for the dismissal of the
petition for lack of merit.
The instant petition must fail.
First , petitioners failed to resort to the appropriate remedy. Under Section 12 of
the MWSS Charter, it was the defunct Public Service Commission 1 2 which had the
exclusive original jurisdiction over all cases contesting the rates or fees of
water and sewerage services , thus: CTHDcS
Sec. 12. Review of Rates by the Public Service Commission . — The

rates and fees xed by the Board of Trustees for the System (MWSS) and by the
local governments for the local systems shall be of such magnitude that the
System's rate of net return shall not exceed twelve percentum (12%), on a rate
base composed of the sum of its assets in operation as revalued from time to
time plus two months' operating capital. Such rates and fees shall be effective
and enforceable fteen (15) days after publication in a newspaper of general
circulation within the territory de ned in Section 2(c) of this Act. The Public
Service Commission shall have exclusive original jurisdiction over all
cases contesting said rates or fees. Any complaint against such rates
or fees shall be filed with the Public Service Commission within thirty (30)
days after the effectivity of such rates, but the ling of such complaint or action
shall not stay the effectivity of said rates or fees. The Public Service Commission
shall verify the rate base, and the rate of return computed therefrom, in
accordance with the standards above outlined. The Public Service Commission
shall nish, within sixty (60) calendar days, any and all proceedings necessary
and/or incidental to the case, and shall render its ndings or decisions thereon
within thirty (30) calendar days after said case is submitted for decision.
In cases where the decision is against the xed rates or fees, excess
payments shall be reimbursed and/or credited to future payments, in the
discretion of the Commission. (Underscoring supplied)
Indeed, petitioners have a plain and speedy remedy in the ordinary course of law
as prescribed in Section 12 above. They cannot avail of certiorari as a substitute for
that plain and speedy recourse. The writ of certiorari and prohibition may be availed of
only when "there is no appeal, or any plain, speedy, and adequate remedy in the ordinary
course of law." 1 3
Second , even assuming that petitioners may resort to certiorari and prohibition,
their petition, however, suffers from a fatal defect, i.e., it failed to implead the two
concessionaires who are certainly indispensable parties . Indispensable parties are
those which have such interest in the controversy that a nal adjudication of the case
would certainly affect their rights, so that the court cannot proceed without their
presence. 1 4 Thus, their non-inclusion in the petition for a writ of certiorari would render
the said petition defective. 1 5
Third , the petition is barred under the doctrine of hierarchy of courts. Such
doctrine is one of the structural aspects intended for the orderly administration of
justice. This Court has concurrent original jurisdiction with the Regional Trial Court
and the Court of Appeals in the issuance of the extraordinary writ of certiorari and
prohibition. However, in availing of such extraordinary writ, petitioners do not have the
complete liberty or discretion to le their petition in any of these courts . In
the absence of special reasons, they cannot disregard the doctrine of the hierarchy of
courts in our judicial system by seeking relief directly from this Court despite the fact
that the same is available in the lower tribunals in the exercise of their original
concurrent jurisdiction. 1 6
Signi cantly, the petition raises issues of fact which cannot be addressed to
this Court. For instance, in determining whether the concessionaires are public utilities
or mere agents of MWSS, there must be an examination of the intention of MWSS and
the concessionaires at the time of the bidding process, negotiation, and execution of
the Concession Agreements. Certainly, this matter is a factual issue requiring
presentation and evaluation of evidence such as bidding documents, memoranda, and
the testimonies of the participants of the bidding and contract negotiations. Moreover,
petitioners maintain that the assailed Resolutions could authorize the increase of water
rates beyond the 12% rate of return limit. While such claim is purely speculative in
nature, it would nonetheless require a very complicated and technical computation of
the current rate of return — which entails a determination of income, the valuation of
assets, which assets are to be included in the computation, and other factual factors.
Again, these matters are beyond the Court's function as it is not a trier of facts.
While petitioners claim that the assailed Resolutions are "in agrant violation of
the Constitution and statutory provisions de ning public utilities," however, they failed
to cite any Constitutional provision being violated. cTECIA
In Santiago v. Vasquez, et al., 1 7 this Court held:

. . . . We discern in the proceedings in this case a propensity on the part of
petitioner, and, for that matter, the same may be said of a number of litigants who
initiate recourses before us, to disregard the hierarchy of courts in our judicial
system by seeking relief directly from this Court despite the fact that the same is
available in the lower courts in the exercise of their original concurrent jurisdiction,
or is even mandated by law to be sought therein. This practice must be
stopped , not only because of the imposition upon the precious time of this Court
but also because of the inevitable and resultant delay, intended or otherwise, in
the adjudication of the case which often has to be remanded or referred to the
lower court as the proper forum under the rules of procedure, or as better
equipped to resolve the issues since this Court is not a trier of facts. We,
therefore, reiterate the judicial policy that this Court will not entertain
direct resort to it unless the redress desired cannot be obtained in the
appropriate courts or where exceptional and compelling circumstances
justify availment of a remedy within and calling for the exercise of our
primary jurisdiction . (Underscoring supplied) DAaEIc
WHEREFORE, we DISMISS the instant petition for lack of merit. No

pronouncement as to costs.
SO ORDERED.
Puno, C.J., Ynares-Santiago, Carpio, Austria-Martinez, Corona, Carpio-Morales,
Azcuna, Tinga, Chico-Nazario, Velasco, Jr., Nachura and Reyes, JJ., concur.
Quisumbing, J., is on official leave.
Footnotes
1. Entitled "An Act Creating The Metropolitan Waterworks And Sewerage System And Dissolving
The National Waterworks And Sewerage Authority; And For Other Purposes."
2. "ARTICLE 9. RATES AND CONNECTION CHARGES
9.1. Standard Rates/CERA Fee

Subject to the limitation of Section 12 of the Charter , Standard Rates may be
adjusted from time to time in accordance with the rate adjustment provisions set forth in
Section 9.2, 9.3 and 9.4 below. . . . ." (Underscoring supplied)
3. "Sec. 12. Review of Rates by the Public Service Commission). — The rates and fees fixed by
the Board of Trustees for the System (MWSS) and by the local governments for the local
systems shall be of such magnitude that the System's rate of net return shall not
exceed twelve percentum (12%), on a rate base composed of the sum of its
assets in operation as revalued from time to time plus two months' operating
capital . Such rates and fees shall be effective and enforceable fifteen (15) days after
publication in a newspaper of general circulation within the territory defined in Section 2
(c) of this Act. . . . ." (Underscoring supplied) HcTDSA
4. "ARTICLE 13. INFORMATION AND REPORTING REQUIREMENTS

xxx xxx xxx
13.2. Audits
Not less frequent than once a year, the Concessionaire's books and records shall be
audited by an independent auditor appointed by, or acceptable to, the Regulatory Office,
pursuant to internationally accepted accounting practices. In addition, the Regulatory
Office may, upon giving not less than 15 days prior written notice to the Concessionaire,
require that the Concessionaire's books and records relating to the Concession be
audited on an interim basis by the Regulatory Office or by an outside auditor. The
Concessionaire shall cooperate fully with all such audits."
5. G.R. Nos. 141314 & 141369, April 9, 2003, 401 SCRA 130.
6. "Art. 12.1. The parties hereto agree to use reasonable efforts to resolve any disagreements or
disputes concerning the interpretation or implementation of this Concession Agreement
through mutual consultation and negotiation."
7. Gregorio Vigilar, former Secretary of the Department of Public Works and Highways (DPWH),
Dr. Angel Lazaro III, former MWSS Administrator, Mark Dumol, former DPWH Chief of
Staff, and Atty. Eusebio Tan of the ACCRA Law Office, legal advisor to the MWSS.
8. Annex "B," Petition, rollo, pp. 41-44.
9. Annex "A," id., p. 36.

10. Petition, p. 2; rollo, p. 4.
11. Id., p. 10.
12. Now the National Water Resources Board.
13. Section 1, Rule 65 of the 1997 Rules of Civil Procedure, as amended.

14. Amargo v. Court of Appeals, No. L-31762, September 19, 1973, 53 SCRA 64, 75; Florenz D.
Regalado, Remedial Law Compendium, Vol. One, Sixth Revised Edition, p. 724.
15. Id., citing Republic v. Hon. Roberto Zurbano, et al., 105 Phil. 409; Dacudao v. Hon. Duenas,
et al., 108 Phil. 94.
16. Florenz D. Regalado, Remedial Law Compendium, Vol. One, Sixth Revised Edition, p. 719.
17. G.R. Nos. 99289-90, January 27, 1992, cited in Florenz D. Regalado, Remedial Law
Compendium, id.

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EN BANC

[G.R. No. L-5458. September 16, 1953.]

LUZON STEVEDORING CO., INC., and VISAYAN STEVEDORE

Perkins, Ponce Enrile, Contreras and Enrique Belo for petitioners.

1. CONTRACTS AND OBLIGATIONS; ADMIRALTY LAW; HIRE OF VESSEL,

Petitioners apply for review of a decision of the Public Service Commission

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[G.R. No. 83551. July 11, 1989.]

RODOLFO B. ALBANO , petitioner, vs. HON. RAINERIO O. REYES,

Vicente Abad Santos for petitioner.

1. ADMINISTRATIVE LAW; PHILIPPINE PORTS AUTHORITY; AUTHORIZED TO

This is a Petition for Prohibition with prayer for Preliminary Injunction or

(ii) To supervise, control, regulate, construct, maintain, operate, and

(v) To provide services ( whether on its own, by contract, or otherwise)

— sorting, weighing, measuring, storing, warehousing, or otherwise

xxx xxx xxx

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[G.R. No. 141314. November 15, 2002.]

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGY

[G.R. No. 141369. November 15, 2002.]

LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP) consisting

The Solicitor General for petitioner in G.R. No. 141314.

3. POLITICAL LAW; ADMINISTRATIVE LAW; ENERGY REGULATORY BOARD; ON

While the power to x rates is a legislative function, whether exercised by the

The principle behind the inclusion of operating expenses in the determination of a

13. IV A. F. Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the

15. Id. at 232.

28. Smyth v. Ames, 169 U.S. 466, 545 (1898).

32. Id. at 385–386.

35. Rollo of G.R. No. 141314, p. 59.

44. 42 Phil. 621 (1922).

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[G.R. No. 115381. December 23, 1994.]

KILUSANG MAYO UNO LABOR CENTER , petitioner, vs. HON. JESUS B.

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Based on several surveys and observations, bus companies are already

In view thereof, the LTFRB is hereby directed to immediately publicize a

For compliance. (Emphasis ours.)

On March 30, 1992, then Secretary of the Department of Transportation and

Now on the merits of the case.

1990 P0.37 15% (P0.05) P0.42

Otherwise stated, the establishment of public need in favor of an applicant

1. Pantranco v. Public Service Commission, 70 Phil. 221.

During the Commonwealth period, the National Assembly passed a more

4. Decision of LTFRB in Case No. 90-4794, p. 4; Rollo, p. 59.

12. 57 Phil. 872 [1933].

5. The Commission on Audit (COA) is requested by the regulatory body to conduct an

16. Black's Law Dictionary, 5th Edition, p. 1105.

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[G.R. No. 138810. September 29, 2004.]

BATANGAS CATV, INC. , petitioner, vs . THE COURT OF APPEALS, THE

In the late 1940s, John Walson, an appliance dealer in Pennsylvania, suffered a

xxx xxx xxx

d) Regulate, x the license fee for, and tax any business or

Resolution No. 210 granting appellee a permit to construct, install and

THE COURT OF APPEALS ERRED IN HOLDING THAT THE GENERAL WELFARE

THE COURT OF APPEALS ERRED IN REVERSING THE DECISION APPEALED

"a. Issue Certi cate of Public Convenience for the operation of

But, lest we be misunderstood, nothing herein should be interpreted as to strip LGUs

In addition, Section 458 of the same Code specifically mandates:

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Deregulation is the reduction of government regulation of business to permit freer