G.R. No. 112702 September 26, 1997

NATIONAL POWER CORPORATION, petitioner,
vs.
COURT OF APPEALS and CAGAYAN ELECTRIC POWER AND LIGHT CO., INC. (CEPALCO), respondents.
G.R. No. 113613 September 26, 1997
PHIVIDEC INDUSTRIAL AUTHORITY, petitioner,
vs.
COURT OF APPEALS and CAGAYAN ELECTRIC POWER AND LIGHT CO., INC. (CEPALCO), respondents.

ROMERO, J.:

Offered for resolution in these consolidated petitions for review on certiorari is the issue of whether or not the National
Power Corporation (NPC) has jurisdiction to determine whether it may supply electric power directly to the facilities of
an industrial corporation in areas where there is an existing and operating electric power franchisee.

On June 17, 1961, the Cagayan Electric and power Light Company (CEPALCO) was enfranchised by Republic Act
No. 3247 "to construct, maintain and operate an electric light, heat and power system for the purpose of generating
and/or distributing electric light, heat and/or power for sale within the City of Cagayan de Oro and its suburbs" for fifty
(50) years. Republic Act No. 3570, approved on June 21, 1963, expanded the area of coverage of the franchise to
include the municipalities of Tagoloan and Opol, both in the Province of Misamis Oriental. On August 4, 1969,
Republic Act No. 6020 further amended the same franchise to include in the areas of CEPALCO's authority of
"generating and distributing electric light and power for sale," the municipalities of Villanueva and Jasaan, also of the
said province.

Presidential Decree No. 243, issued on July 12, 1973, created a "body corporate and politic" to be known as the
Philippine Veterans Investment Development Corporation (PHIVIDEC) vested with authority to engage in
"commercial, industrial, mining, agricultural and other enterprises" among other powers 1 and "to allow the full and
continued employment of the productive capabilities of and investment of the veterans and retirees of the Armed
Forces of the Philippines." On August 13, 1974, Presidential Decree No. 538 was promulgated to create the
PHIVIDEC Industrial Authority (PIA), a subsidiary of PHIVIDEC, to carry out the government policy "to encourage,
promote and sustain the economic and social growth of the country and that the establishment of professionalized
management of well-planned industrial areas shall further this objective."2 Under Sec. 3 of P.D. No. 538, the first area
for development shall be located in the municipalities of Tagoloan and Villanueva.3 This area forms part of the
PHIVIDEC Industrial Estate Misamis Oriental (PIE-MO).

As manager of PIE-MO, PIA granted the Ferrochrome Philippines, Inc. (FPI) and Metal Alloys Corporation (MAC)
authority to operate in its area of development. On July 6, 1979, PIA granted CEPALCO a temporary authority to
retail electric power to the industries operating within the PIE-MO.4 The Agreement executed by PIA and CEPALCO
authorized CEPALCO "to operate, administer, construct and distribute electric power within the PHIVIDEC Industrial
Estate, Misamis Oriental, such authority to be co-extensive with the territorial jurisdiction of PHIVIDEC Industrial
Estate, as defined in Sec. 3 of P.D. No. 538 and shall be for a period of five (5) years, renewable for another five (5)
years at the option of CEPALCO." The parties provided further that:

9. At the end of the fifth year, or at the end of the 10th year, should this Agreement be thus renewed, PIA
has the option to take over the operation of the electric service and acquire by purchase CEPALCO's assets
within PIE-MO. This option shall be communicated to CEPALCO in writing at least 24 months before the
date of acquisition of assets and takeover of operation by PIA. Should PIA exercise its option to purchase
the assets of CEPALCO in PIE-MO, PIA shall respect the right of ownership of and maintenance by
CEPALCO of those assets inside PIE-MO not covered by such purchase. . . .

According to PIA,5 CEPALCO proved no match to the power demands of the industries in PIE-MO that most of these
companies operating therein closed shop.6 Impelled by a "desire to provide cheap power costs to power-intensive
industries operating within the Estate," PIA applied with the National Power Corporation (NPC) for direct power
connection which the latter in due course approved.7 One of the companies which entered into an agreement with the
NPC for a direct sale and supply of power was the Ferrochrome Phils., Inc. (FPI).

Contending that the said agreement violated its right as the authorized operator of an electric light and power system
in the area and the national electrification policy, CEPALCO filed Civil Case No. Q-35945, a petition for
prohibition, mandamus and injunction before the Regional Trial Court of Quezon City against the NPC.
Notwithstanding NPC's claim that it was authorized by its Charter to sell electric power "in bulk" to industrial
enterprises, the lower court rendered a decision on May 2, 1984, restraining the NPC from supplying power directly to
FPI upon the ground that such direct sale, supply and delivery of electric power by the NPC to FPI was violative of
the rights of CEPALCO under its legislative franchise. Hence, the lower court ordered the NPC to "permanently
desist" from effecting direct supply of power to the FPI and "from entering into and/or implementing any agreement or
arrangement for such direct power connection, unless coursed through the power line" of CEPALCO.

Eventually, the case reached this Court through G.R. No. 72085.8 On December 28, 1989, the Court denied the
appeal interposed by NPC on the ground that the statutory authority given to the NPC as regards direct supply of
power to BOI-registered enterprises "should always be subordinate to the 'total-electrification-of-the-entire-country-
on-an-area-coverage basis policy' enunciated in P. D. No. 40,"9 We held further that:
 Nor should we lose sight of the factual findings of the court a quo that petitioner-appellee CEPALCO had not
only been authorized by the Phividec Industrial Authority to provide electrical power to the Phividec Industrial
Estate within which the FPI plant is located, but that petitioner-appellee CEPALCO had in fact, supplied the
latter's power requirements for the construction of its plant, upon FPI's application therefor as early as
October 17, 1980.

It bears emphasis then that "it is only after a hearing (or an opportunity for such a hearing) where it is
established that the affected private franchise holder is incapable or unwilling to match the reliability and
rates of NPC that direct connection with NPC may be granted." Here, petitioner-appellee's reliability as a
power supplier and ability to match the NPC rates were never put in issue.

It is immaterial that petitioner-appellee's franchise was not exclusive. A privilege to sell within specified
territory, even if not exclusive, is a valuable property right entitled to protection against unauthorized
competition.10

Notwithstanding said decision, in September 1990, FPI filed a new application for the direct supply of electric power
from NPC. The Hearing Committee of the NPC had started hearing the application but CEPALCO filed with the
Regional Trial Court of Quezon City a petition for contempt against NPC officials led by Ernesto Aboitiz. On August
10, 1992, the trial court found the respondents in direct contempt of court and accordingly imposed upon them a fine
of P500.00 each.

The respondent NPC officials challenged before this Court the judgment holding them in contempt of court through
G.R. No. 107809, (Aboitiz v. Regino).11 In the Decision of July 5, 1993, the Court upheld the contempt ruling and,
after quoting the lower court's decision of May 2, 1984 which the Court upheld in G.R. No. 72085, said:

These directives show that the lower court (and this Court) intended the arrangement between FPI and
CEPALCO to be permanent and free from NAPOCOR's influence or intervention. Any attempt on the part of
NAPOCOR or its officers and/or employees to strike a deal with FPI would be a clear and direct
disobedience to a lawful order and therefore contemptuous.

The petitioners call the attention of the Court to the statement of CEPALCO that "NAPOCOR has already
implemented in full" the May 2, 1984 decision of the lower court as affirmed by this Court. They suggest that
in view of this, the decision no longer has any binding effect upon the parties, or to put it another way, has
become functus officio. Consequently, when they entertained the re-application of FPI for direct power
connection to NAPOCOR, they were not disobeying the May 2, 1984 order of the trial court and so should
not be held in contempt.

This argument must be rejected in view of our finding of the permanence and comprehensiveness of the
challenged order of the trial court. "Permanent" is not a difficult word to understand. It means "lasting or
intended to last indefinitely without change." As for the scope of the order, NAPOCOR was directed to
"desist from effecting, causing, and continuing the direct supply, sale and delivery of electricity from its
power line to the plant of Ferrochrome Philippines, Inc., and  from entering into and/or implementing any
agreement or arrangement for such direct power connection, unless coursed through the power line of
petitioner." (Emphasis supplied.)

Meanwhile, the NPC Hearing Committee12 proceeded with its hearings. CEPALCO was duly notified thereof but it
opted to question the committee's jurisdiction. It did not submit any evidence. Consequently, in its Report and
Recommendation dated September 27, 1991, the committee gave weight to the evidence presented by FPI that
CEPALCO charged higher rates than what the NPC would if allowed to supply power directly to FPI. Although the
committee considered as unfounded FPI's claim of CEPALCO's unreliability as a power supplier,13 it nonetheless held
that:

Form (sic) the foregoing and on the basis of the decision of the Supreme Court in the case of National
Power Corporation and Fine Chemicals (Phils.) Inc. v. The Court of Appeals and the Manila Electric
Company, G.R. No. 84695, May 8, 1990, FPI is entitled to a direct connection to NPC as applied for
considering that CEPALCO is unwilling to match the rates of NPC for directly serving FPI and that FPI is a
duly registered BOI registered enterprises (sic). The Supreme Court in the aforestated case has ruled as
follows:

As consistently ruled by the Court pursuant to P.D. No. 380 as amended by P.D. No. 395,
NPC is statutorily empowered to directly service all the requirements of a BOI registered
enterprise provided that, first, any affected private franchise holder is afforded an
opportunity to be heard on the application therefor and second, from such a hearing, it is
established that said private franchise holder is incapable or unwilling to match the
reliability and rates of NPC for directly serving the latter (National Power Corporation v.
Jacinto, 134 SCRA 435 [1985]. National Power Corporation v. Court of Appeals, 161
SCRA 103 [1988]).14

However, considering the "better and priority right" of PIA, the committee recommended that instead of a direct power
connection by the NPC to FPI, the connection should be made to PIA "as a utility user for its industrial Estate at
Tagoloan, Misamis Oriental."15
For its part, on November 3, 1989, CEPALCO filed with the Energy Regulatory Board (ERB) a petition praying that
the ERB "order the discontinuance of all existing direct supply of power by the NPC within petitioner's franchise area"
(ERB Case No. 89-430). On July 17, 1992, the ERB ruled that CEPALCO "is relatively efficient and reliable as
manifested by its very low system losses (far from the 14% standard) and very high power factors" and therefore
CEPALCO is technically capable "to distribute power to its consumers within its franchise area, particularly the
industrial customers." It disposed of the petition as follows:

WHEREFORE, in view of the foregoing premises, when the petitioner has been proven to be capable of
distributing power to its industrial consumers and having passed the secondary considerations with a
passing mark of 85%, judgment is hereby rendered granting the relief prayed for. Accordingly, it is hereby
declared that all direct connection of industries to NPC within the franchise area of CEPALCO is no longer
necessary. Therefore, all existing NPC direct supply of power to industrial consumers within the franchise
area of CEPALCO is hereby ordered discontinued. . . . .16

However, during the pendency of the Aboitiz case in this Court or on August 3, 1992, PIA contracted the NPC for the
construction of a 138 kilovolt (KV) transmission line from Namutulan substation to the receiving and/or substation of
PIA.17

As expected, on February 17, 1993, CEPALCO filed in the Regional Trial Court of Pasig (Branch 68), a petition
for certiorari, prohibition, mandamus and injunction against the NPC and some officials of both the NPC and
PIA.18 Docketed as SCA No. 290, the petition specifically sought the issuance of a temporary restraining order.
However, after hearing, the prayer for the temporary restraining order was denied by the court in its order of March
12, 1993.19 CEPALCO filed a motion for the reconsideration of said order while NPC and PIA moved for the dismissal
of the petition.20

On June 23, 1993, noting the cases filed by CEPALCO all seeking exclusivity in the distribution of electric power to
areas covered by its franchise, the court 21 ruled that "the right of petitioner to supply electric power in the aforesaid
area to the exclusion of other entities had been settled once and for all by the Regional Trial Court of Quezon City
wherein petitioner obtained a favorable judgment." Hence, the petition was dismissed on the ground of res judicata.22

Forthwith, CEPALCO elevated the case to this Court through a petition for certiorari, prohibition and injunction with
prayer for the issuance of a preliminary injunction or a temporary restraining order. The petition was docketed as G.R.
No. 110686 but on August 18, 1993, the Court referred it to the Court of Appeals pursuant to Sec. 9, paragraph 1 of
B.P. Blg. 129 conferring upon the appellate court original jurisdiction to issue writs of prohibition and certiorari and
auxiliary writs.23 In the Court of Appeals, the petition was docketed as CA-G.R. No. 31935-SP.

On September 10, 1993, the Fifteenth Division of the Court of Appeals issued a resolution 24 denying the prayer for
the issuance of a temporary restraining order on the strength of Sec. 1 of P.D. No. 1818. It ruled that since the NPC is
a public utility, it "enjoys the protective mantle" of said decree prohibiting courts from issuing restraining orders or
preliminary injunctions in cases involving infrastructure and natural resource development projects of, and operated
by, the government.25

However, on September 17, 1993, upon a motion for reconsideration filed by CEPALCO and a re-evaluation of the
provisions of P.D. No. 1818, the Court of Appeals set aside its resolution of September 10, 1993 and held that:

. . . the project intended by respondent NPC, which is the construction, completion and operation of the 138-
kv line, is not in consonance with the intendment of said Decree which is to protect public utilities and their
projects and activities intended for public convenience and necessity. The project of respondent NPC is
intended to serve exclusively the needs of private entities, Metal Alloys Corporation and Ferrochrome
Philippine in Tagoloan, Misamis Oriental.

Accordingly, the Court of Appeals issued a temporary restraining order directing the private respondents therein "to
immediately cease and desist from proceeding with the construction, completion and operation of the 138-kv line
subject of the petition." The NPC, PIA and the officers of both were directed to explain why the preliminary injunction
prayed for should not issue.26

In due course, the Court of Appeals rendered the decision 27 of November 15, 1993 assailed herein. After ruling that
the lower court gravely abused its discretion in dismissing the petition below on the grounds of res judicata and litis
pendentia, the Court of Appeals confronted squarely the issue of whether or not "the NPC itself has the power to
determine the propriety of direct power connection from its lines to any entity located within the franchise area of
another public utility."28

Elucidating that the ruling of this Court in both G.R. No. 78609 (NPC v. Court of Appeals) 29 and G.R. No. 87697 (Del
Monte [Philippines], Inc. v. Hon. Felix M. de Guzman, etc., etc., et al.) 30 categorically held that before a direct
connection to the NPC maybe granted, a proper administrative body must conduct a hearing "to determine which
entity, the franchise holder or the NPC, has the right to supply electric power to the entity applying for direct
connection," the Court of Appeals declared:

We have no doubt that the ERB, and not the NPC, is the administrative body referred to by the Supreme
Court where the hearing is to be conducted to determine the propriety of direct connection. The charter of
the ERB (PD 1206 in relation to EO 172) is clear on this:
 The Board shall, after due notice and hearing, exercise the following powers and
functions, among others:

x x x           x x x          x x x

e. Issue Certificate of Public Convenience for the operation of electric power utilities and
services, . . . including the establishment and regulation of areas of operation of particular
operators of public power utilities and services, the fixing of standards and specifications
in all cases related to the issued Certificate of Public Convenience . . .

Moreover, NPC is not an administrative body as jurisprudentially defined, and that the NPC cannot usurp a
power it has never been conferred by its charter or by other law — the power to determine the validity of
direct connection agreement it enters into in violation of a power distributor's franchise.

Thus, considering that PIA professes to be and intends to engage in the business of a public power utility, it
must first apply for a public convenience and necessity (conferment of operating authority) with the ERB.
This may have been the opportune time for ERB to determine whether to allow PIA to directly connect with
NPC, with notice and opportunity for CEPALCO considering that, as the latter alleges, this new line which
NPC is installing duplicates that existing Cepalco 138 kv line which NPC itself turned over to Cepalco and
for which it was paid in full.

Consequently, the Court of Appeals affirmed the dismissal of the petition, annulled and set aside the decision of the
Hearing Committee of the NPC on direct connection with PIA, and ordered the NPC "to desist from continuing the
construction of that NPC-Natumulan-Phividec 138 kv transmission line."31

Without filing a motion for the reconsideration of said Decision, NPC filed in this Court on December 9, 1993, a
motion for an extension of time within which to file "the proper petition." The motion which was docketed as G.R. No.
112702, was granted on December 20, 1993 with warning that no further extension would be granted. Thereafter,
NPC filed a motion praying that it be excused from filing the petition on account of the filing by PIA in the Court of
Appeals of a motion for the reconsideration of the Decision of November 15, 1993. In the Resolution of February 2,
1994, the Court noted and granted petitioner' s motion and considered the case "closed and terminated." 32 This
resolution was withdrawn in the Resolution of February 8, 199533 in view of the "inadvertent clerical error" terminating
the case, after the NPC had mailed its petition for review on certiorari on February 21, 1994.34

In the meantime, PIA filed a motion for reconsideration of the appellate court's Decision of November 15, 1993
arguing in the main that, not being a party to previous cases between CEPALCO and NPC, it was not bound by
decisions of this Court. The Court of Appeals denied the motion on January 28, 1994 on the basis of stare
decisis where once the court has laid down a principle of law as applicable to a certain state of facts, it will adhere to
and apply the principle to all future cases where the facts are substantially the
same.35 Hence, PIA filed a petition for review on certiorari which was docketed as G.R. No. 113613.

G.R. Nos. 112702 and 113613 were consolidated on June 15, 1994.36

In G.R. No. 112702, petitioner NPC contends that private respondent CEPALCO is not entitled to relief because it
has been forum-shopping. Private respondent had filed Civil Case No. Q-93-14597 in the Regional Trial Court of
Quezon City which had been forwarded to it by the Regional Trial Court of Pasig. Said case and the instant case
(SCA No. 290) deal with the same issue of restoring CEPALCO' s right to supply power to FPI and MAC. Petitioner
thus contends that because the principle of litis pendentia applies, although other parties are involved in the case
before the Quezon City court, there is no basis for granting relief to private respondent CEPALCO "(s)ince the
dismissal for lack of jurisdiction was affirmed by the respondent court."37 Corollarily, petitioner asserts that because
the main case herein was dismissed "without trial," the respondent appellate court should not have accorded private
respondent affirmative relief.38

Petitioner NPC's contention is based on the fact that on October 6, 1992, private respondent CEPALCO filed against
the NPC in the Regional Trial Court of Pasig, Civil Case No. 62490, an action for specific performance and damages
with prayer for preliminary mandatory injunction directing the NPC to immediately restore to CEPALCO the
distribution of power pertaining to MAC's consumption.39 However, no summons was served and the ex-parte writ
prayed for was not issued. Nevertheless, the case was forwarded to the Regional Trial Court of Quezon City where it
was docketed as Civil Case No. 93-14597. That case was pending when SCA No. 290 was filed before the Regional
Trial Court of Pasig.

The Court of Appeals affirmed the lower court's dismissal of the case neither on the grounds of res judicata nor ligis
pendentia but on the "only one unresolved issue, which is whether the NPC itself has the power to determine the
propriety of direct power connection from its lines to any entity located within the franchise area of another public
utility."40 The Court of Appeals opined that the effects of litis pendentia could not have resulted in the dismissal of
SCA No. 290 because Civil Case No.  Q-35945 which became G.R. No.  72085 was based on facts totally different
from that of SCA No. 290.

In invoking litis pendentia, however, petitioner NPC refers to this case, SCA No. 290, and Civil Case No. 93-14597.
SCA No. 290 and Civil Case No. 93-14597 may both have the same objective, the restoration of CEPALCO's right to
distribute power to PIE-MO areas under its franchise aside from the fact that the cases involve practically the same
parties. However, litis pendentia may not be successfully invoked to cause the dismissal of SCA No. 290.
In order to constitute a ground for the abatement or dismissal of an action, litis pendentia must exhibit the
concurrence of the following requisites: (a) identity of parties, or at least such as representing the same interest in
both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts, and (c)
identity in the two (2) cases should be such that the judgment that may be rendered in the pending case would,
regardless of which party is successful, amount to res judicata in the other.41 As a rule, the second case filed should
be abated under the maxim qui prior est tempore, potior est jure. However, this rule is not a hard and fast one. The
"priority-in-time rule" may give way to the criterion of "more appropriate action." More recently, the criterion used was
the "interest of justice rule."42

We hold that the last criterion should be the basis for resolving this case, although it was filed later than Civil Case
No. 62490 which, upon its transfer, became Civil Case No. 93-14795. In so doing, we shall avoid multiplicity of suits
which is the matrix upon which litis pendentia is anchored and eventually bring about the final settlement of the
recurring issue of whether or not the NPC may supply power directly to the industries within PIE-MO, notwithstanding
the operation of franchisee CEPALCO in the same area.

It should be noted that there is yet pending another case, namely, Civil Case No. 91-383, instituted by PIA against
CEPALCO in the Regional Trial Court of Misamis Oriental which apparently deals with a related issue — PIA' s
franchise or authority to provide power to enterprises within the PIE-MO. 43 Hence, the principle of litis
pendentia which ordinarily demands the dismissal of an action filed later than another, should be considered under
the primordial concept of "interest of justice," in order that a recurrent issue common to all cases may be definitively
resolved.

The principal and common question raised in these consolidated cases is: whether or not the NPC may supply power
directly to PIA in the PIE-MO area where CEPALCO has a directly franchise. Petitioner PIA in G.R. No. 113613
asserts that it may receive power directly from the NPC because it is a public utility. It avers that P.D. No. 538, as
amended, empowers PIA "as and to be a public utility to operate and serve the power needs within PIE-MO, i.e., a
specific area constituting a small portion of petitioner's franchise coverage," without, however, specifying the
particular provision which so empower PIA.44

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. 45 The term
implies  public use and service.46

Petitioner PIA is a subsidiary of the PHIVIDEC with "governmental and proprietary functions."47 Sec. 4 of P.D. No.
538 specifically confers upon it the following powers:

a. To operate, administer and manage the PHIVIDEC Industrial Areas and other areas which shall hereafter
be proclaimed, designated and specified in subsequent Presidential Proclamation; to construct acquire, own,
lease, operate and maintain infrastructure facilities, factory buildings, warehouses, dams, reservoirs, water
distribution, electric light and power systems, telecommunications and transportation networks, or such other
facilities and services necessary or useful in the conduct of industry and commerce or in the attainment of
the purposes and objectives of this Decree; (Emphasis supplied.)

Clearly then, the PIA is authorized to render indirect service to the public by its administration of the PHIVIDEC
industrial areas like the PIE-MO and may, therefore, be considered a public utility. As it is expressly authorized by law
to perform the functions of a public utility, a certificate of public convenience, as suggested by the Court of Appeals, is
not necessary for it to avail of a direct power connection from the NPC. However, such authority to be a public utility
may not be exercised in such a manner as to prejudice the rights of existing franchisees. In fact, by its actions, PIA
recognized the rights of the franchisees in the area.

Accordingly, in pursuit of its powers "to grant such franchise for and to operate and maintain within the Areas electric
light, heat or power systems," etc. under Sec. 4 (i) of P.D. No. 538 and its rule-making power under Sec. 4 (1) of the
same law, on July 20, 1979, the PIA Board of Directors promulgated the "Rules and Regulations To Implement the
Intent and Provisions of Presidential Decree No. 538." 48 Rule XI thereof on "Utilities and Services" provides as
follows:

Sec. 1. Utilities — It is the responsibility of the Authority to provide all required utilities and services inside
the Estate:

x x x           x x x          x x x

a) Contracts for the purchase of public utilities and/or services shall be

subject to the prior approval of the Authority; Provided, however, that
similar contract(s) existing prior to the effectivity of this Rules and
Regulations shall continue to be in full force and effect.

xxx xxx xxx

(Emphasis supplied.)
It should be noted that the Rules and Regulations took effect thirty (30) days after its publication in the Official
Gazette on September 24, 1979 or more than three (3) months after the July 6, 1979 contract between PIA and
CEPALCO was entered into. As such, the Rules and Regulations itself allowed the continuance of the supply of
electric power to PIE-MO by CEPALCO.

That the contract of July 6, 1979 was not renewed by the parties after the expiration of the five-year period stipulated
therein did not change the fact that within that five-year period, in violation of both the contract and its Rules and
Regulations, PIA applied with the NPC for direct power connection. The
matter was aggravated by NPC's favorable action on the application, totally unmindful of the extent of its powers
under the law which, in National Power Corporation v.  Court of Appeals,49 the Court delimits as follows:

. . . . It is immaterial whether the direct connection is merely an improvement or an increase in existing

voltage, as alleged by petitioner, or a totally new and separate electric service as claimed by private
respondent. The law on the matter is clear. PD 40 promulgated on 7 November 1972 expressly provides
that the generation of electric power shall be undertaken solely by the NPC. However Section 3 of the same
decree also provides that the distribution of electric power shall be undertaken by cooperatives, private
utilities (such as the CEPALCO), local governments and other entities duly authorized, subject to state
regulation. ( Emphasis supplied.)

The same case ruled that "(i)t is only after a hearing (or an opportunity for such a hearing) where it is established that
the affected private franchise holder is incapable or unwilling to match the reliability and rates of NPC that a direct
connection with NPC may be granted."50 As earlier stated, the Court arrived at the same ruling in the later cases of
G.R. Nos. 72085, 84695 and 87697.

Petitioner NPC attempted to abide by these rulings when it conducted a hearing to determine whether it may supply
power directly to PIA. While it notified CEPALCO of the hearing, the NPC is not the proper authority referred to by this
Court in the aforementioned earlier decisions, not only because the subject of the hearing is a matter involving the
NPC itself, but also because the law has created the proper administrative body vested with authority to conduct a
hearing.

CEPALCO shares the view of the Court of Appeals that the Energy Regulatory Board (ERB) is the proper
administrative body for such hearings. However, a recent legislative development has overtaken said view.

The ERB, which used to be the Board of Energy, is tasked with the following powers and functions by Executive
Order No. 172 which took effect immediately after its issuance on May 8, 1987:

Sec. 3. Jurisdiction, Powers and Functions of the Board. — When warranted and only when public necessity
requires, the Board may regulate the business of importing, exporting, re-exporting, shipping, transporting,
processing, refining, marketing and importing, distributing energy resources. . . .

The Board shall, upon prior notice and hearing, exercise the following, among other powers and functions:

(a) Fix and regulate the prices of petroleum products;

(b) Fix and regulate the rate schedule or prices of piped gas to be charged by duly
franchised gas companies which distribute gas by means of underground pipe system;

(c) Fix and regulate the rates of pipeline concessionaires under the provisions of Republic
Act No. 387, as amended, otherwise known as the "Petroleum Act of 1949," as amended
by Presidential Decree No. 1700;

(d) Regulate the capacities of new refineries or additional capacities of existing refineries
and license refineries that may be organized after the issuance of this Executive Order,
under such terms and conditions as are consistent with the national interest;

(e) Whenever the Board has determined that there is a shortage or any petroleum
product, or when public interest so requires, it may take such steps as it may consider
necessary, including the temporary adjustment of the levels of prices of petroleum
products and the payment to the Oil Price Stabilization Fund created under Presidential
Decree No. 1956 by persons or entities engaged in the petroleum industry of such
amounts as may be determined by the Board, which will enable the importer to recover its
cost of importation.

As may be gleaned from said provisions, the ERB is basically a price or rate-fixing agency. Apparently recognizing
this basic function, Republic Act No. 7638 (An Act Creating the Department of Energy, Rationalizing the Organization
and Functions of Government Agencies Related to Energy, and for Other Purposes),51 which was approved on
December 9, 1992 and which took effect fifteen days after its complete publication in at least two (2) national
newspapers of general circulation, specifically provides as follows:
 Sec. 18. Rationalization or Transfer of Functions of Attached or Related Agencies. — The non-price
regulatory jurisdiction, powers, and functions of the Energy Regulatory Board as provided for in Section 3 of
Executive Order No. 172 are hereby transferred to the Department.

The foregoing transfer of powers and functions shall include all applicable funds and appropriations, records,
equipment, property, and such personnel as may be necessary. Provided, That only such amount of funds
and appropriations of the Board as well as only the personnel thereof which are completely or primarily
involved in the exercise by said Board of its non-price regulatory powers and functions shall be affected by
such transfer.

The power of the NPC to determine, fix, and prescribe the rates being charged to its customers under
Section 4 of Republic Act No. 6395, as amended, as well as the power of electric cooperatives to fix rates
under Section 16 (o), Chapter II of Presidential Decree No. 269, as amended, are hereby transferred to the
Energy Regulatory Board. The Board shall exercise its new powers only after due notice and hearing and
under the same procedure provided for in Executive Order No. 172.

Upon the effectivity of Republic Act No. 7638, then Acting Chairman of the Energy Coordinating Council Delfin Lazaro
transmitted to the Department of Justice the query of whether or not the "non-power rate powers and functions" of the
ERB are included in the "jurisdiction, powers and functions transferred to the Department of Energy." Answering the
query in the affirmative, the Department of Justice rendered Opinion No. 22 dated February 12, 1993 the pertinent
portion of which states:

. . . we believe that since the provision of Section 18 on the transfer of certain powers and functions from
ERB to DOE is clear and unequivocal, and devoid of any ambiguity, in the sense that it categorically refers
to "non-price jurisdiction, powers and functions" of ERB under Section 3 of E.O. No. 172, there is no room
for interpretation, but only for application, of the law. This is a cardinal rule of statutory construction.

Clearly, the parameters of the transfer of functions from ERB to DOE pursuant to Section 18, are
circumscribed by the provision of Section 3 of E.O. No. 172 alone so that, if there are other "related"
functions of ERB under other provisions of E.O. No. 172 or other energy laws, these "related" functions,
which may conceivably refer to what you call "non-power rate powers and functions" of ERB, are clearly not
contemplated by Section 18 and are, therefore, not to be deemed included in the transfer of functions from
ERB to DOE under the said provision.

It may be argued that Section 26 of R.A. No. 7638 contains a repealing clause which provides that:

All laws, presidential decrees, executive orders, rules and regulations or parts thereof,
inconsistent with the provisions of this Act, are hereby repealed or modified accordingly. . .
.

and, therefore, all provisions of E.O. No. 172 and related laws which are inconsistent with the policy,
purpose and intent of R.A. No. 7638 are deemed repealed. It has been said, however, that a general
repealing clause of such nature does not operate as an express repeal because it fails to identify or
designate the act or acts that are intended to be repealed. Rather, it is a clause which predicates the
intended repeal upon the condition that a substantial conflict must be found on existing and prior acts of the
same subject matter. Such being the case, the presumption against implied repeals and the rule on strict
construction regarding implied repeals shall apply ex propio vigore. For the legislature is presumed to know
the existing laws so that, if repeal of particular or specific laws is intended, the proper step is to so express it.
The failure to add a specific repealing clause particularly mentioning the statute to be repealed indicates that
the intent was not to repeal any existing law on the matter, unless an irreconcilable inconsistency and
repugnancy exists in the terms of the new and the old laws (Iloilo Palay and Corn Planters Association, Inc.
vs. Feliciano, 13 SCRA 377; City of Naga vs. Agna, 71 SCRA 176, cited in Agpalo, Statutory Construction,
1990 Edition, pp. 191-192).

In view of the foregoing, it is our opinion that only the non-price regulatory functions of ERB under Section 3
of E.O. 172 are transferred to the DOE. All other powers of ERB which are not within the purview of its "non-
price regulatory jurisdiction, powers and functions" as defined in Section 3 are not so transferred to DOE
and accordingly remain vested in ERB.

The determination of which of two public utilities has the right to supply electric power to an area which is within the
coverage of both is certainly not a rate-fixing function which should remain with the ERB. It deals with the regulation
of the distribution of energy resources which, under Executive Order No. 172, was expressly a function of ERB.
However, with the enactment of Republic Act No. 7638, the Department of Energy took over such function. Hence, it
is this Department which shall then determine whether CEPALCO or PIA should supply power to PIE-MO.

Clearly, petitioner NPC's assertion that its "authority to entertain and hear direct connection applications is a
necessary incident of its express authority to sell electric power in bulk" is now baseless. 52 Even without the new
legislation affecting its power to conduct hearings, it is certainly irregular, if not downright anomalous for the NPC
itself to determine whether it should supply power directly to the PIA or the industries within the PIE-MO. It simply
cannot arrogate unto itself the authority to exercise non-rate fixing powers which now devolves upon the Department
of Energy and to hear and eventually grant itself the right to supply power in bulk.53
On the other hand, ventilating the issue in a public hearing would not unduly prejudice CEPALCO although it was
enfranchised by law earlier than the PIA. Exclusivity of any public franchise has not been favored by this Court such
that in most, if not all, grants by the government to private corporations, the interpretation of rights, privileges or
franchises is taken against the grantee. Thus in Alger Electric, Inc. v. Court of Appeals,54 the Court said.

. . . Exclusivity is given by law with the understanding that the company enjoying it is self-sufficient and
capable of supplying the needed service or product at moderate or reasonable prices. It would be against
public interest where the firm granted a monopoly is merely an unnecessary conduit of electric power,
jacking up prices as a superfluous middleman or an inefficient producer which cannot supply cheap
electricity to power intensive industries. It is in the public interest when industries dependent on heavy use of
electricity are given reliable and direct power at the lower costs thus enabling the sale of nationally marketed
products at prices within the reach of the masses. . . .

WHEREFORE, both petitions in G.R. No. 112702 and 113613 are hereby DENIED. The Department of Energy is
directed to conduct a hearing with utmost dispatch to determine whether it is the Cagayan Electric Power and Light
Co., Inc. or the National Power Corporation, through the PHIVIDEC Industrial Authority, which should supply electric
power to the industries in the PHIVIDEC Industrial Estate-Misamis Oriental.

This Decision is immediately executory.

SO ORDERED.

Narvasa, C.J., Melo and Francisco, JJ., concur.

Panganiban, J., took no part.

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.

PARAS, J.:

This is a Petition for Prohibition with prayer for Preliminary Injunction or Restraining Order seeking to restrain the
respondents Philippine Ports Authority (PPA) and the Secretary of the Department of Transportation 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.

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
Office. 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 filed against the respondents
which assailed the legality or regularity of the MICT bidding. The first was Special Civil Action 55489 for "Prohibition
with Preliminary Injunction" filed with the RTC of Pasig 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)" filed with
the RTC of Manila by C.F. Sharp Co., Inc., a member of the nine (9) firm consortium — "Manila Container Terminals,
Inc." which had actively participated in the MICT Bidding.

Restraining Orders were issued in Civil Case 88-43616 but these 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 "clarificatory
guidelines" the aforementioned presidential directives. (Annex "4").

Meanwhile, the petitioner, Rodolfo A. Albano filed 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" [See. 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, certificate or other form of
authorization for the operation of a public utility shall be subject to amendment, alteration or repeal by Congress does
not necessarily, imply, as petitioner posits that only Congress has the power to grant such authorization. Our statute
books are replete with laws granting specified agencies in the Executive Branch the power to issue such
authorization for certain classes of public utilities. 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 official
action. In the case at bar, there is no evidence which clearly shows the constitutional infirmity of the questioned act of
government.

For these reasons the contention that the contract between the PPA 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,
sufficiently 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 definitely involved
considering the important role of the MICP in the economic development of the country and the magnitude of the
financial consideration involved. Consequently, the disclosure provision in the Constitution 5 would constitute
sufficient authority for upholding petitioner's standing. [Cf. Tañada v. Tuvera, G.R. No. 63915, April 24, 1985,136
SCRA 27, citing Severino v. Governor General, 16 Phil. 366 (1910), where the Court considered the petitioners with
sufficient 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 conflict 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 qualified 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

officials 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. [at p. 750.]

In conclusion, it is evident that petitioner has failed to show a clear case of grave abuse of discretion amounting to
lack or excess of jurisdiction as to warrant the issuance of the writ of prohibition.

WHEREFORE, the petition is hereby DISMISSED.

SO ORDERED.

Separate Opinions

  GUTIERREZ, JR., J., concurring:

I concur in the Court's decision that the determination of whether or not the winning bidder is qualified 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 qualifications 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 firm 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 qualified 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.

 Separate Opinions

GUTIERREZ, JR., J.,  concurring:

I concur in the Court's decision that the determination of whether or not the winning bidder is qualified 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 qualifications 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 firm 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 qualified 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, subway motor vehicle, either for freight or passenger, or both with or
without fixed route and whatever may be its classification, freight or carrier service of any class,
express service, steamboat, or steamship 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. 30) 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.

G.R. No. 155001            May 5, 2003

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL ANTONIO B.
BOÑE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G. DIMAANO,
LOLITA R. HIZON, REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION -
NATIONAL LABOR UNION (MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION
(PALEA), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA,
in his capacity as Head of the Department of Transportation and Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS CORPORATION,
MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT SERVICES CORPORATION,
MIASCOR CATERING SERVICES CORPORATION, MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and
MIASCOR LOGISTICS CORPORATION, petitioners-in-intervention,

x---------------------------------------------------------x
G.R. No. 155547 May 5, 2003

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA, petitioners,

vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, and SECRETARY SIMEON A. DATUMANONG, in his capacity as Head
of the Department of Public Works and Highways, respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA, PROSPERO
C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING O.
MACARANBON, respondents-intervenors,

x---------------------------------------------------------x

G.R. No. 155661 May 5, 2003

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V. GAERLAN, LEONARDO
DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD SCHLOBOM, ANGELITO SANTOS, MA. LUISA M.
PALCON and SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in
his capacity as Head of the Department of Transportation and Communications, respondents.

PUNO, J.:

Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under Rule 65 of the Revised Rules
of Court seeking to prohibit the Manila International Airport Authority (MIAA) and the Department of Transportation
and Communications (DOTC) and its Secretary from implementing the following agreements executed by the
Philippine Government through the DOTC and the MIAA and the Philippine International Air Terminals Co., Inc.
(PIATCO): (1) the Concession Agreement signed on July 12, 1997, (2) the Amended and Restated Concession
Agreement dated November 26, 1999, (3) the First Supplement to the Amended and Restated Concession
Agreement dated August 27, 1999, (4) the Second Supplement to the Amended and Restated Concession
Agreement dated September 4, 2000, and (5) the Third Supplement to the Amended and Restated Concession
Agreement dated June 22, 2001 (collectively, the PIATCO Contracts).

The facts are as follows:

In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a comprehensive
study of the Ninoy Aquino International Airport (NAIA) and determine whether the present airport can cope
with the traffic development up to the year 2010. The study consisted of two parts: first, traffic forecasts,
capacity of existing facilities, NAIA future requirements, proposed master plans and development plans; and
second, presentation of the preliminary design of the passenger terminal building. The ADP submitted a
Draft Final Report to the DOTC in December 1989.

Some time in 1993, six business leaders consisting of John Gokongwei, Andrew Gotianun, Henry Sy, Sr.,
Lucio Tan, George Ty and Alfonso Yuchengco met with then President Fidel V. Ramos to explore the
possibility of investing in the construction and operation of a new international airport terminal. To signify
their commitment to pursue the project, they formed the Asia's Emerging Dragon Corp. (AEDC) which was
registered with the Securities and Exchange Commission (SEC) on September 15, 1993.

On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through the DOTC/MIAA
for the development of NAIA International Passenger Terminal III (NAIA IPT III) under a build-operate-and-
transfer arrangement pursuant to RA 6957 as amended by RA 7718 (BOT Law).1

On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the Prequalification Bids and Awards
Committee (PBAC) for the implementation of the NAIA IPT III project.

On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the National Economic
and Development Authority (NEDA). A revised proposal, however, was forwarded by the DOTC to NEDA on
December 13, 1995. On January 5, 1996, the NEDA Investment Coordinating Council (NEDA ICC) – Technical Board
favorably endorsed the project to the ICC – Cabinet Committee which approved the same, subject to certain
conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board Resolution No. 2 which approved
the NAIA IPT III project.

On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of an invitation for
competitive or comparative proposals on AEDC's unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as
amended. The alternative bidders were required to submit three (3) sealed envelopes on or before 5:00 p.m. of
September 20, 1996. The first envelope should contain the Prequalification Documents, the second envelope the
Technical Proposal, and the third envelope the Financial Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid Documents and the
submission of the comparative bid proposals. Interested firms were permitted to obtain the Request for Proposal
Documents beginning June 28, 1996, upon submission of a written application and payment of a non-refundable fee
of P50,000.00 (US$2,000).

The Bid Documents issued by the PBAC provided among others that the proponent must have adequate capability to
sustain the financing requirement for the detailed engineering, design, construction, operation, and maintenance
phases of the project. The proponent would be evaluated based on its ability to provide a minimum amount of equity
to the project, and its capacity to secure external financing for the project.

On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid conference on July 29, 1996.

On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The following
amendments were made on the Bid Documents:

a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its financial proposal an
additional percentage of gross revenue share of the Government, as follows:

i. First 5 years 5.0%

ii. Next 10 years 7.5%
iii. Next 10 years 10.0%

b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price challenge. Proponent
may offer an Annual Guaranteed Payment which need not be of equal amount, but payment of which shall
start upon site possession.

c. The project proponent must have adequate capability to sustain the financing requirement for the detailed
engineering, design, construction, and/or operation and maintenance phases of the project as the case may
be. For purposes of pre-qualification, this capability shall be measured in terms of:

i. Proof of the availability of the project proponent and/or the consortium to provide the minimum
amount of equity for the project; and

ii. a letter testimonial from reputable banks attesting that the project proponent and/or the members
of the consortium are banking with them, that the project proponent and/or the members are of
good financial standing, and have adequate resources.

d. The basis for the prequalification shall be the proponent's compliance with the minimum technical and
financial requirements provided in the Bid Documents and the IRR of the BOT Law. The minimum amount of
equity shall be 30% of the Project Cost.

e. Amendments to the draft Concession Agreement shall be issued from time to time. Said amendments
shall only cover items that would not materially affect the preparation of the proponent's proposal.

On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were made. Upon the
request of prospective bidder People's Air Cargo & Warehousing Co., Inc (Paircargo), the PBAC warranted that
based on Sec. 11.6, Rule 11 of the Implementing Rules and Regulations of the BOT Law, only the proposed Annual
Guaranteed Payment submitted by the challengers would be revealed to AEDC, and that the challengers' technical
and financial proposals would remain confidential. The PBAC also clarified that the list of revenue sources contained
in Annex 4.2a of the Bid Documents was merely indicative and that other revenue sources may be included by the
proponent, subject to approval by DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges
denominated as Public Utility Fees would be subject to regulation, and those charges which would be actually
deemed Public Utility Fees could still be revised, depending on the outcome of PBAC's query on the matter with the
Department of Justice.

In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the Queries of PAIRCARGO as Per
Letter Dated September 3 and 10, 1996." Paircargo's queries and the PBAC's responses were as follows:

1. It is difficult for Paircargo and Associates to meet the required minimum equity requirement as prescribed
in Section 8.3.4 of the Bid Documents considering that the capitalization of each member company is so
structured to meet the requirements and needs of their current respective business undertaking/activities. In
order to comply with this equity requirement, Paircargo is requesting PBAC to just allow each member of
(sic) corporation of the Joint Venture to just execute an agreement that embodies a commitment to infuse
the required capital in case the project is awarded to the Joint Venture instead of increasing each
corporation's current authorized capital stock just for prequalification purposes.

In prequalification, the agency is interested in one's financial capability at the time of prequalification, not
future or potential capability.
 A commitment to put up equity once awarded the project is not enough to establish that "present" financial
capability. However, total financial capability of all member companies of the Consortium, to be established
by submitting the respective companies' audited financial statements, shall be acceptable.

2. At present, Paircargo is negotiating with banks and other institutions for the extension of a Performance
Security to the joint venture in the event that the Concessions Agreement (sic) is awarded to them.
However, Paircargo is being required to submit a copy of the draft concession as one of the documentary
requirements. Therefore, Paircargo is requesting that they'd (sic) be furnished copy of the approved
negotiated agreement between the PBAC and the AEDC at the soonest possible time.

A copy of the draft Concession Agreement is included in the Bid Documents. Any material changes would
be made known to prospective challengers through bid bulletins. However, a final version will be issued
before the award of contract.

The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents (Acceptance of
Criteria and Waiver of Rights to Enjoin Project) and to submit the same with the required Bid Security.

On September 20, 1996, the consortium composed of People's Air Cargo and Warehousing Co., Inc. (Paircargo),
Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively, Paircargo
Consortium) submitted their competitive proposal to the PBAC. On September 23, 1996, the PBAC opened the first
envelope containing the prequalification documents of the Paircargo Consortium. On the following day, September
24, 1996, the PBAC prequalified the Paircargo Consortium.

On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the Paircargo
Consortium, which include:

a. The lack of corporate approvals and financial capability of PAIRCARGO;

b. The lack of corporate approvals and financial capability of PAGS;

c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount that Security
Bank could legally invest in the project;

d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification purposes;
and

e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in the
operation of a public utility.

The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues raised by the latter,
and that based on the documents submitted by Paircargo and the established prequalification criteria, the PBAC had
found that the challenger, Paircargo, had prequalified to undertake the project. The Secretary of the DOTC approved
the finding of the PBAC.

The PBAC then proceeded with the opening of the second envelope of the Paircargo Consortium which contained its
Technical Proposal.

On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's financial capability, in
view of the restrictions imposed by Section 21-B of the General Banking Act and Sections 1380 and 1381 of the
Manual Regulations for Banks and Other Financial Intermediaries. On October 7, 1996, AEDC again manifested its
objections and requested that it be furnished with excerpts of the PBAC meeting and the accompanying technical
evaluation report where each of the issues they raised were addressed.

On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo Consortium
containing their respective financial proposals. Both proponents offered to build the NAIA Passenger Terminal III for
at least $350 million at no cost to the government and to pay the government: 5% share in gross revenues for the first
five years of operation, 7.5% share in gross revenues for the next ten years of operation, and 10% share in gross
revenues for the last ten years of operation, in accordance with the Bid Documents. However, in addition to the
foregoing, AEDC offered to pay the government a total of P135 million as guaranteed payment for 27 years while
Paircargo Consortium offered to pay the government a total of P17.75 billion for the same period.

Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by the Paircargo
Consortium, and gave AEDC 30 working days or until November 28, 1996 within which to match the said bid,
otherwise, the project would be awarded to Paircargo.

As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado Lagdameo, on
December 11, 1996, issued a notice to Paircargo Consortium regarding AEDC's failure to match the proposal.

On February 27, 1997, Paircargo Consortium incorporated into Philippine International Airport Terminals Co., Inc.
(PIATCO).
AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated its objections as regards
the prequalification of PIATCO.

On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval of the NEDA-ICC.

On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration of Nullity of the
Proceedings, Mandamus and Injunction against the Secretary of the DOTC, the Chairman of the PBAC, the voting
members of the PBAC and Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC Technical Committee.

On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a no-objection basis, of
the BOT agreement between the DOTC and PIATCO. As the ad referendum gathered only four (4) of the required six
(6) signatures, the NEDA merely noted the agreement.

On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.

On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through its
President, Henry T. Go, signed the "Concession Agreement for the Build-Operate-and-Transfer Arrangement of the
Ninoy Aquino International Airport Passenger Terminal III" (1997 Concession Agreement). The Government granted
PIATCO the franchise to operate and maintain the said terminal during the concession period and to collect the fees,
rentals and other charges in accordance with the rates or schedules stipulated in the 1997 Concession Agreement.
The Agreement provided that the concession period shall be for twenty-five (25) years commencing from the in-
service date, and may be renewed at the option of the Government for a period not exceeding twenty-five (25) years.
At the end of the concession period, PIATCO shall transfer the development facility to MIAA.

On November 26, 1998, the Government and PIATCO signed an Amended and Restated Concession Agreement
(ARCA). Among the provisions of the 1997 Concession Agreement that were amended by the ARCA were: Sec. 1.11
pertaining to the definition of "certificate of completion"; Sec. 2.05 pertaining to the Special Obligations of GRP; Sec.
3.02 (a) dealing with the exclusivity of the franchise given to the Concessionaire; Sec. 4.04 concerning the
assignment by Concessionaire of its interest in the Development Facility; Sec. 5.08 (c) dealing with the proceeds of
Concessionaire's insurance; Sec. 5.10 with respect to the temporary take-over of operations by GRP; Sec. 5.16
pertaining to the taxes, duties and other imposts that may be levied on the Concessionaire; Sec. 6.03 as regards the
periodic adjustment of public utility fees and charges; the entire Article VIII concerning the provisions on the
termination of the contract; and Sec. 10.02 providing for the venue of the arbitration proceedings in case a dispute or
controversy arises between the parties to the agreement.

Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First Supplement was
signed on August 27, 1999; the Second Supplement on September 4, 2000; and the Third Supplement on June 22,
2001 (collectively, Supplements).

The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining "Revenues" or "Gross Revenues"; Sec.
2.05 (d) of the ARCA referring to the obligation of MIAA to provide sufficient funds for the upkeep, maintenance,
repair and/or replacement of all airport facilities and equipment which are owned or operated by MIAA; and further
providing additional special obligations on the part of GRP aside from those already enumerated in Sec. 2.05 of the
ARCA. The First Supplement also provided a stipulation as regards the construction of a surface road to connect
NAIA Terminal II and Terminal III in lieu of the proposed access tunnel crossing Runway 13/31; the swapping of
obligations between GRP and PIATCO regarding the improvement of Sales Road; and the changes in the timetable.
It also amended Sec. 6.01 (c) of the ARCA pertaining to the Disposition of Terminal Fees; Sec. 6.02 of the ARCA by
inserting an introductory paragraph; and Sec. 6.02 (a) (iii) of the ARCA referring to the Payments of Percentage
Share in Gross Revenues.

The Second Supplement to the ARCA contained provisions concerning the clearing, removal, demolition or disposal
of subterranean structures uncovered or discovered at the site of the construction of the terminal by the
Concessionaire. It defined the scope of works; it provided for the procedure for the demolition of the said structures
and the consideration for the same which the GRP shall pay PIATCO; it provided for time extensions, incremental
and consequential costs and losses consequent to the existence of such structures; and it provided for some
additional obligations on the part of PIATCO as regards the said structures.

Finally, the Third Supplement provided for the obligations of the Concessionaire as regards the construction of the
surface road connecting Terminals II and III.

Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA Terminals I and II, had
existing concession contracts with various service providers to offer international airline airport services, such as in-
flight catering, passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling
and warehousing, and other services, to several international airlines at the NAIA. Some of these service providers
are the Miascor Group, DNATA-Wings Aviation Systems Corp., and the MacroAsia Group. Miascor, DNATA and
MacroAsia, together with Philippine Airlines (PAL), are the dominant players in the industry with an aggregate market
share of 70%.

On September 17, 2002, the workers of the international airline service providers, claiming that they stand to lose
their employment upon the implementation of the questioned agreements, filed before this Court a petition for
prohibition to enjoin the enforcement of said agreements.2
On October 15, 2002, the service providers, joining the cause of the petitioning workers, filed a motion for intervention
and a petition-in-intervention.

On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula filed a similar
petition with this Court.3

On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the legality of the various
agreements.4

On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P. Nantes, Eduardo C.
Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon and Benasing O.
Macaranbon, moved to intervene in the case as Respondents-Intervenors. They filed their Comment-In-Intervention
defending the validity of the assailed agreements and praying for the dismissal of the petitions.

During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on November 29, 2002, in her
speech at the 2002 Golden Shell Export Awards at Malacañang Palace, stated that she will not "honor (PIATCO)
contracts which the Executive Branch's legal offices have concluded (as) null and void."5

Respondent PIATCO filed its Comments to the present petitions on November 7 and 27, 2002. The Office of the
Solicitor General and the Office of the Government Corporate Counsel filed their respective Comments in behalf of
the public respondents.

On December 10, 2002, the Court heard the case on oral argument. After the oral argument, the Court then resolved
in open court to require the parties to file simultaneously their respective Memoranda in amplification of the issues
heard in the oral arguments within 30 days and to explore the possibility of arbitration or mediation as provided in the
challenged contracts.

In their consolidated Memorandum, the Office of the Solicitor General and the Office of the Government Corporate
Counsel prayed that the present petitions be given due course and that judgment be rendered declaring the 1997
Concession Agreement, the ARCA and the Supplements thereto void for being contrary to the Constitution, the BOT
Law and its Implementing Rules and Regulations.

On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO commenced arbitration
proceedings before the International Chamber of Commerce, International Court of Arbitration (ICC) by filing a
Request for Arbitration with the Secretariat of the ICC against the Government of the Republic of the Philippines
acting through the DOTC and MIAA.

In the present cases, the Court is again faced with the task of resolving complicated issues made difficult by their
intersecting legal and economic implications. The Court is aware of the far reaching fall out effects of the ruling which
it makes today. For more than a century and whenever the exigencies of the times demand it, this Court has never
shirked from its solemn duty to dispense justice and resolve "actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been grave abuse of discretion amounting
to lack or excess of jurisdiction."6 To be sure, this Court will not begin to do otherwise today.

We shall first dispose of the procedural issues raised by respondent PIATCO which they allege will bar the
resolution of the instant controversy.

Petitioners' Legal Standing to File the present Petitions

a. G.R. Nos. 155001 and 155661

In G.R. No. 155001 individual petitioners are employees of various service providers7 having separate concession
contracts with MIAA and continuing service agreements with various international airlines to provide in-flight catering,
passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and warehousing
and other services. Also included as petitioners are labor unions MIASCOR Workers Union-National Labor Union and
Philippine Airlines Employees Association. These petitioners filed the instant action for prohibition as taxpayers and
as parties whose rights and interests stand to be violated by the implementation of the PIATCO Contracts.

Petitioners-Intervenors in the same case are all corporations organized and existing under Philippine laws engaged in
the business of providing in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and
provisions, cargo handling and warehousing and other services to several international airlines at the Ninoy Aquino
International Airport. Petitioners-Intervenors allege that as tax-paying international airline and airport-related service
operators, each one of them stands to be irreparably injured by the implementation of the PIATCO Contracts. Each of
the petitioners-intervenors have separate and subsisting concession agreements with MIAA and with various
international airlines which they allege are being interfered with and violated by respondent PIATCO.

In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa Paliparan ng Pilipinas
- a legitimate labor union and accredited as the sole and exclusive bargaining agent of all the employees in MIAA.
Petitioners anchor their petition for prohibition on the nullity of the contracts entered into by the Government and
PIATCO regarding the build-operate-and-transfer of the NAIA IPT III. They filed the petition as taxpayers and persons
who have a legitimate interest to protect in the implementation of the PIATCO Contracts.
Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations which directly contravene
numerous provisions of the Constitution, specific provisions of the BOT Law and its Implementing Rules and
Regulations, and public policy. Petitioners contend that the DOTC and the MIAA, by entering into said contracts, have
committed grave abuse of discretion amounting to lack or excess of jurisdiction which can be remedied only by a writ
of prohibition, there being no plain, speedy or adequate remedy in the ordinary course of law.

In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA which grant PIATCO
the exclusive right to operate a commercial international passenger terminal within the Island of Luzon, except those
international airports already existing at the time of the execution of the agreement. The contracts further provide that
upon the commencement of operations at the NAIA IPT III, the Government shall cause the closure of Ninoy Aquino
International Airport Passenger Terminals I and II as international passenger terminals. With respect to existing
concession agreements between MIAA and international airport service providers regarding certain services or
operations, the 1997 Concession Agreement and the ARCA uniformly provide that such services or operations will
not be carried over to the NAIA IPT III and PIATCO is under no obligation to permit such carry over except through a
separate agreement duly entered into with PIATCO.8

With respect to the petitioning service providers and their employees, upon the commencement of operations of the
NAIA IPT III, they allege that they will be effectively barred from providing international airline airport services at the
NAIA Terminals I and II as all international airlines and passengers will be diverted to the NAIA IPT III. The petitioning
service providers will thus be compelled to contract with PIATCO alone for such services, with no assurance that
subsisting contracts with MIAA and other international airlines will be respected. Petitioning service providers stress
that despite the very competitive market, the substantial capital investments required and the high rate of fees, they
entered into their respective contracts with the MIAA with the understanding that the said contracts will be in force for
the stipulated period, and thereafter, renewed so as to allow each of the petitioning service providers to recoup their
investments and obtain a reasonable return thereon.

Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA on the other hand
allege that with the closure of the NAIA Terminals I and II as international passenger terminals under the PIATCO
Contracts, they stand to lose employment.

The question on legal standing is whether such parties have "alleged such a personal stake in the outcome of the
controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court
so largely depends for illumination of difficult constitutional questions."9 Accordingly, it has been held that the interest
of a person assailing the constitutionality of a statute must be direct and personal. He must be able to show, not only
that the law or any government act is invalid, but also that he sustained or is in imminent danger of sustaining some
direct injury as a result of its enforcement, and not merely that he suffers thereby in some indefinite way. It must
appear that the person complaining has been or is about to be denied some right or privilege to which he is lawfully
entitled or that he is about to be subjected to some burdens or penalties by reason of the statute or act complained
of.10

We hold that petitioners have the requisite standing. In the above-mentioned cases, petitioners have a direct and
substantial interest to protect by reason of the implementation of the PIATCO Contracts. They stand to lose their
source of livelihood, a property right which is zealously protected by the Constitution. Moreover, subsisting
concession agreements between MIAA and petitioners-intervenors and service contracts between international
airlines and petitioners-intervenors stand to be nullified or terminated by the operation of the NAIA IPT III under the
PIATCO Contracts. The financial prejudice brought about by the PIATCO Contracts on petitioners and petitioners-
intervenors in these cases are legitimate interests sufficient to confer on them the requisite standing to file the instant
petitions.

b. G.R. No. 155547

In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of Representatives, citizens
and taxpayers. They allege that as members of the House of Representatives, they are especially interested in the
PIATCO Contracts, because the contracts compel the Government and/or the House of Representatives to
appropriate funds necessary to comply with the provisions therein. 11 They cite provisions of the PIATCO Contracts
which require disbursement of unappropriated amounts in compliance with the contractual obligations of the
Government. They allege that the Government obligations in the PIATCO Contracts which compel government
expenditure without appropriation is a curtailment of their prerogatives as legislators, contrary to the mandate of the
Constitution that "[n]o money shall be paid out of the treasury except in pursuance of an appropriation made by
law."12

Standing is a peculiar concept in constitutional law because in some cases, suits are not brought by parties who have
been personally injured by the operation of a law or any other government act but by concerned citizens, taxpayers or
voters who actually sue in the public interest. Although we are not unmindful of the cases of Imus Electric Co. v.
Municipality of Imus13 and Gonzales v. Raquiza14 wherein this Court held that appropriation must be made only on
amounts immediately demandable, public interest demands that we take a more liberal view in determining
whether the petitioners suing as legislators, taxpayers and citizens have locus standi to file the instant
petition. In Kilosbayan, Inc. v. Guingona,15 this Court held "[i]n line with the liberal policy of this Court on locus
standi, ordinary taxpayers, members of Congress, and even association of planters, and non-profit 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."16 Further, "insofar as
taxpayers' suits are concerned . . . (this Court) is not devoid of discretion as to whether or not it should be
entertained."17 As such ". . . even if, strictly speaking, they [the petitioners] are not covered by the definition, it is still
within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and
resolving the serious constitutional questions raised."18 In view of the serious legal questions involved and their
impact on public interest, we resolve to grant standing to the petitioners.

Other Procedural Matters

Respondent PIATCO further alleges that this Court is without jurisdiction to review the instant cases as factual issues
are involved which this Court is ill-equipped to resolve. Moreover, PIATCO alleges that submission of this controversy
to this Court at the first instance is a violation of the rule on hierarchy of courts. They contend that trial courts have
concurrent jurisdiction with this Court with respect to a special civil action for prohibition and hence, following the rule
on hierarchy of courts, resort must first be had before the trial courts.

After a thorough study and careful evaluation of the issues involved, this Court is of the view that the crux of the
instant controversy involves significant legal questions. The facts necessary to resolve these legal questions are
well established and, hence, need not be determined by a trial court.

The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the cases at bar. The
said rule may be relaxed when 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 this Court's primary
jurisdiction.19

It is easy to discern that exceptional circumstances exist in the cases at bar that call for the relaxation of the rule.
Both petitioners and respondents agree that these cases are of transcendental importance as they involve the
construction and operation of the country's premier international airport. Moreover, the crucial issues submitted for
resolution are of first impression and they entail the proper legal interpretation of key provisions of the Constitution,
the BOT Law and its Implementing Rules and Regulations. Thus, considering the nature of the controversy before the
Court, procedural bars may be lowered to give way for the speedy disposition of the instant cases.

Legal Effect of the Commencement of Arbitration Proceedings by PIATCO

There is one more procedural obstacle which must be overcome. The Court is aware that arbitration proceedings
pursuant to Section 10.02 of the ARCA have been filed at the instance of respondent PIATCO. Again, we hold that
the arbitration step taken by PIATCO will not oust this Court of its jurisdiction over the cases at bar.

In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the arbitration clause in the
Distributorship Agreement in question is valid and the dispute between the parties is arbitrable, this Court affirmed the
trial court's decision denying petitioner's Motion to Suspend Proceedings pursuant to the arbitration clause under the
contract. In so ruling, this Court held that as contracts produce legal effect between the parties, their assigns and
heirs, only the parties to the Distributorship Agreement are bound by its terms, including the arbitration clause
stipulated therein. This Court ruled that arbitration proceedings could be called for but only with respect to the parties
to the contract in question. Considering that there are parties to the case who are neither parties to the Distributorship
Agreement nor heirs or assigns of the parties thereto, this Court, citing its previous ruling in Salas, Jr. v. Laperal
Realty Corporation,21 held that to tolerate the splitting of proceedings by allowing arbitration as to some of the parties
on the one hand and trial for the others on the other hand would, in effect, result in multiplicity of suits, duplicitous
procedure and unnecessary delay.22 Thus, we ruled that the interest of justice would best be served if the trial court
hears and adjudicates the case in a single and complete proceeding.

It is established that petitioners in the present cases who have presented legitimate interests in the resolution of
the controversy are not parties to the PIATCO Contracts. Accordingly, they cannot be bound by the arbitration
clause provided for in the ARCA and hence, cannot be compelled to submit to arbitration proceedings. A speedy and
decisive resolution of all the critical issues in the present controversy, including those raised by petitioners,
cannot be made before an arbitral tribunal. The object of arbitration is precisely to allow an expeditious
determination of a dispute. This objective would not be met if this Court were to allow the parties to settle the cases
by arbitration as there are certain issues involving non-parties to the PIATCO Contracts which the arbitral tribunal will
not be equipped to resolve.

Now, to the merits of the instant controversy.

Is PIATCO a qualified bidder?

Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a duly pre-qualified bidder
on the unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to meet the financial capability
required under the BOT Law and the Bid Documents. They allege that in computing the ability of the Paircargo
Consortium to meet the minimum equity requirements for the project, the entire net worth of Security Bank, a
member of the consortium, should not be considered.
PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14, 1996 issued by the DOTC
Undersecretary Primitivo C. Cal stating that the Paircargo Consortium is found to have a combined net worth of
P3,900,000,000.00, sufficient to meet the equity requirements of the project. The said Memorandum was in response
to a letter from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the financial capability of the
Paircargo Consortium on the ground that it does not have the financial resources to put up the required minimum
equity of P2,700,000,000.00. This contention is based on the restriction under R.A. No. 337, as amended or the
General Banking Act that a commercial bank cannot invest in any single enterprise in an amount more than 15% of
its net worth. In the said Memorandum, Undersecretary Cal opined:

The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial capability will be
evaluated based on total financial capability of all the member companies of the [Paircargo] Consortium. In
this connection, the Challenger was found to have a combined net worth of P3,926,421,242.00 that could
support a project costing approximately P13 Billion.

It is not a requirement that the net worth must be "unrestricted." To impose that as a requirement now will be
nothing less than unfair.

The financial statement or the net worth is not the sole basis in establishing financial capability. As stated in
Bid Bulletin No. 3, financial capability may also be established by testimonial letters issued by reputable
banks. The Challenger has complied with this requirement.

To recap, net worth reflected in the Financial Statement should not be taken as the amount of the money to
be used to answer the required thirty percent (30%) equity of the challenger but rather to be used in
establishing if there is enough basis to believe that the challenger can comply with the required 30% equity.
In fact, proof of sufficient equity is required as one of the conditions for award of contract (Section 12.1 IRR
of the BOT Law) but not for pre-qualification (Section 5.4 of the same document).23

Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall be awarded to
the bidder "who, having satisfied the minimum financial, technical, organizational and legal standards"
required by the law, has submitted the lowest bid and most favorable terms of the project. 24 Further, the
1994 Implementing Rules and Regulations of the BOT Law provide:

Section 5.4 Pre-qualification Requirements.

xxx           xxx           xxx

c. Financial Capability: The project proponent must have adequate capability to sustain the financing
requirements for the detailed engineering design, construction and/or operation and maintenance phases of
the project, as the case may be. For purposes of pre-qualification, this capability shall be measured in terms
of (i) proof of the ability of the project proponent and/or the consortium to provide a minimum
amount of equity to the project, and (ii) a letter testimonial from reputable banks attesting that the
project proponent and/or members of the consortium are banking with them, that they are in good
financial standing, and that they have adequate resources. The government agency/LGU concerned
shall determine on a project-to-project basis and before pre-qualification, the minimum amount of equity
needed. (emphasis supplied)

Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996 amending the financial
capability requirements for pre-qualification of the project proponent as follows:

6. Basis of Pre-qualification

The basis for the pre-qualification shall be on the compliance of the proponent to the minimum technical and
financial requirements provided in the Bid Documents and in the IRR of the BOT Law, R.A. No. 6957, as
amended by R.A. 7718.

The minimum amount of equity to which the proponent's financial capability will be based shall be thirty
percent (30%) of the project cost instead of the twenty percent (20%) specified in Section 3.6.4 of the
Bid Documents. This is to correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a of the
draft concession agreement. The debt portion of the project financing should not exceed 70% of the actual
project cost.

Accordingly, based on the above provisions of law, the Paircargo Consortium or any challenger to the unsolicited
proposal of AEDC has to show that it possesses the requisite financial capability to undertake the project in the
minimum amount of 30% of the project cost through (i) proof of the ability to provide a minimum amount of equity
to the project, and (ii) a letter testimonial from reputable banks attesting that the project proponent or members of the
consortium are banking with them, that they are in good financial standing, and that they have adequate resources.

As the minimum project cost was estimated to be US$350,000,000.00 or roughly P9,183,650,000.00, 25 the Paircargo
Consortium had to show to the satisfaction of the PBAC that it had the ability to provide the minimum equity for the
project in the amount of at least P2,755,095,000.00.
Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth of P2,783,592.00 and
P3,123,515.00 respectively.26 PAGS' Audited Financial Statements as of 1995 indicate that it has approximately
P26,735,700.00 to invest as its equity for the project. 27 Security Bank's Audited Financial Statements as of 1995 show
that it has a net worth equivalent to its capital funds in the amount of P3,523,504,377.00.28

We agree with public respondents that with respect to Security Bank, the entire amount of its net worth could not be
invested in a single undertaking or enterprise, whether allied or non-allied in accordance with the provisions of R.A.
No. 337, as amended or the General Banking Act:

Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the Monetary Board,
whenever it shall deem appropriate and necessary to further national development objectives or support
national priority projects, may authorize a commercial bank, a bank authorized to provide commercial
banking services, as well as a government-owned and controlled bank, to operate under an
expanded commercial banking authority and by virtue thereof exercise, in addition to powers
authorized for commercial banks, the powers of an Investment House as provided in Presidential
Decree No. 129, invest in the equity of a non-allied undertaking, or own a majority or all of the equity in
a financial intermediary other than a commercial bank or a bank authorized to provide commercial banking
services: Provided, That (a) the total investment in equities shall not exceed fifty percent (50%) of the net
worth of the bank; (b) the equity investment in any one enterprise whether allied or non-allied shall
not exceed fifteen percent (15%) of the net worth of the bank; (c) the equity investment of the bank, or
of its wholly or majority-owned subsidiary, in a single non-allied undertaking shall not exceed thirty-five
percent (35%) of the total equity in the enterprise nor shall it exceed thirty-five percent (35%) of the voting
stock in that enterprise; and (d) the equity investment in other banks shall be deducted from the investing
bank's net worth for purposes of computing the prescribed ratio of net worth to risk assets.

xxx           xxx           xxx

Further, the 1993 Manual of Regulations for Banks provides:

SECTION X383. Other Limitations and Restrictions. — The following limitations and restrictions shall also
apply regarding equity investments of banks.

a. In any single enterprise. — The equity investments of banks in any single enterprise shall not exceed at
any time fifteen percent (15%) of the net worth of the investing bank as defined in Sec. X106 and Subsec.
X121.5.

Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium is only
P528,525,656.55, representing 15% of its entire net worth. The total net worth therefore of the Paircargo Consortium,
after considering the maximum amounts that may be validly invested by each of its members is P558,384,871.55 or
only 6.08% of the project cost,29 an amount substantially less than the prescribed minimum equity investment
required for the project in the amount of P2,755,095,000.00 or 30% of the project cost.

The purpose of pre-qualification in any public bidding is to determine, at the earliest opportunity, the ability of the
bidder to undertake the project. Thus, with respect to the bidder's financial capacity at the pre-qualification stage, the
law requires the government agency to examine and determine the ability of the bidder to fund the entire cost of the
project by considering the maximum amounts that each bidder may invest in the project at the time of pre-
qualification.

The PBAC has determined that any prospective bidder for the construction, operation and maintenance of the NAIA
IPT III project should prove that it has the ability to provide equity in the minimum amount of 30% of the project cost,
in accordance with the 70:30 debt-to-equity ratio prescribed in the Bid Documents. Thus, in the case of Paircargo
Consortium, the PBAC should determine the maximum amounts that each member of the consortium may commit
for the construction, operation and maintenance of the NAIA IPT III project at the time of pre-qualification. With
respect to Security Bank, the maximum amount which may be invested by it would only be 15% of its net worth in
view of the restrictions imposed by the General Banking Act. Disregarding the investment ceilings provided by
applicable law would not result in a proper evaluation of whether or not a bidder is pre-qualified to undertake the
project as for all intents and purposes, such ceiling or legal restriction determines the true maximum amount which
a bidder may invest in the project.

Further, the determination of whether or not a bidder is pre-qualified to undertake the project requires an evaluation of
the financial capacity of the said bidder at the time the bid is submitted based on the required documents
presented by the bidder. The PBAC should not be allowed to speculate on the future financial ability of the bidder
to undertake the project on the basis of documents submitted. This would open doors to abuse and defeat the very
purpose of a public bidding. This is especially true in the case at bar which involves the investment of billions of
pesos by the project proponent. The relevant government authority is duty-bound to ensure that the awardee of the
contract possesses the minimum required financial capability to complete the project. To allow the PBAC to estimate
the bidder's future financial capability would not secure the viability and integrity of the project. A restrictive and
conservative application of the rules and procedures of public bidding is necessary not only to protect the impartiality
and regularity of the proceedings but also to ensure the financial and technical reliability of the project. It has been
held that:
 The basic rule in public bidding is that bids should be evaluated based on the required documents submitted
before and not after the opening of bids. Otherwise, the foundation of a fair and competitive public bidding
would be defeated. Strict observance of the rules, regulations, and guidelines of the bidding process
is the only safeguard to a fair, honest and competitive public bidding. 30

Thus, if the maximum amount of equity that a bidder may invest in the project at the time the bids are
submitted falls short of the minimum amounts required to be put up by the bidder, said bidder should be properly
disqualified. Considering that at the pre-qualification stage, the maximum amounts which the Paircargo Consortium
may invest in the project fell short of the minimum amounts prescribed by the PBAC, we hold that Paircargo
Consortium was not a qualified bidder. Thus the award of the contract by the PBAC to the Paircargo Consortium, a
disqualified bidder, is null and void.

While it would be proper at this juncture to end the resolution of the instant controversy, as the legal effects of the
disqualification of respondent PIATCO's predecessor would come into play and necessarily result in the nullity of all
the subsequent contracts entered by it in pursuance of the project, the Court feels that it is necessary to discuss in full
the pressing issues of the present controversy for a complete resolution thereof.

II

Is the 1997 Concession Agreement valid?

Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it contains provisions
that substantially depart from the draft Concession Agreement included in the Bid Documents. They maintain that a
substantial departure from the draft Concession Agreement is a violation of public policy and renders the 1997
Concession Agreement null and void.

PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is intended to be
a draft, i.e., subject to change, alteration or modification, and that this intention was clear to all participants, including
AEDC, and DOTC/MIAA. It argued further that said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued by
the PBAC which states:

6. Amendments to the Draft Concessions Agreement

Amendments to the Draft Concessions Agreement shall be issued from time to time. Said amendments shall
only cover items that would not materially affect the preparation of the proponent's proposal.

By its very nature, public bidding aims to protect the public interest by giving the public the best possible advantages
through open competition. Thus:

Competition must be legitimate, fair and honest. In the field of government contract law, competition
requires, not only `bidding upon a common standard, a common basis, upon the same thing, the same
subject matter, the same undertaking,' but also that it be legitimate, fair and honest; and not designed
to injure or defraud the government.31

An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not simply in terms of
application of the procedural rules and regulations imposed by the relevant government agency, but more
importantly, on the contract bidded upon. Each bidder must be able to bid on the same thing. The rationale is
obvious. If the winning bidder is allowed to later include or modify certain provisions in the contract awarded such that
the contract is altered in any material respect, then the essence of fair competition in the public bidding is destroyed.
A public bidding would indeed be a farce if after the contract is awarded, the winning bidder may modify the contract
and include provisions which are favorable to it that were not previously made available to the other bidders. Thus:

It is inherent in public biddings that there shall be a fair competition among the bidders. The specifications in
such biddings provide the common ground or basis for the bidders. The specifications should, accordingly,
operate equally or indiscriminately upon all bidders.32

The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:

The law is well settled that where, as in this case, municipal authorities can only let a contract for public work
to the lowest responsible bidder, the proposals and specifications therefore must be so framed as to permit
free and full competition. Nor can they enter into a contract with the best bidder containing substantial
provisions beneficial to him, not included or contemplated in the terms and specifications upon
which the bids were invited.33

In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft concession agreement
is subject to amendment, the pertinent portion of which was quoted above, the PBAC also clarified that "[s]aid
amendments shall only cover items that would not materially affect the preparation of the proponent's
proposal."
While we concede that a winning bidder is not precluded from modifying or amending certain provisions of the
contract bidded upon, such changes must not constitute substantial or material amendments that would alter
the basic parameters of the contract and would constitute a denial to the other bidders of the opportunity to
bid on the same terms. Hence, the determination of whether or not a modification or amendment of a contract
bidded out constitutes a substantial amendment rests on whether the contract, when taken as a whole, would contain
substantially different terms and conditions that would have the effect of altering the technical and/or financial
proposals previously submitted by other bidders. The alterations and modifications in the contract executed between
the government and the winning bidder must be such as to render such executed contract to be an entirely different
contract from the one that was bidded upon.

In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted with approval the ruling of
the trial court that an amendment to a contract awarded through public bidding, when such subsequent amendment
was made without a new public bidding, is null and void:

The Court agrees with the contention of counsel for the plaintiffs that the due execution of a contract after
public bidding is a limitation upon the right of the contracting parties to alter or amend it without another
public bidding, for otherwise what would a public bidding be good for if after the execution of a
contract after public bidding, the contracting parties may alter or amend the contract, or even cancel
it, at their will? Public biddings are held for the protection of the public, and to give the public the best
possible advantages by means of open competition between the bidders. He who bids or offers the best
terms is awarded the contract subject of the bid, and it is obvious that such protection and best possible
advantages to the public will disappear if the parties to a contract executed after public bidding may alter or
amend it without another previous public bidding.35

Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same agreement that was
offered for public bidding, i.e., the draft Concession Agreement attached to the Bid Documents? A close comparison
of the draft Concession Agreement attached to the Bid Documents and the 1997 Concession Agreement reveals that
the documents differ in at least two material respects:

a. Modification on the Public Utility Revenues and Non-Public Utility Revenues that may be collected by
PIATCO

The fees that may be imposed and collected by PIATCO under the draft Concession Agreement and the 1997
Concession Agreement may be classified into three distinct categories: (1) fees which are subject to periodic
adjustment of once every two years in accordance with a prescribed parametric formula and adjustments are made
effective only upon written approval by MIAA; (2) fees other than those included in the first category which maybe
adjusted by PIATCO whenever it deems necessary without need for consent of DOTC/MIAA; and (3) new fees and
charges that may be imposed by PIATCO which have not been previously imposed or collected at the Ninoy Aquino
International Airport Passenger Terminal I, pursuant to Administrative Order No. 1, Series of 1993, as amended. The
glaring distinctions between the draft Concession Agreement and the 1997 Concession Agreement lie in the types of
fees included in each category and the extent of the supervision and regulation which MIAA is allowed to exercise in
relation thereto.

For fees under the first category, i.e., those which are subject to periodic adjustment in accordance with a
prescribed parametric formula and effective only upon written approval by MIAA, the draft Concession
Agreement includes the following:36

(1) aircraft parking fees;

(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.

Under the 1997 Concession Agreement, fees which are subject to adjustment and effective upon MIAA approval
are classified as "Public Utility Revenues" and include:37

(1) aircraft parking fees;

(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.

The implication of the reduced number of fees that are subject to MIAA approval is best appreciated in relation to fees
included in the second category identified above. Under the 1997 Concession Agreement, fees which PIATCO
may adjust whenever it deems necessary without need for consent of DOTC/MIAA are "Non-Public Utility Revenues"
and is defined as "all other income not classified as Public Utility Revenues derived from operations of the Terminal
and the Terminal Complex."38 Thus, under the 1997 Concession Agreement, ground handling fees, rentals from
airline offices and porterage fees are no longer subject to MIAA regulation.

Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to regulate (1) lobby and
vehicular parking fees and (2) other new fees and charges that may be imposed by PIATCO. Such regulation may be
made by periodic adjustment and is effective only upon written approval of MIAA. The full text of said provision is
quoted below:
 Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking fees, aircraft
tacking fees, groundhandling fees, rentals and airline offices, check-in-counter rentals and porterage fees
shall be allowed only once every two years and in accordance with the Parametric Formula attached hereto
as Annex F. Provided that adjustments shall be made effective only after the written express approval of the
MIAA. Provided, further, that such approval of the MIAA, shall be contingent only on the conformity of the
adjustments with the above said parametric formula. The first adjustment shall be made prior to the In-
Service Date of the Terminal.

The MIAA reserves the right to regulate under the foregoing terms and conditions the lobby and
vehicular parking fees and other new fees and charges as contemplated in paragraph 2 of Section
6.01 if in its judgment the users of the airport shall be deprived of a free option for the services they
cover.39

On the other hand, the equivalent provision under the 1997 Concession Agreement reads:

Section 6.03 Periodic Adjustment in Fees and Charges.

xxx           xxx           xxx

(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public Utility
Revenues in order to ensure that End Users are not unreasonably deprived of services. While the
vehicular parking fee, porterage fee and greeter/well wisher fee constitute Non-Public Utility
Revenues of Concessionaire, GRP may intervene and require Concessionaire to explain and justify
the fee it may set from time to time, if in the reasonable opinion of GRP the said fees have become
exorbitant resulting in the unreasonable deprivation of End Users of such services.40

Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2) porterage fee and (3)
greeter/well wisher fee, all that MIAA can do is to require PIATCO to explain and justify the fees set by PIATCO. In
the draft Concession Agreement, vehicular parking fee is subject to MIAA regulation and approval under the
second paragraph of Section 6.03 thereof while porterage fee is covered by the first paragraph of the same provision.
There is an obvious relaxation of the extent of control and regulation by MIAA with respect to the particular fees that
may be charged by PIATCO.

Moreover, with respect to the third category of fees that may be imposed and collected by PIATCO, i.e., new fees
and charges that may be imposed by PIATCO which have not been previously imposed or collected at the Ninoy
Aquino International Airport Passenger Terminal I, under Section 6.03 of the draft Concession Agreement MIAA
has reserved the right to regulate the same under the same conditions that MIAA may regulate fees under the first
category, i.e., periodic adjustment of once every two years in accordance with a prescribed parametric formula and
effective only upon written approval by MIAA. However, under the 1997 Concession Agreement, adjustment of fees
under the third category is not subject to MIAA regulation.

With respect to terminal fees that may be charged by PIATCO,41 as shown earlier, this was included within the
category of "Public Utility Revenues" under the 1997 Concession Agreement. This classification is significant
because under the 1997 Concession Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment" of
fees upon the occurrence of certain extraordinary events specified in the agreement.42 However, under the draft
Concession Agreement, terminal fees are not included in the types of fees that may be subject to "Interim
Adjustment."43

Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal fees, are denominated in
US Dollars44 while payments to the Government are in Philippine Pesos. In the draft Concession Agreement, no
such stipulation was included. By stipulating that "Public Utility Revenues" will be paid to PIATCO in US Dollars while
payments by PIATCO to the Government are in Philippine currency under the 1997 Concession Agreement, PIATCO
is able to enjoy the benefits of depreciations of the Philippine Peso, while being effectively insulated from the
detrimental effects of exchange rate fluctuations.

When taken as a whole, the changes under the 1997 Concession Agreement with respect to reduction in the types of
fees that are subject to MIAA regulation and the relaxation of such regulation with respect to other fees are significant
amendments that substantially distinguish the draft Concession Agreement from the 1997 Concession
Agreement. The 1997 Concession Agreement, in this respect, clearly gives PIATCO more favorable terms than
what was available to other bidders at the time the contract was bidded out. It is not very difficult to see that the
changes in the 1997 Concession Agreement translate to direct and concrete financial advantages for
PIATCO which were not available at the time the contract was offered for bidding. It cannot be denied that under the
1997 Concession Agreement only "Public Utility Revenues" are subject to MIAA regulation. Adjustments of all other
fees imposed and collected by PIATCO are entirely within its control. Moreover, with respect to terminal fees, under
the 1997 Concession Agreement, the same is further subject to "Interim Adjustments" not previously stipulated in the
draft Concession Agreement. Finally, the change in the currency stipulated for "Public Utility Revenues" under the
1997 Concession Agreement, except terminal fees, gives PIATCO an added benefit which was not available at the
time of bidding.

b. Assumption by the Government of the liabilities of PIATCO in the event of the latter's default thereof
Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors who have provided,
loaned or advanced funds for the NAIA IPT III project does not result in the assumption by the Government of these
liabilities. In fact, nowhere in the said contract does default of PIATCO's loans figure in the agreement. Such default
does not directly result in any concomitant right or obligation in favor of the Government.

However, the 1997 Concession Agreement provides:

Section 4.04 Assignment.

xxx           xxx           xxx

(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default has
resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated date of
maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of such default.
GRP shall, within one hundred eighty (180) Days from receipt of the joint written notice of the Unpaid
Creditors and Concessionaire, either (i) take over the Development Facility and assume the Attendant
Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted as concessionaire and operator of
the Development Facility in accordance with the terms and conditions hereof, or designate a qualified
operator acceptable to GRP to operate the Development Facility, likewise under the terms and conditions of
this Agreement; Provided that if at the end of the 180-day period GRP shall not have served the Unpaid
Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take over
the Development Facility with the concomitant assumption of Attendant Liabilities.

(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the
latter shall form and organize a concession company qualified to take over the operation of the Development
Facility. If the concession company should elect to designate an operator for the Development Facility, the
concession company shall in good faith identify and designate a qualified operator acceptable to GRP within
one hundred eighty (180) days from receipt of GRP's written notice. If the concession company, acting in
good faith and with due diligence, is unable to designate a qualified operator within the aforesaid period,
then GRP shall at the end of the 180-day period take over the Development Facility and assume Attendant
Liabilities.

The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as:

Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the
Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds actually
used for the Project, including all interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses, and further including amounts owed by Concessionaire to its
suppliers, contractors and sub-contractors.

Under the above quoted portions of Section 4.04 in relation to the definition of "Attendant Liabilities," default by
PIATCO of its loans used to finance the NAIA IPT III project triggers the occurrence of certain events that
leads to the assumption by the Government of the liability for the loans. Only in one instance may the
Government escape the assumption of PIATCO's liabilities, i.e., when the Government so elects and allows a
qualified operator to take over as Concessionaire. However, this circumstance is dependent on the existence
and availability of a qualified operator who is willing to take over the rights and obligations of PIATCO under
the contract, a circumstance that is not entirely within the control of the Government.

Without going into the validity of this provision at this juncture, suffice it to state that Section 4.04 of the 1997
Concession Agreement may be considered a form of security for the loans PIATCO has obtained to finance the
project, an option that was not made available in the draft Concession Agreement. Section 4.04 is an important
amendment to the 1997 Concession Agreement because it grants PIATCO a financial advantage or benefit which
was not previously made available during the bidding process. This financial advantage is a significant
modification that translates to better terms and conditions for PIATCO.

PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft Concession
Agreement is subject to amendment because the Bid Documents permit financing or borrowing. They claim that it
was the lenders who proposed the amendments to the draft Concession Agreement which resulted in the 1997
Concession Agreement.

We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow the project proponent or
the winning bidder to obtain financing for the project, especially in this case which involves the construction, operation
and maintenance of the NAIA IPT III. Expectedly, compliance by the project proponent of its undertakings therein
would involve a substantial amount of investment. It is therefore inevitable for the awardee of the contract to seek
alternate sources of funds to support the project. Be that as it may, this Court maintains that amendments to the
contract bidded upon should always conform to the general policy on public bidding if such procedure is to be faithful
to its real nature and purpose. By its very nature and characteristic, competitive public bidding aims to protect the
public interest by giving the public the best possible advantages through open competition.45 It has been held that the
three principles in public bidding are (1) the offer to the public; (2) opportunity for competition; and (3) a basis for the
exact comparison of bids. A regulation of the matter which excludes any of these factors destroys the distinctive
character of the system and thwarts the purpose of its adoption.46 These are the basic parameters which every
awardee of a contract bidded out must conform to, requirements of financing and borrowing notwithstanding. Thus,
upon a concrete showing that, as in this case, the contract signed by the government and the contract-awardee is an
entirely different contract from the contract bidded, courts should not hesitate to strike down said contract in its
entirety for violation of public policy on public bidding. A strict adherence on the principles, rules and regulations on
public bidding must be sustained if only to preserve the integrity and the faith of the general public on the procedure.

Public bidding is a standard practice for procuring government contracts for public service and for furnishing supplies
and other materials. It aims to secure for the government the lowest possible price under the most favorable terms
and conditions, to curtail favoritism in the award of government contracts and avoid suspicion of anomalies and it
places all bidders in equal footing.47 Any government action which permits any substantial variance between
the conditions under which the bids are invited and the contract executed after the award thereof is a grave
abuse of discretion amounting to lack or excess of jurisdiction which warrants proper judicial action.

In view of the above discussion, the fact that the foregoing substantial amendments were made on the 1997
Concession Agreement renders the same null and void for being contrary to public policy. These amendments
convert the 1997 Concession Agreement to an entirely different agreement from the contract bidded out or the draft
Concession Agreement. It is not difficult to see that the amendments on (1) the types of fees or charges that are
subject to MIAA regulation or control and the extent thereof and (2) the assumption by the Government, under certain
conditions, of the liabilities of PIATCO directly translates concrete financial advantages to PIATCO that were
previously not available during the bidding process. These amendments cannot be taken as merely supplements
to or implementing provisions of those already existing in the draft Concession Agreement. The amendments
discussed above present new terms and conditions which provide financial benefit to PIATCO which may have
altered the technical and financial parameters of other bidders had they known that such terms were available.

III

Direct Government Guarantee

Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession Agreement provides:

Section 4.04 Assignment

xxx           xxx           xxx

(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default
resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated date of
maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of such default.
GRP shall within one hundred eighty (180) days from receipt of the joint written notice of the Unpaid
Creditors and Concessionaire, either (i) take over the Development Facility and assume the Attendant
Liabilities, or (ii) allow the Unpaid Creditors, if qualified to be substituted as concessionaire and operator of
the Development facility in accordance with the terms and conditions hereof, or designate a qualified
operator acceptable to GRP to operate the Development Facility, likewise under the terms and conditions of
this Agreement; Provided, that if at the end of the 180-day period GRP shall not have served the Unpaid
Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take
over the Development Facility with the concomitant assumption of Attendant Liabilities.

(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall
form and organize a concession company qualified to takeover the operation of the Development Facility. If
the concession company should elect to designate an operator for the Development Facility, the concession
company shall in good faith identify and designate a qualified operator acceptable to GRP within one
hundred eighty (180) days from receipt of GRP's written notice. If the concession company, acting in good
faith and with due diligence, is unable to designate a qualified operator within the aforesaid period, then
GRP shall at the end of the 180-day period take over the Development Facility and assume Attendant
Liabilities.

….

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of
the Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds actually
used for the Project, including all interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses, and further including amounts owed by Concessionaire to its
suppliers, contractors and sub-contractors.48

It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults in its loan
obligations, is obligated to pay "all amounts recorded and from time to time outstanding from the books" of
PIATCO which the latter owes to its creditors.49 These amounts include "all interests, penalties, associated fees,
charges, surcharges, indemnities, reimbursements and other related expenses."50 This obligation of the Government
to pay PIATCO's creditors upon PIATCO's default would arise if the Government opts to take over NAIA IPT III. It
should be noted, however, that even if the Government chooses the second option, which is to allow PIATCO's
unpaid creditors operate NAIA IPT III, the Government is still at a risk of being liable to PIATCO's creditors should the
latter be unable to designate a qualified operator within the prescribed period. 51 In effect, whatever option the
Government chooses to take in the event of PIATCO's failure to fulfill its loan obligations, the Government is
still at a risk of assuming PIATCO's outstanding loans. This is due to the fact that the Government would only be
free from assuming PIATCO's debts if the unpaid creditors would be able to designate a qualified operator within the
period provided for in the contract. Thus, the Government's assumption of liability is virtually out of its control.
The Government under the circumstances provided for in the 1997 Concession Agreement is at the mercy of the
existence, availability and willingness of a qualified operator. The above contractual provisions constitute a direct
government guarantee which is prohibited by law.

One of the main impetus for the enactment of the BOT Law is the lack of government funds to construct the
infrastructure and development projects necessary for economic growth and development. This is why private sector
resources are being tapped in order to finance these projects. The BOT law allows the private sector to participate,
and is in fact encouraged to do so by way of incentives, such as minimizing the unstable flow of returns, 52 provided
that the government would not have to unnecessarily expend scarcely available funds for the project itself. As such,
direct guarantee, subsidy and equity by the government in these projects are strictly prohibited.53 This is but logical
for if the government would in the end still be at a risk of paying the debts incurred by the private entity in
the BOT projects, then the purpose of the law is subverted.

Section 2(n) of the BOT Law defines direct guarantee as follows:

(n) Direct government guarantee — An agreement whereby the government or any of its agencies or local
government units assume responsibility for the repayment of debt directly incurred by the project
proponent in implementing the project in case of a loan default.

Clearly by providing that the Government "assumes" the attendant liabilities, which consists of PIATCO's unpaid
debts, the 1997 Concession Agreement provided for a direct government guarantee for the debts incurred by
PIATCO in the implementation of the NAIA IPT III project. It is of no moment that the relevant sections are subsumed
under the title of "assignment". The provisions providing for direct government guarantee which is prohibited by law is
clear from the terms thereof.

The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal defect. Article IV, Section
4.04(c), in relation to Article I, Section 1.06, of the ARCA provides:

Section 4.04 Security

xxx           xxx           xxx

(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and enter into direct
agreement with the Senior Lenders, or with an agent of such Senior Lenders (which agreement shall be
subject to the approval of the Bangko Sentral ng Pilipinas), in such form as may be reasonably acceptable to
both GRP and Senior Lenders, with regard, inter alia, to the following parameters:

xxx           xxx           xxx

(iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to the

Senior Lenders, and as a result thereof the Senior Lenders have become entitled to accelerate the
Senior Loans, the Senior Lenders shall have the right to notify GRP of the same, and without
prejudice to any other rights of the Senior Lenders or any Senior Lenders' agent may have
(including without limitation under security interests granted in favor of the Senior Lenders), to
either in good faith identify and designate a nominee which is qualified under sub-clause (viii)(y)
below to operate the Development Facility [NAIA Terminal 3] or transfer the Concessionaire's
[PIATCO] rights and obligations under this Agreement to a transferee which is qualified under sub-
clause (viii) below;

xxx           xxx           xxx

(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable to designate
a nominee or effect a transfer in terms and conditions satisfactory to the Senior Lenders within one
hundred eighty (180) days after giving GRP notice as referred to respectively in (iv) or (v) above,
then GRP and the Senior Lenders shall endeavor in good faith to enter into any other arrangement
relating to the Development Facility [NAIA Terminal 3] (other than a turnover of the Development
Facility [NAIA Terminal 3] to GRP) within the following one hundred eighty (180) days. If no
agreement relating to the Development Facility [NAIA Terminal 3] is arrived at by GRP and the
Senior Lenders within the said 180-day period, then at the end thereof the Development Facility
[NAIA Terminal 3] shall be transferred by the Concessionaire [PIATCO] to GRP or its
designee and GRP shall make a termination payment to Concessionaire [PIATCO] equal to
the Appraised Value (as hereinafter defined) of the Development Facility [NAIA Terminal 3]
or the sum of the Attendant Liabilities, if greater. Notwithstanding Section 8.01(c) hereof, this
Agreement shall be deemed terminated upon the transfer of the Development Facility [NAIA
Terminal 3] to GRP pursuant hereto;
 xxx           xxx           xxx

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to
time owed or which may become owing by Concessionaire [PIATCO] to Senior Lenders or any other
persons or entities who have provided, loaned, or advanced funds or provided financial facilities to
Concessionaire [PIATCO] for the Project [NAIA Terminal 3], including, without limitation, all principal,
interest, associated fees, charges, reimbursements, and other related expenses (including the fees,
charges and expenses of any agents or trustees of such persons or entities), whether payable at maturity,
by acceleration or otherwise, and further including amounts owed by Concessionaire [PIATCO] to its
professional consultants and advisers, suppliers, contractors and sub-contractors.54

It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill its loan obligations to
its Senior Lenders, the Government is obligated to directly negotiate and enter into an agreement relating to NAIA
IPT III with the Senior Lenders, should the latter fail to appoint a qualified nominee or transferee who will take the
place of PIATCO. If the Senior Lenders and the Government are unable to enter into an agreement after the
prescribed period, the Government must then pay PIATCO, upon transfer of NAIA IPT III to the Government,
termination payment equal to the appraised value of the project or the value of the attendant liabilities whichever
is greater. Attendant liabilities as defined in the ARCA includes all amounts owed or thereafter may be owed by
PIATCO not only to the Senior Lenders with whom PIATCO has defaulted in its loan obligations but to all other
persons who may have loaned, advanced funds or provided any other type of financial facilities to PIATCO for NAIA
IPT III. The amount of PIATCO's debt that the Government would have to pay as a result of PIATCO's default in its
loan obligations -- in case no qualified nominee or transferee is appointed by the Senior Lenders and no other
agreement relating to NAIA IPT III has been reached between the Government and the Senior Lenders -- includes,
but is not limited to, "all principal, interest, associated fees, charges, reimbursements, and other related expenses . . .
whether payable at maturity, by acceleration or otherwise."55

It is clear from the foregoing that the ARCA provides for a direct guarantee by the government to pay
PIATCO's loans not only to its Senior Lenders but all other entities who provided PIATCO funds or services
upon PIATCO's default in its loan obligation with its Senior Lenders. The fact that the Government's obligation
to pay PIATCO's lenders for the latter's obligation would only arise after the Senior Lenders fail to appoint a qualified
nominee or transferee does not detract from the fact that, should the conditions as stated in the contract occur, the
ARCA still obligates the Government to pay any and all amounts owed by PIATCO to its lenders in connection with
NAIA IPT III. Worse, the conditions that would make the Government liable for PIATCO's debts is triggered by
PIATCO's own default of its loan obligations to its Senior Lenders to which loan contracts the Government was never
a party to. The Government was not even given an option as to what course of action it should take in case PIATCO
defaulted in the payment of its senior loans. The Government, upon PIATCO's default, would be merely notified by
the Senior Lenders of the same and it is the Senior Lenders who are authorized to appoint a qualified nominee or
transferee. Should the Senior Lenders fail to make such an appointment, the Government is then automatically
obligated to "directly deal and negotiate" with the Senior Lenders regarding NAIA IPT III. The only way the
Government would not be liable for PIATCO's debt is for a qualified nominee or transferee to be appointed in place of
PIATCO to continue the construction, operation and maintenance of NAIA IPT III. This "pre-condition", however, will
not take the contract out of the ambit of a direct guarantee by the government as the existence, availability and
willingness of a qualified nominee or transferee is totally out of the government's control. As such the Government is
virtually at the mercy of PIATCO (that it would not default on its loan obligations to its Senior Lenders), the Senior
Lenders (that they would appoint a qualified nominee or transferee or agree to some other arrangement with the
Government) and the existence of a qualified nominee or transferee who is able and willing to take the place of
PIATCO in NAIA IPT III.

The proscription against government guarantee in any form is one of the policy considerations behind the
BOT Law. Clearly, in the present case, the ARCA obligates the Government to pay for all loans, advances and
obligations arising out of financial facilities extended to PIATCO for the implementation of the NAIA IPT III project
should PIATCO default in its loan obligations to its Senior Lenders and the latter fails to appoint a qualified nominee
or transferee. This in effect would make the Government liable for PIATCO's loans should the conditions as set forth
in the ARCA arise. This is a form of direct government guarantee.

The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a BOT project may be
accepted, the following conditions must first be met: (1) the project involves a new concept in technology and/or is not
part of the list of priority projects, (2) no direct government guarantee, subsidy or equity is required, and (3) the
government agency or local government unit has invited by publication other interested parties to a public bidding and
conducted the same.56 The failure to meet any of the above conditions will result in the denial of the proposal. It is
further provided that the presence of direct government guarantee, subsidy or equity will "necessarily disqualify a
proposal from being treated and accepted as an unsolicited proposal." 57 The BOT Law clearly and strictly prohibits
direct government guarantee, subsidy and equity in unsolicited proposals that the mere inclusion of a provision to that
effect is fatal and is sufficient to deny the proposal. It stands to reason therefore that if a proposal can be denied by
reason of the existence of direct government guarantee, then its inclusion in the contract executed after the said
proposal has been accepted is likewise sufficient to invalidate the contract itself. A prohibited provision, the inclusion
of which would result in the denial of a proposal cannot, and should not, be allowed to later on be inserted in the
contract resulting from the said proposal. The basic rules of justice and fair play alone militate against such an
occurrence and must not, therefore, be countenanced particularly in this instance where the government is exposed
to the risk of shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to the legal maxim that those that cannot be done directly cannot be
done indirectly.58 To declare the PIATCO contracts valid despite the clear statutory prohibition against a direct
government guarantee would not only make a mockery of what the BOT Law seeks to prevent -- which is to
expose the government to the risk of incurring a monetary obligation resulting from a contract of loan
between the project proponent and its lenders and to which the Government is not a party to -- but would
also render the BOT Law useless for what it seeks to achieve –- to make use of the resources of the private
sector in the "financing, operation and maintenance of infrastructure and development projects" 59 which are
necessary for national growth and development but which the government, unfortunately, could ill-afford to
finance at this point in time.

IV

Temporary takeover of business affected with public interest

Article XII, Section 17 of the 1987 Constitution provides:

Section 17. In times of national emergency, when the public interest so requires, the State may, during the
emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any
privately owned public utility or business affected with public interest.

The above provision pertains to the right of the State in times of national emergency, and in the exercise of its police
power, to temporarily take over the operation of any business affected with public interest. In the 1986 Constitutional
Commission, the term "national emergency" was defined to include threat from external aggression, calamities or
national disasters, but not strikes "unless it is of such proportion that would paralyze government service."60 The
duration of the emergency itself is the determining factor as to how long the temporary takeover by the government
would last.61 The temporary takeover by the government extends only to the operation of the business and not to the
ownership thereof. As such the government is not required to compensate the private entity-owner of the said
business as there is no transfer of ownership, whether permanent or temporary. The private entity-owner affected
by the temporary takeover cannot, likewise, claim just compensation for the use of the said business and its
properties as the temporary takeover by the government is in exercise of its police power and not of its power of
eminent domain.

Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:

Section 5.10 Temporary Take-over of operations by GRP.

….

(c) In the event the development Facility or any part thereof and/or the operations of Concessionaire or any
part thereof, become the subject matter of or be included in any notice, notification, or declaration
concerning or relating to acquisition, seizure or appropriation by GRP in times of war or national emergency,
GRP shall, by written notice to Concessionaire, immediately take over the operations of the Terminal and/or
the Terminal Complex. During such take over by GRP, the Concession Period shall be suspended;
provided, that upon termination of war, hostilities or national emergency, the operations shall be returned to
Concessionaire, at which time, the Concession period shall commence to run again. Concessionaire shall
be entitled to reasonable compensation for the duration of the temporary take over by GRP, which
compensation shall take into account the reasonable cost for the use of the Terminal and/or
Terminal Complex, (which is in the amount at least equal to the debt service requirements of
Concessionaire, if the temporary take over should occur at the time when Concessionaire is still servicing
debts owed to project lenders), any loss or damage to the Development Facility, and other consequential
damages. If the parties cannot agree on the reasonable compensation of Concessionaire, or on the liability
of GRP as aforesaid, the matter shall be resolved in accordance with Section 10.01 [Arbitration]. Any
amount determined to be payable by GRP to Concessionaire shall be offset from the amount next payable
by Concessionaire to GRP.62

PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on temporary
government takeover and obligate the government to pay "reasonable cost for the use of the Terminal and/or
Terminal Complex."63 Article XII, section 17 of the 1987 Constitution envisions a situation wherein the exigencies of
the times necessitate the government to "temporarily take over or direct the operation of any privately owned public
utility or business affected with public interest." It is the welfare and interest of the public which is the paramount
consideration in determining whether or not to temporarily take over a particular business. Clearly, the State in
effecting the temporary takeover is exercising its police power. Police power is the "most essential, insistent, and
illimitable of powers."64 Its exercise therefore must not be unreasonably hampered nor its exercise be a source of
obligation by the government in the absence of damage due to arbitrariness of its exercise.65 Thus, requiring the
government to pay reasonable compensation for the reasonable use of the property pursuant to the operation of the
business contravenes the Constitution.

Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage vested in one or more persons or companies, consisting in the
exclusive right (or power) to carry on a particular business or trade, manufacture a particular article, or control the
sale of a particular commodity."66 The 1987 Constitution strictly regulates monopolies, whether private or public,
and even provides for their prohibition if public interest so requires. Article XII, Section 19 of the 1987 Constitution
states:

Sec. 19. The state shall regulate or prohibit monopolies when the public interest so requires. No
combinations in restraint of trade or unfair competition shall be allowed.

Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist to aid the government
in carrying on an enterprise or to aid in the performance of various services and functions in the interest of the
public.67 Nonetheless, a determination must first be made as to whether public interest requires a monopoly. As
monopolies are subject to abuses that can inflict severe prejudice to the public, they are subject to a higher level of
State regulation than an ordinary business undertaking.

In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is granted the "exclusive
right to operate a commercial international passenger terminal within the Island of Luzon" at the NAIA IPT III.68 This
is with the exception of already existing international airports in Luzon such as those located in the Subic Bay
Freeport Special Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in Laoag City.69 As such,
upon commencement of PIATCO's operation of NAIA IPT III, Terminals 1 and 2 of NAIA would cease to function as
international passenger terminals. This, however, does not prevent MIAA to use Terminals 1 and 2 as domestic
passenger terminals or in any other manner as it may deem appropriate except those activities that would compete
with NAIA IPT III in the latter's operation as an international passenger terminal.70 The right granted to PIATCO
to exclusively operate NAIA IPT III would be for a period of twenty-five (25) years from the In-Service Date71 and
renewable for another twenty-five (25) years at the option of the government.72 Both the 1997 Concession
Agreement and the ARCA further provide that, in view of the exclusive right granted to PIATCO, the
concession contracts of the service providers currently servicing Terminals 1 and 2 would no longer be
renewed and those concession contracts whose expiration are subsequent to the In-Service Date would
cease to be effective on the said date.73

The operation of an international passenger airport terminal is no doubt an undertaking imbued with public interest. In
entering into a Build–Operate-and-Transfer contract for the construction, operation and maintenance of NAIA IPT III,
the government has determined that public interest would be served better if private sector resources were used in its
construction and an exclusive right to operate be granted to the private entity undertaking the said project, in this
case PIATCO. Nonetheless, the privilege given to PIATCO is subject to reasonable regulation and supervision by the
Government through the MIAA, which is the government agency authorized to operate the NAIA complex, as well as
DOTC, the department to which MIAA is attached.74

This is in accord with the Constitutional mandate that a monopoly which is not prohibited must be regulated.75 While it
is the declared policy of the BOT Law to encourage private sector participation by "providing a climate of minimum
government regulations,"76 the same does not mean that Government must completely surrender its sovereign power
to protect public interest in the operation of a public utility as a monopoly. The operation of said public utility cannot
be done in an arbitrary manner to the detriment of the public which it seeks to serve. The right granted to the public
utility may be exclusive but the exercise of the right cannot run riot. Thus, while PIATCO may be authorized to
exclusively operate NAIA IPT III as an international passenger terminal, the Government, through the MIAA, has the
right and the duty to ensure that it is done in accord with public interest. PIATCO's right to operate NAIA IPT III
cannot also violate the rights of third parties.

Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:

3.01 Concession Period

xxx           xxx           xxx

(e) GRP confirms that certain concession agreements relative to certain services and operations
currently being undertaken at the Ninoy Aquino International Airport passenger Terminal I have a validity
period extending beyond the In-Service Date. GRP through DOTC/MIAA, confirms that these services
and operations shall not be carried over to the Terminal and the Concessionaire is under no legal
obligation to permit such carry-over except through a separate agreement duly entered into with
Concessionaire. In the event Concessionaire becomes involved in any litigation initiated by any such
concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and harmless on full
indemnity basis from and against any loss and/or any liability resulting from any such litigation, including the
cost of litigation and the reasonable fees paid or payable to Concessionaire's counsel of choice, all such
amounts shall be fully deductible by way of an offset from any amount which the Concessionaire is bound to
pay GRP under this Agreement.

During the oral arguments on December 10, 2002, the counsel for the petitioners-in-intervention for G.R. No.
155001 stated that there are two service providers whose contracts are still existing and whose validity
extends beyond the In-Service Date. One contract remains valid until 2008 and the other until 2010.77

We hold that while the service providers presently operating at NAIA Terminal 1 do not have an absolute right for the
renewal or the extension of their respective contracts, those contracts whose duration extends beyond NAIA IPT III's
In-Service-Date should not be unduly prejudiced. These contracts must be respected not just by the parties thereto
but also by third parties. PIATCO cannot, by law and certainly not by contract, render a valid and binding contract
nugatory. PIATCO, by the mere expedient of claiming an exclusive right to operate, cannot require the Government to
break its contractual obligations to the service providers. In contrast to the arrastre and stevedoring service providers
in the case of Anglo-Fil Trading Corporation v. Lazaro78 whose contracts consist of temporary hold-over permits,
the affected service providers in the cases at bar, have a valid and binding contract with the Government, through
MIAA, whose period of effectivity, as well as the other terms and conditions thereof, cannot be violated.

In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of the 1997 Concession
Agreement and the ARCA did not strip government, thru the MIAA, of its right to supervise the operation of the whole
NAIA complex, including NAIA IPT III. As the primary government agency tasked with the job, 79 it is MIAA's
responsibility to ensure that whoever by contract is given the right to operate NAIA IPT III will do so within the bounds
of the law and with due regard to the rights of third parties and above all, the interest of the public.

VI

CONCLUSION

In sum, this Court rules that in view of the absence of the requisite financial capacity of the Paircargo Consortium,
predecessor of respondent PIATCO, the award by the PBAC of the contract for the construction, operation and
maintenance of the NAIA IPT III is null and void. Further, considering that the 1997 Concession Agreement contains
material and substantial amendments, which amendments had the effect of converting the 1997 Concession
Agreement into an entirely different agreement from the contract bidded upon, the 1997 Concession Agreement is
similarly null and void for being contrary to public policy. The provisions under Sections 4.04(b) and (c) in relation to
Section 1.06 of the 1997 Concession Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA, which
constitute a direct government guarantee expressly prohibited by, among others, the BOT Law and its Implementing
Rules and Regulations are also null and void. The Supplements, being accessory contracts to the ARCA, are likewise
null and void.

WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession Agreement and the
Supplements thereto are set aside for being null and void.

SO ORDERED.

SEPARATE OPINIONS

VITUG, J.:

This Court is bereft of jurisdiction to hear the petitions at bar. The Constitution provides that the Supreme Court shall
exercise original jurisdiction over, among other actual controversies, petitions for certiorari, prohibition, mandamus,
quo warranto, and habeas corpus.1 The cases in question, although denominated to be petitions for prohibition,
actually pray for the nullification of the PIATCO contracts and to restrain respondents from implementing said
agreements for being illegal and unconstitutional.

Section 2, Rule 65 of the Rules of Court states:

"When the proceedings of any tribunal, corporation, board, officer or person, whether exercising judicial,
quasi-judicial or ministerial functions, are without or in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is no appeal or any other plain, speedy and
adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that judgment be rendered commanding the
respondent to desist from further proceedings in the action or matter specified therein, or otherwise granting
such incidental reliefs as law and justice may require."

The rule is explicit. A petition for prohibition may be filed against a tribunal, corporation, board, officer or person,
exercising judicial, quasi-judicial or ministerial functions. What the petitions seek from respondents do not involve
judicial, quasi-judicial or ministerial functions. In prohibition, only legal issues affecting the jurisdiction of the tribunal,
board or officer involved may be resolved on the basis of undisputed facts.2 The parties allege, respectively,
contentious evidentiary facts. It would be difficult, if not anomalous, to decide the jurisdictional issue on the basis of
the contradictory factual submissions made by the parties.3 As the Court has so often exhorted, it is not a trier of
facts.

The petitions, in effect, are in the nature of actions for declaratory relief under Rule 63 of the Rules of Court. The
Rules provide that any person interested under a contract may, before breach or violation thereof, bring an action in
the appropriate Regional Trial Court to determine any question of construction or validity arising, and for a declaration
of his rights or duties thereunder. 4 The Supreme Court assumes no jurisdiction over petitions for declaratory relief
which are cognizable by regional trial courts.5

As I have so expressed in Tolentino vs. Secretary of Finance,6 reiterated in Santiago vs. Guingona, Jr.7 , the
Supreme Court should not be thought of as having been tasked with the awesome responsibility of overseeing the
entire bureaucracy. Pervasive and limitless, such as it may seem to be under the 1987 Constitution, judicial power
still succumbs to the paramount doctrine of separation of powers. The Court may not at good liberty intrude, in the
guise of sovereign imprimatur, into every affair of government. What significance can still then remain of the time-
honored and widely acclaimed principle of separation of powers if, at every turn, the Court allows itself to pass upon
at will the disposition of a co-equal, independent and coordinate branch in our system of government. I dread to think
of the so varied uncertainties that such an undue interference can lead to.

Accordingly, I vote for the dismissal of the petition.

Quisumbing, and Azcuna, JJ., concur.

PANGANIBAN, J.:

The five contracts for the construction and the operation of Ninoy Aquino International Airport (NAIA) Terminal III, the
subject of the consolidated Petitions before the Court, are replete with outright violations of law, public policy and the
Constitution. The only proper thing to do is declare them all null and void ab initio and let the chips fall where they
may. Fiat iustitia ruat coelum.

The facts leading to this controversy are already well presented in the ponencia. I shall not burden the readers with a
retelling thereof. Instead, I will cut to the chase and directly address the two sets of gut issues:

1. The first issue is procedural: Does the Supreme Court have original jurisdiction to hear and decide the Petitions?
Corollarily, do petitioners have locus standi and should this Court decide the cases without any mandatory referral to
arbitration?

2. The second one is substantive in character: Did the subject contracts violate the Constitution, the laws, and public
policy to such an extent as to render all of them void and inexistent?

My answer to all the above questions is a firm "Yes."

The Procedural Issue:

Jurisdiction, Standing and Arbitration

Definitely and surely, the issues involved in these Petitions are clearly of transcendental importance and of national
interest. The subject contracts pertain to the construction and the operation of the country's premiere international
airport terminal - an ultramodern world-class public utility that will play a major role in the country's economic
development and serve to project a positive image of our country abroad. The five build-operate-&-transfer (BOT)
contracts, while entailing the investment of billions of pesos in capital and the availment of several hundred millions of
dollars in loans, contain provisions that tend to establish a monopoly, require the disbursements of public funds sans
appropriations, and provide government guarantees in violation of statutory prohibitions, as well as other provisions
equally offensive to law, public policy and the Constitution. Public interest will inevitably be affected thereby.

Thus, objections to these Petitions, grounded upon (a) the hierarchy of courts, (b) the need for arbitration prior to
court action, and (c) the alleged lack of sufficient personality, standing or interest, being in the main procedural
matters, must now be set aside, as they have been in past cases. This Court must be permitted to perform its
constitutional duty of determining whether the other agencies of government have acted within the limits of the
Constitution and the laws, or if they have gravely abused the discretion entrusted to them.1

Hierarchy of Courts

The Court has, in the past, held that questions relating to gargantuan government contracts ought to be settled
without delay.2 This holding applies with greater force to the instant cases. Respondent Piatco is partly correct in
averring that petitioners can obtain relief from the regional trial courts via an action to annul the contracts.

Nevertheless, the unavoidable consequence of having to await the rendition and the finality of any such judgment
would be a prolonged state of uncertainty that would be prejudicial to the nation, the parties and the general public.
And, in light of the feared loss of jobs of the petitioning workers, consequent to the inevitable pretermination of
contracts of the petitioning service providers that will follow upon the heels of the impending opening of NAIA
Terminal III, the need for relief is patently urgent, and therefore, direct resort to this Court through the special civil
action of prohibition is thus justified.3

Contrary to Piatco's argument that the resolution of the issues raised in the Petitions will require delving into factual
questions,4 I submit that their disposition ultimately turns on questions of law.5 Further, many of the significant and
relevant factual questions can be easily addressed by an examination of the documents submitted by the parties. In
any event, the Petitions raise some novel questions involving the application of the amended BOT Law, which this
Court has seen fit to tackle.

Arbitration

Should the dispute be referred to arbitration prior to judicial recourse? Respondent Piatco claims that Section 10.02
of the Amended and Restated Concession Agreement (ARCA) provides for arbitration under the auspices of the
International Chamber of Commerce to settle any dispute or controversy or claim arising in connection with the
Concession Agreement, its amendments and supplements. The government disagrees, however, insisting that there
can be no arbitration based on Section 10.02 of the ARCA, since all the Piatco contracts are void ab initio. Therefore,
all contractual provisions, including Section 10.02 of the ARCA, are likewise void, inexistent and inoperative. To
support its stand, the government cites Chavez v. Presidential Commission on Good Government:6 "The void
agreement will not be rendered operative by the parties' alleged performance (partial or full) of their respective
prestations. A contract that violates the Constitution and the law is null and void ab initio and vests no rights and
creates no obligations. It produces no legal effect at all."

As will be discussed at length later, the Piatco contracts are indeed void in their entirety; thus, a resort to the
aforesaid provision on arbitration is unavailing. Besides, petitioners and petitioners-in-intervention have pointed out
that, even granting arguendo that the arbitration clause remained a valid provision, it still cannot bind them inasmuch
as they are not parties to the Piatco contracts. And in the final analysis, it is unarguable that the arbitration process
provided for under Section 10.02 of the ARCA, to be undertaken by a panel of three (3) arbitrators appointed in
accordance with the Rules of Arbitration of the International Chamber of Commerce, will not be able to address,
determine and definitively resolve the constitutional and legal questions that have been raised in the Petitions before
us.

Locus Standi

Given this Court's previous decisions in cases of similar import, no one will seriously doubt that, being taxpayers and
members of the House of Representatives, Petitioners Baterina et al. have locus standi to bring the Petition in GR
No. 155547. In Albano v. Reyes,7 this Court held that the petitioner therein, suing as a citizen, taxpayer and member
of the House of Representatives, was sufficiently clothed with standing to bring the suit questioning the validity of the
assailed contract. The Court cited the fact that public interest was involved, in view of the important role of the Manila
International Container Terminal (MICT) in the country's economic development and the magnitude of the financial
consideration. This, notwithstanding the fact that expenditure of public funds was not required under the assailed
contract.

In the cases presently under consideration, petitioners' personal and substantial interest in the controversy is shown
by the fact that certain provisions in the Piatco contracts create obligations on the part of government (through the
DOTC and the MIAA) to disburse public funds without prior congressional appropriations.

Petitioners thus correctly assert that the injury to them has a twofold aspect: (1) they are adversely affected as
taxpayers on account of the illegal disbursement of public funds; and (2) they are prejudiced qua legislators, since the
contractual provisions requiring the government to incur expenditures without appropriations also operate as
limitations upon the exclusive power and prerogative of Congress over the public purse. As members of the House of
Representatives, they are actually deprived of discretion insofar as the inclusion of those items of expenditure in the
budget is concerned. To prevent such encroachment upon the legislative privilege and obviate injury to the institution
of which they are members, petitioners-legislators have locus standi to bring suit.

Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus possessed of standing to challenge the illegal
disbursement of public funds. Messrs. Agan et al., in particular, are employees (or representatives of employees) of
various service providers that have (1) existing concession agreements with the MIAA to provide airport services
necessary to the operation of the NAIA and (2) service agreements to furnish essential support services to the
international airlines operating at the NAIA.

On the other hand, Messrs. Lopez et al. are employees of the MIAA. These petitioners (Messrs. Agan et al. and
Messrs. Lopez et al.) are confronted with the prospect of being laid off from their jobs and losing their means of
livelihood when their employer-companies are forced to shut down or otherwise retrench and cut back on manpower.
Such development would result from the imminent implementation of certain provisions in the contracts that tend
toward the creation of a monopoly in favor of Piatco, its subsidiaries and related companies.

Petitioners-in-intervention are service providers in the business of furnishing airport-related services to international
airlines and passengers in the NAIA and are therefore competitors of Piatco as far as that line of business is
concerned. On account of provisions in the Piatco contracts, petitioners-in-intervention have to enter into a written
contract with Piatco so as not to be shut out of NAIA Terminal III and barred from doing business there. Since there is
no provision to ensure or safeguard free and fair competition, they are literally at its mercy. They claim injury on
account of their deprivation of property (business) and of the liberty to contract, without due process of law.

And even if petitioners and petitioners-in-intervention were not sufficiently clothed with legal standing, I have at the
outset already established that, given its impact on the public and on national interest, this controversy is laden with
transcendental importance and constitutional significance. Hence, I do not hesitate to adopt the same position as was
enunciated in Kilosbayan v. Guingona Jr.8 that "in cases of transcendental importance, the Court may relax the
standing requirements and allow a suit to prosper even when there is no direct injury to the party claiming the right of
judicial review."9

The Substantive Issue:

Violations of the Constitution and the Laws

From the Outset, the Bidding Process Was Flawed and Tainted
After studying the documents submitted and arguments advanced by the parties, I have no doubt that, right at the
outset, Piatco was not qualified to participate in the bidding process for the Terminal III project, but was nevertheless
permitted to do so. It even won the bidding and was helped along by what appears to be a series of collusive and
corrosive acts.

The build-operate-and-transfer (BOT) project for the NAIA Passenger Terminal III comes under the category of an
"unsolicited proposal," which is the subject of Section 4-A of the BOT Law. 10 The unsolicited proposal was originally
submitted by the Asia's Emerging Dragon Corporation (AEDC) to the Department of Transportation and
Communications (DOTC) and the Manila International Airport Authority (MIAA), which reviewed and approved the
proposal.

The draft of the concession agreement as negotiated between AEDC and DOTC/MIAA was endorsed to the National
Economic Development Authority (NEDA-ICC), which in turn reviewed it on the basis of its scope, economic viability,
financial indicators and risks; and thereafter approved it for bidding.

The DOTC/MIAA then prepared the Bid Documents, incorporating therein the negotiated Draft Concession
Agreement, and published invitations for public bidding, i.e., for the submission of comparative or competitive
proposals. Piatco's predecessor-in-interest, the Paircargo Consortium, was the only company that submitted a
competitive bid or price challenge.

At this point, I must emphasize that the law requires the award of a BOT project to the bidder that has satisfied the
minimum requirements; and met the technical, financial, organizational and legal standards provided in the BOT Law.
Section 5 of this statute states:

"Sec. 5. Public bidding of projects. - . . .

"In the case of a build-operate-and-transfer arrangement, the contract shall be awarded to the bidder
who, having satisfied the minimum financial, technical, organizational and legal standards required
by this Act, has submitted the lowest bid and most favorable terms for the project, based on the present
value of its proposed tolls, fees, rentals and charges over a fixed term for the facility to be constructed,
rehabilitated, operated and maintained according to the prescribed minimum design and performance
standards, plans and specifications. . . ." (Emphasis supplied.)

The same provision requires that the price challenge via public bidding "must be conducted under a two-
envelope/two-stage system: the first envelope to contain the technical proposal and the second envelope to contain
the financial proposal." Moreover, the 1994 Implementing Rules and Regulations (IRR) provide that only those
bidders that have passed the prequalification stage are permitted to have their two envelopes reviewed.

In other words, prospective bidders must prequalify by submitting their prequalification documents for evaluation; and
only the pre-qualified bidders would be entitled to have their bids opened, evaluated and appreciated. On the other
hand, disqualified bidders are to be informed of the reason for their disqualification. This procedure was confirmed
and reiterated in the Bid Documents, which I quote thus: "Prequalified proponents will be considered eligible to move
to second stage technical proposal evaluation. The second and third envelopes of pre-disqualified proponents will be
returned."11

Aside from complying with the legal and technical requirements (track record or experience of the firm and its key
personnel), a project proponent desiring to prequalify must also demonstrate its financial capacity to undertake the
project. To establish such capability, a proponent must prove that it is able to raise the minimum amount of equity
required for the project and to procure the loans or financing needed for it. Section 5.4(c) of the 1994 IRR provides:

"Sec. 5.4. Prequalification Requirements. - To pre-qualify, a project proponent must comply with the
following requirements:

x x x           x x x           x x x

"c. Financial Capability. The project proponent must have adequate capability to sustain the financing
requirements for the detailed engineering design, construction, and/or operation and maintenance phases of
the project, as the case may be. For purposes of prequalification, this capability shall be measured in terms
of: (i) proof of the ability of the project proponent and/or the consortium to provide a minimum amount of
equity to the project, and (ii) a letter testimonial from reputable banks attesting that the project proponent
and/or members of the consortium are banking with them, that they are in good financial standing, and that
they have adequate resources. The government Agency/LGU concerned shall determine on a project-to-
project basis, and before prequalification, the minimum amount of equity needed. . . . ." (Italics supplied)

Since the minimum amount of equity for the project was set at 30 percent12 of the minimum project cost of US$350
million, the minimum amount of equity required of any proponent stood at US$105 million. Converted to pesos at the
exchange rate then of P26.239 to US$1.00 (as quoted by the Bangko Sentral ng Pilipinas), the peso equivalent of the
minimum equity was P2,755,095,000.

However, the combined equity or net worth of the Paircargo consortium stood at only P558,384,871.55. 13 This
amount was only slightly over 6 percent of the minimum project cost and very much short of the required minimum
equity, which was equivalent to 30 percent of the project cost. Such deficiency should have immediately caused the
disqualification of the Paircargo consortium. This matter was brought to the attention of the Prequalification and
Bidding Committee (PBAC).

Notwithstanding the glaring deficiency, DOTC Undersecretary Primitivo C. Cal, concurrent chair of the PBAC,
declared in a Memorandum dated 14 October 1996 that "the Challenger (Paircargo consortium) was found to have a
combined net worth of P3,926,421,242.00 that could support a project costing approximately P13 billion." To justify
his conclusion, he asserted: "It is not a requirement that the networth must be `unrestricted'. To impose this as a
requirement now will be nothing less than unfair."

He further opined, "(T)he networth reflected in the Financial Statement should not be taken as the amount of money
to be used to answer the required thirty (30%) percent equity of the challenger but rather to be used in establishing if
there is enough basis to believe that the challenger can comply with the required 30% equity. In fact, proof of
sufficient equity is required as one of the conditions for award of contract (Sec. 12.1 of IRR of the BOT Law) but not
for prequalification (Sec. 5.4 of same document)."

On the basis of the foregoing dubious declaration, the Paircargo consortium was deemed prequalified and thus
permitted to proceed to the other stages of the bidding process.

By virtue of the prequalified status conferred upon the Paircargo, Undersecretary Cal's findings in effect relieved the
consortium of the need to comply with the financial capability requirement imposed by the BOT Law and IRR. This
position is unmistakably and squarely at odds with the Supreme Court's consistent doctrine emphasizing the strict
application of pertinent rules, regulations and guidelines for the public bidding process, in order to place each bidder -
actual or potential - on the same footing. Thus, it is unarguably irregular and contrary to the very concept of public
bidding to permit a variance between the conditions under which bids are invited and those under which proposals
are submitted and approved.

Republic v. Capulong,14 teaches that if one bidder is relieved from having to conform to the conditions that impose
some duty upon it, that bidder is not contracting in fair competition with those bidders that propose to be bound by all
conditions. The essence of public bidding is, after all, an opportunity for fair competition and a basis for the precise
comparison of bids.15 Thus, each bidder must bid under the same conditions; and be subject to the same guidelines,
requirements and limitations. The desired result is to be able to determine the best offer or lowest bid, all things being
equal.

Inasmuch as the Paircargo consortium did not possess the minimum equity equivalent to 30 percent of the minimum
project cost, it should not have been prequalified or allowed to participate further in the bidding. The Prequalification
and Bidding Committee (PBAC) should therefore not have opened the two envelopes of the consortium containing its
technical and financial proposals; required AEDC to match the consortium's bid; 16 or awarded the Concession
Agreement to the consortium's successor-in-interest, Piatco.

As there was effectively no public bidding to speak of, the entire bidding process having been flawed and tainted from
the very outset, therefore, the award of the concession to Paircargo's successor Piatco was void, and the Concession
Agreement executed with the latter was likewise void ab initio. For this reason, Piatco cannot and should not be
allowed to benefit from that Agreement.17

AEDC Was Deprived of the Right to Match PIATCO's Price Challenge

In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal declared that, for purposes of matching the price
challenge of Piatco, AEDC as originator of the unsolicited proposal would be permitted access only to the schedule of
proposed Annual Guaranteed Payments submitted by Piatco, and not to the latter's financial and technical proposals
that constituted the basis for the price challenge in the first place. This was supposedly in keeping with Section 11.6
of the 1994 IRR, which provides that proprietary information is to be respected, protected and treated with utmost
confidentiality, and is therefore not to form part of the bidding/tender and related documents.

This pronouncement, I believe, was a grievous misapplication of the mentioned provision. The "proprietary
information" referred to in Section 11.6 of the IRR pertains only to the proprietary information of the originator of an
unsolicited proposal, and not to those belonging to a challenger. The reason for the protection accorded proprietary
information at all is the fact that, according to Section 4-A of the BOT Law as amended, a proposal qualifies as an
"unsolicited proposal" when it pertains to a project that involves "a new concept or technology", and/or a project that
is not on the government's list of priority projects.

To be considered as utilizing a new concept or technology, a project must involve the possession of exclusive rights
(worldwide or regional) over a process; or possession of intellectual property rights over a design, methodology or
engineering concept.18 Patently, the intent of the BOT Law is to encourage individuals and groups to come up with
creative innovations, fresh ideas and new technology. Hence, the significance and necessity of protecting proprietary
information in connection with unsolicited proposals. And to make the encouragement real, the law also extends to
such individuals and groups what amounts to a "right of first refusal" to undertake the project they conceptualized,
involving the use of new technology or concepts, through the mechanism of matching a price challenge.

A competing bid is never just any figure conjured from out of the blue; it is arrived at after studying economic,
financial, technical and other, factors; it is likewise based on certain assumptions as to the nature of the business, the
market potentials, the probable demand for the product or service, the future behavior of cost items, political and
other risks, and so on. It is thus self-evident that in order to be able to intelligently match a bid or price challenge, a
bidder must be given access to the assumptions and the calculations that went into crafting the competing bid.

In this instance, the financial and technical proposals of Piatco would have provided AEDC with the necessary
information to enable it to make a reasonably informed matching bid. To put it more simply, a bidder unable to access
the competitor's assumptions will never figure out how the competing bid came about; requiring him to "counter-
propose" is like having him shoot at a target in the dark while blindfolded.

By withholding from AEDC the challenger's financial and technical proposals containing the critical information it
needed, Undersecretary Cal actually and effectively deprived AEDC of the ability to match the price challenge. One
could say that AEDC did not have the benefit of a "level playing field." It seems to me, though, that AEDC
was actually shut out of the game altogether.

At the end of the day, the bottom line is that the validity and the propriety of the award to Piatco had been irreparably
impaired.

Delayed Issuance of the Notice of Award Violated the BOT Law and the IRR

Section 9.5 of the IRR requires that the Notice of Award must indicate the time frame within which the winner of the
bidding (and therefore the prospective awardee) shall submit the prescribed performance security, proof of
commitment of equity contributions, and indications of sources of financing (loans); and, in the case of joint ventures,
an agreement showing that the members are jointly and severally responsible for the obligations of the project
proponent under the contract.

The purpose of having a definite and firm timetable for the submission of the aforementioned requirements is not only
to prevent delays in the project implementation, but also to expose and weed out unqualified proponents, who might
have unceremoniously slipped through the earlier prequalification process, by compelling them to put their money
where their mouths are, so to speak.

Nevertheless, this provision can be easily circumvented by merely postponing the actual issuance of the Notice of
Award, in order to give the favored proponent sufficient time to comply with the requirements. Hence, to avert or
minimize the manipulation of the post-bidding process, the IRR not only set out the precise sequence of events
occurring between the completion of the evaluation of the technical bids and the issuance of the Notice of Award, but
also specified the timetables for each such event. Definite allowable extensions of time were provided for, as were
the consequences of a failure to meet a particular deadline.

In particular, Section 9.1 of the 1994 IRR prescribed that within 30 calendar days from the time the second-stage
evaluation shall have been completed, the Committee must come to a decision whether or not to award the contract
and, within 7 days therefrom, the Notice of Award must be approved by the head of agency or local government unit
(LGU) concerned, and its issuance must follow within another 7 days thereafter.

Section 9.2 of the IRR set the procedure applicable to projects involving substantial government undertakings as
follows: Within 7 days after the decision to award is made, the draft contract shall be submitted to the ICC for
clearance on a no-objection basis. If the draft contract includes government undertakings already previously
approved, then the submission shall be for information only.

However, should there be additional or new provisions different from the original government undertakings, the draft
shall have to be reviewed and approved. The ICC has 15 working days to act thereon, and unless otherwise
specified, its failure to act on the contract within the specified time frame signifies that the agency or LGU may
proceed with the award. The head of agency or LGU shall approve the Notice of Award within seven days of the
clearance by the ICC on a no-objection basis, and the Notice itself has to be issued within seven days thereafter.

The highly regulated time-frames within which the agents of government were to act evinced the intent to impose
upon them the duty to act expeditiously throughout the process, to the end that the project be prosecuted and
implemented without delay. This regulated scenario was likewise intended to discourage collusion and substantially
reduce the opportunity for agents of government to abuse their discretion in the course of the award process.

Despite the clear timetables set out in the IRR, several lengthy and still-unexplained delays occurred in the award
process, as can be observed from the presentation made by the counsel for public respondents, 19 quoted
hereinbelow:

"11 Dec. 1996 - The Paircargo Joint Venture was informed by the PBAC that AEDC failed to match and that
negotiations preparatory to Notice of Award should be commenced. This was the decision to award that
should have commenced the running of the 7-day period to approve the Notice of Award, as per Section 9.1
of the IRR, or to submit the draft contract to the ICC for approval conformably with Section 9.2.

"01 April 1997 - The PBAC resolved that a copy of the final draft of the Concession Agreement be submitted
to the NEDA for clearance on a no-objection basis. This resolution came more than 3 months too late as it
should have been made on the 20th of December 1996 at the latest.
 "16 April 1997 - The PBAC resolved that the period of signing the Concession Agreement be extended by
15 days.

"18 April 1997 - NEDA approved the Concession Agreement. Again this is more than 3 months too late as
the NEDA's decision should have been released on the 16th of January 1997 or fifteen days after it should
have been submitted to it for review.

"09 July 1997 - The Notice of Award was issued to PIATCO. Following the provisions of the IRR, the Notice
of Award should have been issued fourteen days after NEDA's approval, or the 28th of January 1997. In any
case, even if it were to be assumed that the release of NEDA's approval on the 18th of April was timely, the
Notice of Award should have been issued on the 9th of May 1997. In both cases, therefore, the release of
the Notice of Award occurred in a decidedly less than timely fashion."

This chronology of events bespeaks an unmistakable disregard, if not disdain, by the persons in charge of the award
process for the time limitations prescribed by the IRR. Their attitude flies in the face of this Court's solemn
pronouncement in Republic v. Capulong,20 that "strict observance of the rules, regulations and guidelines of the
bidding process is the only safeguard to a fair, honest and competitive public bidding."

From the foregoing, the only conclusion that can possibly be drawn is that the BOT law and its IRR were repeatedly
violated with unmitigated impunity - and by agents of government, no less! On account of such violation, the award of
the contract to Piatco, which undoubtedly gained time and benefited from the delays, must be deemed null and void
from the beginning.

Further Amendments Resulted in a Substantially Different Contract, Awarded Without Public Bidding

But the violations and desecrations did not stop there. After the PBAC made its decision on December 11, 1996 to
award the contract to Piatco, the latter negotiated changes to the Contract bidded out and ended up with what
amounts to a substantially new contract without any public bidding. This Contract was subsequently further amended
four more times through negotiation and without any bidding. Thus, the contract actually executed between Piatco
and DOTC/MIAA on July 12, 1997 (the Concession Agreement or "CA") differed from the contract bidded out (the
draft concession agreement or "DCA") in the following very significant respects:

1. The CA inserted stipulations creating a monopoly in favor of Piatco in the business of providing airport-
related services for international airlines and passengers.21

2. The CA provided that government is to answer for Piatco's unpaid loans and debts (lumped under the
term Attendant Liabilities) in the event Piatco fails to pay its senior lenders.22

3. The CA provided that in case of termination of the contract due to the fault of government, government
shall pay all expenses that Piatco incurred for the project plus the appraised value of the Terminal.23

4. The CA imposed new and special obligations on government, including delivery of clean possession of
the site for the terminal; acquisition of additional land at the government's expense for construction of road
networks required by Piatco's approved plans and specifications; and assistance to Piatco in securing site
utilities, as well as all necessary permits, licenses and authorizations.24

5. Where Section 3.02 of the DCA requires government to refrain from competing with the contractor with
respect to the operation of NAIA Terminal III, Section 3.02(b) of the CA excludes and prohibits everyone,
including government, from directly or indirectly competing with Piatco, with respect to the operation of, as
well as operations in, NAIA Terminal III. Operations in is sufficiently broad to encompass all retail and other
commercial business enterprises operating within Terminal III, inclusive of the businesses of providing
various airport-related services to international airlines, within the scope of the prohibition.

6. Under Section 6.01 of the DCA, the following fees are subject to the written approval of MIAA: lease/rental
charges, concession privilege fees for passenger services, food services, transportation utility concessions,
groundhandling, catering and miscellaneous concession fees, porterage fees, greeter/well-wisher fees,
carpark fees, advertising fees, VIP facilities fees and others. Moreover, adjustments to the groundhandling
fees, rentals and porterage fees are permitted only once every two years and in accordance with a
parametric formula, per DCA Section 6.03. However, the CA as executed with Piatco provides in Section
6.06 that all the aforesaid fees, rentals and charges may be adjusted without MIAA's approval or
intervention. Neither are the adjustments to these fees and charges subject to or limited by any parametric
formula.25

7. Section 1.29 of the DCA provides that the terminal fees, aircraft tacking fees, aircraft parking fees, check-
in counter fees and other fees are to be quoted and paid in Philippine pesos. But per Section 1.33 of the CA,
all the aforesaid fees save the terminal fee are denominated in US Dollars.

8. Under Section 8.07 of the DCA, the term attendant liabilities refers to liabilities pertinent to NAIA Terminal
III, such as payment of lease rentals and performance of other obligations under the Land Lease
Agreement; the obligations under the Tenant Agreements; and payment of all taxes, fees, charges and
assessments of whatever kind that may be imposed on NAIA Terminal III or parts thereof. But in Section
 1.06 of the CA, Attendant Liabilities refers to unpaid debts of Piatco: "All amounts recorded and from time to
time outstanding in the books of (Piatco) as owing to Unpaid Creditors who have provided, loaned or
advanced funds actually used for the Project, including all interests, penalties, associated fees, charges,
surcharges, indemnities, reimbursements and other related expenses, and further including amounts owed
by [Piatco] to its suppliers, contractors and subcontractors."

9. Per Sections 8.04 and 8.06 of the DCA, government may, on account of the contractors breach, rescind
the contract and select one of four options: (a) take over the terminal and assume all its attendant liabilities;
(b) allow the contractor's creditors to assign the Project to another entity acceptable to DOTC/MIAA; (c) pay
the contractor rent for the facilities and equipment the DOTC may utilize; or (d) purchase the terminal at a
price established by independent appraisers. Depending on the option selected, government may take
immediate possession and control of the terminal and its operations. Government will be obligated to
compensate the contractor for the "equivalent or proportionate contract costs actually disbursed," but only
where government is the one in breach of the contract. But under Section 8.06(a) of the CA, whether on
account of Piatco's breach of contract or its inability to pay its creditors, government is obliged to either (a)
take over Terminal III and assume all of Piatco's debts or (b) permit the qualified unpaid creditors to be
substituted in place of Piatco or to designate a new operator. And in the event of government's breach of
contract, Piatco may compel it to purchase the terminal at fair market value, per Section 8.06(b) of the CA.

10. Under the DCA, any delay by Piatco in the payment of the amounts due the government constitutes
breach of contract. However, under the CA, such delay does not necessarily constitute breach of contract,
since Piatco is permitted to suspend payments to the government in order to first satisfy the claims of its
secured creditors, per Section 8.04(d) of the CA.

It goes without saying that the amendment of the Contract bidded out (the DCA or draft concession agreement) - in
such substantial manner, without any public bidding, and after the bidding process had been concluded on December
11, 1996 - is violative of public policy on public biddings, as well as the spirit and intent of the BOT Law. The whole
point of going through the public bidding exercise was completely lost. Its very rationale was totally subverted by
permitting Piatco to amend the contract for which public bidding had already been concluded. Competitive bidding
aims to obtain the best deal possible by fostering transparency and preventing favoritism, collusion and fraud in the
awarding of contracts. That is the reason why procedural rules pertaining to public bidding demand strict
observance.26

In a relatively early case, Caltex v. Delgado Brothers,27 this Court made it clear that substantive amendments to a
contract for which a public bidding has already been finished should only be awarded after another public bidding:

"The due execution of a contract after public bidding is a limitation upon the right of the contracting parties to
alter or amend it without another public bidding, for otherwise what would a public bidding be good for if after
the execution of a contract after public bidding, the contracting parties may alter or amend the contract, or
even cancel it, at their will? Public biddings are held for the protection of the public, and to give the public the
best possible advantages by means of open competition between the bidders. He who bids or offers the
best terms is awarded the contract subject of the bid, and it is obvious that such protection and best possible
advantages to the public will disappear if the parties to a contract executed after public bidding may alter or
amend it without another previous public bidding."28

The aforementioned case dealt with the unauthorized amendment of a contract executed after public bidding; in the
situation before us, the amendments were made also after the bidding, but prior to execution. Be that as it may, the
same rationale underlying Caltex applies to the present situation with equal force. Allowing the winning bidder to
renegotiate the contract for which the bidding process has ended is tantamount to permitting it to put in anything it
wants. Here, the winning bidder (Piatco) did not even bother to wait until after actual execution of the contract before
rushing to amend it. Perhaps it believed that if the changes were made to a contract already won through bidding
(DCA) instead of waiting until it is executed, the amendments would not be noticed or discovered by the public.

In a later case, Mata v. San Diego,29 this Court reiterated its ruling as follows:

"It is true that modification of government contracts, after the same had been awarded after a public bidding,
is not allowed because such modification serves to nullify the effects of the bidding and whatever
advantages the Government had secured thereby and may also result in manifest injustice to the other
bidders. This prohibition, however, refers to a change in vital and essential particulars of the agreement
which results in a substantially new contract."

Piatco's counter-argument may be summed up thus: There was nothing in the 1994 IRR that prohibited further
negotiations and eventual amendments to the DCA even after the bidding had been concluded. In fact, PBAC Bid
Bulletin No. 3 states: "[A]mendments to the Draft Concession Agreement shall be issued from time to time. Said
amendments will only cover items that would not materially affect the preparation of the proponent's proposal."

I submit that accepting such warped argument will result in perverting the policy underlying public bidding. The BOT
Law cannot be said to allow the negotiation of contractual stipulations resulting in a substantially new contract after
the bidding process and price challenge had been concluded. In fact, the BOT Law, in recognition of the time, money
and effort invested in an unsolicited proposal, accords its originator the privilege of matching the challenger's bid.
Section 4-A of the BOT Law specifically refers to a "lower price proposal" by a competing bidder; and to the right of
the original proponent "to match the price" of the challenger. Thus, only the price proposals are in play. The terms,
conditions and stipulations in the contract for which public bidding has been concluded are understood to remain
intact and not be subject to further negotiation. Otherwise, the very essence of public bidding will be destroyed - there
will be no basis for an exact comparison between bids.

Moreover, Piatco misinterpreted the meaning behind PBAC Bid Bulletin No. 3. The phrase amendments . . . from
time to time refers only to those amendments to the draft concession agreement issued by the PBAC prior to the
submission of the price challenge; it certainly does not include or permit amendments negotiated for and introduced
after the bidding process, has been terminated.

Piatco's Concession Agreement Was Further Amended, (ARCA) Again Without Public Bidding

Not satisfied with the Concession Agreement, Piatco - once more without bothering with public bidding - negotiated
with government for still more substantial changes. The result was the Amended and Restated Concession
Agreement (ARCA) executed on November 26, 1998. The following changes were introduced:

1. The definition of Attendant Liabilities was further amended with the result that the unpaid loans of Piatco,
for which government may be required to answer, are no longer limited to only those loans recorded in
Piatco's books or loans whose proceeds were actually used in the Terminal III project.30

2. Although the contract may be terminated due to breach by Piatco, it will not be liable to pay the
government any Liquidated Damages if a new operator is designated to take over the operation of the
terminal.31

3. The Liquidated Damages which government becomes liable for in case of its breach of contract were
substantially increased.32

4. Government's right to appoint a comptroller for Piatco in case the latter encounters liquidity problems was
deleted.33

5. Government is made liable for Incremental and Consequential Costs and Losses in case it fails to comply
or cause any third party under its direct or indirect control to comply with the special obligations imposed on
government.34

6. The insurance policies obtained by Piatco covering the terminal are now required to be assigned to the
Senior Lenders as security for the loans; previously, their proceeds were to be used to repair and
rehabilitate the facility in case of damage.35

7. Government bound itself to set the initial rate of the terminal fee, to be charged when Terminal III begins
operations, at an amount higher than US$20.36

8. Government waived its defense of the illegality of the contract and even agreed to be liable to pay
damages to Piatco in the event the contract was declared illegal.37

9. Even though government may be entitled to terminate the ARCA on account of breach by Piatco,
government is still liable to pay Piatco the appraised value of Terminal III or the Attendant Liabilities, if the
termination occurs before the In-Service Date.38 This condition contravenes the BOT Law provision on
termination compensation.

10. Government is obligated to take the administrative action required for Piatco's imposition, collection and
application of all Public Utility Revenues.39 No such obligation existed previously.

11. Government is now also obligated to perform and cause other persons and entities under its direct or
indirect control to perform all acts necessary to perfect the security interests to be created in favor of
Piatco's Senior Lenders.40 No such obligation existed previously.

12. DOTC/MIAA's right of intervention in instances where Piatco's Non-Public Utility Revenues become
exorbitant or excessive has been removed.41

13. The illegality and unenforceability of the ARCA or any of its material provisions was made an event of
default on the part of government only, thus constituting a ground for Piatco to terminate the ARCA.42

14. Amounts due from and payable by government under the contract were made payable on demand - net
of taxes, levies, imposts, duties, charges or fees of any kind except as required by law.43

15. The Parametric Formula in the contract, which is utilized to compute for adjustments/increases to the
public utility revenues (i.e., aircraft parking and tacking fees, check-in counter fee and terminal fee), was
revised to permit Piatco to input its more costly short-term borrowing rates instead of the longer-terms rates
 in the computations for adjustments, with the end result that the changes will redound to its greater financial
benefit.

16. The Certificate of Completion simply deleted the successful performance-testing of the terminal facility in
accordance with defined performance standards as a pre-condition for government's acceptance of the
terminal facility.44

In sum, the foregoing revisions and amendments as embodied in the ARCA constitute very material alterations of the
terms and conditions of the CA, and give further manifestly undue advantage to Piatco at the expense of government.
Piatco claims that the changes to the CA were necessitated by the demands of its foreign lenders. However, no proof
whatsoever has been adduced to buttress this claim.

In any event, it is quite patent that the sum total of the aforementioned changes resulted in drastically weakening the
position of government to a degree that seems quite excessive, even from the standpoint of a businessperson who
regularly transacts with banks and foreign lenders, is familiar with their mind-set, and understands what motivates
them. On the other hand, whatever it was that impelled government officials concerned to accede to those grossly
disadvantageous changes, I can only hazard a guess.

There is no question in my mind that the ARCA was unauthorized and illegal for lack of public bidding and for being
patently disadvantageous to government.

The Three Supplements Imposed New Obligations on Government, Also Without Prior Public Bidding

After Piatco had managed to breach the protective rampart of public bidding, it recklessly went on a rampage of
further assaults on the ARCA.

The First Supplement Is as Void as the ARCA

In the First Supplement ("FS") executed on August 27, 1999, the following changes were made to the ARCA:

1. The amounts payable by Piatco to government were reduced by allowing additional exceptions to the
Gross Revenues in which government is supposed to participate.45

2. Made part of the properties which government is obliged to construct and/or maintain and keep in good
repair are (a) the access road connecting Terminals II and III - the construction of this access road is the
obligation of Piatco, in lieu of its obligation to construct an Access Tunnel connecting Terminals II and III;
and (b) the taxilane and taxiway - these are likewise part of Piatco's obligations, since they are part and
parcel of the project as described in Clause 1.3 of the Bid Documents .46

3. The MIAA is obligated to provide funding for the maintenance and repair of the airports and facilities
owned or operated by it and by third persons under its control. It will also be liable to Piatco for the latter's
losses, expenses and damages as well as liability to third persons, in case MIAA fails to perform such
obligations. In addition, MIAA will also be liable for the incremental and consequential costs of the remedial
work done by Piatco on account of the former's default.47

4. The FS also imposed on government ten (10) "Additional Special Obligations," including the following:

(a) Working for the removal of the general aviation traffic from the NAIA airport complex48

(b) Providing through MIAA the land required by Piatco for the taxilane and one taxiway at no cost
to Piatco49

(c) Implementing the government's existing storm drainage master plan50

(d) Coordinating with DPWH the financing, the implementation and the completion of the following
works before the In-Service Date: three left-turning overpasses (EDSA to Tramo St., Tramo to
Andrews Ave., and Manlunas Road to Sales Ave.);51 and a road upgrade and improvement
program involving widening, repair and resurfacing of Sales Road, Andrews Avenue and Manlunas
Road; improvement of Nichols Interchange; and removal of squatters along Andrews Avenue.52

(e) Dealing directly with BCDA and the Phil. Air Force in acquiring additional land or right of way for
the road upgrade and improvement program.53

5. Government is required to work for the immediate reversion to MIAA of the Nayong Pilipino National
Park.54
 6. Government's share in the terminal fees collected was revised from a flat rate of P180 to 36 percent
thereof; together with government's percentage share in the gross revenues of Piatco, the amount will be
remitted to government in pesos instead of US dollars.55 This amendment enables Piatco to benefit from the
further erosion of the peso-dollar exchange rate, while preventing government from building up its foreign
exchange reserves.

7. All payments from Piatco to government are now to be invoiced to MIAA, and payments are to accrue to
the latter's exclusive benefit.56 This move appears to be in support of the funds MIAA advanced to DPWH.

I must emphasize that the First Supplement is void in two respects. First, it is merely an amendment to the ARCA,
upon which it is wholly dependent; therefore, since the ARCA is void, inexistent and not capable of being ratified or
amended, it follows that the FS too is void, inexistent and inoperative. Second, even assuming arguendo that the
ARCA is somehow remotely valid, nonetheless the FS, in imposing significant new obligations upon government,
altered the fundamental terms and stipulations of the ARCA, thus necessitating a public bidding all over again. That
the FS was entered into sans public bidding renders it utterly void and inoperative.

The Second Supplement Is Similarly Void and Inexistent

The Second Supplement ("SS") was executed between the government and Piatco on September 4, 2000. It calls for
Piatco, acting not as concessionaire of NAIA Terminal III but as a public works contractor, to undertake - in the
government's stead - the clearing, removal, demolition and disposal of improvements, subterranean obstructions and
waste materials at the project site.57

The scope of the works, the procedures involved, and the obligations of the contractor are provided for in Parts II and
III of the SS. Section 4.1 sets out the compensation to be paid, listing specific rates per cubic meter of materials for
each phase of the work - excavation, leveling, removal and disposal, backfilling and dewatering. The amounts
collectible by Piatco are to be offset against the Annual Guaranteed Payments it must pay government.

Though denominated as Second Supplement, it was nothing less than an entirely new public works contract. Yet it,
too, did not undergo any public bidding, for which reason it is also void and inoperative.

Not surprisingly, Piatco had to subcontract the works to a certain Wintrack Builders, a firm reputedly owned by a
former high-ranking DOTC official. But that is another story altogether.

The Third Supplement Is Likewise Void and Inexistent

The Third Supplement ("TS"), executed between the government and Piatco on June 22, 2001, passed on to the
government certain obligations of Piatco as Terminal III concessionaire, with respect to the surface road connecting
Terminals II and III.

By way of background, at the inception of and forming part of the NAIA Terminal III project was the proposed
construction of an access tunnel crossing Runway 13/31, which. would connect Terminal III to Terminal II. The Bid
Documents in Section 4.1.2.3[B][i] declared that the said access tunnel was subject to further negotiation; but for
purposes of the bidding, the proponent should submit a bid for it as well. Therefore, the tunnel was supposed to be
part and parcel of the Terminal III project.

However, in Section 5 of the First Supplement, the parties declared that the access tunnel was not economically
viable at that time. In lieu thereof, the parties agreed that a surface access road (now called the T2-T3 Road) was to
be constructed by Piatco to connect the two terminals. Since it was plainly in substitution of the tunnel, the surface
road construction should likewise be considered part and parcel of the same project, and therefore part of Piatco's
obligation as well. While the access tunnel was estimated to cost about P800 million, the surface road would have a
price tag in the vicinity of about P100 million, thus producing significant savings for Piatco.

Yet, the Third Supplement, while confirming that Piatco would construct the T2-T3 Road, nevertheless shifted to
government some of the obligations pertaining to the former, as follows:

1. Government is now obliged to remove at its own expense all tenants, squatters, improvements and/or
waste materials on the site where the T2-T3 road is to be constructed. 58 There was no similar obligation on
the part of government insofar as the access tunnel was concerned.

2. Should government fail to carry out its obligation as above described, Piatco may undertake it on
government's behalf, subject to the terms and conditions (including compensation payments) contained in
the Second Supplement.59

3. MIAA will answer for the operation, maintenance and repair of the T2-T3 Road.60

The TS depends upon and is intended to supplement the ARCA as well as the First Supplement, both of which are
void and inexistent and not capable of being ratified or amended. It follows that the TS is likewise void, inexistent and
inoperative. And even if, hypothetically speaking, both ARCA and FS are valid, still, the Third Supplement - imposing
as it does significant new obligations upon government - would in effect alter the terms and stipulations of the ARCA
in material respects, thus necessitating another public bidding. Since the TS was not subjected to public bidding, it is
consequently utterly void as well. At any rate, the TS created new monetary obligations on the part of government, for
which there were no prior appropriations. Hence it follows that the same is void ab initio.

In patiently tracing the progress of the Piatco contracts from their inception up to the present, I noted that the whole
process was riddled with significant lapses, if not outright irregularity and wholesale violations of law and public
policy. The rationale of beginning at the beginning, so to speak, will become evident when the question of what to do
with the five Piatco contracts is discussed later on.

In the meantime, I shall take up specific, provisions or changes in the contracts and highlight the more prominent
objectionable features.

Government Directly Guarantees Piatco Debts

Certainly the most discussed provision in the parties' arguments is the one creating an unauthorized, direct
government guarantee of Piatco's obligations in favor of the lenders.

Section 4-A of the BOT Law as amended states that unsolicited proposals, such as the NAIA Terminal III Project,
may be accepted by government provided inter alia that no direct government guarantee, subsidy or equity is
required. In short, such guarantee is prohibited in unsolicited proposals. Section 2(n) of the same legislation defines
direct government guarantee as "an agreement whereby the government or any of its agencies or local government
units (will) assume responsibility for the repayment of debt directly incurred by the project proponent in implementing
the project in case of a loan default."

Both the CA and the ARCA have provisions that undeniably create such prohibited government guarantee. Section
4.04 (c)(iv) to (vi) of the ARCA, which is similar to Section 4.04 of the CA, provides thus:

"(iv) that if Concessionaire is in default under a payment obligation owed to the Senior Lenders, and as a
result thereof the Senior Lenders have become entitled to accelerate the Senior Loans, the Senior Lenders
shall have the right to notify GRP of the same . . .;

(v) . . . the Senior Lenders may after written notification to GRP, transfer the Concessionaire's rights and
obligations to a transferee . . .;

(vi) if the Senior Lenders . . . are unable to . . . effect a transfer . . ., then GRP and the Senior Lenders shall
endeavor . . . to enter into any other arrangement relating to the Development Facility . . . If no agreement
relating to the Development Facility is arrived at by GRP and the Senior Lenders within the said 180-day
period, then at the end thereof the Development Facility shall be transferred by the Concessionaire to GRP
or its designee and GRP shall make a termination payment to Concessionaire equal to the Appraised Value
(as hereinafter defined) of the Development Facility or the sum of the Attendant Liabilities, if greater. . . ."

In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA as follows:

"Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to time
owed or which may become, owing by Concessionaire to Senior Lenders or any other persons or entities
who have provided, loaned or advanced funds or provided financial facilities to Concessionaire for the
Project, including, without limitation, all principal, interest, associated fees, charges, reimbursements, and
other related expenses (including the fees, charges and expenses of any agents or trustees of such persons
or entities), whether payable at maturity, by acceleration or otherwise, and further including amounts owed
by Concessionaire to its professional consultants and advisers, suppliers, contractors and sub-contractors."

Government's agreement to pay becomes effective in the event of a default by Piatco on any of its loan
obligations to the Senior Lenders, and the amount to be paid by government is the greater of either the Appraised
Value of Terminal III or the aggregate amount of the moneys owed by Piatco - whether to the Senior Lenders or
to other entities, including its suppliers, contractors and subcontractors. In effect, therefore, this agreement already
constitutes the prohibited assumption by government of responsibility for repayment of Piatco's debts in case of a
loan default. In fine, a direct government guarantee.

It matters not that there is a roundabout procedure prescribed by Section 4.04(c)(iv), (v) and (vi) that would
require, first, an attempt (albeit unsuccessful) by the Senior Lenders to transfer Piatco's rights to a transferee of their
choice; and, second, an effort (equally unsuccessful) to "enter into any other arrangement" with the government
regarding the Terminal III facility, before government is required to make good on its guarantee. What is abundantly
clear is the fact that, in the devious labyrinthine process detailed in the aforesaid section, it is entirely within the
Senior Lenders' power, prerogative and control - exercisable via a mere refusal or inability to agree upon "a
transferee" or "any other arrangement" regarding the terminal facility - to push the process forward to the ultimate
contractual cul-de-sac, wherein government will be compelled to abjectly surrender and make good on its guarantee
of payment.

Piatco also argues that there is no proviso requiring government to pay the Senior Lenders in the event of Piatco's
default. This is literally true, in the sense that Section 4.04(c)(vi) of ARCA speaks of government making the
termination payment to Piatco, not to the lenders. However, it is almost a certainty that the Senior Lenders will
already have made Piatco sign over to them, ahead of time, its right to receive such payments from government;
and/or they may already have had themselves appointed its attorneys-in-fact for the purpose of collecting and
receiving such payments.

Nevertheless, as petitioners-in-intervention pointed out in their Memorandum, 61 the termination payment is to be

made to Piatco, not to the lenders; and there is no provision anywhere in the contract documents to prevent it from
diverting the proceeds to its own benefit and/or to ensure that it will necessarily use the same to pay off the Senior
Lenders and other creditors, in order to avert the foreclosure of the mortgage and other liens on the terminal facility.
Such deficiency puts the interests of government at great risk. Indeed, if the unthinkable were to happen, government
would be paying several hundreds of millions of dollars, but the mortgage liens on the facility may still be foreclosed
by the Senior Lenders just the same.

Consequently, the Piatco contracts are also objectionable for grievously failing to adequately protect government's
interests. More accurately, the contracts would consistently weaken and do away with protection of government
interests. As such, they are therefore grossly lopsided in favor of Piatco and/or its Senior Lenders.

While on this subject, it is well to recall the earlier discussion regarding a particularly noticeable alteration of the
concept of "Attendant Liabilities." In Section 1.06 of the CA defining the term, the Piatco debts to be assumed/paid by
government were qualified by the phrases recorded and from time to time outstanding in the books of the
Concessionaire and actually used for the project. These phrases were eliminated from the ARCA's definition of
Attendant Liabilities.

Since no explanation has been forthcoming from Piatco as to the possible justification for such a drastic change, the
only conclusion, possible is that it intends to have all of its debts covered by the guarantee, regardless of whether or
not they are disclosed in its books. This has particular reference to those borrowings which were obtained in violation
of the loan covenants requiring Piatco to maintain a minimum 70:30 debt-to-equity ratio, and even if the loan
proceeds were not actually used for the project itself.

This point brings us back to the guarantee itself. In Section 4.04(c)(vi) of ARCA, the amount which government has
guaranteed to pay as termination payment is the greater of either (i) the Appraised Value of the terminal facility or (ii)
the aggregate of the Attendant Liabilities. Given that the Attendant Liabilities may include practically any Piatco debt
under the sun, it is highly conceivable that their sum may greatly exceed the appraised value of the facility, and
government may end up paying very much more than the real worth of Terminal III. (So why did government have to
bother with public bidding anyway?)

In the final analysis, Section 4.04(c)(iv) to (vi) of the ARCA is diametrically at odds with the spirit and the intent of the
BOT Law. The law meant to mobilize private resources (the private sector) to take on the burden and the risks of
financing the construction, operation and maintenance of relevant infrastructure and development projects for the
simple reason that government is not in a position to do so. By the same token, government guarantee was
prohibited, since it would merely defeat the purpose and raison d'être of a build-operate-and-transfer project to be
undertaken by the private sector.

To the extent that the project proponent is able to obtain loans to fund the project, those risks are shared between the
project proponent on the one hand, and its banks and other lenders on the other. But where the proponent or its
lenders manage to cajol or coerce the government into extending a guarantee of payment of the loan obligations, the
risks assumed by the lenders are passed right back to government. I cannot understand why, in the instant case,
government cheerfully assented to re-assuming the risks of the project when it gave the prohibited guarantee and
thus simply negated the very purpose of the BOT Law and the protection it gives the government.

Contract Termination Provisions in the Piatco Contracts Are Void

The BOT Law as amended provides for contract termination as follows:

"Sec. 7. Contract Termination. - In the event that a project is revoked, cancelled or terminated by the
government through no fault of the project proponent or by mutual agreement, the Government shall
compensate the said project proponent for its actual expenses incurred in the project plus a reasonable rate
of return thereon not exceeding that stated in the contract as of the date of such revocation, cancellation or
termination: Provided, That the interest of the Government in this instances [sic] shall be duly insured with
the Government Service Insurance System or any other insurance entity duly accredited by the Office of the
Insurance Commissioner: Provided, finally, That the cost of the insurance coverage shall be included in the
terms and conditions of the bidding referred to above.

"In the event that the government defaults on certain major obligations in the contract and such failure is not
remediable or if remediable shall remain unremedied for an unreasonable length of time, the project
proponent/contractor may, by prior notice to the concerned national government agency or local government
unit specifying the turn-over date, terminate the contract. The project proponent/contractor shall be
reasonably compensated by the Government for equivalent or proportionate contract cost as defined in the
contract."

The foregoing statutory provision in effect provides for the following limited instances when termination compensation
may be allowed:
 1. Termination by the government through no fault of the project proponent

2. Termination upon the parties' mutual agreement

3. Termination by the proponent due to government's default on certain major contractual obligations

To emphasize, the law does not permit compensation for the project proponent when contract termination is due to
the proponent's own fault or breach of contract.

This principle was clearly violated in the Piatco Contracts. The ARCA stipulates that government is to pay termination
compensation to Piatco even when termination is initiated by government for the following causes:

"(i) Failure of Concessionaire to finish the Works in all material respects in accordance with the Tender
Design and the Timetable;

(ii) Commission by Concessionaire of a material breach of this Agreement . . .;

(iii) . . . a change in control of Concessionaire arising from the sale, assignment, transfer or other disposition
of capital stock which results in an ownership structure violative of statutory or constitutional limitations;

(iv) A pattern of continuing or repeated non-compliance, willful violation, or non-performance of other terms
and conditions hereof which is hereby deemed a material breach of this Agreement . . ."62

As if that were not bad enough, the ARCA also inserted into Section 8.01 the phrase "Subject to Section 4.04." The
effect of this insertion is that in those instances where government may terminate the contract on account of Piatco's
breach, and it is nevertheless required under the ARCA to make termination compensation to Piatco even though
unauthorized by law, such compensation is to be equivalent to the payment amount guaranteed by government -
either a) the Appraised Value of the terminal facility or (b) the aggregate of the Attendant Liabilities, whichever
amount is greater!

Clearly, this condition is not in line with Section 7 of the BOT Law. That provision permits a project proponent to
recover the actual expenses it incurred in the prosecution of the project plus a reasonable rate of return not in excess
of that provided in the contract; or to be compensated for the equivalent or proportionate contract cost as defined in
the contract, in case the government is in default on certain major contractual obligations.

Furthermore, in those instances where such termination compensation is authorized by the BOT Law, it is
indispensable that the interest of government be duly insured. Section 5.08 the ARCA mandates insurance
coverage for the terminal facility; but all insurance policies are to be assigned, and all proceeds are payable, to the
Senior Lenders. In brief, the interest being secured by such coverage is that of the Senior Lenders, not that of
government. This can hardly be considered compliance with law.

In essence, the ARCA provisions on termination compensation result in another unauthorized government guarantee,
this time in favor of Piatco.

A Prohibited Direct Government Subsidy, Which at the Same Time Is an Assault on the National Honor

Still another contractual provision offensive to law and public policy is Section 8.01(d) of the ARCA, which is a "bolder
and badder" version of Section 8.04(d) of the CA.

It will be recalled that Section 4-A of the BOT Law as amended prohibits not only direct government guarantees, but
likewise a direct government subsidy for unsolicited proposals. Section 13.2. b. iii. of the 1999 IRR defines a direct
government subsidy as encompassing "an agreement whereby the Government . . . will . . . postpone any payments
due from the proponent."

Despite the statutory ban, Section 8.01 (d) of the ARCA provides thus:

"(d) The provisions of Section 8.01(a) notwithstanding, and for the purpose of preventing a disruption of the
operations in the Terminal and/or Terminal Complex, in the event that at any time Concessionaire is of the
reasonable opinion that it shall be unable to meet a payment obligation owed to the Senior Lenders,
Concessionaire shall give prompt notice to GRP, through DOTC/MIAA and to the Senior Lenders. In such
circumstances, the Senior Lenders (or the Senior Lenders' Representative) may ensure that after making
provision for administrative expenses and depreciation, the cash resources of Concessionaire shall first be
used and applied to meet all payment obligations owed to the Senior Lenders. Any excess cash, after
meeting such payment obligations, shall be earmarked for the payment of all sums payable by
Concessionaire to GRP under this Agreement. If by reason of the foregoing GRP should be unable to collect
in full all payments due to GRP under this Agreement, then the unpaid balance shall be payable within a 90-
day grace period counted from the relevant due date, with interest per annum at the rate equal to the
average 91-day Treasury Bill Rate as of the auction date immediately preceding the relevant due date. If
payment is not effected by Concessionaire within the grace period, then a spread of five (5%) percent over
the applicable 91-day Treasury Bill Rate shall be added on the unpaid amount commencing on the expiry of
 the grace period up to the day of full payment. When the temporary illiquidity of Concessionaire shall have
been corrected and the cash position of Concessionaire should indicate its ability to meet its maturing
obligations, then the provisions set forth under this Section 8.01(d) shall cease to apply. The foregoing
remedial measures shall be applicable only while there remains unpaid and outstanding amounts owed to
the Senior Lenders." (Emphasis supplied)

By any manner of interpretation or application, Section 8.01(d) of the ARCA clearly mandates
the indefinite postponement of payment of all of Piatco's obligations to the government, in order to ensure that
Piatco's obligations to the Senior Lenders are paid in full first. That is nothing more or less than the direct government
subsidy prohibited by the BOT Law and the IRR. The fact that Piatco will pay interest on the unpaid amounts owed to
government does not change the situation or render the prohibited subsidy any less unacceptable.

But beyond the clear violations of law, there are larger issues involved in the ARCA. Earlier, I mentioned that Section
8.01(d) of the ARCA completely eliminated the proviso in Section 8.04(d) of the CA which gave government the right
to appoint a financial controller to manage the cash position of Piatco during situations of financial distress. Not only
has government been deprived of any means of monitoring and managing the situation; worse, as can be seen from
Section 8.01(d) above-quoted, the Senior Lenders have effectively locked in on the right to exercise financial
controllership over Piatco and to allocate its cash resources to the payment of all amounts owed to the Senior
Lenders before allowing any payment to be made to government.

In brief, this particular provision of the ARCA has placed in the hands of foreign lenders the power and the authority
to determine how much (if at all) and when the Philippine government (as grantor of the franchise) may be allowed to
receive from Piatco. In that situation, government will be at the mercy of the foreign lenders. This is a situation
completely contrary to the rationale of the BOT Law and to public policy.

The aforesaid provision rouses mixed emotions - shame and disgust at the parties' (especially the
government officials') docile submission and abject servitude and surrender to the imperious and excessive
demands of the foreign lenders, on the one hand; and vehement outrage at the affront to the sovereignty of
the Republic and to the national honor, on the other. It is indeed time to put an end to such an unbearable,
dishonorable situation.

The Piatco Contracts Unarguably Violate Constitutional Injunctions

I will now discuss the manner in which the Piatco Contracts offended the Constitution.

The Exclusive Right Granted to Piatco to Operate a Public Utility Is Prohibited by the Constitution

While Section 2.02 of the ARCA spoke of granting to Piatco "a franchise to operate and maintain the Terminal
Complex," Section 3.02(a) of the same ARCA granted to Piatco, for the entire term of the concession agreement,
"the  exclusive right  to operate a commercial international passenger terminal within the Island of Luzon" with the
exception of those three terminals already existing63 at the time of execution of the ARCA.

Section 11 of Article XII of the Constitution prohibits the grant of a "franchise, certificate, or any other form of
authorization for the operation of a public utility" that is "exclusive in character."

In its Opinion No. 078, Series of 1995, the Department of justice held that "the NAIA Terminal III which . . . is a
'terminal for public use' is a public utility." Consequently, the constitutional prohibition against the exclusivity of a
franchise applies to the franchise for the operation of NAIA Terminal III as well.

What was granted to Piatco was not merely a franchise, but an "exclusive right" to operate an international passenger
terminal within the "Island of Luzon." What this grant effectively means is that the government is now estopped from
exercising its inherent power to award any other person another franchise or a right to operate such a public utility, in
the event public interest in Luzon requires it. This restriction is highly detrimental to government and to the public
interest. Former Secretary of Justice Hernando B. Perez expressed this point well in his Memorandum for the
President dated 21 May 2002:

"Section 3.02 on 'Exclusivity'

"This provision gives to PIATCO (the Concessionaire) the exclusive right to operate a commercial
international airport within the Island of Luzon with the exception of those already existing at the time of the
execution of the Agreement, such as the airports at Subic, Clark and Laoag City. In the case of the Clark
International Airport, however, the provision restricts its operation beyond its design capacity of 850,000
passengers per annum and the operation of new terminal facilities therein until after the new NAIA Terminal
III shall have consistently reached or exceeded its design capacity of ten (10) million passenger capacity per
year for three (3) consecutive years during the concession period.

"This is an onerous and disadvantageous provision. It effectively grants PIATCO a monopoly in Luzon and
ties the hands of government in the matter of developing new airports which may be found expedient and
necessary in carrying out any future plan for an inter-modal transportation system in Luzon.
 "Additionally, it imposes an unreasonable restriction on the operation of the Clark International Airport which
could adversely affect the operation and development of the Clark Special Economic Zone to the economic
prejudice of the local constituencies that are being benefited by its operation." (Emphasis supplied)

While it cannot be gainsaid that an enterprise that is a public utility may happen to constitute a monopoly on account
of the very nature of its business and the absence of competition, such a situation does not however constitute
justification to violate the constitutional prohibition and grant an exclusive franchise or exclusive right to operate a
public utility.

Piatco's contention that the Constitution does not actually prohibit monopolies is beside the point. As correctly
argued,64 the existence of a monopoly by a public utility is a situation created by circumstances that do not encourage
competition. This situation is different from the grant of a franchise to operate a public utility, a privilege granted by
government. Of course, the grant of a franchise may result in a monopoly. But making such franchise exclusive is
what is expressly proscribed by the Constitution.

Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed exclusivity; it also guaranteed that
the government will not improve or expand the facilities at Clark - and in fact is required to put a cap on the latter's
operations - until after Terminal III shall have been operated at or beyond its peak capacity for
three consecutive years.65 As counsel for public respondents pointed out, in the real world where the rate of influx of
international passengers can fluctuate substantially from year to year, it may take many years before Terminal III
sees three consecutive years' operations at peak capacity. The Diosdado Macapagal International Airport may thus
end up stagnating for a long time. Indeed, in order to ensure greater profits for Piatco, the economic progress of a
region has had to be sacrificed.

The Piatco Contracts Violate the Time Limitation on Franchises

Section 11 of Article XII of the Constitution also provides that "no franchise, certificate or any other form of
authorization for the operation of a public utility shall be . . . for a longer period than fifty years." After all, a franchise
held for an unreasonably long time would likely give rise to the same evils as a monopoly.

The Piatco Contracts have come up with an innovative way to circumvent the prohibition and obtain an extension.
This fact can be gleaned from Section 8.03(b) of the ARCA, which I quote thus:

"Sec. 8.03. Termination Procedure and Consequences of Termination. -

a) x x x           x x x           x x x

b) In the event the Agreement is terminated pursuant to Section 8.01 (b) hereof, Concessionaire
shall be entitled to collect the Liquidated Damages specified in Annex 'G'. The full payment by GRP
to Concessionaire of the Liquidated Damages shall be a condition precedent to the transfer by
Concessionaire to GRP of the Development Facility. Prior to the full payment of the Liquidated
Damages, Concessionaire shall to the extent practicable continue to operate the Terminal and the
Terminal Complex and shall be entitled to retain and withhold all payments to GRP for the purpose
of offsetting the same against the Liquidated Damages. Upon full payment of the Liquidated
Damages, Concessionaire shall immediately transfer the Development Facility to GRP on 'as-is-
where-is' basis."

The aforesaid easy payment scheme is less beneficial than it first appears. Although it enables government to avoid
having to make outright payment of an obligation that will likely run into billions of pesos, this easy payment plan will
nevertheless cost government considerable loss of income, which it would earn if it were to operate Terminal III by
itself. Inasmuch as payments to the concessionaire (Piatco) will be on "installment basis," interest charges on the
remaining unpaid balance would undoubtedly cause the total outstanding balance to swell. Piatco would thus be
entitled to remain in the driver's seat and keep operating the terminal for an indefinite length of time.

The Contracts Create Two Monopolies for Piatco

By way of background, two monopolies were actually created by the Piatco contracts. The first and more obvious one
refers to the business of operating an international passenger terminal in Luzon, the business end of which involves
providing international airlines with parking space for their aircraft, and airline passengers with the use of departure
and arrival areas, check-in counters, information systems, conveyor systems, security equipment and paraphernalia,
immigrations and customs processing areas; and amenities such as comfort rooms, restaurants and shops.

In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA Terminal III will be the only facility to
be operated as an international passenger terminal;66 that NAIA Terminals I and II will no longer be operated as
such;67 and that no one (including the government) will be allowed to compete with Piatco in the operation of an
international passenger terminal in the NAIA Complex. 68 Given that, at this time, the government and Piatco are the
only ones engaged in the business of operating an international passenger terminal, I am not acutely concerned with
this particular monopolistic situation.

There was however another monopoly within the NAIA created by the subject contracts for Piatco - in the business of
providing international airlines with the following: groundhandling, in-flight catering, cargo handling, and aircraft repair
and maintenance services. These are lines of business activity in which are engaged many service providers
(including the petitioners-in-intervention), who will be adversely affected upon full implementation of the Piatco
Contracts, particularly Sections 3.01(d)69 and (e)70 of both the ARCA and the CA.

On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only international passenger terminal at the
NAIA, and therefore the only place within the NAIA Complex where the business of providing airport-related services
to international airlines may be conducted. On the other hand, Section 3.01(d) of the ARCA requires government,
through the MIAA, not to allow service providers with expired MIAA contracts to renew or extend their contracts to
render airport-related services to airlines. Meanwhile, Section 3.01(e) of the ARCA requires government, through the
DOTC and MIAA, not to allow service providers - those with subsisting concession agreements for services and
operations being conducted at Terminal I - to carry over their concession agreements, services and operations to
Terminal III, unless they first enter into a separate agreement with Piatco.

The aforementioned provisions vest in Piatco effective and exclusive control over which service provider may and
may not operate at Terminal III and render the airport-related services needed by international airlines. It thereby
possesses the power to exclude competition. By necessary implication, it also has effective control over the fees and
charges that will be imposed and collected by these service providers.

This intention is exceedingly clear in the declaration by Piatco that it is "completely within its rights to exclude any
party that it has not contracted with from NAIA Terminal III."71

Worse, there is nothing whatsoever in the Piatco Contracts that can serve to restrict, control or regulate the
concessionaire's discretion and power to reject any service provider and/or impose any term or condition it may see
fit in any contract it enters into with a service provider. In brief, there is no safeguard whatsoever to ensure free and
fair competition in the service-provider sector.

In the meantime, and not surprisingly, Piatco is first in line, ready to exploit the unique business opportunity. It
announced72 that it has accredited three groundhandlers for Terminal III. Aside from the Philippine Airlines, the other
accredited entities are the Philippine Airport and Ground Services Globeground, Inc. ("PAGSGlobeground") and the
Orbit Air Systems, Inc. ("Orbit"). PAGSGlobeground is a wholly-owned subsidiary of the Philippine Airport and
Ground Services, Inc. or PAGS,73 while Orbit is a wholly-owned subsidiary of Friendship Holdings, Inc., 74 which is in
turn owned 80 percent by PAGS.75 PAGS is a service provider owned 60 percent by the Cheng Family; 76 it is a
stockholder of 35 percent of Piatco77 and is the latter's designated contractor-operator for NAIA Terminal III.78

Such entry into and domination of the airport-related services sector appear to be very much in line with the following
provisions contained in the First Addendum to the Piatco Shareholders Agreement, 79 executed on July 6, 1999, which
appear to constitute a sort of master plan to create a monopoly and combinations in restraint of trade:

"11. The Shareholders shall ensure:

a. x x x           x x x           x x x.;

b. That (Phil. Airport and Ground Services, Inc.) PAGS and/or its designated Affiliates shall, at all times
during the Concession Period, be exclusively authorized by (PIATCO) to engage in the provision of ground-
handling, catering and fueling services within the Terminal Complex.

c. That PAIRCARGO and/or its designated Affiliate shall, during the Concession Period, be the only entities
authorized to construct and operate a warehouse for all cargo handling and related services within the Site."

Precisely, proscribed by our Constitution are the monopoly and the restraint of trade being fostered by the Piatco
Contracts through the erection of barriers to the entry of other service providers into Terminal III. In Tatad v.
Secretary of the Department of Energy,80 the Court ruled:

". . . [S]ection 19 of Article XII of the Constitution . . . mandates: 'The State shall regulate or prohibit
monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition
shall be allowed.'

"A monopoly is a privilege or peculiar advantage vested in one or more persons or companies, consisting in
the exclusive right or power to carry on a particular business or trade, manufacture a particular article, or
control the sale or the whole supply of a particular commodity. It is a form of market structure in which one or
only a few firms dominate the total sales of a product or service. On the other hand, a combination in
restraint of trade is an agreement or understanding between two or more persons, in the form of a contract,
trust, pool, holding company, or other form of association, for the purpose of unduly restricting competition,
monopolizing trade and commerce in a certain commodity, controlling its production, distribution and price,
or otherwise interfering with freedom of trade without statutory authority. Combination in restraint of trade
refers to the means while monopoly refers to the end.

"x x x           x x x           x x x

"Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses competition. The
desirability of competition is the reason for the prohibition against restraint of trade, the reason for the
 interdiction of unfair competition, and the reason for regulation of unmitigated monopolies. Competition is
thus the underlying principle of [S]ection 19, Article XII of our Constitution, . . ."81

Gokongwei Jr. v. Securities and Exchange Commission82 elucidates the criteria to be employed: "A 'monopoly'
embraces any combination the tendency of which is to prevent competition in the broad and general sense, or to
control prices to the detriment of the public. In short, it is the concentration of business in the hands of a few. The
material consideration in determining its existence is not that prices are raised and competition actually excluded, but
that power exists to raise prices or exclude competition when desired."83 (Emphasis supplied)

The Contracts Encourage Monopolistic Pricing, Too

Aside from creating a monopoly, the Piatco contracts also give the concessionaire virtually limitless power over the
charging of fees, rentals and so forth. What little "oversight function" the government might be able and minded to
exercise is less than sufficient to protect the public interest, as can be gleaned from the following provisions:

"Sec. 6.06. Adjustment of Non-Public Utility Fees and Charges

"For fees, rentals and charges constituting Non-Public Utility Revenues, Concessionaire may make any
adjustments it deems appropriate without need for the consent of GRP or any government agency subject to
Sec. 6.03(c)."

Section 6.03(c) in turn provides:

"(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public Utility
Revenues in order to ensure that End Users are not unreasonably deprived of services. While the vehicular
parking fee, porterage fee and greeter/wellwisher fee constitute Non-Public Utility Revenues of
Concessionaire, GRP may require Concessionaire to explain and justify the fee it may set from time to time,
if in the reasonable opinion of GRP the said fees have become exorbitant resulting in the unreasonable
deprivation of End Users of such services."

It will be noted that the above-quoted provision has no teeth, so the concessionaire can defy the government without
fear of any sanction. Moreover, Section 6.06 - taken together with Section 6.03(c) of the ARCA - falls short of the
standard set by the BOT Law as amended, which expressly requires in Section 2(b) that the project proponent is
"allowed to charge facility users appropriate tolls, fees, rentals and charges not exceeding those proposed in its
bid or as negotiated and incorporated in the contract  x x x."

The Piatco Contracts Violate Constitutional Prohibitions Against Impairment of Contracts and Deprivation of
Property Without Due Process

Earlier, I discussed how Section 3.01(e)84 of both the CA and the ARCA requires government, through DOTC/MIAA,
not to permit the carry-over to Terminal III of the services and operations of certain service providers currently
operating at Terminal I with subsisting contracts.

By the In-Service Date, Terminal III shall be the only facility to be operated as an international passenger terminal at
the NAIA;85 thus, Terminals I and II shall no longer operate as such, 86 and no one shall be allowed to compete with
Piatco in the operation of an international passenger terminal in the NAIA. 87 The bottom line is that, as of the In-
Service Date, Terminal III will be the only terminal where the business of providing airport-related services to
international airlines and passengers may be conducted at all.

Consequently, government through the DOTC/MIAA will be compelled to cease honoring existing contracts with
service providers after the In-Service Date, as they cannot be allowed to operate in Terminal III.

In short, the CA and the ARCA obligate and constrain government to break its existing contracts with these service
providers.

Notably, government is not in a position to require Piatco to accommodate the displaced service providers, and it
would be unrealistic to think that these service providers can perform their service contracts in some other
international airport outside Luzon. Obviously, then, these displaced service providers are - to borrow a quaint
expression - up the river without a paddle. In plainer terms, they will have lost their businesses entirely, in the blink of
an eye.

What we have here is a set of contractual provisions that impair the obligation of contracts and contravene the
constitutional prohibition against deprivation of property without due process of law.88

Moreover, since the displaced service providers, being unable to operate, will be forced to close shop, their
respective employees - among them Messrs. Agan and Lopez et al. - have very grave cause for concern, as they will
find themselves out of employment and bereft of their means of livelihood. This situation comprises still another
violation of the constitution prohibition against deprivation of property without due process.
True, doing business at the NAIA may be viewed more as a privilege than as a right. Nonetheless, where that
privilege has been availed of by the petitioners-in-intervention service providers for years on end, a situation arises,
similar to that in American Inter-fashion v. GTEB.89 We held therein that a privilege enjoyed for seven years "evolved
into some form of property right which should not be removed x x x arbitrarily and without due process." Said
pronouncement is particularly relevant and applicable to the situation at bar because the livelihood of the employees
of petitioners-intervenors are at stake.

The Piatco Contracts Violate Constitutional Prohibition against Deprivation of Liberty without Due Process

The Piatco Contracts by locking out existing service providers from entry into Terminal III and restricting entry of
future service providers, thereby infringed upon the freedom - guaranteed to and heretofore enjoyed by international
airlines - to contract with local service providers of their choice, and vice versa.

Both the service providers and their client airlines will be deprived of the right to liberty, which includes the right to
enter into all contracts,90 and/or the right to make a contract in relation to one's business.91

By Creating New Financial Obligations for Government, Supplements to the ARCA Violate the Constitutional
Ban on Disbursement of Public Funds without Valid Appropriation

Clearly prohibited by the Constitution is the disbursement of public funds out of the treasury, except in pursuance of
an appropriation made by law.92 The immediate effect of this constitutional ban is that all the various agencies of
government are constrained to limit their expenditures to the amounts appropriated by law for each fiscal year; and to
carefully count their cash before taking on contractual commitments. Giving flesh and form to the injunction of the
fundamental law, Sections 46 and 47 of Executive Order 292, otherwise known as the Administrative Code of 1987,
provide as follows:

"Sec. 46. Appropriation Before Entering into Contract. - (1) No contract involving the expenditure of public
funds shall be entered into unless there is an appropriation therefor, the unexpended balance of which, free
of other obligations, is sufficient to cover the proposed expenditure; and . .

"Sec. 47. Certificate Showing Appropriation to Meet Contract. - Except in the case of a contract for personal
service, for supplies for current consumption or to be carried in stock not exceeding the estimated
consumption for three (3) months, or banking transactions of government-owned or controlled banks, no
contract involving the expenditure of public funds by any government agency shall be entered into or
authorized unless the proper accounting official of the agency concerned shall have certified to the officer
entering into the obligation that funds have been duly appropriated for the purpose and that the amount
necessary to cover the proposed contract for the current calendar year is available for expenditure on
account thereof, subject to verification by the auditor concerned. The certificate signed by the proper
accounting official and the auditor who verified it, shall be attached to and become an integral part of the
proposed contract, and the sum so certified shall not thereafter be available for expenditure for any other
purpose until the obligation of the government agency concerned under the contract is fully extinguished."

Referring to the aforequoted provisions, this Court has held that "(I)t is quite evident from the tenor of the language of
the law that the existence of appropriations and the availability of funds are indispensable pre-requisites to or
conditions sine qua non for the execution of government contracts. The obvious intent is to impose such conditions
as a priori requisites to the validity of the proposed contract."93

Notwithstanding the constitutional ban, statutory mandates and Jurisprudential precedents, the three Supplements to
the ARCA, which were not approved by NEDA, imposed on government the additional burden of spending public
moneys without prior appropriation.

In the First Supplement ("FS") dated August 27, 1999, the following requirements were imposed on the government:

• To construct, maintain and keep in good repair and operating condition all airport support services,
facilities, equipment and infrastructure owned and/or operated by MIAA, which are not part of the Project or
which are located outside the Site, even though constructed by Concessionaire - including the access road
connecting Terminals II and III and the taxilane, taxiways and runways

• To obligate the MIAA to provide funding for the upkeep, maintenance and repair of the airports and
facilities owned or operated by it and by third persons under its control in order to ensure compliance with
international standards; and holding MIAA liable to Piatco for the latter's losses, expenses and damages as
well as for the latter's liability to third persons, in case MIAA fails to perform such obligations; in addition,
MIAA will also be liable for the incremental and consequential costs of the remedial work done by Piatco on
account of the former's default.

• Section 4 of the FS imposed on government ten (10) "Additional Special Obligations," including the
following:

o Providing thru MIAA the land required by Piatco for the taxilane and one taxiway, at no cost to
Piatco
o Implementing the government's existing storm drainage master plan
 o Coordinating with DPWH the financing, implementation and completion of the following works
before the In-Service Date: three left-turning overpasses (Edsa to Tramo St., Tramo to Andrews
Ave., and Manlunas Road to Sales Ave.) and a road upgrade and improvement program involving
widening, repair and resurfacing of Sales Road, Andrews Avenue and Manlunas Road;
improvement of Nichols Interchange; and removal of squatters along Andrews Avenue
o Dealing directly with BCDA and the Philippine Air Force in acquiring additional land or right of way
for the road upgrade and improvement program
o Requiring government to work for the immediate reversion to MIAA of the Nayong Pilipino National
Park, in order to permit the building of the second west parallel taxiway

• Section 5 of the FS also provides that in lieu of the access tunnel, a surface access road (T2-T3) will be
constructed. This provision requires government to expend funds to purchase additional land from Nayong
Pilipino and to clear the same in order to be able to deliver clean possession of the site to Piatco, as
required in Section 5(c) of the FS.

On the other hand, the Third Supplement ("TS") obligates the government to deliver, within 120 days from date
thereof, clean possession of the land on which the T2-T3 Road is to be constructed.

The foregoing contractual stipulations undeniably impose on government the expenditures of public funds not
included in any congressional appropriation or authorized by any other statute. Piatco however attempts to take these
stipulations out of the ambit of Sections 46 and 47 of the Administrative Code by characterizing them as stipulations
for compliance on a "best-efforts basis" only.

To determine whether the additional obligations under the Supplements may really be undertaken on a best-efforts
basis only, the nature of each of these obligations must be examined in the context of its relevance and significance
to the Terminal III Project, as well as of any adverse impact that may result if such obligation is not performed or
undertaken on time. In short, the criteria for determining whether the best-efforts basis will apply is whether the
obligations are critical to the success of the Project and, accordingly, whether failure to perform them (or to perform
them on time) could result in a material breach of the contract.

Viewed in this light, the "Additional Special Obligations" set out in Section 4 of the FS take on a different aspect. In
particular, each of the following may all be deemed to play a major role in the successful and timely prosecution of
the Terminal III Project: the obtention of land required by PIATCO for the taxilane and taxiway; the implementation of
government's existing storm drainage master plan; and coordination with DPWH for the completion of the three left-
turning overpasses before the In-Service Date, as well as acquisition and delivery of additional land for the
construction of the T2-T3 access road.

Conversely, failure to deliver on any of these obligations may conceivably result in substantial prejudice to the
concessionaire, to such an extent as to constitute a material breach of the Piatco Contracts. Whereupon, the
concessionaire may outrightly terminate the Contracts pursuant to Section 8.01(b)(i) and (ii) of the ARCA and seek
payment of Liquidated Damages in accordance with Section 8.02(a) of the ARCA; or the concessionaire may instead
require government to pay the Incremental and Consequential Losses under Section 1.23 of the ARCA. 94 The logical
conclusion then is that the obligations in the Supplements are not to be performed on a best-efforts basis only, but
are unarguably mandatory in character.

Regarding MIAA's obligation to coordinate with the DPWH for the complete implementation of the road upgrading and
improvement program for Sales, Andrews and Manlunas Roads (which provide access to the Terminal III site) prior to
the In-Service Date, it is essential to take note of the fact that there was a pressing need to complete the program
before the opening of Terminal III.95 For that reason, the MIAA was compelled to enter into a memorandum of
agreement with the DPWH in order to ensure the timely completion of the road widening and improvement program.
MIAA agreed to advance the total amount of P410.11 million to DPWH for the works, while the latter was committed
to do the following:

"2.2.8. Reimburse all advance payments to MIAA including but not limited to interest, fees, plus other costs
of money within the periods CY2004 and CY2006 with payment of no less than One Hundred Million Pesos
(PhP100M) every year.

"2.2.9. Perform all acts necessary to include in its CY2004 to CY2006 budget allocation the repayments for
the advances made by MIAA, to ensure that the advances are fully repaid by CY2006. For this purpose,
DPWH shall include the amounts to be appropriated for reimbursement to MIAA in the "Not Needing
Clearance" column of their Agency Budget Matrix (ABM) submitted to the Department of Budget and
Management."

It can be easily inferred, then, that DPWH did not set aside enough funds to be able to complete the upgrading
program for the crucially situated access roads prior to the targeted opening date of Terminal III; and that, had MIAA
not agreed to lend the P410 Million, DPWH would not have been able to complete the program on time. As a
consequence, government would have been in breach of a material obligation. Hence, this particular undertaking of
government may likewise not be construed as being for best-efforts compliance only.

They also Infringe on the Legislative Prerogative and Power Over the Public Purse
But the particularly sad thing about this transaction between MIAA and DPWH is the fact that both agencies were
maneuvered into (or allowed themselves to be maneuvered into) an agreement that would ensure delivery of
upgraded roads for Piatco's benefit, using funds not allocated for that purpose. The agreement would then be
presented to Congress as a done deal. Congress would thus be obliged to uphold the agreement and support it with
the necessary allocations and appropriations for three years, in order to enable DPWH to deliver on its committed
repayments to MIAA. The net result is an infringement on the legislative power over the public purse and a diminution
of Congress' control over expenditures of public funds - a development that would not have come about, were it not
for the Supplements. Very clever but very illegal!

EPILOGUE
What Do We Do Now?

In the final analysis, there remains but one ultimate question, which I raised during the Oral Argument on December
10, 2002: What do we do with the Piatco Contracts and Terminal III?96 (Feeding directly into the resolution of
the decisive question is the other nagging issue: Why should we bother with determining the legality and validity of
these contracts, when the Terminal itself has already been built and is practically complete?)

Prescinding from all the foregoing disquisition, I find that all the Piatco contracts, without exception, are void ab initio,
and therefore inoperative. Even the very process by which the contracts came into being - the bidding and the award
- has been riddled with irregularities galore and blatant violations of law and public policy, far too many to ignore.
There is thus no conceivable way, as proposed by some, of saving one (the original Concession Agreement) while
junking all the rest.

Neither is it possible to argue for the retention of the Draft Concession Agreement (referred to in the various
pleadings as the Contract Bidded Out) as the contract that should be kept in force and effect to govern the situation,
inasmuch as it was never executed by the parties. What Piatco and the government executed was the Concession
Agreement which is entirely different from the Draft Concession Agreement.

Ultimately, though, it would be tantamount to an outrageous, grievous and unforgivable mutilation of public policy and
an insult to ourselves if we opt to keep in place a contract - any contract - for to do so would assume that we agree to
having Piatco continue as the concessionaire for Terminal III.

Despite all the insidious contraventions of the Constitution, law and public policy Piatco perpetrated, keeping Piatco
on as concessionaire and even rewarding it by allowing it to operate and profit from Terminal III - instead of imposing
upon it the stiffest sanctions permissible under the laws - is unconscionable.

It is no exaggeration to say that Piatco may not really mind which contract we decide to keep in place. For all it may
care, we can do just as well without one, if we only let it continue and operate the facility. After all, the real money will
come not from building the Terminal, but from actually operating it for fifty or more years and charging whatever it
feels like, without any competition at all. This scenario must not be allowed to happen.

If the Piatco contracts are junked altogether as I think they should be, should not AEDC automatically be considered
the winning bidder and therefore allowed to operate the facility? My answer is a stone-cold 'No'. AEDC never won the
bidding, never signed any contract, and never built any facility. Why should it be allowed to automatically step in and
benefit from the greed of another?

Should government pay at all for reasonable expenses incurred in the construction of the Terminal? Indeed it should,
otherwise it will be unjustly enriching itself at the expense of Piatco and, in particular, its funders, contractors and
investors - both local and foreign. After all, there is no question that the State needs and will make use of Terminal III,
it being part and parcel of the critical infrastructure and transportation-related programs of government.

In Melchor v. Commission on Audit,97 this Court held that even if the contract therein was void, the principle of
payment by quantum meruit was found applicable, and the contractor was allowed to recover the reasonable value of
the thing or services rendered (regardless of any agreement as to the supposed value), in order to avoid unjust
enrichment on the part of government. The principle of quantum meruit was likewise applied in Eslao v. Commission
on Audit,98 because to deny payment for a building almost completed and already occupied would be to permit
government to unjustly enrich itself at the expense of the contractor. The same principle was applied in Republic v.
Court of Appeals.99

One possible practical solution would be for government - in view of the nullity of the Piatco contracts and of the fact
that Terminal III has already been built and is almost finished - to bid out the operation of the facility under the same
or analogous principles as build-operate-and-transfer projects. To be imposed, however, is the condition that the
winning bidder must pay the builder of the facility a price fixed by government based on quantum meruit; on the real,
reasonable - not inflated - value of the built facility.

How the payment or series of payments to the builder, funders, investors and contractors will be staggered and
scheduled, will have to be built into the bids, along with the annual guaranteed payments to government. In this
manner, this whole sordid mess could result in something truly beneficial for all, especially for the Filipino people.

WHEREFORE, I vote to grant the Petitions and to declare the subject contracts NULL and VOID.
G.R. No. L-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.

MALCOLM, J.:

This action in certiorari is for the purpose of reviewing a decision of the Public Utility Commissioner, affirmed by the
Public Utility Board, holding that the petitioner, the Iloilo Ice and Cold Storage Company, is a public utility and, as
such, 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 topic: 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 abovementioned, 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 file in the office of the Public Utility Commissioner, a statement of
its charges for ice. This decision was affirmed on appeal to the Public Utility Board. From this last decision, petitioner
has come before this court, asking that the proceeding below be reviewed, and the decisions set aside.

STATEMENT OF THE FACTS

The petitioner, the Iloilo Ice and Cold Storage Company, is a corporation organized under the laws of the Philippine
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 operation were
started, two additional ice plants were 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 contracts, 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, accordingly to its managing director and
treasurer, has been carried on with selected customers only. Preference, however, is always given to hospitals, the
request 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
that the company is not obligated to similar service in 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 Ice and 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 contract." In
August, 1918, all storage facilities were abolished, and resumed in 1920 only with contracts, a copy of the form at
present in use waiving 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, 1n speaking of the jurisdiction of the Board of Public
Utility Commissioner, and in defining the term "public utility," failed to include ice, refrigeration, and cold storage
plants. This deficiency 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 defined to include every individual, copartnership, association,
corporation or joint stock company, whether domestic or foreign, their lessee, 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 control 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 services, public warehouse, public wharf or dock not under the jurisdiction of the Insular
Collector of Customs, ice, refrigeration, cold storage, canal, irrigation, express, subway, 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, includes every individual, copartnership,
association, 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
confined to privileged individuals, but is open to the indefinite public. It is this indefinite or unrestricted quality
that gives it its public character. In determining whether a use is public, we must look not only to the
 character of the business to be done, but also to the proposed mode of doing it. If the use is merely optional
with the owners, or the public benefit is merely incidental, it is not a public use, authorizing the exercise of
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 permission.

In the decision of the Supreme Court of the United States in Terminal Taxicab Company 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 exclusive right under contracts with certain Washington hotels to solicit taxicab business from guest,
but that part 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 it the pay was uncertain, but it advertises extensively, and, we must assume, generally accepts
any seemingly solvent customer. Still, the bargains are individual, and however much they may tend towards
uniformity in price, probably have not quite the mechanical fixity 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 difficult. . . . Although I have not been able to free my mind from doubt, 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 an ordinary shopkeeper may refuse his wares arbitrary 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 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 garage 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 confined to
privileged individuals, but is open to the indefinite public. It is this indefiniteness 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 States 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 uses and purposes, 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 scene 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. In this away the use, so far as this point is concerned, is public because all persons have the right
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
Devander, 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 procedures 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 fiat 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 decision fully recognized that a private water company may be
organized to sell water for purposes of private gain, and that in 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
interest which may be affected thereby? It its broadest sense everything upon which man bestows labor for
purpose other than those for the benefits 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 unquestionable
right to fix his prices; he still has the questioned 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 services, has the right to demand that that service shall be conducted,
so long as it is continued, with reasonable efficiency under reasonable charges. Public use, then, means the
use by the public and be 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 wells; 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 of 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 confined to privileged individuals, but is open to the indefinite
public. (Thayler and Thayler 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
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 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 finally 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, subject to the control
and jurisdiction of the Public Utility Commissioner, and that, accordingly, the decisions of the Public Utility
Commissioner and of the Public Utility Board must be revoked, without special finding as to costs. So ordered.

G.R. No. 114222 April 6, 1995

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,

vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of Transportation and
Communications, and EDSA LRT CORPORATION, LTD., respondents.

QUIASON, J.:

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.

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 financing, 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
Prequalification Bids and Awards Committee (PBAC) and the Technical Committee.

After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing and
implementation of the project The notice, advertising the prequalification of bidders, was published in three
newspapers of general circulation once a week for three consecutive weeks starting February 21, 1991.

The deadline set for submission of prequalification 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.
and 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. Capitol
Industrial Construction Group, Inc, and F. F. Cruz & co., Inc.

On the last day for submission of prequalification documents, the prequalification 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; and (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 Implementation 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 five
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 firm 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.

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 prequalification proceedings was not the public
bidding contemplated under the law; (3) that Item 14 of the Implementing Rules and Regulations of the BOT Law
which 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, 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 16-hectare government property at North Avenue
(Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).

Private respondents shall undertake and finance 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
final 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 firm to be appointed by the
parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's capital shall be
recovered from the rentals to be 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).

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
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 filed 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.

III

Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners, however,
countered that the action was filed 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]).

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, certificate or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporations or associations organized under
the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor
shall such franchise, certificate or authorization be exclusive character or for a longer period than
fifty years . . . (Emphasis 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 defined 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]).

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, signaling, 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.

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 financing cost, plus a reasonable rate of return
thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).

Since DOTC shall operate the EDSA LRT III, it shall assume all 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 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 Office
(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 confined 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.

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, certificate or any other form of authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]).

2. Petitioners further assert that the BLT scheme under the Agreements 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 financing, of a given infrastructure facility, and the operation
and maintenance thereof. The contractor operates the facility over a fixed term during which it is
allowed to charge facility users appropriate tolls, fees, rentals and charges sufficient 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 fixed term which shall not exceed fifty (50)
years. For the construction stage, the contractor may obtain financing 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 financing of a foreign or foreign-controlled contractor from Philippine
government financing institutions shall not exceed twenty percent (20%) of the total cost of the
infrastructure facility or project: Provided, finally, That financing 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 agreement 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.

(b) Build-and-transfer scheme — "A contractual arrangement whereby the contractor undertakes
the construction including financing, 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 (Emphasis supplied).

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

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
fine points and details for the multifarious and complex situations that may be encountered in enforcing the law
(Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v.
Tupasi Molina, 29 Phil. 119 [1914]).

The BLT scheme in the challenged agreements is but a variation of the 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 confirmed 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 definite 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.

Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine pesos. The
EDSA LRT III Project is a high priority project certified 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 financed 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 projects falls, amounts to a ratification of the prior award
of the EDSA LRT III contract under the BOT Law.

Petitioners insist that the prequalifications 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 qualified
internationally known applicants could fairly participate.

The records show that only one applicant passed the prequalification 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 absurb and pointless
exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).

Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to Presidential
Decree No. 1594 allows 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. Sections 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 qualified bidders
or contractors, or where there is conclusive evidence that greater economy and efficiency 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 (Emphasis supplied).

xxx xxx xxx

Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure contracts
may he made by negotiation. Presidential Decree No. 1594 is the general law on government infrastructure contracts
while the BOT Law governs particular arrangements or schemes aimed at encouraging private sector 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.

In the instant case, if the prequalification process was actually tainted by foul play, one wonders why none of the
competing firms 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. Office 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 prequalification 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 defines a BLT scheme in Section 2 thereof as:

(e) Build-lease-and-transfer — A contractual arrangement whereby a project proponent is

authorized to finance 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 fixed period after which ownership of the facility is automatically transferred to
the 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 prequalification and it meets the
prequalification 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 prequalification but only one meets
the prequalification requirements, after which it submits bid/proposal which is found by the
agency/local government unit (LGU) to be complying.

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

(d) If, after prequalification, more than one contractor submit bids but only one is found by the
agency/LGU to be complying. Provided, That, any of the disqualified prospective bidder [sic] may
appeal the decision of the implementing agency, agency/LGUs prequalification bids and awards
committee within fifteen (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
disqualification was made known to the disqualified bidder: Provided, furthermore, That the
implementing agency/LGUs concerned should act on the appeal within forty-five (45) working days
from receipt thereof.

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. Section 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 prequalified proponent for the financing, construction, operation and maintenance of any
financially viable infrastructure or development facility through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO
(Contract-add-operate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO
(Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).

From the law itself, once and applicant has prequalified, it can enter into any of the schemes enumerated in Section 2
thereof, including a BLT arrangement, enumerated and defined therein (Sec. 3).

Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate of minimum
government regulations and procedures and specific 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 officials 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 officials 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 field 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
profits 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.

5. Definitely, 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, efficient 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 determine whether or not a
specific transportation or communication 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 (Bureau Veritas v. Office of the
President, 205 SCRA 705 [1992]).

WHEREFORE, the petition is DISMISSED.

SO ORDERED

Separate Opinions

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 rights to sue,
whether as legislators, taxpayers or citizens. As members of Congress, because they allege no infringement of
prerogative as legislators.1 As taxpayers because petitioners allege neither an unconstitutional exercise of the taxing
or spending powers of Congress (Art VI, §§24-25 and 29)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 specifically prove that he has
sufficient interest in preventing the illegal expenditure of money raised by taxation and that he will sustain a direct
injury as a result of the enforcement of the questioned statute or contract. It is not sufficient 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 of the lessor, did not involve a disbursement of public funds so as
to give taxpayer standing to question the legality of the contract. I see no substantial difference, as far as the standing
is 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 case6 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.

But in the case at bar, the Court precisely finds the opposite by finding 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 finding 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. 10 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 947, 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, §5 in
defining the jurisdiction of this Court. The result is to convert the Court into an office 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.

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

DAVIDE, JR., J.,  dissenting:

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

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.

Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly entitled "An Act
Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by 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 finds support in Section 2 thereof which defines 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 prequalified private contractor for the financing, construction,
operation and maintenance of any financially viable infrastructure facilities through the build-
operate-and transfer or build-and-transfer scheme, subject to the terms and conditions hereinafter
set forth; (Emphasis 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 that the BOT and the BT
schemes bar any other arrangement for the payment by the government of the project cost," then "[t]he law must not
be read in such a way as to rule outer unduly restrict any variation within the context of the two schemes." This
interpretation would be correct if the law itself provides a room for flexibility. We find no such provisions in R.A. No.
6957 if it intended to include a BLT scheme, then it should have so stated, for contracts of lease are not unknown in
our jurisdiction, and Congress has enacted several laws relating to leases. 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."

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
prequalified 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 fixed term for the facility to be constructed, operated, and maintained according to
 the prescribed minimum design and performance standards plans, and specifications. 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 Office of the President, through then Executive Secretary Franklin Drilon Correctly disapproved the contract
because no public bidding is 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 prequalified, 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 qualified to bid during the prequalification
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 prequalification proceeding be scheduled. Even those who were
earlier disqualified may by then have qualified because they may have, in the meantime, exerted efforts to meet all
the qualifications.

This view of the majority would open the floodgates to the rigging of prequalification proceedings or to unholy
conspiracies among prospective bidders, which would even include dishonest government officials. They could just
agree, for a certain consideration, that only one of them 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 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.

(a) If, after advertisement, only one contractor applies for prequalification
requirements, after which it is required to submit a bid/proposal which
subsequently found by the agency/local government unit (LGU) to be complying.

(b) If, after advertisement, more than one contractor applied for prequalification
but only one meets the prequalification requirements, after which it submits
bid/proposal which is found by the agency/local government unit (LGU) to be
complying,

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

(d) If, after prequalification, more than one contractor, only one submit bids but
only one is found by the agency/LGU to be complying: Provided, That, any of the
disqualified prospective bidder may appeal the decision contractor of the
implementing agency/LGUs prequalification bids an award committee within
fifteen (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 disqualification was made known to the disqualified
bidder Provided,  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 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.]).

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

FELICIANO, J.,  dissenting:

After considerable study and effort, and with much reluctance, I find 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 briefly one of the points made by 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 specifically, the majority
opinion invokes paragraph 1 of Section 4 of this Degree 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 qualified bidders or contractors, or where there is a conclusive evidence that greater economy
and efficiency 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 difficulty 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 financed, constructed, operated and maintained "by the
private sector"  "through the build/operate-and-transfer or build-and-transfer scheme" under Republic Act No. 6597
and under a series of other comparable schemes under Republic Act No. 7718. In other words, Republic Act No.
6957 and Republic Act. No. 7718 must be held, in my view, to be special statutes applicable to a more limited field 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 specific
connection with BCT- and BLT type and BLT type of contracts imposed an unqualified requirement of public bidding
set out in Section 5 thereof.

It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken "by administration
or force account or 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 efficiency 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 situations where there is a lack of pre-qualified contractors or, complying bidders. Thus,
even under the amended special statute, entering into contracts by negotiation is not permissible in the other (2)
categories of cases referred to in Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases where time is
of the essence" and "when there is conclusive evidence that greater economy and efficiency 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-
qualification and bidding after the date of effectivity of Republic Act No. 7718,  The provision of Republic Act No.
7718. The assailed contract was entered into before Republic Act. No. 7718 was enacted.

The difficulties. of applying the provisions of Presidential Degree 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) qualified
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-qualified 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 be become contractors for government projects:

1  Filipino

a.  Citizens (single proprietorship)

b.  Partnership of  corporation duly organized under the laws of the Philippines, and at least seventy
five percent (75%) of the capital stock of 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 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 Worlds Bank as well as from bilateral and other similar
sources.(Emphases 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 financial organizations like the World Bank and the Asian Development Bank uniformly require projects
financed 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.

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

Separate Opinions

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 petitioners do
not have the rights to sue, whether as legislators, taxpayers or citizens. As members of Congress, because they
allege no infringement of prerogative as legislators.1 As taxpayers because petitioners allege neither an
unconstitutional exercise of the taxing or spending powers of Congress (Art VI, §§24-25 and 29) 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 specifically prove that he has sufficient interest in preventing the illegal expenditure of money raised
by taxation and that he will sustain a direct injury as a result of the enforcement of the questioned statute or contract,
It is not sufficient that 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 of the lessor, did not involve a
disbursement of public funds so as to give taxpayer standing to question the legality of the contract contracts I see no
substantial difference, as far as the standing is of taxpayers 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 case6 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.

But in the case at bar, the Court precisely finds the opposite by finding 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. Aquino8 and In re Bermudez9 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 finding 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. 10 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 947, .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, §5 in
defining the jurisdiction of this Court. The result is to convert the Court into an office 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.

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

DAVIDE, JR., J.,  dissenting:

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

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.

Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly entitled "An Act
Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by 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 finds support in Section 2 thereof which defines 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 prequalified private contractor for the financing, construction,
operation and maintenance of any financially viable infrastructure facilities through the build-
operate-and transfer or build-and-transfer scheme, subject to the terms and conditions hereinafter
set forth; (Emphasis 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 that the BOT and the BT
schemes bar any other arrangement for the payment by the government of the project cost," then "[t]he law must not
be read in such a way as to rule outer unduly restrict any variation within the context of the two schemes." This
interpretation would be correct if the law itself provides a room for flexibility. We find no such provisions in R.A. No.
6957 if it intended to include a BLT scheme, then it should have so stated, for contracts of lease are not unknown in
our jurisdiction, and Congress has enacted several laws relating to leases. 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.

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
prequalified 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 fixed term for the facility to be constructed, operated, and maintained according to
the prescribed minimum design and performance standards plans, and specifications. 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 Office of the president secretary through then Executive Secretary Franklin Drilon Correctly disapproved the
contract because no public bidding is 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 prequalified, 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 qualified to bid during the prequalification
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 prequalification proceeding be scheduled. Even those who were
earlier disqualified may by then have qualified because they may have, in the meantime, exerted efforts to meet all
the qualifications.

This view of the majority would open the floodgates to the rigging of prequalification proceedings or to unholy
conspiracies among prospective bidders, which would even include dishonest government officials. They could just
agree, for a certain consideration, that only one of them 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 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.

(a) If, after advertisement, only one contractor applies for prequalification
requirements submit a bid/proposal which subsequently found by the
agency/local government unit (LGU) to be complying.

(b) If, after advertisement, more than one contractor applied for prequalification
but only one meets the prequalification .requirements, after which it submits
bid/proposal which is found by the agency/local government unit (LGU) to be
complying,

(c) If after prequalification of more than one contractor only one submits a bid
which is found by the agency/LGU to be complying.
 (d) If, after prequalification, more than one contractor, only one submit bids but
only one is found by the agency/LGU to be complying: Provided, That, any of the
disqualified prospective bidder may appeal the decision contractor of the
implementing agency/LGUs prequalification bids an award committee within
fifteen (15) working days to the head of the agency of national projects or to the
Department of the Interior and Local Government, in case of local projects from
the date the disqualification was made known to the disqualified
bidder Provided,  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) 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.]).

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

FELICIANO, J.,  dissenting:

After considerable study and effort, and with much reluctance, I find 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 briefly one of 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 specifically, the majority
opinion invokes paragraph 1 of Section 4 of this Degree 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 qualified bidders or contractors, or where there is a conclusive evidence that greater economy
and efficiency 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 utility and the ownership of the facilities used to serve the
public can be very w1594 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 difficulty 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 on to "infrastructure projects" which are financed, constructed, operated and maintained "by the
private sector" "through the build/operate-and-transfer or build-and-transfer scheme" under Republic Act No. 6597
and under a series of other comparable schemes under Republic Act No. 7718. In other words, Republic Act No.
6957 and Republic Act. No: 7718 must be held, in my view, to be special statutes applicable to a more limited field 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 specific
connection with BCT- and BLT type and BLT type of contracts imposed an unqualified requirement of public bidding
set out in Section 5 thereof.
It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken "by administration
or force account or 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 efficiency 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 situations where there is a lack of pre-qualified contractors or, complying
bidders. Thus, even under the amended special statute, entering into contracts by negotiation is not permissible in
the other (2) categories of cases referred to in Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases
where time is of the essence" and "when there is conclusive evidence that greater economy and efficiency 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-
qualification and bidding after the date of effectivity of Republic Act No. 7718.  The provision of Republic Act No.
7718. The assailed contract was entered into before Republic Act. No. 7718 was enacted.

The difficulties. of applying the provisions of presidential Degree 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) qualified
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-qualified 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 be become contractors for government projects:

1  Filipino

a.  Citizens (single proprietorship)

b.  Partnership of  corporation duly organized under the laws of the Philippines, and at least seventy
five percent (75%) of the capital stock of 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 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 Worlds Bank as well as from bilateral and other similar
sources.(Emphases 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 financial organizations like the World Bank and the Asian Development Bank uniformly require projects
financed 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.

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

G.R. No. 47065             June 26, 1940

PANGASINAN TRANSPORTATION CO., INC., petitioner,

vs.
THE PUBLIC SERVICE COMMISSION, respondent.

C. de G. Alvear for petitioner.

Evaristo R. Sandoval for respondent.

LAUREL, J.:

The petitioner has been engaged for the past twenty years in the business of transporting passengers in the Province
of Pangasinan and Tarlac and, to a certain extent, in the Province of Nueva Ecija and Zambales, by means of motor
vehicles commonly known as TPU buses, in accordance with the terms and conditions of the certificates of public
convenience issued in its favor by the former Public Utility Commission in cases Nos. 24948, 30973, 36830, 32014
and 53090. On August 26, 1939, the petitioner filed with the Public Service Commission an application for
authorization to operate ten additional new Brockway trucks (case No. 56641), on the ground that they were needed
to comply with the terms and conditions of its existing certificates and as a result of the application of the Eight Hour
Labor Law. In the decision of September 26, 1939, granting the petitioner's application for increase of equipment, the
Public Service Commission ordered:

Y de acuerdo con que se provee por el articulo 15 de la ley No. 146 del Commonwealth, tal como ha sido
enmendada por el articulo 1 de la Ley No. 454, por la presente se enmienda las condiciones de los
certificados de convenciencia publica expedidos en los expedientes Nos. 24948, 30973, 36831, 32014 y la
authorizacion el el expediente No. 53090, asi que se consideran incorporadas en los mismos las dos
siguientes condiciones:

Que los certificados de conveniencia publica y authorizacion arriba mencionados seran validos y
subsistentes solamente durante de veinticinco (25) anos, contados desde la fecha de la promulgacion de
esta decision.

Que la empresa de la solicitante porda ser adquirida por el Commonwealth de Filipinas o por alguna
dependencia del mismo en cualquier tiempo que lo deseare previo pago del precio d costo de su equipo util,
menos una depreciacion razonable que se ha fijar por la Comision al tiempo de su adquisicion.

Not being agreeable to the two new conditions thus incorporated in its existing certificates, the petitioner filed on
October 9, 1939 a motion for reconsideration which was denied by the Public Service Commission on November 14,
1939. Whereupon, on November 20, 1939, the present petition for a writ of certiorari was instituted in this court
praying that an order be issued directing the secretary of the Public Service Commission to certify forthwith to this
court the records of all proceedings in case No. 56641; that this court, after hearing, render a decision declaring
section 1 of Commonwealth Act No. 454 unconstitutional and void; that, if this court should be of the opinion that
section 1 of Commonwealth Act No. 454 is constitutional, a decision be rendered declaring that the provisions thereof
are not applicable to valid and subsisting certificates issued prior to June 8, 1939. Stated in the language of the
petitioner, it is contended:
 1. That the legislative powers granted to the Public Service Commission by section 1 of Commonwealth Act
No. 454, without limitation, guide or rule except the unfettered discretion and judgment of the Commission,
constitute a complete and total abdication by the Legislature of its functions in the premises, and for that
reason, the Act, in so far as those powers are concerned, is unconstitutional and void.

2. That even if it be assumed that section 1 of Commonwealth Act No. 454, is valid delegation of legislative
powers, the Public Service Commission has exceeded its authority because: (a) The Act applies only to
future certificates and not to valid and subsisting certificates issued prior to June 8, 1939, when said Act took
effect, and (b) the Act, as applied by the Commission, violates constitutional guarantees.

Section 15 of Commonwealth Act No. 146, as amended by section 1 of Commonwealth Act No. 454, invoked by the
respondent Public Service Commission in the decision complained of in the present proceedings, reads as follows:

With the exception to those enumerated in the preceding section, no public service shall operate in the
Philippines without possessing a valid and subsisting certificate from the Public Service Commission, known
as "certificate of public convenience," or "certificate of convenience and public necessity," as the case may
be, to the effect that the operation of said service and the authorization to do business will promote the
public interests in a proper and suitable manner.

The Commission may prescribed as a condition for the issuance of the certificate provided in the preceding
paragraph that the service can be acquired by the Commonwealth of the Philippines or by any
instrumentality thereof upon payment of the cost price of its useful equipment, less reasonable depreciation;
and likewise, that the certificate shall valid only for a definite period of time; and that the violation of any of
these conditions shall produce the immediate cancellation of the certificate without the necessity of any
express action on the part of the Commission.

In estimating the depreciation, the effect of the use of the equipment, its actual condition, the age of the
model, or other circumstances affecting its value in the market shall be taken into consideration.

The foregoing is likewise applicable to any extension or amendment of certificates actually force and to
those which may hereafter be issued, to permits to modify itineraries and time schedules of public services
and to authorization to renew and increase equipment and properties.

Under the first paragraph of the aforequoted section 15 of Act No. 146, as amended, no public service can operate
without a certificate of public convenience or certificate of convenience and public necessity to the effect that the
operation of said service and the authorization to do business will "public interests in a proper and suitable manner."
Under the second paragraph, one of the conditions which the Public Service Commission may prescribed the
issuance of the certificate provided for in the first paragraph is that "the service can be acquired by the
Commonwealth of the Philippines or by any instrumental thereof upon payment of the cost price of its useful
equipment, less reasonable depreciation," a condition which is virtually a restatement of the principle already
embodied in the Constitution, section 6 of Article XII, which provides that "the State may, in the interest of national
welfare and defense, establish and operate industries and means of transportation and communication, and, upon
payment of just compensation, transfer to public ownership utilities and other private enterprises to be operated by
the Government. "Another condition which the Commission may prescribed, and which is assailed by the petitioner, is
that the certificate "shall be valid only for a definite period of time." As there is a relation between the first and second
paragraphs of said section 15, the two provisions must be read and interpreted together. That is to say, in issuing a
certificate, the Commission must necessarily be satisfied that the operation of the service under said
certificate during a definite period fixed therein "will promote the public interests in a proper and suitable manner."
Under section 16 (a) of Commonwealth Act. No. 146 which is a complement of section 15, the Commission is
empowered to issue certificates of public convenience whenever it "finds that the operation of the public service
proposed and the authorization to do business will promote the public interests in a proper and suitable manner."
Inasmuch as the period to be fixed by the Commission under section 15 is inseparable from the certificate itself, said
period cannot be disregarded by the Commission in determining the question whether the issuance of the certificate
will promote the public interests in a proper and suitable manner. Conversely, in determining "a definite period of
time," the Commission will be guided by "public interests," the only limitation to its power being that said period shall
not exceed fifty years (sec. 16 (a), Commonwealth Act No. 146; Constitution, Art. XIII, sec. 8.) We have already ruled
that "public interest" furnishes a sufficient standard. (People vs. Fernandez and Trinidad, G. R. No. 45655,
promulgated June 15, 1938; People vs. Rosenthal and Osmeña, G. R. Nos. 46076 and 46077, promulgated June 12,
1939, citing New York Central Securities Corporation vs. U.S.A., 287 U.S. 12, 24, 25, 77 Law. ed. 138, 145, 146;
Schenchter Poultry Corporation vs. I.S., 295, 540, 79 Law. ed. 1570, 1585; Ferrazzini vs. Gsell, 34 Phil., 697, 711-
712.)

Section 8 of Article XIII of the Constitution provides, among other things, that no franchise, certificate, or any other
form of authorization for the operation of a public utility shall be "for a longer period than fifty years," and when it was
ordained, in section 15 of Commonwealth Act No. 146, as amended by Commonwealth Act No. 454, that the Public
Service Commission may prescribed as a condition for the issuance of a certificate that it "shall be valid only for a
definite period of time" and, in section 16 (a) that "no such certificates shall be issued for a period of more than fifty
years," the National Assembly meant to give effect to the aforesaid constitutional mandate. More than this, it has
thereby also declared its will that the period to be fixed by the Public Service Commission shall not be longer than fifty
years. All that has been delegated to the Commission, therefore, is the administrative function, involving the use
discretion, to carry out the will of the National Assembly having in view, in addition, the promotion of "public interests
in a proper and suitable manner." The fact that the National Assembly may itself exercise the function and authority
thus conferred upon the Public Service Commission does not make the provision in question constitutionally
objectionable.

The theory of the separation of powers is designed by its originators to secure action and at the same time to forestall
overaction which necessarily results from undue concentration of powers, and thereby obtain efficiency and prevent
deposition. Thereby, the "rule of law" was established which narrows the range of governmental action and makes it
subject to control by certain devices. As a corollary, we find the rule prohibiting delegation of legislative authority, and
from the earliest time American legal authorities have proceeded on the theory that legislative power must be
exercised by the legislature alone. It is frankness, however, to confess that as one delves into the mass of judicial
pronouncement, he finds a great deal of confusion. One thing, however, is apparent in the development of the
principle of separation of powers and that is that the maxim of delegatus non potest delegari or  delegata potestas
non potest delegari, attributed to Bracton (De Legius et Consuetedinious Angliae, edited by G. E. Woodbine, Yale
University Press, 1922, vol. 2, p. 167) but which is also recognized in principle in the Roman Law (D. 17.18.3), has
been made to adapt itself to the complexities of modern governments, giving rise to the adoption, within certain limits,
of the principle of "subordinate legislation," not only in the United States and England but in practically all modern
governments. (People vs. Rosenthal and Osmeña, G. R. Nos. 46076 and 46077, promulgated June 12, 1939.)
Accordingly, with the growing complexity of modern life, the multiplication of the subjects of governmental regulation,
and the increased difficulty of administering the laws, there is a constantly growing tendency toward the delegation of
greater powers by the legislature, and toward the approval of the practice by the court. (Dillon Catfish Drainage Dist,
v. Bank of Dillon, 141 S. E. 274, 275, 143 S. Ct. 178; State vs. Knox County, 54 S. W. 2d. 973, 976, 165 Tenn. 319.)
In harmony with such growing tendency, this Court, since the decision in the case of Compañia General de Tabacos
de Filipinas vs. Board of Public Utility Commissioner (34 Phil., 136), relied upon by the petitioner, has, in instances,
extended its seal of approval to the "delegation of greater powers by the legislature." (Inchausti Steamship
Co. vs. Public Utility Commissioner, 44 Phil., Autobus Co. vs. De Jesus, 56 Phil., 446; People vs. Fernandez &
Trinidad, G. R. No. 45655, promulgated June 15, 1938; People vs. Rosenthal & Osmeña, G. R. Nos. 46076, 46077,
promulgated June 12, 1939; and Robb and Hilscher vs. People, G. R. No. 45866, promulgated June 12, 1939.).

Under the fourth paragraph of section 15 of Commonwealth Act No. 146, as amended by Commonwealth Act No.
454, the power of the Public Service Commission to prescribed the conditions "that the service can be acquired by
the Commonwealth of the Philippines or by any instrumentality thereof upon payment of the cost price of its useful
equipment, less reasonable," and "that the certificate shall be valid only for a definite period of time" is expressly
made applicable "to any extension or amendment of certificates actually in force" and "to authorizations to renew and
increase equipment and properties." We have examined the legislative proceedings on the subject and have found
that these conditions were purposely made applicable to existing certificates of public convenience. The history of
Commonwealth Act No. 454 reveals that there was an attempt to suppress, by way of amendment, the sentence "and
likewise, that the certificate shall be valid only for a definite period of time," but the attempt failed:

xxx     xxx     xxx

Sr. CUENCO. Señor Presidente, para otra enmienda. En la misma pagina, lineas 23 y 24, pido que se
supriman las palabras 'and likewise, that the certificate shall be valid only for a definite period time.' Esta
disposicion del proyecto autoriza a la Comision de Servicios Publicos a fijar un plazo de vigencia certificado
de conveniencia publica. Todo el mundo sabe que bo se puede determinar cuando los intereses del servicio
publico requiren la explotacion de un servicio publico y ha de saber la Comision de Servisios, si en un
tiempo determinado, la explotacion de algunos buses en cierta ruta ya no tiene de ser, sobre todo, si tiene
en cuenta; que la explotacion de los servicios publicos depende de condiciones flutuantes, asi como del
volumen como trafico y de otras condiciones. Ademas, el servicio publico se concede por la Comision de
Servicios Publicos el interes publico asi lo exige. El interes publico no tiene duracion fija, no es permanente;
es un proceso mas o menos indefinido en cuanto al tiempo. Se ha acordado eso en el caucus de anoche.

EL PRESIDENTE PRO TEMPORE. ¿Que dice el Comite?

Sr. ALANO. El Comite siente tener que rechazar esa enmienda, en vista de que esto certificados de
conveniencia publica es igual que la franquicia: sepuede extender. Si los servicios presentados por la
compañia durante el tiempo de su certificado lo require, puede pedir la extension y se le extendera; pero no
creo conveniente el que nosotros demos un certificado de conveniencia publica de una manera que podria
pasar de cincuenta anos, porque seria anticonstitucional.

xxx     xxx     xxx

By a majority vote the proposed amendment was defeated. (Sesion de 17 de mayo de 1939, Asamblea Nacional.)

The petitioner is mistaken in the suggestion that, simply because its existing certificates had been granted before
June 8, 1939, the date when Commonwealth Act No. 454, amendatory of section 15 of Commonwealth Act No. 146,
was approved, it must be deemed to have the right of holding them in perpetuity. Section 74 of the Philippine Bill
provided that "no franchise, privilege, or concession shall be granted to any corporation except under the conditions
that it shall be subject to amendment, alteration, or repeal by the Congress of the United States." The Jones Law,
incorporating a similar mandate, provided, in section 28, that "no franchise or right shall be granted to any individual,
firm, or corporation except under the conditions that it shall be subject to amendment, alteration, or repeal by the
Congress of the United States." Lastly, the Constitution of the Philippines provided, in section 8 of Article XIII, that "no
franchise or right shall be granted to any individual, firm, or corporation, except under the condition that it shall be
subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires." The
National Assembly, by virtue of the Constitution, logically succeeded to the Congress of the United States in the
power to amend, alter or repeal any franchise or right granted prior to or after the approval of the Constitution; and
when Commonwealth Acts Nos. 146 and 454 were enacted, the National Assembly, to the extent therein provided,
has declared its will and purpose to amend or alter existing certificates of public convenience.

Upon the other hand, statutes enacted for the regulation of public utilities, being a proper exercise by the state of its
police power, are applicable not only to those public utilities coming into existence after its passage, but likewise to
those already established and in operation.

Nor is there any merit in petitioner's contention, that, because of the establishment of petitioner's operations
prior to May 1, 1917, they are not subject to the regulations of the Commission. Statutes for the regulation of
public utilities are a proper exercise by the state of its police power. As soon as the power is exercised, all
phases of operation of established utilities, become at once subject to the police power thus called into
operation. Procedures' Transportation Co. v. Railroad Commission, 251 U. S. 228, 40 Sup. Ct. 131, 64 Law.
ed. 239, Law v. Railroad Commission, 184 Cal. 737, 195 Pac. 423, 14 A. L. R. 249. The statute is applicable
not only to those public utilities coming into existence after its passage, but likewise to those already
established and in operation. The 'Auto Stage and Truck Transportation Act' (Stats. 1917, c. 213) is a statute
passed in pursuance of the police power. The only distinction recognized in the statute between those
established before and those established after the passage of the act is in the method of the creation of their
operative rights. A certificate of public convenience and necessity it required for any new operation, but no
such certificate is required of any transportation company for the operation which was actually carried on in
good faith on May 1, 1917, This distinction in the creation of their operative rights in no way affects the
power of the Commission to supervise and regulate them. Obviously the power of the Commission to hear
and dispose of complaints is as effective against companies securing their operative rights prior to May 1,
1917, as against those subsequently securing such right under a certificate of public convenience and
necessity. (Motor Transit Co. et al. v. Railroad Commission of California et al., 209 Pac. 586.)

Moreover, Commonwealth Acts Nos. 146 and 454 are not only the organic acts of the Public Service Commission but
are "a part of the charter of every utility company operating or seeking to operate a franchise" in the Philippines.
(Streator Aqueduct Co. v. et al., 295 Fed. 385.) The business of a common carrier holds such a peculiar relation to
the public interest that there is superinduced upon it the right of public regulation. When private property is "affected
with a public interest it ceased 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 be controlled
by the public for the common good, to the extent of the interest he has thus created. He may withdraw his grant by
discounting the use, but so long as he maintains the use he must submit to control. Indeed, this right of regulation is
so far beyond question that it is well settled that the power of the state to exercise legislative control over public
utilities may be exercised through boards of commissioners. (Fisher vs. Yangco Steamship Company, 31 Phil., 1,
citing Munn vs. Illinois, 94 U.S. 113; Georgia R. & Bkg. Co. vs. Smith, 128 U.S. 174; Budd vs. New York, 143 U.S.
517; New York etc. R. Co. vs. Bristol 151 U.S. 556, 571; Connecticut etc. R. Co. vs. Woodruff, 153 U.S. 689;
Louisville etc. Ry Co. vs. Kentucky, 161 U.S. 677, 695.) This right of the state to regulate public utilities is founded
upon the police power, and statutes for the control and regulation of utilities are a legitimate exercise thereof, for the
protection of the public as well as of the utilities themselves. Such statutes are, therefore, not unconstitutional, either
impairing the obligation of contracts, taking property without due process, or denying the equal protection of the laws,
especially inasmuch as the question whether or not private property shall be devoted to a public and the consequent
burdens assumed is ordinarily for the owner to decide; and if he voluntarily places his property in public service he
cannot complain that it becomes subject to the regulatory powers of the state. (51 C. J., sec. 21, pp. 9-10.) in the light
of authorities which hold that a certificate of public convenience constitutes neither a franchise nor contract, confers
no property right, and is mere license or privilege. (Burgess vs. Mayor & Alderman of Brockton, 235 Mass. 95, 100,
126 N. E. 456; Roberto vs. Commisioners of Department of Public Utilities, 262 Mass. 583, 160 N. E. 321;
Scheible vs. Hogan, 113 Ohio St. 83, 148 N. E. 581; Martz vs. Curtis [J. L.] Cartage Co. [1937], 132 Ohio St. 271, 7
N. E. [d] 220; Manila Yellow Taxicab Co. vs. Sabellano, 59 Phil., 773.)

Whilst the challenged provisions of Commonwealth Act No. 454 are valid and constitutional, we are, however, of the
opinion that the decision of the Public Service Commission should be reversed and the case remanded thereto for
further proceedings for the reason now to be stated. The Public Service Commission has power, upon proper notice
and hearing, "to amend, modify or revoke at any time any certificate issued under the provisions of this Act, whenever
the facts and circumstances on the strength of which said certificate was issued have been misrepresented or
materially changed." (Section 16, par. [m], Commonwealth Act No. 146.) The petitioner's application here was for an
increase of its equipment to enable it to comply with the conditions of its certificates of public convenience. On the
matter of limitation to twenty five (25) years of the life of its certificates of public convenience, there had been neither
notice nor opportunity given the petitioner to be heard or present evidence. The Commission appears to have taken
advantage of the petitioner to augment petitioner's equipment in imposing the limitation of twenty-five (25) years
which might as well be twenty or fifteen or any number of years. This is, to say the least, irregular and should not be
sanctioned. There are cardinal primary rights which must be respected even in proceedings of this character. The first
of these rights is the right to a hearing, which includes the right of the party interested or affected to present his own
case and submit evidence in support thereof. In the language of Chief Justice Hughes, in Morgan v. U.S., (304 U.S.
1, 58 S. Ct. 773, 999, 82 Law. ed. 1129), "the liberty and property of the citizen shall be protected by the rudimentary
requirements of fair play." Not only must the party be given an opportunity to present his case and to adduce
evidence tending to establish the rights which he asserts but the tribunal must consider the evidence presented.
(Chief Justice Hughes in Morgan vs. U.S., 298 U.S. 468, 56 S. Ct. 906, 80 :Law. ed. 1288.) In the language of this
Court in Edwards vs. McCoy (22 Phil., 598), "the right to adduce evidence, without the corresponding duty on the part
of the board to consider it, is vain. Such right is conspicuously futile if the person or persons to whom the evidence is
presented can thrust it aside without or consideration." While the duty to deliberate does not impose the obligation to
decide right, it does imply a necessity which cannot be disregarded, namely, that of having something to support its
decision. A decision with absolutely nothing to support it is a nullity, at least when directly attacked.
(Edwards vs. McCoy, supra.) This principle emanates from the more fundamental principle that the genius of
constitutional government is contrary to the vesting of unlimited power anywhere. Law is both a grant and a limitation
upon power.

The decision appealed from is hereby reversed and the case remanded to the Public Service Commission for further
proceedings in accordance with law and this decision, without any pronouncement regarding costs. So ordered.

Avanceña, C.J., Imperial, Diaz, Concepcion and Moran, JJ., concur.

G.R. No. 119528 March 26, 1997

PHILIPPINE AIRLINES, INC., petitioner,

vs.
CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL AIRWAYS, INC., respondents.

TORRES, JR., J.:

This Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of Court seeks to prohibit
respondent Civil Aeronautics Board from exercising jurisdiction over private respondent's Application for the issuance
of a Certificate of Public Convenience and Necessity, and to annul and set aside a temporary operating permit issued
by the Civil Aeronautics Board in favor of Grand International Airways (GrandAir, for brevity) allowing the same to
engage in scheduled domestic air transportation services, particularly the Manila-Cebu, Manila-Davao, and converse
routes.

The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to support its petition is the fact that GrandAir
does not possess a legislative franchise authorizing it to engage in air transportation service within the Philippines or
elsewhere. Such franchise is, allegedly, a requisite for the issuance of a Certificate of Public Convenience or
Necessity by the respondent Board, as mandated under Section 11, Article XII of the Constitution.

Respondent GrandAir, on the other hand, posits that a legislative franchise is no longer a requirement for the
issuance of a Certificate of Public Convenience and Necessity or a Temporary Operating Permit, following the Court's
pronouncements in the case of Albano vs. Reyes,1 as restated by the Court of Appeals in Avia Filipinas International
vs. Civil Aeronautics Board2 and Silangan Airways, Inc. vs. Grand International Airways, Inc., and the Hon. Civil
Aeronautics Board.3

On November 24, 1994, private respondent GrandAir applied for a Certificate of Public Convenience and Necessity
with the Board, which application was docketed as CAB Case No. EP-12711.4 Accordingly, the Chief Hearing Officer
of the CAB issued a Notice of Hearing setting the application for initial hearing on December 16, 1994, and directing
GrandAir to serve a copy of the application and corresponding notice to all scheduled Philippine Domestic operators.
On December 14, 1994, GrandAir filed its Compliance, and requested for the issuance of a Temporary Operating
Permit. Petitioner, itself the holder of a legislative franchise to operate air transport services, filed an Opposition to the
application for a Certificate of Public Convenience and Necessity on December 16, 1995 on the following grounds:

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

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

1. The application does not indicate a route structure including a computation of

trunkline, secondary and rural available seat kilometers (ASK) which shall always
be maintained at a monthly level at least 5% and 20% of the ASK offered into
and out of the proposed base of operations for rural and secondary, respectively.

2. It does not contain a project/feasibility study, projected profit and loss

statements, projected balance sheet, insurance coverage, list of personnel, list of
spare parts inventory, tariff structure, documents supportive of financial capacity,
route flight schedule, contracts on facilities (hangars, maintenance, lot) etc.

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

D. There is no urgent need and demand for the services applied for.
 E. To grant petitioner's application would only result in ruinous competition contrary to Section 4(d)
of R.A. 776. 5

At the initial hearing for the application, petitioner raised the issue of lack of jurisdiction of the Board to hear the
application because GrandAir did not possess a legislative franchise.

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

PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the latter has
first obtained a franchise to operate from Congress.

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

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

SO ORDERED.

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

1. The applicant does not possess the required fitness and capability of operating the services
applied for under RA 776; and,

2. Applicant has failed to prove that there is clear and urgent public need for the services applied
for.6

On December 23, 1994, the Board promulgated Resolution No. 119(92) approving the issuance of a Temporary
Operating Permit in favor of Grand Air 7 for a period of three months, i.e., from December 22, 1994 to March 22,
1994. Petitioner moved for the reconsideration of the issuance of the Temporary Operating Permit on January 11,
1995, but the same was denied in CAB Resolution No. 02 (95) on February 2, 1995. 8 In the said Resolution, the
Board justified its assumption of jurisdiction over GrandAir's application.

WHEREAS , the CAB is specifically authorized under Section 10-C (1) of Republic Act No. 776 as
follows:

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

(1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend revise, alter,
modify, cancel, suspend or revoke, in whole or in part, upon petitioner-complaint, or upon its own
initiative, any temporary operating permit or Certificate of Public Convenience and Necessity;
Provided, however; that in the case of foreign air carriers, the permit shall be issued with the
approval of the President of the Republic of the Philippines.

WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the Supreme
Court held that the CAB can even on its own initiative, grant a TOP even before the presentation of
evidence;

WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365), promulgated on October
30, 1991, held that in accordance with its mandate, the CAB can issue not only a TOP but also a
Certificate of Public Convenience and Necessity (CPCN) to a qualified applicant therefor in the
absence of a legislative franchise, citing therein as basis the decision of Albano vs. Reyes (175
SCRA 264) which provides (inter alia) that:

a) Franchises by Congress are not required before each and every public utility may operate when
the law has granted certain administrative agencies the power to grant licenses for or to authorize
the operation of certain public utilities;

b) The Constitutional provision in Article XII, Section 11 that the issuance of a franchise, certificate
or other form of authorization for the operation of a public utility does not necessarily imply that only
Congress has the power to grant such authorization since our statute books are replete with laws
granting specified agencies in the Executive Branch the power to issue such authorization for
certain classes of public utilities.

WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in Section
2.1 that a minimum of two (2) operators in each route/link shall be encouraged and that routes/links
presently serviced by only one (1) operator shall be open for entry to additional operators.
 RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine Airlines on
January 05, 1995 on the Grant by this Board of a Temporary Operating Permit (TOP) to Grand
International Airways, Inc. alleging among others that the CAB has no such jurisdiction, is hereby
DENIED, as it hereby denied, in view of the foregoing and considering that the grounds relied upon
by the movant are not indubitable.

On March 21, 1995, upon motion by private respondent, the temporary permit was extended for a period of six (6)
months or up to September 22, 1995.

Hence this petition, filed on April 3, 1995.

Petitioners argue that the respondent Board acted beyond its powers and jurisdiction in taking cognizance of
GrandAir's application for the issuance of a Certificate of Public Convenience and Necessity, and in issuing a
temporary operating permit in the meantime, since GrandAir has not been granted and does not possess a legislative
franchise to engage in scheduled domestic air transportation. A legislative franchise is necessary before anyone may
engage in air transport services, and a franchise may only be granted by Congress. This is the meaning given by the
petitioner upon a reading of Section 11, Article XII,9 and Section 1, Article VI, 10 of the Constitution.

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

Dr. Arturo C. Corona

Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila

Sir:

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

You state that during the hearing on the application of Cebu Air for a congressional franchise, the
House Committee on Corporations and Franchises contended that under the present Constitution,
the CAB may not issue the abovestated certificate or permit, unless the individual or entity
concerned possesses a legislative franchise. You believe otherwise, however, for the reason that
under R.A. No. 776, as amended, the CAB is explicitly empowered to issue operating permits or
certificates of public convenience and necessity and that this statutory provision is not inconsistent
with the current charter.

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

. . . it is useful to note the distinction between the franchise to operate and a permit to commence
operation. The former is sovereign and legislative in nature; it can be conferred only by the
lawmaking authority (17 W and P, pp. 691-697). The latter is administrative and regulatory in
character (In re Application of Fort Crook-Bellevue Boulevard Line, 283 NW 223); it is granted by
an administrative agency, such as the Public Service Commission [now Board of Transportation], in
the case of land transportation, and the Civil Aeronautics Board, in case of air services. While a
legislative franchise is a pre-requisite to a grant of a certificate of public convenience and necessity
to an airline company, such franchise alone cannot constitute the authority to commence
operations, inasmuch as there are still matters relevant to such operations which are not
determined in the franchise, like rates, schedules and routes, and which matters are resolved in the
process of issuance of permit by the administrative. (Secretary of Justice opn No. 45, s. 1981)

Indeed, authorities are agreed that a certificate of public convenience and necessity is an
authorization issued by the appropriate governmental agency for the operation of public services
for which a franchise is required by law (Almario, Transportation and Public Service Law, 1977 Ed.,
p. 293; Agbayani, Commercial Law of the Phil., Vol. 4, 1979 Ed., pp. 380-381).

Based on the foregoing, it is clear that a franchise is the legislative authorization to engage in a
business activity or enterprise of a public nature, whereas a certificate of public convenience and
necessity is a regulatory measure which constitutes the franchise's authority to commence
operations. It is thus logical that the grant of the former should precede the latter.

Please be guided accordingly.

(SGD.) SEDFREY A. ORDONEZ

Secretary of Justice
Respondent GrandAir, on the other hand, relies on its interpretation of the provisions of Republic Act 776, which
follows the pronouncements of the Court of Appeals in the cases of Avia Filipinas vs. Civil Aeronautics Board,
and Silangan Airways, Inc. vs. Grand International Airways (supra).

In both cases, the issue resolved was whether or not the Civil Aeronautics Board can issue the Certificate of Public
Convenience and Necessity or Temporary Operating Permit to a prospective domestic air transport operator who
does not possess a legislative franchise to operate as such. Relying on the Court's pronouncement in Albano
vs. Reyes (supra), the Court of Appeals upheld the authority of the Board to issue such authority, even in the
absence of a legislative franchise, which authority is derived from Section 10 of Republic Act 776, as amended by
P.D. 1462. 11

The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a Temporary Operating Permit. This rule
has been established in the case of Philippine Air Lines Inc., vs. Civil Aeronautics Board, promulgated on June 13,
1968. 12 The Board is expressly authorized by Republic Act 776 to issue a temporary operating permit or Certificate of
Public Convenience and Necessity, and nothing contained in the said law negates the power to issue said permit
before the completion of the applicant's evidence and that of the oppositor thereto on the main petition. Indeed, the
CAB's authority to grant a temporary permit "upon its own initiative" strongly suggests the power to exercise said
authority, even before the presentation of said evidence has begun. Assuming arguendo that a legislative franchise is
prerequisite to the issuance of a permit, the absence of the same does not affect the jurisdiction of the Board to hear
the application, but tolls only upon the ultimate issuance of the requested permit.

The power to authorize and control the operation of a public utility is admittedly a prerogative of the legislature, since
Congress is that branch of government vested with plenary powers of legislation.

The franchise is a legislative grant, whether made directly by the legislature itself, or by any one of
its properly constituted instrumentalities. The grant, when made, binds the public, and is, directly or
indirectly, the act of the state. 13

The issue in this petition is whether or not Congress, in enacting Republic Act 776, has delegated the authority to
authorize the operation of domestic air transport services to the respondent Board, such that Congressional mandate
for the approval of such authority is no longer necessary.

Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation of
certain public utilities. With the growing complexity of modern life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency towards the
delegation of greater powers by the legislature, and towards the approval of the practice by the courts. 14 It is
generally recognized that a franchise may be derived indirectly from the state through a duly designated agency, and
to this extent, the power to grant franchises has frequently been delegated, even to agencies other than those of a
legislative nature. 15 In pursuance of this, it has been held that privileges conferred by grant by local authorities as
agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the
Legislature. 16

The trend of modern legislation is to vest the Public Service Commissioner with the power to regulate and control the
operation of public services under reasonable rules and regulations, and as a general rule, courts will not interfere
with the exercise of that discretion when it is just and reasonable and founded upon a legal right. 17

It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a reading of the pertinent issuances
governing the Philippine Ports Authority, 18 proves that the PPA is empowered to undertake by itself the operation and
management of the Manila International Container Terminal, or to authorize its operation and management by
another by contract or other means, at its option. The latter power having been delegated to the PPA, a franchise
from Congress to authorize an entity other than the PPA to operate and manage the MICP becomes unnecessary.

Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to issue a Certificate of
Public Convenience and Necessity, or Temporary Operating Permit to a domestic air transport operator, who, though
not possessing a legislative franchise, meets all the other requirements prescribed by the law. Such requirements
were enumerated in Section 21 of R.A. 776.

There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is an indispensable
requirement for an entity to operate as a domestic air transport operator. Although Section 11 of Article XII recognizes
Congress' control over any franchise, certificate or authority to operate a public utility, it does not mean Congress has
exclusive authority to issue the same. Franchises issued by Congress are not required before each and every public
utility may operate. 19 In many instances, Congress has seen it fit to delegate this function to government agencies,
specialized particularly in their respective areas of public service.

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

Sec. 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board shall
have the power to regulate the economic aspect of air transportation, and shall have general
supervision and regulation of, the jurisdiction and control over air carriers, general sales agents,
cargo sales agents, and air freight forwarders as well as their property rights, equipment, facilities
and franchise, insofar as may be necessary for the purpose of carrying out the provision of this Act.
In support of the Board's authority as stated above, it is given the following specific powers and duties:

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

(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter,
modify, cancel, suspend or revoke in whole or in part upon petition or complaint or upon its own
initiative any Temporary Operating Permit or Certificate of Public Convenience and Necessity:
Provided however, That in the case of foreign air carriers, the permit shall be issued with the
approval of the President of the Republic of the Philippines.

Petitioner argues that since R.A. 776 gives the Board the authority to issue "Certificates of Public Convenience and
Necessity", this, according to petitioner, means that a legislative franchise is an absolute requirement. It cites a
number of authorities supporting the view that a Certificate of Public Convenience and Necessity is issued to a public
service for which a franchise is required by law, as distinguished from a "Certificate of Public Convenience" which is
an authorization issued for the operation of public services for which no franchise, either municipal or legislative, is
required by law. 20

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

We do not agree with the petitioner.

Many and varied are the definitions of certificates of public convenience which courts and legal writers have drafted.
Some statutes use the terms "convenience and necessity" while others use only the words "public convenience." The
terms "convenience and necessity", if used together in a statute, are usually held not to be separable, but are
construed together. Both words modify each other and must be construed together. The word 'necessity' is so
connected, not as an additional requirement but to modify and qualify what might otherwise be taken as the strict
significance of the word necessity. Public convenience and necessity exists when the proposed facility will meet a
reasonable want of the public and supply a need which the existing facilities do not adequately afford. It does not
mean or require an actual physical necessity or an indispensable thing. 21

The terms "convenience" and "necessity" are to be construed together, although they are not
synonymous, and effect must be given both. The convenience of the public must not be
circumscribed by according to the word "necessity" its strict meaning or an essential requisites. 22

The use of the word "necessity", in conjunction with "public convenience" in a certificate of authorization to a public
service entity to operate, does not in any way modify the nature of such certification, or the requirements for the
issuance of the same. It is the law which determines the requisites for the issuance of such certification, and not the
title indicating the certificate.

Congress, by giving the respondent Board the power to issue permits for the operation of domestic transport
services, has delegated to the said body the authority to determine the capability and competence of a prospective
domestic air transport operator to engage in such venture. This is not an instance of transforming the respondent
Board into a mini-legislative body, with unbridled authority to choose who should be given authority to operate
domestic air transport services.

To be valid, the delegation itself must be circumscribed by legislative restrictions, not a "roving
commission" that will give the delegate unlimited legislative authority. It must not be a delegation
"running riot" and "not canalized with banks that keep it from overflowing." Otherwise, the
delegation is in legal effect an abdication of legislative authority, a total surrender by the legislature
of its prerogatives in favor of the delegate. 23

Congress, in this instance, has set specific limitations on how such authority should be exercised.

Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines or policies:

Sec. 4. Declaration of policies. In the exercise and performance of its powers and duties under this
Act, the Civil Aeronautics Board and the Civil Aeronautics Administrator shall consider the
following, among other things, as being in the public interest, and in accordance with the public
convenience and necessity:

(a) The development and utilization of the air potential of the Philippines;

(b) The encouragement and development of an air transportation system properly adapted to the
present and future of foreign and domestic commerce of the Philippines, of the Postal Service and
of the National Defense;

(c) The regulation of air transportation in such manner as to recognize and preserve the inherent
advantages of, assure the highest degree of safety in, and foster sound economic condition in,
 such transportation, and to improve the relations between, and coordinate transportation by, air
carriers;

(d) The promotion of adequate, economical and efficient service by air carriers at reasonable
charges, without unjust discriminations, undue preferences or advantages, or unfair or destructive
competitive practices;

(e) Competition between air carriers to the extent necessary to assure the sound development of
an air transportation system properly adapted to the need of the foreign and domestic commerce of
the Philippines, of the Postal Service, and of the National Defense;

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

(g) The encouragement and development of civil aeronautics.

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

Sec. 12. Citizenship requirement. Except as otherwise provided in the Constitution and existing
treaty or treaties, a permit authorizing a person to engage in domestic air commerce and/or air
transportation shall be issued only to citizens of the Philippines 24

Sec. 21. Issuance of permit. The Board shall issue a permit authorizing the whole or any part of the
service covered by the application, if it finds: (1) that the applicant is fit, willing and able to perform
such service properly in conformity with the provisions of this Act and the rules, regulations, and
requirements issued thereunder; and (2) that such service is required by the public convenience
and necessity; otherwise the application shall be denied.

Furthermore, the procedure for the processing of the application of a Certificate of Public Convenience and Necessity
had been established to ensure the weeding out of those entities that are not deserving of public service. 25

In sum, respondent Board should now be allowed to continue hearing the application of GrandAir for the issuance of
a Certificate of Public Convenience and Necessity, there being no legal obstacle to the exercise of its jurisdiction.

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

SO ORDERED.

G.R. No. L-21438             September 28, 1966

AIR FRANCE, petitioner,
vs.
RAFAEL CARRASCOSO and the HONORABLE COURT OF APPEALS, respondents.

SANCHEZ, J.:

The Court of First Instance of Manila 1 sentenced petitioner to pay respondent Rafael Carrascoso P25,000.00 by way
of moral damages; P10,000.00 as exemplary damages; P393.20 representing the difference in fare between first
class and tourist class for the portion of the trip Bangkok-Rome, these various amounts with interest at the legal rate,
from the date of the filing of the complaint until paid; plus P3,000.00 for attorneys' fees; and the costs of suit.

On appeal,2 the Court of Appeals slightly reduced the amount of refund on Carrascoso's plane ticket from P393.20 to
P383.10, and voted to affirm the appealed decision "in all other respects", with costs against petitioner.

The case is now before us for review on certiorari.

The facts declared by the Court of Appeals as " fully supported by the evidence of record", are:
 Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that left Manila for Lourdes on
March 30, 1958.

On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine Air Lines, Inc.,
issued to plaintiff a "first class" round trip airplane ticket from Manila to Rome. From Manila to Bangkok,
plaintiff travelled in "first class", but at Bangkok, the Manager of the defendant airline forced plaintiff to
vacate the "first class" seat that he was occupying because, in the words of the witness Ernesto G. Cuento,
there was a "white man", who, the Manager alleged, had a "better right" to the seat. When asked to vacate
his "first class" seat, the plaintiff, as was to be expected, refused, and told defendant's Manager that his seat
would be taken over his dead body; a commotion ensued, and, according to said Ernesto G. Cuento, "many
of the Filipino passengers got nervous in the tourist class; when they found out that Mr. Carrascoso was
having a hot discussion with the white man [manager], they came all across to Mr. Carrascoso and pacified
Mr. Carrascoso to give his seat to the white man" (Transcript, p. 12, Hearing of May 26, 1959); and plaintiff
reluctantly gave his "first class" seat in the plane.3

1. The trust of the relief petitioner now seeks is that we review "all the findings"  4 of respondent Court of Appeals.
Petitioner charges that respondent court failed to make complete findings of fact on all the issues properly laid before
it. We are asked to consider facts favorable to petitioner, and then, to overturn the appellate court's decision.

Coming into focus is the constitutional mandate that "No decision shall be rendered by any court of record without
expressing therein clearly and distinctly the facts and the law on which it is based".  5 This is echoed in the statutory
demand that a judgment determining the merits of the case shall state "clearly and distinctly the facts and the law on
which it is based"; 6 and that "Every decision of the Court of Appeals shall contain complete findings of fact on all
issues properly raised before it". 7

A decision with absolutely nothing to support it is a nullity. It is open to direct attack. 8 The law, however, solely insists
that a decision state the "essential ultimate facts" upon which the court's conclusion is drawn. 9 A court of justice is not
hidebound to write in its decision every bit and piece of evidence 10 presented by one party and the other upon the
issues raised. Neither is it to be burdened with the obligation "to specify in the sentence the facts" which a party
"considered as proved". 11 This is but a part of the mental process from which the Court draws the essential ultimate
facts. A decision is not to be so clogged with details such that prolixity, if not confusion, may result. So long as the
decision of the Court of Appeals contains the necessary facts to warrant its conclusions, it is no error for said court to
withhold therefrom "any specific finding of facts with respect to the evidence for the defense". Because as this Court
well observed, "There is no law that so requires". 12 Indeed, "the mere failure to specify (in the decision) the
contentions of the appellant and the reasons for refusing to believe them is not sufficient to hold the same contrary to
the requirements of the provisions of law and the Constitution". It is in this setting that in Manigque, it was held that
the mere fact that the findings "were based entirely on the evidence for the prosecution without taking into
consideration or even mentioning the appellant's side in the controversy as shown by his own testimony", would not
vitiate the judgment. 13 If the court did not recite in the decision the testimony of each witness for, or each item of
evidence presented by, the defeated party, it does not mean that the court has overlooked such testimony or such
item of evidence. 14 At any rate, the legal presumptions are that official duty has been regularly performed, and that all
the matters within an issue in a case were laid before the court and passed upon by it. 15

Findings of fact, which the Court of Appeals is required to make, maybe defined as "the written statement of the
ultimate facts as found by the court ... and essential to support the decision and judgment rendered thereon". 16 They
consist of the court's "conclusions" with respect to the determinative facts in issue". 17 A question of law, upon the
other hand, has been declared as "one which does not call for an examination of the probative value of the evidence
presented by the parties." 18

2. By statute, "only questions of law may be raised" in an appeal by certiorari from a judgment of the Court of
Appeals. 19 That judgment is conclusive as to the facts. It is not appropriately the business of this Court to alter the
facts or to review the questions of fact. 20

With these guideposts, we now face the problem of whether the findings of fact of the Court of Appeals support its
judgment.

3. Was Carrascoso entitled to the first class seat he claims?

It is conceded in all quarters that on March 28, 1958 he paid to and received from petitioner a first class ticket. But
petitioner asserts that said ticket did not represent the true and complete intent and agreement of the parties; that
said respondent knew that he did not have confirmed reservations for first class on any specific flight, although he
had tourist class protection; that, accordingly, the issuance of a first class ticket was no guarantee that he would have
a first class ride, but that such would depend upon the availability of first class seats.

These are matters which petitioner has thoroughly presented and discussed in its brief before the Court of Appeals
under its third assignment of error, which reads: "The trial court erred in finding that plaintiff had confirmed
reservations for, and a right to, first class seats on the "definite" segments of his journey, particularly that from Saigon
to Beirut". 21

And, the Court of Appeals disposed of this contention thus:

 Defendant seems to capitalize on the argument that the issuance of a first-class ticket was no guarantee
that the passenger to whom the same had been issued, would be accommodated in the first-class
compartment, for as in the case of plaintiff he had yet to make arrangements upon arrival at every station for
the necessary first-class reservation. We are not impressed by such a reasoning. We cannot understand
how a reputable firm like defendant airplane company could have the indiscretion to give out tickets it never
meant to honor at all. It received the corresponding amount in payment of first-class tickets and yet it
allowed the passenger to be at the mercy of its employees. It is more in keeping with the ordinary course of
business that the company should know whether or riot the tickets it issues are to be honored or not.22

Not that the Court of Appeals is alone. The trial court similarly disposed of petitioner's contention, thus:

On the fact that plaintiff paid for, and was issued a "First class" ticket, there can be no question. Apart from his
testimony, see plaintiff's Exhibits "A", "A-1", "B", "B-1," "B-2", "C" and "C-1", and defendant's own witness, Rafael
Altonaga, confirmed plaintiff's testimony and testified as follows:

Q. In these tickets there are marks "O.K." From what you know, what does this OK mean?

A. That the space is confirmed.

Q. Confirmed for first class?

A. Yes, "first class". (Transcript, p. 169)

xxx     xxx     xxx

Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and Rafael Altonaga that although plaintiff
paid for, and was issued a "first class" airplane ticket, the ticket was subject to confirmation in Hongkong. The court
cannot give credit to the testimony of said witnesses. Oral evidence cannot prevail over written evidence, and
plaintiff's Exhibits "A", "A-l", "B", "B-l", "C" and "C-1" belie the testimony of said witnesses, and clearly show that the
plaintiff was issued, and paid for, a first class ticket without any reservation whatever.

Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga testified that the reservation for a "first
class" accommodation for the plaintiff was confirmed. The court cannot believe that after such confirmation defendant
had a verbal understanding with plaintiff that the "first class" ticket issued to him by defendant would be subject to
confirmation in Hongkong. 23

We have heretofore adverted to the fact that except for a slight difference of a few pesos in the amount refunded on
Carrascoso's ticket, the decision of the Court of First Instance was affirmed by the Court of Appeals in all other
respects. We hold the view that such a judgment of affirmance has merged the judgment of the lower court. 24 Implicit
in that affirmance is a determination by the Court of Appeals that the proceeding in the Court of First Instance was
free from prejudicial error and "all questions raised by the assignments of error and all questions that might have
been raised are to be regarded as finally adjudicated against the appellant". So also, the judgment affirmed "must be
regarded as free from all error". 25 We reached this policy construction because nothing in the decision of the Court of
Appeals on this point would suggest that its findings of fact are in any way at war with those of the trial court. Nor was
said affirmance by the Court of Appeals upon a ground or grounds different from those which were made the basis of
the conclusions of the trial court. 26

If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class seat, notwithstanding the fact that
seat availability in specific flights is therein confirmed, then an air passenger is placed in the hollow of the hands of an
airline. What security then can a passenger have? It will always be an easy matter for an airline aided by its
employees, to strike out the very stipulations in the ticket, and say that there was a verbal agreement to the contrary.
What if the passenger had a schedule to fulfill? We have long learned that, as a rule, a written document speaks a
uniform language; that spoken word could be notoriously unreliable. If only to achieve stability in the relations
between passenger and air carrier, adherence to the ticket so issued is desirable. Such is the case here. The lower
courts refused to believe the oral evidence intended to defeat the covenants in the ticket.

The foregoing are the considerations which point to the conclusion that there are facts upon which the Court of
Appeals predicated the finding that respondent Carrascoso had a first class ticket and was entitled to a first class seat
at Bangkok, which is a stopover in the Saigon to Beirut leg of the flight. 27 We perceive no "welter of distortions by the
Court of Appeals of petitioner's statement of its position", as charged by petitioner. 28 Nor do we subscribe to
petitioner's accusation that respondent Carrascoso "surreptitiously took a first class seat to provoke an issue". 29 And
this because, as petitioner states, Carrascoso went to see the Manager at his office in Bangkok "to confirm my seat
and because from Saigon I was told again to see the Manager". 30 Why, then, was he allowed to take a first class seat
in the plane at Bangkok, if he had no seat? Or, if another had a better right to the seat?

4. Petitioner assails respondent court's award of moral damages. Petitioner's trenchant claim is that Carrascoso's
action is planted upon breach of contract; that to authorize an award for moral damages there must be an averment
of fraud or bad faith;31 and that the decision of the Court of Appeals fails to make a finding of bad faith. The pivotal
allegations in the complaint bearing on this issue are:
 3. That ... plaintiff entered into a contract  of air carriage with the Philippine Air Lines for a valuable
consideration, the latter acting as general agents for and in behalf of the defendant, under which said
contract, plaintiff was entitled to, as defendant agreed to furnish plaintiff, First Class passage on defendant's
plane during the entire duration of plaintiff's tour of Europe with Hongkong as starting point up to and until
plaintiff's return trip to Manila, ... .

4. That, during the first two legs of the trip from Hongkong to Saigon and from Saigon to Bangkok, defendant
furnished to the plaintiff First Class accommodation but only after protestations, arguments and/or insistence
were made by the plaintiff with defendant's employees.

5. That finally, defendant  failed to provide  First Class passage, but instead furnished plaintiff
only Tourist  Class accommodations from Bangkok to Teheran and/or Casablanca, ... the plaintiff has
been compelled  by defendant's employees to leave the First Class accommodation berths at Bangkok after
he was already seated.

6. That consequently, the plaintiff, desiring no repetition of the inconvenience and embarrassments brought
by defendant's breach of contract was forced to take a Pan American World Airways plane on his return trip
from Madrid to Manila.32

xxx     xxx     xxx

2. That likewise, as a result of defendant's failure to furnish First Class accommodations aforesaid, plaintiff suffered
inconveniences, embarrassments, and humiliations, thereby causing plaintiff mental anguish, serious anxiety,
wounded feelings, social humiliation, and the like injury, resulting in moral damages in the amount of P30,000.00. 33

xxx     xxx     xxx

The foregoing, in our opinion, substantially aver: First, That there was a contract to furnish plaintiff a first class
passage covering, amongst others, the Bangkok-Teheran leg; Second, That said contract was breached when
petitioner failed to furnish first class transportation at Bangkok; and Third, that there was bad faith when petitioner's
employee compelled Carrascoso to leave his first class accommodation berth "after he was already, seated" and to
take a seat in the tourist class, by reason of which he suffered inconvenience, embarrassments and humiliations,
thereby causing him mental anguish, serious anxiety, wounded feelings and social humiliation, resulting in moral
damages. It is true that there is no specific mention of the term bad faith in the complaint. But, the inference of bad
faith is there, it may be drawn from the facts and circumstances set forth therein. 34 The contract was averred to
establish the relation between the parties. But the stress of the action is put on wrongful expulsion.

Quite apart from the foregoing is that (a) right the start of the trial, respondent's counsel placed petitioner on guard on
what Carrascoso intended to prove: That while sitting in the plane in Bangkok, Carrascoso was ousted by petitioner's
manager who gave his seat to a white man; 35 and (b) evidence of bad faith in the fulfillment of the contract was
presented without objection on the part of the petitioner. It is, therefore, unnecessary to inquire as to whether or not
there is sufficient averment in the complaint to justify an award for moral damages. Deficiency in the complaint, if any,
was cured by the evidence. An amendment thereof to conform to the evidence is not even required. 36 On the
question of bad faith, the Court of Appeals declared:

That the plaintiff was forced out of his seat in the first class compartment of the plane belonging to the
defendant Air France while at Bangkok, and was transferred to the tourist class not only without his consent
but against his will, has been sufficiently established by plaintiff in his testimony before the court,
corroborated by the corresponding entry made by the purser of the plane in his notebook which notation
reads as follows:

"First-class passenger was forced to go to the tourist class against his will, and that the captain
refused to intervene",

and by the testimony of an eye-witness, Ernesto G. Cuento, who was a co-passenger. The captain of the
plane who was asked by the manager of defendant company at Bangkok to intervene even refused to do so.
It is noteworthy that no one on behalf of defendant ever contradicted or denied this evidence for the plaintiff.
It could have been easy for defendant to present its manager at Bangkok to testify at the trial of the case, or
yet to secure his disposition; but defendant did neither. 37

The Court of appeals further stated —

Neither is there evidence as to whether or not a prior reservation was made by the white man. Hence, if the
employees of the defendant at Bangkok sold a first-class ticket to him when all the seats had already been
taken, surely the plaintiff should not have been picked out as the one to suffer the consequences and to be
subjected to the humiliation and indignity of being ejected from his seat in the presence of others. Instead of
explaining to the white man the improvidence committed by defendant's employees, the manager adopted
the more drastic step of ousting the plaintiff who was then safely ensconsced in his rightful seat. We are
strengthened in our belief that this probably was what happened there, by the testimony of defendant's
witness Rafael Altonaga who, when asked to explain the meaning of the letters "O.K." appearing on the
 tickets of plaintiff, said "that the space is confirmed for first class. Likewise, Zenaida Faustino, another
witness for defendant, who was the chief of the Reservation Office of defendant, testified as follows:

"Q How does the person in the ticket-issuing office know what reservation the passenger has
arranged with you?

A They call us up by phone and ask for the confirmation." (t.s.n., p. 247, June 19, 1959)

In this connection, we quote with approval what the trial Judge has said on this point:

Why did the, using the words of witness Ernesto G. Cuento, "white man" have a "better right" to the
seat occupied by Mr. Carrascoso? The record is silent. The defendant airline did not prove "any
better", nay, any right on the part of the "white man" to the "First class" seat that the plaintiff was
occupying and for which he paid and was issued a corresponding "first class" ticket.

If there was a justified reason for the action of the defendant's Manager in Bangkok, the defendant
could have easily proven it by having taken the testimony of the said Manager by deposition, but
defendant did not do so; the presumption is that evidence willfully suppressed would be adverse if
produced [Sec. 69, par (e), Rules of Court]; and, under the circumstances, the Court is constrained
to find, as it does find, that the Manager of the defendant airline in Bangkok not merely asked but
threatened the plaintiff to throw him out of the plane if he did not give up his "first class" seat
because the said Manager wanted to accommodate, using the words of the witness Ernesto G.
Cuento, the "white man".38

It is really correct to say that the Court of Appeals in the quoted portion first transcribed did not use the term
"bad faith". But can it be doubted that the recital of facts therein points to bad faith? The manager not only
prevented Carrascoso from enjoying his right to a first class seat; worse, he imposed his arbitrary will; he
forcibly ejected him from his seat, made him suffer the humiliation of having to go to the tourist class
compartment - just to give way to another passenger whose right thereto has not been established.
Certainly, this is bad faith. Unless, of course, bad faith has assumed a meaning different from what is
understood in law. For, "bad faith" contemplates a "state of mind affirmatively operating with furtive design or
with some motive of self-interest or will or for ulterior purpose." 39

And if the foregoing were not yet sufficient, there is the express finding of bad faith in the judgment of the
Court of First Instance, thus:

The evidence shows that the defendant violated its contract of transportation with plaintiff in bad
faith, with the aggravating circumstances that defendant's Manager in Bangkok went to the extent
of threatening the plaintiff in the presence of many passengers to have him thrown out of the
airplane to give the "first class" seat that he was occupying to, again using the words of the witness
Ernesto G. Cuento, a "white man" whom he (defendant's Manager) wished to accommodate, and
the defendant has not proven that this "white man" had any "better right" to occupy the "first class"
seat that the plaintiff was occupying, duly paid for, and for which the corresponding "first class"
ticket was issued by the defendant to him.40

5. The responsibility of an employer for the tortious act of its employees need not be essayed. It is well settled in
law. 41 For the willful malevolent act of petitioner's manager, petitioner, his employer, must answer. Article 21 of the
Civil Code says:

ART. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.

In parallel circumstances, we applied the foregoing legal precept; and, we held that upon the provisions of Article
2219 (10), Civil Code, moral damages are recoverable. 42

6. A contract to transport passengers is quite different in kind and degree from any other contractual relation. 43 And
this, because of the relation which an air-carrier sustains with the public. Its business is mainly with the travelling
public. It invites people to avail of the comforts and advantages it offers. The contract of air carriage, therefore,
generates a relation attended with a public duty. Neglect or malfeasance of the carrier's employees, naturally, could
give ground for an action for damages.

Passengers do not contract merely for transportation. They have a right to be treated by the carrier's employees with
kindness, respect, courtesy and due consideration. They are entitled to be protected against personal misconduct,
injurious language, indignities and abuses from such employees. So it is, that any rule or discourteous conduct on the
part of employees towards a passenger gives the latter an action for damages against the carrier. 44

Thus, "Where a steamship company 45 had accepted a passenger's check, it was a breach of contract and a tort,
giving a right of action for its agent in the presence of third persons to falsely notify her that the check was worthless
and demand payment under threat of ejection, though the language used was not insulting and she was not
ejected." 46 And this, because, although the relation of passenger and carrier is "contractual both in origin and nature"
nevertheless "the act that breaks the contract may be also a tort". 47 And in another case, "Where a passenger on a
railroad train, when the conductor came to collect his fare tendered him the cash fare to a point where the train was
scheduled not to stop, and told him that as soon as the train reached such point he would pay the cash fare from that
point to destination, there was nothing in the conduct of the passenger which justified the conductor in using insulting
language to him, as by calling him a lunatic," 48 and the Supreme Court of South Carolina there held the carrier liable
for the mental suffering of said passenger.1awphîl.nèt

Petitioner's contract with Carrascoso is one attended with public duty. The stress of Carrascoso's action as we have
said, is placed upon his wrongful expulsion. This is a violation of public duty by the petitioner air carrier — a case
of quasi-delict. Damages are proper.

7. Petitioner draws our attention to respondent Carrascoso's testimony, thus —

Q You mentioned about an attendant. Who is that attendant and purser?

A When we left already — that was already in the trip — I could not help it. So one of the flight attendants
approached me and requested from me my ticket and I said, What for? and she said, "We will note that you
transferred to the tourist class". I said, "Nothing of that kind. That is tantamount to accepting my transfer."
And I also said, "You are not going to note anything there because I am protesting to this transfer".

Q Was she able to note it?

A No, because I did not give my ticket.

Q About that purser?

A Well, the seats there are so close that you feel uncomfortable and you don't have enough leg room, I
stood up and I went to the pantry that was next to me and the purser was there. He told me, "I have
recorded the incident in my notebook." He read it and translated it to me — because it was recorded in
French — "First class passenger was forced to go to the tourist class against his will, and that the captain
refused to intervene."

Mr. VALTE —

I move to strike out the last part of the testimony of the witness because the best evidence would be the
notes. Your Honor.

COURT —

I will allow that as part of his testimony. 49

Petitioner charges that the finding of the Court of Appeals that the purser made an entry in his notebook reading
"First class passenger was forced to go to the tourist class against his will, and that the captain refused to intervene"
is predicated upon evidence [Carrascoso's testimony above] which is incompetent. We do not think so. The subject of
inquiry is not the entry, but the ouster incident. Testimony on the entry does not come within the proscription of the
best evidence rule. Such testimony is admissible. 49a

Besides, from a reading of the transcript just quoted, when the dialogue happened, the impact of the startling
occurrence was still fresh and continued to be felt. The excitement had not as yet died down. Statements then, in this
environment, are admissible as part of the res gestae. 50 For, they grow "out of the nervous excitement and mental
and physical condition of the declarant". 51 The utterance of the purser regarding his entry in the notebook was
spontaneous, and related to the circumstances of the ouster incident. Its trustworthiness has been guaranteed. 52 It
thus escapes the operation of the hearsay rule. It forms part of the res gestae.

At all events, the entry was made outside the Philippines. And, by an employee of petitioner. It would have been an
easy matter for petitioner to have contradicted Carrascoso's testimony. If it were really true that no such entry was
made, the deposition of the purser could have cleared up the matter.

We, therefore, hold that the transcribed testimony of Carrascoso is admissible in evidence.

8. Exemplary damages are well awarded. The Civil Code gives the court ample power to grant exemplary damages
— in contracts and quasi- contracts. The only condition is that defendant should have "acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner." 53 The manner of ejectment of respondent Carrascoso from his first
class seat fits into this legal precept. And this, in addition to moral damages.54

9. The right to attorney's fees is fully established. The grant of exemplary damages justifies a similar judgment for
attorneys' fees. The least that can be said is that the courts below felt that it is but just and equitable that attorneys'
fees be given. 55 We do not intend to break faith with the tradition that discretion well exercised — as it was here —
should not be disturbed.
10. Questioned as excessive are the amounts decreed by both the trial court and the Court of Appeals, thus:
P25,000.00 as moral damages; P10,000.00, by way of exemplary damages, and P3,000.00 as attorneys' fees. The
task of fixing these amounts is primarily with the trial court.  56 The Court of Appeals did not interfere with the same.
The dictates of good sense suggest that we give our imprimatur thereto. Because, the facts and circumstances point
to the reasonableness thereof.57

On balance, we say that the judgment of the Court of Appeals does not suffer from reversible error. We accordingly
vote to affirm the same. Costs against petitioner. So ordered.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar and Castro, JJ., concur.
Bengzon, J.P., J., took no part.

G.R. No. 119995 November 18, 1997

CARLOS SINGSON, petitioner,
vs.
COURT OF APPEALS and CATHAY PACIFIC AIRWAY, INC., respondents.

BELLOSILLO, J.:

A contract of air carriage is a peculiar one. Imbued with public interest, common carriers are required by law to carry
passengers safely as far a human care and foresight can provide, using the utmost diligence of a very cautious
person, with due regard for all the circumstances.1 A contract to transport passengers is quite different in kind and
degree from any other contractual relation. And this because its business is mainly with the traveling public. In invites
people to avail of the comforts and advantages it offers. The contract of carriage, therefore, generates a relation
attended with a public duty.2 Failure of the carrier to observe this high degree of care and extraordinary diligence
renders it liable for any damage that may be sustained by its passengers.

The instant case is an illustration of the exacting standard demanded by the law of common carriers: On 24 May
1988 CARLOS SINGSON and his cousin Crescentino Tiongson bought from Cathay Pacific Airways, Ltd. (CATHAY),
at its Metro Manila ticket outlet two (2) open-dated, identically routed, round trip plane tickets for the purpose of
spending their vacation in the United States. Each ticket consisted of six (6) flight coupons corresponding to this
itinerary: flight coupon no. 1 — Manila to Hongkong; flight coupon no. 2 — Hongkong to San Francisco; flight coupon
no. 3 — San Francisco to Los Angeles; flight coupon no. 4 — Los Angeles back to San Francisco; flight coupon no. 5
— San Francisco to Hongkong; and, finally, flight coupon no. 6 — Hongkong to Manila. The procedure was that at the
start of each leg of the trip a flight coupon corresponding to the particular sector of the travel would be removed from
the ticket booklet so that at the end of the trip no more coupon would be left in the ticket booklet.

On 6 June 1988 CARLOS SINGSON and Crescentino Tiongson left Manila on board CATHAY's Flight No. 902. They
arrived safely in Los Angeles and after staying there for about three (3) weeks they decided to return to the
Philippines. On 30 June 1988 they arranged for their return flight at CATHAY's Los Angeles Office and chose 1 July
1988, a Friday, for their departure. While Tiongson easily got a booking for the flight, SINGSON was not as lucky. It
was discovered that his ticket booklet did not have flight coupon no. 5 corresponding to the San Francisco-Hongkong
leg of the trip. Instead, what was in his ticket was flight coupon no. 3 — San Francisco to Los Angeles — which was
supposed to have been used and removed from the ticket booklet. It was not until 6 July 1988 that CATHAY was
finally able to arrange for his return flight to Manila.

On 26 August 1988 SINGSON commenced an action for damages against CATHAY before the Regional Trial Court
of Vigan, Ilocos Sur.3 He claimed that he insisted on CATHAY's confirmation of his return flight reservation because
of very important and urgent business engagements in the Philippines. But CATHAY allegedly shrugged off his
protestations and arrogantly directed him to go to San Francisco himself and do some investigations on the matter or
purchase a new ticket subject to refund if it turned out that the missing coupon was still unused or subsisting. He
remonstrated that it was the airline's agent/representative who must have committed the mistake of tearing off the
wrong flight coupon; that he did not have enough money to buy new tickets; and, CATHAY could conclude the
investigation in a matter of minutes because of its facilities. CATHAY, allegedly in scornful insolence, simply
dismissed him like an impertinent "brown pest." Thus he and his cousin Tiongson, who deferred his own flight to
accompany him, were forced to leave for San Francisco on the night of 1 July 1988 to verify the missing ticket.

CATHAY denied these allegations and averred that since petitioner was holding an "open-dated" ticket, which meant
that he was not booked on a specific flight on a particular date, there was no contract of carriage yet existing such
that CATHAY's refusal to immediately book him could not be construed as breach of contract of carriage. Moreover,
the coupon had been missing for almost a month hence CATHAY must first verify its status, i.e., whether the ticket
was still valid and outstanding, before it could issue a replacement ticket to petitioner. For that purpose, it sent a
request by telex on the same day, 1 July 1988, to its Hongkong Headquarters where such information could be
retrieved.4 However, due to the time difference between Los Angeles and Hongkong, no response from the
Hongkong office was immediately received. Besides, since 2 and 3 July 1988 were a Saturday and a Sunday,
respectively, and 4 July 1988 was an official holiday being U.S. Independence Day, the telex response of CATHAY
Hongkong was not read until 5 July 1988. Lastly, CATHAY denied having required SINGSON to make a trip back to
San Francisco; on the other hand, it was the latter who informed CATHAY that he was making a side trip to San
Francisco. Hence, CATHAY advised him that the response of Hongkong would be copied in San Francisco so that he
could conveniently verify thereat should he wish to.

The trial court rendered a decision in favor of petitioner herein holding that CATHAY was guilty of gross negligence
amounting to malice and bad faith for which it was adjudged to pay petitioner P20,000.00 for actual damages with
interest at the legal rate of twelve percent (12%)  per annum from 26 August 1988 when the complaint was filed until
fully paid, P500,000.00 for moral damages, P400,000.00 for exemplary damages, P100,000.00 for attorney's fees,
and, to pay the costs.

On appeal by CATHAY, the Court of Appeals reversed the trial court's finding that there was gross negligence
amounting to bad faith or fraud and, accordingly, modified its judgment by deleting the awards for moral and
exemplary damages, and the attorney's fees as well. Reproduced hereunder are the pertinent portions of the decision
of the appellate court5 —

There is enough merit in this appeal to strike down the trial court's award of moral and exemplary damages
and attorney's fees . . . . In this material respect, the appellant correctly underscores the fact that the
appellee held an open dated ticket for his return flight from San Francisco to manila via Hongkong and that,
as a consequence, the latter was not actually confirmed on the July 1, 1988 flight or, for that matter, any of
the appellant's flight . . . . . The appellant certainly committed no breach of contract of carriage when it
refused the appellee the booking he requested on the said July 1, 1988 flight. As a "chance passenger," the
latter had no automatic right to fly on that flight and on that date.

Even assuming arguendo that a breach of contract of carriage may be attributed the appellant, the
appellee's travails were directly traceable to the mistake in detaching the San Francisco-Hongkong flight
coupon of his plane ticket which led to the appellant's refusal to honor his plane ticket. While that may
constitute negligence on the part of the air carrier, the same cannot serve as basis for an award of moral
damages. The rule is that moral damages are recoverable in a damage suit predicated upon a breach of
contract of carriage only where (a) the mishap results in the death of a passenger and (b) it is proved that
the carrier was guilty of fraud and bad faith even if death does not result . . . . In disallowing the trial court's
award of moral damages, the Court takes appropriate note of the necessity for the appellant's verification of
the status of the missing flight coupon as well as the justifiable delay thereto attendant . . . . Contrary to the
appellee's allegation that he was peremptorily refused confirmation of his flight, and arrogantly told to verify
the missing flight coupon on his own, the record shows that the appellant adopted such measures as were
reasonably required under the circumstances. Even the testimonies offered by the appellee and his
witnesses collectively show no trace of fraud or bad faith as would justify the trial court's award of moral
damages.

The basis for the award of moral damages discounted, there exists little or no reason to allow the exemplary
damages and attorney's fees adjudicated in favor of the appellee.

Petitioner's subsequent motion for reconsideration having been denied for lack of merit and for being  pro forma he
came to use for review. He claims that the trial court found CATHAY guilty of gross negligence amounting to malice
and bad faith in: (a) detaching the wrong coupon; (b) using that error to deny confirmation of his return flight; and, (c)
directing petitioner to prematurely return to San Francisco to verify his missing coupon. He also underscores the
scornful and demeaning posture of CATHAY's employees toward him. He argues that since findings of fact of the trial
court are entitled to the highest degree of respect from the appellate courts, especially when they were supported by
evidence, it was erroneous for the Court of Appeals to strike out the award of moral and exemplary damages as well
as attorney's fees allegedly for lack of basis.

In its Comment, CATHAY firmly maintains that it did not breach its contract of carriage with petitioner. It argues that it
is only when passenger is confirmed on a particular flight and on a particular date specifically stated in his ticket that
its refusal to board the passenger will result in a breach of contract. And even assuming that there was breach of
contract, there was no fraud or bad faith on the part of CATHAY as to justify the award of moral and exemplary
damages plus attorney's fees in favor of petitioner.

There are two (2) main issues that confront the Court:  first, whether a breach of contract was committed by CATHAY
when it failed to confirm the booking of petitioner for its 1 July 1988 flight; and, second, whether the carrier was liable
not only for actual damages but also for moral and exemplary damages, and attorney's fees for failing to book
petitioner on his return flight to the Philippines.

We find merit in the petition. CATHAY undoubtedly committed a breach of contract when it refused to confirm
petitioner's flight reservation back to the Philippines on account of his missing flight coupon. Its contention that there
was no contract of carriage that was breached because petitioner's ticket was open-dated is untenable. To begin
with, the round trip ticket issued by the carrier to the passenger was in itself a complete written contract by and
between the carrier and the passenger. It has all the elements of a complete written contract, to wit: (a) the consent of
the contracting parties manifested by the fact that the passenger agreed to be transported by the carrier to and from
Los Angeles via San Francisco and Hongkong back to the Philippines, and the carrier's acceptance to bring him to
his destination and then back home; (b) cause or consideration, which was the fare paid by the passenger as stated
in his ticket; and, (c) object, which was the transportation of the passenger from the place of departure to the place of
destination and back, which are also stated in his ticket.6 In fact, the contract of carriage in the instant case was
already partially executed as the carrier complied with its obligation to transport the passenger to his destination, i.e.,
Los Angeles. Only the performance of the other half of the contract — which was to transport the passenger back to
the Philippines — was left to be done. Moreover, Timothy Remedios, CATHAY's reservation and ticketing agent,
unequivocally testified that petitioner indeed had reservations booked for travel —

Q: Were you able to grant what they wanted, if not, please state why?

A: I was able to obtain a record of Mr. Singson's computer profile from my flight
reservations computer. I verified that Mr. Singson did indeed have reservations booked for
travel: Los Angeles to San Francisco, San Francisco to Hongkong to Manila. I then
proceeded to revalidate their tickets but was surprised to observe that Mr. Singson's ticket
did not contain a flight coupon for San Francisco to Hongkong. His ticket did, however,
contain a flight coupon for San Francisco to Los Angeles which was supposed to have
been utilized already, that is, supposed to have been removed by U.S. Air when he
checked in San Francisco for his flight from San Francisco to Los Angeles 7 (emphasis
supplied).

Clearly therefore petitioner was not a mere "chance passenger with no superior right to be boarded on a specific
flight," as erroneously claimed by CATHAY and sustained by the appellate court.

Interestingly, it appears that CATHAY was responsible for the loss of the ticket. One of two (2) things may be
surmised from the circumstances of this case: first, US Air (CATHAY's agent) had mistakenly detached the San
Francisco-Hongkong flight coupon thinking that it was the San Francisco-Los Angeles portion; or, second, petitioner's
booklet of tickets did not from issuance include a San Francisco-Hongkong flight coupon. In either case, the loss of
the coupon was attributed to the negligence of CATHAY's agents and was the proximate cause of the non-
confirmation of petitioner's return flight on 1 July 1988. It virtually prevented petitioner from demanding the fulfillment
of the carrier's obligations under the contract. Had CATHAY's agents been diligent in double checking the coupons
they were supposed to detach from the passengers' tickets, there would have been no reason for CATHAY not to
confirm petitioner's booking as exemplified in the case of his cousin and flight companion Tiongson whose ticket
booklet was found to be in order. Hence, to hold that no contractual breach was committed by CATHAY and totally
absolve it from any liability would in effect put a premium on the negligence of its agent, contrary to the policy of the
law requiring common carriers to exercise extraordinary diligence.

With regard to the second issue, we are of the firm view that the appellate court seriously erred in disallowing moral
and exemplary damages. Although the rule is that moral damages predicated upon a breach of contract of carriage
may only be recoverable in instances where the mishap results in the death of a passenger,8 or where the carrier is
guilty of fraud or bad faith,9 there are situations where the negligence of the carrier is so gross and reckless as to
virtually amount to bad faith, in which case, the passenger likewise becomes entitled to recover moral damages.10

In the instant case, the following circumstances attended the breach of contract by CATHAY, to wit: First, as
heretofore discussed, the ticket coupon corresponding to the San Francisco-Hongkong flight was missing either due
to the negligence of CATHAY's agents in improperly detaching petitioner's flight coupons or failing to issue the flight
coupon for San Francisco-Hongkong in the ticket booklet; second, petitioner and his cousin presented their
respective ticket booklets bearing identical itineraries to prove that there had been a mistake in removing the coupons
of petitioner. Furthermore, CATHAY's Timothy Remedios testified that he was able to ascertain from his flight
reservations computer that petitioner indeed had reservations booked for travel on their return flight, but CATHAY
apparently ignored the clear evidential import of these facts and peremptorily refused to confirm petitioner's flight —
while ready to confirm his traveling companion's identically routed plane ticket — on the lame and flimsy excuse that
the existence and validity of the missing ticket must first be verified; third, petitioner was directed by CATHAY to go to
its San Francisco office and make the necessary verification concerning the lost coupon himself. This,
notwithstanding the fact that CATHAY was responsible for the loss of the ticket and had all the necessary equipment,
e.g., computers, fax and telex machines and telephones which could facilitate the verification right there at its Los
Angeles Office.

CATHAY's allegation that it never required petitioner to go to San Francisco is unpersuasive. Petitioner categorically
testified that a lady employee of CATHAY in Los Angeles "insisted that we take the matter (up) with their office in San
Francisco."11 In fact, it even appeared from the evidence that it was the San Francisco office which arranged for his
return flight to the Philippines and not the Los Angeles office. 12 Moreover, due deference must be accorded the trial
court's finding that petitioner was indeed sent by CATHAY to its San Francisco office to verify. For good and sound
reasons, this Court has consistently affirmed that review of the findings of fact of the trial court is not a function that
appellate courts ordinarily undertake, such findings being as a rule binding and conclusive.13 It is true that certain
exceptions have become familiar. However, nothing in the records warrants a review based on any of these well-
recognized exceptions; and, fourth, private respondent endeavored to show that it undertook the verification of the
lost coupon by sending a telex to its Hongkong Office. It likewise tried to justify the five (5) days delay in completing
the verification process, claiming that it was due to the time difference between Hongkong and Los Angeles and the
coinciding non-working days in the United States. The following dialogue between Consul Cortez
and Cathay's reservation and ticketing agent Timothy Remedios can be enlightening —

Q: What official action did you in turn take?

 A: While Mr. Singson was still in my office I sent a telex out at approximately 10:00 a.m.
on 30 June 1988 to Hongkong Accounting Office and copied San Francisco ticket office
since Mr. Singson advised he might not be able to return to my office but would be going
to San Francisco. 10:00 a.m. 30 June 1988 in Los Angeles is however 2:00 a.m. on 1 July
1988 in Hongkong and since office hours start at 9:00 a.m. in Hongkong, no reply was
instantly sent back to me. The response was sent out from Hongkong on 2 July 1988 at
approximately 12:00 noon (Hongkong time) and was received immediately by the Los
Angeles telex machine. However, 12:00 noon 2 July 1988 Hongkong time was 8:00 p.m. 1
July 1988 in Los Angeles where office hours close at 5: pm.. The Los Angeles office was
closed on 2 and 3 July 1988 being Saturday and Sunday and also closed 4 July 1988 for a
public holiday (Independence day) so the reply from Hongkong was not read until 5 July
1988, 8:30 Los Angeles time.14

But far from helping private respondent's cause, the foregoing testimony only betrayed another act of negligence
committed by its employees in Hongkong. It will be observed that CATHAY's Hongkong Office received the telex from
Los Angeles on 1 July 1988 at approximately 2:00 a.m. (Hongkong time) and sent out their response only on 2 July
1988 at 12:00 noon. In spite of the fact that they had access to all records and facilities that would enable them to
verify in a matter of minutes, it strangely took them more than twenty-four (24) hours to complete the verification
process and to sent their reply to Los Angeles. The inevitable conclusion is that CATHAY's Hongkong personnel
never acted promptly and timely on the request for verification.

Besides, to be stranded for five (5) days in a foreign land because of an air carrier's negligence is too exasperating
an experience for a plane passenger. For sure, petitioner underwent profound distress and anxiety, not to mention
the worries brought by the thought that he did not have enough money to sustain himself, and the embarrassment of
having been forced to seek the generosity of relatives and friends.

Anent the accusation that private respondent's personnel were rude and arrogant, petitioner failed to adduce
sufficient evidence to substantiate his claim. Nonetheless, such fact will not in any manner affect the disposition of
this case. Private respondent's mistake in removing the wrong coupon was compounded by several other
independent acts of negligence above-enumerated. Taken together, they indubitably signify more than ordinary
inadvertence or inattention and thus constitute a radical departure from the extraordinary standard of care required of
common carriers. Put differently, these circumstances reflect the carrier's utter lack of care and sensitivity to the
needs of its passengers, clearly constitutive of gross negligence, recklessness and wanton disregard of the rights of
the latter, acts evidently indistinguishable or no different from fraud, malice and bad faith. As the rule now stands,
where in breaching the contract of carriage the defendant airline is shown to have acted fraudulently, with malice or in
bad faith, the award of moral and exemplary damages, in addition to actual damages, is proper.15

However, the P500,000.00 moral damages and P400,000.00 exemplary damages awarded by the trial court have to
be reduced. The well-entrenched principle is that the grant of moral damages depends upon the discretion of the
court based on the circumstances of each case.16 This discretion is limited by the principle that the "amount awarded
should not be palpably and scandalously excessive" as to indicate that it was the result of prejudice or corruption on
the part of the trial court.17 Damages are not intended to enrich the complainant at the expense of the defendant.
They are awarded only to alleviate the moral suffering that the injured partly had undergone by reason of the
defendant's culpable action.18 There is not hard-and-fast rule in the determination of what would be a fair amount of
moral damages since each case must be governed by its own peculiar facts.

In the instant case, the injury suffered by petitioner is not so serious or extensive as to warrant an award amounting
to P900,000.00. The assessment of P200,000.00 as moral damages and P50,000.00 as exemplary damages in his
favor is, in our view, reasonable and realistic.

On the issue of actual damages, we agree with the Court of Appeals that the amount of P20,000.00 granted by the
trial court to petitioner should not be disturbed. Petitioner categorically testified that he incurred the amount during the
period of his delay in departing from the United States —

Q: Will you kindly tell the Court what expenses if any did you incur for these . . . days from
July 1 until you were able to leave on July 6, 1988?

A: Well, it is true we stayed in the house of my nephew but still we had to spend for our
food and I left him some around five hundred dollars for our stay for around five days.

Q: How about your meals?

A: For our meals, we have to eat outside.

Q: Will you tell, more or less, how much you spent for your meals?

x x x           x x x          x x x

A: For every meal we spend around thirty dollars each.

Q: And this is for how many days?

 A: From July 1, up to the 6th in the morning, sir.

Q: So more or less how many in pesos did you spend for this period of waiting from July 1
to 6?

A: Twenty thousand pesos, sir.19

In the absence of any countervailing evidence from private respondent, and in view of the negligence attributable to it,
the foregoing testimony suffices as basis for actual damages as determined by the court a quo.

As regards attorney's fees, they may be awarded when the defendant's act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest. It was therefore erroneous for the Court of
Appeals to delete the award made by the trial court; consequently, petitioner should be awarded attorney's fees and
the amount of P25,000.00, instead of P100,000.00 earlier awarded, may be considered rational, fair and reasonable.

WHEREFORE, the petition is GRANTED and the 14 July 1994 Decision of the Court of Appeals is REVERSED.
Private respondent is ordered to pay petitioner P20,000.00 for actual damages as fixed by the trial court, plus
P200,000.00 for moral damages, P50,000.00 for exemplary damages and P25,000.00 for attorney's fees. No costs.

SO ORDERED.

G.R. No. 157917               August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL RAILWAYS, and the COURT OF
APPEALS Respondents.

DECISION

BERSAMIN, J.:

The operator of a. school bus service is a common carrier in the eyes of the law. He is bound to observe
extraordinary diligence in the conduct of his business. He is presumed to be negligent when death occurs to a
passenger. His liability may include indemnity for loss of earning capacity even if the deceased passenger may only
be an unemployed high school student at the time of the accident.

The Case

By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias) appeal the adverse decision
promulgated on November 13, 2002, by which the Court of Appeals (CA) affirmed with modification the decision
rendered on December 3, 1999 by the Regional Trial Court (RTC), Branch 260, in Parañaque City that had decreed
them jointly and severally liable with Philippine National Railways (PNR), their co-defendant, to Spouses Nicolas and
Teresita Zarate (Zarates) for the death of their 15-year old son, Aaron John L. Zarate (Aaron), then a high school
student of Don Bosco Technical Institute (Don Bosco).

Antecedents

The Pereñas were engaged in the business of transporting students from their respective residences in Parañaque
City to Don Bosco in Pasong Tamo, Makati City, and back. In their business, the Pereñas used a KIA Ceres Van
(van) with Plate No. PYA 896, which had the capacity to transport 14 students at a time, two of whom would be
seated in the front beside the driver, and the others in the rear, with six students on either side. They employed
Clemente Alfaro (Alfaro) as driver of the van.

In June 1996, the Zarates contracted the Pereñas to transport Aaron to and from Don Bosco. On August 22, 1996, as
on previous school days, the van picked Aaron up around 6:00 a.m. from the Zarates’ residence. Aaron took his place
on the left side of the van near the rear door. The van, with its air-conditioning unit turned on and the stereo playing
loudly, ultimately carried all the 14 student riders on their way to Don Bosco. Considering that the students were due
at Don Bosco by 7:15 a.m., and that they were already running late because of the heavy vehicular traffic on the
South Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m. by traversing the narrow path
underneath the Magallanes Interchange that was then commonly used by Makati-bound vehicles as a short cut into
Makati. At the time, the narrow path was marked by piles of construction materials and parked passenger jeepneys,
and the railroad crossing in the narrow path had no railroad warning signs, or watchmen, or other responsible
persons manning the crossing. In fact, the bamboo barandilla was up, leaving the railroad crossing open to traversing
motorists.

At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302 (train), operated by Jhonny
Alano (Alano), was in the vicinity of the Magallanes Interchange travelling northbound. As the train neared the
railroad crossing, Alfaro drove the van eastward across the railroad tracks, closely tailing a large passenger bus. His
view of the oncoming train was blocked because he overtook the passenger bus on its left side. The train blew its
horn to warn motorists of its approach. When the train was about 50 meters away from the passenger bus and the
van, Alano applied the ordinary brakes of the train. He applied the emergency brakes only when he saw that a
collision was imminent. The passenger bus successfully crossed the railroad tracks, but the van driven by Alfaro did
not. The train hit the rear end of the van, and the impact threw nine of the 12 students in the rear, including Aaron, out
of the van. Aaron landed in the path of the train, which dragged his body and severed his head, instantaneously
killing him. Alano fled the scene on board the train, and did not wait for the police investigator to arrive.

Devastated by the early and unexpected death of Aaron, the Zarates commenced this action for damages against
Alfaro, the Pereñas, PNR and Alano. The Pereñas and PNR filed their respective answers, with cross-claims against
each other, but Alfaro could not be served with summons.

At the pre-trial, the parties stipulated on the facts and issues, viz:

A. FACTS:

(1) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;

(2) Spouses Zarate engaged the services of spouses Pereña for the adequate and safe
transportation carriage of the former spouses' son from their residence in Parañaque to his school
at the Don Bosco Technical Institute in Makati City;

(3) During the effectivity of the contract of carriage and in the implementation thereof, Aaron, the
minor son of spouses Zarate died in connection with a vehicular/train collision which occurred while
Aaron was riding the contracted carrier Kia Ceres van of spouses Pereña, then driven and
operated by the latter's employee/authorized driver Clemente Alfaro, which van collided with the
train of PNR, at around 6:45 A.M. of August 22, 1996, within the vicinity of the Magallanes
Interchange in Makati City, Metro Manila, Philippines;

(4) At the time of the vehicular/train collision, the subject site of the vehicular/train collision was a
railroad crossing used by motorists for crossing the railroad tracks;

(5) During the said time of the vehicular/train collision, there were no appropriate and safety
warning signs and railings at the site commonly used for railroad crossing;

(6) At the material time, countless number of Makati bound public utility and private vehicles used
on a daily basis the site of the collision as an alternative route and short-cut to Makati;

(7) The train driver or operator left the scene of the incident on board the commuter train involved
without waiting for the police investigator;

(8) The site commonly used for railroad crossing by motorists was not in fact intended by the
railroad operator for railroad crossing at the time of the vehicular collision;

(9) PNR received the demand letter of the spouses Zarate;

(10) PNR refused to acknowledge any liability for the vehicular/train collision;

(11) The eventual closure of the railroad crossing alleged by PNR was an internal arrangement
between the former and its project contractor; and

(12) The site of the vehicular/train collision was within the vicinity or less than 100 meters from the
Magallanes station of PNR.

B. ISSUES

(1) Whether or not defendant-driver of the van is, in the performance of his functions, liable for
negligence constituting the proximate cause of the vehicular collision, which resulted in the death of
plaintiff spouses' son;

(2) Whether or not the defendant spouses Pereña being the employer of defendant Alfaro are liable
for any negligence which may be attributed to defendant Alfaro;
 (3) Whether or not defendant Philippine National Railways being the operator of the railroad system
is liable for negligence in failing to provide adequate safety warning signs and railings in the area
commonly used by motorists for railroad crossings, constituting the proximate cause of the
vehicular collision which resulted in the death of the plaintiff spouses' son;

(4) Whether or not defendant spouses Pereña are liable for breach of the contract of carriage with
plaintiff-spouses in failing to provide adequate and safe transportation for the latter's son;

(5) Whether or not defendants spouses are liable for actual, moral damages, exemplary damages,
and attorney's fees;

(6) Whether or not defendants spouses Teodorico and Nanette Pereña observed the diligence of
employers and school bus operators;

(7) Whether or not defendant-spouses are civilly liable for the accidental death of Aaron John
Zarate;

(8) Whether or not defendant PNR was grossly negligent in operating the commuter train involved
in the accident, in allowing or tolerating the motoring public to cross, and its failure to install safety
devices or equipment at the site of the accident for the protection of the public;

(9) Whether or not defendant PNR should be made to reimburse defendant spouses for any and
whatever amount the latter may be held answerable or which they may be ordered to pay in favor
of plaintiffs by reason of the action;

(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the amounts claimed
by the latter in their Complaint by reason of its gross negligence;

(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral and
exemplary damages and attorney's fees.2

The Zarates’ claim against the Pereñas was upon breach of the contract of carriage for the safe transport of Aaron;
but that against PNR was based on quasi-delict under Article 2176, Civil Code.

In their defense, the Pereñas adduced evidence to show that they had exercised the diligence of a good father of the
family in the selection and supervision of Alfaro, by making sure that Alfaro had been issued a driver’s license and
had not been involved in any vehicular accident prior to the collision; that their own son had taken the van daily; and
that Teodoro Pereña had sometimes accompanied Alfaro in the van’s trips transporting the students to school.

For its part, PNR tended to show that the proximate cause of the collision had been the reckless crossing of the van
whose driver had not first stopped, looked and listened; and that the narrow path traversed by the van had not been
intended to be a railroad crossing for motorists.

Ruling of the RTC

On December 3, 1999, the RTC rendered its decision,3 disposing:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants
ordering them to jointly and severally pay the plaintiffs as follows:

(1) (for) the death of Aaron- Php50,000.00;

(2) Actual damages in the amount of Php100,000.00;

(3) For the loss of earning capacity- Php2,109,071.00;

(4) Moral damages in the amount of Php4,000,000.00;

(5) Exemplary damages in the amount of Php1,000,000.00;

(6) Attorney’s fees in the amount of Php200,000.00; and

(7) Cost of suit.

SO ORDERED.
On June 29, 2000, the RTC denied the Pereñas’ motion for reconsideration,4 reiterating that the cooperative gross
negligence of the Pereñas and PNR had caused the collision that led to the death of Aaron; and that the damages
awarded to the Zarates were not excessive, but based on the established circumstances.

The CA’s Ruling

Both the Pereñas and PNR appealed (C.A.-G.R. CV No. 68916).

PNR assigned the following errors, to wit:5

The Court a quo erred in:

1. In finding the defendant-appellant Philippine National Railways jointly and severally liable
together with defendant-appellants spouses Teodorico and Nanette Pereña and defendant-
appellant Clemente Alfaro to pay plaintiffs-appellees for the death of Aaron Zarate and damages.

2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses despite
overwhelming documentary evidence on record, supporting the case of defendants-appellants
Philippine National Railways.

The Pereñas ascribed the following errors to the RTC, namely:

The trial court erred in finding defendants-appellants jointly and severally liable for actual, moral and exemplary
damages and attorney’s fees with the other defendants.

The trial court erred in dismissing the cross-claim of the appellants Pereñas against the Philippine National Railways
and in not holding the latter and its train driver primarily responsible for the incident.

The trial court erred in awarding excessive damages and attorney’s fees.

The trial court erred in awarding damages in the form of deceased’s loss of earning capacity in the absence of
sufficient basis for such an award.

On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC, but limited the moral
damages to ₱ 2,500,000.00; and deleted the attorney’s fees because the RTC did not state the factual and legal
bases, to wit:6

WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch 260 of Parañaque
City is AFFIRMED with the modification that the award of Actual Damages is reduced to ₱ 59,502.76; Moral
Damages is reduced to ₱ 2,500,000.00; and the award for Attorney’s Fees is Deleted.

SO ORDERED.

The CA upheld the award for the loss of Aaron’s earning capacity, taking cognizance of the ruling in Cariaga v.
Laguna Tayabas Bus Company and Manila Railroad Company, 7 wherein the Court gave the heirs of Cariaga a sum
representing the loss of the deceased’s earning capacity despite Cariaga being only a medical student at the time of
the fatal incident. Applying the formula adopted in the American Expectancy Table of Mortality:–

2/3 x (80 - age at the time of death) = life expectancy

the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life expectancy from age of 21
(the age when he would have graduated from college and started working for his own livelihood) instead of 15 years
(his age when he died). Considering that the nature of his work and his salary at the time of Aaron’s death were
unknown, it used the prevailing minimum wage of ₱ 280.00/day to compute Aaron’s gross annual salary to be ₱
110,716.65, inclusive of the thirteenth month pay. Multiplying this annual salary by Aaron’s life expectancy of 39.3
years, his gross income would aggregate to ₱ 4,351,164.30, from which his estimated expenses in the sum of ₱
2,189,664.30 was deducted to finally arrive at P 2,161,500.00 as net income. Due to Aaron’s computed net income
turning out to be higher than the amount claimed by the Zarates, only ₱ 2,109,071.00, the amount expressly prayed
for by them, was granted.

On April 4, 2003, the CA denied the Pereñas’ motion for reconsideration.8

Issues

In this appeal, the Pereñas list the following as the errors committed by the CA, to wit:

I. The lower court erred when it upheld the trial court’s decision holding the petitioners jointly and severally liable to
pay damages with Philippine National Railways and dismissing their cross-claim against the latter.
II. The lower court erred in affirming the trial court’s decision awarding damages for loss of earning capacity of a
minor who was only a high school student at the time of his death in the absence of sufficient basis for such an
award.

III. The lower court erred in not reducing further the amount of damages awarded, assuming petitioners are liable at
all.

Ruling

The petition has no merit.

1.
Were the Pereñas and PNR jointly and severally liable for damages?

The Zarates brought this action for recovery of damages against both the Pereñas and the PNR, basing their claim
against the Pereñas on breach of contract of carriage and against the PNR on quasi-delict.

The RTC found the Pereñas and the PNR negligent. The CA affirmed the findings.

We concur with the CA.

To start with, the Pereñas’ defense was that they exercised the diligence of a good father of the family in the selection
and supervision of Alfaro, the van driver, by seeing to it that Alfaro had a driver’s license and that he had not been
involved in any vehicular accident prior to the fatal collision with the train; that they even had their own son travel to
and from school on a daily basis; and that Teodoro Pereña himself sometimes accompanied Alfaro in transporting the
passengers to and from school. The RTC gave scant consideration to such defense by regarding such defense as
inappropriate in an action for breach of contract of carriage.

We find no adequate cause to differ from the conclusions of the lower courts that the Pereñas operated as a common
carrier; and that their standard of care was extraordinary diligence, not the ordinary diligence of a good father of a
family.

Although in this jurisdiction the operator of a school bus service has been usually regarded as a private
carrier,9 primarily because he only caters to some specific or privileged individuals, and his operation is neither open
to the indefinite public nor for public use, the exact nature of the operation of a school bus service has not been finally
settled. This is the occasion to lay the matter to rest.

A carrier is a person or corporation who undertakes to transport or convey goods or persons from one place to
another, gratuitously or for hire. The carrier is classified either as a private/special carrier or as a common/public
carrier.10 A private carrier is one who, without making the activity a vocation, or without holding himself or itself out to
the public as ready to act for all who may desire his or its services, undertakes, by special agreement in a particular
instance only, to transport goods or persons from one place to another either gratuitously or for hire. 11 The provisions
on ordinary contracts of the Civil Code govern the contract of private carriage.The diligence required of a private
carrier is only ordinary, that is, the diligence of a good father of the family. In contrast, a common carrier is a person,
corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering such services to the public.12 Contracts of common carriage are
governed by the provisions on common carriers of the Civil Code, the Public Service Act, 13 and other special laws
relating to transportation. A common carrier is required to observe extraordinary diligence, and is presumed to be at
fault or to have acted negligently in case of the loss of the effects of passengers, or the death or injuries to
passengers.14

In relation to common carriers, the Court defined public use in the following terms in United States v. Tan Piaco,15 viz:

"Public use" is the same as "use by the public". The essential feature of the public use is not confined to privileged
individuals, but is open to the indefinite public. It is this indefinite or unrestricted quality that gives it its public
character. In determining whether a use is public, we must look not only to the character of the business to be done,
but also to the proposed mode of doing it. If the use is merely optional with the owners, or the public benefit is merely
incidental, it is not a public use, authorizing the exercise of 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 the character of the use is whether the public may enjoy it by right or only by permission.

In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil Code avoided any distinction
between a person or an enterprise offering transportation on a regular or an isolated basis; and has not distinguished
a carrier offering his services to the general public, that is, the general community or population, from one offering his
services only to a narrow segment of the general population.

Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code coincides neatly with the
notion of public service under the Public Service Act, which supplements the law on common carriers found in the
Civil Code. Public service, according to Section 13, paragraph (b) of the Public Service Act, includes:
x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientèle, whether permanent or occasional, and done for the general business
purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any
class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation
of passengers or freight or both, shipyard, marine repair shop, ice-refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other similar public services. x x x.17

Given the breadth of the aforequoted characterization of a common carrier, the Court has considered as common
carriers pipeline operators,18 custom brokers and warehousemen,19 and barge operators20 even if they had limited
clientèle.

As all the foregoing indicate, the true test for a common carrier is not the quantity or extent of the business actually
transacted, or the number and character of the conveyances used in the activity, but whether the undertaking is a
part of the activity engaged in by the carrier that he has held out to the general public as his business or occupation.
If the undertaking is a single transaction, not a part of the general business or occupation engaged in, as advertised
and held out to the general public, the individual or the entity rendering such service is a private, not a common,
carrier. The question must be determined by the character of the business actually carried on by the carrier, not by
any secret intention or mental reservation it may entertain or assert when charged with the duties and obligations that
the law imposes.21

Applying these considerations to the case before us, there is no question that the Pereñas as the operators of a
school bus service were: (a) engaged in transporting passengers generally as a business, not just as a casual
occupation; (b) undertaking to carry passengers over established roads by the method by which the business was
conducted; and (c) transporting students for a fee. Despite catering to a limited clientèle, the Pereñas operated as a
common carrier because they held themselves out as a ready transportation indiscriminately to the students of a
particular school living within or near where they operated the service and for a fee.

The common carrier’s standard of care and vigilance as to the safety of the passengers is defined by law. Given the
nature of the business and for reasons of public policy, the common carrier is bound "to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all
the circumstances of each case."22 Article 1755 of the Civil Code specifies that the common carrier should "carry the
passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances." To successfully fend off liability in an action upon the death or
injury to a passenger, the common carrier must prove his or its observance of that extraordinary diligence; otherwise,
the legal presumption that he or it was at fault or acted negligently would stand.23 No device, whether by stipulation,
posting of notices, statements on tickets, or otherwise, may dispense with or lessen the responsibility of the common
carrier as defined under Article 1755 of the Civil Code. 24

And, secondly, the Pereñas have not presented any compelling defense or reason by which the Court might now
reverse the CA’s findings on their liability. On the contrary, an examination of the records shows that the evidence
fully supported the findings of the CA.

As earlier stated, the Pereñas, acting as a common carrier, were already presumed to be negligent at the time of the
accident because death had occurred to their passenger.25 The presumption of negligence, being a presumption of
law, laid the burden of evidence on their shoulders to establish that they had not been negligent. 26 It was the law no
less that required them to prove their observance of extraordinary diligence in seeing to the safe and secure carriage
of the passengers to their destination. Until they did so in a credible manner, they stood to be held legally responsible
for the death of Aaron and thus to be held liable for all the natural consequences of such death.

There is no question that the Pereñas did not overturn the presumption of their negligence by credible evidence.
Their defense of having observed the diligence of a good father of a family in the selection and supervision of their
driver was not legally sufficient. According to Article 1759 of the Civil Code, their liability as a common carrier did not
cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of
their employee. This was the reason why the RTC treated this defense of the Pereñas as inappropriate in this action
for breach of contract of carriage.

The Pereñas were liable for the death of Aaron despite the fact that their driver might have acted beyond the scope of
his authority or even in violation of the orders of the common carrier.27 In this connection, the records showed their
driver’s actual negligence. There was a showing, to begin with, that their driver traversed the railroad tracks at a point
at which the PNR did not permit motorists going into the Makati area to cross the railroad tracks. Although that point
had been used by motorists as a shortcut into the Makati area, that fact alone did not excuse their driver into taking
that route. On the other hand, with his familiarity with that shortcut, their driver was fully aware of the risks to his
passengers but he still disregarded the risks. Compounding his lack of care was that loud music was playing inside
the air-conditioned van at the time of the accident. The loudness most probably reduced his ability to hear the
warning horns of the oncoming train to allow him to correctly appreciate the lurking dangers on the railroad tracks.
Also, he sought to overtake a passenger bus on the left side as both vehicles traversed the railroad tracks. In so
doing, he lost his view of the train that was then coming from the opposite side of the passenger bus, leading him to
miscalculate his chances of beating the bus in their race, and of getting clear of the train. As a result, the bus avoided
a collision with the train but the van got slammed at its rear, causing the fatality. Lastly, he did not slow down or go to
a full stop before traversing the railroad tracks despite knowing that his slackening of speed and going to a full stop
were in observance of the right of way at railroad tracks as defined by the traffic laws and regulations.28 He thereby
violated a specific traffic regulation on right of way, by virtue of which he was immediately presumed to be negligent.29

The omissions of care on the part of the van driver constituted negligence, 30 which, according to Layugan v.
Intermediate Appellate Court,31 is "the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a
prudent and reasonable man would not do,32 or as Judge Cooley defines it, ‘(t)he failure to observe for the protection
of the interests of another person, that degree of care, precaution, and vigilance which the circumstances justly
demand, whereby such other person suffers injury.’"33

The test by which to determine the existence of negligence in a particular case has been aptly stated in the leading
case of Picart v. Smith,34 thuswise:

The test by which to determine the existence of negligence in a particular case may be stated as follows: Did the
defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person
would have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the
standard supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the Roman law. The
existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the
situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given situation must of course be always
determined in the light of human experience and in view of the facts involved in the particular case. Abstract
speculation cannot here be of much value but this much can be profitably said: Reasonable men govern their conduct
by the circumstances which are before them or known to them. They are not, and are not supposed to be, omniscient
of the future. Hence they can be expected to take care only when there is something before them to suggest or warn
of danger. Could a prudent man, in the case under consideration, foresee harm as a result of the course actually
pursued? If so, it was the duty of the actor to take precautions to guard against that harm. Reasonable foresight of
harm, followed by the ignoring of the suggestion born of this prevision, is always necessary before negligence can be
held to exist. Stated in these terms, the proper criterion for determining the existence of negligence in a given case is
this: Conduct is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an
effect harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding against its
consequences. (Emphasis supplied)

Pursuant to the Picart v. Smith test of negligence, the Pereñas’ driver was entirely negligent when he traversed the
railroad tracks at a point not allowed for a motorist’s crossing despite being fully aware of the grave harm to be
thereby caused to his passengers; and when he disregarded the foresight of harm to his passengers by overtaking
the bus on the left side as to leave himself blind to the approach of the oncoming train that he knew was on the
opposite side of the bus.

Unrelenting, the Pereñas cite Phil. National Railways v. Intermediate Appellate Court, 35 where the Court held the PNR
solely liable for the damages caused to a passenger bus and its passengers when its train hit the rear end of the bus
that was then traversing the railroad crossing. But the circumstances of that case and this one share no similarities. In
Philippine National Railways v. Intermediate Appellate Court, no evidence of contributory negligence was adduced
against the owner of the bus. Instead, it was the owner of the bus who proved the exercise of extraordinary diligence
by preponderant evidence. Also, the records are replete with the showing of negligence on the part of both the
Pereñas and the PNR. Another distinction is that the passenger bus in Philippine National Railways v. Intermediate
Appellate Court was traversing the dedicated railroad crossing when it was hit by the train, but the Pereñas’ school
van traversed the railroad tracks at a point not intended for that purpose.

At any rate, the lower courts correctly held both the Pereñas and the PNR "jointly and severally" liable for damages
arising from the death of Aaron. They had been impleaded in the same complaint as defendants against whom the
Zarates had the right to relief, whether jointly, severally, or in the alternative, in respect to or arising out of the
accident, and questions of fact and of law were common as to the Zarates. 36 Although the basis of the right to relief of
the Zarates (i.e., breach of contract of carriage) against the Pereñas was distinct from the basis of the Zarates’ right
to relief against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless could be held jointly and
severally liable by virtue of their respective negligence combining to cause the death of Aaron. As to the PNR, the
RTC rightly found the PNR also guilty of negligence despite the school van of the Pereñas traversing the railroad
tracks at a point not dedicated by the PNR as a railroad crossing for pedestrians and motorists, because the PNR did
not ensure the safety of others through the placing of crossbars, signal lights, warning signs, and other permanent
safety barriers to prevent vehicles or pedestrians from crossing there. The RTC observed that the fact that a crossing
guard had been assigned to man that point from 7 a.m. to 5 p.m. was a good indicium that the PNR was aware of the
risks to others as well as the need to control the vehicular and other traffic there. Verily, the Pereñas and the PNR
were joint tortfeasors.

2.
Was the indemnity for loss of Aaron’s earning capacity proper?

The RTC awarded indemnity for loss of Aaron’s earning capacity. Although agreeing with the RTC on the liability, the
CA modified the amount. Both lower courts took into consideration that Aaron, while only a high school student, had
been enrolled in one of the reputable schools in the Philippines and that he had been a normal and able-bodied child
prior to his death. The basis for the computation of Aaron’s earning capacity was not what he would have become or
what he would have wanted to be if not for his untimely death, but the minimum wage in effect at the time of his
death. Moreover, the RTC’s computation of Aaron’s life expectancy rate was not reckoned from his age of 15 years at
the time of his death, but on 21 years, his age when he would have graduated from college.

We find the considerations taken into account by the lower courts to be reasonable and fully warranted.

Yet, the Pereñas submit that the indemnity for loss of earning capacity was speculative and unfounded.1âwphi1 They
cited People v. Teehankee, Jr.,37 where the Court deleted the indemnity for victim Jussi Leino’s loss of earning
capacity as a pilot for being speculative due to his having graduated from high school at the International School in
Manila only two years before the shooting, and was at the time of the shooting only enrolled in the first semester at
the Manila Aero Club to pursue his ambition to become a professional pilot. That meant, according to the Court, that
he was for all intents and purposes only a high school graduate.

We reject the Pereñas’ submission.

First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi Leino was not akin to
that of Aaron here. The CA and the RTC were not speculating that Aaron would be some highly-paid professional,
like a pilot (or, for that matter, an engineer, a physician, or a lawyer). Instead, the computation of Aaron’s earning
capacity was premised on him being a lowly minimum wage earner despite his being then enrolled at a prestigious
high school like Don Bosco in Makati, a fact that would have likely ensured his success in his later years in life and at
work.

And, secondly, the fact that Aaron was then without a history of earnings should not be taken against his parents and
in favor of the defendants whose negligence not only cost Aaron his life and his right to work and earn money, but
also deprived his parents of their right to his presence and his services as well. Our law itself states that the loss of
the earning capacity of the deceased shall be the liability of the guilty party in favor of the heirs of the deceased, and
shall in every case be assessed and awarded by the court "unless the deceased on account of permanent physical
disability not caused by the defendant, had no earning capacity at the time of his death."38 Accordingly, we
emphatically hold in favor of the indemnification for Aaron’s loss of earning capacity despite him having been
unemployed, because compensation of this nature is awarded not for loss of time or earnings but for loss of the
deceased’s power or ability to earn money.39

This favorable treatment of the Zarates’ claim is not unprecedented. In Cariaga v. Laguna Tayabas Bus Company
and Manila Railroad Company,40 fourth-year medical student Edgardo Carriaga’s earning capacity, although he
survived the accident but his injuries rendered him permanently incapacitated, was computed to be that of the
physician that he dreamed to become. The Court considered his scholastic record sufficient to justify the assumption
that he could have finished the medical course and would have passed the medical board examinations in due time,
and that he could have possibly earned a modest income as a medical practitioner. Also, in People v. Sanchez, 41 the
Court opined that murder and rape victim Eileen Sarmienta and murder victim Allan Gomez could have easily landed
good-paying jobs had they graduated in due time, and that their jobs would probably pay them high monthly salaries
from ₱ 10,000.00 to ₱ 15,000.00 upon their graduation. Their earning capacities were computed at rates higher than
the minimum wage at the time of their deaths due to their being already senior agriculture students of the University
of the Philippines in Los Baños, the country’s leading educational institution in agriculture.

3.
Were the amounts of damages excessive?

The Pereñas plead for the reduction of the moral and exemplary damages awarded to the Zarates in the respective
amounts of ₱ 2,500,000.00 and ₱ 1,000,000.00 on the ground that such amounts were excessive.

The plea is unwarranted.

The moral damages of ₱ 2,500,000.00 were really just and reasonable under the established circumstances of this
case because they were intended by the law to assuage the Zarates’ deep mental anguish over their son’s
unexpected and violent death, and their moral shock over the senseless accident. That amount would not be too
much, considering that it would help the Zarates obtain the means, diversions or amusements that would alleviate
their suffering for the loss of their child. At any rate, reducing the amount as excessive might prove to be an injustice,
given the passage of a long time from when their mental anguish was inflicted on them on August 22, 1996.

Anent the ₱ 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if only to render
effective the desired example for the public good. As a common carrier, the Pereñas needed to be vigorously
reminded to observe their duty to exercise extraordinary diligence to prevent a similarly senseless accident from
happening again. Only by an award of exemplary damages in that amount would suffice to instill in them and others
similarly situated like them the ever-present need for greater and constant vigilance in the conduct of a business
imbued with public interest.

WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision promulgated on November 13,
2002; and ORDER the petitioners to pay the costs of suit.

SO ORDERED.
 

G.R. No. 112287 December 12, 1997

NATIONAL STEEL CORPORATION, petitioner,

vs.
COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents.

G.R. No. 112350 December 12, 1997

VLASONS SHIPPING, INC., petitioner,

vs.
COURT OF APPEALS AND NATIONAL STEEL CORPORATION, respondents.

PANGANIBAN, J.:

The Court finds occasion to apply the rules on the seaworthiness of private carrier, its owner's responsibility for
damage to the cargo and its liability for demurrage and attorney's fees. The Court also reiterates the well-known rule
that findings of facts of trial courts, when affirmed by the Court of Appeals, are binding on this Court.

The Case

Before us are two separate petitions for review filed by National Steel Corporation (NSC) and Vlasons Shipping, Inc.
(VSI), both of which assail the August 12, 1993 Decision of the Court of Appeals.1 The Court of Appeals modified the
decision of the Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No. 23317. The RTC disposed
as follows:

WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing the
complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the counterclaim as
follows:

1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the legal rate on
both amounts from April 7, 1976 until the same shall have been fully paid;

2. Attorney's fees and expenses of litigation in the sum of P100,000.00; and

3. Costs of suit.

SO ORDERED.2

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for
demurrage to P44,000.00 and deleting the award for attorney's fees and expenses of litigation. Except as
thus modified, the decision is AFFIRMED. There is no pronouncement as to costs.

SO ORDERED.3

The Facts

The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo or shipment for
the general public. Its services are available only to specific persons who enter into a special contract of charter party
with its owner. It is undisputed that the ship is a private carrier. And it is in the capacity that its owner, Vlasons
Shipping, Inc., entered into a contract of affreightment or contract of voyage charter hire with National Steel
Corporation.

The facts as found by Respondent Court of Appeals are as follows:

(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons
Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit "B"; also Exhibit "1")
whereby NSC hired VSI's vessel, the MV "VLASONS I" to make one (1) voyage to load steel products at
Iligan City and discharge them at North Harbor, Manila, under the following terms and conditions, viz:

1. . . .

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master's option.
3. . . .

4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon presentation of Bill of Lading within
fifteen (15) days.

5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.

6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive hours,
Sundays and Holidays Included).

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.

8. . . .

9. Cargo Insurance: Charterer's and/or Shipper's must insure the cargoes. Shipowners not responsible for
losses/damages except on proven willful negligence of the officers of the vessel.

10. Other terms: (a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized Charter
Party Agreement shall form part of this Contract.

xxx xxx xxx

The terms "F.I.O.S.T." which is used in the shipping business is a standard provision in the NANYOZAI
Charter Party which stands for "Freight In and Out including Stevedoring and Trading", which means that the
handling, loading and unloading of the cargoes are the responsibility of the Charterer. Under Paragraph 5 of
the NANYOZAI Charter Party, it states, "Charterers to load, stow and discharge the cargo free of risk and
expenses to owners. . . . (Emphasis supplied).

Under paragraph 10 thereof, it is provided that "(o)wners shall, before and at the beginning of the voyage,
exercise due diligence to make the vessel seaworthy and properly manned, equipped and supplied and to
make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception,
carriage and preservation. Owners shall not be liable for loss of or damage of the cargo arising or resulting
from: unseaworthiness unless caused by want of due diligence on the part of the owners to make the vessel
seaworthy, and to secure that the vessel is properly manned, equipped and supplied and to make the holds
and all other parts of the vessel in which cargo is carried, fit and safe for its reception, carriage and
preservation; . . . ; perils, dangers and accidents of the sea or other navigable waters; . . . ; wastage in bulk
or weight or any other loss or damage arising from inherent defect, quality or vice of the cargo; insufficiency
of packing; . . . ; latent defects not discoverable by due diligence; any other cause arising without the actual
fault or privity of Owners or without the fault of the agents or servants of owners."

Paragraph 12 of said NANYOZAI Charter Party also provides that "(o)wners shall not be responsible for
split, chafing and/or any damage unless caused by the negligence or default of the master and crew."

(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV "VLASONS
I" loaded at plaintiffs pier at Iligan City, the NSC's shipment of 1,677 skids of tinplates and 92 packages of
hot rolled sheets or a total of 1,769 packages with a total weight of about 2,481.19 metric tons for carriage to
Manila. The shipment was placed in the three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting
as agent of the vessel[,] acknowledged receipt of the cargo on board and signed the corresponding bill of
lading, B.L.P.P. No. 0233 (Exhibit "D") on August 8, 1974.

(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The following
day, August 13, 1974, when the vessel's three (3) hatches containing the shipment were opened by
plaintiff's agents, nearly all the skids of tinplates and hot rolled sheets were allegedly found to be wet and
rusty. The cargo was discharged and unloaded by stevedores hired by the Charterer. Unloading was
completed only on August 24, 1974 after incurring a delay of eleven (11) days due to the heavy rain which
interrupted the unloading operations. (Exhibit "E")

(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the shipment
by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated March 17, 1975
(Exhibit "G"), MASCO made a report of its ocular inspection conducted on the cargo, both while it was still
on board the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the cargo was
taken and stored. MASCO reported that it found wetting and rusting of the packages of hot rolled sheets and
metal covers of the tinplates; that tarpaulin hatch covers were noted torn at various extents; that
container/metal casings of the skids were rusting all over. MASCO ventured the opinion that "rusting of the
tinplates was caused by contact with SEA WATER sustained while still on board the vessel as a
consequence of the heavy weather and rough seas encountered while en route to destination (Exhibit "F"). It
was also reported that MASCO's surveyors drew at random samples of bad order packing materials of the
tinplates and delivered the same to the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the
M.I.T. Testing Laboratories issued Report No. 1770 (Exhibit "I") which in part, states, "The analysis of bad
order samples of packing materials . . . shows that wetting was caused by contact with SEA WATER".
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the defendant its
claim for damages suffered due to the downgrading of the damaged tinplates in the amount of P941,145.18.
Then on October 3, 1974, plaintiff formally demanded payment of said claim but defendant VSI refused and
failed to pay. Plaintiff filed its complaint against defendant on April 21, 1976 which was docketed as Civil
Case No. 23317, CFI, Rizal.

(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18 as a
result of the act, neglect and default of the master and crew in the management of the vessel as well as the
want of due diligence on the part of the defendant to make the vessel seaworthy and to make the holds and
all other parts of the vessel in which the cargo was carried, fit and safe for its reception, carriage and
preservation — all in violation of defendant's undertaking under their Contract of Voyage Charter Hire.

(7) In its answer, defendant denied liability for the alleged damage claiming that the MV "VLASONS I" was
seaworthy in all respects for the carriage of plaintiff's cargo; that said vessel was not a "common carrier"
inasmuch as she was under voyage charter contract with the plaintiff as charterer under the charter party;
that in the course of the voyage from Iligan City to Manila, the MV "VLASONS I" encountered very rough
seas, strong winds and adverse weather condition, causing strong winds and big waves to continuously
pound against the vessel and seawater to overflow on its deck and hatch covers, that under the Contract of
Voyage Charter Hire, defendant shall not be responsible for losses/damages except on proven willful
negligence of the officers of the vessel, that the officers of said MV "VLASONS I" exercised due diligence
and proper seamanship and were not willfully negligent; that furthermore the Voyage Charter Party provides
that loading and discharging of the cargo was on FIOST terms which means that the vessel was free of risk
and expense in connection with the loading and discharging of the cargo; that the damage, if any, was due
to the inherent defect, quality or vice of the cargo or to the insufficient packing thereof or to latent defect of
the cargo not discoverable by due diligence or to any other cause arising without the actual fault or privity of
defendant and without the fault of the agents or servants of defendant; consequently, defendant is not liable;
that the stevedores of plaintiff who discharged the cargo in Manila were negligent and did not exercise due
care in the discharge of the cargo; land that the cargo was exposed to rain and seawater spray while on the
pier or in transit from the pier to plaintiff's warehouse after discharge from the vessel; and that plaintiff's
claim was highly speculative and grossly exaggerated and that the small stain marks or sweat marks on the
edges of the tinplates were magnified and considered total loss of the cargo. Finally, defendant claimed that
it had complied with all its duties and obligations under the Voyage Charter Hire Contract and had no
responsibility whatsoever to plaintiff. In turn, it alleged the following counterclaim:

(a) That despite the full and proper performance by defendant of its obligations under the
Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed charter hire of
P75,000.00 despite demands made by defendant;

(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant
the sum of P8,000.00 per day for demurrage. The vessel was on demurrage for eleven
(11) days in Manila waiting for plaintiff to discharge its cargo from the vessel. Thus,
plaintiff was liable to pay defendant demurrage in the total amount of P88,000.00.

(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered
to pay defendant attorney's fees and all expenses of litigation in the amount of not less
than P100,000.00.

(8) From the evidence presented by both parties, the trial court came out with the following findings which
were set forth in its decision:

(a) The MV "VLASONS I" is a vessel of Philippine registry engaged in the tramping
service and is available for hire only under special contracts of charter party as in this
particular case.

(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh.
"1"), the MV VLASONS I" was covered by the required seaworthiness certificates
including the Certification of Classification issued by an international classification society,
the NIPPON KAIJI KYOKAI (Exh. "4"); Coastwise License from the Board of
Transportation (Exh. "5"); International Loadline Certificate from the Philippine Coast
Guard (Exh. "6"); Cargo Ship Safety Equipment Certificate also from the Philippine Coast
Guard (Exh. "7"); Ship Radio Station License (Exh. "8"); Certificate of Inspection by the
Philippine Coast Guard (Exh. "12"); and Certificate of Approval for Conversion issued by
the Bureau of Customs (Exh. "9"). That being a vessel engaged in both overseas and
coastwise trade, the MV "VLASONS I" has a higher degree of seaworthiness and safety.

(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of
Voyage Charter Hire, the MV "VLASONS I" underwent drydocking in Cebu and was
thoroughly inspected by the Philippine Coast Guard. In fact, subject voyage was the
vessel's first voyage after the drydocking. The evidence shows that the MV "VLASONS I"
was seaworthy and properly manned, equipped and supplied when it undertook the
voyage. It has all the required certificates of seaworthiness.
 (d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch
openings were covered by hatchboards which were in turn covered by two or double
tarpaulins. The hatch covers were water tight. Furthermore, under the hatchboards were
steel beams to give support.

(e) The claim of the plaintiff that defendant violated the contract of carriage is not
supported by evidence. The provisions of the Civil Code on common carriers pursuant to
which there exists a presumption of negligence in case of loss or damage to the cargo are
not applicable. As to the damage to the tinplates which was allegedly due to the wetting
and rusting thereof, there is unrebutted testimony of witness Vicente Angliongto that
tinplates "sweat" by themselves when packed even without being in contract (sic) with
water from outside especially when the weather is bad or raining. The trust caused by
sweat or moisture on the tinplates may be considered as a loss or damage but then,
defendant cannot be held liable for it pursuant to Article 1734 of the Civil Case which
exempts the carrier from responsibility for loss or damage arising from the "character of
the goods . . ." All the 1,769 skids of the tinplates could not have been damaged by water
as claimed by plaintiff. It was shown as claimed by plaintiff that the tinplates themselves
were wrapped in kraft paper lining and corrugated cardboards could not be affected by
water from outside.

(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent
in not closing the hatch openings of the MV "VLASONS I" when rains occurred during the
discharging of the cargo thus allowing rainwater to enter the hatches. It was proven that
the stevedores merely set up temporary tents to cover the hatch openings in case of rain
so that it would be easy for them to resume work when the rains stopped by just removing
the tent or canvas. Because of this improper covering of the hatches by the stevedores
during the discharging and unloading operations which were interrupted by rains,
rainwater drifted into the cargo through the hatch openings. Pursuant to paragraph 5 of
the NANYOSAI [sic] Charter Party which was expressly made part of the Contract of
Voyage Charter Hire, the loading, stowing and discharging of the cargo is the sole
responsibility of the plaintiff charterer and defendant carrier has no liability for whatever
damage may occur or maybe [sic] caused to the cargo in the process.

(g) It was also established that the vessel encountered rough seas and bad weather while
en route from Iligan City to Manila causing sea water to splash on the ship's deck on
account of which the master of the vessel (Mr. Antonio C. Dumlao) filed a "Marine Protest"
on August 13, 1974 (Exh. "15"); which can be invoked by defendant as a  force
majeure that would exempt the defendant from liability.

(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage
Charter Hire contract that it was to insure the cargo because it did not. Had plaintiff
complied with the requirement, then it could have recovered its loss or damage from the
insurer. Plaintiff also violated the charter party contract when it loaded not only "steel
products", i.e. steel bars, angular bars and the like but also tinplates and hot rolled sheets
which are high grade cargo commanding a higher freight. Thus plaintiff was able to ship
grade cargo at a lower freight rate.

(i) As regards defendant's counterclaim, the contract of voyage charter hire under
Paragraph 4 thereof, fixed the freight at P30.00 per metric ton payable to defendant carrier
upon presentation of the bill of lading within fifteen (15) days. Plaintiff has not paid the
total freight due of P75,000.00 despite demands. The evidence also showed that the
plaintiff was required and bound under paragraph 7 of the same Voyage Charter Hire
contract to pay demurrage of P8,000.00 per day of delay in the unloading of the cargoes.
The delay amounted to eleven (11) days thereby making plaintiff liable to pay defendant
for demurrage in the amount of P88,000.00.

Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:

The trial court erred in finding that the MV "VLASONS I" was seaworthy, properly manned, equipped and
supplied, and that there is no proof of willful negligence of the vessel's officers.

II

The trial court erred in finding that the rusting of NSC's tinplates was due to the inherent nature or character
of the goods and not due to contact with seawater.

III

The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSC's
shipment.
 IV

The trial court erred in exempting VSI from liability on the ground of force majeure.

The trial court erred in finding that NSC violated the contract of voyage charter hire.

VI

The trial court erred in ordering NSC to pay freight, demurrage and attorney's fees, to VSI.4

As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the demurrage from
P88,000.00 to P44,000.00 and deleting the award of attorney’s fees and expenses of litigation. NSC and VSI filed
separate motions for reconsideration. In a Resolution5 dated October 20, 1993, the appellate court denied both
motions. Undaunted, NSC and VSI filed their respective petitions for review before this Court. On motion of VSI, the
Court ordered on February 14, 1994 the consolidation of these petitions.6

The Issues

In its petition7 and memorandum,8 NSC raises the following questions of law and fact:

Questions of Law

1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays caused by
weather interruption;

2. Whether or not the alleged "seaworthiness certificates" (Exhibits "3", "4", "5", "6", "7", "8", "9", "11" and
"12") were admissible in evidence and constituted evidence of the vessel's seaworthiness at the beginning
of the voyages; and

3. Whether or not a charterer's failure to insure its cargo exempts the ship-owner from liability for cargo
damage.

Questions of Fact

1. Whether or not the vessel was seaworthy and cargo-worthy;

2. Whether or not vessel's officers and crew were negligent in handling and caring for NSC's cargo;

3. Whether or not NSC's cargo of tinplates did sweat during the voyage and, hence, rusted on their own; and

4. Whether or not NSC's stevedores were negligent and caused the wetting[/]rusting of NSC's tinplates.

In its separate petition,9 VSI submits for the consideration of this Court the following alleged errors of the CA:

A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage from
P88,000.00 to P44,000.00.

B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for
attorney's fees and expenses of litigation.

Amplifying the foregoing, VSI raises the following issues in its memorandum:10

I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to which
there exist[s] a presumption of negligence against the common carrier in case of loss or damage to the
cargo are applicable to a private carrier.

II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the Nanyozai
Charter, are valid and binding on both contracting parties.

The foregoing issues raised by the parties will be discussed under the following headings:

1. Questions of Fact

2. Effect of NSC's Failure to Insure the Cargo

3. Admissibility of Certificates Proving Seaworthiness

4. Demurrage and Attorney's Fees.

The Court's Ruling

The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as a private carrier.
The resolution of this preliminary question determines the law, standard of diligence and burden of proof applicable to
the present case.

Article 1732 of the Civil Code defines a common carrier as "persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public." It has been held that the true test of a common carrier is the carriage of
passengers or goods, provided it has space, for all who opt to avail themselves of its transportation service for a
fee.11 A carrier which does not qualify under the above test is deemed a private carrier. "Generally, private carriage is
undertaken by special agreement and the carrier does not hold himself out to carry goods for the general public. The
most typical, although not the only form of private carriage, is the charter party, a maritime contract by which the
charterer, a party other than the shipowner, obtains the use and service of all or some part of a ship for a period of
time or a voyage or voyages."12

In the instant case, it is undisputed that VSI did not offer its services to the general public. As found by the Regional
Trial Court, it carried passengers or goods only for those it chose under a "special contract of charter party." 13 As
correctly concluded by the Court of Appeals, the MV Vlasons I "was not a common but a private
carrier."14 Consequently, the rights and obligations of VSI and NSC, including their respective liability for damage to
the cargo, are determined primarily by stipulations in their contract of private carriage or charter party. 15 Recently,
in Valenzuela Hardwood and Industrial Supply, Inc.,  vs. Court of Appeals and Seven Brothers Shipping
Corporation,16 the Court ruled:

. . . in a contract of private carriage, the parties may freely stipulate their duties and obligations which
perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage does
not involve the general public. Hence, the stringent provisions of the Civil Code on common carriers
protecting the general public cannot justifiably be applied to a ship transporting commercial goods as a
private carrier. Consequently, the public policy embodied therein is not contravened by stipulations in a
charter party that lessen or remove the protection given by law in contracts involving common carriers.17

Extent of VSI's Responsibility and

Liability Over NSC's Cargo

It is clear from the parties' Contract of Voyage Charter Hire, dated July 17, 1974, that VSI "shall not be responsible for
losses except on proven willful negligence of the officers of the vessel." The NANYOZAI Charter Party, which was
incorporated in the parties' contract of transportation further provided that the ship-owner shall not be liable for loss of
or a damage to the cargo arising or resulting from unseaworthiness, unless the same was caused by its lack of due
diligence to make the vessel seaworthy or to ensure that the same was "properly manned, equipped and supplied,"
and to "make the holds and all other parts of the vessel in which cargo [was] carried, fit and safe for its reception,
carriage and preservation."18 The NANYOZAI Charter Party also provided that "[o]wners shall not be responsible for
split, chafing and/or any damage unless caused by the negligence or default of the master or crew."19

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must prove that the damage to its shipment was caused
by VSI's willful negligence or failure to exercise due diligence in making MV Vlasons I seaworthy and fit for holding,
carrying and safekeeping the cargo. Ineluctably, the burden of proof was placed on NSC by the parties' agreement.

This view finds further support in the Code of Commerce which pertinently provides:

Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not
been expressly stipulated.

Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitous
event, force majeure, or the nature and inherent defect of the things, shall be for the account and risk of the
shipper.

The burden of proof of these accidents is on the carrier.

Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the
preceding article if proofs against him show that they occurred on account of his negligence or his omission
 to take the precautions usually adopted by careful persons, unless the shipper committed fraud in the bill of
lading, making him to believe that the goods were of a class or quality different from what they really were.

Because the MV Vlasons I was a private carrier, the shipowner's obligations are governed by the foregoing
provisions of the Code of Commerce and not by the Civil Code which, as a general rule, places the  prima
facie presumption of negligence on a common carrier. It is a hornbook doctrine that:

In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove that
the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged while in the
carrier's custody does not put the burden of proof on the carrier.

Since . . . a private carrier is not an insurer but undertakes only to exercise due care in the protection of the
goods committed to its care, the burden of proving negligence or a breach of that duty rests on plaintiff and
proof of loss of, or damage to, cargo while in the carrier's possession does not cast on it the burden of
proving proper care and diligence on its part or that the loss occurred from an excepted cause in the
contract or bill of lading. However, in discharging the burden of proof, plaintiff is entitled to the benefit of the
presumptions and inferences by which the law aids the bailor in an action against a bailee, and since the
carrier is in a better position to know the cause of the loss and that it was not one involving its liability, the
law requires that it come forward with the information available to it, and its failure to do so warrants an
inference or presumption of its liability. However, such inferences and presumptions, while they may affect
the burden of coming forward with evidence, do not alter the burden of proof which remains on plaintiff, and,
where the carrier comes forward with evidence explaining the loss or damage, the burden of going forward
with the evidence is again on plaintiff.

Where the action is based on the shipowner's warranty of seaworthiness, the burden of proving a breach
thereof and that such breach was the proximate cause of the damage rests on plaintiff, and proof that the
goods were lost or damaged while in the carrier's possession does not cast on it the burden of proving
seaworthiness. . . . Where the contract of carriage exempts the carrier from liability for unseaworthiness not
discoverable by due diligence, the carrier has the preliminary burden of proving the exercise of due diligence
to make the vessel seaworthy.20

In the instant case, the Court of Appeals correctly found the NSC "has not taken the correct position in relation to the
question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause 10 and Clause 12 of the
NANYOZAI Charter Party (incidentally plaintiff-appellant's [NSC's] interpretation of Clause 12 is not even correct), it
argues that 'a careful examination of the evidence will show that VSI miserably failed to comply with any of these
obligation's as if defendant-appellee [VSI] had the burden of proof."21

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual questions is manifestly relevant: (1) whether VSI
exercised due diligence in making MV Vlasons I seaworthy for the intended purpose under the charter party; (2)
whether the damage to the cargo should be attributed to the willful negligence of the officers and crew of the vessel
or of the stevedores hired by NSC; and (3) whether the rusting of the tinplates was caused by its own "sweat" or by
contact with seawater.

These questions of fact were threshed out and decided by the trial court, which had the firsthand opportunity to hear
the parties' conflicting claims and to carefully weigh their respective evidence. The findings of the trial court were
subsequently affirmed by the Court of Appeals. Where the factual findings of both the trial court and the Court of
Appeals coincide, the same are binding on this Court. 22 We stress that, subject to some exceptional instances,23 only
questions of law — not questions of fact — may be raised before this Court in a petition for review under Rule 45 of
the Rules of Court. After a thorough review of the case at bar, we find no reason to disturb the lower court's factual
findings, as indeed NSC has not successfully proven the application of any of the aforecited exceptions.

Was MV Vlasons I Seaworthy?

In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit for the carriage
of NSC's cargo of steel and tinplates. This is shown by the fact that it was drylocked and inspected by the Philippine
Coast Guard before it proceeded to Iligan City for its voyage to Manila under the contract of voyage charter
hire.24 The vessel's voyage from Iligan to Manila was the vessel's first voyage after drydocking. The Philippine Coast
Guard Station in Cebu cleared it as seaworthy, fitted and equipped; it met all requirements for trading as cargo
vessel.25 The Court of Appeals itself sustained the conclusion of the trial court that MV Vlasons I was seaworthy. We
find no reason to modify or reverse this finding of both the trial and the appellate courts.

Who Were Negligent:

Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by the negligence of
the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit for the carriage of tinplates. NSC
failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or canvas to cover
the hatches through which the cargo was loaded into the cargo hold of the ship. It faults the Court of Appeals for
failing to consider such claim as an "uncontroverted fact"26 and denies that MV Vlasons I  "was equipped with new
canvas covers in tandem with the old ones as indicated in the Marine Protest . . ."27 We disagree.

The records sufficiently support VSI's contention that the ship used the old tarpaulin, only in addition to the new one
used primarily to make the ship's hatches watertight. The foregoing are clear from the marine protest of the master of
the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ship's boatswain, Jose Pascua. The salient portions
of said marine protest read:

. . . That the M/V "VLASONS I" departed Iligan City or about 0730 hours of August 8, 1974, loaded with
approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel Corporation; that before
departure, the vessel was rigged, fully equipped and cleared by the authorities; that on or about August 9,
1974, while in the vicinity of the western part of Negros and Panay, we encountered very rough seas and
strong winds and Manila office was advised by telegram of the adverse weather conditions encountered;
that in the morning of August 10, 1974, the weather condition changed to worse and strong winds and big
waves continued pounding the vessel at her port side causing sea water to overflow on deck andhatch (sic)
covers and which caused the first layer of the canvass covering to give way while the new canvass covering
still holding on;

That the weather condition improved when we reached Dumali Point protected by Mindoro; that we re-
secured the canvass covering back to position; that in the afternoon of August 10, 1974, while entering
Maricaban Passage, we were again exposed to moderate seas and heavy rains; that while approaching
Fortune Island, we encountered again rough seas, strong winds and big waves which caused the same
canvass to give way and leaving the new canvass holding on;

xxx xxx xxx 28

And the relevant portions of Jose Pascua's deposition are as follows:

q What is the purpose of the canvas cover?

a So that the cargo would not be soaked with water.

q And will you describe how the canvas cover was secured on the hatch opening?

WITNESS

a It was placed flat on top of the hatch cover, with a little canvas flowing over the sides
and we place[d] a flat bar over the canvas on the side of the hatches and then we place[d]
a stopper so that the canvas could not be removed.

ATTY DEL ROSARIO

q And will you tell us the size of the hatch opening? The length and the width of the hatch
opening.

a Forty-five feet by thirty-five feet, sir.

x x x           x x x          x x x

q How was the canvas supported in the middle of the hatch opening?

a There is a hatch board.

ATTY DEL ROSARIO

q What is the hatch board made of?

a It is made of wood, with a handle.

q And aside from the hatch board, is there any other material there to cover the hatch?

a There is a beam supporting the hatch board.

q What is this beam made of?

a It is made of steel, sir.

 q Is the beam that was placed in the hatch opening covering the whole hatch opening?

a No, sir.

q How many hatch beams were there placed across the opening?

a There are five beams in one hatch opening.

ATTY DEL ROSARIO

q And on top of the beams you said there is a hatch board. How many pieces of wood are
put on top?

a Plenty, sir, because there are several pieces on top of the hatch beam.

q And is there a space between the hatch boards?

a There is none, sir.

q They are tight together?

a Yes, sir.

q How tight?

a Very tight, sir.

q Now, on top of the hatch boards, according to you, is the canvass cover. How many
canvas covers?

a Two, sir.29

That due diligence was exercised by the officers and the crew of the MV Vlasons I was further demonstrated by the
fact that, despite encountering rough weather twice, the new tarpaulin did not give way and the ship's hatches and
cargo holds remained waterproof. As aptly stated by the Court of Appeals, ". . . we find no reason not to sustain the
conclusion of the lower court based on overwhelming evidence, that the MV 'VLASONS I' was seaworthy when it
undertook the voyage on August 8, 1974 carrying on board thereof plaintiff-appellant's shipment of 1,677 skids of
tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages from NSC's pier in Iligan City arriving
safely at North Harbor, Port Area, Manila, on August 12, 1974; . . .30

Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the crew of MV Vlasons
I. On the contrary, the records reveal that it was the stevedores of NSC who were negligent in unloading the cargo
from the ship.

The stevedores employed only a tent-like material to cover the hatches when strong rains occasioned by a passing
typhoon disrupted the unloading of the cargo. This tent-like covering, however, was clearly inadequate for keeping
rain and seawater away from the hatches of the ship. Vicente Angliongto, an officer of VSI, testified thus:

ATTY ZAMORA:

Q Now, during your testimony on November 5, 1979, you stated on August 14 you went
on board the vessel upon notice from the National Steel Corporation in order to conduct
the inspection of the cargo. During the course of the investigation, did you chance to see
the discharging operation?

WITNESS:

A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged
on the pier but majority of the tinplates were inside the hall, all the hatches were opened.

Q In connection with these cargoes which were unloaded, where is the place.

A At the Pier.

Q What was used to protect the same from weather?

ATTY LOPEZ:
 We object, your Honor, this question was already asked. This particular matter . . . the
transcript of stenographic notes shows the same was covered in the direct examination.

ATTY ZAMORA:

Precisely, your Honor, we would like to go on detail, this is the serious part of the
testimony.

COURT:

All right, witness may answer.

ATTY LOPEZ:

Q What was used in order to protect the cargo from the weather?

A A base of canvas was used as cover on top of the tin plates, and tents were built at the
opening of the hatches.

Q You also stated that the hatches were already opened and that there were tents
constructed at the opening of the hatches to protect the cargo from the rain. Now, will you
describe [to] the Court the tents constructed.

A The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high
at the middle with the whole side separated down to the hatch, the size of the hatch and it
is soaks [sic] at the middle because of those weather and this can be used only to
temporarily protect the cargo from getting wet by rains.

Q Now, is this procedure adopted by the stevedores of covering tents proper?

A No, sir, at the time they were discharging the cargo, there was a typhoon passing by
and the hatch tent was not good enough to hold all of it to prevent the water soaking
through the canvass and enter the cargo.

Q In the course of your inspection, Mr.  Anglingto [sic], did you see in fact the water enter
and soak into the canvass and tinplates.

A Yes, sir, the second time I went there, I saw it.

Q As owner of the vessel, did you not advise the National Steel Corporation [of] the
procedure adopted by its stevedores in discharging the cargo particularly in this tent
covering of the hatches?

A Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the
stevedores did not mind at all, so, called the attention of the representative of the National
Steel but nothing was done, just the same. Finally, I wrote a letter to them.31

NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain immediately about the
stevedores' negligence on the first day of unloading, pointing out that he wrote his letter to petitioner only seven days
later.32 The Court is not persuaded. Angliongto's candid answer in his aforequoted testimony satisfactorily explained
the delay. Seven days lapsed because he first called the attention of the stevedores, then the NSC's representative,
about the negligent and defective procedure adopted in unloading the cargo. This series of actions constitutes a
reasonable response in accord with common sense and ordinary human experience. Vicente Angliongto could not be
blamed for calling the stevedores' attention first and then the NSC's representative on location before formally
informing NSC of the negligence he had observed, because he was not responsible for the stevedores or the
unloading operations. In fact, he was merely expressing concern for NSC which was ultimately responsible for the
stevedores it had hired and the performance of their task to unload the cargo.

We see no reason to reverse the trial and the appellate courts' findings and conclusions on this point, viz:

In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores hired by
NSC were negligent in the unloading of NSC's shipment. We do not think so. Such negligence according to
the trial court is evident in the stevedores hired by [NSC], not closing the hatch of MV 'VLASONS I' when
rains occurred during the discharging of the cargo thus allowing rain water and seawater spray to enter the
hatches and to drift to and fall on the cargo. It was proven that the stevedores merely set up temporary tents
or canvas to cover the hatch openings when it rained during the unloading operations so that it would be
easier for them to resume work after the rains stopped by just removing said tents or canvass. It has also
been shown that on August 20, 1974, VSI President Vicente Angliongto wrote [NSC] calling attention to the
manner the stevedores hired by [NSC] were discharging the cargo on rainy days and the improper closing of
the hatches which allowed continuous heavy rain water to leak through and drip to the tinplates' covers and
 [Vicente Angliongto] also suggesting that due to four (4) days continuos rains with strong winds that the
hatches be totally closed down and covered with canvas and the hatch tents lowered. (Exh. "13"). This letter
was received by [NSC] on 22 August 1974 while discharging operations were still going on (Exhibit "13-A").33

The fact that NSC actually accepted and proceeded to remove the cargo from the ship during unfavorable weather
will not make VSI liable for any damage caused thereby. In passing, it may be noted that the NSC may seek
indemnification, subject to the laws on prescription, from the stevedoring company at fault in the discharge
operations. "A stevedore company engaged in discharging cargo . . . has the duty to load the cargo . . . in a prudent
manner, and it is liable for injury to, or loss of, cargo caused by its negligence . . . and where the officers and
members and crew of the vessel do nothing and have no responsibility in the discharge of cargo by stevedores . . .
the vessel is not liable for loss of, or damage to, the cargo caused by the negligence of the stevedores . . ." 34 as in the
instant case.

Do Tinplates "Sweat"?

The trial court relied on the testimony of Vicente Angliongto in finding that ". . . tinplates 'sweat' by themselves when
packed even without being in contact with water from outside especially when the weather is bad or
raining . . ."35 The Court of Appeals affirmed the trial court's finding.

A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the damage to the
tinplates was occasioned not by airborne moisture but by contact with rain and seawater which the stevedores
negligently allowed to seep in during the unloading.

Second Issue: Effect of NSC's Failure to

Insure the Cargo

The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally separate and
distinct from the contractual or statutory responsibility that may be incurred by VSI for damage to the cargo caused by
the willful negligence of the officers and the crew of MV Vlasons I. Clearly, therefore, NSC's failure to insure the cargo
will not affect its right, as owner and real party in interest, to file an action against VSI for damages caused by the
latter's willful negligence. We do not find anything in the charter party that would make the liability of VSI for damage
to the cargo contingent on or affected in any manner by NSC's obtaining an insurance over the cargo.

Third Issue: Admissibility of Certificates

Proving Seaworthiness

NSC's contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of the certificates of
seaworthiness offered in evidence by VSI. The said certificates include the following:

1. Certificate of Inspection of the Philippines Coast Guard at Cebu

2. Certificate of Inspection from the Philippine Coast Guard

3. International Load Line Certificate from the Philippine Coast Guard

4. Coastwise License from the Board of Transportation

5. Certificate of Approval for Conversion issued by the Bureau of Customs36

NSC argues that the certificates are hearsay for not having been presented in accordance with the Rules of Court. It
points out that Exhibits 3, 4 and 11 allegedly are "not written records or acts of public officers"; while Exhibits 5, 6, 7,
8, 9, 11 and 12 are not "evidenced by official publications or certified true copies" as required by Sections 25 and 26,
Rule 132, of the Rules of Court.37

After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible,
for they have not been properly offered as evidence. Exhibits 3 and 4 are certificates issued by private parties, but
they have not been proven by one who saw the writing executed, or by evidence of the genuineness of the
handwriting of the maker, or by a subscribing witness. Exhibits, 5, 6, 7, 8, 9, and 12 are photocopies, but their
admission under the best evidence rule have not been demonstrated.

We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per Section 44 of
Rule 130 of the Rules of Court, which provides that "(e)ntries in official records made in the performance of a duty by
a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima
facie evidence of the facts therein stated."38 Exhibit 11 is an original certificate of the Philippine Coast Guard in Cebu
issued by Lieutenant Junior Grade Noli C. Flores to the effect that "the vessel 'VLASONS I' was drydocked . . . and
PCG Inspectors were sent on board for inspection . . . After completion of drydocking and duly inspected by PCG
Inspectors, the vessel 'VLASONS I', a cargo vessel, is in seaworthy condition, meets all requirements, fitted and
equipped for trading as a cargo vessel was cleared by the Philippine Coast Guard and sailed for Cebu Port on July
10, 1974." (sic) NSC's claim, therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that NSC has the burden of proving that MV Vlasons I was not seaworthy. As
observed earlier, the vessel was a private carrier and, as such, it did not have the obligation of a common carrier to
show that it was seaworthy. Indeed, NSC glaringly failed to discharge its duty of proving the willful negligence of VSI
in making the ship seaworthy resulting in damage to its cargo. Assailing the genuineness of the certificate of
seaworthiness is not sufficient proof that the vessel was not seaworthy.

Fourth Issue: Demurrage and Attorney's Fees

The contract of voyage charter hire provides inter alia:

xxx xxx xxx

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master's option.

xxx xxx xxx

6. Loading/Discharging Rate: 750 tons per WWDSHINC.

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.39

The Court defined demurrage in its strict sense as the compensation provided for in the contract of affreightment for
the detention of the vessel beyond the laytime or that period of time agreed on for loading and unloading of cargo. 40 It
is given to compensate the shipowner for the nonuse of the vessel. On the other hand, the following is well-settled:

Laytime runs according to the particular clause of the charter party. . . . If laytime is expressed in "running
days," this means days when the ship would be run continuously, and holidays are not excepted. A
qualification of "weather permitting" excepts only those days when bad weather reasonably prevents the
work contemplated.41

In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified laytime as
WWDSHINC or weather working days Sundays and holidays included.42 The running of laytime was thus made
subject to the weather, and would cease to run in the event unfavorable weather interfered with the unloading of
cargo.43 Consequently, NSC may not be held liable for demurrage as the four-day laytime allowed it did not lapse,
having been tolled by unfavorable weather condition in view of the WWDSHINC qualification agreed upon by the
parties. Clearly, it was error for the trial court and the Court of Appeals to have found and affirmed respectively that
NSC incurred eleven days of delay in unloading the cargo. The trial court arrived at this erroneous finding by
subtracting from the twelve days, specifically August 13, 1974 to August 24, 1974, the only day of unloading
unhampered by unfavorable weather or rain, which was August 22, 1974. Based on our previous discussion, such
finding is a reversible error. As mentioned, the respondent appellate court also erred in ruling that NSC was liable to
VSI for demurrage, even if it reduced the amount by half.

Attorney's Fees

VSI assigns as error of law the Court of Appeals' deletion of the award of attorney's fees. We disagree. While VSI
was compelled to litigate to protect its rights, such fact by itself will not justify an award of attorney's fees under Article
2208 of the Civil Code when ". . . no sufficient showing of bad faith would be reflected in a party's persistence in a
case other than an erroneous conviction of the righteousness of his cause . . ." 44 Moreover, attorney's fees may not
be awarded to a party for the reason alone that the judgment rendered was favorable to the latter, as this is
tantamount to imposing a premium on one's right to litigate or seek judicial redress of legitimate grievances.45

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to the cargo? Ranged
against NSC are two formidable truths. First, both lower courts found that such damage was brought about during the
unloading process when rain and seawater seeped through the cargo due to the fault or negligence of the stevedores
employed by it. Basic is the rule that factual findings of the trial court, when affirmed by the Court of Appeals, are
binding on the Supreme Court. Although there are settled exceptions, NSC has not satisfactorily shown that this case
is one of them. Second, the agreement between the parties — the Contract of Voyage Charter Hire — placed the
burden of proof for such loss or damage upon the shipper, not upon the shipowner. Such stipulation, while
disadvantageous to NSC, is valid because the parties entered into a contract of private charter, not one of common
carriage. Basic too is the doctrine that courts cannot relieve a parry from the effects of a private contract freely
entered into, on the ground that it is allegedly one-sided or unfair to the plaintiff. The charter party is a normal
commercial contract and its stipulations are agreed upon in consideration of many factors, not the least of which is
the transport price which is determined not only by the actual costs but also by the risks and burdens assumed by the
shipper in regard to possible loss or damage to the cargo. In recognition of such factors, the parties even stipulated
that the shipper should insure the cargo to protect itself from the risks it undertook under the charter party. That NSC
failed or neglected to protect itself with such insurance should not adversely affect VSI, which had nothing to do with
such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The questioned
Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is
deleted. No pronouncement as to costs.

SO ORDERED.