THIRD DIVISION G.R. No.

141314 November 15, 2002

consumption. The question is: should public interest prevail over private profits? The facts are brief and undisputed. On December 23, 1993, MERALCO filed with the ERB an application for the revision of its rate schedules. The application reflected an average increase of 21 centavos per kilowatthour (kwh) in its distribution charge. The application also included a prayer for provisional approval of the increase pursuant to Section 16(c) of the Public Service Act and Section 8 of Executive Order No. 172. On January 28, 1994, the ERB issued an Order granting a provisional increase of P0.184 per kwh, subject to the following condition. "In the event, however, that the Board finds, after hearing and submission by the Commission on Audit of an audit report on the books and records of the applicant that the latter is entitled to a lesser increase in rates, all excess amounts collected from the applicant's customers as a result of this Order shall either be refunded to them or correspondingly credited in their 1 favor for application to electric bills covering future consumptions." In the same Order, the ERB requested the Commission on Audit (COA) to conduct an "audit and examination of the books and other records of account of the applicant for such period of time, which in no case shall be less than 12 consecutive months, as it may deem appropriate" and to 2 submit a copy thereof to the ERB immediately upon completion. On February 11, 1997, the COA submitted its Audit Report SAO No. 95-07 (the "COA Report") which contained, among others, the recommendation not to include income taxes paid by MERALCO as part of its operating expenses for purposes of rate determination and the use of the net average investment method for the computation of the proportionate value of the properties used by MERALCO during the test year for the determination of 3 the rate base. Subsequently, the ERB rendered its decision adopting the above recommendations and authorized MERALCO to implement a rate adjustment in the average amount of P0.017 per kwh, effective with respect to MERALCO's billing cycles beginning February 1994. The ERB further ordered that "the provisional relief in the amount of P0.184 per kilowatthour granted under the Board's Order dated January 28, 1994 is hereby superseded and modified and the excess average amount of P0.167 per kilowatthour starting with [MERALCO's] billing cycles beginning February 1994 until its billing cycles beginning February 1998, be refunded to [MERALCO's] customers or correspondingly credited in their favor for 4 future consumption."

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGY REGULATORY BOARD petitioner, vs. MANILA ELECTRIC COMPANY, respondent. ----------------------------G.R. No. 141369 November 15, 2002

LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP) consisting of CEFERINO PADUA, Chairman, G. FULTON ACOSTA, GALILEO BRION, ANATALIA BUENAVENTURA, PEDRO CASTILLO, NAPOLEON CORONADO, ROMEO ECHAUZ, FERNANDO GAITE, ALFREDO DE GUZMAN, ROGELIO KARAGDAG, JR., MA. LUZ ARZAGA-MENDOZA, ANSBERTO PAREDES, AQUILINO PIMENTEL III, MARIO REYES, EMMANUEL SANTOS, RUDEGELIO TACORDA, members, and ROLANDO ARZAGA, Secretary-General, JUSTICE ABRAHAM SARMIENTO, SENATOR AQUILINO PIMENTEL, JR. and COMMISSIONER BARTOLOME FERNANDEZ, JR., Board of Consultants, and Lawyer GENARO LUALHATI, petitioners, vs. MANILA ELECTRIC COMPANY (MERALCO), respondent. DECISION PUNO, J.: In third world countries like the Philippines, equal justice will have a synthetic ring unless the economic rights of the people, especially the poor, are protected with the same resoluteness as their right to liberty. The cases at bar are of utmost significance for they concern the right of our people to electricity and to be reasonably charged for their consumption. In configuring the contours of this economic right to a basic necessity of life, the Court shall define the limits of the power of respondent MERALCO, a giant public utility and a monopoly, to charge our people for their electric

The ERB held that income tax should not be treated as operating expense as this should be "borne by the stockholders who are recipients of the income or profits realized from the operation of their business" hence, 5 should not be passed on to the consumers. Further, in applying the net average investment method, the ERB adopted the recommendation of COA that in computing the rate base, only the proportionate value of the property should be included, determined in accordance with the number of months 6 the same was actually used in service during the test year. On appeal, the Court of Appeals set aside the ERB decision insofar as it directed the reduction of the MERALCO rates by an average of P0.167 per kwh and the refund of such amount to MERALCO's customers beginning February 1994 and until its billing cycle 7 beginning February 1998. Separate Motions for Reconsideration filed by 8 the petitioners were denied by the Court of Appeals. Petitioners are now before the Court seeking a reversal of the decision of the Court of Appeals by arguing primarily that the Court of Appeals erred: a) in ruling that income tax paid by MERALCO should be treated as part of its operating expenses and thus considered in determining the amount of increase in rates imposed by MERALCO and b) in rejecting the net average investment method used by the COA and the ERB and instead adopted the average investment method used by MERALCO. We grant the petition. The regulation of rates to be charged by public utilities is founded upon the police powers of the State and statutes prescribing rules for the control and regulation of public utilities are a valid exercise thereof. When private property is used for a public purpose and is affected with public interest, it ceases to be juris privati only and becomes subject to regulation. The regulation is to promote the common good. Submission to regulation may be withdrawn by the owner by discontinuing use; but as long as use of the 9 property is continued, the same is subject to public regulation. In regulating rates charged by public utilities, the State protects the public against arbitrary and excessive rates while maintaining the efficiency and quality of services rendered. However, the power to regulate rates does not give the State the right to prescribe rates which are so low as to deprive the public utility of a reasonable return on investment. Thus, the rates prescribed by the State must be one that yields a fair return on the public utility upon the value of the property performing the service 10 and one that is reasonable to the public for the services rendered . The fixing of just and reasonable rates involves a balancing of the investor 11 and the consumer interests.

In his famous dissenting opinion in the 1923 case of Southwestern Bell 12 Tel. Co. v. Public Service Commission, Mr. Justice Brandeis wrote: "The thing devoted by the investor to the public use is not specific property, tangible and intangible, but capital embarked in an enterprise. Upon the capital so invested, the Federal Constitution guarantees to the utility the opportunity to earn a fair return The Constitution does not guarantee to the utility the opportunity to earn a return on the value of all items of property used by the utility, or of any of them. . The investor agrees, by embarking capital in a utility, that its charges to the public shall be reasonable. His company is the substitute for the State in the performance of the public service, thus becoming a public servant. The compensation which the Constitution guarantees an opportunity to earn is the reasonable cost of conducting the business." While the power to fix rates is a legislative function, whether exercised by the legislature itself or delegated through an administrative agency, a determination of whether the rates so fixed are reasonable and just is a 13 purely judicial question and is subject to the review of the courts. The ERB was created under Executive Order No. 172 to regulate, among others, the distribution of energy resources and to fix rates to be charged by public utilities involved in the distribution of electricity. In the fixing of rates, the only standard which the legislature is required to prescribe for the guidance of the administrative authority is that the rate be reasonable and just. It has been held that even in the absence of an express 14 requirement as to reasonableness, this standard may be implied. What is a just and reasonable rate is a question of fact calling for the exercise of discretion, good sense, and a fair, enlightened and independent judgment. The requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or too high as to be oppressive. In determining whether a rate is confiscatory, it is essential also to consider 15 the given situation, requirements and opportunities of the utility. Settled jurisprudence holds that factual findings of administrative bodies on technical matters within their area of expertise should be accorded not only respect but even finality if they are supported by substantial evidence even 16 17 if not overwhelming or preponderant. In one case, we cautioned that courts should "refrain from substituting their discretion on the weight of the evidence for the discretion of the Public Service Commission on questions of fact and will only reverse or modify such orders of the Public Service

Commission when it really appears that the evidence is insufficient to 18 support their conclusions." In the cases at bar, findings and conclusions of the ERB on the rate that 19 can be charged by MERALCO to the public should be respected. The function of the court, in exercising its power of judicial review, is to determine whether under the facts and circumstances, the final order 20 entered by the administrative agency is unlawful or unreasonable. Thus, to the extent that the administrative agency has not been arbitrary or capricious in the exercise of its power, the time-honored principle is that courts should not interfere. The principle of separation of powers dictates that courts should hesitate to review the acts of administrative officers 21 except in clear cases of grave abuse of discretion. In determining the just and reasonable rates to be charged by a public utility, three major factors are considered by the regulating agency: a) rate of return; b) rate base and c) the return itself or the computed revenue to be 22 earned by the public utility based on the rate of return and rate base. The rate of return is a judgment percentage which, if multiplied with the rate base, provides a fair return on the public utility for the use of its property for 23 service to the public. The rate of return of a public utility is not prescribed by statute but by administrative and judicial pronouncements. This Court 24 has consistently adopted a 12% rate of return for public utilities. The rate base, on the other hand, is an evaluation of the property devoted by the utility to the public service or the value of invested capital or property which 25 the utility is entitled to a return. In the cases at bar, the resolution of the issues involved hinges on the determination of the kind and the amount of operating expenses that should be allowed to a public utility to generate a fair return and the proper valuation of the rate base or the value of the property entitled to a return. I Income Tax as Operating Expense Cannot be Allowed For RateDetermination Purposes In determining whether or not a rate yields a fair return to the utility, the operating expenses of the utility must be considered. The return allowed to a public utility in accordance with the prescribed rate must be sufficient to provide for the payment of such reasonable operating expenses incurred by the public utility in the provision of its services to the public. Thus, the public utility is allowed a return on capital over and above operating expenses. However, only such expenses and in such amounts as are reasonable for

the efficient operation of the utility should be allowed for determination of the rates to be charged by a public utility. The ERB correctly ruled that income tax should not be included in the computation of operating expenses of a public utility. Income tax paid by a public utility is inconsistent with the nature of operating expenses. In general, operating expenses are those which are reasonably incurred in connection with business operations to yield revenue or income. They are items of expenses which contribute or are attributable to the production of income or revenue. As correctly put by the ERB, operating expenses "should be a requisite of or necessary in the operation of a utility, recurring, 26 and that it redounds to the service or benefit of customers." Income tax, it should be stressed, is imposed on an individual or entity as a 27 form of excise tax or a tax on the privilege of earning income. In exchange for the protection extended by the State to the taxpayer, the government collects taxes as a source of revenue to finance its activities. Clearly, by its nature, income tax payments of a public utility are not expenses which contribute to or are incurred in connection with the production of profit of a public utility. Income tax should be borne by the taxpayer alone as they are payments made in exchange for benefits received by the taxpayer from the State. No benefit is derived by the customers of a public utility for the taxes paid by such entity and no direct contribution is made by the payment of income tax to the operation of a public utility for purposes of generating revenue or profit. Accordingly, the burden of paying income tax should be Meralco's alone and should not be shifted to the consumers by including the same in the computation of its operating expenses . The principle behind the inclusion of operating expenses in the determination of a just and reasonable rate is to allow the public utility to recoup the reasonable amount of expenses it has incurred in connection with the services it provides. It does not give the public utility the license to indiscriminately charge any and all types of expenses incurred without regard to the nature thereof, i.e., whether or not the expense is attributable to the production of services by the public utility. To charge consumers for expenses incurred by a public utility which are not related to the service or benefit derived by the customers from the public utility is unjustified and inequitable. While the public utility is entitled to a reasonable return on the fair value of the property being used for the service of the public, no less than the Federal Supreme Court of the United States emphasized: "[t]he public cannot properly be subjected to unreasonable rates in order simply that stockholders may earn dividends If a corporation cannot maintain such a [facility] and earn dividends for stockholders, it is a misfortune for it and

them which the Constitution does not require to be remedied by imposing 28 unjust burdens on the public." We are not impressed by the reliance by MERALCO on some American case law allowing the treatment of income tax paid by a public utility as operating expense for rate-making purposes. Suffice to state that with regard to rate-determination, the government is not hidebound to apply any 29 particular method or formula. The question of what constitutes a reasonable return for the public utility is necessarily determined and controlled by its peculiar environmental milieu. Aside from the financial condition of the public utility, there are other critical factors to consider for purposes of rate regulation. Among others, they are: particular reasons involved for the request of the rate increase, the quality of services rendered by the public utility, the existence of competition, the element of 30 risk or hazard involved in the investment, the capacity of consumers, etc. Rate regulation is the art of reaching a result that is good for the public utility and is best for the public. For these reasons, the Court cannot give in to the importunings of MERALCO that we blindly apply the rulings of American courts on the treatment of income tax as operating expenses in rate regulation cases. An approach allowing the indiscriminate inclusion of income tax payments as operating expenses may create an undesirable precedent and serve as a blanket authority for public utilities to charge their income tax payments to operating expenses and unjustly shift the tax burden to the customer. To be sure, public utility taxation in the United States is going through the eye of criticism. Some commentators are of the view that by allowing the public utility to collect its income tax payment from its customers, a form of "sales tax" is, in effect, imposed on the public for consumption of public utility services. By charging their income tax payments to their customers, public 31 utilities virtually become "tax collectors" rather than taxpayers. In the cases at bar, MERALCO has not justified why its income tax should be treated as an operating expense to enable it to derive a fair return for its services. It is also noteworthy that under American laws, public utilities are taxed differently from other types of corporations and thus carry a heavier tax burden. Moreover, different types of taxes, charges, tolls or fees are assessed on a public utility depending on the state or locality where it operates. At a federal level, public utilities are subject to corporate income taxes and Social Security taxesin the same manner as other business corporations. At the state and local levels, public utilities are subject to a wide variety of taxes, not all of which are imposed on each state. Thus, it is not unusual to find different taxes or combinations of taxes applicable to 32 respective utility industries within a particular state. A significant aspect of

state and local taxation of public utilities in the United States is that they have been singled out for special taxation, i.e., they are required to pay one or more taxes that are not levied upon other industries. In contrast, in this jurisdiction, public utilities are subject to the same tax treatment as any other corporation and local taxes paid by it to various local government units are substantially the same. The reason for this is that the power to tax resides in our legislature which may prescribe the limits of both national and local taxation, unlike in the federal system of the United States where state legislature may prescribe taxes to be levied in their respective jurisdictions. MERALCO likewise cites decisions of the ERB allowing the application of a tax recovery clause for the imposition of an additional charge on consumers for taxes paid by the public utility. A close look at these decisions will show they are inappropos. In the said cases, the ERB approved the adoption of a formula which will allow the public utility to recover from its customers taxes already paid by it. However, in the cases at bar, the income tax component added to the operating expenses of a public utility is based on an estimate or approximate figure of income tax to be paid by the public utility. It is this estimated amount of income tax to be paid by MERALCO which is included in the amount of operating expenses and used as basis in determining the reasonable rate to be charged to the customers. Accordingly, the varying factual circumstances in the said cases prohibit a square application of the rule under the previous ERB decisions. II Use of "Net Average Investment Method" is Not Unreasonable In the determination of the rate base, property used in the operation of the public utility must be subject to appraisal and evaluation to determine the fair value thereof entitled to a fair return. With respect to those properties which have not been used by the public utility for the entire duration of the test year, i.e., the year subject to audit examination for rate-making purposes, a valuation method must be adopted to determine the proportionate value of the property. Petitioners maintain that the net average investment method (also known as "actual number of months use method") recommended by COA and adopted by the ERB should be used, while MERALCO argues that the average investment method (also known as the "trending method") to determine the proportionate value of properties should be applied. Under the "net average investment method," properties and equipment used in the operation of a public utility are entitled to a return only on the
33

actual number of months they are in service during the period. In contrast, the "average investment method" computes the proportionate value of the property by adding the value of the property at the beginning and at the end 35 of the test year with the resulting sum divided by two. The ERB did not abuse its discretion when it applied the net average investment method. The reasonableness of net average investment method is borne by the records of the case. In its report, the COA explained that the computation of the proportionate value of the property and equipment in accordance with the actual number of months such property or equipment is in service for purposes of determining the rate base is favored, as against the trending method employed by MERALCO, "to 36 reflect the real status of the property." By using the net average investment method, the ERB and the COA considered for determination of the rate base the value of properties and equipment used by MERALCO in proportion to the period that the same were actually used during the period in question. This treatment is consistent with the settled rule in rate regulation that the determination of the rate base of a public utility entitled to a return must be based on properties and equipment actually being used 37 or are useful to the operations of the public utility. MERALCO does not seriously contest this treatment of actual usage of property but opposes the method of computation or valuation thereof adopted by the ERB and the COA on the ground that the net average investment method "assumes an ideal situation where a utility, like MERALCO, is able to record in its books within any given month the value 38 of all the properties actually placed in service during that month." MERALCO contends that immediate recordal in its books of the property or equipment is not possible as MERALCO's franchise covers a wide area and that due to the volume of properties and equipment put into service and the amount of paper work required to be accomplished for recording in the books of the company, "it takes three to six months (often longer) 39 before an asset placed in service is recorded in the books" of MERALCO. Hence, MERALCO adopted the "average investment method" or the "trending method" which computes the average value of the property at the beginning and at the end of the test year to compensate for the irregular recording in its books. MERALCO'S stance is belied by the COA Report which states that the "verification of the records, as confirmed by the Management Staff, disclosed that properties are recorded in the books as these are 40 actually placed in service." Moreover, while the case was pending trial before the ERB, the ERB conducted an ocular inspection to examine the assets in service, records and books of accounts of MERALCO to ascertain the physical existence, ownership, valuation and usefulness of the assets

34

contained in the COA Report. Thus, MERALCO's contention that the date of recordal in the books does not reflect the date when the asset is placed in service is baseless. Further, computing the proportionate value of assets used in service in accordance with the actual number of months the same is used during the test year is a more accurate method of determining the value of the properties of a public utility entitled to a return. If, as determined by COA, the date of recordal in the books of MERALCO reflects the actual date the equipment or property is used in service, there is no reason for the ERB to adopt the trending method applied by MERALCO if a more precise method is available for determining the proportionate value of the assets placed in service. If we were to sustain the application of the "trending method," the public utility may easily manipulate the valuation of its property entitled to a return (rate base) by simply including a highly capitalized asset in the computation of the rate base even if the same was used for a limited period of time during the test year. With the inexactness of the trending method and the possibility that the valuation of certain properties may be subject to the control of and abuse by the public utility, the Court finds no reasonable basis to overturn the recommendation of COA and the decision of the ERB. MERALCO further insists that the Court should sustain the "trending method" in view of previous decisions by the Public Service Commission and of this Court which "upheld" the use of this method. By refusing to adopt the trending method, MERALCO argues that the ERB violated the rule on stare decisis. Again, we are not impressed. It is a settled rule that the goal of rate-making is to arrive at a just and reasonable rate for both the public utility and the 42 public which avails of the former's products and services. However, what is a just and reasonable rate cannot be fixed by any immutable method or formula. Hence, it has been held that no public utility has a vested right to 43 any particular method of valuation. Accordingly, with respect to a determination of the proper method to be used in the valuation of property and equipment used by a public utility for rate-making purposes, the administrative agency is not bound to apply any one particular formula or method simply because the same method has been previously used and applied. In fact, nowhere in the previous decisions cited by MERALCO which applied the trending method did the Court rule that the same should be the only method to be applied in all instances. At any rate, MERALCO has not adequately shown that the rates prescribed by the ERB are unjust or confiscatory as to deprive its stockholders a

41

reasonable return on investment. In the early case of Ynchausti S.S. Co. v. Public Utility Commissioner, this Court held: "[t]here is a legal presumption that the rates fixed by an administrative agency are reasonable, and it must be conceded that the fixing of rates by the Government, through its authorized agents, involves the exercise of reasonable discretion and, unless there is an abuse of that discretion, the 44 courts will not interfere." Thus, the burden is upon the oppositor, MERALCO, to prove that the rates fixed by the ERB are unreasonable or otherwise confiscatory as to merit the reversal of the ERB. In the instant cases, MERALCO was unable to discharge this burden. WHEREFORE, in view of the foregoing, the instant petitions are GRANTED and the decision of the Court of Appeals in C.A. G.R. SP No. 46888 is REVERSED. Respondent MERALCO is authorized to adopt a rate adjustment in the amount of P0.017 per kilowatthour, effective with respect to MERALCO's billing cycles beginning February 1994. Further, in accordance with the decision of the ERB dated February 16, 1998, the excess average amount of P0.167 per kilwatthour starting with the applicant's billing cycles beginning February 1998 is ordered to be refunded to MERALCO's customers or correspondingly credited in their favor for future consumption. SO ORDERED. Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

EN BANC G.R. No. 173044 December 10, 2007

FREEDOM FROM DEBT COALITION, AKBAYAN CITIZENS' ACTION PARTY, ALLIANCE OF PROGRESSIVE LABOR, MARIO JOYO AGUJA, ANA THERESIA HONTIVEROS-BARAQUEL, RENATO B. MAGTUBO, EMMANUEL JOEL J. VILLANUEVA, EDUARDO C. ZIALCITA, MA. THERESA DIOKNO-PASCUAL, MARY ANN B. MANAHAN AND PATROCINIO JUDE ESGUERRA III, Petitioners, vs. METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM (MWSS) and the MWSS REGULATORY OFFICE (MWSS-RO), Respondents. DECISION SANDOVAL-GUTIERREZ, J.: Before us for resolution is the instant Petition for Certiorari and Prohibition (with prayer for the issuance of a temporary restraining order and a writ of preliminary injunction) assailing (a) Resolution No. 2004-201 of the Metropolitan Waterworks and Sewerage System (MWSS) Board of Trustees, respondent; and (b) Resolution No. 04-006-CA of the MWSS Regulatory Office (MWSS-RO), another respondent, both dated July 30, 2004. The facts as culled from the petition are: Respondent MWSS is a government corporation created in 1971 under 1 Republic Act No. 6234, as amended, for the purpose of owning and/or having jurisdiction, supervision and control over all waterworks and sewerage systems in Metro Manila and the provinces of Rizal and Cavite. In 1995, the government embarked upon the privatization of the waterworks and sewerage system of MWSS. Among the range of privatization options, MWSS chose to enter into concession arrangement with private entities. The area of Metro Manila was divided into two (2) concession areas Service Area East and Service Area West. After a process of public bidding and selection, the Service Area East was awarded to Manila Water Company, Inc., while the Service Area West was awarded to Maynilad Water Services, Inc.

On February 21, 1997, respondent MWSS executed separate Concession Agreements with the Manila Water Company, Inc. and Maynilad Water Services, Inc. (the concessionaires). Each Concession Agreement is effective for a 25-year period, or from August 1, 1997 to May 6, 2022, subject to early termination. Under the Concession Agreements, the concessionaires act as contractors to perform certain functions, and as agents to exercise certain rights and powers for the operation of the waterworks and sewerage system. The concessionaires are required to expand the supply of water coverage and sewerage services, provide uninterrupted water supply, and increase water pressure during the concession period. The ownership of the facilities and movable properties existing at the beginning of the concession period remain with respondent MWSS. As consideration for the performance of their obligations, the concessionaires are empowered to charge and collect water and sewerage 2 services based on standard rates. Article 9 of the Concession Agreements provides inter alia that the standard rates may be adjusted from time to time subject to the limitation that the concessionaires rate of net return shall not 3 exceed twelve percent (12%) per annum, as required in Section 12 of the MWSS Charter (R.A. No. 6234). On August 3, 2000, the MWSS Board of Trustees, pursuant to Article 13.2 of the Concession Agreements, passed Resolution No. 277-2000 directing the Commission on Audit (COA) to conduct a rate audit of the concessionaires operations for the purpose of ensuring that their rate of return does not exceed the 12% cap mandated in Section 12 of the MWSS Charter.
4

On September 15, 2003 and December 2, 2003, the COA submitted to the MWSS its two audit Reports with a finding that from January 1 to December 31, 1999, the Maynilad Water Services, Inc. had a net Rate of Return (ROR) of 7.71%, while the Manila Water Company, Inc. had an ROR of 40.92%. The pertinent portions of the COA Reports state: Report No. 2000-38 (for Maynilad Water Services, Inc. [MWSI]) Result of the Audit The audit, after considering the adjustments for rate determination, resulted in an actual rate of return of 7.71% during the period January 1 to December 31, 1999 on MWSIs invested capital of P3.999 billion inclusive of Concession Fees of P3.36 billion pertaining to completed projects. The return is 4.29% below the allowable Rate of Return Base (RORB) of 12%.

xxx Report No. 2000-39 (for Manila Water Company, Inc. [MWCI]) Result of the Audit The audit, after considering the adjustments for rate determination, resulted in an actual rate of return of 40.92% during the period January 1 to December 31, 1999 on MWCIs invested capital of P971.93 million inclusive of Concession Fees of P556.12 million pertaining to completed projects. The return is 28.92% above the allowable RORB of 12%. xxx According to the COA Reports, "in the rate determination, only those properties acquired, owned, and actually used in the operation of the concessionaires were included in the computation of the invested capital." On March 31, 2004, the MWSS Regulatory Office issued a Notice of Extraordinary Price Adjustment (NEPA) to both concessionaires, stating that "pursuant to Article 9.3.1 of the Concession Agreements, the Regulatory Office has determined that Grounds for Extraordinary Price Adjustment (GEPA) have occurred," consisting in a purported "change in law, government regulation, rule or order or interpretation thereof, that affects or is likely to affect the Cash Flow of the concessionaires." According to the NEPA, the "change in law, rule or interpretation thereof" was brought about by the Supreme Court Resolution dated April 9, 2003 in 5 Republic v. Manila Electric Company (MERALCO) holding that "income tax payments of a utility are not expenses which contribute to or are incurred in connection with the production of profit of a public utility." The NEPA further stated that "the Regulatory Office shall soon determine the Extraordinary Price Adjustment which shall be made effective January 1st of the Charging Year 2005." The concessionaires opposed the NEPA and requested that it be set aside on the grounds that (a) they are not public utilities but mere agents and contractors of MWSS by virtue of the Concession Agreements; (b) their income tax payments are considered expenditures under the Concession Agreements; (c) in the case of the Manila Water Company, Inc., the MWSS Regulatory Office had approved its Business Plan dated September 18, 2002 and granted it a Rate Rebasing; and that the said Plan treats income tax payments as expenditures; (d) the premise of the GEPA is that the concessionaires are public utilities; (e) the COA conducted the rate audit on the premise that the concessionaires are public utilities even if they

maintain they are not of such character; and (f) the MERALCO ruling does not involve the GEPA contemplated in clause 9.3.1 (ii) of the Concession Agreements. On June 2, 2004, the MWSS Board of Trustees, pursuant to Article 12.1 of the Concession Agreements, directed its Regulatory Office and the concessionaires to create a Technical Working Group (TWG) which will discuss the issues raised by the concessionaires in order to find a mutually acceptable resolution to avoid arbitration before the Appeals Panel. Thus, the TWG was created composed of representatives from the MWSS Regulatory Office, the concessionaires, and the MWSS Corporate Office. 7 On July 9, 2004, the TWG invited resource persons to shed light on what should be the status of the MWSS and the concessionaires under the privatization program, as well as the proper interpretation and application that should be given to Section 12 of the MWSS Charter and Section 9.1 of the Concession Agreements insofar as the rate of return set in the Charter and the tariff adjustments are concerned. On July 27, 2004, the TWG submitted its Report. Among the findings of the TWG, with the assistance of the resource persons, are: (1) the intent of the Concession Agreements is for the MWSS to remain as a public utility providing waterworks and sewerage services, while the concessionaires are its agents and contractors, consistent with the framework of the concession arrangements; (2) it is the MWSS that has the legislative franchise under its Charter, while the concessionaires do not have a franchise: (3) in its operation, the MWSS contracted the services of the concessionaires to perform certain functions and authorized them, by way of agency, to exercise certain rights in performing their obligations; (4) during the bidding and selection of concessionaires, the latter had submitted their bids on the basis of MWSS representation that it would retain its status as a public utility having jurisdiction, supervision and control over all waterworks and sewerage system within Metro Manila, Rizal and Cavite; and (5) based on the framework of the Concession Agreements (specifically on Art. 1 "Definitions", Art. 2.1 "Grant of Concession", and Art. 9.4 "General Rate Setting Policy/Rate Rebasing Determination"), the MERALCO ruling has no relevance to the concessionaires situation. On July 30, 2004, the MWSS Regulatory Office issued the assailed 8 Resolution No. 04-006-CA approving and adopting the findings and recommendations of the TWG, thus: NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved:
6

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

consolidated for purposes of rate audit determination as per NWRB guidelines. 3. The Concessionaires shall engage an independent Auditor who will be tasked to prepare the audited F/S. The Concessionaires shall ensure that the independent Auditor shall have competence and international experience auditing water projects. 4. Prior to the implementation of any Rate Rebasing tariff adjustment for a Rate Rebasing Period, the RO shall: a) Determine the indicative tariff consistent with the 12% return limit for said RR period; b) Determine the actual RR tariff adjustment consistent with the Concessionaires Business Plan and ADR as reviewed and approved by RO; c) Prepare a "trial or test rate audit" to indicate level and trend of actual rates vis--vis the tariff ceiling in each year of the Rate Rebasing. 5. The KPI/BEM mutually agreed between the Concessionaires and MWSS/RO shall serve as basis for determining the prudent and efficient expenditures of the Concessionaires. Other mechanism to determine prudence and efficiency will be explored by the RO with the Concessionaires. 6. The RO shall take the lead role to conduct a revaluation/reappraisal of the assets of both MWSS and its Concessionaires use for the provision of water supply and sewerage services. This shall be conducted by reputable appraisal firms and shall be done at least once a year. 7. The COA (or any Independent Auditor of ROs choice) shall facilitate the consolidation of audited F/S of both MWSS and Concessionaires. 8. The audit of MWSS as the public utility by COA shall be based on the framework developed by NWRB. The audit of Concessionaires shall be conducted by an Independent Auditor in accordance with KPI/BEM framework.

On the same day (July 30, 2004), respondent MWSS Board of Trustees, in 9 its assailed Resolution No. 2004-201, approved Regulatory Office Resolution No. 04-006-CA. On June 29, 2006, the above-named petitioners filed the present petition alleging that they received copies of the two assailed Resolutions only on 10 May 25, 2006; that respondents, in issuing the assailed Resolutions, acted with grave abuse of discretion amounting to lack or in excess of jurisdiction; that the finding by respondents that the concessionaires are not public utilities, but mere agents/contractors of the MWSS, has "the effect of excluding the rates set by such concessionaires from the limitation in Section 12 of R.A. 6234 (MWSS Charter);" and that this, in turn, "will have the effect of increasing the rates that can be charged against them and the 11 subscribers to the water service provided by the concessionaires." For their part, respondents, in their Comment, pray for the dismissal of the petition for lack of merit. The instant petition must fail. First, petitioners failed to resort to the appropriate remedy. Under Section 12 12 of the MWSS Charter, it was the defunct Public Service Commission which had the exclusive original jurisdiction over all cases contesting the rates or fees of water and sewerage services, thus: Sec. 12. Review of Rates by the Public Service Commission.- The rates and fees fixed by the Board of Trustees for the System (MWSS) and by the local governments for the local systems shall be of such magnitude that the Systems rate of net return shall not exceed twelve percentum (12%), on a rate base composed of the sum of its assets in operation as revalued from time to time plus two months operating capital. Such rates and fees shall be effective and enforceable fifteen (15) days after publication in a newspaper of general circulation within the territory defined in Section 2(c) of this Act. The Public Service Commission shall have exclusive original jurisdiction over all cases contesting said rates or fees. Any complaint against such rates or fees shall be filed with the Public Service Commission within thirty (30) days after the effectivity of such rates, but the filing of such complaint or action shall not stay the effectivity of said rates or fees. The Public Service Commission shall verify the rate base, and the rate of return computed therefrom, in accordance with the standards above outlined. The Public Service Commission shall finish, within sixty (60) calendar days, any and all proceedings necessary and/or incidental to the case, and shall render its findings or decisions thereon within thirty (30) calendar days after said case is submitted for decision.

In cases where the decision is against the fixed rates or fees, excess payments shall be reimbursed and/or credited to future payments, in the discretion of the Commission. (Underscoring supplied) Indeed, petitioners have a plain and speedy remedy in the ordinary course of law as prescribed in Section 12 above. They cannot avail of certiorari as a substitute for that plain and speedy recourse. The writ of certiorari and prohibition may be availed of only when "there is no appeal, or any plain, 13 speedy, and adequate remedy in the ordinary course of law." Second, even assuming that petitioners may resort to certiorari and prohibition, their petition, however, suffers from a fatal defect, i.e., it failed to implead the two concessionaires who are certainly indispensable parties. Indispensable parties are those which have such interest in the controversy that a final adjudication of the case would certainly affect their rights, so 14 that the court cannot proceed without their presence. Thus, their noninclusion in the petition for a writ of certiorari would render the said petition 15 defective. Third, the petition is barred under the doctrine of hierarchy of courts. Such doctrine is one of the structural aspects intended for the orderly administration of justice. This Court has concurrent original jurisdiction with the Regional Trial Court and the Court of Appeals in the issuance of the extraordinary writ of certiorari and prohibition. However, in availing of such extraordinary writ, petitioners do not have the complete liberty or discretion to file their petition in any of these courts. In the absence of special reasons, they cannot disregard the doctrine of the hierarchy of courts in our judicial system by seeking relief directly from this Court despite the fact that the same is available in the lower tribunals in the exercise of their original 16 concurrent jurisdiction. Significantly, the petition raises issues of fact which cannot be addressed to this Court.1avvphi1 For instance, in determining whether the concessionaires are public utilities or mere agents of MWSS, there must be an examination of the intention of MWSS and the concessionaires at the time of the bidding process, negotiation, and execution of the Concession Agreements. Certainly, this matter is a factual issue requiring presentation and evaluation of evidence such as bidding documents, memoranda, and the testimonies of the participants of the bidding and contract negotiations. Moreover, petitioners maintain that the assailed Resolutions could authorize the increase of water rates beyond the 12% rate of return limit. While such claim is purely speculative in nature, it would nonetheless require a very complicated and technical computation of the current rate of

return which entails a determination of income, the valuation of assets, which assets are to be included in the computation, and other factual factors. Again, these matters are beyond the Courts function as it is not a trier of facts. While petitioners claim that the assailed Resolutions are "in flagrant violation of the Constitution and statutory provisions defining public utilities," however, they failed to cite any Constitutional provision being violated. In Santiago v. Vasquez, et al.,
17

this Court held:

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

EN BANC G.R. No. 83551 July 11, 1989 RODOLFO B. ALBANO, petitioner, vs. HON. RAINERIO O. REYES, PHILIPPINE PORTS AUTHORITY, INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., E. RAZON, INC., ANSCOR CONTAINER CORPORATION, and SEALAND SERVICES. LTD., respondents. Vicente Abad Santos for petitioner. Bautista, Picazo, Buyco & Tan for private respondents.

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").

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

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"). xxx xxx xxx 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 xxx xxx xxx

in the ports vested in, or belonging to the Authority.

(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.

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, or a public service on 3 the theory that it is a "wharf' or a "dock" 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 4 power to issue such authorization for certain classes of public utilities. 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 5 disclosure provision in the Constitution would constitute sufficient authority for upholding petitioner's standing. [Cf. Taada 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. Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Gancayco, Bidin, Cortes, Grio-Aquino, Medialdea and Regalado, JJ., concur. Feliciano, J., concurs in the result. Padilla and Sarmiento, JJ., took no part.

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.

EN BANC

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).

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. I In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a mass transit system along EDSA and alleviate the congestion and growing transportation problem in the metropolis. On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu Levin to DOTC Secretary Oscar Orbos,

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 governmentowned 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-andtransfer 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 Bellosillo and Kapunan, JJ., concur. Padilla and Regalado, JJ., concurs in the result. Romero, J., is on leave.

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 1 allege no infringement of prerogative as legislators. As taxpayers because petitioners allege neither an unconstitutional exercise of the taxing or 2 spending powers of Congress (Art VI, 24-25 and 29) nor an illegal 3 disbursement of public money. As this Court pointed out in Bugnay Const. 4 and Dev. Corp. v. Laron, 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 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. 6 Thus in the Lotto case 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 7 effects of the envisioned on-line lottery system:" 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
5

Separate Opinions

in the case at bar must be held to be without standing. This is in line with 8 our ruling in Lawyers League for a Better Philippines v. Aquino 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 10 action. 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 11 700, 102 S Ct 752. 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. I Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by 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 buildoperate-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) (2) (3) (4) (5) (6) (7) Build-own-and-operate (BOO) Build-Lease-and-transfer (BLT) Build-transfer-and-operate (BTO) Contract-add-and-operate (CAO) Develop-operate-and-transfer (DOT) Rehabilitate-operate-and-transfer (ROT) 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 buildand-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" 1 issued under that Presidential Decree. 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 ongoing 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.

SECOND DIVISION

G.R. No. 119528 March 26, 1997 PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL AIRWAYS, INC., respondents.

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.

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 1 Court's pronouncements in the case of Albano vs. Reyes, as restated by the Court of Appeals in Avia Filipinas International vs . Civil Aeronautics 2 Board and Silangan Airways, Inc. vs. Grand International Airways, Inc., 3 and the Hon. Civil Aeronautics Board. On November 24, 1994, private respondent GrandAir applied for a Certificate of Public Convenience and Necessity with the Board, which 4 application was docketed as CAB Case No. EP-12711. Accordingly, the

E. To grant petitioner's application would only result in ruinous competition contrary to Section 5 4(d) of R.A. 776. 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

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;

On December 23, 1994, the Board promulgated Resolution No. 119(92) approving the issuance of a Temporary Operating Permit in favor of Grand 7 Air 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 8 denied in CAB Resolution No. 02 (95) on February 2, 1995. In the said

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 9 10 upon a reading of Section 11, Article XII, and Section 1, Article VI, 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-inoffice, 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. ( S other hand, relies on its interpretation of the Respondent GrandAir, on the G which follows the pronouncements of the provisions of Republic Act 776, D of Avia Filipinas vs. Civil Aeronautics Board, Court of Appeals in the cases and Silangan Airways, Inc. .vs. Grand International Airways (supra). ) In both cases, the issue resolved was whether or not the Civil Aeronautics S Board can issue the Certificate of Public Convenience and Necessity or E Temporary Operating Permit to a prospective domestic air transport D

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 11 from Section 10 of Republic Act 776, as amended by P.D. 1462. 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 12 June 13, 1968. 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 13 indirectly, the act of the state. 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 14 by the courts. It is generally recognized that a franchise may be derived indirectly from the state through a duly designated agency, and to this extent, the power to grant franchises has frequently been delegated, even

to agencies other than those of a legislative nature. In pursuance of this, it has been held that privileges conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though the 16 grant had been made by an act of the Legislature. 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 17 reasonable and founded upon a legal right. 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 18 Authority, 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 to 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 19 each and every public utility may operate. 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

15

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 20 by law. 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 21 or require an actual physical necessity or an indispensable thing. 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" 22 its strict meaning or an essential requisites. 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 minilegislative 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 23 delegate. 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 24 Philippines 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 25 service. 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. Regalado and Puno, JJ., concur. Romero and Mendoza JJ., took no part.

THIRD DIVISION G.R. No. 88195-96 January 27, 1994 "Y" TRANSIT CO, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION AND YUJUICO TRANSIT EMPLOYEES UNION (ASSOCIATED LABOR UNION), MANUEL VILLARTA, respondents. Cruz, Durian, Agabin, Atienza, Alday & Tuason for petitioner. Evaristo S. Orosa for private respondents.

the ownership of its mortgaged properties, including the buses, to Jesus Yujuico. Meanwhile, sometime in June and July 1979, the Yujuico Transit Employees Union (Associated labor Union) filed two (2) consolidated complaints against Yujuico Transit Co., Inc. for Unfair Labor Practice and violations of Presidential Decrees Nos. 525, 1123, 1614 and 851 (nonpayment of living allowances). On May 21, 1980, Jesus Yujuico sold the subject buses to herein petitioner "Y" Transit Co., Inc. for P3,485,400.00. On July 23, 1981, the Labor Arbiter rendered a decision dismissing the complaint for unfair labor practice but holding Yujuico Transit Co., Inc. liable under the aforementioned Presidential Decrees in the amount of P142,790.49. On February 9, 1982, a writ of execution for the said amount was issued by the Labor Arbiter. On June 14, 1982, an alias writ of execution was issued and levy was made upon the ten (10) buses. Thereafter, "Y" Transit Co., Inc. filed Affidavits of Third Party Claim. Private respondents herein opposed the Third party claim on the ground that the transactions leading to the transfer of the buses to "Y" Transit Co., Inc. were void because they lacked the approval of the BOT as required by the Public Service Act. They also argued that the buses were still registered in the name of Yujuico Transit Co. which was, therefore, still the lawful owner thereof. The Labor Arbiter found that "Y" Transit Co., Inc. had valid title to the buses and that the BOT, by its subsequent acts had approved the transfer. The decision stated further, thus: The fact that the registration certificates of most of the vehicles in question are still in the name of Yujuico Transit Co., Inc. at the time of the levy on execution does not militate against the claimant. Registration of a motor vehicle is not the operative act that transfers ownership, unlike in land registration cases. Furthermore, the evidence shows that the claimant cannot be faulted for its failure to have the certificates of registration transferred in its own name. Prior to the levy, claimant had already paid for the transfer fee, the fee for the cancellation of mortgage and other fees required by the BLT. Moreover, the registration fees of the vehicles whose last digit of their plate

ROMERO, J.: This is a special civil action for certiorari filed by "Y" Transit Co., Inc. for the annulment of the decision of the National labor Relations Commission, the dispositive portion of which reads as follows: WHEREFORE, the appealed Order should be as it is hereby REVERSED reinstating the levy made by the Sheriff on July 13 and 16, 1982. Accordingly, the sale of the levied properties may proceed pursuant to existing laws. SO ORDERED.
1

The antecedent facts of the case are as follows: In March 1960 and sometime thereafter, Yujuico Transit Co., Inc., mortgaged ten (10) of its buses to the Development Bank of the Philippines (DBP) to secure a loan in the amount of P2,795,129.36. Thereafter, the Board of Directors of Yujuico Transit Co., Inc. passed a resolution authorizing its President, Jesus Yujuico to enter into a dacion en pago arrangement with the DBP, whereby Jesus Yujuico would transfer to the DBP the Saint Martin Technical Institute in consideration of the full settlement of the obligations of three companies, one of which was Yujuico Transit Co, Inc. Accordingly, on or about October 24, 1978, the transfer of the property was made and DBP released the mortgages constituted on the buses of Yujuico Transit Co., Inc. Consequently, the company transferred

numbers made the vehicles due for registration were already paid for by the claimant (Exhibits "N" to "N-7"). Therefore, there was already a constructive registration made by the claimant (Mariano B. Arroyo vs. Maria Corazon Yu de Sane, et al., 54 Phil. 511, 518), sufficient notice to affect the rights of third-parties. It is now ministerial on the part of the BLT to issue the Registration Certificates in the name of the claimant, but the same was held in abeyance pending the computerization of the records of BOT on public utility vehicles. On all fours is the ruling of the Supreme Court in Mariano B. Arroyo vs. Ma. Corazon Yu de Sane, 54 Phil. 511, which upheld the right of PNB as mortgagee over motorized water vessels as superior over the rights of a judgment creditor who had already secured a writ of attachment and execution over the vessels, it appearing that the delay was caused by the Collector of Custom's uncertainty as to the 2 necessity of the registration of the vessels. Accordingly, the Third-Party Claim was granted and the release of all the buses levied for execution was ordered. On appeal, the NLRC reversed the labor arbiter's decision on the ground that the transfer of the buses lacked the BOT approval. It ordered the reinstatement of the levy and the auction of properties. "Y" Transit Co., Inc. thereafter filed this special civil action for certiorari under Rule 65 of the Rules of Court praying for the issuance of a Restraining Order and/or a Writ of Preliminary Injunction and for the annulment of the NLRC decision as it was issued with grave abuse of discretion amounting to lack of jurisdiction. In this petition, "Y" Transit Co., Inc. raised the following issue, to writ: I The public respondent NLRC committed palpable legal error and grave abuse of discretion amounting to lack of jurisdiction when it held that there was no valid transfer of ownership in favor of the petitioner, completely disregarding the preponderance of evidence and existing

jurisprudence which support the validity of the 3 transfer of ownership to the petitioner. On July 6, 1989, petitioner filed a motion to cite Labor Arbiter Benigno C. Villarente, Jr. for contempt of court and for the issuance of an order for the immediate release of the property. Petitioner argues that the Labor Arbiter refused to release the vehicles levied on June 5, 1989 despite notice that a TRO has been issued by the Supreme Court; that there was no reason to hold on to the levy as petitioner had already posted a bond to answer for the damages and award in the above-entitled case; that the labor arbiter wrongly required the payment of storage charges and sheriff's fees before releasing the levied buses. Did public respondent commit grave abuse of discretion in reinstating the levy on the buses which have been allegedly transferred to a third party, herein petitioner "Y" Transit Co., Inc.? We rule in the negative. The following facts have been established before the NLRC: that the transfer of ownership from Yujuico Transit Co., Inc. to Jesus Yujuico, and from Jesus Yujuico to "Y" Transit Co., Inc. lacked the prior approval of the 4 BOT as required by Section 20 of the Public Service Act; that the buses were transferred to "Y" Transit Co., Inc. during the pendency of the action; and that until the time of the execution, the buses were still registered in the name of Yujuico Transit Co., Inc. In Montoya v. Ignacio, we held: . . . The law really requires the approval of the Public Service Commission in order that a franchise, or any privilege pertaining thereto, may be sold or leased without infringing the certificate issued to the grantee. The reason is obvious. Since a franchise is personal in nature any transfer or lease thereof should be notified to the Public Service Commission so that the latter may take proper safeguards to protect the interest of the public. In fact, the law requires that, before approval is granted, there should be a public hearing with notice to all interested parties in order that the commission may determine if there are good and reasonable grounds justifying the transfer or lease of the property covered by the franchise, or if the sale or lease is detrimental to
5

public interest. Such being the reason and philosophy behind this requirement, it follows that if the property covered by the franchise is transferred, or leased to another without obtaining the requisite approval, the transfer is not binding against Public Service Commission and in contemplation of law, the grantee continues to be responsible under the franchise in relation to the Commission and to the public. . . . It may be argued that Section 16, paragraph (h) provides in its last part that "nothing herein contained shall be construed to prevent the sale, alienation, or lease by any public utility of any of its property in the ordinary course of business," which gives the impression that the approval of Public Service Commission is but a mere formality which does not affect the effectivity of the transfer or lease of the property belonging to a public utility. But such provision only means that even if the approval has not been obtained the transfer or lease is valid and binding between the parties although not effective against the public and the Public Service Commission. The approval is only necessary to protect public interest. (Emphasis ours) There being no prior BOT approval in the transfer of property from Yujuico Transit Co., Inc. to Jesus Yujuico, it only follows that as far as the BOT and third parties are concerned, Yujuico Transit Co., Inc. still owned the properties. and Yujuico, and later, "Y" Transit Co., Inc. only held the same 6 as agents of the former. In Tamayo v. Aquino, the Supreme Court stated, thus: . . . In operating the truck without transfer thereof having been approved by the Public Service Commission, the transferee acted merely as agent of the registered owner and should be responsible to him (the registered owner) for any damages that he may cause the latter by his negligence. Conversely, where the registered owner is liable for obligations to third parties and vehicles registered under his name are levied upon to satisfy his obligations, the transferee of such vehicles cannot prevent the levy by

asserting his ownership because as far as the law is concerned, the one in whose name the vehicle is registered remains to be the owner and the transferee merely holds the vehicles for the registered owner. Thus, "Y" Transit Co., Inc. cannot now argue that the buses could not be levied upon to satisfy the money judgment in favor of herein respondents. However, this does not deprive the transferee of the right to recover from the registered owner any damages which may have been incurred by the former since the 7 . . . transfer or lease is valid and binding between the parties. . . . Thus, had there been any real contract between "Y" Transit Co., Inc. and Yujuico Transit Co., Inc. of "Y" Transit Co., Inc. and Jesus Yujuico regarding the sale or transfer of the buses, the former may avail of its remedies to recover damages. Regarding the Motion for Contempt filed by petitioner, we are constrained to deny the same since the Order to levy upon petitioner's alleged properties was issued even before the issuance by the Court of a temporary restraining order. From the records, it appeared that Labor Arbiter Villarente ordered the public auction of the subject properties on May 12, 1989. The sheriff levied on the properties on June 5, 1989. The Supreme Court issued the Temporary Restraining Order on June 19, 1989 and this was received by the Labor Arbiter on June 22, 1989. On June 28, 1989, the Labor Arbiter directed the sheriff to release the two buses already levied upon by him. Likewise, we find no error in requiring petitioner to pay the storage fees prior to the release of the properties. Storage costs are imposed in accordance with the provisions of Rule IX of the NLRC Manuel of Instructions for Sheriffs, to wit: Sec. 3. Storing of Levied Property. To avoid pilferage of or damage to levied property, the same shall be inventoried and stored in a bonded warehouse, wherever available, or in a secured place as may be determined by the sheriff with notice to and conformity of the losing party or third party claimant. In case of disagreement, the same shall be referred to the Labor Arbiter or proper officer who issued the writ of execution for proper disposition. For this purpose, sheriffs should inform the Labor Arbiter or proper officer issuing the writ of corresponding storage fees, furnishing him as well as the parties with a copy of the inventory. The storage fees shall be shouldered by the losing party.

WHEREFORE, in view of the foregoing, this petition is hereby DISMISSED. The Motion to Cite Labor Arbiter Benigno Villarente, Jr. is DENIED and petitioner is ordered to PAY storage costs and sheriff's fees. This decision is immediately executory. SO ORDERED. Feliciano, Bidin and Melo, Vitug, JJ., concur.

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

DOMINADOR RAYMUNDO, petitioner-appellant, vs. LUNETA MOTOR CO., ET AL., respondents-appellees. A.M. Zarate for appellant. Jose Agbulos for appellee Luneta Motor Co. No appearance for the other appellee.

Public Service commission, and is the other case now under review. On the two cases being heard together, the commission in its decision approved the sale at public auction in favor of the Luneta Motor Co., and disapproved the sale made to Dominador Raymundo, reserving to Raymundo the right to present another petition for the approval of the sale of certificate of public convenience No. 25951 which was not included in the sale in favor of the Luneta Motor Co. Sweeping incidental matters to one side, the prime question need not be complicated by determining if a sale of a certificate of public convenience without any equipment may be the object of execution and garnishment sale, for this is matter of policy to be determined by the Public Service Commission, and it appears that sale of certificates of public convenience without equipment have been approved by the commission. Also it is evident that the articles of incorporation of the Luneta Motor Co. are broad enough in scope to authorize the company, if it so desires, to engage in the autotruck business, and if not, there would be nothing to preclude the company from transferring the certificates to a third party with the approval of the Public Service Commission. Further, the nature of the partnership which may have been entered into by Nicanor de Guzman and Agapito C. Correa cannot now be discussed, considering that the promissory notes were signed Guzco Transit, by Nicanor de Guzman, and considering that the judgment against Guzco Transit in the Court of First Instance of Manila has become final. Finally, the dismissal in case No. 33033 pertaining to certificate No. 25951 was without prejudice, and the appellees disclaim any interest in this certificate. Therefore, the question to be decided on this appeal is, which of the two sales, the one at public auction by virtue of an attachment, or two voluntary sale made after the property had been levied upon, should prevail, and a decision on this question is dependent on a decision relative to the liability to execution of certificates of public convenience. The Public Service Law, Act No. 3108, as amended, authorizes certificates of public convenience to be secured by public service operators from the Public Service Commission. (Sec. 15 [i].) A certificate of public convenience granted to the owner or operator of public service motor vehicles, it has been held, grants a right in the nature of a limited franchise. (Public Utilities Commission vs. Garviloch [191], 54 Utah, 406.) The Code of Civil Procedure establishes the general rule that "property, both real and personal, or any interest therein of the judgment debtor, not exempt by law, and all property and rights of property seized and held under attachment in the action, shall be liable to execution." (Sec. 450.) The statutory exemptions do not include franchises or certificates of public convenience. (Sec. 452.) The word "property" as used in section 450

MALCOLM, J.: The question squarely raised in these concerns the forced sales of certificates of public convinced held by public service operators and the liability to execution of such certificates. Breaking into the narration of the facts at the proper point, we find Nicanor de Guzman, signing as Guzco Transit, purchasing trucks from the Luneta Motor Co. and to pay for them executing a series of promissory notes guaranteed by a chattel mortgage on several trucks. On failure of De Guzman or Guzco Transit to pay the promissory notes, suit was brought in the Court of First Instance of Manila for the collection of the amount outstanding and unpaid. When the complaint was presented, a writ of attachment was obtained against the properties of the Guzco Transit, and as a consequence garnishment was served on the Secretary of the Public Service Commission attacking the right, title, and participation of the Guzco Transit in the certificates of public convenience issued in cases Nos. 25635, 23914 and 24255 covering the bus transportation lines between Manila and Cardona, Rizal, and between Manila and Pililla, Rizal. These certificates were ordered sold by the Court of First Instance of Manila, and in fact the certificates of public convenience Nos. 25635 and 23914 were sold to the Luneta Motor Co. as the highest bidder. The approval of the sheriff's sale was prayed for before the Public Service Commission, and is one of the cases under review. Going back a moment, it is necessary to insert in the statement of facts that on July 16, 1932, or nine days after the certificates were attached by the Luneta Motor Co., the same certificates, together with certificate No. 25951 and several trucks, were sold by De Guzman for the Guzco Transit to Dominador Raymundo. The approval of this sale was sought from the

of the Code of Civil Procedure comprehends every species of title, inchoate or complete, legal or equitable. The test by which to determine whether or not property can be attached and sold upon execution is whether the judgment debtor has such a beneficial interest therein that he can sell or otherwise dispose of it for value. (Reyes vs. Grey [1911], 21 Phil., 73.) It will be noted that the Public Service Law and the Code of Civil Procedure are silent on the question at issue, that is, silent in the sense of not containing specific provisions on the right to attach certificates of public convenience. The same attitude was not assumed in the enactment of Act No. 667, section 10, as amended, which gave authority for the mortgage and sale under foreclosure proceedings of franchises granted by Provincial and municipal governments. A similar tendency was evident in the Corporation Law, for in section 56 and following thereof express provisions were made for the sale on execution used in connection with them. Should the legislative intention thus evidenced be taken as meaning that the generality of the language used by the Code of Civil Procedure was too vague to permit of forced sales of franchises and certificates of public convenience, or notwithstanding the provisions to be found in these special laws, is the language of the code of Civil Procedure broad enough to include certificates of public convenience? We lean to the latter proposition, and will now proceed to elucidate our viewpoint. The test to be applied was announced by our Supreme Court in Reyes vs. Grey, supra, and there is nothing in Tufexis vs. Olaguera and Municipal Council of Guinobatan ( [1915], 32 Phil., 654), cited by appellant, which sanctions a contrary test. That rule it will be recalled tested the liability of property to execution by determining if the interest of the judgment debtor in the case can be sold or conveyed to another in any way. Now the Public Service Law permits the Public Service Commission to approved the sale, alienation, mortgaging, encumbering, or leasing of property, franchises, privileges, or rights or any part thereof (sec. 16 [ h]), and in practice the purchase and sale of certificates of public convenience has been permitted by the Public Service Commission. If the holder of a certificate of public convenience can sell it voluntarily, there is no valid reason why the same certificate cannot be taken and sold involuntarily pursuant to process. If this was all that there was to the case, we might hesitate to approve attachments of certificates of public convenience. But there is more. Certificates of public convenience have come to have considerable material value. They are valuable assets. In many cases the certificates are the cornerstones on which are builded the business of bus transportation. The United States Supreme Court considers a franchise granted in consideration of the performance of public service as constituting property

within the protection of the Fourteenth Amendment to the United States Constitution. (Frost vs. Corporation Commission of Oklahoma [1929], 278 U.S., 515.) If the holder of the certificate of public convenience can thus be protected in his constitutional rights, we see no reason why the certificate of public convenience should not assume corresponding responsibilities and be susceptible as property or an interest therein of being liable to execution. In at least one State, the certificate of the railroad commission permitting the operation of a bus line has been held to be included in the term "property" in the broad sense of the term. If thus is true, the certificate under our law, considered as a species of property, would be liable to execution. (Willis vs. Buck [1928], 81 Mont., 472.) As has been intimated herein before, a practice has grown up in the Public Service Commission of permitting the alienation of certificates of public convenience and in so doing approval has been given to the sale through foreclosure proceedings of the certificates of public convenience to third parties. The very decision in the two cases before us is an illustration of this practice. The same tendency is to be noted in the lower courts. As an example in the instant record, there is a previous foreclosure of a mortgage apparently uncontested, Not only this, but tacit approval to the attachment of certificates of public convenience either through chattel mortgages or court writs has been given by this court. (Orlanes & Banaag Transportation Co. vs. Public Service Commission [1932], 57 Phil., 634; Manila Electric Company vs. Orlanes & Banaag Transportation Co. [1933], 57 Phil., 805; Nos. 39525 and 39531, Red Line Transportation Co. vs. 1 Rural Transit Co. and Bachrach Motor Co., November 17, 1933. ) When the motion of the plaintiff praying that the certificates of public convenience granted by the Public Service Commission which were attached be sold at public auction and the answer opposing the granting of the motion on the ground that franchises can not be the subject of attachment and sale by garnishment came before the Court of First Instance of Manila, the presiding Judge Anacleto Diaz, promulgated an order which sustained the right of the plaintiff to attachment and garnishment. That order gains particular force because a later judgment by consent was taken and no appeal was attempted to this court. It is true that the sale further required the approval of the Public Service Commission, but the Public Service Commission respected the decision of the court and so we have the concurrence of the court and the commission on this question. In the order in first instance appears the following well considered language: It remains to be determined whether, under the law, certificates of public convenience are liable to attachment and seizure by legal process. The law is silent as to this

matter. It can not be denied that such franchises are valuable. They are subject to being sold for a consideration as much as any other property. They are even more valuable than ordinary properties, taking into consideration than that they are not granted to every one who applies for them but only to those who undertake to furnish satisfactory and convenient service to the public. It may also be said that dealers in motor vehicles even extend credit to owners of such certificates or franchises. The law permits the seizure by means of a writ of attachment not only of chattels but also for shares and credits. While these franchises may be said to be intangible character, they are however of value and are considered properties which can be seized through legal process. For all the foregoing, the court is of the opinion that the plaintiff is entitled to the remedy it prays for in its motion which is hereby granted.lawphil.net The ruling of the Supreme Court on the question raised by the record and the assignments of error is this: Certificates of public convenience secured by public service operators are liable to execution, and the Public Service Commission is authorized to approve the transfer of the certificates of public convenience to the execution creditor. As a consequence, the decision brought on review will be affirmed, with costs against the appellant. Avancea, C.J., Villa-Real, Hull, and Imperial, JJ., concur.

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

BATANGAS TRANSPORTATION CO., petitioner-appellant, vs. CAYETANO ORLANES, respondent-appellee. L. D. Lockwood and C. de G. Alvear for appellant. Paredes, Buencamino and Yulo and Menandro Quiogue for appellee. STATEMENT In his application for a permit, the appellee Orlanes alleges that he is the holder of a certificate of public convenience issued by the Public Service Commission in case No. 7306, to operate an autobus line from Taal to Lucena, passing through Batangas, Bolbok and Bantilan, in the Province of Batangas, and Candelaria and Sariaya, in the Province of Tayabas, without any fixed schedule; that by reason of the requirements of public convenience, he has applied for a fixed schedule from Bantilan to Lucena and return; that in case No. 7306, he cannot accept passengers or cargo from Taal to any point before Balbok, and vice versa; that the public convenience requires that he be converted into what is known as a regular operator on a fixed schedule between Taal and Bantilan and intermediate points, and for that purpose, he has submitted to the Commission proposed schedule for a license to make trips between those and intermediate points. He then alleges that by reason of increase of traffic, the public convenience also requires that he be permitted to accept passengers and cargo at points between Taal and Bantilan, and he asked for authority to establish that schedule, and to accept passengers at all points between Taal and Bantilan. To this petition the Batangas Transportation Company appeared and filed an application for a permit, in which it alleged that it is operating a regular service of auto trucks between the principal municipalities of the Province of Batangas and some of those of the Province of Tayabas; that since 1918, it has been operating a regular service between Taal and Rosario, and that in 1920, its service was extended to the municipality of San Juan de Bolbok, with a certificate of public convenience issued by the Public Servise Commission; that in the year 1925 Orlanes obtained from the Commission a certificate of public convenience to operate an irregular service of auto trucks between Taal, Province of Batangas, and Lucena, Province of Tayabas, passing through the municipalities of Bauan, Batangas, Ibaan, Rosario, and San Juan de Bolbok, with the express limitation that he could not accept passengers from intermediate points

between Taal and Bolbok, except those which were going to points beyond San Juan de Bolbok or to the Province of Tayabas; that he inaugurated this irregular in March, 1926, but maintained it on that part of the line between Taal and Bantilan only for about three months, when he abandoned that portion of it in the month of June and did not renew it until five days before the hearing of case No. 10301, which was set for November 24, 1926, in which hearing the Batangas Transportation Company asked for additional hours for its line between Batangas and Bantilan; that in June, 1926, Orlanes sought to obtain a license as a regular operator on that portion of the line between Bantilan and Lucena without having asked for a permit for tat portion of the line between Bantilan and Taal; that from June, 1926, Orlanes and the Batangas Transportation Company were jointly operating a regular service between Bantilan and Lucena, with trips every half an hour, and Orlanes not having asked for a regular service between Bantilan and Taal, the Batangas Transportation Company remedied this lack of service under the authority of the Commission, and increased its trips between Bantilan and Tayabas to make due and timely connections in Bantilan on a half-hour service between Bantilan and Batangas with connections there for Taal and all other points in the Province of Batangas. It is then alleged that the service maintained by the company is sufficient to satisafy the convenience of the public, and that the public convenience does not require the granting of the permit for the service which Orlanes petitions, and that to do so would result in ruinous competition and to the grave prejudice of the company and without any benefit to the public, and it prayed that the petition of Orlanes to operate a regular service be denied. After the evidence was taken upon such issues, the Public Service Commission granted the petition of Orlanes, as prayed for, and the company then filed a motion for a rehearing, which was denied, and the case is now before this court, in which the appellant assigns the following errors: The Commission erred in ordering that a certificate of public convenience be issued in favor of Cayetano Orlanes to operate the proposed service without finding and declaring that the public interest will be prompted in a proper and suitable by the operation of such service, or when the evidence does not show that the public interests will be so prompted. That the Commission erred in denying the motion for a rehearing.

JOHNS, J.: The questions presented involve a legal construction of the powers and duties of the Public Service Commission, and the purpose and intent for which it was created, and the legal rights and privileges of a public utility operating under a prior license. It must be conceded that an autobus line is a public utility, and that in all things and respects, it is what is legally known as a common carrier, and that it is an important factor in the business conditions of the Islands, which is daily branching out and growing very fast. Before such a business can be operated, it must apply for, and obtain, a license or permit from the Public Service Commission, and comply with certain defined terms and conditions, and when license is once, granted, the operator must conform to, and comply with all, reasonable rules and regulations of the Public Service Commission. The object and purpose of such a commission, among other things, is to look out for, and protect, the interests of the public, and, in the instant case, to provide it with safe and suitable means of travel over the highways in question, in like manner that a railroad would be operated under like terms and conditions. To all intents and purposes, the operation of an autobus line is very similar to that of a railroad, and a license for its operation should be granted or refused on like terms and conditions. For many and different reasons, it has never been the policy of a public service commission to grant a license for the operation of a new line of railroad which parallels and covers the same field and territory of another old established line, for the simple reason that it would result in ruinous competition between the two lines, and would not be of any benefit or convenience to the public. The Public Service Commission has ample power and authority to make any and all reasonable rules and regulations for the operation of any public utility and to enforce complience with them, and for failure of such utility to comply with, or conform to, such reasonable rules and regulations, the Commission has power to revoke the license for its operation. It also has ample power to specify and define what is a reasonable compensation for the services rendered to the traveling public. That is to say, the Public Service Commission, as such has the power to specify and define the terms and conditions upon which the public utility shall be operated, and to make reasonable rules and regulations for its operation and the compensation which the utility shall receive for its services to the public, and for any failure to comply with such rules and regulations or the violation of any of the terms and conditions for which the license was granted the Commission has ample power to enforce the

provisions of the license or even to revoke it, for any failure or neglect to comply with any of its terms and provisions. Hence, and for such reasons, the fact that the Commission has previously granted a license to any person to operate a bus line over a given highway and refuses to grant a similar license to another person over the same highway, does not in the least create a monopoly in the person of the licensee, for the reason that at all times the Public Service Commission has the power to say what is a reasonable compensation to the utility, and to make reasonable rules and regulations for the convenience of the traveling public and to enforce them. In the instant case, Orlanes seek to have a certificate of public convenience to operate a line of auto trucks with fixed times of departure between Taal and Bantilan, in the municipality of Bolbok, Province of Batangas, with the right to receive passengers and freight from intermediate points. The evidence is conclusive that at the time of his application, Orlanes was what is known as an irregular operator between Bantilan and Taal, and that the Batangas operator between Batangas and Rosario. Orlanes now seeks to have his irregular changed into a regular one, fixed hours of departure and arrival between Bantilan and Taal, and to set aside and nullify the prohibition against him in his certificate of public convenience, in substance and to the effect that he shall not have or receive any passengers or freight at any of the points served by the Batangas Transportation Company for which that company holds a prior license from the Commission. His petition to become such a regular operator over such conflicting routes is largely based upon the fact that, to comply with the growing demands of the public, the Batangas Transportation Company, in case No. 10301, applied to the Commission for a permit to increase the number of trip hours at and between the same places from Batangas to Rosario, and or for an order that all irregular operators be prohibited from operating their respective licenses, unless they should observe the interval of two hours before, or one hour after, the regular hours of the Batangas Transportation Company. In his petition Orlanes sought to be releived from his prohibition to become a regular operator, and for a license to become a regular operator with a permission to make three trips daily between Bantilan and Taal, the granting of which make him a regular operator between those points and bring him in direct conflict and competition over the same points with the Batangas Transportation Company under its prior license, and in legal effect that was the order which the Commission made, of which the Batangas Transportation Company now complains. The appellant squarely plants its case on the proposition:

Is a certificate of public convenience going to be issued to a second operator to operate a public utility in a field where, and in competition with, a first operator who is already operating, adequate and satisfactory service? There is no claim or pretense that the Batangas Transportation Company has violated any of the terms and conditions of its license. Neiher does the Public Service Commission find as a fact that the grantring of a license to Orlanes as a regular operator between the points in question is required or necessary for the convenience of the traveling public, or that there is any complaint or criticism by the public of the services rendered by the Batangas Transportation Company over the route in question. The law creating the Public service Commission of the Philippine Islands is known as Act No. 3108, as amended by Act No. 3316, and under it the supervision and control of public utilities is very broad and comprehensive. Section 15 of Act No. 3108 provides that the Commission shall have power, after hearing, upon notice, by order in writing to require every public utility: (a) To comply with the laws of the Philippine Islands; (b) To furnish safe, adequate, and proper service as regards the manner of furnishing the same as well as the maintenance of the necessary material equipment, etc; (c) To establish, construct, maintain, and operate any reasonable extention of its existing facilities, where such extension is reasonable and practicable and will furnish sufficient business to justify the construction and maintenance of the same; (d) To keep a uniform system of books, records and accounts; (e) To make specific answer with regard to any point on which the Commission requires information, and to furnish annual reports of finance and operations; (f) To carry, whenever the Commission may require, a proper and adequate depreciation account; (g) To notify the Commission of all accidents;

(h) That when any public utility purposes to increase or reduce any existing individual rates, it shall give the Commission written notice thirty days prior to the proposed change; and (i) "No public utility as herein defind shall operate in the Philippine Islands without having first secured from the Commission a certificate, which shall be known as Certificate of Public Convenience, to the effect that the operation of said public utility and the authorization to do busibness wikll promote the public interest in a proper and suitable maner." Section 16 specially prohibits any discrimination in the handling of freight charges. In construing a similar law of the State of Kansas, the United States Supreme Court, in an opinion written by Chief Justice Taft, in Wichita Railroad and Light Co. vs. Public Utilities Commission of Kansas (260 U. S. 48; 67 Law. ed., 124), said: The proceeding we are considering is governed by section 13. That is the general section of the act comprehensively describing the duty of the Commission, vesting it with power to fix and order substituted new rates for existing rates. The power is expressly made to depend on the condition that, after full hearing and investigation, the Commission shall find existing rates to be unjust, unreasonable, unjustly discriminatory, or unduly preferential. We conclude that a valid order of the Commission under the act must contain a finding of fact after hearing and investigation, upon which the order is founded, and that, for lack of such a finding, the order in this case was void. This conclusion accords with the construction put upon similar statutes in other states. (State Public Utilities Commission ex rel. Springfield vs. Springfield Gas and E. Co., 291 Ill., 209; P. U. R., 1920C, 640; 125 N. E. 891; State Public Utilities Co. vs. Baltimore and O. S. W. R. Co., 281 Ill; 405; P. U. R., 1918B, 655; 118 N. E., 81.) Moreover, it accords with general principles of constitutional government. The maxim that a legislature may not delegate legislative power has some qualifications, as in the creation of municipalities, and also in the creation of administrative boards to apply to the myriad details of rate schedule the regulatory police power of the state. The latter qualification is made necessary in

order that the legislative power may be effectively exercised. In creating such an administrative agency, the legislature, to prevent its being a pure delegation of legislative power, must enjoin upon a certain course of procedure and certain rules of decision in the perfomance of its function. It is a wholesome and necessary principle that such an agency must pursue the procedure and rules enjoined, and show a substantial compliance therewith, to give validity to its action. When, therefore, such an administrative agency is required, as a condition precedent to an order, to make a finding of facts, the validity of the order rest upon the needed finding. It is lacking, the order is ineffective. It is pressed on us that the lack of an express finding may be supplied by implication and by reference to the averments of the petition invoking the action of the Commission. We cannot agree to this point. It is doubtful whether the facts averred in the petition were sufficient to justify a finding that the contract rates were unreasonably low; but we do not find it necessay to answer this question. We rest our decision on the principle that an express finding of unreasonableness by the Commission was indispensable under the statutes of the state. That is to say, in legal effect, that the power of the Commission to issue a certificate of public convenience depends on the condition precedent that, after a full hearing and investigation, the Commission shall have found as a fact that the operation of the proposed public service and its authority to do business must be based upon the finding that it is for the convenience of the public. In the Philippine Islands the cetificate of public convenience is as folows:

THE PUBLIC SERVICE COMMISSION OF THE PHILIPPINE ISLANDS, after having duly considered the application of ................. for a certificate of public convenience the operation of ........................ in connection with the evidence submitted in support thereof, has rendered its decision on................, 192...., in case No. ............, declaring that the operation by the applicant ...................... of the business above described will promote the public interests in a proper and suitable manner, and granting................. to this effect the corresponding authority, subject to the conditions prescribed in said decision. Given at Manila Philippine Islands, this ......... day of ....................., 192 ..... PUBLIC SERVICE COMMISSION OF THE PHILIPPINE ISLANDS By.................................. Commissioner Attested: ..................................... Secretary

That is to say, that the certificate of public convenince granted to Orlanes in the instant case expressly recites that it "will promote the public interests in a proper and suitable manner." Yet no such finding of fact was made by the Commission. In the instant case, the evidence is conclusive that the Batangas Transportation Company operated its line five years before Orlanes ever turned a wheel, yet the legal effect of the decision of the Public Service Commission is to give an irregular operator, who was the last in the field, a preferential right over a regular operator, who was the first in the field. That is not the law, and there is no legal principle upon which it can be sustained. So long as the first licensee keeps and performs the terms and conditions of its license and complies with the reasonable rules and regulations of the Commission and meets the reasonable demands of the public, it should have more or less of a vested and preferential right over a person who

CERTIFICATE OF PUBLIC CONVENIENCE To whom it may concern: THIS IS TO CERTIFY, That in pursuance of the power and authority conferred upon it by subsection (i) of section 15 of Act No. 3108 of the Philippine Legislature,

seeks to acquire another and a later license over the same route. Otherwise, the first license would not have protection on his investment, and would be subject to ruinous competition and thus defeat the very purpose and intent for which the Public Service Commission was created. It does not appear that the public has ever made any complaint the Batangas Transportation Company, yet on its own volition and to meet the increase of its business, it has applied to the Public Service Commission for authority to increase the number of daily trips to nineteen, thus showing a spirit that ought to be commended. Such is the rule laid down in the case of Re B. F. Davis Motor Lines, cited by the Public Service Commission of Indiana (P. U. R., 1927-B, page 729), in which it was held: A motor vehicle operator having received a certificate with a voluntary stipulation not to make stops (that is not to carry passengers) on a part of a route served by other carriers, and having contracted with such carries not to make the stops, will not subsequently are able to carry all passengers who present theselves for transportation within the restricted district. And in Re Mount Baker Development Co., the Public Service Commission of Washington (P. U. R., 1925D, 705), held: A cerificate authorizing through motor carrier service should not authorize local service between points served by the holders of a certificate, without first giving the certificate holders an opportunity to render additional service desired. In the National Coal Company case (47 Phil., 356), this court said: When there is no monopoly. There is no such thing as a monopoly where a property is operated as a public utility under the rules and regulations of the Public Utility Commission and the terms and provision of the Public Utility Act. Section 775 of Pond on Public Utilities, which is recognized as a standard authority, states the rule thus:

The policy of regulation, upon which our present public utility commission plan is based and which tends to do away with competition among public utilities as they are natural monopolies, is at once reason and the justification for the holding of our courts that the regulation of an existing system of transportation, which is properly serving a given field, or may be required to do so, is to be preferred to competition among several independent systems. While requiring a proper service from, a single system for a city or territory in consideration for protecting it as a monopoly for all service required and in conserving its resources, no economic waste results and service may be furnished at the minimum cost. The prime object and real purpose of commission control is to secure adequate sustained service for the public at the least possible cost, and to protect and conserve investments already made for this purpose. Experience has demonstrated beyond any question that competition among natural monopolies is wasteful economically and results finally in insufficient and unsatisfactory service and extravagant rates. The rule has been laid down, without dissent in numerous decisions, that where an operator is rendering good, sufficient and adequate service to the public, that the convenince does not require and the public interests will not be promoted in a proper and suitable manner by giving another operator a certificate of public convenience to operate a competing line over the same ruote. In Re Haydis (Cal.), P. U. R., 1920A, 923: A certificate of convenience and necessity for the operation of an auto truck line in occupied territory will not be granted, where there is no complaint as to existing rates and the present company is rendering adequate service. In Re Chester Auto Bus Line (Pa.), P. U. R., 1923E, 384: A Commission should not approve an additional charter and grant an additional certificate to a second bus company to operate in territory covered by a certificate granted to another bus company as a subsidiary of a railway company for operation in conjunction with the trolley system where one bus service would be ample for all requirements.

In Re Branham (Ariz.), P. U. R., 1924C, 500: A showing must be clear and affirmative that an existing is unable or has refused to maintain adequate and satisfactory service, before a certificate of convenience and necessity will be granted for the operation of an additional service. In Re Lambert (N. H.), P. U. R., 1923D, 572: Authority to operate a jitney bus should be refused when permision has been given to other parties to operate and, from the evidence, they are equipped adequately to accommodate the public in this respect, no complaints having been received in regard to service rendered. In Re White (Md.), P. U. R., 1924E, 316:

could secure sufficient business to enable him to operate profitably. In Re Idaho Light & P. Co. (Idaho), P. U. R., 1915A, 2: Unless it is shown that the utility desiring to enter a competitive field can give such service as will be a positive advantage to the public, a certificate of convenience will be denied by the Idaho Commission, provided that the existing utility furnishing adequate service at reasonable rates at the time of the threatened competition. In Scott, vs. Latham (N. Y. 2d Dist), P. U. R., 1921C, 714: Competition between bus lines should be prohibited the same as competition between common carriers. In Re Portland Taxicab Co. (Me.), P. U. R., 1923E, 772:

A motor vehicle operator who has built up a business between specified points after years of effort should not be deprived of the fruits of his labor and of the capital he has invested in his operation by a larger concern desiring to operate between the same points. In Re Kocin (Mont.), P. U. R., 1924C, 214:

Certificates permitting the operation of motor vehicles for carrying passengers for hire over regular routes between points served by steam and electric railways should not be granted when the existing service is reasonable, safe, and adequate as required by statue. In Re Murphy (Minnesota), P.U.R., 1927C, 807:

A certificate authorizing the operation of passenger motor service should be denied where the record shows that the admission of another operator into the territory served by present licensees is not necessary and would render their licensee oppressive and confiscatory because of further division and depletion of revenues and would defeat the purpose of the statue and disorganize the public service. In Re Nevada California Stage Co., P. U. R., 1924A, 460: The Nevada Commission denied an application for a certificate of convenience and necessity for the operation of an automobile passenger service in view of the fact that the service within the territory proposed to be served appeared to be adequate and it was the policy of the Commission to protect the established line in the enjoyment of business which it had built, and in view of the further fact that it was very uncertain whether the applicant

Authority to operate an auto transportation service over a route which is served by another auto transportation company should be denied if no necessity is shown for additional service. In Re Hall, editorial notes, P. U. R., 1927E: A certificate of convenience and necessity for the operation of a motor carrier service has been denied by the Colorado Commission where the only ground adduced for the certificate was that competition thereby afforded to an existing utility would benefit the public by lowering rates. The Commission said: "Up to the present time the Commission has never issued a certificate authorizing a duplication of motor vehicle operation over a given route unless it appeared that the service already rendered was not adequate, that there was no ruinous competition or that

the second applicant could, while operating on a sound businesslike basis, afford transportation at cheaper rates than those already in effect. There has been no complaint to date as to the rates now being charged on the routes over which the applicant desires to serve. Moreover, the Commission stand ready, at any time the unreasonable of the rates of any carrier are questioned, to determine their reasonableness and to order them reduced if they are shown to be unreasonable." In this case the Commission also expressed its disappoval of the practice of an applicant securing a certificate for the sole purpose of transferring it to another. In Re Sumner (Utah), P. U. R., 1927D, 734: The operation of an automobile stage line will not be authorized over a route adequately served by a railroad and other bus line, although the proposed service would be an added convenience to the territory. In Bartonville Bus Line vs. Eagle Motor Coach Line (Ill. Sup. Court), 157 N. E., 175; P. U. R., 1927E, 333: The policy of the state is to compel an established public utility occupying a given filed to provide adequate service and at the same time protect it from ruinous competition, and to allow it an apportunity to provide additional service when required instead of permitting such service by a newly established competitor. Upon the question of "Reason and Rule for Regulation," in section 775, Pond says: The policy of regulation, upon which our present public utility commission plan is based and which tends to do away with competition among public utilities as they are natural monopolies, is at once the reason and the justification for the holding of our courts that the regulation of an existing system of transportation, which is properly serving a given field or may be required to do so, is to be preferred to competition among several independent systems. While requiring a proper service from a single system for a city or territory in consideration for protecting it as a monopoly for all the service required and in conserving its resources, no economic waste results and

service may be furnished at the minimum cost. The prime object and real purpose of commission control is to secure adequate sustained service for the public at the least possible cost, and to protect and conserve investments already made for this purpose. Experience has demostrated beyond any question that competition among natural monopolies is wasteful economically and results finally in insufficient and unsatisfactory service and extravagant rates. Neither the number of the individuals demanding other service nor the question of the fares constitutes the entire question, but rather what the proper agency should be to furnish the best service to the public generally and continuously at the least cost. Anything which tends to cripple seriously or destroy an established system of transportation that is necessary to a community is not a convenience and necessity for the public and its introduction would be a handicap rather than a help ultimately in such a field. That is the legal construction which should be placed on paragraph (e) of section 14, and paragraph (b) and (c) of section 15 of the Public Service Law. We are clearly of the opinion that the order of the Commission granting the petition of Orlanes in question, for the reason therein stated, is null and void, and that it is in direct conflict with the underlying and fundamental priciples for which the Commission was created.1awphi1.net The question presented is very important and far-reaching and one of first impression in this court, and for such reasons we have given this case the careful consideration which its importance deserves. The Government having taken over the control and supervision of all public utilities, so long as an operator under a prior license complies with the terms and conditions of his license and reasonable rules and regulation for its operation and meets the reasonable demands of the public, it is the duty of the Commission to protect rather than to destroy his investment by the granting of a subsequent license to another for the same thing over the same route of travel. The granting of such a license does not serve its convenience or promote the interests of the public. The decision of the Public Service Commission, granting to Orlanes the license in question, is revoked and set aside, and the case is remanded to the Commission for such other and further proceedings as are not inconsistent with this opinion. Neither party to recover costs on this appeal. So ordered. Johnson, Street, Malcolm and Ostrand, JJ., concur.

Separate Opinions

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

FIRST DIVISION G.R. No. L-61461 August 21, 1987 EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners, vs. PANTRANCO SOUTH EXPRESS, INC., respondent. CARDINAL SHIPPING CORPORATION, petitioner, vs. HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH EXPRESS, INC., respondents.

2. Market conditions in the proposed route cannot support the entry of additional tonnage; vessel acquisitions intended for operations therein are necessarily limited to those intended for 2 replacement purposes only. PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3 Million pesos. It wrote the Chairman of the Board of Transportation (BOT) through its counsel, that it proposes to operate a ferry service to carry its passenger buses and freight trucks between Allen and Matnog in connection with its trips to Tacloban City invoking the case of 3 Javellana vs. Public Service Commission. PANTRANCO claims that it can operate a ferry service in connection with its franchise for bus operation in the highway from Pasay City to Tacloban City "for the purpose of continuing the highway, which is interrupted by a small body of water, the said proposed ferry operation is merely a necessary and incidental service to its main service and obligation of transporting its passengers from Pasay City to Tacloban City. Such being the case ... there is no need ... to obtain a separate certificate for public convenience to operate a ferry service between Allen and Matnog to cater exclusively to its passenger buses and 4 freight trucks. Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting Chairman Jose C. Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the application for hearing on 5 Oct. 1, 1981 at 10:00 A.M. In another order BOT enjoined PANTRANCO from operating the MV "Black Double" otherwise it will be cited to show cause why its CPC should not be suspended or the pending application 6 denied. Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are franchise holders of the ferry service in this area interposed their opposition. They claim they adequately service the PANTRANCO by ferrying its buses, trucks and passengers. BOT then asked the legal opinion from the Minister of Justice whether or not a bus company with an existing CPC between Pasay City and Tacloban City may still be required to secure another certificate in order to operate a ferry service between two terminals of a small body of water . On October 20, 1981 then Minister of Justice Ricardo Puno rendered an opinion to the effect that there is no need for bus operators to secure a separate CPC to operate a ferryboat service holding as follows: Further, a common carrier which has been granted a certificate of public convenience is expected to provide efficient, convenient and adequate service

GANCAYCO, J.: The question that is posed in these petitions for review is whether the sea can be considered as a continuation of the highway. The corollary issue is whether a land transportation company can be authorized to operate a ferry service or coastwise or interisland shipping service along its authorized route as an incident to its franchise without the need of filing a separate application for the same. The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic corporation engaged in the land transportation business with PUB service for passengers and freight and various certificates for public conveniences CPC to operate passenger buses from Metro Manila to Bicol Region and Eastern Samar. On March 27,1980 PANTRANCO through its counsel wrote to Maritime Industry Authority (MARINA) requesting authority to lease/purchase a vessel named M/V "Black Double" "to be used for its project to operate a ferryboat service from Matnog, Sorsogon and Allen, Samar that will provide service to company buses and freight trucks that have to cross San Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed by MARINA that it cannot give due course to the request on the basis of the following observations: 1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and Epitacio San Pablo; MARINA policies on interisland shipping restrict the entry of new operators to Liner trade routes where these are adequately serviced by existing/authorized operators.

to the riding public. (Hocking Valley Railroad Co. vs. Public Utilities Commission, 1 10 NE 521; Louiseville and NR Co. vs. Railroad Commissioners, 58 SO 543) It is the right of the public which has accepted the service of a public utility operator to demand that the service should be conducted with reasonable efficiency. (Almario, supra, citing 73 C.J.S. 990-991) Thus, when the bus company in the case at bar proposes to add a ferry service to its Pasay Tacloban route, it merely does so in the discharge of its duty under its current certificate of public convenience to provide adequate and convenient service to its riders. Requiring said bus company to obtain another certificate to operate such ferry service when it merely forms a part and constitutes an improvement of its existing transportation service would simply be duplicitous and 7 superfluous. Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service is part of its CPC to operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect the same in this wise: Let the original Certificate of public convenience granted to Pantranco South Express Co., Inc. be amended to embody the grant of authority to operate a private ferry boat service as one of the conditions for the grant of the certificate subject to the condition that the ferryboat shall be for the exclusive use of Pantranco buses, its passengers and freight trucks, and should it offer itself to the public for hire other than its own passengers, it must apply for a separate certificate of public convenience as a public ferry boat service, separate and distinct from its land transport 8 systems. Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration of said decision and San Pablo filed a supplemental motion for reconsideration that were denied by the BOT on 9 July 21, 1981. Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary injunction 10 seeking the revocation of said decision,

and pending consideration of the petition, the issuance of a restraining order or preliminary injunction against the operation by PANTRANCO of said ferry service. San Pablo raised the following issues: A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE PROCESS, THE RULES OF PROCEDURE AND SECTION 16 (m) OF THE PUBLIC SERVICE ACT, WHEN IT ISSUED IN A COMPLAINT CASE THE DECISION DATED OCTOBER 23, 1981 WHICH MOTU PROPIO AMENDED RESPONDENT PANTRANCO'S PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION OF A SHIPPING SERVICE ON THE ROUTE MATNOG, SORSOGON ALLEN, SAMAR EVEN AS THERE MUST BE A FORMAL APPLICATION FOR AMENDMENT AND SEPARATE PROCEEDINGS HELD THEREFORE, ASSUMING AMENDMENT IS PROPER? B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF OCTOBER 23, 1981, THAT THE SEA FROM THE PORT OF MATNOG, SORSOGON, LUZON ISLAND TO THE PORT OF ALLEN, SAMAR ISLAND, OR FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY OR CONTINUATION OF THE HIGHWAY IT BEING 23 KILOMETERS OF ROUGH AND OPEN SEA AND ABOUT 2 HOURS TRAVEL TIME REQUIRING BIG INTER-ISLAND VESSELS, NOT MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN FERRY SERVICE? C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT PANTRANCO'S VESSEL M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER, NOT A PUBLIC FERRY OPERATING FOR PUBLIC SERVICE (ASSUMING THAT THE MATNOG-ALLEN SEA ROUTE IS A MERE FERRY OR CONTINUATION OF HIGHWAY) EVEN IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE FARES AND CATERS TO THE PUBLIC EVEN FOR A LIMITED CLIENTELE?

D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE IN THE FACE OF THE LATTER'S CONTENTION AS AN AFTER THOUGH THAT IT NEED NOT APPLY THEREFOR, AND IN SPITE OF ITS FAILURE TO SECURE THE PREREQUISITE MARITIME INDUSTRY AUTHORITY (MARINA) APPROVAL TO ACQUIRE A VESSEL UNDER ITS MEMORANDUM CIRCULAR NO. 8-A AS WELL AS ITS PRIOR FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING AUTHORIZATION MAY BE GRANTED UNDER BOT MARINA AGREEMENT OF AUGUST 10, 1976 AND FEBRUARY 26, 1982? E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE ON A ROUTE ADEQUATELY SERVICED IF NOT ALREADY "SATURATED" WITH THE SERVICES OF TWO 12) EXISTING OPERATORS PETITIONERS AND CARDINAL SHIPPING CORP.) IN VIOLATION OF THE PRINCIPLE OF PRIOR OPERATOR RULE'? 11 By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues, namely: a. the decision did not conform to the procedures laid down by law for an amendment of the original certificate of public convenience, and the authority to operate a private ferry boat service to PANTRANCO was issued without ascertaining the established essential requisites for such grant, hence, violative of due process requirements; b. the grant to PANTRANCO of authority to operate a ferryboat service as a private carrier on said route contravenes existing government policies relative to the rationalization of operations of all water transport utilities; c. it contravenes the memorandum of agreement between MARINA and the Board of Transportation;

d. the grant of authority to operate a ferry service as a private carrier is not feasible; it lessens PANTRANCO's liability to passengers and cargo to a degree less than extraordinary diligence? e. PANTRANCO is not a private carrier when it operates its ferry service; f. it runs counter to the "old operator" doctrine; and g. the operation by PANTRANCO of the ferry service c nstitutes undue competition. The foregoing considerations constitutes the substantial errors committed by the respondent Board which would more than amply justify review of the questioned decision by this Honorable Court.12 Both cases were consolidated and are now admitted for decision. The resolution of all said issues raised revolves on the validity of the questioned BOT decision. The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a part of the authority originally granted PANTRANCO in the following manner: A ferry service, in law, is treated as a continuation of the highway from one side of the water over which passes to the other side for transportation of passengers or of travellers with their teams vehicles and such other property as, they may carry or have with them. (U.S. vs. Pudget Sound Nev. Co. DC Washington, 24 F. Supp. 431). It maybe said to be a necessary service of a specially constructed boat to carry passengers and property across rivers or bodies of water from a place in one shore to a point conveniently opposite on the other shore and continuation of the highway making a connection with the thoroughfare at each terminal (U.S. vs. Canadian Pac. N.Y. Co. 4 P. Supp, 85). It comprises not merely the privilege of transportation but also the use for that purpose of

the respective landings with outlets therefrom. (Nole vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry service maybe a public ferry or a private ferry. A public ferry service is one which all the public have the right to resort to and for which a regular fare is established and the ferryman is a common carrier be inbound to take an who apply and bound to keep his ferry in operation and good repair. (Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A ferry (private) service is mainly for the use of the owner and though he may take pay for ferriage, he does not follow it as a business. His ferry is not open to the public at its demand and he may or may not keep it in operation (Hudspeth vs. Hall, supra, St. Paul Fire and Marine Ins. 696), Harrison, 140 Ark 158; 215 S.W. 698). The ferry boat service of Pantranco is a continuation of the highway traversed by its buses from Pasay City to Samar, Leyte passing through Matnog (Sorsogon) through San Bernardino Strait to Alien (Samar). It is a private carrier because it will be used exclusively to transport its own buses, passengers and freight trucks traversing the said route. It will cater exclusively to the needs of its own clientele (passengers on board- Pantranco buses) and will not offer itself indiscriminately for hire or for compensation to the general public. Legally therefore, Pantranco has the right to operate the ferry boat M/V BLACK DOUBLE, along the route from Matnog (Sorsogon) to Allen (Samar) and vice versa for the exclusive use of its own buses, passengers and freight trucks without the need of applying for a separate certificate of public convenience or provisional authority. Since its operation is an integral part of its land transport system, its original certificate of public convenience should be amended to include the operation of such ferryboat for its own exclusive use In Javellana 14 this Court recited the following definition of ferry : The term "ferry" implied the continuation by means of boats, barges, or rafts, of a highway or the connection of highways located on the opposite

banks of a stream or other body of water. The term necessarily implies transportation for a short distance, almost invariably between two points, which is unrelated to other transportation .(Emphasis supplied) The term "ferry" is often employed to denote the right or franchise granted by the state or its authorized mandatories to continue by means of boats, an interrupted land highway over the interrupting waters and to charge toll for the use thereof by the public. In this sense it has also been defined as a privilege, a liberty, to take tolls for transporting passengers and goods across a lake or stream or some other body of water, with no essential difference from a bridge franchise except as to the mode of transportation, 22 Am. Jur. 553. A "ferry" has been defined by many courts as "a public highway or thoroughfare across a stream of water or river by boat instead of a bridge." (St. Clare Country v. Interstate Car and Sand Transfer Co., 192 U.S. 454, 48 L. ed. 518; etc.) The term ferry is often employed to denote the right or franchise granted by the state or its authorized mandatories to continue by means of boats, an interrupted land highway over the interrupting waters and to charge toll for the use thereof by the public. (Vallejo Ferry Co. vs. Solano Aquatic Club, 165 Cal. 255, 131 P. 864, Ann. Cas. 1914C 1179; etc.) (Emphasis supplied) "Ferry" is service necessity for common good to reach point across a stream lagoon, lake, or bay. (U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)' "Ferry" properly means a place of transit across a river or arm of the sea, but in law it is treated as a franchise, and defined as the exclusive right to carry passengers across a river, or arm of the sea, from one vill to another, or to connect a continuous line of road leading from township or vill to another.

(Canadian Pac. Ry. Co. vs. C.C. A. Wash. 73 F. 2d. 831, 832)' Includes various waters: (1) But an arm of the sea may include various subordinate descriptions of waters, where the tide ebbs and flows. It may be a river, harbor, creek, basin, or bay; and it is sometimes used to designate very extensive reaches of waters within the projecting capes or points or a country. (See Rex vs. Bruce, Deach C.C. 1093). (2) In an early case the court said: "The distinction between rivers navigable and not navigable, that is, where the sea does, or does not, ebb and flow, is very ancient. Rex vs. Smith, 2 Dougl. 441, 99 Reprint 283. The former are called arms of the sea, while the latter pass under the denomination of private or inland rivers" Adams vs. Pease 2 Conn. 481, 484. (Emphasis supplied) In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio & Carillo and Municipality of Gattaran vs. Elizaga 17 this Court considered as ferry service such water service that crosses rivers. However, in Javellana We made clear distinction between a ferry service and coastwise or interisland service by holding that: We are not unmindful of the reasons adduced by the Commission in considering the motorboat service between Calapan and Batangas as ferry; but from our consideration of the law as it stands, particularly Commonwealth Act No. 146, known as the Public Service Act and the provisions of the Revised Administrative Code regarding municipal ferries and those regarding the jurisdiction of the Bureau of Customs over documentation, registration, licensing, inspection, etc. of steamboats, motorboats or motor vessels, and the definition of ferry as above quoted we have the impression and we are inclined to believe that the Legislature intended ferry to mean the service either by barges or rafts, even by motor or steam vessels, between the banks of a river or stream to continue the highway which is interrupted by the body of water, or in some cases to connect two points on opposite shores of an arm of the sea

such as bay or lake which does not involve too great a distance or too long a time to navigate But where the line or service involves crossing the open sea like the body of water between the province of Batangas and the island of Mindoro which the oppositors describe thus "the intervening waters between Calapan and Batangas are wide and dangerous with big waves where small boat barge, or raft are not adapted to the service," then it is more reasonable to regard said line or service as more properly belonging to interisland or coastwise trade. According to the finding of the Commission itself the distance between Calapan is about 24 nautical miles or about 44.5 kilometers. We do not believe that this is the short distance contemplated by the Legislature in referring to ferries whether within the jurisdiction of a single municipality or ferries between two municipalities or provinces. If we are to grant that water transportation between Calapan and Batangas is ferry service, then there would be no reason for not considering the same service between the different islands of the Philippines, such as Boac Marinduque and Batangas; Roxas City of Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao, Surigao; and Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro. The Commission makes the distinction between ferry service and motorship in the coastwise trade, thus: A ferry service is distinguished from a motorship or motorboat service engaged in the coastwise trade in that the latter is intended for the transportation of passengers and/or freight for hire or compensation between ports or places in the Philippines without definite routes or lines of service. We cannot agree. The definiteness of the route of a boat is not the deciding factor. A boat of say the William Lines, Inc. goes from Manila to Davao City via Cebu, Tagbilaran, Dumaguete, Zamboanga, every week. It has a definite route, and yet it may

not for that reason be regarded as engaged in ferry service. Again, a vessel of the Compania Maritima makes the trip from Manila to Tacloban and back, twice a week. Certainly, it has a definite route. But that service is not ferry service, but rather interisland or coastwise trade. We believe that it will be more in consonance with the spirit of the law to consider steamboat or motorboat service between the different islands, involving more or less great distance and over more or less turbulent and dangerous waters of the open sea, to be coastwise or inter-island service. Anyway, whether said service between the different islands is regarded as ferry service or coastwise trade service, as long as the water craft used are steamboats, motorboats or motor vessels, the result will be the same as far as the Commission is concerned. " 18 (Emphasis supplied) This Court takes judicial notice of the fact, and as shown by an examination of the map of the Philippines, that Matnog which is on the southern tip of the island of Luzon and within the province of Sorsogon and Allen which is on the northeastern tip of the island of Samar, is traversed by the San Bernardino Strait which leads towards the Pacific Ocean. The parties admit that the distance between Matnog and Allen is about 23 kilometers which maybe negotiated by motorboat or vessel in about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours according to petitioners. As the San Bernardino Strait which separates Matnog and Allen leads to the ocean it must at times be choppy and rough so that it will not be safe to navigate the same by small boats or barges but only by such steamboats or vessels as the MV "Black Double. 19 Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. Under no circumstance can the sea between Matnog and Allen be considered a continuation of the highway. While a ferry boat service has been considered as a continuation of the highway when crossing rivers or even lakes, which are small body of waters - separating the land, however, when as in this case the two terminals, Matnog and Allen are separated by an open sea it can not be considered as a continuation of the highway. Respondent PANTRANCO should secure a separate CPC for the operation of an interisland or coastwise shipping service in accordance with the

provisions of law. Its CPC as a bus transportation cannot be merely amended to include this water service under the guise that it is a mere private ferry service. The contention of private respondent PANTRANCO that its ferry service operation is as a private carrier, not as a common carrier for its exclusive use in the ferrying of its passenger buses and cargo trucks is absurd. PANTRANCO does not deny that it charges its passengers separately from the charges for the bus trips and issues separate tickets whenever they 20 board the MV "Black Double" that crosses Matnog to Allen, PANTRANCO cannot pretend that in issuing tickets to its passengers it did so as a private carrier and not as a common carrier. The Court does not see any reason why inspite of its amended franchise to operate a private ferry boat service it cannot accept walk-in passengers just for the purpose of crossing the sea between Matnog and Allen. Indeed evidence to this 21 effect has been submitted. What is even more difficult to comprehend is that while in one breath respondent PANTRANCO claims that it is a private carrier insofar as the ferryboat service is concerned, in another breath it states that it does not thereby abdicate from its obligation as a common carrier to observe extraordinary diligence and vigilance in the transportation of its passengers and goods. Nevertheless, considering that the authority granted to PANTRANCO is to operate a private ferry, it can still assert that it cannot be held to account as a common carrier towards its passengers and cargo. Such an anomalous situation that will jeopardize the safety and interests of its passengers and the cargo owners cannot be allowed. What appears clear from the record is that at the beginning PANTRANCO planned to operate such ferry boat service between Matnog and Alien as a common carrier so it requested authority from MARINA to purchase the 22 vessel M/V "Black Double in accordance with the procedure provided for 23 by law for such application for a certificate of public convenience. However when its request was denied as the said routes "are adequately 24 serviced by existing/authorized operators, it nevertheless purchased the vessel and started operating the same. Obviously to go about this obstacle to its operation, it then contrived a novel theory that what it proposes to operate is a private ferryboat service across a small body of water for the exclusive use of its buses, trucks and passengers as an incident to its franchise to convey passengers and cargo on land from Pasay City to Tacloban so that it believes it need not secure a separate certificate of 25 public convenience. Based on this representation, no less than the Secretary of Justice was led to render an affirmative opinion on October 20, 26 1981, followed a few days later by the questioned decision of public 27 respondent of October 23, 1981. Certainly the Court cannot give its imprimatur to such a situation.

Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat service but a coastwise or interisland shipping service. Before private respondent may be issued a franchise or CPC for the operation of the said service as a common carrier, it must comply with the usual requirements of filing an application, payment of the fees, publication, adducing evidence at a hearing and affording the oppositors 28 the opportunity to be heard, among others, as provided by law. WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of Transportation (BOT) of October 23, 1981 in BOT Case No. 81-348-C and its Order of July 21, 1982 in the same case denying the motions for reconsideration filed by petitioners are hereby Reversed and set aside and declared null and void. Respondent PANTRANCO is hereby permanently enjoined from operating the ferryboat service and/or coastwise/interisland services between Matnog and Allen until it shall have secured the appropriate Certificate of Public Convenience (CPC) in accordance with the requirements of the law, with costs against respondent PANTRANCO. SO ORDERED. Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur.

SECOND DIVISION G.R. No. L-65510 March 9, 1987 TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner, vs. HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents. Cirilo A. Diaz, Jr. for petitioner. Henry V. Briguera for private respondent.

account of the defendant was already P2,731.06 as shown in a statement of account (Exhibit. "B"). This amount includes not only the balance of P1,700.00 but an additional 12% interest per annum on the said balance from January 26, 1976 to February 27, 1978; a 2% service charge; and P 546.21 representing attorney's fees. In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a security for the payment of the balance of the purchase price. It has been the practice of financing firms that whenever there is a balance of the purchase price the registration papers of the motor vehicle subject of the sale are not given to the buyer. The records of the LTC show that the motorcycle sold to the defendant was first mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one and the same, because it was made to appear that way only as the defendant had no franchise of his own and he attached the unit to the plaintiff's MCH Line. The agreement also of the parties here was for the plaintiff to undertake the yearly registration of the motorcycle with the Land Transportation Commission. Pursuant to this agreement the defendant on February 22, 1976 gave the plaintiff P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the registration fee of the motorcycle. The plaintiff, however failed to register the motorcycle on that year on the ground that the defendant failed to comply with some requirements such as the payment of the insurance premiums and the bringing of the motorcycle to the LTC for stenciling, the plaintiff saying that the defendant was hiding the motorcycle from him. Lastly, the plaintiff explained also that though the ownership of the motorcycle was already transferred to the defendant the vehicle was still mortgaged with the consent of the defendant to the Rural Bank of Camaligan for the reason that all motorcycle purchased from the plaintiff on credit was rediscounted with the bank.

PARAS, J.: "'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his acts." (Lita Enterprises vs. IAC, 129 SCRA 81.) The factual background of this case is undisputed. The same is narrated by the respondent court in its now assailed decision, as follows: On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and a sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). Out of the total purchase price the defendant gave a downpayment of P1,700.00 with a promise that he would pay plaintiff the balance within sixty days. The defendant, however, failed to comply with his promise and so upon his own request, the period of paying the balance was extended to one year in monthly installments until January 1976 when he stopped paying anymore. The plaintiff made demands but just the same the defendant failed to comply with the same thus forcing the plaintiff to consult a lawyer and file this action for his damage in the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation. The plaintiff also claims that as of February 20, 1978, the total

On his part the defendant did not dispute the sale and the outstanding balance of P1,700. 00 still payable to the plaintiff. The defendant was persuaded to buy from the plaintiff the motorcycle with the side car because of the condition that the plaintiff would be the one to register every year the motorcycle with the Land Transportation Commission. In 1976, however, the plaintfff failed to register both the chattel mortgage and the motorcycle with the LTC notwithstanding the fact that the defendant gave him P90.00 for mortgage fee and registration fee and had the motorcycle insured with La Perla Compana de Seguros (Exhibit "6") as shown also by the Certificate of cover (Exhibit "3"). Because of this failure of the plaintiff to comply with his obligation to register the motorcycle the defendant suffered damages when he failed to claim any insurance indemnity which would amount to no less than P15,000.00 for the more than two times that the motorcycle figured in accidents aside from the loss of the daily income of P15.00 as boundary fee beginning October 1976 when the motorcycle was impounded by the LTC for not being registered. The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycle resulting in its not being registered. The truth being that the motorcycle was being used for transporting passengers and it kept on travelling from one place to another. The motor vehicle sold to him was mortgaged by the plaintiff with the Rural Bank of Camaligan without his consent and knowledge and the defendant was not even given a copy of the mortgage deed. The defendant claims that it is not true that the motorcycle was mortgaged because of re-discounting for rediscounting is only true with Rural Banks and the Central Bank. The defendant puts the blame on the plaintiff for not registering the motorcycle with the LTC and for not giving him the registration papers inspite of demands made. Finally, the evidence of the defendant shows that because of the filing of this case he was forced to retain the services of a lawyer for a fee on not less than P1,000.00.

xxx xxx xxx ... it also appears and the Court so finds that defendant purchased the motorcycle in question, particularly for the purpose of engaging and using the same in the transportation business and for this purpose said trimobile unit was attached to the plaintiffs transportation line who had the franchise, so much so that in the registration certificate, the plaintiff appears to be the owner of the unit. Furthermore, it appears to have been agreed, further between the plaintiff and the defendant, that plaintiff would undertake the yearly registration of the unit in question with the LTC. Thus, for the registration of the unit for the year 1976, per agreement, the defendant gave to the plaintiff the amount of P82.00 for its registration, as well as the insurance coverage of the unit. Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages" against private respondent Pedro N. Nale in the City Court of Naga City. The City Court rendered judgment in favor of petitioner, the dispositive portion of which reads: WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant to pay plaintiff the sum of P1,700.00 representing the unpaid balance of the purchase price with legal rate of interest from the date of the filing of the complaint until the same is fully paid; to pay plaintiff the sum of P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation; and to pay the costs. SO ORDERED. On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private respondent filed a petition for review with the Intermediate Appellate Court and on July 18, 1983 the said Court promulgated its decision, the pertinent portion of which reads However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the private respondent Jaucian, pursuant to what is commonly known as the "kabit system", without the

prior approval of the Board of Transportation (formerly the Public Service Commission) was an illegal transaction involving the fictitious registration of the motor vehicle in the name of the private respondent so that he may traffic with the privileges of his franchise, or certificate of public convenience, to operate a tricycle service, the parties being in pari delicto, neither of them may bring an action against the other to enforce their illegal contract [Art. 1412 (a), Civil Code]. xxx xxx xxx WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja Marketing and/or Angel Jaucian, as well as the counterclaim of petitioner Pedro Nale in Civil Case No. 1153 of the Court of First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City) are dismissed. No pronouncement as to costs. SO ORDERED. The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian presenting a lone assignment of error whether or not respondent court erred in applying the doctrine of "pari delicto." We find the petition devoid of merit. Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system" whereby a person who has been granted a certificate of public convenience allows another person who owns motor vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government. Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices. Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to public policy and, therefore, void and in existent under Article 1409 of the Civil Code. It is a fundamental principle that the court will not aid either party to enforce an illegal contract,

but will leave both where it finds then. Upon this premise it would be error to accord the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides: Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: 1. When the fault is on the part of both contracting parties, neither may recover that he has given by virtue of the contract, or demand, the performance of the other's undertaking. The defect of in existence of a contract is permanent and cannot be cured by ratification or by prescription. The mere lapse of time cannot give efficacy to contracts that are null and void. WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the Intermediate Appellate Court (now the Court of Appeals) is AFFIRMED. No costs. SO ORDERED. Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortez, JJ., concur. Alampay, J., took no part.

EN BANC G.R. No. L-9907 June 30, 1958

there was then no other means of transportation, to which defendant agreed, and in that same morning the pick-up left Parang bound for Davao taking along six passengers, including Lara. The pick-up has a front seat where the driver and two passengers can be accommodated and the back has a steel flooring enclosed with a steel walling of 16 to 17 inches tall on the sides and with a 19 inches tall walling at the back. Before leaving Parang, the sitting arrangement was as follows: defendant was at the wheel and seated with him in the front seat were Mrs. Valencia and Nicanor Quinain; on the back of the pick-up were two improvised benches placed on each side, and seated on the right bench were Ricardo Alojipan and Antonio Lagahit, and on the left one Bernardo and Pastor Geronimo. A person by the name of Leoning was seated on a box located on the left side while in the middle Lara sat on a bag. Before leaving Parang, defendant invited Lara to sit with him on the front seat but Lara declined. It was their understanding that upon reaching barrio Samoay, Cotabato, the passengers were to alight and take a bus bound for Davao, but when they arrived at that place, only Bernardo alighted and the other passengers requested defendant to allow them to ride with him up to Davao because there was then no available bus that they could take in going to that place. Defendant again accommodated the passengers. When they continued their trip, the sitting arrangement of the passengers remained the same, Lara being seated on a bag in the middle with his arms on a suitcase and his head cove red by a jacket. Upon reaching Km. 96, barrio Catidtuan, Lara accidentally fell from the pick-up and as a result he suffered serious injuries. Valencia stopped the pick-up to see what happened to Lara. He sought the help of the residents of that place and applied water to Lara but to no avail. They brought Lara to the nearest place where they could find a doctor and not having found any they took him to St. Joseph's Clinic of Kidapawan. But when Lara arrived he was already dead. From there they proceeded to Davao City and immediately notified the local authorities. An investigation was made regarding the circumstances surrounding the death of Lara but no criminal action was taken against defendant. It should be noted that the deceased went to the lumber concession of defendant in Parang, Cotabato upon instructions of his chief in order to classify the logs of defendant which were then ready to be exported and to be loaded on a ship anchored in the port of Parang. It took Lara six days to do his work during which he contracted malaria fever and for that reason he evinced a desire to return immediately to Davao. At that time, there was no available bus that could take him back to Davao and so he requested the defendant if he could take him in his own pick-up. Defendant agreed and, together with Lara, other passengers tagged along, most of them were

LOURDES J. LARA, ET AL., plaintiffs-appellants, vs. BRIGIDO R. VALENCIA, defendant-appellant. Castillo, Cervantes, Occea, Lozano, Montana, Cunanan, Sison and Castillo and Eligio G. Lagman for defendant-appellant. Donato C. Endriga and Emigdio Dakanay for plaintiffs-appellants. BAUTISTA ANGELO, J.: This is an action for damages brought by plaintiffs against defendant in the Court of First Instance of Davao for the death of one Demetrio Lara, Sr. allegedly caused by the negligent act of defendant. Defendant denied the charge of negligence and set up certain affirmative defenses and a counterclaim. The court after hearing rendered judgment ordering defendant to pay the plaintiffs the following amount: (a) P10,000 as moral damages; (b) P3,000 as exemplary damages; and (c) P1,000 as attorney's fees, in addition to the costs of action. Both parties appealed to this Court because the damages claimed in the complaint exceed the sum of P50,000. In their appeal, plaintiffs claim that the court a quo erred in disregarding their claim of P41,400 as actual or compensatory damages and in awarding as attorneys' fees only the sum of P1,000 instead of P3,000 as agreed upon between plaintiffs and their counsel. Defendant, on the other hand, disputes the finding of the court a quo that the oath of Demetrio Lara, Sr. was due to the negligence of defendant and the portion of the judgment which orders dependant to pay to plaintiffs moral and exemplary damages as well as attorneys' fees, said defendant contending that the court should have declared that the death of Lara was due to unavoidable accident. The deceased was an inspector of the Bureau of Forestry stationed in Davao with an annual salary of P1,800. The defendant is engaged in the business of exporting logs from his lumber concession in Cotabato. Lara went to said concession upon instructions of his chief to classify the logs of defendant which were about to be loaded on a ship anchored in the port of Parang. The work Lara of lasted for six days during which he contracted malaria fever. In the morning of January 9, 1954, Lara who then in a hurry to return to Davao asked defendant if he could take him in his pick-up as

employees of the Government. Defendant merely accommodated them and did not charge them any fee for the service. It was also their understanding that upon reaching barrio Samoay, the passengers would alight and transfer to a bus that regularly makes the trip to Davao but unfortunately there was none available at the time and so the same passengers, including Lara, again requested the defendant to drive them to Davao. Defendant again accommodated them and upon reaching Km. 96, Lara accidentally fell suffering fatal injuries. It therefore appears that the deceased, as well his companions who rode in the pick-up of defendant, were merely accommodation passengers who paid nothing for the service and so they can be considered as invited guests within the meaning of the law. As accommodation passengers or invited guests, defendant as owner and driver of the pick-up owes to them merely the duty to exercise reasonable care so that they may be transported safely to their destination. Thus, "The rule is established by the weight of authority that the owner or operator of an automobile owes the duty to an invited guest to exercise reasonable care in its operation, and not unreasonably to expose him to danger and injury by increasing the hazard of travel. This rule, as frequently stated by the courts, is that an owner of an automobile owes a guest the duty to exercise ordinary or reasonable care to avoid injuring him. Since one riding in an automobile is no less a guest because he asked for the privilege of doing so, the same obligation of care is imposed upon the driver as in the case of one expressly invited to ride" (5 Am. Jur., 626-627). Defendant, therefore, is only required to observe ordinary care, and is not in duty bound to exercise extraordinary diligence as required of a common carrier by our law (Articles 1755 and 1756, new Civil Code). The question that now arises is: Is there enough evidence to show that defendant failed to observe ordinary care or diligence in transporting the deceased from Parang to Davao on the date in question? The trial court answered the question in the affirmative but in so doing it took into account only the following facts: No debe perderse de vista el hecho, que los negocios de exportacion de trozos del demandado tiene un volumen de P1,200. Lara era empleado de la Oficina de Montes, asalariado por el gobierno, no pagado por el demandado para classificar los trozos exportados; debido a los trabajos de classificacion que duro 6 dias, en su ultimo dia Lara no durmio toda la noche, al dia siguiente, Lara fue atacado de malaria, tenia inflamada la cara y cuerpo, sufria dolores de cabeza con erupciones en la cara y cuerpo; que en la

manana, del dia 2 de enero de 1954, fecha en que Lara salio de Davao para Parang, en aeroplano para clasificar los trozos del demandado, el automobil de este condujo a aquel al aerodromo de Davao. xxx xxx xxx

El viaje de Cotabato a Davao no es menos de 8 horas, su carretera esta en malas condiciones, desnivelada, con piedras salientes y baches, que hacen del vehiculo no estable en su marcha. Lara estaba enfermo de cierta gravedad, tenia el cuerpo y cara inflamados, atacado de malaria, con dolores de cabeza y con erupciones en la cara y cuerpo. A la vista de estos hechos, el demandado debia de saber que era sumamente peligroso llevar 5 pasajeros en la parte trasera del pick-up; particularmente, para la salud de Lara; el permitirlo, el demandado no ha tomado las precausiones, para evitar un posible accidente fatal. La negative de Lara de ocupar el asiento delantero del pickup no constituye a juicio del Juzgado una defensa, pues el demendado conociendo el estado delicado de salud de Lara, no debio de haber permitido que aquel regrese a Davao en su pick-up; si querria prestar a aquel un favor, debio de haver provisto a Lara de un automobil para su regrese a Davao, ya que el demendado es un millionario; si no podia prestar a aquel este favor, debio de haver dejado a Lara en Samuay para coger aquel un camion de pasajero de Cotabato a Davao. Even if we admit as true the facts found by the trial court, still we find that the same are not sufficient to show that defendant has failed to take the precaution necessary to conduct his passengers safely to their place of destination for there is nothing there to indicate that defendant has acted with negligence or without taking the precaution that an ordinary prudent man would have taken under similar circumstances. It should be noted that Lara went to the lumber concession of defendant in answer to a call of duty which he was bound to perform because of the requirement of his office and he contracted the malaria fever in the course of the performance of that duty. It should also be noted that defendant was not in duty bound to take the deceased in his own pick-up to Davao because from Parang to Cotabato there was a line of transportation that regularly makes trips for the public, and if defendant agreed to take the deceased in his own car, it was only to accommodate him considering his feverish condition and his

request that he be so accommodated. It should also be noted that the passengers who rode in the pick-up of defendant took their respective seats therein at their own choice and not upon indication of defendant with the particularity that defendant invited the deceased to sit with him in the front seat but which invitation the deceased declined. The reason for this can only be attributed to his desire to be at the back so that he could sit on a bag and travel in a reclining position because such was more convenient for him due to his feverish condition. All the circumstances therefore clearly indicate that defendant had done what a reasonable prudent man would have done under the circumstances. There is every reason to believe that the unfortunate happening was only due to an unforeseen accident accused by the fact that at the time the deceased was half asleep and must have fallen from the pick-up when it ran into some stones causing it to jerk considering that the road was then bumpy, rough and full of stones. The finding of the trial court that the pick-up was running at more than 40 kilometers per hour is not supported by the evidence. This is a mere surmise made by the trial court considering the time the pick-up left barrio Samoay and the time the accident occured in relation to the distance covered by the pick-up. And even if this is correct, still we say that such speed is not unreasonable considering that they were traveling on a national road and the traffic then was not heavy. We may rather attribute the incident to lack of care on the part of the deceased considering that the pick-up was open and he was then in a crouching position. Indeed, the law provides that "A passenger must observe the diligence of a good father of a family to avoid injury to himself" (Article 1761, new Civil Code), which means that if the injury to the passenger has been proximately caused by his own negligence, the carrier cannot be held liable. All things considered, we are persuaded to conclude that the accident occurred not due to the negligence of defendant but to circumstances beyond his control and so he should be exempt from liability. Wherefore, the decision appealed from is reversed, without pronouncement as to costs. Paras, C. J., Bengzon, Reyes, A., Concepcion, Reyes, J. B. L., Endencia and Felix, JJ., concur.