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Republic of the Philippines 111,415 PTIC shares, or 46.

125 percent of the outstanding capital stock of PTIC, through a public


SUPREME COURT bidding to be conducted on 4 December 2006. Subsequently, the public bidding was reset to 8
Manila December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia
Presidio Capital, submitted their bids. Parallax won with a bid of 25.6 billion or US$510 million.
EN BANC
Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC
G.R. No. 176579 June 28, 2011 stockholder and buy the 111,415 PTIC shares by matching the bid price of Parallax. However,
First Pacific failed to do so by the 1 February 2007 deadline set by IPC and instead, yielded its
WILSON P. GAMBOA, Petitioner,
right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On
vs.
14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P.
Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital
SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL
stock of PTIC, with the Philippine Government for the price of 25,217,556,000 or
COMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR
US$510,580,189. The sale was completed on 28 February 2007.
AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN
ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of
METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS common shares of PLDT. With the sale, First Pacifics common shareholdings in PLDT
MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. increased from 30.7 percent to 37 percent, thereby increasing the common
NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11,
BARIN OF THE SECURITIES EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a
OF THE PHILIPPINE STOCK EXCHANGE, Respondents. public utility to not more than 40 percent.3
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-Intervention.
On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John
DECISION P. Sevilla, and PCGG Commissioner Ricardo Abcede allege the following relevant facts:
CARPIO, J.: On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment
holdings. PTIC held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT
The Case
outstanding common shares. PHI, on the other hand, was incorporated in 1977, and became the
This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity owner of 111,415 PTIC shares or 46.125 percent of the outstanding capital stock of PTIC by virtue
of the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by of three Deeds of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the
the government of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), 111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently declared by
an affiliate of First Pacific Company Limited (First Pacific). this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered
PTIC shares were reconveyed to the Republic of the Philippines in accordance with this Courts
The Antecedents decision4 which became final and executory on 8 August 2006.

The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent
Telephone Company (PLDT), are as follows:1 of the outstanding common shares of stock of PLDT, and designated the Inter-Agency Privatization
Council (IPC), composed of the Department of Finance and the PCGG, as the disposing entity. An
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a invitation to bid was published in seven different newspapers from 13 to 24 November 2006. On
franchise and the right to engage in telecommunications business. In 1969, General Telephone 20 November 2006, a pre-bid conference was held, and the original deadline for bidding scheduled
and Electronics Corporation (GTE), an American company and a major PLDT stockholder, sold 26 on 4 December 2006 was reset to 8 December 2006. The extension was published in nine different
percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) newspapers.
was incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently,
PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest
executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 bidder with a bid of 25,217,556,000. The government notified First Pacific, the majority owner
shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good of PTIC shares, of the bidding results and gave First Pacific until 1 February 2007 to exercise its
Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the right of first refusal in accordance with PTICs Articles of Incorporation. First Pacific announced its
outstanding capital stock of PTIC, were later declared by this Court to be owned by the Republic intention to match Parallaxs bid.
of the Philippines.2
On 31 January 2007, the House of Representatives (HR) Committee on Good Government
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the conducted a public hearing on the particulars of the then impending sale of the 111,415 PTIC
remaining 54 percent of the outstanding capital stock of PTIC. On 20 November 2006, the Inter- shares. Respondents Teves and Sevilla were among those who attended the public hearing. The
Agency Privatization Council (IPC) of the Philippine Government announced that it would sell the HR Committee Report No. 2270 concluded that: (a) the auction of the governments 111,415 PTIC
shares bore due diligence, transparency and conformity with existing legal procedures; and outcome of the controversy x x x where the Philippine Government is completing the sale of
(b) First Pacifics intended acquisition of the governments 111,415 PTIC shares government owned assets in [PLDT], unquestionably a public utility, in violation of the nationality
resulting in First Pacifics 100% ownership of PTIC will not violate the 40 percent restrictions of the Philippine Constitution."
constitutional limit on foreign ownership of a public utility since PTIC holds only
13.847 percent of the total outstanding common shares of PLDT.5 On 28 February 2007, The Issue
First Pacific completed the acquisition of the 111,415 shares of stock of PTIC.
This Court is not a trier of facts. Factual questions such as those raised by petitioner,9 which
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public indisputably demand a thorough examination of the evidence of the parties, are generally beyond
bidding for the sale of 111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC this Courts jurisdiction. Adhering to this well-settled principle, the Court shall confine the
(the remaining 54 percent of PTIC shares was already owned by First Pacific and its affiliates); resolution of the instant controversy solely on the threshold and purely legal issue of whether
(b) Parallax offered the highest bid amounting to 25,217,556,000; (c) pursuant to the right of the term "capital" in Section 11, Article XII of the Constitution refers to the total common shares
first refusal in favor of PTIC and its shareholders granted in PTICs Articles of Incorporation, MPAH, only or to the total outstanding capital stock (combined total of common and non-voting preferred
a First Pacific affiliate, exercised its right of first refusal by matching the highest bid offered for shares) of PLDT, a public utility.
PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when
The Ruling of the Court
MPAH paid IPC 25,217,556,000 and the government delivered the certificates for the 111,415
PTIC shares. Respondent Pangilinan denies the other allegations of facts of petitioner. The petition is partly meritorious.
On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory Petition for declaratory relief treated as petition for mandamus
relief, and declaration of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among
others, that the sale of the 111,415 PTIC shares would result in an increase in First Pacifics At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks,
common shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with only the petition for prohibition is within the original jurisdiction of this court, which however is
Japanese NTT DoCoMos common shareholdings in PLDT, would result to a total foreign common not exclusive but is concurrent with the Regional Trial Court and the Court of Appeals. The actions
shareholdings in PLDT of 51.56 percent which is over the 40 percent constitutional for declaratory relief,10 injunction, and annulment of sale are not embraced within the original
limit.6 Petitioner asserts: jurisdiction of the Supreme Court. On this ground alone, the petition could have been dismissed
outright.
If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to
37.0 percent of its common or voting- stockholdings, x x x. Hence, the consummation of the While direct resort to this Court may be justified in a petition for prohibition,11 the Court shall
sale will put the two largest foreign investors in PLDT First Pacific and Japans NTT DoCoMo, nevertheless refrain from discussing the grounds in support of the petition for prohibition since
which is the worlds largest wireless telecommunications firm, owning 51.56 percent of PLDT on 28 February 2007, the questioned sale was consummated when MPAH paid IPC
common equity. x x x With the completion of the sale, data culled from the official website of the 25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
New York Stock Exchange (www.nyse.com) showed that those foreign entities, which own at least
five percent of common equity, will collectively own 81.47 percent of PLDTs common equity. x x However, since the threshold and purely legal issue on the definition of the term "capital" in
x Section 11, Article XII of the Constitution has far-reaching implications to the national economy,
the Court treats the petition for declaratory relief as one for mandamus.12
x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT
submitted to the New York Stock Exchange for the period 2003-2005, revealed that First Pacific In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory
and several other foreign entities breached the constitutional limit of 40 percent ownership as relief as one for mandamus considering the grave injustice that would result in the interpretation
early as 2003. x x x"7 of a banking law. In that case, which involved the crime of rape committed by a foreign tourist
against a Filipino minor and the execution of the final judgment in the civil case for damages on
Petitioner raises the following issues: (1) whether the consummation of the then impending sale the tourists dollar deposit with a local bank, the Court declared Section 113 of Central Bank
of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign ownership of a Circular No. 960, exempting foreign currency deposits from attachment, garnishment or any other
public utility; (2) whether public respondents committed grave abuse of discretion in allowing the order or process of any court, inapplicable due to the peculiar circumstances of the case. The
sale of the 111,415 PTIC shares to First Pacific; and (3) whether the sale of common shares to Court held that "injustice would result especially to a citizen aggrieved by a foreign guest like
foreigners in excess of 40 percent of the entire subscribed common capital stock violates the accused x x x" that would "negate Article 10 of the Civil Code which provides that in case of doubt
constitutional limit on foreign ownership of a public utility.8 in the interpretation or application of laws, it is presumed that the lawmaking body intended right
and justice to prevail." The Court therefore required respondents Central Bank of the Philippines,
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene the local bank, and the accused to comply with the writ of execution issued in the civil case for
and Admit Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court damages and to release the dollar deposit of the accused to satisfy the judgment.
granted the motion and noted the Petition-in-Intervention.
In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in seeking, among others, to procedural infirmity of the petition for declaratory relief and treated the same as one for
enjoin and/or nullify the sale by respondents of the 111,415 PTIC shares to First Pacific or mandamus. In Alliance, the issue was whether the government unlawfully excluded petitioners,
assignee." Petitioners-in-intervention claim that, as PLDT subscribers, they have a "stake in the who were government employees, from the enjoyment of rights to which they were entitled under
the law. Specifically, the question was: "Are the branches, agencies, subdivisions, and co-production and joint venture agreements for the development of our natural resources,19 in
instrumentalities of the Government, including government owned or controlled corporations Section 7, Article XII on ownership of private lands,20 in Section 10, Article XII on the reservation
included among the four employers under Presidential Decree No. 851 which are required to pay of certain investments to Filipino citizens,21 in Section 4(2), Article XIV on the ownership of
their employees x x x a thirteenth (13th) month pay x x x ?" The Constitutional principle involved educational institutions,22 and in Section 11(2), Article XVI on the ownership of advertising
therein affected all government employees, clearly justifying a relaxation of the technical rules of companies.23
procedure, and certainly requiring the interpretation of the assailed presidential decree.
Petitioner has locus standi
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for
mandamus if the issue involved has far-reaching implications. As this Court held in Salvacion: There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question
the subject sale, which he claims to violate the nationality requirement prescribed in Section 11,
The Court has no original and exclusive jurisdiction over a petition for declaratory Article XII of the Constitution. If the sale indeed violates the Constitution, then there is a possibility
relief. However, exceptions to this rule have been recognized. Thus, where the petition that PLDTs franchise could be revoked, a dire consequence directly affecting petitioners interest
has far-reaching implications and raises questions that should be resolved, it may be as a stockholder.
treated as one for mandamus.15 (Emphasis supplied)
More importantly, there is no question that the instant petition raises matters of transcendental
In the present case, petitioner seeks primarily the interpretation of the term "capital" in Section importance to the public. The fundamental and threshold legal issue in this case, involving the
11, Article XII of the Constitution. He prays that this Court declare that the term "capital" refers national economy and the economic welfare of the Filipino people, far outweighs any perceived
to common shares only, and that such shares constitute "the sole basis in determining foreign impediment in the legal personality of the petitioner to bring this action.
equity in a public utility." Petitioner further asks this Court to declare any ruling inconsistent with
such interpretation unconstitutional. In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of
transcendental importance to the public, thus:
The interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-
reaching implications to the national economy. In fact, a resolution of this issue will determine In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and
whether Filipinos are masters, or second class citizens, in their own country. What is at stake here the object of mandamus is to obtain the enforcement of a public duty, the people are
is whether Filipinos or foreigners will have effective control of the national economy. Indeed, if regarded as the real parties in interest; and because it is sufficient that petitioner is a
ever there is a legal issue that has far-reaching implications to the entire nation, and to future citizen and as such is interested in the execution of the laws, he need not show that
generations of Filipinos, it is the threshhold legal issue presented in this case. he has any legal or special interest in the result of the action. In the aforesaid case, the
petitioners sought to enforce their right to be informed on matters of public concern, a right then
The Court first encountered the issue on the definition of the term "capital" in Section 11, Article recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws
XII of the Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No. in order to be valid and enforceable must be published in the Official Gazette or otherwise
157360.16 That case involved the same public utility (PLDT) and substantially the same private effectively promulgated. In ruling for the petitioners legal standing, the Court declared that the
respondents. Despite the importance and novelty of the constitutional issue raised therein and right they sought to be enforced is a public right recognized by no less than the fundamental law
despite the fact that the petition involved a purely legal question, the Court declined to resolve of the land.
the case on the merits, and instead denied the same for disregarding the hierarchy of
courts.17There, petitioner Fernandez assailed on a pure question of law the Regional Trial Courts Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a
Decision of 21 February 2003 via a petition for review under Rule 45. The Courts Resolution, mandamus proceeding involves the assertion of a public right, the requirement of
denying the petition, became final on 21 December 2004. personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore,
part of the general public which possesses the right.
The instant petition therefore presents the Court with another opportunity to finally settle
this purely legal issuewhich is of transcendental importance to the national economy and a Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been
fundamental requirement to a faithful adherence to our Constitution. The Court must forthwith involved under the questioned contract for the development, management and operation of the
seize such opportunity, not only for the benefit of the litigants, but more significantly for the Manila International Container Terminal, public interest [was] definitely involved
benefit of the entire Filipino people, to ensure, in the words of the Constitution, "a self-reliant and considering the important role [of the subject contract] . . . in the economic
independent national economy effectively controlled by Filipinos."18 Besides, in the light of development of the country and the magnitude of the financial consideration
vague and confusing positions taken by government agencies on this purely legal issue, present involved. We concluded that, as a consequence, the disclosure provision in the Constitution
and future foreign investors in this country deserve, as a matter of basic fairness, a categorical would constitute sufficient authority for upholding the petitioners standing. (Emphasis supplied)
ruling from this Court on the extent of their participation in the capital of public utilities and other
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public
nationalized businesses.
importance, the petitioner has the requisite locus standi.
Despite its far-reaching implications to the national economy, this purely legal issue has remained
Definition of the Term "Capital" in
unresolved for over 75 years since the 1935 Constitution. There is no reason for this Court to
Section 11, Article XII of the 1987 Constitution
evade this ever recurring fundamental issue and delay again defining the term "capital," which
appears not only in Section 11, Article XII of the Constitution, but also in Section 2, Article XII on
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum
Filipinization of public utilities, to wit: nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a
corporation to be granted authority to operate a public utility, at least 60 percent of its "capital"
Section 11. No franchise, certificate, or any other form of authorization for the must be owned by Filipino citizens.
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 The crux of the controversy is the definition of the term "capital." Does the term "capital" in
per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, Section 11, Article XII of the Constitution refer to common shares or to the total outstanding
or authorization be exclusive in character or for a longer period than fifty years. Neither shall any capital stock (combined total of common and non-voting preferred shares)?
such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so requires. The State Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers
shall encourage equity participation in public utilities by the general public. The participation of only to common shares because such shares are entitled to vote and it is through voting that
foreign investors in the governing body of any public utility enterprise shall be limited to their control over a corporation is exercised. Petitioner posits that the term "capital" in Section 11,
proportionate share in its capital, and all the executive and managing officers of such corporation Article XII of the Constitution refers to "the ownership of common capital stock subscribed and
or association must be citizens of the Philippines. (Emphasis supplied) outstanding, which class of shares alone, under the corporate set-up of PLDT, can vote and elect
members of the board of directors." It is undisputed that PLDTs non-voting preferred shares are
The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus: held mostly by Filipino citizens.30 This arose from Presidential Decree No. 217,31 issued on 16 June
1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to
Section 5. No franchise, certificate, or any other form of authorization for the subscribe to non-voting preferred shares to pay for the investment cost of installing the telephone
operation of a public utility shall be granted except to citizens of the Philippines or to line.32
corporations or associations organized under the laws of the Philippines at least sixty
per centum of the capital of which is owned by such citizens, nor shall such franchise, Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners
certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither definition of the term "capital."33 Petitioners-in-intervention allege that "the approximate foreign
shall any such franchise or right be granted except under the condition that it shall be subject to ownership of common capital stock of PLDT x x x already amounts to at least 63.54% of the total
amendment, alteration, or repeal by the National Assembly when the public interest so requires. outstanding common stock," which means that foreigners exercise significant control over PLDT,
The State shall encourage equity participation in public utilities by the general public. The patently violating the 40 percent foreign equity limitation in public utilities prescribed by the
participation of foreign investors in the governing body of any public utility enterprise shall be Constitution.
limited to their proportionate share in the capital thereof. (Emphasis supplied)
Respondents, on the other hand, do not offer any definition of the term "capital" in Section 11,
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Article XII of the Constitution. More importantly, private respondents Nazareno and Pangilinan of
Constitution, viz: PLDT do not dispute that more than 40 percent of the common shares of PLDT are held by
foreigners.
Section 8. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the
corporations or other entities organized under the laws of the Philippines sixty per procedural infirmities of the petition and the supposed violation of the due process rights of the
centum of the capital of which is owned by citizens of the Philippines,nor shall such "affected foreign common shareholders." Respondent Nazareno does not deny petitioners
franchise, certificate, or authorization be exclusive in character or for a longer period than fifty allegation of foreigners dominating the common shareholdings of PLDT. Nazareno stressed mainly
years. No franchise or right shall be granted to any individual, firm, or corporation, except under that the petition "seeks to divest foreign common shareholders purportedly exceeding
the condition that it shall be subject to amendment, alteration, or repeal by the Congress when 40% of the total common shareholdings in PLDT of their ownership over their shares."
the public interest so requires. (Emphasis supplied) Thus, "the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that
they can be heard."34 Essentially, Nazareno invokes denial of due process on behalf of the foreign
Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds common shareholders.
us that the Filipinization provision in the 1987 Constitution is one of the products of the spirit of
nationalism which gripped the 1935 Constitutional Convention.25 The 1987 Constitution "provides While Nazareno does not introduce any definition of the term "capital," he states that "among
for the Filipinization of public utilities by requiring that any form of authorization for the operation the factual assertions that need to be established to counter petitioners allegations
of public utilities should be granted only to citizens of the Philippines or to corporations or is the uniform interpretation by government agencies (such as the SEC), institutions
associations organized under the laws of the Philippines at least sixty per centum of whose capital and corporations (such as the Philippine National Oil Company-Energy Development
is owned by such citizens. The provision is [an express] recognition of the sensitive and Corporation or PNOC-EDC) of including both preferred shares and common shares in
vital position of public utilities both in the national economy and for national "controlling interest" in view of testing compliance with the 40% constitutional
security."26 The evident purpose of the citizenship requirement is to prevent aliens from limitation on foreign ownership in public utilities."35
assuming control of public utilities, which may be inimical to the national interest.27 This specific
provision explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding Similarly, respondent Manuel V. Pangilinan does not define the term "capital" in Section 11, Article
economic goal of the 1987 Constitution: to "conserve and develop our patrimony" 28 and ensure XII of the Constitution. Neither does he refute petitioners claim of foreigners holding more than
"a self-reliant and independent national economy effectively controlled by Filipinos."29 40 percent of PLDTs common shares. Instead, respondent Pangilinan focuses on the procedural
flaws of the petition and the alleged violation of the due process rights of foreigners. Respondent Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial
Pangilinan emphasizes in his Memorandum (1) the absence of this Courts jurisdiction over the ownership and the controlling interest.
petition; (2) petitioners lack of standing; (3) mootness of the petition; (4) non-availability of
declaratory relief; and (5) the denial of due process rights. Moreover, respondent Pangilinan xxxx
alleges that the issue should be whether "owners of shares in PLDT as well as owners of shares
Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed
in companies holding shares in PLDT may be required to relinquish their shares in PLDT and in
by the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares.
those companies without any law requiring them to surrender their shares and also without notice
Furthermore, ownership of record of shares will not suffice but it must be shown that the legal
and trial."
and beneficial ownership rests in the hands of Filipino citizens. Consequently, in the case of
Respondent Pangilinan further asserts that "Section 11, [Article XII of the Constitution] petitioner PLDT, since it is already admitted that the voting interests of foreigners which would
imposes no nationality requirement on the shareholders of the utility company as a gain entry to petitioner PLDT by the acquisition of SMART shares through the Questioned
condition for keeping their shares in the utility company." According to him, "Section 11 Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign
does not authorize taking one persons property (the shareholders stock in the utility company) principals and the Filipino owners is likewise admitted, there is, therefore, a violation of Section
on the basis of another partys alleged failure to satisfy a requirement that is a condition only for 11, Article XII of the Constitution.
that other partys retention of another piece of property (the utility company being at least 60%
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court
Filipino-owned to keep its franchise)."36
to support the proposition that the meaning of the word "capital" as used in Section 11, Article
The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. XII of the Constitution allegedly refers to the sum total of the shares subscribed and paid-in by
Sevilla, Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition the shareholder and it allegedly is immaterial how the stock is classified, whether as common or
of the term "capital." In its Memorandum37 dated 24 September 2007, the OSG also limits its preferred, cannot stand in the face of a clear legislative policy as stated in the FIA which took
discussion on the supposed procedural defects of the petition, i.e. lack of standing, lack of effect in 1991 or way after said opinions were rendered, and as clarified by the above-quoted
jurisdiction, non-inclusion of interested parties, and lack of basis for injunction. The OSG does not Amendments. In this regard, suffice it to state that as between the law and an opinion rendered
present any definition or interpretation of the term "capital" in Section 11, Article XII of the by an administrative agency, the law indubitably prevails. Moreover, said Opinions are merely
Constitution. The OSG contends that "the petition actually partakes of a collateral attack on PLDTs advisory and cannot prevail over the clear intent of the framers of the Constitution.
franchise as a public utility," which in effect requires a "full-blown trial where all the parties in
In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best
interest are given their day in court."38
merely advisory for it is the courts that finally determine what a law means.39
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A.
Stock Exchange (PSE), does not also define the term "capital" and seeks the dismissal of the
Arellano, Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray
petition on the following grounds: (1) failure to state a cause of action against Lim; (2) the PSE
C. Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the
allegedly implemented its rules and required all listed companies, including PLDT, to make proper
term "capital" in Section 11, Article XII of the Constitution includes preferred shares since the
and timely disclosures; and (3) the reliefs prayed for in the petition would adversely impact the
Constitution does not distinguish among classes of stock, thus:
stock market.
16. The Constitution applies its foreign ownership limitation on the corporations "capital," without
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a
distinction as to classes of shares. x x x
stockholder of record of PLDT, contended that the term "capital" in the 1987 Constitution refers
to shares entitled to vote or the common shares. Fernandez explained thus: In this connection, the Corporation Code which was already in force at the time the present
(1987) Constitution was drafted defined outstanding capital stock as follows:
The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution
refers to ownership of shares of stock entitled to vote, i.e., common shares, considering that it is Section 137. Outstanding capital stock defined. The term "outstanding capital stock", as used in
through voting that control is being exercised. x x x this Code, means the total shares of stock issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or partially paid, except treasury shares.
Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on
fully nationalized and partially nationalized activities is for Filipino nationals to be always in control Section 137 of the Corporation Code also does not distinguish between common and preferred
of the corporation undertaking said activities. Otherwise, if the Trial Courts ruling upholding shares, nor exclude either class of shares, in determining the outstanding capital stock (the
respondents arguments were to be given credence, it would be possible for the ownership "capital") of a corporation. Consequently, petitioners suggestion to reckon PLDTs foreign equity
structure of a public utility corporation to be divided into one percent (1%) common stocks and only on the basis of PLDTs outstanding common shares is without legal basis. The language of
ninety-nine percent (99%) preferred stocks. Following the Trial Courts ruling adopting the Constitution should be understood in the sense it has in common use.
respondents arguments, the common shares can be owned entirely by foreigners thus creating
an absurd situation wherein foreigners, who are supposed to be minority shareholders, control xxxx
the public utility corporation.
17. But even assuming that resort to the proceedings of the Constitutional Commission is
xxxx necessary, there is nothing in the Record of the Constitutional Commission (Vol. III) which
petitioner misleadingly cited in the Petition x x x which supports petitioners view that only 1. Amendment of the articles of incorporation;
common shares should form the basis for computing a public utilitys foreign equity.
2. Adoption and amendment of by-laws;
xxxx
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
18. In addition, the SEC the government agency primarily responsible for implementing the corporate property;
Corporation Code, and which also has the responsibility of ensuring compliance with the
Constitutions foreign equity restrictions as regards nationalized activities x x x has categorically 4. Incurring, creating or increasing bonded indebtedness;
ruled that both common and preferred shares are properly considered in determining outstanding
5. Increase or decrease of capital stock;
capital stock and the nationality composition thereof.40
6. Merger or consolidation of the corporation with another corporation or other corporations;
We agree with petitioner and petitioners-in-intervention. The term "capital" in Section 11, Article
XII of the Constitution refers only to shares of stock entitled to vote in the election of directors, 7. Investment of corporate funds in another corporation or business in accordance with this Code;
and thus in the present case only to common shares,41 and not to the total outstanding capital and
stock comprising both common and non-voting preferred shares.
8. Dissolution of the corporation.
The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:
Except as provided in the immediately preceding paragraph, the vote necessary to approve a
Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into particular corporate act as provided in this Code shall be deemed to refer only to stocks with
classes or series of shares, or both, any of which classes or series of shares may have such rights, voting rights.
privileges or restrictions as may be stated in the articles of incorporation: Provided, That no
share may be deprived of voting rights except those classified and issued as Indisputably, one of the rights of a stockholder is the right to participate in the control or
"preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided, management of the corporation.43 This is exercised through his vote in the election of directors
further, That there shall always be a class or series of shares which have complete voting rights. because it is the board of directors that controls or manages the corporation.44 In the absence of
Any or all of the shares or series of shares may have a par value or have no par value as may be provisions in the articles of incorporation denying voting rights to preferred shares, preferred
provided for in the articles of incorporation: Provided, however, That banks, trust companies, shares have the same voting rights as common shares. However, preferred shareholders are often
insurance companies, public utilities, and building and loan associations shall not be permitted to excluded from any control, that is, deprived of the right to vote in the election of directors and on
issue no-par value shares of stock. other matters, on the theory that the preferred shareholders are merely investors in the
corporation for income in the same manner as bondholders.45 In fact, under the Corporation Code
Preferred shares of stock issued by any corporation may be given preference in the distribution only preferred or redeemable shares can be deprived of the right to vote.46 Common shares cannot
of the assets of the corporation in case of liquidation and in the distribution of dividends, or such be deprived of the right to vote in any corporate meeting, and any provision in the articles of
other preferences as may be stated in the articles of incorporation which are not violative of the incorporation restricting the right of common shareholders to vote is invalid.47
provisions of this Code: Provided, That preferred shares of stock may be issued only with a stated
par value. The Board of Directors, where authorized in the articles of incorporation, may fix the Considering that common shares have voting rights which translate to control, as opposed to
terms and conditions of preferred shares of stock or any series thereof: Provided, That such terms preferred shares which usually have no voting rights, the term "capital" in Section 11, Article XII
and conditions shall be effective upon the filing of a certificate thereof with the Securities and of the Constitution refers only to common shares. However, if the preferred shares also have the
Exchange Commission. right to vote in the election of directors, then the term "capital" shall include such preferred shares
because the right to participate in the control or management of the corporation is exercised
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable through the right to vote in the election of directors. In short, the term "capital" in Section
and the holder of such shares shall not be liable to the corporation or to its creditors in respect 11, Article XII of the Constitution refers only to shares of stock that can vote in the
thereto: Provided; That shares without par value may not be issued for a consideration less than election of directors.
the value of five (5.00) pesos per share: Provided, further, That the entire consideration received
by the corporation for its no-par value shares shall be treated as capital and shall not be available This interpretation is consistent with the intent of the framers of the Constitution to place in the
for distribution as dividends. hands of Filipino citizens the control and management of public utilities. As revealed in the
deliberations of the Constitutional Commission, "capital" refers to the voting stock or controlling
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with interest of a corporation, to wit:
constitutional or legal requirements.
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
each share shall be equal in all respects to every other share.
MR. VILLEGAS. That is right.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this
Code, the holders of such shares shall nevertheless be entitled to vote on the following matters:
MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the Thus, 60 percent of the "capital" assumes, or should result in, "controlling interest" in the
equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the corporation. Reinforcing this interpretation of the term "capital," as referring to controlling interest
paid-up capital stock of a corporation"? Will the Committee please enlighten me on this? or shares entitled to vote, is the definition of a "Philippine national" in the Foreign Investments
Act of 1991,50 to wit:
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP
Law Center who provided us a draft. The phrase that is contained here which we adopted SEC. 3. Definitions. - As used in this Act:
from the UP draft is "60 percent of voting stock."
a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared or association wholly owned by citizens of the Philippines; or a corporation organized under
delinquent, unpaid capital stock shall be entitled to vote. the laws of the Philippines of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a
MR. VILLEGAS. That is right. corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital stock outstanding and
MR. NOLLEDO. Thank you.
entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee
With respect to an investment by one corporation in another corporation, say, a corporation with retirement or separation benefits, where the trustee is a Philippine national and at least sixty
60-40 percent equity invests in another corporation which is permitted by the Corporation Code, percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where
does the Committee adopt the grandfather rule? a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock
MR. VILLEGAS. Yes, that is the understanding of the Committee. outstanding and entitled to vote of each of both corporations must be owned and held by citizens
of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of
MR. NOLLEDO. Therefore, we need additional Filipino capital? each of both corporations must be citizens of the Philippines, in order that the corporation, shall
be considered a "Philippine national." (Emphasis supplied)
MR. VILLEGAS. Yes.48
In explaining the definition of a "Philippine national," the Implementing Rules and Regulations of
xxxx
the Foreign Investments Act of 1991 provide:
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock association wholly owned by the citizens of the Philippines; or a corporation organized under
or controlling interest." the laws of the Philippines of which at least sixty percent [60%] of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: trustee of funds for pension or other employee retirement or separation benefits, where the
"corporations or associations at least sixty percent of whose CAPITAL is owned by such citizens." trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the
benefit of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders
MR. VILLEGAS. Yes. own stocks in a Securities and Exchange Commission [SEC] registered enterprise, at least sixty
percent [60%] of the capital stock outstanding and entitled to vote of both corporations must be
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to owned and held by citizens of the Philippines and at least sixty percent [60%] of the members of
be owned by citizens. the Board of Directors of each of both corporation must be citizens of the Philippines, in order
that the corporation shall be considered a Philippine national. The control test shall be applied for
MR. VILLEGAS. That is right.
this purpose.
MR. AZCUNA. But the control can be with the foreigners even if they are the minority.
Compliance with the required Filipino ownership of a corporation shall be determined
Let us say 40 percent of the capital is owned by them, but it is the voting capital,
on the basis of outstanding capital stock whether fully paid or not, but only such
whereas, the Filipinos own the nonvoting shares. So we can have a situation where
stocks which are generally entitled to vote are considered.
the corporation is controlled by foreigners despite being the minority because they
have the voting capital. That is the anomaly that would result here. For stocks to be deemed owned and held by Philippine citizens or Philippine nationals,
mere legal title is not enough to meet the required Filipino equity. Full beneficial
MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973
ownership of the stocks, coupled with appropriate voting rights is essential. Thus,
and 1935 Constitutions is that according to Commissioner Rodrigo, there are
stocks, the voting rights of which have been assigned or transferred to aliens cannot
associations that do not have stocks. That is why we say "CAPITAL."
be considered held by Philippine citizens or Philippine nationals.
MR. AZCUNA. We should not eliminate the phrase "controlling interest."
Individuals or juridical entities not meeting the aforementioned qualifications are
MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied) considered as non-Philippine nationals. (Emphasis supplied)
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the On the other hand, holders of common shares are granted the exclusive right to vote in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with election of directors. PLDTs Articles of Incorporation52 state that "each holder of Common Capital
60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of Stock shall have one vote in respect of each share of such stock held by him on all matters voted
the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the upon by the stockholders, and the holders of Common Capital Stock shall have the
constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]." exclusive right to vote for the election of directors and for all other purposes."53

Under Section 10, Article XII of the Constitution, Congress may "reserve to citizens of the In short, only holders of common shares can vote in the election of directors, meaning only
Philippines or to corporations or associations at least sixty per centum of whose capital is owned common shareholders exercise control over PLDT. Conversely, holders of preferred shares, who
by such citizens, or such higher percentage as Congress may prescribe, certain areas of have no voting rights in the election of directors, do not have any control over PLDT. In fact,
investments." Thus, in numerous laws Congress has reserved certain areas of investments to under PLDTs Articles of Incorporation, holders of common shares have voting rights for all
Filipino citizens or to corporations at least sixty percent of the "capital" of which is owned by purposes, while holders of preferred shares have no voting right for any purpose whatsoever.
Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or
R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, It must be stressed, and respondents do not dispute, that foreigners hold a majority of the
Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development common shares of PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS),54 which
Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) is a document required to be submitted annually to the Securities and Exchange
Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only
P.D. No. 1521. Hence, the term "capital" in Section 11, Article XII of the Constitution is also 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the total number of
used in the same context in numerous laws reserving certain areas of investments to Filipino PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the common
citizens. shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of
control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities
To construe broadly the term "capital" as the total outstanding capital stock, including both expressly mandated in Section 11, Article XII of the Constitution.
common and non-votingpreferred shares, grossly contravenes the intent and letter of the
Constitution that the "State shall develop a self-reliant and independent national Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per
economy effectively controlled by Filipinos." A broad definition unjustifiably disregards who share the SIP58preferred shares earn a pittance in dividends compared to the common shares.
owns the all-important voting stock, which necessarily equates to control of the public utility. PLDT declared dividends for the common shares at 70.00 per share, while the declared dividends
for the preferred shares amounted to a measly 1.00 per share.59 So the preferred shares not
We shall illustrate the glaring anomaly in giving a broad definition to the term "capital." Let us only cannot vote in the election of directors, they also have very little and obviously negligible
assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non- dividend earning capacity compared to common shares.
voting preferred shares owned by Filipinos, with both classes of share having a par value of one
peso (1.00) per share. Under the broad definition of the term "capital," such corporation would As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares
be considered compliant with the 40 percent constitutional limit on foreign equity of public utilities is 5.00 per share, whereas the par value of preferred shares is 10.00 per share. In other words,
since the overwhelming majority, or more than 99.999 percent, of the total outstanding capital preferred shares have twice the par value of common shares but cannot elect directors and have
stock is Filipino owned. This is obviously absurd. only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are
owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares.61 Worse,
In the example given, only the foreigners holding the common shares have voting rights in the preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares
election of directors, even if they hold only 100 shares. The foreigners, with a minuscule equity constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the
of less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos, non-voting preferred shares but with the common shares, blatantly violating the constitutional
holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence, requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.
have no control over the public utility. This starkly circumvents the intent of the framers of the
Constitution, as well as the clear language of the Constitution, to place the control of public utilities The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the
in the hands of Filipinos. It also renders illusory the State policy of an independent national hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60
economy effectively controlled by Filipinos. percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
constitutionally required for the States grant of authority to operate a public utility. The
The example given is not theoretical but can be found in the real world, and in fact exists in undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and
the present case. earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of
directors. PLDTs Articles of Incorporation expressly state that "the holders of Serial Preferred In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60
Stock shall not be entitled to vote at any meeting of the stockholders for the election percent of the dividends, of PLDT. This directly contravenes the express command in Section
of directors or for any other purpose or otherwise participate in any action taken by the 11, Article XII of the Constitution that "[n]o franchise, certificate, or any other form of
corporation or its stockholders, or to receive notice of any meeting of stockholders."51 authorization for the operation of a public utility shall be granted except to x x x corporations x x
x organized under the laws of the Philippines, at least sixty per centum of whose capital is
owned by such citizens x x x."
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares Courts as a rule consider the provisions of the Constitution as self-executing, rather than as
exercises the sole right to vote in the election of directors, and thus exercise control over PLDT; requiring future legislation for their enforcement. The reason is not difficult to discern. For if they
(2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting are not treated as self-executing, the mandate of the fundamental law ratified by the
stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by sovereign people can be easily ignored and nullified by Congress. Suffused with
Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common wisdom of the ages is the unyielding rule that legislative actions may give breath to
shares earn;63 (5) preferred shares have twice the par value of common shares; and (6) preferred constitutional rights but congressional inaction should not suffocate them.
shares constitute 77.85% of the authorized capital stock of PLDT and common shares only
22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution. Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches
and seizures, the rights of a person under custodial investigation, the rights of an accused, and
Incidentally, the fact that PLDT common shares with a par value of 5.00 have a current stock the privilege against self-incrimination. It is recognized that legislation is unnecessary to enable
market value of 2,328.00 per share,64 while PLDT preferred shares with a par value of 10.00 courts to effectuate constitutional provisions guaranteeing the fundamental rights of life, liberty
per share have a current stock market value ranging from only 10.92 to 11.06 per share,65 is a and the protection of property. The same treatment is accorded to constitutional provisions
glaring confirmation by the market that control and beneficial ownership of PLDT rest with the forbidding the taking or damaging of property for public use without just compensation. (Emphasis
common shares, not with the preferred shares. supplied)

Indisputably, construing the term "capital" in Section 11, Article XII of the Constitution to include Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied
both voting and non-voting shares will result in the abject surrender of our telecommunications directly the provisions of the 1935, 1973 and 1987 Constitutions limiting land ownership to
industry to foreigners, amounting to a clear abdication of the States constitutional duty to limit Filipinos. In Soriano v. Ong Hoo,68this Court ruled:
control of public utilities to Filipino citizens. Such an interpretation certainly runs counter to the
constitutional provision reserving certain areas of investment to Filipino citizens, such as the x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his
exploitation of natural resources as well as the ownership of land, educational institutions and land to an alien, and as both the citizen and the alien have violated the law, none of them should
advertising businesses. The Court should never open to foreign control what the Constitution has have a recourse against the other, and it should only be the State that should be allowed to
expressly reserved to Filipinos for that would be a betrayal of the Constitution and of the national intervene and determine what is to be done with the property subject of the violation. We have
interest. The Court must perform its solemn duty to defend and uphold the intent and letter of said that what the State should do or could do in such matters is a matter of public policy, entirely
the Constitution to ensure, in the words of the Constitution, "a self-reliant and independent beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-
national economy effectively controlled by Filipinos." 5996, June 27, 1956.) While the legislature has not definitely decided what policy should
be followed in cases of violations against the constitutional prohibition, courts of
Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly justice cannot go beyond by declaring the disposition to be null and void as violative
reserving to Filipinos specific areas of investment, such as the development of natural resources of the Constitution. x x x (Emphasis supplied)
and ownership of land, educational institutions and advertising business, is self-executing.
There is no need for legislation to implement these self-executing provisions of the Constitution. To treat Section 11, Article XII of the Constitution as not self-executing would mean that since
The rationale why these constitutional provisions are self-executing was explained in Manila Prince the 1935 Constitution, or over the last 75 years, not one of the constitutional provisions expressly
Hotel v. GSIS,66 thus: reserving specific areas of investments to corporations, at least 60 percent of the "capital" of
which is owned by Filipinos, was enforceable. In short, the framers of the 1935, 1973 and 1987
x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a Constitutions miserably failed to effectively reserve to Filipinos specific areas of investment, like
constitutional mandate, the presumption now is that all provisions of the constitution are self- the operation by corporations of public utilities, the exploitation by corporations of mineral
executing. If the constitutional provisions are treated as requiring legislation instead of self- resources, the ownership by corporations of real estate, and the ownership of educational
executing, the legislature would have the power to ignore and practically nullify the mandate of institutions. All the legislatures that convened since 1935 also miserably failed to enact legislations
the fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always to implement these vital constitutional provisions that determine who will effectively control the
been, that national economy, Filipinos or foreigners. This Court cannot allow such an absurd interpretation
of the Constitution.
. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-
executing. . . . Unless the contrary is clearly intended, the provisions of the Constitution This Court has held that the SEC "has both regulatory and adjudicative functions."69 Under its
should be considered self-executing, as a contrary rule would give the legislature regulatory functions, the SEC can be compelled by mandamus to perform its statutory duty when
discretion to determine when, or whether, they shall be effective. These provisions would it unlawfully neglects to perform the same. Under its adjudicative or quasi-judicial functions, the
be subordinated to the will of the lawmaking body, which could make them entirely meaningless SEC can be also be compelled by mandamus to hear and decide a possible violation of any law it
by simply refusing to pass the needed implementing statute. (Emphasis supplied) administers or enforces when it is mandated by law to investigate such violation.1awphi1

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or
later Chief Justice, agreed that constitutional provisions are presumed to be self-executing. Justice disapprove the Articles of Incorporation of any corporation where "the required percentage of
Puno stated: ownership of the capital stock to be owned by citizens of the Philippines has not been
complied with as required by existing laws or the Constitution." Thus, the SEC is the
government agency tasked with the statutory duty to enforce the nationality requirement
prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities. This
Court, in a petition for declaratory relief that is treated as a petition for mandamus as in the ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.
present case, can direct the SEC to perform its statutory duty under the law, a duty that the SEC Associate Justice Associate Justice
has apparently unlawfully neglected to do based on the 2010 GIS that respondent PLDT submitted
to the SEC.
JOSE PORTUGAL PEREZ JOSE C. MENDOZA
Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the "power and Associate Justice Associate Justice
function" to "suspend or revoke, after proper notice and hearing, the franchise or
certificate of registration of corporations, partnerships or associations, upon any of
the grounds provided by law." The SEC is mandated under Section 5(d) of the same Code MARIA LOURDES P. A. SERENO
with the "power and function" to "investigate x x x the activities of persons to ensure Associate Justice
compliance" with the laws and regulations that SEC administers or enforces. The GIS that all
corporations are required to submit to SEC annually should put the SEC on guard against violations CERTIFICATION
of the nationality requirement prescribed in the Constitution and existing laws. This Court can
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
compel the SEC, in a petition for declaratory relief that is treated as a petition for mandamus as
above Decision had been reached in consultation before the case was assigned to the writer of
in the present case, to hear and decide a possible violation of Section 11, Article XII of the
the opinion of the Court.
Constitution in view of the ownership structure of PLDTs voting shares, as admitted by
respondents and as stated in PLDTs 2010 GIS that PLDT submitted to SEC. RENATO C. CORONA
Chief Justice
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11,
Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election
of directors, and thus in the present case only to common shares, and not to the total outstanding
capital stock (common and non-voting preferred shares). Respondent Chairperson of the
Securities and Exchange Commission is DIRECTED to apply this definition of the term "capital"
in determining the extent of allowable foreign ownership in respondent Philippine Long Distance
Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to
impose the appropriate sanctions under the law.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice

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

ARTURO D. BRION DIOSDADO M. PERALTA


Associate Justice Associate Justice

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO


Associate Justice Associate Justice
Republic of the Philippines DECISION
SUPREME COURT
Manila VILLARAMA, JR., J.:

FIRST DIVISION Before us are seven consolidated petitions for review on certiorari filed m connection with the
corporate rehabilitation of Bayan Telecommunications, Inc. (Bayantel).
G.R. NOS. 174457-59
The Petition for Partial Review on Certiorari1 in G.R. Nos. 174457-59 was filed by Express
EXPRESS INVESTMENTS III PRIVATE LTD. AND EXPORT DEVELOPMENT Investments III Private Ltd. and Export Development Canada to assail the August 18, 2006
CANADA, Petitioner, Decision2 of the Court of Appeals in CA-G.R. SP No. 87203.
vs.
DAYAN TELECOMMUNICATIONS, INC., THE BANK OF NEW YORK (AS TRUSTEE FOR On the other hand, the Petition for Review on Certiorari3 in G.R. Nos. 175418-20 was filed by The
THE HOLDERS OF THE US$200,000,000 13.5% SENIOR NOTES OF DAYAN Bank of New York; Avenue Asia Investments, L.P.; Avenue Asia International, Ltd.; Avenue Asia
TELECOMMUNICATIONS, INC.) AND ATTY. REMIGIO A. NOVAL (AS THE COURT- Special Situations Fund II, L.P.; Avenue Asia Capital Partners, L.P. and Avenue Asia Special
APPOINTED REHABILITATION RECEIVER OF BAYANTEL), Respondents. Situations Fund III, L.P. Said petition questions as well the said August 18, 2006 Court of Appeals
Decision, and also the November 8, 2006 Resolution 4 of the Court of Appeals in CA-G.R. SP Nos.
x---------------x 87100 and 87111 affirming the June 28, 2004 Decision5 of the Regional Trial Court (RTC) of Pasig
City, Branch 158, in SEC Case No. 03-25.
G.R. Nos. 175418-20
Meanwhile, the Petition for Review on Certiorari6 in G.R. No. 177270 was filed by The Bank of New
IN THE MATTER OF: York, in its capacity as trustee for the holders of the US$200 million 13.5% Senior Notes of
THE CORPORATE REHABILITATION OF DAYAN TELECOMMUNICATIONS, INC. Bayantel and upon the instructions of the Informal Steering Committee, to contest the
PURSUANT TO THE INTERIM RULES OF PROCEDURE ON CORPORATE Decision7 and Resolution8 of the Court of Appeals in CA-G.R. SP No. 89894 which nullified the
REHABILITATION (A.M. NO. 00-8-10-SC) November 9, 2004 and March 15, 2005 Orders of the Pasig RTC, Branch 158, in SEC Case No. 03-
THE BANK OF NEW YORK AS TRUSTEE FOR THE HOLDERS OF THE US$200,000,000 25 insofar as it defined the powers and functions of the Monitoring Committee.
13.5% SENIOR NOTES OF DAYAN TELECOMMUNICATIONS, INC.
DUE 2006 ACTING ON THE INSTRUCTIONS OF THE INFORMAL STEERING The facts, as culled from the records of these cases, follow:
COMMITTEE: AVENUE ASIA INVESTMENTS, L.P., AVENUE ASIA INTERNATIONAL,
LTD., AVENUE ASIA SPECIAL SITUATIONS FUND II, L.P. AND AVENUE ASIA CAPITAL Respondent Bayantel is a duly organized domestic corporation engaged in the business of
PARTNERS, L.P., Petitioner, providing telecommunication services. It is 98.6% owned by Bayan Telecommunications Holdings
vs. Corporation (BTHC), which in turn is 85.4% owned by the Lopez Group of Companies and Benpres
DAYAN TELECOMMUNICATIONS, INC., Respondents. Holdings Corporation.

x---------------x On various dates between the years 1995 and 2001, Bayantel entered into several credit
agreements with Express Investments III Private Ltd. And Export Development Canada
IN THE MATTER OF: (petitioners in G.R. Nos. 174457-59), Asian Finance and Investment Corporation, Bayerische
THE CORPORATE REHABILITATION OF BAY AN TELECOMMUNICATIONS, INC. Landesbank (Singapore Branch) and Clearwater Capital Partners Singapore Pte Ltd., as agent for
PURSUANT TO THE INTERIM RULES OF PROCEDURE ON CORPORATE Credit Industriel et Commercial (Singapore), Deutsche Bank AG, Equitable PCI Bank, JP Morgan
REHABILITATION (A.M. NO. 00-8-10-SC) Chase Bank, Metropolitan Bank and Trust Co., P.T. Bank Negara Indonesia (Persero), TBK, Hong
AVENUE ASIA INVESTMENTS, L.P., AVENUE ASIA INTERNATIONAL, LTD., AVENUE Kong Branch, Rizal Commercial Banking Corporation and Standard Chartered Bank. To secure said
ASIA SPECIAL SITUATIONS FUND II, L.P., AVENUE ASIA CAPITAL PARTNERS, L.P. loans, Bayantel executed an Omnibus Agreement dated September 19, 1995 and an EVTELCO
AND AVENUE ASIA SPECIAL SITUATIONS FUND III, L.P., Petitioner, Mortgage Trust Indenture9 dated December 12, 1997.10
vs.
DAYAN TELECOMMUNICATIONS, INC., Respondents. Pursuant to the Omnibus Agreement, Bayantel executed an Assignment Agreement in favor of the
lenders under the Omnibus Agreement (hereinafter, Omnibus Creditors, Bank Creditors, or
x---------------x secured creditors). In the Assignment Agreement, Bayantel bound itself to assign, convey and
transfer to the Collateral Agent, the following properties as collateral security for the prompt and
G.R. No. 177270 December 5, 2012 complete payment of its obligations to the Omnibus Creditors:
THE BANK OF NEW YORK AS TRUSTEE FOR THE HOLDERS OF THE US$200,000,000 (i) all monies payable to Bayantel under the Project Documents (as the term is defined by the
13.5% SENIOR NOTES OF BAY AN TELECOMMUNICATIONS, INC., Petitioner, Omnibus Agreement);
vs.
BAY AN TELECOMMUNICATIONS, INC., Respondents. (ii) all Project Documents and all Contract Rights arising thereunder;
(iii) all receivables; L. Manabat to act as rehabilitation receiver but the latter declined.16 In her stead, the court
appointed Atty. Remigio A. Noval (Atty. Noval) who took his oath and posted a bond on September
(iv) all general intangibles; 26, 2003.17
(v) each of the Accounts (as the term is defined by the Omnibus Agreement); On November 28, 2003, the Rehabilitation Court gave due course to the petition and directed the
Rehabilitation Receiver to submit his recommendations to the court within 120 days from the
(vi) all amounts maintained in the Accounts and all monies, securities and instruments deposited
initial hearing.18 After several extensions, Atty. Noval filed on March 22, 2004 a Compliance and
or required to be deposited in the Accounts;
Submission of the Report as Compelling Evidence that Bayantel may be Successfully
(vii) all other chattel paper and documents; Rehabilitated.19

(viii) all other property, assets and revenues of Bayantel, whether tangible or intangible; and In his report, Atty. Noval classified Bayantels debts into three: (1) those owed to secured Bank
Creditors pursuant to the Omnibus Agreements (Omnibus Creditors) in the total amount of US$334
(ix) all proceeds and products of any and all of the foregoing.11 million or P17.781 billion; (2) those owed to Holders of the Senior Notes and Bank Creditors
combined (Chattel Creditors), comprising US$625 million, of which US$473 million (P25.214
In July 1999, Bayantel issued US$200 million worth of 13.5% Senior Notes pursuant to an billion) is principal and US$152 million (P8.106 billion) is accrued unpaid interest; and (3) those
Indenture12 dated July 22, 1999 that it entered into with The Bank of New York (petitioner in G.R. that Bayantel owed to persons other than Financial Creditors/unsecured creditors in the amount
Nos. 175418-20) as trustee for the holders of said notes. Pursuant to the said Indenture, the of US$49 million or P2.608 billion.
notes are due in 2006 and Bayantel shall pay interest on them semi-annually. Bayantel managed
to make two interest payments, on January 15, 2000 and July 15, 2000, before it defaulted on its According to The Bank of New York, out of the US$674 million that respondent owes its creditors
obligation. under groups 2 and 3 above, the amount outstanding under the Senior Notes represent 43.2% of
its liabilities as of May 31, 2003. Subsequently, negotiations for the restructuring of Bayantels
Foreseeing the impossibility of further meeting its obligations, Bayantel sent, in October 2001, a debt reached an impasse when the Informal Steering Committee insisted on a pari
proposal for the restructuring of its debts to the Bank Creditors and the Holders of Notes. To passu treatment of the claims of both secured and unsecured creditors.
facilitate the negotiations between Bayantel and its creditors, an Informal Steering Committee
was formed composed of Avenue Asia Investments, L.P., Avenue Asia International, Ltd., Avenue Meanwhile, on January 20, 2004, Bayantel filed a "Motion to Include Radio Communications
Asia Special Situations Fund II, L.P., Avenue Asia Capital Partners, L.P. (petitioners in G.R. Nos. Philippines, Inc. [RCPI] and Naga Telephone Company [Nagatel] as Debtor-Corporations for
175418-20) and Van Eck Global Opportunity Masterfund, Ltd. The members of the Informal Rehabilitation x x x."20
Steering Committee are the assignees of the unsecured credits extended to Bayantel by J.P.
Morgan Europe, Ltd., Bayerische Landesbank Singapore Branch and Deutsche Bank AG, London The Rehabilitation Court denied said motion in an Order21 dated April 19, 2004. The fallo of said
in the total principal amount of US$13,637,485.20. They are holders, as well, of the Notes issued order reads:
by Bayantel pursuant to the Indenture dated July 22, 1999.
WHEREFORE, the Court resolves the pending incidents as follows:
In its initial proposal called the "First Term Sheet," Bayantel suggested a 25% write-off of the
1. The Urgent Motion to Resolve of petitioner is hereby granted. The creditors of Bayantel,
principal owing to the Holders of Notes. The Informal Steering Committee rejected the idea, but
whether secured or unsecured, should be treated equally and on the same footing or pari
accepted Bayantels proposal to pay the restructured debt, pari passu,13 out of its cash
passu until the rehabilitation proceedings is terminated in accordance with the Interim Rules;
flow. This pari passu or equal treatment of debts, however, was opposed by the Bank Creditors
who invoked their security interest under the Assignment Agreement. 2. The Motion of Bayantel to Include RCPI and Nagatel in the present rehabilitation proceedings
as debtor-corporations is denied;
Bayantel continued to pay reduced interest on its debt to the Bank Creditors but stopped paying
the Holders of Notes starting July 17, 2000. By May 31, 2003, Bayantels total indebtedness had 3. The Motion of Bayantel to Exempt from the Stay Order the payment of the compensation
reached US$674 million or P35.928 billion in unpaid principal and interest, based on the prevailing package of its former employees per Annex "A" attached to said motion is granted, subject to the
conversion rate of US$1 = P53.282. Out of its total liabilities, Bayantel allegedly owes 43.2% or verification and confirmation of the items therein by the Rehabilitation Receiver;
US$291 million (P15.539 billion) to the Holders of the Notes.
4. The Motion of Petitioner to Strike Out the proposed rehabilitation plan of Bayantel is denied.
On July 25, 2003, The Bank of New York, as trustee for the Holders of the Notes, wrote Bayantel
an Acceleration Letter declaring immediately due and payable the principal, premium interest, and SO ORDERED.22
other monetary obligations on all outstanding Notes. Then, on July 30, 2003, The Bank of New
York filed a petition14 for the corporate rehabilitation of Bayantel upon the instructions of the On June 28, 2004, the Pasig RTC, Branch 158, acting as a Rehabilitation Court, approved the
Informal Steering Committee. Report and Recommendations23 attached by the Receiver to his "Submission with Prayer for
Further Guidance from the Honorable Court,"24 subject to the following clarifications and/or
On August 8, 2003, the Pasig RTC, Branch 158, issued a Stay Order15 which directed, among amendments:
others, the suspension of all claims against Bayantel and required the latters creditors and other
interested parties to file a comment or opposition to the petition. The court appointed Dr. Conchita
1. The ruling on the pari passu treatment of all creditors whose claims are subject to restructuring (6) the EBITDA/Revenue ratios set by the Bayantel Board of Directors; and
shall be maintained and shall extend to all payment terms and treatment of past due interest.
(7) any other proposed actions by the Bayantel Board of Directors including, without limitation,
2. Due regard shall be given to the rights of the secured creditors and no changes in the security issuance of new shares, sale of core and noncore assets, change of business, etc. that will
positions of the creditors shall be granted as a result of the rehabilitation plan as amended and materially affect the terms and conditions of the rehabilitation plan and its implementation.
approved herein.
In case of disagreement between the Monitoring Committee and the Board of Directors of Bayantel
3. The level of sustainable debt of the rehabilitation plan, as amended, shall be reduced to the on any of the foregoing matters, the same shall be submitted to the Court for resolution.30
amount of [US]$325,000,000 for a period of 19 years.
On November 16, 2004, The Bank of New York filed a Petition for Review 31 before the Court of
4. Unsustainable debt shall be converted into an appropriate instrument that shall not be a Appeals. The petition was docketed as CAG. R. SP No. 87100 in the Fifteenth Division of the Court
financial burden for Bayantel. of Appeals. On even date, Avenue Asia Investments, L.P., Avenue Asia International, Ltd., Avenue
Asia Special Situations Fund II, L.P., Avenue Asia Capital Partners, L.P., and Avenue Asia Special
5. All provisions relating to equity in the rehabilitation plan, as approved and amended, must Situations Fund III, L.P (Avenue Asia Capital Group) filed a similar petition32 which was docketed
strictly conform to the requirements of the Constitution limiting foreign ownership to 40%. as CA-G.R. SP No. 87111 in the Second Division of the Court of Appeals. Both petitions contest
the Rehabilitation Courts June 28, 2004 Decision for, among others, fixing the level of Bayantels
6. A Monitoring Committee shall be formed composed of representatives from all classes of the
sustainable debt at US$325 million to be paid in 19 years.
restructured debt. The Rehabilitation Receivers role shall be limited to the powers of monitoring
and oversight as provided in the Interim Rules. Thereafter, on November 30, 2004, petitioners Express Investments III Private Ltd. and Export
Development Canada along with Bayerische Landesbank (Singapore Branch), Credit Industriel et
All powers provided for in the Report and Recommendations, which exceed the monitoring and
Commercial, Deutsche Bank AG, P.T. Bank Negara Indonesia (Persero), TBK, Hong Kong Branch
oversight functions mandated by the Interim Rules shall be amended accordingly.
and Rizal Commercial Banking Corporation filed a Petition for Review33 which was docketed as CA-
SO ORDERED.25 G.R. No. 87203 in the Tenth Division of the Court of Appeals. The secured creditors likewise
assailed the Rehabilitation Courts June 28, 2004 Decision insofar as it ordered the pari
Dissatisfied, The Bank of New York filed a Notice of Appeal26 on August 6, 2004. So did Avenue passu treatment of all claims against Bayantel. Said petitioners invoke a lien over the cash flow
Asia Investments, L.P., Avenue Asia International, Ltd., Avenue Asia Special Situations Fund II, and receivables of Bayantel by virtue of the Assignment Agreement.
L.P., Avenue Asia Capital Partners, L.P., and Avenue Asia Special Situations Fund III, L.P. which
filed a Joint Record on Appeal27 on August 9, 2004. On December 23, 2004, Bayantel filed an Omnibus Motion34 for the consolidation of CA-G.R. SP
Nos. 87111 and CA-G.R. SP No. 87203 with CA-G.R. SP No. 87100, the lowest-numbered case.
On September 28, 2004, Bayantel submitted an Implementing Term Sheet to the Rehabilitation
Court and the Receiver. Claiming that said Term Sheet was inadequate to protect the interest of In a Resolution dated January 20, 2005, the Court of Appeals, Fifteenth Division, ordered the
the creditors, The Bank of New York (petitioner in G.R. No. 177270) filed a Manifestation28 dated consolidation of CA-G.R. SP No. 87203 with CA-G.R. SP No. 87100. This was accepted by the
October 15, 2004 praying for the constitution of a Monitoring Committee and the creation of a Court of Appeals, Seventh Division, in a Resolution35 dated March 29, 2005. Then, in the
convertible debt instrument to cover the unsustainable portion of the restructured debt. Resolution36 dated June 10, 2005, the Court of Appeals, First Division, ordered the consolidation
of CA-G.R. SP No. 87111 with 87100 and the transmittal of the records of the three cases to the
On November 9, 2004, the Rehabilitation Court issued an Order29 directing the creation of a Seventh Division.
Monitoring Committee to be composed of one member each from the group of Omnibus Creditors
and unsecured creditors, and a third member to be chosen by the unanimous vote of the first two Meanwhile, on January 10, 2005, Atty. Noval submitted to the Rehabilitation Court an
members. In the same Order, the court defined the scope of the Monitoring Committees authority, Implementing Term Sheet37 to serve as a guide for Bayantels Rehabilitation. The same was
as follows: approved in an Order38 dated March 15, 2005. In the same Order, the Rehabilitation Court
appointed Avenue Asia Investments L.P. and Export Development Canada to represent the
x x x The Monitoring Committee shall participate with the Receiver in monitoring and overseeing unsecured and secured creditors, respectively, in the Monitoring Committee.
the actions of the Board of Directors of Bayantel and may, by majority vote, adopt, modify, revise
or substitute, any of the following items: On May 26, 2005, Bayantel filed a petition for certiorari and Prohibition39 docketed as CA-G.R. SP
No. 89894 in the Court of Appeals. Said petition assailed the Rehabilitation Courts Orders dated
(1) any proposed Annual OPEX Budgets; November 9, 2004 and March 15, 2005, for purportedly conferring upon the Monitoring
Committee, powers of management and control over its operations.
(2) any proposed Annual CAPEX Budgets;
The Court of Appeals Decision in CA-G.R. Nos. 87100, 87111 and 87203
(3) any proposed Reschedule;
In the assailed August 18, 2006 Decision, the Court of Appeals dismissed the petitions in CA-G.R.
(4) any proposed actions by the Receiver on a payment default; SP Nos. 87100, 87111 and 87203 for lack of merit. The appellate court upheld the Rehabilitation
Courts determination of Bayantels sustainable debt at US$325 million payable in 19 years. It
(5) terms of Management Incentivisation Scheme and Management Targets;
rejected the Receivers proposal to set the sustainable debt at US$370 million payable in 15 years, The appellate court found grave abuse of discretion on the part of the Rehabilitation Court for
and the proposal of the Avenue Asia Capital Group to set it at US$471 million payable in 12 years. conferring upon the Monitoring Committee the power to modify, reverse or overrule the proposals
of Bayantels Board of Directors relative to operations. It stressed that the Committees functions
The Court of Appeals agreed with the Rehabilitation Court that it is reasonable to adopt a level of are confined to monitoring and overseeing the operations of Bayantel to ensure its compliance
sustainable debt that approximates respondent Bayantels proposal because the latter is in the with the terms and conditions of the Rehabilitation Plan. To conform therewith, the appellate court
best position to determine the level of sustainable debt that it can manage. It found Bayantels restated the Committees powers as follows:
proposal more credible considering that it was prepared using "updated financial information with
realistic cash flow figures."[40] The appellate court noted that Bayantels proposal was drafted The Monitoring Committee shall participate with the Receiver in monitoring and overseeing the
without regard for its status as a "niche player" in the telecommunications market and after operations of Bayantel to ensure compliance by Bayantel with the terms and conditions of the
factoring the cost of reorganization. In contrast, it expressed concern that the proposals submitted Rehabilitation Plan. In the event Bayantel fails to meet any of the milestones under the
by Avenue Asia Capital Group and the Receiver might eventually leave Bayantel with an Rehabilitation Plan or fails to comply with any material provision thereunder, the Monitoring
unworkable financial debt-to-revenue ratio. Committee may, by majority vote, recommend modifications, revisions and substitutions of the
following items:
The Court of Appeals also confirmed the Rehabilitation Courts authority to approve, reject,
substitute, or even change the rehabilitation plans submitted by the Receiver and the parties. It x x x x43 (Emphasis supplied)
upheld the trial court in adopting the Receivers recommendation to limit the equity conversion of
Bayantels unsustainable debt to 40% of its paid-up capital. This percentage, the appellate court The Court of Appeals likewise approved of the Implementing Term Sheet, clarifying that the same
explains, is consistent with the constitutional limitation on the allowable foreign equity in Filipino is not intended to address every contingency that may arise in the implementation of the Plan. It
corporations. It also maintained the write-off of penalties and default interest and recomputation assured that any doubt in the interpretation of the Term Sheet shall be resolved by the
of Bayantels past due interest, as a valid exercise of discretion by the Rehabilitation Court under Rehabilitation Court.
the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules). The appellate court
Lastly, the appellate court affirmed the creation of a convertible debt instrument to cover the
negated any violation of the pari passu principle with the use of these measures since they shall
unsustainable portion of respondents debt. It perceives such instrument as a tool to generate
apply to all classes of creditors.
surplus cash to satisfy Bayantels debt under Tranche B. As well, it serves as a buy-back scheme
As to the claim of the secured creditors in CA-G.R. SP No. 87203, the Court of Appeals ruled that for the assignment and transfer of credits by the Financial Creditors in a manner that will not
while rehabilitation is ongoing, the sole control over the security on the receivables and cash flow unduly burden Bayantel.
of Bayantel is vested in the Rehabilitation Court. To allow otherwise would not only violate the
Issues
Stay Order but interfere as well with the duty of the Receiver to "take possession, control and
custody of the debtors assets." 41 Ultimately, the Court of Appeals ruled that preference in On October 19, 2006, Express Investments III Private Ltd. and Export Development Canada 44 filed
payment cannot be accorded the secured creditors since preference applies only in liquidation a Petition for Partial Review on Certiorari which was docketed as G.R. Nos. 174457-59. Said
proceedings. petition, which seeks the reversal of the August 18, 2006 Decision of the Court of Appeals insofar
as it dismissed the petition of the secured creditors in CA-G.R. SP No. 87203, essentially proffers
Discontented, The Bank of New York and the Avenue Asia Capital Group (petitioners in CA-G.R.
the following issues for resolution: (1) whether the claims of secured and unsecured creditors
SP Nos. 87100 and 87111) filed a Motion for Partial Reconsideration.42 Said motion was, however,
should be treated pari passu during rehabilitation; (2) whether the pari passu treatment of
denied in the Resolution dated November 8, 2006.
creditors during rehabilitation impairs the Assignment Agreement between respondent and
In the meantime, Express Investments III Private Ltd. and Export Development Canada had filed petitioners; (3) whether an impairment in the security position of petitioners can be justified as a
before this Court a Petition for Partial Review on Certiorari of the Court of Appeals Decision valid exercise of police power.
docketed as G.R. Nos. 174457-59. According to petitioners, the other secured creditors who were
On the other hand, The Bank of New York and the Avenue Asia Capital Group filed a Petition for
also petitioners in CA-G.R. SP No. 87203 had not remained in contact with them and had not
Review on Certiorari docketed as G.R. Nos. 175418-20, to question the appellate courts August
authorized them to file further petitions on their behalf.
18, 2006 Decision as well as its November 8, 2006 Resolution in CA-G.R. SP Nos. 87100 and
On December 28, 2006, The Bank of New York and the Avenue Asia Capital Group also filed their 87111. This second consolidated petition raises the following issues: (1) whether the Court of
own Petition for Review on Certiorari which was docketed as G.R. Nos. 175418-20. Appeals erred in setting Bayantels sustainable debt at US$325 million, payable in 19 years; (2)
whether a debtor may submit a rehabilitation plan in a creditor-initiated rehabilitation; (3) whether
The Court of Appeals Decision in CA-G.R. SP No. 89894 the conversion of debt to equity in excess of 40% of the outstanding capital stock in favor of
petitioners violates the constitutional limit on foreign ownership of a public utility; (4) whether the
In CA-G.R. SP No. 89894, the Court of Appeals rendered the assailed Decision dated October 27, write-off of respondents penalties and default interest and recomputation of its past due interest
2006 declaring null and void the November 9, 2004 and March 15, 2005 Orders of the violate the pari passu principle; and (5) whether petitioners are entitled to costs.
Rehabilitation Court insofar as they defined the powers and functions of the Monitoring
Committee. On February 22, 2007, respondent Bayantel moved for the consolidation of G.R. Nos. 174457-59
with G.R. Nos. 175418-20. In a Resolution45 dated April 23, 2007, we directed the Division Clerk
of Court to study the feasibility of consolidating said cases. In a Memorandum Report46 dated May
17, 2007, the First Division Clerk of Court recommended the consolidation of G.R. Nos. 174457- Mainly, petitioners Bank of New York and Avenue Asia Capital Group impute error on the Court of
59 with G.R. Nos. 175418-20. Appeals for affirming the Rehabilitation Courts decision which adopted the sustainable debt level
Bayantel proposed. The court a quo fixed respondents sustainable debt at US$325 million payable
On May 21, 2007, The Bank of New York, as trustee for the Holders of the Senior Notes, filed a within 19 years against the Receivers proposal of US$370 million payable in 15 years. Petitioners
Petition for Review on Certiorari, docketed as G.R. No. 177270, to assail the October 27, 2006 dispute Bayantels financial projections as unreliable and contrived, designed to bear out a reduced
Decision and March 23, 2007 Resolution of the Court of Appeals in CA-G.R. SP No. 89894. level of sustainable debt and justify a substantial write-off of its debts. In order to arrive at a
Amplified, the petition presents the lone issue of whether the Monitoring Committee in this case reasonable level of sustainable debt, they believe that the prospective cash flow of Bayantel must
may exercise control over Bayantels operations. be reckoned against industry standards. Petitioners point out that the Interim Rules only allows
the debtor, in a creditor-initiated petition for corporate rehabilitation, to file a comment or
In a Resolution47 dated June 6, 2007, we directed the Division Clerk of Court to study the feasibility
opposition but not to submit its own rehabilitation plan. They warn that if the fulfillment of the
of consolidating G.R. No. 177270 with G.R. Nos. 174457-59 and G.R. Nos. 175418-20. To avoid
obligation would be made to depend on the sole will of Bayantel, the entire obligation would be
conflicting decisions on related cases, the Assistant Clerk of Court recommended the consolidation
void.
of the three cases. By Resolution48 dated July 11, 2007, the Court ordered the consolidation of
G.R. No. 177270 with G.R. Nos. 174457- 59 and G.R. Nos. 175418-20. Petitioners fault the trial court for basing the sustainable debt on the state of the
telecommunications industry in the country rather than consulting the financial projections and
The Parties Arguments
business models submitted by petitioners and the Receiver. They stress that the state of the
In G.R. Nos. 174457-59 telecommunications industry is not among those which the court may take judicial notice of by
discretion.
The petitioners/secured creditors argue primarily that the pari passu treatment of creditors during
rehabilitation has no basis in law. According to petitioners, all that Presidential Decree No. 902- Petitioners maintain that converting the unsustainable debt to 77.7% equity in Bayantel will not
A49 (PD 902-A) provides is the suspension of all claims against the debtor corporation during violate the nationality requirement of the 1987 Constitution. They aver that the debts to domestic
rehabilitation so that the Receiver can exercise his powers free from judicial or extrajudicial bank creditors51 account is US$473 million or 70.18% of Bayantels total liabilities. Considering the
interference. If the equity policy is to be considered at all, they believe that the equity policy substantial write-off of penalties and default interest in the amount of US$34,044,553.00 and past
should be construed to accord creditors with similar rights or uniform treatment. In line with this, due interest of US$25,243,381.07, petitioners believe that it is only fair to accord the Financial
petitioners assert priority under the Assignment Agreement to receive from Bayantels surplus Creditors greater equity in Bayantel to compensate for said losses.
cash flow and to be paid in full, ahead of all other creditors.
Moreover, it is the petitioners view that the write-off contravenes the pari passu principle because
The petitioners/secured creditors contend that the pari passu treatment of claims impairs the they would suffer greater losses than the Omnibus Creditors. According to petitioners,
Omnibus Agreement and the Assignment Agreement. Such impairment, they posit, cannot be approximately 82% of the penalties and interests shall be borne by the unsecured creditors and
justified as a proper exercise of police power for three reasons: first, there is no law which the Holders of Notes. In the same vein, petitioners protest the recomputation of past due interest
authorizes the equal treatment of claims; second, there is no enabling law; and third, it is not in accordance with the rate proposed by the Receiver. They claim that recomputation would result
reasonably necessary for the success of the rehabilitation. in the condonation of 89% of the accrued interest owing them. The Receivers report shows that
as of the filing of the present petition, the total accrued interest amounts to US$106,054,197.66,
Petitioners point out that the Interim Rules mandates instead that the rehabilitation plan shall give of which, US$91,100,000 are due the Holders of Notes.
due regard to the interest of the secured creditors. For petitioners, the preservation of Bayantels
chattels alone is inadequate to meet said requirement since the value thereof depreciates over Finally, petitioners reiterate their claim for costs. In its Order dated March 15, 2005, the
time. They go on to invoke international practices on bankruptcy and rehabilitation which Rehabilitation Court awarded costs of suit to petitioner Bank of New York. In particular, it granted
purportedly recognize the distinction between the rights of secured and unsecured creditors. the latters prayer for the payment of filing fees, costs of publication and professional fees. Even
Petitioners warn of dire consequences to the international credit standing of the Philippines, the then, petitioner bank claims that a huge amount of its expenses for the professional fees of
financial market, and the influx of foreign investments if the pari passu principle would be upheld. counsels and advisers remain unpaid. More importantly, it asserts precedence in payment over
Finally, petitioners maintain that a "Trigger Event"50 had occurred which rendered respondents the preferred creditors. In the alternative, the Bank of New York prays that the costs of suit be
obligations due and demandable. Thus, despite their failure to notify respondent of the alleged incorporated in the award to the nonfinancial or trade creditors. Similarly, the Avenue Asia Capital
Events of Default, petitioners believe that they can rightfully proceed against the securities. Group seeks reimbursement for the docket fees, publication expenses and the professional fees
it has paid its counsels and financial adviser. It invokes Article 2208 of the Civil Code and the
For its part, respondent Bayantel reasons that enforcing preference in payment at this stage of provisions of the Indenture as legal bases therefor.
the rehabilitation would only disrupt the progress it has made so far. It assures petitioners that
their security rights are adequately protected in case the collateral assets are disposed. Meanwhile, the secured creditors in G.R. Nos. 174457-59 filed a Memorandum52 dated April 30,
Respondent adds that no single payment scheme is applicable in all rehabilitation proceedings 2009 with a prayer for the dismissal of the bondholders petition in G.R. Nos. 175418-20. For the
and the peculiar circumstances of its case warrant the pari passu treatment of its creditors. secured creditors, the sustainable debt set by the Courts of Appeals is a more manageable and
realistic undertaking compared to herein petitioners proposal. They add that the fact that
In G.R. Nos. 175418-20 Bayantels actual revenues are lower than its cash flow projections belies any scheme to avoid
paying its debts in full. The secured creditors agree with the appellate court in limiting the
conversion of the unsustainable debt to a maximum of 40% shares in Bayantel as more in keeping In approving the rehabilitation plan, the court shall issue the necessary orders or processes for its
with the Constitution. immediate and successful implementation. It may impose such terms, conditions, or restrictions
as the effective implementation and monitoring thereof may reasonably require, or for the
Further, the secured creditors point out that there is nothing in the Interim Rules which prohibits protection and preservation of the interests of the creditors should the plan fail.
a debtor company from submitting an alternative rehabilitation plan in creditor-initiated
proceedings. In support of this, they cite Section 22,53 Rule 4 of said rules which permits the Petitioner contends that the magnitude and complexity of respondents business necessitate close
debtor to modify its proposed plan or submit a revised or substitute plan. According to them, monitoring of its operations to ensure successful rehabilitation. Specifically, the Bank of New York
Bayantels suggestion as to the terms of payment does not constitute a potestative condition that expresses concern over Bayantels taciturn disposition as regards its budget and expansion costs.
would render the obligation void. Petitioner believes that such lack of transparency can be addressed by empowering the Monitoring
Committee to approve measures that will ultimately affect respondents ability to settle its debts.
The secured creditors, however, join petitioners in protesting the condonation of penalties and
default interest. Rather than observing absolute equality, they insist that the pari passu principle Moreover, petitioner assures that the Implementing Term Sheet provides safeguards against the
should be applied such that creditors within the same class are treated alike. improvident disapproval by the Monitoring Committee of proposed measures. Petitioner is of the
view that the functions of the Monitoring Committee would be rendered illusory if all
In response, respondent Bayantel submitted on May 21, 2009, a Consolidated Memorandum54 in disagreements on key areas would have to be heard by the Rehabilitation Court. Petitioner
G.R. Nos. 175418-20 and G.R. No. 177270. It practically echoed the ratio decidendi of the Court explains that the Monitoring Committees powers do not in any way supplant those of the Board
of Appeals in dismissing both petitions. of Directors. The Bank of New York claims that it is customary to allow creditors to monitor and
supervise the debtors operations as demonstrated by the restructuring experiences of certain
In G.R. Nos. 175418-20, Bayantel defends the Rehabilitation Court for adopting the sustainable
Asian countries.
debt level it proposed. Such approval by the court alone, Bayantel reasons, did not make the
payment of its debt a condition whose fulfillment rests on its sole will, as to render the obligation Petitioner submits that the Rehabilitation Court did not intend to give the Monitoring Committee
void under Article 118255 of the Civil Code. Respondent maintains that among the stakeholders, it powers that are concurrent with those of the Receiver on account of the differing interests that
is in the best position to determine the level of debt that it can pay. Moreover, it believes that a they represent in rehabilitation. It argues that if at all, the court a quo committed a mere error of
majority of the secured creditors are comfortable with the approved sustainable debt since only judgment not correctible by certiorari. Petitioner adds that even if a petition for certiorari was
two of them appealed. Respondent insists that altering the sustainable debt at this point would proper, the 60-day reglementary period provided by the Rules of Court had already lapsed when
be counterproductive. Bayantel filed its petition on May 27, 2005. It contends that Bayantels Manifestation and Motion
for Clarification dated December 15, 2004 was in truth a motion for reconsideration which is a
Respondent equally opposes the Bondholders proposal to reduce the companys capital
prohibited pleading under Section 1,57 Rule 3 of the Interim Rules. Petitioner concludes that such
expenditures to between 9% and 11% to make more funds available for debt servicing. This
pleadings did not toll the period for filing a petition and, therefore, the Rehabilitation Courts
approach, according to Bayantel, ignores its need to make significant investments in new
decision had become final.
infrastructure in order to cope with competitors. Respondent disputes the value of petitioners
projections which were derived by benchmarking Bayantels income, as a company under In its Consolidated Memorandum dated May 21, 2009, Bayantel counters that Section 23, Rule 4
rehabilitation, against those of the major players, PLDT and Digitel. of the Interim Rules should be understood as delineating the purpose of the courts orders and
processes to mere implementation and monitoring of the plan. Respondent opposes any
Furthermore, respondent maintains that its rehabilitation plan was based on accurate financial
interpretation of said provision which authorizes the Committee to substitute its judgment for
data and operation reports. It insists that the Interim Rules allows a debtor, in creditor-initiated
those of the Board or vest it with powers greater than those of the Receiver. It argues that vesting
rehabilitation proceedings, to submit an alternative plan. It agrees with the Rehabilitation Courts
the Committee with veto power over certain decisions of the Board would effectively give it control
decision to restrict conversion of the unsustainable debt to 40% of fully paid-up capital in Bayantel.
and management over Bayantels operations. The necessary effect, according to Bayantel, is that
Respondent believes that the waiver of penalties and default interest and the recomputation of
every disagreement between the Committee and the Board would have to be settled in court.
past due interest will not violate the pari passu principle because said measures shall apply equally
Respondent points out that petitioner failed to cite proof of its claim that it is customary among
to all creditors. Lastly, respondent admits limited liability for costs pursuant to the Assignment
Asian countries to allow the Monitoring Committee active participation during rehabilitation.
Agreement but not for those incurred by petitioners under "non-consensual scenarios."
Bayantel perceive the instant petition as an underhanded attempt by petitioner to create a
In G.R. No. 177270
Management Committee without satisfying the requisites therefor. It reiterates that the functions
In this petition for review, the Bank of New York, as trustee for the holders of the 13.5% Senior of the Monitoring Committee are confined to ensuring that Bayantel meets the debt reduction
Notes of respondent Bayantel, challenges the Court of Appeals decision nullifying the Monitoring milestones under the plan. Respondent avers that even without a Monitoring Committee, it is
Committees power to modify, reverse or overrule the decision of Bayantels Board of Directors on obliged under the Plan to comply with certain information covenants and reportorial requirements.
certain matters. It invokes Section 23,56 Rule 4 of the Interim Rules as legal basis to justify the It adds that the Plan provides a mechanism for dispute resolution through which creditors can
Rehabilitation Courts grant of extensive powers to the Monitoring Committee. The pertinent enforce compliance.
portion of said Rule states:
Penultimately, respondent assails the validity of the Order dated November 9, 2004 for lack of
notice. Allegedly, Bayantel learned of said Order only after petitioner furnished it a copy of its
Compliance to which the same was made an attachment. Thus, respondent insists that the (Emphasis supplied)
reglementary period to file an appeal or a petition for certiorari did not run against it.
The stay order shall be effective from the date of its issuance until the dismissal of the petition or
The Courts Ruling the termination of the rehabilitation proceedings.61 Under the Interim Rules, the petition shall be
dismissed if no rehabilitation plan is approved by the court upon the lapse of 180 days from the
In G.R. Nos. 174457-59 date of the initial hearing. The court may grant an extension beyond this period only if it appears
by convincing and compelling evidence that the debtor may successfully be rehabilitated. In no
Rehabilitation is an attempt to conserve and administer the assets of an insolvent corporation in
instance, however, shall the period for approving or disapproving a rehabilitation plan exceed 18
the hope of its eventual return from financial stress to solvency.58 It contemplates the continuance
months from the date of filing of the petition.62
of corporate life and activities in an effort to restore and reinstate the corporation to its former
position of successful operation and liquidity. The purpose of rehabilitation proceedings is precisely On the other hand, Section 27, Rule 4 of the Interim Rules provides when the rehabilitation
to enable the company to gain a new lease on life and thereby allow creditors to be paid their proceedings is deemed terminated:
claims from its earnings.59
SEC. 27. Termination of Proceedings. In case of the failure of the debtor to submit the
Rehabilitation shall be undertaken when it is shown that the continued operation of the rehabilitation plan, or the disapproval thereof by the court, or the failure of the rehabilitation of
corporation is economically feasible and its creditors can recover, by way of the present value of the debtor because of failure to achieve the desired targets or goals as set forth therein, or the
payments projected in the plan, more, if the corporation continues as a going concern than if it is failure of the said debtor to perform its obligations under the said plan, or a determination that
immediately liquidated.60 the rehabilitation plan may no longer be implemented in accordance with its terms, conditions,
restrictions, or assumptions, the court shall upon motion, motu proprio, or upon the
The law governing rehabilitation and suspension of actions for claims against corporations is PD
recommendation of the Rehabilitation Receiver, terminate the proceedings. The proceedings
902-A, as amended. On December 15, 2000, the Court promulgated A.M. No. 00-8-10-SC or the
shall also terminate upon the successful implementation of the rehabilitation plan.
Interim Rules of Procedure on Corporate Rehabilitation, which applies to petitions for rehabilitation
(Emphasis supplied)
filed by corporations, partnerships and associations pursuant to PD 902-A.
Hence, unless the petition is dismissed for any reason, the stay order shall be effective until the
In January 2004, Republic Act No. 8799 (RA 8799), otherwise known as the Securities Regulation
rehabilitation plan has been successfully implemented. In the meantime, the debtor is prohibited
Code, amended Section 5 of PD 902-A, and transferred to the Regional Trial Courts the jurisdiction
from paying any of its outstanding liabilities as of the date of the filing of the petition except those
of the Securities and Exchange Commission (SEC) over petitions of corporations, partnerships or
authorized in the plan under Section 24(c), Rule 4 of the Interim Rules.
associations to be declared in the state of suspension of payments in cases where the corporation,
partnership or association possesses property to cover all its debts but foresees the impossibility In this case, in an Order dated April 19, 2004, the Rehabilitation Court held that "[t]he creditors
of meeting them when they respectively fall due or in cases where the corporation, partnership of Bayantel, whether secured or unsecured, should be treated equally and on the same footing
or association has no sufficient assets to cover its liabilities, but is under the management of a or pari passu until the rehabilitation proceedings is terminated in accordance with the Interim
rehabilitation receiver or a management committee. Rules."63 The court reiterated this pronouncement in its Decision dated June 28, 2004.
In order to effectively exercise such jurisdiction, Section 6(c), PD 902-A empowers the Regional Before us, petitioners contend that such pari passu treatment of claims violates not only the "due
Trial Court to appoint one or more receivers of the property, real and personal, which is the regard" provision in the Interim Rules but also the Contract Clause in the 1987 Constitution.
subject of the pending action before the Commission whenever necessary in order to preserve Petitioners assert precedence in the payment of claims during rehabilitation by virtue of the
the rights of the parties-litigants and/or protect the interest of the investing public and creditors. Assignment Agreement dated September 19, 1995. Under said Agreement, Bayantel assigned,
charged, conveyed and transferred to a Collateral Agent, the following properties as collateral for
Under Section 6, Rule 4 of the Interim Rules, if the court finds the petition to be sufficient in form
the prompt and complete payment of its obligations to secured creditors:
and substance, it shall issue, not later than five (5) days from the filing of the petition, an Order
with the following pertinent effects: (i) All land, buildings, machinery and equipment currently owned, and to be acquired in the future
by Bayantel;
(a) appointing a Rehabilitation Receiver and fixing his bond;
(ii) All monies payable to Bayantel under the Project Documents (as the term is defined by the
(b) staying enforcement of all claims, whether for money or otherwise and whether
Omnibus Agreement);
such enforcement is by court action or otherwise, against the debtor, its guarantors
and sureties not solidarily liable with the debtor; (iii) All Project Documents and all Contract Rights arising thereunder;
(c) prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any (iv) All receivables;
of its properties except in the ordinary course of business;
(v) Each of the Accounts (as the term is defined by the Omnibus Agreement);
(d) prohibiting the debtor from making any payment of its liabilities outstanding as at the date of
filing of the petition; x x x (vi) All amounts maintained in the Accounts and all monies, securities and instruments deposited
or required to be deposited in the Accounts;
(vii) All other Chattel Paper and Documents; As between the creditors, the key phrase is "equality is equity." When a corporation
threatened by bankruptcy is taken over by a receiver, all the creditors should stand
(viii) All other property, assets and revenues of Bayantel, whether tangible or intangible; on equal footing. Not anyone of them should be given any preference by paying one
or some of them ahead of the others. This is precisely the reason for the suspension of all
(ix) All General Intangibles; and
pending claims against the corporation under receivership. Instead of creditors vexing the courts
(x) All proceeds and products of any and all of the foregoing.64 with suits against the distressed firm, they are directed to file their claims with the receiver who
is a duly appointed officer of the SEC.71 (Emphasis supplied)
In particular, petitioners refer to Section 4.02 of the Assignment Agreement as basis for
demanding full payment, ahead of other creditors, out of respondents revenue from operations Since then, the principle of equality in equity has been cited as the basis for placing secured and
during rehabilitation. The relevant provision reads: unsecured creditors in equal footing or in pari passu with each other during rehabilitation. In legal
parlance, pari passu is used especially of creditors who, in marshaling assets, are entitled to
Section 4.02. Payments Under Contracts and Receivables. receive out of the same fund without any precedence over each other.72

If during the continuance of a Trigger Event the Company shall receive directly from any party to In Rizal Commercial Banking Corporation v. Intermediate Appellate Court, 73 the Court disallowed
any Assigned Agreement or from any account debtor or other obligor under any Receivable, any the foreclosure of the debtor companys property after the latter had filed a Petition for
payments under such agreements or the Receivables, the Company shall receive such Rehabilitation and Declaration of Suspension of Payments with the SEC. We ruled that whenever
payments in a constructive trust for the benefit of the Secured Parties, shall segregate a distressed corporation asks the SEC for rehabilitation and suspension of payments, preferred
such payments from its other funds, and shall forthwith transmit and deliver such payments to creditors may no longer assert preference but shall stand on equal footing with other creditors.
the Collateral Agent in the same form as so received (with any necessary endorsement) along Foreclosure shall be disallowed so as not to prejudice other creditors, or cause discrimination
with a description of the sources of such payments. All amounts received by the Collateral Agent among them. In 1999, the Court qualified this ruling by stating that preferred creditors of
pursuant to this Section 4.02 shall be applied as set forth in Part L and in the [Inter-creditor] distressed corporations shall stand on equal footing with all other creditors only after a
Agreement.65(Underscoring in the original; emphasis supplied) rehabilitation receiver or management committee has been appointed. 74 More importantly, the
Court laid the guidelines for the treatment of claims against corporations undergoing
The resolution of the issue at hand rests on a determination of whether secured creditors may rehabilitation:
enforce preference in payment during rehabilitation by virtue of a contractual agreement.
1. All claims against corporations, partnerships, or associations that are pending before any court,
Section 6(c), PD 902-A provides that upon the appointment of a management committee, tribunal, or board, without distinction as to whether or not a creditor is secured or unsecured,
rehabilitation receiver, board or body, all actions for claims against corporations, partnerships or shall be suspended effective upon the appointment of a management committee, rehabilitation
associations under management or receivership pending before any court, tribunal, board or body receiver, board, or body in accordance with the provisions of Presidential Decree No. 902-A.
shall be suspended accordingly.66 The suspension of action for claims against the corporation
under a rehabilitation receiver or management committee embraces all phases of the suit, be it 2. Secured creditors retain their preference over unsecured creditors, but enforcement
before the trial court or any tribunal or before this Court.67 of such preference is equally suspended upon the appointment of a management
committee, rehabilitation receiver, board, or body. In the event that the assets of the
The justification for suspension of actions for claims is to enable the management committee or corporation, partnership, or association are finally liquidated, however, secured and preferred
rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial credits under the applicable provisions of the Civil Code will definitely have preference over
interference that might unduly hinder or prevent the "rescue" of the debtor company. 68 It is unsecured ones.75 (Emphasis supplied)
intended to give enough breathing space for the management committee or rehabilitation receiver
to make the business viable again without having to divert attention and resources to litigation in Basically, once a management committee or rehabilitation receiver has been appointed in
various fora.69 accordance with PD 902-A, no action for claims may be initiated against a distressed corporation
and those already pending in court shall be suspended in whatever stage they may be.
In the 1990 case of Alemars Sibal & Sons, Inc. v. Judge Elbinias,70 the Court first enunciated the Notwithstanding, secured creditors shall continue to have preferred status but the enforcement
prevailing principle which governs the relationship among creditors during rehabilitation. In said thereof is likewise held in abeyance. However, if the court later determines that the rehabilitation
case, G.A. Yupangco sought the issuance of a writ of execution to implement a final and executory of the distressed corporation is no longer feasible and its assets are liquidated, secured claims
default judgment in its favor and after Alemars Sibal & Sons, Inc. was placed under rehabilitation. shall enjoy priority in payment.
In ordering the stay of execution, the Court held:
We perceive no good reason to depart from established jurisprudence. While Section 24(d), Rule
During rehabilitation receivership, the assets are held in trust for the equal benefit of 4 of the Interim Rules states that contracts and other arrangements between the debtor and its
all creditors to preclude one from obtaining an advantage or preference over another creditors shall be interpreted as continuing to apply, this holds true only to the extent that they
by the expediency of an attachment, execution or otherwise. For what would prevent an do not conflict with the provisions of the plan.
alert creditor, upon learning of the receivership, from rushing posthaste to the courts to secure
judgments for the satisfaction of its claims to the prejudice of the less alert creditors. Here, the stipulation in the Assignment Agreement to the effect that respondent Bayantel shall
pay petitioners in full and ahead of other creditors out of its cash flow during rehabilitation directly
impinges on the provision of the approved Rehabilitation Plan that "[t]he creditors of Bayantel,
whether secured or unsecured, should be treated equally and on the same footing or pari Despite the additional phrase, however, it is our view that the amendment simply amplifies the
passu until the rehabilitation proceedings is terminated in accordance with the Interim Rules." meaning of the "due regard provision" in the Interim Rules. First, the amendment exemplifies
what giving "due regard to the interests of secured creditors" contemplates, mainly, the
During rehabilitation, the only payments sanctioned by the Interim Rules are those made to nonimpairment of securities. At the same time, the specific reference to "security liens" and
creditors in accordance with the provisions of the plan. Pertinent to this is Section 5(b), Rule 4 of "interests," separated by the disjunctive "or," describes what "the interests of secured creditors"
the Interim Rules which states that the terms and conditions of the rehabilitation plan shall include consist of. Again, lien pertains only to interests providing security that are created by operation
the manner of its implementation, giving due regard to the interests of secured creditors. This of law while security interests include those acquired by contract for the purpose of securing
very phrase is what petitioners invoke as basis for demanding priority in payment out of payment or performance of an obligation or indemnifying against loss or liability. Lastly, the
respondents cash flow. addition of the phrase "but not limited" in the amendment shuns a rigid application of the provision
by recognizing that "giving due regard to the interest of secured creditors" may be rendered in
But petitioners reliance thereon is misplaced.
other ways than taking care that the security liens and interests of secured creditors are
By definition, due regard means consideration in a degree appropriate to the demands of a adequately protected.
particular case.76 On the other hand, security interest is a form of interest in property which
In this case, petitioners Express Investments III Private Ltd. And Export Development Canada are
provides that the property may be sold on default in order to satisfy the obligation for which the
concerned, not so much with the adequacy of the securities offered by respondent, but with the
security interest is given. Often, the term "lien" is used as a synonym, although lien most
devaluation of such securities over time. Petitioners fear that the proceeds of respondents
commonly refers only to interests providing security that are created by operation of law, not
collateral would be insufficient to cover their claims in the event of liquidation.
through agreement of the debtor and creditor. In contrast, the term "security interest" means any
interest in property acquired by contract for the purpose of securing payment or performance of On this point, suffice it to state that petitioners are not without any remedy to address a deficiency
an obligation or indemnifying against loss or liability.77 in securities, if and when it comes about. Under Section 12, Rule 4 of the Interim Rules, a secured
creditor may file a motion with the Rehabilitation Court for the modification or termination of the
Under the Interim Rules, the only pertinent reference to creditor security is found in Section 12,
stay order. If petitioners can show that arrangements to insure or maintain the property or to
Rule 4 on relief from, modification or termination of stay order. Said provision states that the
make payment or provide additional security therefor is not feasible, the court shall modify the
creditor is regarded as lacking adequate protection if it can be shown that: (a) the debtor fails or
stay order to allow petitioners to enforce their claim that is, to foreclose the mortgage and apply
refuses to honor a pre-existing agreement with the creditor to keep the property insured; (b) the
the proceeds thereof to their claims. Be that as it may, the court may deny the creditor this remedy
debtor fails or refuses to take commercially reasonable steps to maintain the property; or (c) the
if allowing so would prevent the continuation of the debtor as a going concern or otherwise
property has depreciated to an extent that the creditor is undersecured.
prevent the approval and implementation of a rehabilitation plan.
Upon a showing that the creditor is lacking in protection, the court shall order the rehabilitation
Indeed, neither the "due regard provision" nor contractual arrangements can shackle the
receiver to take steps to ensure that the property is insured or maintained or to make payment
Rehabilitation Court in determining the best means of rehabilitating a distressed corporation. Truth
or provide replacement security such that the obligation is fully secured. If such arrangements
be told, the Rehabilitation Court may approve a rehabilitation plan even over the opposition of
are not feasible, the court may allow the secured creditor to enforce its claim against the debtor.
creditors holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation
Nonetheless, the court may deny the creditor the foregoing remedies if allowing so would prevent
of the debtor is feasible and the opposition of the creditors is manifestly unreasonable. In
the continuation of the debtor as a going concern or otherwise prevent the approval and
determining whether or not the opposition of the creditors is manifestly unreasonable, the court
implementation of a rehabilitation plan.78
shall consider the following: (a) That the plan would likely provide the objecting class of creditors
In the context of the foregoing provisions, "giving due regard to the interests of secured creditors" with compensation greater than that which they would have received if the assets of the debtor
primarily entails ensuring that the property comprising the collateral is insured, maintained or were sold by a liquidator within a three-month period; (b) That the shareholders or owners of the
replacement security is provided such that the obligation is fully secured. The reason for this rule debtor lose at least their controlling interest as a result of the plan; and (c) The Rehabilitation
is simple, in the event that the court terminates the proceedings for reasons other than the Receiver has recommended approval of the plan.79
successful implementation of the plan, the secured creditors may foreclose the securities and the
According to the Liquidation Analysis80 prepared by KPMG at the request of the Receiver, the Fair
proceeds thereof applied to the satisfaction of their preferred claims.
Market Value of respondents fixed assets is P18.7 billion while its Forced Liquidation Value is P9.3
When the Rules of Procedure on Corporate Rehabilitation took effect on January 16, 2009, the billion. Together with cash and receivables in the amount of P911 million, respondents total
"due regard" provision was amended to read: liquidation assets are valued at P10.2 billion. From this amount, the estimated liquidation return
to the Omnibus Creditors is P6,102,150,000 or approximately 52.9% of their claims in the amount
SEC. 18. Rehabilitation Plan. The rehabilitation plan shall include (a) the desired business targets of P11,539,776,000. Meanwhile, Chattel Creditors can recoup 61% of its claims. As regards the
or goals and the duration and coverage of the rehabilitation; (b) the terms and conditions of such Unsecured Creditors, they will share in the pool of assets that respondents have acquired since
rehabilitation which shall include the manner of its implementation, giving due regard to the 1998, which were not specifically registered under the Omnibus Agreement Mortgage
interests of secured creditors such as, but not limited, to the non-impairment of their Supplements. Said assets are estimated to have a value of P3.5 Billion. This accounts for 10.7%
security liens or interests; x x x. (Emphasis supplied) of the Unsecured Creditors claims.

Reckoned from these figures, the Receiver concluded that the shareholders shall receive nothing
on respondents liquidation while the latters creditors can expect significantly less than full
repayment. Moreover, regardless of whether the shareholders will lose at least their controlling Whether the Court of Appeals erred in affirming the sustainable debt fixed by the Rehabilitation
interest as a result of the plan, petitioners, in their Memorandum dated April 30, 2009, have Court is a question of fact that calls for a recalibration of the evidence presented by the parties
signified their conformity with the Court of Appeals decision to limit the conversion of the before the trial court. In order to resolve said issue, petitioners would have this Court reassess
unsustainable debt to a maximum of 40% of the fully-paid up capital of respondent corporation. the state of respondent Bayantels finances at the onset of rehabilitation and gauge the practical
Lastly, the Receiver not only recommended the approval of the Plan by the Rehabilitation Court, value of the plans submitted by the parties vis--vis the financial models prepared by the experts
he, himself, prepared it. The concurrence of these conditions renders the opposition of petitioners engaged by them. These tasks are certainly not for this Court to accomplish. The resolution of
manifestly unreasonable. factual issues is the function of lower courts, whose findings on these matters are received with
respect.87 This is especially true in rehabilitation proceedings where certain courts are designated
As regards the second issue, petitioners submit that the pari passu treatment of claims offends to hear the case on account of their expertise and specialized knowledge on the subject matter.
the Contract Clause under the 1987 Constitution. Article III, Section 10 of the Constitution Though this doctrine admits of several exceptions,88none is applicable in the case at bar
mandates that no law impairing the obligation of contracts shall be passed. Any law which
enlarges, abridges, or in any manner changes the intention of the parties, necessarily impairs the Notably, the Interim Rules is silent on the manner by which the sustainable debt of the debtor
contract itself. And even when the change in the contract is done by indirection, there is shall be determined. Yet, Section 2 of the Interim Rules prescribe that the Rules shall be liberally
impairment nonetheless.81 construed to carry out the objectives of Sections 5(d),89 6(c)90 and 6(d)91 of PD 902-A.

At this point, it bears stressing that the non-impairment clause is a limitation on the exercise of Section 5(d), PD 902-A vested jurisdiction upon the SEC over petitions for rehabilitation. Later,
legislative power and not of judicial or quasijudicial power. In Lim, Sr. v. Secretary of Agriculture RA 8799 or the Securities Regulation Code, amended Section 5(d) of PD 902-A by transferring
& Natural Resources, et al.,82 we held: SECs jurisdiction over said petitions to the RTC. Meanwhile, Section 6(c) of PD 902-A provides for
the appointment of a receiver of the subject property whenever necessary in order to preserve
x x x. For it is well-settled that a law within the meaning of this constitutional provision has the rights of the parties and to protect the interest of the investing public and the creditors. Upon
reference primarily to statutes and ordinances of municipal corporations. Executive orders issued the appointment of such receiver, all actions for claims against the corporation pending before
by the President whether derived from his constitutional powers or valid statutes may likewise be any court, tribunal, board or body shall be suspended accordingly. On the other hand, Section
considered as such. It does not cover, therefore, the exercise of the quasi-judicial power of a 5(d), PD 902-A expands the power of the Commission to allow the creation and appointment of a
department head even if affirmed by the President. The administrative process in such a case management committee to undertake the management of the corporation when there is imminent
partakes more of an adjudicatory character. It is bereft of any legislative significance. It falls danger of dissipation, loss, wastage or destruction of assets or other properties or paralyzation of
outside the scope of the non-impairment clause. x x x.83 the business of the corporation which may be prejudicial to the interest of minority stockholders,
parties-litigants or the general public.
The prohibition embraces enactments of a governmental law-making body pertaining to its
legislative functions. Strictly speaking, it does not cover the exercise by such law-making body of The underlying objective behind these provisions is to foster the rehabilitation of the debtor by
quasi-judicial power. insulating it against claims, preserving its assets and taking steps to ensure that the rights of all
parties concerned are adequately protected.
Verily, the Decision dated June 28, 2004 of the Rehabilitation Court is not a proper subject of the
Non-impairment Clause. This Court is convinced that the Court of Appeals ruled in accord with this policy when it upheld
the Rehabilitation Courts determination of respondents sustainable debt. We find the sustainable
In view of the foregoing, we find no need to discuss the third issue posed in this petition
debt of US$325 million, spread over 19 years, to be a more realistically achievable amount
In G.R. Nos. 175418-20 considering respondents modest revenue projections. Bayantel projected a constant rise in its
revenues at the range of 1.16%-4.91% with periodic reverses every two years.92 On the other
Prefatorily, we restate the time honored principle that in a petition for review on certiorari under hand, petitioners proposal of a sustainable debt of US$471 million to be paid in 12 years and the
Rule 45 of the Rules of Court, only questions of law may be raised. Thus, in a petition for review Receivers proposal of US$370 million to be paid in 15 years betray an over optimism that could
on certiorari, the scope of the Supreme Court's judicial review is limited to reviewing only errors leave Bayantel with nothing to spend for its operations.
of law, not of fact.84 It is not our function to weigh all over again evidence already considered in
the proceedings below, our jurisdiction is limited to reviewing only errors of law that may have Next, petitioners contest the admission of respondents rehabilitation plan for being filed in
been committed by the lower court.85 violation of the Interim Rules. It is petitioners view that in a creditor-initiated petition for
rehabilitation, the debtor may only submit either a comment or opposition but not its own
Before us, petitioners Bank of New York and Avenue Asia Capital Group raise a question of fact rehabilitation plan.
which is not proper in a petition for review on certiorari. A question of law arises when there is
doubt as to what the law is on a certain state of facts, while there is a question of fact when the We cannot agree.
doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the
Rule 4 of the Interim Rules treats of rehabilitation in general, without distinction as to who
same must not involve an examination of the probative value of the evidence presented by the
between the debtor and the creditor initiated the petition. Nowhere in said Rule is there any
litigants or any of them. The resolution of the issue must rest solely on what the law provides on
provision that prohibits the debtor in a creditor-initiated petition to file its own rehabilitation plan
the given set of circumstances. Once it is clear that the issue invites a review of the evidence
for consideration by the court. Quite the reverse, one of the functions and powers of the
presented, the question posed is one of fact.86
rehabilitation receiver under Section 14(m) of said Rule is to study the rehabilitation plan proposed
by the debtor or any rehabilitation plan submitted during the proceedings, together with any also have the right to vote in the election of directors, then the term "capital" shall include such
comments made thereon. This provision makes particular reference to a debtor-initiated preferred shares because the right to participate in the control or management of the corporation
proceeding in which the debtor principally files a rehabilitation plan. In such case, the receiver is is exercised through the right to vote in the election of directors. In short, the term "capital" in
tasked, among other things, to study the rehabilitation plan presented by the debtor along with Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election
any rehabilitation plan submitted during the proceedings. This implies that the creditors of the of directors.
distressed corporation, and even the receiver, may file their respective rehabilitation plans. We
perceive no good reason why the same option should not be available, by analogy, to a debtor in Applying this, two steps must be followed in order to determine whether the conversion of debt
creditor-initiated proceedings, which is also found in Rule 4 of the Interim Rules. to equity in excess of 40% of the outstanding capital stock violates the constitutional limit on
foreign ownership of a public utility: First, identify into which class of shares the debt shall be
Third, petitioners fault the Court of Appeals for ruling that the debt-toequity conversion rate of converted, whether common shares, preferred shares that have the right to vote in the election
77.7%, as proposed by The Bank of New York, violates the Filipinization provision of the of directors or non-voting preferred shares; Second, determine the number of shares with voting
Constitution. Petitioners explain that the acquisition of shares by foreign Omnibus and Financial right held by foreign entities prior to conversion. If upon conversion, the total number of shares
Creditors shall be done, both directly and indirectly in order to meet the control test principle held by foreign entities exceeds 40% of the capital stock with voting rights, the constitutional limit
under RA 704293 or the Foreign Investments Act of 1991. Under the proposed structure, said on foreign ownership is violated. Otherwise, the conversion shall be respected.
creditors shall own 40% of the outstanding capital stock of the telecommunications company on
a direct basis, while the remaining 40% of shares shall be registered to a holding company that In its Rehabilitation Plan,96 among the material financial commitments made by respondent
shall retain, on a direct basis, the other 60% equity reserved for Filipino citizens. Bayantel is that its shareholders shall "relinquish the agreed-upon amount of common stock[s] as
payment to Unsecured Creditors as per the Term Sheet." 97 Evidently, the parties intend to convert
Moreover, petitioners maintain that it is only fair to impose upon the Omnibus and Financial the unsustainable portion of respondent's debt into common stocks, which have voting rights. If
Creditors a bigger equity conversion in Bayantel considering that petitioners will bear the bulk of we indulge petitioners on their proposal, the Omnibus Creditors which are foreign corporations,
the accrued interests and penalties to be written off. Initially, the Rehabilitation Court approved shall have control over 77.7% of Bayantel, a public utility company. This is precisely the scenario
the Receivers recommendation to write-off interests and penalties in the amount of proscribed by the Filipinization provision of the Constitution. Therefore, the Court of Appeals acted
US$34,044,553.00. The Rehabilitation Court likewise ordered a re-computation of past due correctly in sustaining the 40% debt-to-equity ceiling on conversion.
interest in accordance with the rate proposed by the Receiver. Following this, petitioners estimate
the total unpaid accrued interest of Bayantel as of July 30, 2003 to be at US$140,098,750.66 while As to the fourth issue, petitioners insist that the write-off of the default interest and penalties
the Rehabilitation Court arrived at the total amount of past due interest and penalties of along with the re-computation of past due interest violate the pari passu treatment of creditors.
US$114,855,369.59 upon recomputation. This makes for a difference of US$25,243,381.07 which,
Petitioners argument lacks merit.
petitioners claim, represents an additional write-off to be borne by them for a total write-off of
US$59,287,934.07. Section 5(d), Rule 4 of the Interim Rules provides that the rehabilitation plan shall include the
means for the execution of the rehabilitation plan, which may include conversion of the debts or
The provision adverted to is Article XII, Section 11 of the 1987 Constitution which states:
any portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of
SEC. 11. No franchise, certificate, or any other form of authorization for the operation of a public the controlling interest.
utility shall be granted except to citizens of the Philippines or to corporations or associations
Debt restructuring may involve conversion of the debt or any portion thereof to equity, sale of the
organized under the laws of the Philippines at least sixty per centum of whose capital is owned
assets of the distressed company and application of the proceeds to the obligation, dacion en
by such citizens, nor shall such franchise, certificate or authorization be exclusive in character or
pago, debt relief or reduction, modification of the terms of the loan or a combination of these
for a longer period than fifty years. Neither shall any such franchise or right be granted except
schemes.
under the condition that it shall be subject to amendment, alteration, or repeal by the Congress
when the common good so requires. The State shall encourage equity participation in public In this case, the approved Rehabilitation Plan provided for a longer period of payment, the
utilities by the general public. The participation of foreign investors in the governing body of any conversion of debt to 40% equity in respondent company, modification of interest rates on the
public utility enterprise shall be limited to their proportionate share in its capital, and all the restructured debt and accrued interest and a write-off or relief from penalties and default interest.
executive and managing officers of such corporation or association must be citizens of the These recommendations by the Receiver are perfectly within the powers of the Rehabilitation
Philippines. Court to adopt and approve, as it did adopt and approve. In so doing, no reversible error can be
attributed to the Rehabilitation Court.
This provision explicitly reserves to Filipino citizens control over public utilities, pursuant to an
overriding economic goal of the 1987 Constitution: to "conserve and develop our patrimony" and The pertinent portion of the fallo of said courts Decision dated June 28, 2004 states:
ensure "a selfreliant and independent national economy effectively controlled by Filipinos."94
1. The ruling on the pari passu treatment of all creditors whose claims are subject to
In the recent case of Gamboa v. Teves,95 the Court settled once and for all the meaning of "capital" restructuring shall be maintained and shall extend to all payment terms and treatment of
in the above-quoted Constitutional provision limiting foreign ownership in public utilities. In said past due interest.[98 (Emphasis supplied)
case, we held that considering that common shares have voting rights which translate to control
as opposed to preferred shares which usually have no voting rights, the term "capital" in Section Thus, the court a quo provided for a uniform application of the pari passu principle among creditor
11, Article XII of the Constitution refers only to common shares. However, if the preferred shares claims and the terms by which they shall be paid, including past due interest. This is consistent
with the interpretation accorded by jurisprudence to the pari passu principle that during It bears stressing at this point that the subject of petitioners appeal before the Court of Appeals
rehabilitation, the assets of the distressed corporation are held in trust for the equal benefit of all was the Rehabilitation Courts Decision dated June 28, 2004. Said Decision, however, bore no
creditors to preclude one from obtaining an advantage or preference over another. All creditors discussion on either petitioners claim for costs from which they may appeal. Notably, the assailed
should stand on equal footing. Not any one of them should be given preference by paying one or Order of the Rehabilitation Court was promulgated on March 15, 2005 or four (4) months after
some of them ahead of the others.99 petitioners had appealed the Decision dated June 28, 2004 to the Court of Appeals on November
16, 2004. Evidently, the appellate court could not have acquired jurisdiction to review said Order.
As applied to this case, the pari passu treatment of claims during rehabilitation entitles all
creditors, whether secured or unsecured, to receive payment out of Bayantels cash flow. Despite Nonetheless, we doubt the propriety of the Rehabilitation Courts award for costs. A perusal of
their preferred position, therefore, the secured creditors shall not be paid ahead of the unsecured the Order dated March 15, 2005 reveals that the award to petitioner Bank of New York was made
creditors but shall receive payment only in the proportion owing to them. pursuant to Section 1, Rule 142 of the Rules of Court, which states:

In any event, the debt restructuring schemes complained of shall be implemented among all SECTION 1. Costs ordinarily follow results of suit.- Unless otherwise provided in these
creditors regardless of class. Both secured and unsecured creditors shall suffer a write-off of Rules, costs shall be allowed to the prevailing party as a matter of course, but the court
penalties and default interest and the escalating interest rates shall be equally imposed on them. shall have power, for special reasons, to adjudge that either party shall pay the costs of an action,
We repeat, the commitment embodied in the pari passu principle only goes so far as to ensure or that the same be divided, as may be equitable. No costs shall be allowed against the Republic
that the assets of the distressed corporation are held in trust for the equal benefit of all creditors. of the Philippines unless otherwise provided by law. (Emphasis supplied)
It does not espouse absolute equality in all aspects of debt restructuring.
However, there is no prevailing party in rehabilitation proceedings which is non-adversarial in
As regards petitioners claims for costs, petitioner Bank of New York filed before the Rehabilitation nature.106 Unlike in adversarial proceedings, the court in rehabilitation proceedings appoints a
Court a Notice of Claim100 dated February 19, 2004 for the payment of US$1,255,851.30, receiver to study the best means to revive the debtor and to ensure that the value of the debtors
representing filing fee, deposit for expenses and the professional fees of its counsels and financial property is reasonably maintained pending the determination of whether or not the debtor should
advisers. Earlier, said bank had filed a claim for the payment of US$863,829.98 for professional be rehabilitated, as well as implement the rehabilitation plan after its approval.107 The main thrust
fees of its counsels and professional advisers and P2,850,305.00 for docket fees and publication of rehabilitation is not to adjudicate opposing claims but to restore the debtor to a position of
expenses. On its end, the Avenue Asia Capital Group claims a total of US$535,075.64 to defray successful operation and solvency. Under the Interim Rules, reasonable fees and expenses are
the professional fees of its financial adviser, Price Waterhouse & Cooper and the Bondholder allowed the Receiver and the persons hired by him,108 for those expenses incurred in the ordinary
Communications Group. course of business of the debtor after the issuance of the stay order but excluding interest to
creditors.109
In an Order101 dated March 15, 2005, the Rehabilitation Court approved the claims for costs of
petitioner Bank of New York as follows: Moreover, while it is true that the Indenture between petitioners and respondent corporation
authorizes the Trustee to file proofs of claim for the payment of reasonable expenses and
i. filing fees of P2,701,750.00 as evidenced by O.R. Nos. 18463998, 18466286 and 0480246 all disbursements of the Trustee, its agents and counsel, accountants and experts, such remedy is
dated August 13, 2003 of the Regional Trial Court (of Pasig City); available only in cases where the Trustee files a collection suit against respondent company.
Indubitably, the rehabilitation proceedings in the case at bar is not a collection suit, which is
ii. costs of publication of the Stay Order in the amount of P47,550.00 as evidenced by O.R. No.
adversarial in nature.
86384 dated August 13, 2003 of the Peoples Independent Media, Inc., the same being judicial
costs authorized under Sec. 1, Rule 142 of the Rules of Court; In G.R. No. 177270
iii. payments of professional fees to its Philippine Counsel, Belo Gozon Elma Parel Asuncion & At issue in this petition for review on certiorari is the extent of power that the Monitoring
Lucila, in the total amount of US$152,784.32 as evidenced by the Affidavit of Atty. Roberto Rafael Committee can exercise.
V. Lucila and the Statements of Account attached thereto;
The pertinent portion of the fallo of the Decision dated June 28, 2004 provides:
which the Court considers to be reasonable and finds authorized under Sec. 6.11 and 6.12 of the
Indenture attached as Annex "E" to the Petition; 6. A Monitoring Committee shall be formed composed of representatives from all classes of the
restructured debt. The Rehabilitation Receivers role shall be limited to the powers of monitoring
The Receiver is hereby directed to cause the settlement of payment of the accounts within a and oversight as provided in the Interim Rules. All powers provided for in the Report and
period of sixteen (16) months from receipt of this Order.102 Recommendations, which exceed the monitoring and oversight functions mandated by the Interim
Rules shall be amended accordingly.110
The trial court made no pronouncement on the claims for cost of petitioner Avenue Asia Capital
Group, either in the same Order or in a subsequent order. On October 15, 2004, petitioner Bank of New York filed a Manifestation with the Rehabilitation
Court for the creation of a monitoring committee in accordance with the aforequoted
Before us, petitioners reiterate their claims for costs based on Sections 6.11 and 6.12
103 104
of the
pronouncement. Petitioner espouses the view that it is essential to "provide for a strong and
Indenture105 dated July 22, 1999, which was executed by respondent in their favor.
effective Monitoring Committee x x x which gives the Financial Creditors meaningful and
substantial participation in Bayantel."111 It went on to propose the powers that the Monitoring ii. the Receiver shall design and formulate with the participation of the Monitoring
Committee should possess, specifically: Committee and Bayantel the convertible debt instrument, as directed of him in the earlier
Order of November 9, 2004, for the unsustainable portion of the restructured debt of Bayantel
The role of the Monitoring Committee shall be to work with the Receiver (on precise terms to be and submit the same to the Court within thirty (30) days from receipt of this Order. Costs,
agreed as discussed below) to Oversee the actions of the BTI New Board of Directors, making key expenses and taxes that may be due on the execution of the convertible debt instrument shall be
Decisions and approving, amongst other things, charged to Bayantel as costs of the rehabilitation proceedings;

(i) Any proposed Events of Rescheduling; xxxx


(ii) Any other proposed actions by the receiver on a payment default; iv. the Receiver shall devise a mode or procedure whereby the Monitoring Committee can
have immediate and direct access to any information that the Receiver has obtained or
(iii) Operating Expenses Budgets;
received from Bayantel or the Monitoring Accountant in regard to the management and
(iv) Capital Expenditure Budgets; business operations of Bayantel;

(v) Asset Sales Programs; and v. the trading of debt mentioned in the Implementing Term Sheet shall be governed by the pre-
petition documents which do not conflict with the Decision of this Court and provided that no
(vi) Terms of Incentive Scheme for New Management and Management Targets.112 transfer shall be made to the Bayantel Group Companies, or any controlling shareholders thereof
including Bayan Telecommunications Holdings Corporation ("BTHC"); however, any "buy back"
Subsequently, in an Order113 dated November 9, 2004, the Rehabilitation Court adopted scheme as may be approved by the Monitoring Committee and Bayantel shall be open to
petitioners proposal by constituting a Monitoring Committee that all creditors whether secured or unsecured;116 (Emphasis supplied)

shall participate with the Receiver in monitoring and overseeing the actions of the Board of On appeal, the Court of Appeals nullified the Orders dated November 9, 2004 and March 15, 2005
Directors of Bayantel and may, by majority vote, adopt, modify, revise or substitute any of insofar as they defined the powers and functions of the Monitoring Committee. The appellate
the following items: court ruled that the Rehabilitation Court committed grave abuse of discretion in vesting the
Monitoring Committee with powers beyond monitoring and overseeing Bayantels operations.
(1) any proposed Annual OPEX Budgets;
Before us, petitioner contends that the Rehabilitation Court intended for the Monitoring Committee
(2) any proposed Annual CAPEX Budgets;
to exercise powers greater than those of the Receiver.
(3) any proposed Reschedule;
We find no merit in petitioners argument.
(4) any proposed actions by the Receiver on a payment default;
In the Decision dated June 28, 2004, the Rehabilitation Court discussed the circumstances
(5) terms of Management Incentivisation Scheme and Management Targets; surrounding the creation of the monitoring committee, thus:

(6) the EBITDA/Revenue ratios set by the Bayantel Board of Directors; and, Both Bayantel and the Opposing Creditors contend that the Rehabilitation Receiver, under his
Report and Recommendations, appear to be vested with too much discretion in the
(7) any other proposed actions by the Bayantel Board of Directors including, without implementation of his proposed rehabilitation plan. Bayantel and the Opposing Creditors for one,
limitation, issuance of new shares, sale of core and non-core assets, change of argue against the power of the Rehabilitation Receiver to be able to further restructure
business, etc. that will materially affect the terms and conditions of the rehabilitation Restructured Debt as well as the Rehabilitation Receiver's power relating to matters of Bayantels
plan and its implementation.114 (Emphasis supplied) budget.

From said Order, respondent Bayantel filed a Manifestation and Motion for Clarification while the The [c]ourt wishes to stress that the Interim Rules prohibit the Rehabilitation Receiver from taking
secured creditors moved for an increase in the membership of the monitoring committee from over the management and control of the company under rehabilitation, and limit his role to merely
three to five members. For his part, the Receiver submitted a Compliance and Manifestation dated overseeing and monitoring the operations of the company (Section 14, Rule 4, Interim Rules).
January 10, 2005. However, the [c]ourt also appreciates that the Rehabilitation Receiver must oversee the
implementation of the rehabilitation plan as approved by the [c]ourt. In line with petitioners
In an Order115 dated March 15, 2005, the Rehabilitation Court affirmed the creation of a monitoring proposal, the creation of a Monitoring Committee composed of representatives from all
committee but denied the motion for the appointment of additional members therein. It also made classes of the restructured debt addresses the concerns raised by the
the following dispositions relative to the functions of the Monitoring Committee: creditors.117 (Emphasis supplied)

(d) to approve the Implementing Term Sheet submitted by the Receiver subject to the following It can be gleaned from the foregoing that the Rehabilitation Courts decision to form a monitoring
conditions: committee was borne out of creditors concerns over the possession of vast powers by the
Receiver. While the Rehabilitation Court was quick to delineate the Receivers authority, it
xxxx nevertheless, underscored the value of his role in overseeing the implementation of the Plan. It
was on this premise that the Rehabilitation Court appointed the Monitoring Committee - to corporation which may be prejudicial to the interest of the minority stockholders, the creditors or
"[address] the concerns raised by the creditors." Yet, in its Orders dated November 9, 2004 and the public. Unless petitioner satisfies these requisites, we cannot sanction the exercise by the
March 15, 2005, the Rehabilitation Court equipped the Monitoring Committee with powers well Monitoring Committee of powers that will amount to management of respondents operations.
beyond those of the Receivers. Apart from control over respondents budget, the Monitoring
Committee may also adopt, modify, revise or even substitute any other proposed actions by WHEREFORE, the Court hereby RESOLVES to dispose of these consolidated petitions, as
respondents Board of Directors, including, without limitation issuance of new shares, sale of core follows:
and non-core assets, change of business and others that will materially affect the terms and
(1) The petition for review on certiorari in G.R. Nos. 174457-59 is DENIED. The Decision dated
conditions of the rehabilitation plan and its implementation. Ironically, the court a quo diluted the
August 18, 2006 of the Court of Appeals in CA-G.R. SP No. 87203 is AFFIRMED;
seeming concentration of power in the hands of the Receiver but appointed a Committee
possessed of even wider discretion over respondents operations. (2) The petition for review on certiorari in G.R. Nos. 175418-20 is DENIED. The Decision dated
August 18, 2006 and Resolution dated November 8, 2006 of the Court of Appeals in CA-G.R. SP
From all indications, however, the tenor of the Rehabilitation Courts Decision dated June 28, 2004
Nos. 87100 and 87111 are AFFIRMED; and
does not contemplate the creation of a Monitoring Committee with broader powers than the
Receiver. As the name of the Monitoring Committee itself suggests, its job is "to watch, observe (3) The petition for review on certiorari in G.R. No. 177270 is DENIED. The Decision dated
or check especially for a special purpose."118 In the context of the Decision dated June 28, 2004, October 27, 2006 and Resolution dated March 23, 2007 of the Court of Appeals in CA-G.R. SP No.
the fundamental task of the Monitoring Committee herein is to oversee the implementation of the 89894 are AFFIRMED.
rehabilitation plan as approved by the court. This should not be confused with the functions of
the Receiver under the Interim Rules or a management committee under PD 902-A. No pronouncement as to costs.

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

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

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


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

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

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

Respondent filed on October 24, 2002 an application with the NWRB for the issuance of a
61-70 cu. m. 40.00 per cu. m.
Certificate of Public Convenience (CPC) to operate and maintain waterworks system in sitios San
Vicente, Fatima, and Sambag in Barangay Bulacao, Cebu City.
71-100 cu. m. 45.00 per cu. m.
At the initial hearing of December 16, 2002 during which respondent submitted proof of
compliance with jurisdictional requirements of notice and publication, herein petitioner
Metropolitan Cebu Water District, a government-owned and controlled corporation created Over 100 cu. m. 50.00 per cu. m.
pursuant to P.D. 1981 which took effect upon its issuance by then President Marcos on May 25,
1973, as amended, appeared through its lawyers to oppose the application. The Rules and Regulations, hereto, attached for the operation of the waterworks system should
be strictly complied with.
While petitioner filed a formal opposition by mail, a copy thereof had not, on December 16, 2002,
yet been received by the NWRB, the day of the hearing. Counsel for respondent, who received a Since the average production is below average day demand, it is recommended to construct
copy of petitioners Opposition dated December 12, 2002 earlier that morning, volunteered to give another well or increase the well horsepower from 1.5 - 3.00 Hp to satisfy the water requirement
a copy thereof to the hearing officer.2 of the consumers.
In its Opposition, petitioner prayed for the denial of respondents application on the following Moreover, the rates herein approved should be posted by GRANTEE at conspicuous places within
grounds: (1) petitioners Board of Directors had not consented to the issuance of the franchise the area serviced by it, within seven (7) calendar days from notice of this Decision.
applied for, such consent being a mandatory condition pursuant to P.D. 198, (2) the proposed
waterworks would interfere with petitioners water supply which it has the right to protect, and SO ORDERED.4
(3) the water needs of the residents in the subject area was already being well served by
petitioner. Its motion for reconsideration having been denied by the NWRB by Resolution of May 17, 2004,
petitioner appealed the case to the RTC of Cebu City. As mentioned early on, the RTC denied the
After hearing and an ocular inspection of the area, the NWRB, by Decision dated September 22, appeal and upheld the Decision of the NWRB by Decision dated February 10, 2005. And the RTC
2003, dismissed petitioners Opposition "for lack of merit and/or failure to state the cause of denied too petitioners motion for reconsideration by Order of May 13, 2005.
action"3 and ruled in favor of respondent as follows:
Hence, the present petition for review raising the following questions of law:
PREMISES ALL CONSIDERED, and finding that Applicant is legally and financially qualified to
operate and maintain the subject waterworks system, and that said operation shall redound to i. WHETHER OR NOT THE CONSENT OF THE BOARD OF DIRECTORS OF THE WATER DISTRICT
the benefit of the of the [sic] consumers of Sitios San Vicente, Fatima and Sambag at Bulacao IS A CONDITION SINE QUA NON TO THE GRANT OF CERTIFICATE OF PUBLIC CONVENIENCE BY
Pardo, Cebu City, thereby promoting public service in a proper and suitable manner, the instant THE NATIONAL WATER RESOURCES BOARD UPON OPERATORS OF WATERWORKS WITHIN THE
SERVICE AREA OF THE WATER DISTRICT?
ii. WHETHER THE TERM FRANCHISE AS USED IN SECTION 47 OF PRESIDENTIAL DECREE 198, Nonetheless, while the questioned resolution sufficiently identifies the kind of cases which
AS AMENDED MEANS A FRANCHISE GRANTED BY CONGRESS THROUGH LEGISLATION ONLY OR Engineer Paredes may file in petitioners behalf, the same does not authorize him for the specific
DOES IT ALSO INCLUDE IN ITS MEANING A CERTIFICATE OF PUBLIC CONVENIENCE ISSUED BY act of signing verifications and certifications against forum shopping. For it merely authorizes
THE NATIONAL WATER RESOURCES BOARD FOR THE MAINTENANCE OF WATERWORKS SYSTEM Engineer Paredes to file cases in behalf of the corporation. There is no mention of signing
OR WATER SUPPLY SERVICE?5 verifications and certifications against forum shopping, or, for that matter, any document of
whatever nature.
Before discussing these substantive issues, a resolution of the procedural grounds raised by
respondent for the outright denial of the petition is in order. A board resolution purporting to authorize a person to sign documents in behalf of the corporation
must explicitly vest such authority. BPI Leasing Corporation v. Court of Appeals10 so instructs:
By respondents claim, petitioners General Manager, Engineer Armando H. Paredes, who filed the
present petition and signed the accompanying verification and certification of non-forum Corporations have no powers except those expressly conferred upon them by the Corporation
shopping, was not specifically authorized for that purpose. Respondent cites Premium Marble Code and those that are implied by or are incidental to its existence. These powers are
Resources v. Court of Appeals6 where this Court held that, in the absence of a board resolution exercised through their board of directors and/or duly authorized officers and
authorizing a person to act for and in behalf of a corporation, the action filed in its behalf must agents. Hence, physical acts, like the signing of documents, can be performed only by
fail since "the power of the corporation to sue and be sued in any court is lodged with the board natural persons duly authorized for the purpose by corporate bylaws or by specific act
of directors that exercises its corporate powers." of the board of directors.

Respondent likewise cites ABS-CBN Broadcasting Corporation v. Court of Appeals7 where this The records are bereft of the authority of BLC's [BPI Leasing Corporation] counsel to
Court held that "[f]or such officers to be deemed fully clothed by the corporation to exercise a institute the present petition and to sign the certification of non-forum shopping. While
power of the Board, the latter must specially authorize them to do so." (Emphasis supplied by said counsel may be the counsel of record for BLC, the representation does not vest upon him the
respondent) authority to execute the certification on behalf of his client. There must be a resolution issued
by the board of directors that specifically authorizes him to institute the petition and
That there is a board resolution authorizing Engineer Paredes to file cases in behalf of petitioner execute the certification, for it is only then that his actions can be legally binding upon
is not disputed. Attached to the petition is petitioners Board of Directors Resolution No. 015- BLC. (Emphasis, italics and underscoring supplied)
2004, the relevant portion of which states:
It bears noting, moreover, that Rule 13 Section 2 of the Rules of Court merely defines filing as
RESOLVE[D], AS IT IS HEREBY RESOLVED, to authorize the General Manager, ENGR. ARMANDO "the act of presenting the pleading or other paper to the clerk of court." Since the signing of
H. PAREDES, to file in behalf of the Metropolitan Cebu Water District expropriation and verifications and certifications against forum shopping is not integral to the act of filing, this may
other cases and to affirm and confirm above-stated authority with respect to previous cases filed not be deemed as necessarily included in an authorization merely to file cases.
by MCWD.
Engineer Paredes not having been specifically authorized to sign the verification and certification
x x x x8 (Emphasis and underscoring supplied) against forum shopping in petitioners behalf, the instant petition may be dismissed outright.
To respondent, however, the board resolution is invalid and ineffective for being a roving authority Technicality aside, the petition just the same merits dismissal.
and not a specific resolution pursuant to the ruling in ABS-CBN.
In support of its contention that the consent of its Board of Directors is a condition sine qua
That the subject board resolution does not authorize Engineer Paredes to file the instant petition in non for the grant of the CPC applied for by respondent, petitioner cites Section 47 of P.D.
particular but "expropriation and other cases" does not, by itself, render the authorization invalid 19811 which states:
or ineffective.
Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person or agency
In BA Savings Bank v. Sia,9 the therein board resolution, couched in words similar to the for domestic, industrial or commercial water service within the district or any portion
questioned resolution, authorized persons to represent the corporation, not for a specific case, thereof unless and except to the extent that the board of directors of said district consents
but for a general class of cases. Significantly, the Court upheld its validity: thereto by resolution duly adopted, such resolution, however, shall be subject to review by the
Administration. (Emphasis and underscoring supplied)
In the present case, the corporation's board of directors issued a Resolution
specifically authorizing its lawyers "to act as their agents in any action or There being no such consent on the part of its board of directors, petitioner concludes that
proceeding before the Supreme Court, the Court of Appeals, or any other tribunal or respondents application for CPC should be denied.
agency[;] and to sign, execute and deliver in connection therewith the necessary pleadings,
motions, verification, affidavit of merit, certificate of non-forum shopping and other instruments Both parties arguments center, in the main, on the scope of the word "franchise" as used in the
necessary for such action and proceeding." The Resolution was sufficient to vest such above-quoted provision.
persons with the authority to bind the corporation and was specific enough as to the
acts they were empowered to do. (Emphasis and underscoring supplied, italics in the original) Petitioner contends that "franchise" should be broadly interpreted, such that the prohibition
against its grant to other entities without the consent of the districts board of directors extends
to the issuance of CPCs. A contrary reading, petitioner adds, would result in absurd consequences,
for it would mean that Congress power to grant franchises for the operation of waterworks SECTION 6. Formation of District. This Act is the source of authorization and power to
systems cannot be exercised without the consent of water districts. form and maintain a district. Once formed, a district is subject to the provisions of this Act
and not under the jurisdiction of any political subdivision. For purposes of this Act, a district shall
Respondent, on the other hand, proffers that the same prohibition only applies to franchises in be considered as a quasi-public corporation performing public service and supplying public wants.
the strict sense those granted by Congress by means of statute and does not extend to CPCs As such, a district shall exercise the powers, rights and privileges given to private corporations
granted by agencies such as the NWRB. under existing laws, in addition to the powers granted in, and subject to such restrictions imposed,
under this Act. To form a district, the legislative body of any city, municipality or
Respondent quotes the NWRB Resolution dated May 17, 2004 which distinguished a franchise
province shall enact a resolution containing the following:
from a CPC, thus:
(a) The name of the local water district, which shall include the name of the city, municipality, or
A CPC is formal written authority issued by quasi-judicial bodies for the operation and maintenance
province, or region thereof, served by said system, followed by the words "Water District".
of a public utility for which a franchise is not required by law and a CPC issued by this Board is an
authority to operate and maintain a waterworks system or water supply service. On the other (b) A description of the boundary of the district. In the case of a city or municipality, such boundary
hand, a franchise is privilege or authority to operate appropriate private property for public use may include all lands within the city or municipality. A district may include one or more
vested by Congress through legislation. Clearly, therefore, a CPC is different from a municipalities, cities or provinces, or portions thereof: Provided, That such municipalities, cities or
franchise and Section 47 of Presidential Decree 198 refers only to franchise. provinces, or portions thereof, cover a contiguous area.
Accordingly, the possession of franchise by a water district does not bar the issuance
of a CPC for an area covered by the water district. (Emphasis and underscoring supplied by (c) A statement completely transferring any and all waterworks and/or sewerage facilities
respondent) managed, operated by or under the control of such city, municipality or province to such district
upon the filing of resolution forming the district.
Petitioners position that an overly strict construction of the term "franchise" as used in Section
47 of P.D. 198 would lead to an absurd result impresses. If franchises, in this context, were strictly (d) A statement identifying the purpose for which the district is formed, which shall include those
understood to mean an authorization issuing directly from the legislature, it would follow that, purposes outlined in Section 5 above.
while Congress cannot issue franchises for operating waterworks systems without the water
districts consent, the NWRB may keep on issuing CPCs authorizing the very same act even without (e) The names of the initial directors of the district with the date of expiration of the term of office
such consent. In effect, not only would the NWRB be subject to less constraints than Congress in for each which shall be on the 31st of December of first, second, or third even-numbered year
issuing franchises. The exclusive character of the franchise provided for by Section 47 would be after assuming office, as set forth in Section 11 hereof.
illusory.
(f) A statement that the district may only be dissolved on the grounds and under the conditions
Moreover, this Court, in Philippine Airlines, Inc. v. Civil Aeronautics Board,12 has construed the set forth in Section 45 of this Title.
term "franchise" broadly so as to include, not only authorizations issuing directly from Congress
(g) A statement acknowledging the powers, rights and obligations as set forth in Section 25 of
in the form of statute, but also those granted by administrative agencies to which the power to
this Title.
grant franchises has been delegated by Congress, to wit:
Nothing in the resolution of formation shall state or infer that the local legislative body has the
Congress has granted certain administrative agencies the power to grant licenses for,
power to dissolve, alter or affect the district beyond that specifically provided for in this Act.
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 If two or more cities, municipalities or provinces, or any combination thereof, desire to form a
difficulty of administering the laws, there is a constantly growing tendency towards the delegation single district, a similar resolution shall be adopted in each city, municipality and province; or the
of greater powers by the legislature, and towards the approval of the practice by the courts. It is city, municipality or province in which 75% of the total active service connections are situated
generally recognized that a franchise may be derived indirectly from the state through shall pass an initial resolution to be concurred in by the other cities, municipalities or provinces.
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. SECTION 7. Filing of Resolution. A certified copy of the resolution or resolutions forming
In pursuance of this, it has been held that privileges conferred by grant by local a district shall be forwarded to the office of the Secretary of Administration. If found
authorities as agents for the state constitute as much a legislative franchise as though by the Administration to conform to the requirements of Section 6 and the policy
the grant had been made by an act of the Legislature.13 objectives in Section 2, the resolution shall be duly filed. The district shall be deemed
duly formed and existing upon the date of such filing. A certified copy of said resolution
That the legislative authority in this instance, then President Marcos14 intended to delegate its showing the stamp of the Administration shall be maintained in the office of the district. Upon
power to issue franchises in the case of water districts is clear from the fact that, pursuant to the such filing, the local government or governments concerned shall lose ownership, supervision and
procedure outlined in P.D. 198, it no longer plays a direct role in authorizing the formation and control or any right whatsoever over the district except as provided herein. (Emphasis and
maintenance of water districts, it having vested the same to local legislative bodies and the Local underscoring supplied)
Water Utilities Administration (LWUA).
It bears noting that once a district is "duly formed and existing" after following the above
Sections 6 and 7 of P.D. 198, as amended, state: procedure, it acquires the "exclusive franchise" referred to in Section 47. Thus, P.D. 198 itself, in
harmony with Philippine Airlines, Inc. v. Civil Aeronautics Board,15 gives the name "franchise" to CONCHITA CARPIO MORALES
an authorization that does not proceed directly from the legislature. Associate Justice

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

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

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

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

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

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

SO ORDERED.
Republic of the Philippines Executive Order No. 546 to replace the defunct Public Service Commission did not affect sections
SUPREME COURT 14 and 15 of the Public Service Law (Commonwealth Act. No. 146, as amended).
Manila
SECOND DIVISION
The provisions of the Public Service Law pertinent to the petitioner's allegation are as follows:
G.R. No. L-68729 May 29, 1987
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC., petitioner,
vs. Section 13. (a) the Commission shall have jurisdiction, supervision, and control over all public
NATIONAL TELECOMMUNICATIONS COMMISSION and KAYUMANGGI RADIO NETWORK services and their franchises, equipment and other properties, and in the exercise of its authority,
INCORPORATED, respondents. it shall have the necessary powers and the aid of public force: ...
GUTIERREZ, JR, J.:
Section 14. The following are exempted from the provisions of the preceding section:
This petition seeks the reversal of the decision of the National Telecommunications Commission
(NTC) which ordered petitioner Radio Communications of the Philippines, Incorporated (RCPI) to xxx xxx xxx
desist from operating its radio telephone services in Catarman, Northern Samar; San Jose,
Occidental Mindoro; and Sorsogon, Sorsogon. (d) Radio companies except with respect to the fixing of rates;

Petitioner has been operating a radio communications system since 1957 under its legislative xxx xxx xxx
franchise granted by Republic Act No. 2036 which was enacted on June 23, 1957.
Section 15. With the exception of those enumerated in the preceding section, no public service
In 1968, the petitioner established a radio telegraph service in Sorsogon, Sorsogon. In 1971, shall operate in the Philippines without possessing a valid and subsisting certificate from the Public
another radio telegraph service was put up in San Jose, Mindoro followed by another in Catarman, Service Commission, known as "certificate of public convenience," or "certificate of convenience
Samar in 1976. The installation of radio telephone services started in 1971 in San Jose, Mindoro; and public necessity," as the case may be, to the effect that the operation of said service and the
then in Sorsogon, Sorsogon and Catarman, Samar in 1983. authorization to do business will promote the public interests in a proper and suitable manner. ...

In a decision dated June 24, 1980 in NTC Case No. 80-08, private respondent Kayumanggi Radio We find no merit in the petitioner's contention.
Network Incorporated was authorized by the public respondent to operate radio communications
Pursuant to Presidential Decree No. 1 dated September 23,1972, reorganizing the executive
systems in Catarman, Samar and in San Jose, Mindoro.
branch of the National Government, the Public Service Commission was abolished and its functions
On December 14, 1983, the private respondent filed a complaint with the NTC alleging that the were transferred to three specialized regulatory boards, as follows: the Board of Transportation,
petitioner was operating in Catarman, Samar and in San Jose, Mindoro without a certificate of the Board of Communications and the Board of Power and Waterworks. The functions so
public covenience and necessity. The petitioner, on the other hand, counter-alleged that its transferred were still subject to the limitations provided in sections 14 and 15 of the Public Service
telephone services in the places subject of the complaint are covered by the legislative franchise Law, as amended. With the enactment of Executive Order No. 546 on July 23, 1979 implementing
recognized by both the public respondent and its predecessor, the Public Service Commission. In P.D. No.1, the Board of Communications and the Telecommunications Control Bureau were
its supplemental reply, the petitioner further stated that it has been in operation in the questioned abolished and their functions were transferred to the National Telecommunications Commission
places long before private respondent Kayumanggi filed its application to operate in the same (Sec. 19(d), Executive Order No. 546). Section 15 of said Executive Order spells out the functions
places. of the National Telecommunications Commission as follows:

After conducting a hearing, NTC, in its decision dated August 22, 1984 ordered petitioner RCPI to Sec. 15. Functions of the Commission.-The Commission shall exercise the following functions:
immediately cease or desist from the operation of its radio telephone services in Catarman
a. Issue Certificate of Public Convenience for the operation of communications utilities and
Northern Samar; San Jose, Occidental Mindoro; and Sorsogon, Sorsogon stating that under
services, radio communications petitions systems, wire or wireless telephone or telegraph system,
Executive Order No. 546, a certificate of public convenience and necessity is mandatory for the
radio and television broadcasting system and other similar public utilities;
operation of communication utilities and services including radio communications.
b. Establish, prescribe and regulate areas of operation of particular operators of public service
On September 4, 1984, the petitioner filed a motion for reconsideration which was denied in an
communications; and determine and prescribe charges or rates pertinent to the operation of such
order dated September 12, 1984.
public utility facilities and services except in cases where charges or rates are established by
On October 1, 1984, the present petition was filed raising the issue of whether or not petitioner international bodies or associations of which the Philippines is a participating member or by bodies
RCPI, a grantee of a legislative franchise to operate a radio company, is required to secure a recognized by the Philippine Government as the proper arbiter of such charges or rates;
certificate of public convenience and necessity before it can validly operate its radio stations
c. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems
including radio telephone services in Catarman, Northern Samar; San Jose, Occidental Mindoro;
and radio communication systems including amateur radio stations and radio and television
and Sorsogon, Sorsogon.
broadcasting systems;
The petitioner's main argument states that the abolition of the Public Service Commission under
d. Sub-allocate series of frequencies of bands allocated by the International Telecommunications
Presidential Decree No. 1 and the creation of the National Telecommunications Commission under
Union to the specific services;
e. Establish and prescribe rules, regulations, standards, specifications in all cases related to the radiotelephone, including both coastal and marine telecommunications, each station to consist of
issued Certificate of Public Convenience and administer and enforce the same; two radio apparatus comprising of a receiving and sending radio apparatus. (Emphasis supplied).

f. Coordinate and cooperate with government agencies and other entities concerned with any Section 4(a) of the same Act further provides that:
aspect involving communications with a view to continuously improve the communications service
in the country; Sec. 4(a). This franchise shall not take effect nor shall any powers thereunder be exercised by the
grantee until the Secretary of Public works and Communications shall have allotted to the grantee
g. Promulgate such rules and regulations, as public safety and interest may require, to encourage the frequencies and wave lengths to be used, and issued to the grantee a license for such case .
a larger and more effective use of communications, radio and television broadcasting facilities, (Emphasis supplied)
and to maintain effective competition among private entities in these activities whenever the
Commission finds it reasonably feasible; Thus, in the words of R.A. No. 2036 itself, approval of the then Secretary of Public Works and
Communications was a precondition before the petitioner could put up radio stations in areas
h. Supervise and inspect the operation of radio stations and telecommunications facilities; where it desires to operate. It has been repeated time and again that where the statutory norm
i. Undertake the examination and licensing of radio operators; speaks unequivocally, there is nothing for the courts to do except to apply it. The law, leaving no
j. Undertake, whenever necessary, the registration of radio transmitters and transceivers; and doubt as to the scope of its operation, must be obeyed. (Gonzaga v. Court of Appeals, 51 SCRA
k. Perform such other functions as may be prescribed by law. 381).

It is clear from the aforequoted provision that the exemption enjoyed by radio companies from The records of the case do not show any grant of authority from the then Secretary of Public
the jurisdiction of the Public Service Commission and the Board of Communications no longer Works and Communications before the petitioner installed the questioned radio telephone services
exists because of the changes effected by the Reorganization Law and implementing executive in San Jose, Mindoro in 1971. The same is true as regards the radio telephone services opened in
orders. The petitioner's claim that its franchise cannot be affected by Executive Order No. 546 on Sorsogon, Sorsogon and Catarman, Samar in 1983. No certificate of public convenience and
the ground that it has long been in operation since 1957 cannot be sustained. necessity appears to have been secured by the petitioner from the public respondent when such
certificate,was required by the applicable public utility regulations (See executive Order No. 546,
A franchise started out as a "royal privilege or (a) branch of the King's prerogative, subsisting in sec. 15, supra.; Philippine Long Distance Telephone Co. v. City of Davao, 15 SCRA 75; Olongapo
the hands of a subject." This definition was given by Finch, adopted by Blackstone, and accepted Electric Light and Power Corp. v. National Power Corporation, et al., G.R. No. L-24912,
by every authority since (State v. Twin Village Water Co., 98 Me 214, 56 A 763 (1903)). Today, a promulgated April 9, 1987.)
franchise, being merely a privilege emanating from the sovereign power of the state and owing
its existence to a grant, is subject to regulation by the state itself by virtue of its police power It was well within the powers of the public respondent to authorize the installation by the private
through its administrative agencies. We ruled in Pangasinan transportation Co., Inc. v. Public respondent network of radio communications systems in Catarman, Samar and San Jose, Mindoro.
Service Commission (70 Phil. 221) that: Under the circumstances of this case, the mere fact that the petitioner possesses a franchise to
put up and operate a radio communications system in certain areas is not an insuperable obstacle
... statutes enacted for the regulation of public utilities, being a proper exercise by the State of its to the public respondent's issuing the proper certificate to an applicant desiring to extend the
police power, are applicable not only to those public utilities coming into existence after its same services to those areas. The Constitution mandates that a franchise cannot be exclusive in
passage, but likewise to those already established and in operation ... nature nor can a franchise be granted except that it must be subject to amendment, alteration,
or even repeal by the legislature when the common good so requires. (Art. XII, sec. 11 of the
Executive Order No. 546, being an implementing measure of P.D. No. I insofar as it amends the
1986 Constitution). There is an express provision in the petitioner's franchise which provides
Public Service Law (CA No. 146, as amended) is applicable to the petitioner who must be bound
compliance with the above mandate R.A. 2036, sec. 15).
by its provisions. The petitioner cannot install and operate radio telephone services on the basis
of its legislative franchise alone. In view of the foregoing, we find no reason to disturb the public respondent's findings of fact, and
conclusions of law insofar as the private respondent was authorized to operate in Catarman,
The position of the petitioner that by the mere grant of its franchise under RA No. 2036 it can
Samar and San Jose, Mindoro. As a rule, the Commission's findings of fact, if supported by
operate a radio communications system anywhere within the Philippines is erroneous. Section 1
substantial evidence, are conclusive upon this Court. We may modify or ignore them only when it
of said statute reads:
clearly appears that there is no evidence to support reasonably such a conclusion. (Halili v. Daplas,
Section 1. Subject to the provisions of the Constitution, and to the provisions, not inconsistent 14 SCRA 14). The petitioner has not shown why the private respondent should be denied the
herewith, of Act Numbered Three thousand eight hundred and forty-six, entitled.' An Act providing authority to operate its services in Samar and Mindoro. It has not overcome the presumption that
for the regulation of radio stations and radio communications in the Philippine Islands, and for when the public respondent disturbed the petitioner's monopoly in certain areas, it was doing so
other purposes;' Commonwealth Act Numbered One hundred forty-six, known as the Public pursuant to public interest and the common good.
Service Act, and their amendments, and other applicable laws, there is hereby granted to the
WHEREFORE, the challenged order of the public respondent dated August 22, 1984 is hereby
Radio Communications of the Philippines, its successors or assigns, the right and privilege of
AFFIRMED. The petition is dismissed for lack of merit.
constructing, installing, establishing and operating in the Philippines, at such places as the said
SO ORDERED.
corporation may select and the Secretary of Public Works and Communications may approve, radio
stations for the reception and transmission of wireless messages on radiotelegraphy and/or
Fernan (Chairman), Paras, Padilla, Bidin and Cortes, JJ., concur.
Republic of the Philippines YOUNG PROFESSIONALS AND ENTREPRENEURS OF SAN PEDRO,
SUPREME COURT LAGUNA, Respondent.
Manila
DECISION
EN BANC
VELASCO, JR., J.:
G.R. No. 166910 October 19, 2010
Before us are four petitions; the first three are special civil actions under Rule 65, assailing and
ERNESTO B. FRANCISCO, JR. and JOSE MA. O. HIZON, Petitioners, seeking to nullify certain statutory provisions, presidential actions and implementing orders, toll
vs. operation-related contracts and issuances on the construction, maintenance and operation of the
TOLL REGULATORY BOARD, PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, major tollway systems in Luzon. The petitions likewise seek to restrain and permanently prohibit
MANILA NORTH TOLLWAYS CORPORATION, BENPRES HOLDINGS CORPORATION, the implementation of the allegedly illegal toll fee rate hikes for the use of the North Luzon
FIRST PHILIPPINE INFRASTRUCTURE DEVELOPMENT CORPORATION, TOLLWAY Expressway ("NLEX"), South Luzon Expressway ("SLEX") and the South Metro Manila Skyway
MANAGEMENT CORPORATION, PNCC SKYWAY CORPORATION, CITRA METRO ("SMMS"). The fourth, a petition for review under Rule 45, seeks to annul and set aside the
MANILA TOLLWAYS CORPORATION and HOPEWELL CROWN INFRASTRUCTURE, decision dated June 23, 2008 of the Regional Trial Court ("RTC") of Pasig, in SCA No. 3138-PSG,
INC., Respondents. enjoining the original toll operating franchisee from collecting toll fees in the SLEX.

x - - - - - - - - - - - - - - - - - - - - - - -x By Resolution of March 20, 2007, the Court ordered the consolidation of the first three petitions,
docketed as G.R. Nos. 166910, 169917 and 173630, respectively. The fourth petition, G.R.
G.R. No. 169917 No. 183599, would later be ordered consolidated with the earlier three petitions.
HON. IMEE R. MARCOS, RONALDO B. ZAMORA, CONSUMERS UNION OF THE The Facts
PHILIPPINES, INC., QUIRINO A. MARQUINEZ, HON. LUIS A. ASISTIO, HON. ERICO
BASILIO A. FABIAN, HON. RENATO "KA RENE" B. MAGTUBO, HON. RODOLFO G. The antecedent facts are as follows
PLAZA, HON. ANTONIO M. SERAPIO, HON. EMMANUEL JOEL J. VILLANUEVA, HON.
ANIBAN NG MGA MANGGAGAWA SA AGRIKULTURA (AMA), INC., ANIBAN NG MGA On March 31, 1977, then President Ferdinand E. Marcos issued Presidential Decree No. ("P.D.")
MAGSASAKA, MANGINGISDA AT MANGGAGAWA SA AGRIKULTURA-KATIPUNAN, 1112, authorizing the establishment of toll facilities on public improvements.1 This issuance, in its
INC., KAISAHAN NG MGA MAGSASAKA SA AGRIKULTURA, INC., KILUSAN NG preamble, explicitly acknowledged "the huge financial requirements" and the necessity of tapping
MANGAGAWANG MAKABAYAN, Petitioners, "the resources of the private sector" to implement the governments infrastructure programs. In
vs. order to attract private sector involvement, P.D. 1112 allowed "the collection of toll fees for the
The REPUBLIC OF THE PHILIPPINES, acting by and through the TOLL REGULATORY use of certain public improvements that would allow a reasonable rate of return on investments."
BOARD, MANILA NORTH TOLLWAYS CORPORATION, PHILIPPINE NATIONAL The same decree created the Toll Regulatory Board ("TRB") and invested it under Section 3 (a)
CONSTRUCTION CORPORATION, and FIRST PHILIPPINE INFRASTRUCTURE (d) and (e) with the power to enter, for the Republic, into contracts for the construction,
DEVELOPMENT CORP., Respondents. maintenance and operation of tollways, grant authority to operate a toll facility, issue therefor the
necessary Toll Operation Certificate ("TOC") and fix initial toll rates, and, from time to time, adjust
x - - - - - - - - - - - - - - - - - - - - - - -x the same after due notice and hearing.

G.R. No. 173630 On the same date, P.D. 1113 was issued, granting to the Philippine National Construction
Corporation ("PNCC"), then known as the Construction and Development Corporation of the
GISING KABATAAN MOVEMENT, INC., BARANGAY COUNCIL OF SAN ANTONIO, Philippines ("CDCP"), for a period of thirty years from May 1977 or up to May 2007 a franchise
MUNICIPALITY OF SAN PEDRO, LAGUNA [as Represented by COUNCILOR CARLON G. to construct, maintain and operate toll facilities in the North Luzon and South Luzon Expressways,
AMBAYEC], and YOUNG PROFESSIONALS AND ENTREPRENEURS OF SAN PEDRO, with the right to collect toll fees at such rates as the TRB may fix and/or authorize. Particularly,
LAGUNA Petitioners, Section 1 of P.D. 1113 delineates the coverage of the expressways from Balintawak, Caloocan
vs. City to Carmen, Rosales, Pangasinan and from Nichols, Pasay City to Lucena, Quezon. And
THE REPUBLIC OF THE PHILIPPINES, acting through the TOLL REGULATORY BOARD because the franchise is not self-executing, as it was in fact made subject, under Section 3 of P.D.
(TRB), PHILIPPINE NATIONAL CONSTRUCTION CORPORATION (PNCC), Respondents. 1113, to "such conditions as may be imposed by the Board in an appropriate contract to be
executed for such purpose," TRB and PNCC signed in October 1977, a Toll Operation Agreement
x - - - - - - - - - - - - - - - - - - - - - - -x
("TOA") on the North Luzon and South Luzon Tollways, providing for the detailed terms and
G.R. No. 183599 conditions for the construction, maintenance and operation of the expressway.2

THE REPUBLIC OF THE PHILIPPINES, represented by the TOLL REGULATORY On December 22, 1983, P.D. 1894 was issued therein further granting PNCC a franchise over the
BOARD, Petitioner, Metro Manila Expressway ("MMEX"), and the expanded and delineated NLEX and SLEX.
vs. Particularly, PNCC was granted the "right, privilege and authority to construct, maintain and
operate any and all such extensions, linkages or stretches, together with the toll facilities The following events or transactions, involving the personalities as indicated, transpired with
appurtenant thereto, from any part of the North Luzon Expressway, South Luzon Expressway respect to the following projects:
and/or Metro Manila Expressway and/or to divert the original route and change the original end-
points of the North Luzon Expressway and/or South Luzon Expressway as may be approved by The South Metro Manila Skyway (SMMS)
the [TRB]."3 Under Section 2 of P.D. 1894, "the franchise granted the [MMEX] and all extensions, (Buendia Bicutan elevated stretch) Project
linkages, stretches and diversions after the approval of the decree that may be constructed after
PNCC entered into a JV partnership arrangement with P.T. Citra, an Indonesian company, and
the approval of this decree [on December 22, 1983] shall likewise have a term of thirty (30) years,
created, for the SMMS project, the Citra Metro Manila Tollways Corporation ("CMMTC").
commencing from the date of completion of the project."
On November 27, 1995, TRB, PNCC and CMMTC executed a STOA for the SMMS project ("CITRA
As expressly set out in P.D. 1113 and reiterated in P.D. 1894, PNCC may sell or assign its franchise
STOA"). And on April 7, 1996, then President Fidel V. Ramos approved the CITRA STOA.
thereunder granted or cede the usufruct4 thereof upon the Presidents approval.5 This same
provision on franchise transfer and cession of usufruct is likewise found in P.D. 1112.6 Phase I of the SMMS project the Bicutan to Buendia elevated expressway stretch was
completed in December 1998, and the consequent initial toll rates for its use implemented a month
Then came the 1987 Constitution with its franchise provision. 7
after. On November 26, 2004, the TRB passed Resolution No. 2004-53, approving the periodic toll
In 1993, the Government Corporate Counsel ("GCC"), acting on PNCCs request, issued Opinion rate adjustment for the SMMS.
No. 224, s. 1993,8later affirmed by the Secretary of Justice,9 holding that PNCC may, subject to
The NLEX Expansion Project (Rehabilitated and Widened NLEX, Subic Expressway,
certain clearance and approval requirements, enter into a joint venture ("JV") agreement ("JVA")
Circumferential Road C-5)
with private entities without going into public bidding in the selection of its JV partners. PNCCs
query was evidently prompted by the need to seek out alternative sources of financing for In reply to the query of the then TRB Chairman, the Department of Justice ("DOJ") issued DOJ
expanding and improving existing expressways, and to link them to economic zones in the north Opinion No. 79, s. of 1994, echoing an earlier opinion of the GCC, that the TRB can implement
and to the CALABARZON area in the south. the NLEX expansion project through a JV scheme with private investors possessing the requisite
technical and financial capabilities.
MOU for the construction, rehabilitation
and expansion of expressways On May 16, 1995, then President Ramos approved the assignment of PNCCs usufructuary rights
as franchise holder to a JV company to be formed by PNCC and FPIDC. PNCC and FPIDC would
On February 8, 1994, the Department of Public Works and Highways ("DPWH"), TRB, PNCC,
later ink a JVA for the rehabilitation and modernization of the NLEX referred in certain pleadings
Benpres Holdings Corporation ("Benpres") and First Philippine Holdings Corporation ("FPHC"),
as the North Luzon Tollway project.10The Manila North Tollways Corporation ("MNTC") was formed
among other private and government entities/agencies, executed a Memorandum of
for the purpose.
Understanding ("MOU") envisaged to open the door for the entry of private capital in the
rehabilitation, expansion (to Subic and Clark) and extension, as flagship projects, of the On April 30, 1998, the Republic, through the TRB, PNCC and MNTC, executed a STOA for the
expressways north of Manila, over which PNCC has a franchise. To carry out their undertakings North Luzon Tollway project ("MNTC STOA") in which MNTC was authorized, inter alia, to
under the MOU, Benpres and FPHC formed, as their infrastructure holding arm, the First Philippine subcontract the operation and maintenance of the project, provided that the majority of the
Infrastructure and Development Corporation ("FPIDC"). outstanding shares of the contractor shall be owned by MNTC. The MNTC STOA covers three
phases comprising of ten segments, including the rehabilitated and widened NLEX, the Subic
Consequent to the MOU execution, PNCC entered into financial and/or technical JVAs with private
Expressway and the circumferential Road C-5.11 The STOA is to be effective for thirty years,
entities/investors for the toll operation of its franchised areas following what may be considered
reckoned from the issuance of the toll operation permit for the last completed phase or until
as a standard pattern, viz.: (a) after a JVA is concluded and the usual government approval of the
December 31, 2030, whichever is earlier. The Office of the President ("OP") approved the STOA
assignment by PNCC of the usufruct in the franchise under P.D. 1113, as amended, secured, a
on June 15, 1998.
new JV company is specifically formed to undertake a defined toll road project; (b) the Republic
of the Philippines, through the TRB, as grantor, PNCC, as operator, and the new corporation, as On August 2, 2000, pursuant to the MNTC STOA, the Tollways Management Corporation
investor/concessionaire, with its lender, as the case may be, then execute a Supplemental Toll ("TMC")formerly known as the Manila North Tollways Operation and Maintenance Corporation
Operation Agreement ("STOA") to implement the TOA previously issued; and (c) once the requisite was created to undertake the operation and maintenance of the NLEX tollway facilities,
STOA approval is given, project prosecution starts and upon the completion of the toll road project interchanges and related works.
or of a divisible phase thereof, the TRB fixes or approves the initial toll rate after which, it passes
a board resolution prescribing the periodic toll rate adjustment. On January 27, 2005, the TRB issued Resolution No. 2005-04 approving the initial authorized toll
rates for the closed and flat toll systems applicable to the new NLEX.
The STOA defines the scope of the road project coverage, the terminal date of the concession,
and includes provisions on initial toll rate and a built-in formula for adjustment of toll rates, The South Luzon Expressway Project (Nichols to Lucena City)
investment recovery clauses and contract termination in the event of the concessionaires, PNCCs
or TRBs default, as the case may be. For the SLEX expansion project, PNCC and Hopewell Holdings Limited ("HHL"), as JV partners,
executed a Memorandum of Agreement ("MOA"),12 which eventually led to the formation of a JV
company Hopewell Crown Infrastructure, Inc. ("HCII"), now MTD Manila Expressways, Inc.,
("MTDME"). And pursuant to the PNCC-MTDME JVA, the South Luzon Tollway Corporation for PTRs 1 and 2, the rate to take effect on June 30, 2010.18 The implementation of the published
("SLTC") and the Manila Toll Expressway Systems, Inc. ("MATES") were incorporated to undertake rate would, however, be postponed to August 2010.
the financing, construction, operation and maintenance of the resulting Project Toll Roads forming
part of the SLEX. The toll road projects are divisible toll sections or segments, each segment On July 5, 2010, petitioner Francisco filed a Supplemental Petition with prayer for the issuance of
defined as to its starting and end points and each with the corresponding distance coverage. The a temporary restraining order ("TRO") and/or status quo order focused on the impending
proposed JVA, as later amended, between PNCC and MTDME was approved by the OP on June collection of what was perceived to be toll rate increases in the SLEX. The assailed adjustments
30, 2000. were made public in a TRB notice of toll rate increases for the SLEX from Alabang to Calamba on
June 6, 2010, and were supposed to have been implemented on June 30, 2010. On August 13,
Eventually, or on February 1, 2006, a STOA13 for the financing, design, construction, lane 2010, the Court granted the desired TRO, enjoining the respondents in the consolidated cases
expansion and maintenance of the Project Toll Roads (PTR) of the rehabilitated and improved from implementing the toll rate increases in the SLEX.
SLEX was executed by and among the Republic, PNCC, SLTC, as investor, and MATES, as operator.
To be precise, the PTRs, under the STOA, comprise and contemplated the full rehabilitation and/or In their Consolidated Comment/Opposition to the Supplemental Petition, respondents SLTC et al.,
roadway widening of the following existing toll roads or facilities: PTR 1 that portion of the aver that the disputed rates are actually initial and opening rates, not an increase or adjustment
tollway commencing at the end of South MM Skyway to the Filinvest exit at Alabang (1-242 km); of the prevailing rate, for the new expanded and rehabilitated SLEX. In fine, the new toll rates
PTR 2 the tollway from Alabang to Calamba, Laguna (27.28 km); PTR 3 the tollway from are, per SLTC, for a new and upgraded facility, i.e. the aforementioned Project Toll Roads 1 and
Calamba to Sto. Tomas, Batangas (7.6 km) and PTR 4 the tollway from Sto. Tomas to Lucena 2 put up pursuant to the 2006 Republic-PNCC-SLTC-MATES STOA adverted to.
City (54.27 km).14
G.R. No. 169917
Under Clause 6.03 of the STOA, the Operator, after substantially completing a TPR, shall file an
While they raise, for the most part, the same issues articulated in G.R. No. 166910, such as the
application for a Toll Operation Permit over the relevant completed TPR or segment, which shall
public bidding requirement, the power of the President to approve the assignment of PNCCs
include a request for a review and approval by the TRB of the calculation of the new current
usufructuary rights to cover (as petitioners Imee R. Marcos, et al., would stress) even the
authorized toll rate.
assignment of the expressway from Balintawak to Tabang, the virtual amendment and extension
G.R. No. 166910 of a statutory franchise by way of administrative action (e.g., the execution of a STOA or issuance
of a TOC), petitioners in G.R. No. 169917 some of them then and still are members of the
Petitioners Francisco and Hizon, as taxpayers and expressway users, seek to nullify the various House of Representatives have, as their main focus, the North Luzon Tollway project and the
STOAs adverted to above and the corresponding TRB resolutions, i.e. Res. Nos. 2004-53 and agreements and devices entered in relation therewith.
2005-04, fixing initial rates and/or approving periodic toll rate adjustments therefor. To the
petitioners, the STOAs and the toll rate-fixing resolutions violate the Constitution in that they Petitioners also assail the MNTC STOA on the ground that it granted the lenders (Asian
veritably impose on the public the burden of financing tollways by way of exorbitant fees and thus Development Bank/World Bank) of MNTC, as project concessionaire, the unrestricted rights to
depriving the public of property without due process. These STOAs are also alleged to be infirm appoint a substitute entity to replace MNTC in case of an MNTC Default before prepayment of the
as they effectively awarded purported "build-operate-transfer" ("BOT") projects without public loans, while also granting said lenders, in appropriate cases, the option to extend the "concession
bidding in violation of the BOT Law (R.A. 6957, as amended by R.A. 7718). or franchise" for a period not exceeding fifty years coinciding with the full payment of the loans.

Petitioners likewise assail the constitutionality of Sections 3 (a) and (d) of P.D. 1112 in relation to G.R. No. 173630
Section 8 (b) of P.D. 1894 insofar as they vested the TRB, on one hand, toll operation awarding
Apart from those taken up in the other petitions for certiorari and prohibition, petitioners, in G.R.
power while, on the other hand, granting it also the power to issue, modify and promulgate toll
No. 173630, whose members and constituents allegedly traverse SLEX daily, aver that TRB ought
rate charges. The TRB, so petitioners bemoan, cannot be an awarding party of a TOA and, at the
to have applied the provisions of R.A. 6957 [BOT Law] and R.A. 9184 [Government Procurement
same time, be the regulator of the tollway industry and an adjudicator of rate exactions disputes.
Reform Act], which require public bidding for the prosecution of the SLEX project.
Additionally, petitioners also seek to nullify certain provisions of P.D. 1113 and P.D. 1894, which
G.R. No. 183599
uniformly grant the President the power to approve the transfer or assignment of usufruct or the
rights and privileges thereunder by the tollway operator to third parties, particularly the transfer Civil Case SCA No. 3138-PSG before the RTC
effected by PNCC to MNTC. As argued, the authority to approve partakes of an exercise of
legislative power under Article VI, Section 1 of the Constitution.15 On September 14, 2007, the Young Professionals and Entrepreneurs of San Pedro, Laguna
("YPES"), one of the petitioners in G.R. No. 173630, filed before the RTC, Branch 155, in Pasig
In the meantime, or on April 8, 2010, the TRB issued a Certificate of Substantial Completion with
16
City, a special civil action for certiorari, etc., against the TRB, docketed as SCA No. 3138-PSG,
respect to PTR 1 (Alabang-Filinvest stretch) and PTR 2 (Alabang-Calamba segments) of SLEX, containing practically identical issues raised in G.R. No. 173630. Like its petition in G.R. No.
signifying the completion of the full rehabilitation/expansion of both segments and the 173630, YPES, before the RTC, assailed and sought to nullify the April 27, 2007 TOC, which TRB
linkages/interchanges in between pursuant to the requirements of the corresponding STOA. TRB issued to PNCC inasmuch as the TOC worked to extend PNCCs tollway operation franchise for the
on even date issued a Toll Operation Permit in favor of MATES over said PTRs 1 and SLEX. As YPES argued, only the Congress can extend the term of PNCCs franchise which expired
2.17 Accordingly, upon due application, the TRB approved the publication of the toll rate matrix on May 1, 2007.
Ruling of the RTC in SCA No. 3138-PSG hypothetical or moot questions.22 The limitation on the power of judicial review to actual cases
and controversies defines the role assigned to the judiciary in a tripartite allocation of power, to
By Decision19 dated June 23, 2008, the RTC, for the main stated reason that the authority to grant assure that the courts will not intrude into areas committed to the other branches of government.23
or renew franchises belongs only to Congress, granted YPES petition, disposing as follows:
In The Province of North Cotabato v. The Government of the Republic of the Philippines Peace
ACCORDINGLY, the instant Petition for Certiorari, Prohibition and Mandamus is hereby GRANTED Panel on Ancestral Domain (GRP), the Court has expounded anew on the concept of actual case
and the questioned Toll Operation Certificate (TOC) covering the [SLEX] issued by respondent or controversy and the requirement of ripeness for judicial review, thus:
TRB in April, 2007, is hereby ordered ANNULLED and SET ASIDE.
An actual case or controversy involves a conflict of legal rights, an assertion of opposite legal
FURTHER, respondent PNCC is hereby immediately PROHIBITED from collecting toll fess along claims, susceptible of judicial resolution as distinguished from a hypothetical or abstract difference
the SLEX facilities as it no longer has the power and authority to do so. or dispute. There must be a contrariety of legal rights x x x. The Court can decide the
constitutionality of an act x x x only when a proper case between opposing parties is submitted
FINALLY, as mandated under Section 9 of PD No. 1113, respondent PNCC is hereby COMMANDED
for judicial determination.
to turn over without further delay the physical assets and facilities of the SLEX including
improvements thereon, together with the equipment and appurtenances directly related to their Related to the requirement of an actual case or controversy is the requirement of ripeness. A
operations, without any cost, to the Government through the Toll Regulatory Board x x x.20 question is ripe for adjudication when the act being challenged has had a direct adverse effect on
the individual challenging it. x x x [I]t is a prerequisite that something had then been accomplished
Thus, the instant petition for review on certiorari under Rule 45, filed by the TRB on pure questions
or performed by either branch before a court may come into the picture, and the petitioner must
of law, docketed as G.R. No. 183599.
allege the existence of an immediate or threatened injury to itself as a result of the challenged
In their separate comments, public and private respondents uniformly seek the dismissal of the action. He must show that he has sustained or is immediately in danger of sustaining some direct
three special civil actions on the threshold issue of the absence of a justiciable case and lack injury as a result of the act complained of.24
of locus standi on the part of the petitioners therein. Other grounds raised range from the
But even with the presence of an actual case or controversy, the Court may refuse judicial review
impropriety of certiorari to nullify toll operation agreements; the inapplicability of the public
unless the constitutional question or the assailed illegal government act is brought before it by a
bidding rules in the selection by PNCC of its JV partners and the authority of the President to
party who possesses what in Latin is technically called locus standi or the standing to challenge
approve TOAs and the transfer of usufructuary rights. PNCC argues, in esse, that its continuous
it.25 To have standing, one must establish that he has a "personal and substantial interest in the
toll operations did not constitute an extension of its franchise, its authority to operate after the
case such that he has sustained, or will sustain, direct injury as a result of its
expiry date thereof in May 2007 being based on the valid authority of TRB to issue TOC.
enforcement."26 Particularly, he must show that (1) he has suffered some actual or threatened
The Issues injury as a result of the allegedly illegal conduct of the government; (2) the injury is fairly traceable
to the challenged action; and (3) the injury is likely to be redressed by a favorable action.27
The principal consolidated but interrelated issues tendered before the Court, most of which with
constitutional undertones, may be reduced into six (6) and formulated in the following wise: first, Petitions for certiorari and prohibition are, as here, appropriate remedies to raise constitutional
whether or not an actual case or controversy exists and, relevantly, whether petitioners in the issues and to review and/or prohibit or nullify, when proper, acts of legislative and executive
first three petitions have locus standi; second, whether the TRB is vested with the power and officials.28 The present petitions allege that then President Ramos had exercised vis--vis an
authority to grant what amounts to a franchise over tollway facilities; third, corollary to the assignment of franchise, a function legislative in character. As alleged, too, the TRB, in the guise
second, whether the TRB can enter into TOAs and, at the same time, promulgate toll rates and of entering into contracts or agreements with PNCC and other juridical entities, virtually enlarged,
rule on petitions for toll rate adjustments; fourth, whether the President is duly authorized to modified to the core and/or extended the statutory franchise of PNCC, thereby usurping a
approve contracts, inclusive of assignment of contracts, entered into by the TRB relative to tollway legislative prerogative. The usurpation came in the form of executing the assailed STOAs and the
operations; fifth, whether the subject STOAs covering the NLEX, SLEX and SMMS and their issuance of TOCs. Grave abuse of discretion is also laid on the doorstep of the TRB for its act of
respective extensions, linkages, etc. are valid; sixth, whether a public bidding is required or entering into these same contracts or agreements without the required public bidding mandated
mandatory for these tollway projects. by law, specifically the BOT Law (R.A. 6957, as amended) and the Government Procurement
Reform Act (R.A. 9184).
Expressly prayed, if not subsumed, in the first three petitions, is to prohibit TRB and its
concessionaires from collecting toll fees along the Skyway and Luzon Tollways. In fine, the certiorari petitions impute on then President Ramos and the TRB, the commission of
acts that translate inter alia into usurpation of the congressional authority to grant franchises and
Preliminary Issues violation of extant statutes. The petitions make a prima facie case for certiorari and prohibition;
an actual case or controversy ripe for judicial review exists. Verily, when an act of a branch of
Existence of an Actual Controversy, its Ripeness and government is seriously alleged to have infringed the Constitution, it becomes not only the right
the Locus Standi to Sue but in fact the duty of the judiciary to settle the dispute. In doing so, the judiciary merely defends
the sanctity of its duties and powers under the Constitution.29
The power of judicial review can only be exercised in connection with a bona fide controversy
involving a statute, its implementation or a government action.21 Withal, courts will decline to pass In any case, the rule on standing is a matter of procedural technicality, which may be relaxed
upon constitutional issues through advisory opinions, bereft as they are of authority to resolve when the subject in issue or the legal question to be resolved is of transcendental importance to
the public.30 Hence, even absent any direct injury to the suitor, the Court can relax the application (2) That the entire facility operated as a toll system including all operation and maintenance
of legal standing or altogether set it aside for non-traditional plaintiffs, like ordinary citizens, when equipment directly related thereto shall be turned over to the government immediately upon the
the public interest so requires.31 There is no doubt that individual petitioners, Marcos, et al., in expiration of the Toll Operation Certificate.
G.R. No. 169917, as then members of the House of Representatives, possess the requisite legal
standing since they assail acts of the executive they perceive to injure the institution of Congress. (3) That the toll operator shall not lease, transfer, grant the usufruct of, sell or assign the rights
On the other hand, petitioners Francisco, Hizon, and the other petitioning associations, as or privileges acquired under the Toll Operation Certificate to any person, firm, company,
taxpayers and/or mere users of the tollways or representatives of such users, would ordinarily not corporation or other commercial or legal entity, nor merge with any other company or corporation
be clothed with the requisite standing. While this is so, the Court is wont to presently relax the organized for the same purpose, without the prior approval of the President of the Philippines. In
rule on locus standi owing primarily to the transcendental importance and the paramount public the event of any valid transfer of the Toll Operation Certificate, the Transferee shall be subject to
interest involved in the implementation of the laws on the Luzon tollways, a roadway complex all the conditions, terms, restrictions and limitations of this Decree as fully and completely and to
used daily by hundreds of thousands of motorists. What we said a century ago in Severino v. the same extent as if the Toll Operation Certificate has been granted to the same person, firm,
Governor General is just as apropos today: company, corporation or other commercial or legal entity.

When the relief is sought merely for the protection of private rights, x x x [the relators] right must (4) That in time of war, rebellion, public peril, emergency, calamity, disaster or disturbance of
clearly appear. On the other hand, when the question is one of public right and the object peace and order, the President of the Philippines may cause the total or partial closing of the toll
of the mandamus is to procure the enforcement of a public duty, the people are facility or order to take over thereof by the Government without prejudice to the payment of just
regarded as the real party in interest, and the relator at whose instigation the compensation.
proceedings are instituted need not show that he has any legal or special interest in
(5) That no guarantee, Certificate of Indebtedness, collateral, securities, or bonds shall be issued
the result, it being sufficient to show that he is a citizen and as such interested in the execution
by any government agency or government-owned or controlled corporation on any financing
of the laws.32 (Words in bracket and emphasis added.)
program of the toll operator in connection with his undertaking under the Toll Operation
Accordingly, We take cognizance of the present case on account of its transcendental importance Certificate.
to the public.
(6) The Toll Operation Certificate may be amended, modified or revoked whenever the public
Second Issue: TRB Empowered to Grant Authority to Operate interest so requires.
Toll Facility /System
(a) The Board shall promulgate rules and regulations governing the procedures for the grant of
It is abundantly clear that Sections 3 (a) and (e) of P.D. 1112 in relation to Section 4 of P.D. 1894 Toll Certificates. The rights and privileges of a grantee under a Toll Operation Certificate shall be
have invested the TRB with sufficient power to grant a qualified person or entity with authority to defined by the Board.
construct, maintain, and operate a toll facility and to issue the corresponding toll operating permit
(b) To issue rules and regulations to carry out the purposes of this Decree.
or TOC.
SECTION 4. The Toll Regulatory Board is hereby given jurisdiction and supervision over the
Sections 3 (a) and (e) of P.D. 1112 and Section 4 of P.D. 1894 amply provide the power to grant
GRANTEE with respect to the Expressways, the toll facilities necessarily appurtenant thereto and,
authority to operate toll facilities:
subject to the provisions of Section 8 and 9 hereof, the toll that the GRANTEE will charge the
Section 3. Powers and Duties of the Board. The Board shall have in addition to its general powers users thereof.
of administration the following powers and duties:
By explicit provision of law, the TRB was given the power to grant administrative franchise for toll
(a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of facility projects.
the Republic of the Philippines with persons, natural or juridical, for the construction, operation
The concerned petitioners would argue, however, that PNCCs [then CDCPs] franchise, as toll
and maintenance of toll facilities such as but not limited to national highways, roads, bridges, and
operator, was granted via P.D. 1113, on the same day P.D. 1112, creating the TRB, was issued.
public thoroughfares. Said contract shall be open to citizens of the Philippines and/or to
It is thus pointed out that P.D. 1112 could not have plausibly granted the TRB with the power and
corporations or associations qualified under the Constitution and authorized by law to engage in
jurisdiction to issue a similar franchise. Pushing the point, they maintain that only Congress has,
toll operations;
under the 1987 Constitution, the exclusive prerogative to grant franchise to operate public utilities.
xxxx
We are unable to agree with petitioners stance and their undue reliance on Article XII, Section
(e) To grant authority to operate a toll facility and to issue therefore the necessary "Toll Operation 11 of the Constitution, which states that:
Certificate" subject to such conditions as shall be imposed by the Board including inter alia the
SEC. 11. No franchise, certificate, or any other form of authorization for the operation of a public
following:
utility shall be granted except to citizens of the Philippines or to corporations or associations
(1) That the Operator shall desist from collecting toll upon the expiration of the Toll Operation organized under the laws of the Philippines at least sixty per centum of whose capital is owned
Certificate. by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or
for a longer period than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or repeal by the Congress corresponding TOC or set out in a TOA, "may be amended, modified, or revoked [by the TRB]
when the common good so requires x x x. whenever the public interest so requires."40

The limiting thrust of the foregoing constitutional provision on the grant of franchise or other In Philippine Airlines, Inc. v. Civil Aeronautics Board,41 the Court reiterated its holding
forms of authorization to operate public utilities may, in context, be stated as follows: (a) the in Albano that the CAB, like the PPA, has sufficient statutory powers under R.A. 776 to issue
grant shall be made only in favor of qualified Filipino citizens or corporations; (b) Congress can a Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a domestic
impair the obligation of franchises, as contracts; and (c) no such authorization shall be exclusive air transport operator who, although not possessing a legislative franchise, meets all the other
or exceed fifty years. requirements prescribed by law. We held therein that "there is nothing in the law nor in the
Constitution which indicates that a legislative franchise is an indispensable requirement for an
A franchise is basically a legislative grant of a special privilege to a person.33 Particularly, the term, entity to operate as a domestic air transport operator."42 We further explicated:
franchise, "includes not only authorizations issuing directly from Congress in the form of statute,
but also those granted by administrative agencies to which the power to grant franchise has been Congress has granted certain administrative agencies the power to grant licenses for, or to
delegated by Congress."34 The power to authorize and control a public utility is admittedly a authorize the operation of certain public utilities. With the growing complexity of modern life, the
prerogative that stems from the Legislature. Any suggestion, however, that only Congress has the multiplication of the subjects of governmental regulation, and the increased difficulty of
authority to grant a public utility franchise is less than accurate. As stressed in Albano v. Reyes administering the laws, there is a constantly growing tendency towards the delegation of greater
a case decided under the aegis of the 1987 Constitutionthere is nothing in the Constitution powers by the legislature, and towards the approval of the practice by the courts. It is generally
remotely indicating the necessity of a congressional franchise before "each and every public utility recognized that a franchise may be derived indirectly from the state through a duly designated
may operate," thus: agency, and to this extent, even the power to grant franchises has frequently been delegated,
even to agencies other than those of a legislative nature. In pursuance of this, it has been held
That the Constitution provides x x x that the issuance of a franchise, certificate or other form of that privileges conferred by grant by local authorities as agents for the state constitute as much
authorization for the operation of a public utility shall be subject to amendment, alteration or a legislative franchise as though the grant had been made by an act of the
repeal by Congress does not necessarily imply x x x that only Congress has the power to grant Legislature.43 (Emphasis ours.)
such authorization. Our statute books are replete with laws granting specified agencies in the
Executive Branch the power to issue such authorization for certain classes of public The validity of the delegation by Congress of its franchising prerogative is beyond cavil. So it was
utilities.35 (Emphasis ours.) that in Tatad v. Secretary of the Department of Energy,44 We again ruled that the delegation of
legislative power to administrative agencies is valid. In the instant case, the certiorari petitioners
In such a case, therefore, a special franchise directly emanating from Congress is not necessary assume and harp on the lack of authority of PNCC to continue with its NLEX, SLEX, MMEX
if the law already specifically authorizes an administrative body to grant a franchise or to award operations, in joint venture with private investors, after the lapse of its P.D. 1113 franchise. None
a contract.36 This is the same view espoused by the Secretary of Justice in his opinion dated of these petitioners seemed to have taken due stock of and appreciated the valid delegation of
January 9, 2006, when he stated: the appropriate power to TRB under P.D. 1112, as enlarged in P.D. 1894. To be sure, a franchise
may be derived indirectly from the state through a duly designated agency, and to this extent,
That the administrative agencies may be vested with the authority to grant administrative
the power to grant franchises has frequently been delegated, even to agencies other than those
franchises or concessions over the operation of public utilities under their respective jurisdiction
of a legislative nature.45 Consequently, it has been held that privileges conferred by grant by
and regulation, without need of the grant of a separate legislative franchise, has been upheld by
administrative agencies as agents for the state constitute as much a legislative franchise as though
the Supreme Court x x x.37
the grant had been made by an act of the Legislature.46
Under the 1987 Constitution, Congress has an explicit authority to grant a public utility franchise.
While it may be, as held in Strategic Alliance Development Corporation v. Radstock Securities
However, it may validly delegate its legislative authority, under the power of subordinate
Limited,47 that PNCCs P.D. 1113 franchise had already expired effective May 1, 2007, this fact of
legislation,38 to issue franchises of certain public utilities to some administrative agencies. In
expiration did not, however, carry with it the cancellation of PNCCs authority and that of its JV
Kilusang Mayo Uno Labor Center v. Garcia, Jr., We explained the reason for the validity of
partners granted under P.D. 1112 in relation to Section 1 of P.D. 1894 to construct, operate and
subordinate legislation, thus:
maintain "any and all such extensions, linkages or stretches, together with the toll facilities
Such delegation of legislative power to an administrative agency is permitted in order to adapt to appurtenant thereto, from any part of the North Luzon Expressway, South Luzon Expressway
the increasing complexity of modern life. As subjects for governmental regulation multiply, so and/or Metro Manila Expressway and/or to divert the original route and change the original end-
does the difficulty of administering the laws. Hence, specialization even in legislation has become points of the [NLEX]and/or [SLEX] as may be approved by the [TRB]. And to highlight the point,
necessary.39 (Emphasis ours.) the succeeding Section 2 of P.D. 1894 specifically provides that the franchise for the extension
and toll road projects constructed after the approval of P.D. 1894 shall be thirty years, counted
As aptly pointed out by the TRB and other private respondents, the Land Transportation from project completion. Indeed, prior to the expiration of PNCCs original franchise in May 2007,
Franchising and Regulatory Board ("LTFRB"), the Civil Aeronautics Board ("CAB"), the National the TRB, in the exercise of its special powers under P.D. 1112, signed supplemental TOAs with
Telecommunications Commission ("NTC"), and the Philippine Ports Authority ("PPA"), to name a PNCC and its JV partners. These STOAs covered the expansion and rehabilitation of NLEX and
few, have been such delegates. The TRB may very well be added to the growing list, having been SLEX, as the case may be, and/or the construction, operation and maintenance of toll road
statutorily endowed, as earlier indicated, the power to grant to qualified persons, authority to projects contemplated in P.D.1894. And there can be no denying that the corresponding toll
construct road projects and operate thereon toll facilities. Such grant, as evidenced by the operation permits have been issued.
In fine, the STOAs48 TRB entered with PNCC and its JV partners had the effect of granting the expiration of the PNCC Franchise, without need of the execution x x x of any other document
authorities to construct, operate and maintain toll facilities, but with the injection of additional to effect the same.
private sector investments consistent with the intent of P.D. Nos. 1112, 1113 and 1894.49 The
execution of these STOAs came in 1995, 1998 and 2006, or before the expiration of PNCCs original (2) x x x in the event it is subsequently decreed by competent authority that the issuance by the
franchise on May 1, 2007. In accordance with applicable laws, these transactions have actually Grantor of a [TOC] is necessary x x x the Grantor shall x x x cause the TRB x x x to issue such
been authorized and approved by the President of the Philippines.50 And as a measure to ensure [TOC] in favor of the Operator, embodying the terms and conditions of this Agreement.
the legality of the said transactions and in line with due diligence requirements, a review thereof
The foregoing notwithstanding, there are to be sure certain aspects in PNCCs legislative franchise
was secured from the GCC and the DOJ, prior to their execution.
beyond the altering reach of TRB. We refer to the coverage area of the tollways and the expiry
Inasmuch as its charter empowered the TRB to authorize the PNCC and like entities to maintain date of PNCCs original franchise, which is May 1, 2007, as expressly stated under Sections 1 and
and operate toll facilities, it may be stated as a corollary that the TRB, subject to certain 2 of P.D. 1894, respectively. The fact that these two items were specifically and expressly defined
qualifications, infra, can alter the conditions of such authorization. Well settled is the rule that a by law, i.e. P.D. 1113, indicates an intention that any alteration, modification or repeal thereof
legislative franchise cannot be modified or amended by an administrative body with general should only be done through the same medium. We said as much in Radstock, thus: "[T]he term
delegated powers to grant authorities or franchises. However, in the instant case, the law granting of the x x x franchise, which is 30 years from 1 May 1977, shall remain the same, as expressly
a direct franchise to PNCC51 evidently and specifically conferred upon the TRB the power to impose provided in the first sentence of x x x Section 2 of P.D. 1894."55 It is likewise worth noting what
conditions in an appropriate contract.52 And to reiterate, Section 3 of P.D. 1113 provides that We further held in that case:
"[t]his [PNCC] franchise is granted subject to such conditions as may be imposed by the [TRB] in
The TRB does not have the power to give back to PNCC the toll assets and facilities which were
an appropriate contract to be executed for this purpose, and with the understanding and upon
automatically turned over to the Government, by operation of law, upon the expiration of the
the condition that it shall be subject to amendment, alteration or repeal when public interest so
franchise of the PNCC on 1 May 2007. Whatever power the TRB may have to grant authority to
requires."53 A similarly worded proviso is found in Section 6 of P.D. 1894. It is in this light that the
operate a toll facility or to issue a "[TOC]," such power does not obviously include the authority
TRB entered into the subject STOAs in order to allow the infusion of additional investments in the
to transfer back to PNCC ownership of National Government assets, like the toll assets and
subject infrastructure projects. Prior to the expiration of PNCCs franchise on May 1, 2007, the
facilities, which have become National Government property upon the expiry of PNCCs franchise
STOAs merely imposed additional conditionalities, or as aptly pointed out by SLTC et al., obviously
x x x.56 (Emphasis in the original.)
having in mind par. 16.06 of its STOA with TRB,54 served as supplement, to the existing TOA of
PNCC with TRB. We have carefully gone over the different STOAs and discovered that the tollway Verily, upon the expiration of PNCCs legislative franchise on May 1, 2007, the new authorities to
projects covered thereby were all undertaken under the P.D. 1113 franchise of PNCC. And it construct, maintain and operate the subject tollways and toll facilities granted by the TRB pursuant
cannot be over-emphasized that the respective STOAs of MNTC and SLTC each contain provisions to the validly executed STOAs and TOCs, shall begin to operate and be treated as administrative
addressing the eventual expiration of PNCCs P.D. 1113 franchise and authorizing, thru the franchises or authorities. Pursuant to Section 3 (e) P.D. 1112, TRB possesses the power and duty,
issuance by the TRB of a TOC, the implementation of a given toll project even after May 1, 2007. inter alia to:
Thus:
x x x grant authority to operate a toll facility and to issue therefore the necessary "Toll Operation
MNTC STOA Certificate" subject to such conditions as shall be imposed by the [TRB] including inter alia x x x.
2.6 CONCESSION PERIOD. In order to sustain the financial viability and integrity of the Project, This is likewise consistent with the position of the Secretary of Justice in Opinion No. 122 on
GRANTOR [TRB] hereby grants MNTC the CONCESSION for the PROJECT ROADS for a period November 24, 1995,57thus:
commencing upon the date that this [STOA] comes into effect under Clause 4.1 until 31 December
2030 or thirty years after the issuance of the corresponding TOLL OPERATION PERMIT for the TRB has no authority to extend the legislative franchise of PNCC over the existing NSLE (North
last completed phase. Accordingly, unless the PNCC FRANCHISE is further extended beyond its and South Luzon Expressways). However, TRB is not precluded under Section 3 (e) of P.D. No.
expiry on 01 May 2007, GRANTOR undertakes to issue the necessary [TOC] for the rehabilitated 1112 (TRB Charter) to grant PNCC and its joint venture partner the authority to operate the
and refurbished [NLEX] six months prior to the expiry of the PNCC FRANCHISE on 01 May 2007. existing toll facility of the NSLE and to issue therefore the necessary "Toll Operation Certificate x
x x.
SLTC STOA
It should be noted that the existing franchise of PNCC over the NSLE, which will expire on May 1,
2.03 Authority of Investor and Operator to Undertake the Project 2007, gives it the "right, privilege and authority to construct, maintain and operate" the NSLE.
The Toll Operation Certificate which TRB may issue to the PNCC and its joint venture partner after
(1) The GRANTOR [TRB] has determined that the Project Toll Roads are within the existing SLEX
the expiration of its franchise on May 1, 2007 is an entirely new authorization, this time for the
and are thus covered by the PNCC Franchise that is due to expire on May 1, 2007. PNCC has
operation and maintenance of the NSLE x x x. In other words, the right of PNCC and its joint
committed to exert its best efforts to obtain an extension x x x It is understood and agreed that
venture partner, after May 7, 2007 [sic] to operate and maintain the existing NSLE will no longer
in the event the PNCC Franchise is not renewed beyond the said expiry date, this [STOA] and the
be founded on its legislative franchise which is not thereby extended, but on the new authorization
Concession granted x x x will stand in place of the PNCC Franchise and serve as a new concession,
to be granted by the TRB pursuant to Section 3 (e), above quoted, of P.D. No. 1112. (Emphasis
or authority, pursuant to Section 3 (a) of the TRB Charter, for the Investor to undertake the
ours.)
Project and for the Operator to Operate and Maintain the Project Toll Roads immediately upon
The same opinion was thereafter made by the Secretary of Justice on January 9, 2006, in Opinion STOAs, inclusive of its percentage share in the toll fees collected by the JV companies currently
No. 1,58 stating that: operating the tollways shall likewise automatically accrue to the Government.

The existing franchise of PNCC over the NSLE, which will expire on May 1, 2007, gives it the "right, In fine, petitioners claim about PNCCs franchise being amenable to an amendment only by an
privilege and authority to construct, maintain and operate the NSLE." The Toll Operation act of Congress, or, what practically amounts to the same thing, that the TRB is without authority
Certificate which the TRB may issue to the PNCC and its joint venture partner after the expiration at all to modify the terms and conditions of PNCCs franchise, i.e. by amending its TOA/TOC, has
of its franchise on May 1, 2007 is an entirely new authorization, this time for the operation and to be rejected. Their lament then that the TRB, through the instrumentality of mere contracts and
maintenance of the NSLE. [T]he right of PNCC and its joint venture partner, after May 1, 2007, an administrative operating certificate, or STOAs and TOC, to be precise, effectively, but invalidly
to operate and maintain the existing NSLE will no longer be founded on its legislative franchise amended PNCC legislative franchise, are untenable. For, the bottom line is, the TRB has, through
which is not thereby extended, but on the new authorization to be granted by the TRB pursuant the interplay of the pertinent provisions of P.D. Nos. 1112, 1113 and 1894, the power to grant
to Section 3 (e) of PD No. 1112. the authority to construct and operate toll road projects and toll facilities by way of a TOA and
the corresponding TOC. What is otherwise a legislative power to grant or renew a franchise is not
It appears therefore, that the effect of the STOA is not to extend the Franchise of PNCC, but usurped by the issuance by the TRB of a TOC. But to emphasize, the case of the TRB is quite
rather, to grant a new Concession over the SLEX Project and the OMCo., entities which are peculiarly unique as the special law conferring the legislative franchise likewise vested the TRB
separate and distinct from PNCC. While initially, the authority of SLTC and OMCo. to enter into with the power to impose conditions on the franchise, albeit in a limited sense, by excluding from
the STOA with the TRB and thereby become grantees of the Concession, will stem from and be the investiture the power to amend or modify the stated lifetime of the franchise, its coverage
based on the JVA and the assignment by PNCC to the OMCo. of the Usufruct in the Franchise, we and the ownership arrangement of the toll assets following the expiration of the legislative
submit that upon the execution by SLTC and the TRB of the STOA, the right to the Concession franchise.62
will emanate from the STOA itself and from the authority of the TRB under Section 3 (a) of the
TRB Charter. Such being the case, the expiration of the Franchise on 1 May 2007, since such At this juncture, the Court wishes to express the observation that P.D. Nos. 1112, 1113 and 1894,
Concession is an entirely new and distinct concession from the Franchise and is, as stated, granted as couched and considered as a package, very well endowed the TRB with extraordinary powers.
to entities other than PNCC. For, subject to well-defined limitations and approval requirements, the TRB can, by way of STOAs,
allow and authorize, as it has allowed and authorized, a legislative franchisee, PNCC, to share its
Finally, with regards (sic) the authority of the TRB this Office in Secretary of Justice Opinion No. concession with another entity or JV partners, the authorization effectively covering periods
92, s. 2000, stated that: beyond May 2007. However, this unpalatable reality, a leftover of the martial law regime, presents
issues on the merits and the wisdom of the economic programs, which properly belong to the
"Suffice it to say that official acts of the President enjoy full faith and confidence of the
legislature or the executive to address. The TRB is not precluded from granting PNCC and its joint
Government of the Republic of the Philippines which he represents. Furthermore, considering that
venture partners authority, through a TOC for a period following the term of the proposed SMMS,
the queries raised herein relates to the exercise by the TRB of its regulatory powers over toll road
with the said TOC serving as an entirely new authorization upon the expiration of PNCCs franchise
project, the same falls squarely within the exclusive jurisdiction of TRB pursuant to P.D. No. 1112.
on May 1, 2007. In short, after May 1, 2007, the operation and maintenance of the NLEX and the
Consequently, it is, therefore, solely within TRBs prerogative and determination as to what rule
other subject tollways will no longer be founded on P.D. 1113 or portions of P.D. 1894 (PNCCs
shall govern and is made applicable to a specific toll road project proposal."
original franchise) but on an entirely new authorization, i.e. a TOC, granted by the TRB pursuant
The STOA is an explicit grant of the Concession by the Republic of the Philippines, through the to its statutory authority under Sections 3 (a) and (e) of P.D. 1112.
TRB pursuant to P.D. (No.) 1112 and as approved by the President xxx. The foregoing grant is in
Likewise needing no extended belaboring, in the light of the foregoing dispositions, is the
full accord with the provisions of P.D. (No.) 1112 which authorizes TRB to enter into contracts on
untenable holding of the RTC in SCA No. 3138-PSG that the TRB is without power to issue a TOC
behalf of the Republic of the Philippines for the construction, operation and maintenance of toll
to PNCC, amend or renew its authority over the SLEX tollways without separate legislative
facilities. Such being the case, we opine that no other legal requirement is necessary to make the
enactment. And lest it be overlooked, the TRB may validly issue an entirely new authorization to
STOA effective of to confirm MNTCs (In this case, SLTC and the OMCO) rights and privileges
a JV company after the lapse of PNCCs franchise under P.D. 1113. Its thirty-year concession
granted therein." (Emphasis in the original.)
under P.D. 1894, however, does not have the quality of definiteness as to its start, as by the
Considering, however, that all toll assets and facilities pertaining to PNCC pursuant to its P.D. terms of the issuance, it commences and is to be counted "from the date of approval of the
1113 franchise are deemed to have already been turned over to the National Government on May project," the term project obviously referring to "Metro Manila Expressways and all extensions,
1, 2007,59 whatever participation that PNCC may have in the new authorities to construct, maintain linkages, stretches and diversions refurbishing and rehabilitation of the existing NLEX and SLEX
and operate the subject tollways, shall be limited to doing the same in trust for the National constructed after the approval of the decree in December 1983." The suggestion, therefore, of
Government. In Radstock, the Court held that "[w]ith the expiration of PNCCs franchise, [its] the petitioners in G.R. No. 169917, citing a 1989 Court of Appeals ("CA") decision in CA-G.R.
assets and facilities were automatically turned over, by operation of law, to the government at 13235 (Republic v. Guerrero, et al.), that the Balintawak to Tabang portion of the expressway no
no cost."60 The Court went on further to state that the Governments ownership of PNCCs toll longer forms part of PNCCs franchise and, therefore, PNCC is without any right to assign the same
assets inevitably resulted in its owning too of the toll fees and the net income derived, after May to MNTC via a JVA, is specious. Firstly, in its Decision63 in G.R. No. 89557, a certiorari proceeding
1, 2007, from the toll assets and facilities.61 But as We have earlier discussed, the tollways and commenced by PNCC to nullify the CA decision adverted to, the Court approved a compromise
toll facilities should remain functioning in accordance with the validly executed STOAs and TOCs. agreement, which referred to (1) the PNCCs authority to collect toll and maintenance fees; and
However, PNCCs assets and facilities, or, in short, its very share/participation in the JVAs and the (2) the supervision, approval and control by the DPWH64 of the construction of additional facilities,
on the questioned portion of the NLEX.65 And still in another Decision,66 the Court ruled that the
Balintawak to Tabang stretch was recognized as "part of the franchise of, or otherwise restored resolution of the appeal, the petitioner for increased rates in such case shall deposit in a trust
as toll facilities to be operated by x x x PNCC."67 Once stamped with judicial imprimatur, and fund such amounts as may be necessary to reimburse toll payers affected in case a reversal of
unless amended, modified or revoked by the parties, a compromise agreement becomes more the decision. (Emphasis ours.)
than a mere binding contract; as thus sanctioned, the agreement constitutes the courts
determination of the controversy, enjoining the parties to faithfully comply thereto.68 Verily, like P.D. 1894
any other judgment, it has the effect and authority of res judicata.69
SECTION 8. x x x
At any rate, the PNCC was likewise granted temporary or interim authority by the TRB to operate
(b) For the Metro Manila Expressway and such extensions, linkages, stretches and diversions of
the SLEX,70 to ensure the continued development, operations and progress of the projects. We
the Expressways which may henceforth be constructed, maintained and operated by the
have ruled in Oroport Cargohandling Services, Inc. v. Phividec Industrial Authority that an
GRANTEE, the GRANTEE shall collect toll at such rates as shall initially be approved by the Toll
administrative agency vested by law with the power to grant franchises or authority to operate
Regulatory Board. The Toll Regulatory Board shall have the authority to approve such initial toll
can validly grant the same in the interim when it is necessary, temporary and beneficial to the
rates without the necessity of any notice and hearing, except as provided in the immediately
public.71 The grant by the TRB to PNCC as interim operator of the SLEX was certainly intended to
succeeding paragraph of this Section. For such purpose, the GRANTEE shall submit for the
guarantee the continued operation of the said tollway facility, and to ensure the want of any delay
approval of the Toll Regulatory Board the toll proposed to be charged the users. After approval of
and inconvenience to the motoring public.
the toll rate(s) by the Toll Regulatory Board and publication thereof by the GRANTEE once in a
All given, the cited CA holding is not a binding precedent. The time limitation on PNCCs franchise newspaper of general circulation, the toll shall immediately be enforceable and collectible upon
under either P.D. 1113 or P.D. 1894 does not detract from or diminish the TRBs delegated opening of the expressway to traffic use.
authority under P.D. 1112 to enter into separate toll concessions apart and distinct from PNCCs
Any interested Expressways users shall have the right to file, within a period of ninety (90) days
original legislative franchise.
after the date of publication of the initial toll rate, a petition with the Toll Regulatory Board for a
Third Issue: TRBs Power to Enter into Contracts; Issue, review of the initial toll rate; provided, however, that the filing of such petition and the pendency
Modify And Promulgate Toll Rates; and to Rule on Petitions of the resolution thereof shall not suspend the enforceability and collection of the toll in question.
Relative to Toll Rates Level and Increases Valid The Toll Regulatory Board, at a public hearing called for the purpose after due notice, shall then
conduct a review of the initial toll shall be appealable (sic) to the Office of the President within
The petitioners in the special civil actions cases would have the Court declare as invalid (a) Section ten (10) days from the promulgation thereof. The GRANTEE may be required to post a bond in
3 (a) and (d) of P.D. 1112 (which accord the TRB, on one hand, the power to enter into contracts such amount and from such surety or sureties and under such terms and conditions as the Toll
for the construction, and operation of toll facilities, while, on the other hand, granting it the power Regulatory Board shall fix in case of any petition for review of, or appeal from, decisions of the
to issue and promulgate toll rates) and (b) Section 8 (b) of P.D. 1894 (granting TRB adjudicatory Toll Regulatory Board.
jurisdiction over matters involving toll rate movements). As submitted, granting the TRB the power
to award toll contracts is inconsistent with its quasi-judicial function of adjudicating petitions for In case it is finally determined, after a review by the Toll Regulatory Board or appeal
initial toll and periodic toll rate adjustments. There cannot, so petitioners would postulate, be therefrom, that the GRANTEE is not entitled, in whole or in part, to the initial toll, the GRANTEE
impartiality in such a situation. shall deposit in the escrow account the amount collected under the approved initial toll fee and
such amount shall be refunded to Expressways users who had paid said toll in accordance with
The assailed provisions of P.D. 1112 and P.D. 1894 read: the procedure as may be prescribed or promulgated by the Toll Regulatory Board. (Emphasis
ours.)
P.D. 1112
The petitioners are indulging in gratuitous, if not unfair, conclusion as to the capacity of the TRB
Section 3. Powers and Duties of the Board. The Board shall have in addition to its general powers to act as a fair and objective tribunal on matters of toll fee fixing.
of administration the following powers and duties:
Administrative bodies have expertise in specific matters within the purview of their respective
(a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of jurisdictions. Accordingly, the law concedes to them the power to promulgate implementing rules
the Republic of the Philippines with persons, natural or juridical, for the construction, operation and regulations ("IRR") to carry out declared statutory policies provided that the IRR conforms
and maintenance of toll facilities such as but not limited to national highways, roads, bridges, and to the terms and standards prescribed by that statute.72
public thoroughfares. Said contract shall be open to citizens of the Philippines and/or to
corporations or associations qualified under the Constitution and authorized by law to engage in The Court does not perceive an irreconcilable clash in the enumerated TRBs statutory powers,
toll operations; such that the exercise of one negates another. The ascription of impartiality on the part of the
TRB cannot, under the premises, be accorded cogency. Petitioners have not shown that the TRB
(d) Issue, modify and promulgate from time to time the rates of toll that will be charged the direct lacks the expertise, competence and capacity to implement its mandate of balancing the interests
users of toll facilities and upon notice and hearing, to approve or disapprove petitions for the of the toll-paying motoring public and the imperative of allowing the concessionaires to recoup
increase thereof. Decisions of the Board on petitions for the increase of toll rate shall be their investment with reasonable profits. As it were, Section 9 of P.D. 1894 provides a parametric
appealable to the Office of the President within ten (10) days from the promulgation thereof. Such formula for adjustment of toll rates that takes into account the Peso-US Dollar exchange rate,
appeal shall not suspend the imposition of the new rates, provided however, that pending the
interest rate and construction materials price index, among other verifiable and quantifiable the reason for the increasing vesture of quasi-legislative and quasi-judicial powers in what is now
variables. not unquestionably called the fourth department of the government.

While not determinative of the issue immediately at hand, the grant to and the exercise by an xxxx
administrative agency of regulating and allowing the operation of public utilities and, at the same
time, fixing the fees that they may charge their customers is now commonplace. It must be There is no question that a statute may vest exclusive original jurisdiction in an administrative
presumed that the Congress, in creating said agencies and clothing them with both adjudicative agency over certain disputes and controversies falling within the agency's special expertise. The
powers and contract-making prerogatives, must have carefully studied such dual authority and very definition of an administrative agency includes its being vested with quasi-judicial
found the same not breaching any constitutional principle or concept.73 So must it be for P.D. Nos. powers. The ever increasing variety of powers and functions given to administrative agencies
1112 and 1894. recognizes the need for the active intervention of administrative agencies in matters calling for
technical knowledge and speed in countless controversies which cannot possibly be handled by
The Court can take judicial cognizance of the exercise by the LTFRB and NTC both spin-off regular courts. (Emphasis ours.)
agencies of the now defunct Public Service Commission of similar concurrent powers. The
LTFRB, under Executive Order No. ("E.O.") 202,74 series of 1987, is empowered,75 among others, Fourth Issue: President Amply Vested With Statutory
to regulate the operation of public utilities or "for hire" vehicles and to grant franchises or Power To Approve TRB Contracts
certificates of public convenience ("CPC"); and to fix rates or fares, to approve petitions for fare
Just like their parallel stance on the grant to TRB of the power to enter into toll agreements, e.g.,
rate increases and to resolve oppositions to such petitions.
TOAs or STOAs, the petitioners in the first three petitions would assert that the grant to the
The NTC, on the other hand, has been granted similar powers of granting franchises, allocating President of the power to peremptorily authorize the assignment by PNCC, as franchise holder, of
areas of operations, rate-fixing and to rule on petitions for rate increases under E.O. 546,76 s. of its franchise or the usufruct in its franchise is unconstitutional. It is unconstitutional, so petitioners
1979. would claim, for being an encroachment of legislative power.

The Energy Regulatory Commission ("ERC") likewise enjoys on the one hand, the power (a) to As earlier indicated, Section 3 (a) of P.D. 1112 requires approval by the President of any contract
grant, modify or revoke an authority to operate facilities used in the generation of electricity, and TRB may have entered into or effected for the construction and operation of toll facilities.
on the other, (b) to determine, fix and approve rates and tariffs of transmission, and distribution Complementing Section 3 (a) is 3 (e) (3) of P.D. 1112 enjoining the transfer of the usufruct of
retail wheeling charges and tariffs of franchise electric utilities and all electric power rates including PNCCs franchise without the Presidents prior approval. For perspective, Section 3 (e) (3) of P.D.
that which is charged to end-users.77 In Chamber of Real Estate and Builders Association, Inc. v. 1112 provides:
ERC, We even categorically stated that the ERC is a "quasi-judicial and quasi-legislative regulatory
That the toll operator shall not lease, transfer, grant the usufruct of, sell or assign the rights or
body created under Section 38 of the EPIRA, [and] x x x an administrative agency vested with
privileges acquired under the [TOC] to any person x x x or legal entity nor merge with any other
broad regulatory and monitoring functions over the Philippine electric industry to ensure its
company or corporation organized for the same purpose without the prior approval of the
successful restructuring and modernization x x x."78
President of the Philippines. In the event of any valid transfer of the TOC, the Transferee shall be
To summarize, the fact that an administrative agency is exercising its administrative or executive subject to all the conditions, terms, restrictions and limitations of this Decree x x x.80
functions (such as the granting of franchises or awarding of contracts) and at the same time
The Presidents approving authority is of statutory origin. To us, there is nothing illegal, let alone
exercising its quasi-legislative (e.g. rule-making) and/or quasi-judicial functions (e.g. rate-fixing),
unconstitutional, with the delegation to the President of the authority to approve the assignment
does not support a finding of a violation of due process or the Constitution. In C.T. Torres
by PNCC of its rights and interest in its franchise, the assignment and delegation being
Enterprises, Inc. v. Hibionada,79 We explained the rationale, thus:
circumscribed by restrictions in the delegating law itself. As the Court stressed in Kilosbayan v.
It is by now commonplace learning that many administrative agencies exercise and perform Guingona, Jr.,81 the rights and privileges conferred under a franchise may be assigned if
adjudicatory powers and functions, though to a limited extent only. Limited delegation of judicial authorized by a statute, subject to such restrictions as may be provided by law, such as the prior
or quasi-judicial authority to administrative agencies (e.g. the Securities and Exchange approval of the grantor or a government agency.82
Commission and the National Labor Relations Commission) is well recognized in our jurisdiction,
There can, therefore, be no serious challenge to this presidential- approving prerogative. Should
basically because the need for special competence and experience has been recognized as
grave abuse of discretion in some way infect the exercise of the prerogative, then the approval
essential in the resolution of questions of complex or specialized character and because of a
action may be nullified for that reason, but not on the ground that the underlying authority is
companion recognition that the dockets of our regular courts have remained crowded and clogged.
constitutionally doubtful. If the TRB may validly be empowered to grant private entities the
xxxx authority to operate toll facilities, would a delegation of a lesser authority to approve the grant to
the head of the administrative machinery of the government be objectionable?
As a result of the growing complexity of the modern society, it has become necessary to create
more and more administrative bodies to help in the regulation of its ramified activities. Specialized The fact that P.D. 1112 partakes of a martial law issuance does not per se provide an objectionable
in the particular fields assigned to them, they can deal with the problems thereof with more feature to the decree, albeit it may be argued with some plausibility that then President Marcos
expertise and dispatch than can be expected from the legislature or the courts of justice. This is intended to have the final say as to who shall act as the toll operators of the Luzon expressways.
Be that as it may, "all proclamations, orders, decrees, instructions, and acts promulgated, issued,
or done by the former President (Ferdinand E. Marcos) are part of the law of the land, and shall tollways and the expiration of PNCCs original franchise.94 P.D. 1112 provided further that the TRB
remain valid, legal, binding, and effective, unless modified, revoked or superseded by subsequent has the power to amend or modify a Toll Operation Certificate that it issued when public interest
proclamations, orders, decrees, instructions, or other acts of the President."83 To emphasize, so requires.95 Accordingly, to Our mind, there is nothing infirm much less questionable about the
Padua v. Ranada cited Association of Small Landowners in the Philippines, Inc. v. Secretary of provision in the STOA, allowing the substitution of MNTC in case it defaults in its loans.
Agrarian Reform, quoting that:
Furthermore, in the subject provision (Clause 17.4.196), the "unrestricted right" of the lender to
The Court wryly observes that during the past dictatorship, every presidential issuance, by appoint a substituted entity is never intended to afford such lender a plenary power to do so. The
whatever name it was called, had the force and effect of law because it came from President subject clause states:
Marcos. Such are the ways of despots. Hence, it is futile to argue that LOI 474 could not have
repealed P.D. No. 27 because the former was only a letter of instruction. The important thing is 17.4.1 The PARTIES acknowledge that following a Notice of Substitution under clauses 17.2 or
that it was issued by President Marcos, whose word was law during that time.84 17.3 the LENDERS have, subject to the provisions of Clause 17.4.3, the unrestricted right to
appoint a SUBSTITUTED ENTITY in place of MNTC following the declaration of the occurrence of
Fifth Issue: Assailed STOAs Validly Entered a MNTC DEFAULT prior to full repayment of the LOANS or of an event of default in respect of the
LOANS. GRANTOR shall extend all reasonable assistance to the AGENT to put in place a
This brings us to the issue of the validity of certain provisions of the STOAs and related agreements SUBSTITUTED ENTITY. MNTC shall make available all necessary information to potential
entered into by the TRB, as duly approved by the President. SUBSTITUTED ENTITY to enable such entity to evaluate the Project. (Emphasis ours.)
Relying on Clause 17.4.185 of the MNTC STOA that the lenders have the unrestricted right to It is clear from the above-quoted provision that Clause 17.4.1 should always be construed and
appoint a substitute entity in case of default of MNTC or of the occurrence of an event of default read in conjunction with Clauses 17.2, 17.3, 17.4.2, 17.4.3 and 20.12. Clauses 17.2 and 17.3
in respect of the loans, petitioners argue that since MNTC is the assignee or transferee of PNCCs discuss the procedures that must be followed and undertaken in case of MNTCs default prior to
franchise, then it steps into the shoes of PNCC. They contend that the act of replacing MNTC as the full repayment of the loans, and before the substitution under Clause 17.4.1 could take place.
grantee is tantamount to an amendment or alteration of the PNCCs original franchise and hence These clauses provide the following process:
unconstitutional, considering that the constitutional power to appoint a new franchise holder is
reserved to Congress.86 Prior to Full Repayment of the LOANS:

This contention is bereft of merit. 17.2 Upon occurrence of an MNTC DEFAULT under Clause 17.1(a) and (e) prior to full repayment
of the LOANS, GRANTOR shall serve a written Notice of Default to MNTC with copy to the AGENT
Petitioners presupposition that only Congress has the power to directly grant franchises is giving a reasonable period of time to cure the MNTC DEFAULT, such period being three (3) months
misplaced. Time and again, We have held that administrative agencies may be empowered by the from receipt of the notice or such longer period as may be approved by GRANTOR, taking due
Legislature by means of a law to grant franchises or similar authorizations.87 And this, We have consideration of the nature of the default and of the repair works required. If MNTC fails to remedy
sufficiently addressed in the present case.88 To reiterate, We discussed in Albano that our statute such default during such three (3) month or [sic] curing period, GRANTOR may issue a Notice of
books are replete with laws granting administrative agencies the power to issue Substitution on MNTC, copy furnished to the AGENT, which shall take effect upon the assumption
authorizations.89 This delegation of legislative power to administrative agencies is allowed "in and take over by the SUBSTITUTED ENTITY pursuant to the provisions of Clause 17.4 hereof;
order to adapt to the increasing complexity of modern life."90 Consequently, We have held that Provided, However, that prior to such assumption and take over by the SUBSTITUTED ENTITY,
the "privileges conferred by grant by local authorities as agents for the state constitute as much MNTC shall continue to operate and maintain the project roads and shall place in an escrow
a legislative franchise as though the grant had been made by an act of the Legislature."91 account the toll revenues, save such amounts as may be needed to primarily cover the operating
costs and as may be owing and due to the lenders under the loans and, secondarily, to cover the
In this case, the TRBs charter itself, or Section 3 (e) of P.D. 1112, specifically empowers it to
PNCC Gross Toll Revenue Share, Provided, Further, that upon the assumption and take over by
"grant authority to operate a toll facility and to issue therefore the necessary Toll Operation
the SUBSTITUTED ENTITY, such assumption and take over shall have the effect of revoking the
Certificate subject to such conditions as shall be imposed by the [TRB]x x x." 92 Section 3 (a) of
rights, privileges and obligations of MNTC under this AGREEMENT in favor of the SUBSTITUTED
the same law permits the TRB to enter into contracts for the construction, operation and
ENTITY and MNTC shall cease to be a PARTY to this AGREEMENT.
maintenance of toll facilities. Clearly, there is no question that the TRB is vested by the Legislature,
through P.D. 1112, with the power not only to grant an authority to operate a toll facility, but also 17.3 If prior to full repayment of the LOANS MNTC fails to remedy MNTC DEFAULT under Clause
to enter into contracts for the construction, operation and maintenance thereof. 17.1 (b) or an MNTC DEFAULT occurs under Clause 17.1 (c), (d) or (f) prior to full repayment of
the LOANS, GRANTOR shall serve a Notice of Substitution on MNTC, copy furnished to the AGENT,
Petitioners also contend that substituting MNTC as the grantee in case of its default with respect
as provided under Clause 17.4.97 (Emphasis ours)
to its loans is tantamount to an amendment of PNCCs original franchise and is hence,
unconstitutional. We also find this assertion to be without merit. Besides holding that the It is apparent from the above-quoted provision that it is the TRB representing the Republic of
Legislature may properly empower administrative agencies to grant franchises pursuant to a law, the Philippines as Grantor which has control over the situation before Clause 17.4.1 could come
We have also earlier explained in this case that P.D. 1113 and the amendatory P.D. 1894 both into place. To stress, following the condition under Clause 17.4.1, it is only when Clauses 17.2
vested the TRB with the power to impose conditions on PNCCs franchise in an appropriate and 17.3 have been complied with that the entire Clause 17.4 could begin to materialize.
contract and may therefore amend or alter the same when public interest so requires;93 save for
the conditions stated in Sections 1 and 2 of P.D. 1894, which relates to the coverage area of the
Clauses 17.4.2 and 17.4.3 also provide for certain parameters as to when a substituted entity extend the concession in case the Grantor (Republic of the Philippines) takes over the same, for
could be considered acceptable, and enumerate the conditions that should be undertaken and a period not exceeding fifty years, until full payment of the loans.99 Petitioners contend that the
complied with.98 Particularly, the subject provisions state: option to extend the concession for that stated period is, however, unconstitutional.

17.4.2 The SUBSTITUTED ENTITY shall be required to provide evidence to GRANTOR that at the This assertion is impressed with merit. At the outset, Clause 17.5 does not actually grant the
time of substitution: lenders of the defaulting concessionaire, the power to unilaterally extend the concession for a
period not exceeding fifty years. For reference, the pertinent provision states:
(i) it is legally and validly nominated by the AGENT as MNTCs substitute to continue the
implementation of the PROJECT. 17.5 Only if no SUBSTITUTE ENTITY is established shall the GRANTOR [TRB] be entitled to
take-over the CONCESSION with no commitment on the LOANS in which case the OPERATION
(ii) it is legally and validly constituted and has the capability to enter into such agreement as may AND MAINTENANCE CONTRACT shall be assigned to any entity that the AGENT100 may designate
be required to give effect to the substitution; provided such entity has a sufficient legal and technical capacity to perform and assume the
obligations of the OPERATION AND MAINTENANCE CONTRACT under this AGREEMENT. The
17.4.3 The AGENT shall have one (1) year to effect a substitution under Clause 17.4; Provided,
LENDERS shall receive all TOLL, excepting PNCCs revenue shareprovided for under the JOINT
However, that during this time the AGENT shall not take any action which may jeopardize the
INVESTMENT PROPOSAL (vide: Annex "C" hereof), for as long as required until full repayment of
continuity of the service and shall take the necessary action to ensure its continuation. To effect
the LOANS including if necessary an extension of the CONCESSION PERIOD which in no case shall
such substitution, the AGENT shall notify its intention to GRANTOR and shall, at the same time,
exceed fifty (50) years; Provided that the LENDERS support all amounts payable under the
give all necessary information to GRANTOR. GRANTOR shall, within one (1) month following such
OPERATION AND MAINTENANCE CONTRACT. For avoidance of doubt, the GRANTOR will have no
notification, inform the AGENT of its acceptance of the substitution, if the conditions set forth in
obligation in relation to liabilities incurred by MNTC prior to such take-over.101 (Emphasis supplied)
Clause 17.4.2 have been satisfied. The SUBSTITUTED ENTITY shall be permitted a reasonable
period to cure any MNTC DEFAULT under Clause 17.1 (a), (b) or (e). The afore-quoted provision should be read in conjunction with Clause 20.12, which expressly
provides that the MNTC STOA is "made under and shall be governed by and construed in
From the foregoing, it is clear that the lenders do not actually have an absolute or "unrestricted"
accordance with" the laws of the Philippines, and particularly, by the provisions of P.D. Nos. 1112,
right to appoint the SUBSTITUTED ENTITY in view of TRBs right to accept or reject the
1113 and 1894. Under the applicable laws, the TRB may very well amend, modify, alter or revoke
substitution within one (1) month from notice and such right to appoint comes into force only if
the authority/franchise "whenever the public interest so requires."102 In a word, the power to
and when the TRB decides to effectuate the substitution of MNTC as allowed in Clause 17.2 of
determine whether or not to continue or extend the authority granted to a concessionaire to
the MNTC STOA.
operate and maintain a tollway is vested to the TRB by the applicable laws. The necessity of
At the same time, Clause 17.4.4 particularizes the conditions upon which the substitution shall whether or not to extend the concession or the authority to construct, operate and maintain a
become effective, to wit: tollway rests, by operation of law, with the TRB. As such, the lenders cannot unilaterally extend
the concession period, or, with like effect, impose upon or demand that the TRB agree to extend
17.4.4 The Substitution shall be effective upon: such concession.

(a) the appointment of a SUBSTITUTED ENTITY in accordance with the provisions of this Clause Be that as it may, it must be noted, however, that while the TRB is vested by law with the power
17.4; and, to extend the administrative franchise or authority that it granted, nevertheless, it cannot do so
for an accumulated period exceeding fifty years. Otherwise, it would violate the proscription under
(b) assumption by the SUBSTITUTED ENTITY of all of the rights and obligations of MNTC under Article XII, Section 11 of the 1987 Constitution, which states that:103
this AGREEMENT, including the payment of PNCCs Gross Toll Revenue Share under the JOINT
VENTURE AGREEMENT dated 29 August 1995 and all other agreements in connection with this Sec. 11. No franchise, certificate, or any other form of authorization for the operation of a public
agreement signed and executed by and between PNCC and MNTC. 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
The afore-quoted Section (a) of Clause 17.4.4 reiterates the necessity of compliance by the by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or
substituted entity with all the conditions provided under Clause 17.4. Furthermore, following the for a longer period than fifty years. Neither shall any such franchise or right be granted except
above-quoted conditions veritably protects the interests of the Government. As previously under the condition that it shall be subject to amendment, alteration or repeal by the Congress
discussed supra, PNCCs assets with respect to its legislative franchise under P.D. 1113, as when the common good so requires. The State shall encourage equity participation in public
amended, has already been automatically turned over to the Government. And whatever share utilities by the general public. The participation of foreign investors in the governing body of any
PNCC has in relation to the currently implemented administrative authority granted by the TRB is public utility enterprise shall be limited to their proportionate share in its capital, and all the
merely being held in trust by it in favor of the Government. Accordingly, the fact that Section "b" executive and managing officers of such corporation or associations must be citizens of the
of Clause 17.4.4 ensures that the obligation to pay PNCCs Gross Toll Revenue Share is assumed Philippines. (Emphasis Ours)
by the substituted entity, necessarily means that the Governments Gross Toll Revenue Share is
safeguarded and kept intact. In this case, the MNTC STOA already has an original stipulated period of thirty years.104 Clause
17.5 allows the extension of this period if necessary to fully repay the loans made by MNTC to the
The MNTC STOA also states that only in case no substituted entity is established in accordance lenders, thus:
with Clause 17.4 that Clause 17.5 shall be applied. Clause 17.5 grants the lenders the power to
x x x The LENDERS shall receive all TOLL, excepting PNCCs revenue share provided for under the adjustment formula. The OSG, in its Comment, admitted that "the amounts the government
JOINT INVESTMENT PROPOSAL (vide: Annex "C" hereof), for as long as required until full undertook to pay in case of Clause 11.7 violation is an undertaking to pay compensatory
repayment of the LOANS including if necessary an extension of the CONCESSION PERIOD which damage for something akin to a breach of contract."106As P.D. 1112 itself expressly prohibits the
in no case shall exceed a maximum period of fifty (50) years; x x x (Emphasis ours.) guarantee of a security in the financing of the toll operator pursuant to its tollway project, Clause
11.7 cannot be a valid stipulation in the STOA.
If the maximum extension as provided for in Clause 17.5, i.e. fifty years, shall be utilized, the
accumulated concession period that would be granted in this case would effectively be eighty This is more so for being in violation of the Constitution. Article VI, Section 29 (1) of the
years. To Us, this is a clear violation of the fifty-year franchise threshold set by the Constitution. Constitution mandates that "[n]o money shall be paid out of the Treasury except in pursuance of
It is in this regard that we strike down the above-quoted clause, "including if necessary an an appropriation made by law."107 We have held in Radstock that "government funds or property
extension of the CONCESSION PERIOD which in no case shall exceed a maximum period of fifty shall be spent or used solely for public purposes, as expressly mandated by Section 4 (2) of PD
(50) years" in Clause 17.5 as void for being violative of the Constitution.105 It must be made 1445 or the Government Auditing Code."108 Particularly, We held in Radstock case that:
abundantly clear, however, that the nullity shall be limited to such extension beyond the 50-year
constitutional limit. [t]he power to appropriate money from the General Funds of the Government belongs exclusively
to the Legislature. Any act in violation of this iron-clad rule is unconstitutional.
All told, petitioners allegations that the TRB acted with grave abuse of discretion and with gross
disadvantage to the Government with respect to Clauses 17.4.1 and 17.5 of the MNTC STOA are Reinforcing this Constitutional mandate, Sections 84 and 85 of PD 1445 require that before a
unfounded and speculative. government agency can enter into a contract involving the expenditure of government funds,
there must be an appropriation law for such expenditure, thus:
Petitioners also allege that the MNTC STOA is grossly disadvantageous to the Government since
under Clause 11.7 thereof, the Government, through the TRB, guarantees the viability of the Section 84. Disbursement of government funds.
financing program of a toll operator. Under Clause 11.7 of the MNTC STOA, the TRB agreed to
1. Revenue funds shall not be paid out of any public treasury or depository except in pursuance
pay monthly, the difference in the toll fees actually collected by MNTC and that which it could
of an appropriation law or other specific statutory authority.
have realized under the STOA. The pertinent provisions states:
xxxx
11.7 To insure the viability and integrity of the Project, the Parties recognize the necessity for
adjustments of the AUTHORIZED TOLL RATE . In the event that said adjustment are not effected Section 85. Appropriation before entering into contract.
as provided under this Agreement for reasons not attributable to MNTC, the GRANTOR
[TRB] warrants and so undertakes to compensate, on a monthly basis, the resulting loss of No contract involving the expenditure of public funds shall be entered into unless there is an
revenue due to the difference between the AUTHORIZED TOLL RATE actually collected and the appropriation therefor, the unexpended balance of which, free of other obligations, is sufficient to
AUTHORIZED TOLL RATE which MNTC would have been able to collect had the cover the proposed expenditure.
adjustments been implemented. (Emphasis ours)
xxxx
As set out in the preamble of P.D. 1112, the need to encourage the infusion of private capital in
tollway projects is the underlying rationale behind the enactment of said decree. Owing to the Section 86 of PD 1445, on the other hand, requires that the proper accounting official must certify
scarce capital available to bankroll a huge capital-intensive project, such as the North Luzon that funds have been appropriated for the purpose. Section 87 of PD 1445 provides that any
Tollway project, it is well-nigh inevitable that the financing of these types of projects is sourced contract entered into contrary to the requirements of Sections 85 and 86 shall be
from private investors. Quite naturally, the investors expect the regularity of the cash flow. It is void.109 (Emphasis ours.)
perhaps in this broad context that the obligation of the Grantor under Clause 11.7 of the MNTC
In the instant case, the TRB, by warranting to compensate MNTC with the loss of revenue resulting
STOA was included in the STOA. To Us, Clause 11.7 is not only grossly disadvantageous to the
from the non-implementation of the periodic and interim toll fee adjustments, violates the very
Government but a manifest violation of the Constitution.
constitutionally guaranteed power of the Legislature, to exclusively appropriate money for public
Section 3 (e) (5) of P.D. 1112 explicitly states: purpose from the General Funds of the Government. The TRB veritably accorded unto itself the
exclusive authority granted to Congress to appropriate money that comes from the General Funds,
[t]hat no guarantee, Certificate of Indebtedness, collateral securities, or bonds shall be issued by by making a warranty to compensate a revenue loss under Clause 11.7 of the MNTC STOA. There
any government agency or government-owned or controlled corporation on any financing program is not even a badge of indication that the aforementioned requisites under the Constitution and
of the toll operator in connection with his undertaking under the Toll Operation Certificate. P.D. 1445 in respect of appropriation of money from the General Funds of the Government have
been properly complied with. Worse, P.D. 1112 expressly prohibits the guarantee of security of
What the law seeks to prevent in this situation is the eventuality that the Government, through the financing of a toll operator in connection with his undertaking under the Toll Operation
any of its agencies, could be obligated to pay or secure, whether directly or indirectly, the financing Certificate. Accordingly, Clause 11.7 of the MNTC STOA, under which the TRB warrants and
by the private investor of the project. In this case, under Clause 11.7 of the MNTC STOA, the undertakes to compensate MNTCs loss of revenue resulting from the non-implementation of the
Republic of the Philippines (through the TRB) guaranteed the security of the project against periodic and interim toll fee adjustments, is illegal, unconstitutional and hence void.
revenue losses that could result, in case the TRB, based on its determination of a just and
reasonable toll fee, decides not to effect a toll fee adjustment under the STOAs periodic/interim
Parenthetically, We also find a similar provision in the SLTC STOA under Clause 8.08 thereof, thereof by the GRANTEE once in a newspaper of general circulation, the toll shall immediately be
which states that:110 enforceable and collectible upon opening of the expressway to traffic use.

(2) In the event the Authorized Toll Rate and adjustments thereto are not implemented or made Any interested Expressways users shall have the right to file, within x x x (90) days after the
effective in accordance with the provisions of this Agreement, for reasons not attributable to the date of publication of the initial toll rate, a petition with the [TRB] for a review of the
fault of the Investor and/or the Operator, including the reversal by the TRB or by any competent initial toll rate; provided, however, that the filing of such petition and the pendency of the
court or authority of any such adjustment in the Authorized Toll Rate previously approved by the resolution thereof shall not suspend the enforceability and collection of the toll in question. The
TRB, except where such reversal is by reason of a determination of the misapplication of the [TRB], at a public hearing called for the purpose shall then conduct a review of the initial toll
Authorized Toll Rates, the Grantor shall compensate the Operator, on a monthly basis and within (sic) shall be appealable to the [OP] within ten (10) days from the promulgation thereof.
thirty (30) days of submission by the Operator of a notice thereof, without interest, for the (Emphasis ours.)
resulting loss of revenue computed as the difference between:
Of the same tenor is Section 3 (d) of P.D. 1112 stating that the TRB has the power and duty to:
(a) the actual traffic volume for the month in question multiplied by the Current Authorized Toll
Rate as escalated and/or adjusted, that should be in effect; and [i]ssue, modify and promulgate from time to time the rates of toll that will be charged the direct
users of toll facilities and upon notice and hearing, to approve or disapprove petitions for the
(b) the Gross Toll Revenue for the month in question. increase thereof. Decisions of the [TRB] on petitions for the increase of toll rate shall be appealable
to the [OP] within ten (10) days from the promulgation thereof. Such appeal shall not suspend
(3) The obligation of the Grantor to compensate the Operator shall continue until the applicable the imposition of the new rates, provided however, that pending the resolution of the appeal, the
Current Authorized Toll Rate is implemented. petitioner for increased rates in such case shall deposit in a trust fund such amounts as may be
necessary to reimburse toll payers affected in case a (sic) reversal of the decision.112 (Emphasis
Akin to what is contemplated in Clause 11.7 of the MNTC STOA, Clauses 8.08 (2) and (3) of the
Ours.)
SLTC STOA, under which the TRB warrants or is obligated to compensate the Operator for its loss
of revenue resulting from the non-implementation of the calculation/formula of authorized toll Similarly in Padua v. Ranada, the fixing of provisional toll rates by the TRB without a public hearing
price and toll rate adjustments found in Clause 8 thereof, are illegal, unconstitutional and, hence, was held to be valid, such procedure being expressly provided by law.113 To be very clear, it is
void. This ruling is consistent with the TRBs power to determine, without any influence or only the fixing of the initial and the provisional toll rates where a public hearing is not a vitiating
compulsion direct or indirect as to whether a change in the toll fee rates is warranted. We will requirement. Accordingly, subsequent toll rate adjustments are mandated by law to undergo
discuss the same below. both the requirements of public hearing and publication.
Petitioners argue that the CITRA, SLTC and MNTC STOAs tie the hands of the TRB as it is bound In Manila International Airport Authority ("MIAA") v. Blancaflor, the Court expounded on the
by the stipulated periodic and interim toll rate adjustments provided therein. Petitioners contend necessity of a public hearing in rate fixing/increases scenario. There, the Court ruled that the
that the SMMS (CITRA STOA), the SLTC and the MNTC STOAs provisions on initial toll rates and MIAA, being an agency attached to the Department of Transportation and Communications
periodic/interim toll rate adjustments, by using a built-in automatic toll rate adjustment ("DOTC"), is governed by Administrative Code of 1987,114 Book VII, Section 9 of which specifically
formula,111 allegedly guaranteed fixed returns for the investors and negated the public hearing mandates the conduct of a public hearing.115 Accordingly, the MIAAs resolutions, which increased
requirement. the rates and charges for the use of its facilities without the required hearing, were struck down
as void.116 Similarly, as We do concede, the TRB, being likewise an agency attached to the
This contention is erroneous. The requisite public hearings under Section 3 (d) of P.D. 1112 and
DOTC,117 is governed by the same Code and consequently requires public hearing in appropriate
Section 8 (b) of P.D. 1894 are not negated by the fixing of the initial toll rates and the periodic
cases. It is, therefore, imperative that in implementing and imposing new, i.e. subsequent toll
adjustments under the STOA.
rates arrived at using the toll rate adjustment formula, the subject tollway operators and the TRB
Prefatorily, a clear distinction must be made between the statutory prescription on the fixing of must necessarily comply not only with the requirement of publication but also with the equally
initial toll rates, on the one hand, and of periodic/interim or subsequent toll rates, on the other. important public hearing. Accordingly, any fixing of the toll rate, which did not or does not comply
First, the hearing required under the said provisos refers to notice and hearing for the approval with the twin requirements of public hearing and publication, must therefore be struck down as
or denial of petitions for toll rate adjustments or the subsequent toll rates, not to the fixing of void. In such case, the previously valid toll rate shall consequently apply, pending compliance with
initial toll rates. By express legal provision, the TRB is authorized to approve the initial toll rates the twin requirements for the new toll rate.
without the necessity of a hearing. It is only when a challenge on the initial toll rates fixed ensues
In the instant consolidated cases, the fixing of the initial toll rates may have indeed come to pass
that public hearings are required. Section 8 of P.D. 1894 says so:
without any public hearing.118 Unfortunately for petitioners, and notwithstanding its presumptive
x x x the GRANTEE shall collect toll at such rates as shall initially be approved by the [TRB]. The validity, they did not assail the initial toll rates within the timeframe provided in P.D. 1112 and
[TRB] shall have the authority to approve such initial toll rates without the necessity of any P.D. 1894.119 Besides, as earlier explicated, the STOA provisions on periodic rate adjustments are
notice and hearing, except as provided in the immediately succeeding paragraph of not a bar to a public hearing as the formula set forth therein remains constant, serving only as a
this Section. For such purpose, the GRANTEE shall submit for the approval of the [TRB] the toll guide in the determination of the level of toll rates that may be allowed.
proposed to be charged the users. After approval of the toll rate(s) by the [TRB] and publication
It is apropos to state at this juncture that, in determining the reasonableness of the subsequent
toll rate increases, it behooves the TRB to seek out the Commission on Audit ("COA") for assistance
in examining and auditing the financial books of the public utilities concerned. Section 22, Chapter x x x Decisions of the [TRB] on petitions for the increase of toll rate shall be appealable to the
4, Subtitle B, Title 1, Book V of the Administrative Code of 1987 expressly authorizes the COA to Office of the President within ten (10) days from the promulgation thereof. Such appeal shall not
examine the aforementioned documents in connection with the fixing of rates of every nature, suspend the imposition of the new rates, provided however, that pending the resolution of the
including as in this case, the fixing of toll fees.120 We have on certain occasions applied this appeal, the petitioner for increased rates in such case shall deposit in a trust fund such amounts
provision. Manila Electric Company, Inc. v. Lualhati easily comes to mind where this Court tasked as may be necessary to reimburse toll payers affected in case a reversal of the
the Energy Regulatory Commission to seek the assistance of the COA in determining the decision.129 (Emphasis ours.)
reasonableness of the rate increases that MERALCO intended to implement.121 We have
consistently held that "the law is deemed written into every contract."122 Being a provision of law, Besides the settled rule under Section 3 (d) of P.D. 1112 that the power to issue, modify and
this authority of the COA under the Administrative Code should therefore be deemed written in promulgate toll fees rests with the TRB, it must also be underscored that the periodic and the
the subject contracts i.e. the STOAs. interim adjustments found in Clauses 11.4 to 11.6 of the MNTC STOA do not necessarily guarantee
an increase in the toll fees. To stress, the formula is based on many variable factors that could
In this regard, during the examination and audit, the public utilities concerned are mandated to mean either an increase or a decrease in the toll fees, depending, inter alia, on how well certain
"produce all the reports, records, books of accounts and such other papers as may be required," economies are doing; and on the projections and figures published by the Bangko Sentral ng
and the COA is empowered to "examine under oath any official or employee of the said public Pilipinas ("BSP").130 It is therefore arduous to contemplate a grossness in a disadvantage that
utilit[ies]."123 Any public utility unreasonably denying COA access to the aforementioned could only possibly arise in case of a non-implementation of a change particularly, an increase
documents, unnecessarily obstructs the examination and audit and may be adjudged liable "of in the toll rates.
concealing any material information concerning its financial status, shall be subject to the penalties
provided by law."124 Finally, the TRB is further obliged to take the appropriate action on the COA Petitioners have not incidentally shown that it is the traveling public, the users of the expressways,
Report with respect to its finding of reasonableness of the proposed rate increases.125 who shouldered or will shoulder the completion of the projects by way of exorbitant fees payment,
with the investors ending up with a "killing" therefrom. This conclusion, for all its factual
Furthermore, while the periodic, interim and other toll rate adjustment formulas are indicated in dimension, is too simplistic for acceptance. And it does not consider the reality that the Court is
the STOAs,126 it does not necessarily mean that the TRB should accept a rate adjustment not a trier of facts. Neither does it take stock of the nature and function of toll roads and toll fees
predicated on the economic data, references or assumptions adopted by the toll operator. At the paid by motorists, as aptly elucidated in North Negros Sugar Co., Inc. v. Hidalgo,131 thus:
end of the day, the final figures should be those of the TRB based on its appreciation of the
relevant rate-influencing data. In fine, the TRB should exercise its rate-fixing powers vested to it "Toll" is the price of the privilege to travel over that particular highway, and it is a quid pro quo.
by law within the context of the agreed formula, but always having in mind that the rates should It rests on the principle that he who, receives the toll does or has done something as an equivalent
be just and reasonable. Conversely, it is very well within the power of the TRB under the law to to him who pays it. Every traveler has the right to use the turnpike as any other highway, but he
approve the change in the current toll fees.127 Section 3 (d) of P.D. 1112 grants the TRB the power must pay the toll.132
to "[i]ssue, modify and promulgate from time to time the rates of toll that will be charged the
A toll road is a public highway, differing from the ordinary public highways chiefly in this: that the
direct users of toll facilities." But the reasonableness of a possible increase in the fees must first
cost of its construction in the first instance is borne by individuals, or by a corporation, having
be clearly and convincingly established by the petitioning entities, i.e. the toll operators.
authority from the state to build it, and, further, in the right of the public to use the road after
Otherwise, the same should not be granted by the approving authority concerned. In Philippine
completion, subject only to the payment of toll.133
Communications Satellite Corporation v. Alcuaz,128 the Court had the opportunity to explain what
is meant by a just and reasonable fixing of rates, thus: Toll roads are in a limited sense public roads, and are highways for travel, but we do not regard
them as public roads in a just sense, since there is in them a private proprietary right x x
Hence, the inherent power and authority of the State, or its authorized agent, to regulate the
x.134 (Emphasis ours.)
rates charged by public utilities should be subject always to the requirement that the rates so
fixed shall be reasonable and just. A commission has no power to fix rates which are unreasonable Parenthetically, our review of Section 7 of the SMMS STOA readily yields the information that the
or to regulate them arbitrarily. This basic requirement of reasonableness comprehends such rates level of the initial toll rates hinges on a mix of factors. Tax holidays that may be granted and the
which must not be so low as to be confiscatory, or too high as to be oppressive. tax treatment of dividends may be mentioned. On the other hand, the subsequent periodic
adjustments are provided to address factors that usually weigh on the financial condition of any
What is a just and reasonable rate is not a question of formula but of sound business judgment
business endeavor, such as currency devaluation, inflation and the usual increases in maintenance
based upon the evidence it is a question of fact calling for the exercise of discretion, good sense,
and operational costs incorporated into the formula provided therefor. Even with the existence of
and a fair, enlightened and independent judgment. In determining whether a rate is confiscatory,
an automatic toll rate adjustment formula, compliance by the TRB and the other respondents with
it is essential also to consider the given situation, requirements and opportunities of the utility. A
the twin requirements of public hearing and publication is still mandatory. To reiterate, laws
method often employed in determining reasonableness is the fair return upon the value of the
always occupy a plane higher than mere contract provisions. In case the minimum statutory
property to the public utility x x x. (Emphasis ours.)
requirements are stiffer than that of a contract, or when the contract does not expressly stipulate
If in case the TRB finds the change in the rates to be reasonable and therefore merited, the the minimum requirements of the law, then We rule that compliance with such minimum legal
increase shall then be implemented after the formalities of public hearing and publication are requirements should be done. To summarize, any toll fee increase should comply with the legal
complied with. In this case, it is clear that the change in the toll fees is immediately effective and twin requirements of publication and public hearing, the absence of which will nullify the
implementable. This is notwithstanding that, in case of an increase in the toll fees, an appeal imposition and collection of the new toll fees.
thereon is filed. The law is clear. Thus:
In all, the initial toll rates and periodic adjustments appear to Us as simply predicated on the basic decides" and "if the Board conducts," clearly conveying the notion that the TRB had not decided
rationale for investing in a toll project, which to repeat is: a reasonable rate of return for the or resolved the issue of public hearings. Be that as it may, We rule that the TRB is mandated to
investment. Section 2 (o) of the BOT Law, as amended, provides for a definition for a reasonable comply with the twin requirements of public hearing and publication.
rate of return on investments and operating and maintenance cost.135 Running through the gamut
of our statutes providing for and encouraging partnership of the public and private sector is the Petitioners Francisco and Hizons lament about the TRB merely relying on, if not yielding to, the
paramount common good for infrastructure projects and the equally important factor of giving a recommendation and findings of the Technical Working Group ("TWG") of the DPWH on matters
reasonable rate of return to private sectors investments. The viability of any infrastructure project relative to STOA stipulations and toll-rate fixing cannot be accorded cogency. In the area involving
depends on the returns which should be reasonable of the investment coming from the private big finance and complex project planning, banking on the data supplied by technicians and experts
sector. is at once practical as it is inevitable. The Court cannot see its way clear to understand why
petitioners would begrudge the TRB for tapping the technical know-how of others. And it cannot
While the interests of the public are ideally to be accorded primacy in considering government be overemphasized that a recommendation is no more than an exhortation or an urging as to
contracts, the reality on the ground is that the tollway projects may not at all be possible or would what is advisable or expedient, not binding on the person to which it is being made.140 To
be difficult to realize without the involvement of the investing private sector, which expects its recommend involves the idea that another has the final decision.141 The ultimate decision still rests
usual share of profit. Thus, the Court is at a loss to understand how the level of the initial toll with the TRB whether or not to accept the findings of the TWG. The minutes of the TRB meetings
rates, which depended on several factors indicated above, and the subsequent adjustments show that its members went through the tedious process of deliberating on the formula to be
resulted in the charging of exorbitant toll fees that, to petitioners, enabled the investors to shift used in computing the toll rates. The fact that the TRB might have adopted the TWGs
the burden of financing the completion of the projects on the motoring public. recommendation would not, on that ground alone, vitiate the bona fides of the formers decision
nor stain the proceedings leading to such decision. In any case, as earlier held, the toll rate
Neither does the alleged drasticif we may characterize it as suchsteep increase in the level of adjustment formula does not and cannot contravene the legal twin requirements of public hearing
toll rates for NLEX constitute a "killing" for PNCC and its partner MNTC. Petitioners make much of and publication.
the amount of the toll fees vis--vis the then prevailing minimum wage. These plays of figures
detract from the essential concern on the propriety of the level of the toll rates vis--vis the In another bid to nullify the STOAs in question, petitioners would foist on the Court the arguments
investments sunk in the NLEX project with a view, on the part of private investors, to a reasonable that, firstly, President Ramos twisted the arms of the TRB towards entering into the agreements
return on their investment. Where no substantial figures were provided on the investments, the in question and, secondly, that the CITRA STOA contained restrictive confidentiality provisions
projected operating and maintenance costs vis--vis the projected revenue from the toll fees, no barring the public from knowing their contents and the details of the negotiations related thereto.
substantial conclusions may reasonably be deduced therefrom. Besides, to be taken into account
in relation to the costs of the construction and rehabilitation of the NLEX is the length of the We are not persuaded by the first ground, not necessarily because the pressure brought to bear
tollway and for which motorists have to pay the corresponding toll. Certainly, the allegations and on TRB rendered the STOAs infirm, but because the allegations on pressure-tactics allegedly
conclusions of petitioners as to the unreasonable increase of the toll rates are without adequate employed by President Ramos are too speculative for acceptance.
factual mooring.
On the second ground, We fail to see how the insertion of the alleged confidentiality clause in the
The use of a tollway is a privilege that comes at a cost. The toll is a price paid for the use of a CITRA STOA translates into grave abuse of discretion or a violation of the Constitution, particularly
privilege. There are to be sure alternative roads and routes, which motorists may fall back on if Article III, Section 7142 thereof. First off, the Court can take judicial notice that most commercial
they are unwilling to pay the toll. The toll, as might be expected, is pegged at a level that makes contracts, including finance-related project agreements carry the standard confidentiality clause
the developmental projects and their maintenance viable; otherwise, no investment can be to protect proprietary data and/or intellectual property rights. This protection angle appears to be
expected for the furtherance of the projects. the intent of Clause 14.04(l)143 of the CITRA STOA. And as may be noted, the succeeding Clause
14.04 (2)144 removes from the ambit of the confidentiality restriction the following: disclosure of
Petitioners Francisco and Hizon alleged that, per the minutes of the TRB meetings, the Board any information: (a) not otherwise done by the parties; (b) which is required by law to be
deliberately refrained, particularly with respect to the Skyway project, from conducting public disclosed to any person who is authorized by law to receive the same; (c) to a tribunal
hearings for the grant of the initial toll rates and on the rate adjustment formula to be used in hearing pertinent proceedings relative to the contract or agreement; and (d) to confidential
order to accelerate the implementation of the projects. The allegation is far from correct. A perusal entities and persons relative to the disclosing party like its banks, consultants, financiers and
of the pertinent minutes of the TRB meetings, particularly that held on August 17, 1995,136 in fact advisors. The second (item b) exception provides a reasonable dimension to the assailed
would disclose a picture different from that depicted by said petitioners. Nothing in the minutes confidentiality clause.
of said meeting tends to indicate that the TRB resolved to dispense with public hearings. We,
therefore, find petitioners Francisco and Hizons attempt to mislead the Court by falsely citing Needless to stress, the obligation of the government to make information available cannot be
supposed portions137 of the August 17, 1995 TRB meeting very unfortunate. They quoted a exaggerated.145 The constitutional right to information does not mean that every day and every
correction on the minutes of the Special Board Meeting No. 95-05 held on July 26, 1995, which hour is open house in government offices having custody of the desired documents.146 Petitioners
was taken up in the August 17, 1995 meeting for the approval of the minutes of the previous have not sufficiently shown, thus cannot really be heard to complain, that they had been
meeting. In said special meeting of July 26, 1995,138 the Board deliberated on the recommendation unreasonably denied access to information with regard to the MNTC or SMMS STOA. Besides, the
of ADG Santos for the conduct of a public hearing or soliciting the endorsement of the Metro remedy for unreasonable denial of information that is a matter of public concern is by way of
Manila Development Authority ("MMDA").139 But the TRB did not resolve to omit a public hearing mandamus.147
with respect to the toll rates. In fact, the deliberations used the words "in the event the Board
Finally, as to petitioners catch-all claim that the STOAs are disadvantageous to the government, Petitioners Francisco and Hizons assertions about the TRB awarding the tollway projects to
as therein represented by the TRB, suffice it to state for the nonce that behind these agreements favored companies, unsubstantiated as they are, need no belaboring. Suffice it to state that the
are the Boards expertise and policy determination on technical, financial and operational matters discretion to choose who shall stand as critical JV partners remained all along with PNCC, at least
involving expressways and tollways. It is not for courts to look into the wisdom and practicalities theoretically. Needless to say, the records do not show that the TRB committed an oversight as
behind the exercise by the TRB of its contract-making prerogatives under P.D. Nos. 1112, 1113 an administrative body over any aspect of tollway operations with regard to PNCCs selection of
and 1894, absent proof of grave abuse of discretion which would justify judicial review. In this partners.
regard, the Court recalls what it wrote in G & S Transport Corporation v. Court of Appeals,148 to
wit: The foregoing disquisitions considered, there is no more point in passing upon the propriety of
prohibiting or enjoining, on the ground of unconstitutionality or grave abuse of discretion, the
x x x courts, as a rule, refuse to interfere with proceedings undertaken by administrative bodies implementation of the initial toll rates and/or the adjusted toll rates for the SMSS, expanded NLEX
or officials in the exercise of administrative functions. This is because such bodies are generally and SLEX, as authorized by the separate TRB resolutions, subject of and originally challenged in
better equipped technically to decide administrative questions and that non-legal factors, such as these proceedings.
government policy on the matter are usually involved in the decision.
These TRB resolutions and the STOAs upon which they are predicated have long been in effect.
Sixth Issue: Public Bidding Not Required The parties have acted on these issuances and contracts whose existence, as an operative fact,
cannot be ignored, let alone erased, even if the charge of unconstitutionality is given currency.
Private petitioners would finally maintain that public bidding is required for the SMMS and the
North Luzon/South Luzon Tollways, partaking as these projects allegedly do of the nature of a While not exactly of governing applicability in this case, what the Court wrote in De Agbayani v.
BOT infrastructure undertaking under the BOT Law. Prescinding from this premise, they would Philippine National Bank,152 on the operative fact doctrine is apropos:
conclude that the STOAs in question and related preliminary and post-STOA agreements are null
and void for want of the necessary public bidding required for government infrastructure projects. x x x When the courts declare a law to be inconsistent with the Constitution, the former shall be
void and the latter shall govern. Administrative or executive acts, orders and regulations shall be
The contention is patently flawed. valid only when they are not contrary to the laws of the Constitution." .

The BOT Law does not squarely apply to the peculiar case of PNCC, which exercised its Such a view has support in logic and possesses the merit of simplicity. It may not however be
prerogatives and obligations under its franchise to pursue the construction, rehabilitation and sufficiently realistic. It does not admit of doubt that prior to the declaration of nullity
expansion of the tollways with chosen partners. The tollway projects may very well qualify as a such challenged legislative or executive act must have been in force and had to be
build-operate-transfer undertaking. However, given that the projects in the instant case have been complied with. This is so as until after the judiciary, in an appropriate case, declares its invalidity,
undertaken by PNCC in the exercise of its franchise under P.D. Nos. 1113 and 1894, in joint it is entitled to obedience and respect. Parties may have acted under it and may have changed
partnership with its chosen partners at the time when it was held valid to do so by the OGCC and their positions. What could be more fitting than that in a subsequent litigation regard be had to
the DOJ, the public bidding provisions under the BOT Law do not strictly apply. For, as aptly noted what has been done while such legislative or executive act was in operation and presumed to be
by the OSG, the subject STOAs are not ordinary contracts for the construction of government valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its existence
infrastructure projects, which requires under the Government Procurement Reform Act or the as a fact must be reckoned with. This is merely to reflect awareness that precisely because the
now-repealed P.D. 1594,149 public bidding as the preferred mode of contract award. Neither are judiciary is the governmental organ which has the final say on whether or not a legislative or
they contracts where financing or financial guarantees for the project are obtained from the executive measure is valid, a period of time may have elapsed before it can exercise the power
government. Rather, the STOAs actually constitute a statutorily-authorized transfer or assignment of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its
of usufruct of PNCCs existing franchise to construct, maintain and operate expressways.150 quality of fairness and justice then, if there be no recognition of what had transpired prior to such
adjudication.
The conclusion would perhaps be different if the tollway projects were to be prosecuted by an
outfit completely different from, and not related to, PNCC. In such a scenario, the entity awarded In the language of an American Supreme Court decision: "The actual existence of a statute,
the winning bid in a BOT-scheme infrastructure project will have to construct, operate and prior to such a determination [of constitutionality], is an operative fact and may have
maintain the tollways through an automatic grant of a franchise or TOC, in which case, public consequences which cannot justly be ignored. The past cannot always be erased by a
bidding is required under the law. new judicial declaration x x x." (Emphasis in the original.)

Where, in the instant case, a franchisee undertakes the tollway projects of construction, The petitioners in the first three (3) petitions and the respondent in the fourth have not so said
rehabilitation and expansion of the tollways under its franchise, there is no need for a public explicitly, but their brief is against the issuance of P.D. Nos. 1112, 1113 and 1894, which conferred
bidding. In pursuing the projects with the vast resource requirements, the franchisee can partner a package of express and implied powers and discretion to the TRB and the President resulting in
with other investors, which it may choose in the exercise of its management prerogatives. In this the execution of what is perceived to be offending STOAs and the runaway collection of illegal toll
case, no public bidding is required upon the franchisee in choosing its partners as such process fees. And they have come to the Court to strike down all these issuances, agreements and
was done in the exercise of management prerogatives and in pursuit of its right of delectus exactions. While the Court is not insensitive to their concerns, the rule is that all reasonable doubts
personae.151 Thus, the subject tollway projects were undertaken by companies, which are the should be resolved in favor of the constitutionality of a statute,153 and the validity of the acts taken
product of the joint ventures between PNCC and its chosen partners. in pursuant thereof. It follows, therefore, that the Court will not set aside a law as violative of the
Constitution except in a clear case of breach154 and only as a last resort.155 And as the theory of
separation of powers prescribes, the Court does not pass upon questions of wisdom, expediency same STOA, as VOID and UNCONSTITUTIONAL for being contrary to Section 2, Article XII of the
and justice of legislation. To Us, petitioners and respondent YPES in the fourth petition have not 1987 Constitution. We likewise declare Clauses 8.08 (2) & (3) of the Supplemental Toll Operation
discharged the heavy burden of demonstrating in a clear and convincing manner the Agreement between the Republic of the Philippines, represented by respondent TRB, as grantor,
unconstitutionality of the decrees challenged or the invalidity of assailed acts of the President and the Philippine National Construction Corporation as franchisee, the South Luzon Tollway
the TRB. Because they failed to do so, the Court must uphold the presumptive constitutionality Corporation as investor, and the Manila Toll Expressway Systems, Inc. as operator, dated February
and validity of the provisions of the three decrees in question, and the subject contracts and TOCs. 1, 2006, as VOID and UNCONSTITUTIONAL.

Regarding petitioner Franciscos Supplemental Petition, the toll rates, the collection of which in The petition in G.R. No. 169917 is likewise hereby DENIED for lack of merit. We declare as VALID
the amount based on the formula and assumptions set forth in the law, and the adverted STOA and CONSTITUTIONAL the following:
dated February 1, 2006 and subject of the TRO issued on August 13, 2010, has been duly
published156 and approved by the TRB, as required by Section 5 of P.D. 1112.157 And the party- 1. Notice of Approval dated May 16, 1995 by former President Fidel V. Ramos on the assignment
concessionaires have adequately demonstrated, and the TRB has virtually acknowledged158 that of PNCCs usufructuary rights;
the said rates subject of the TRO partake of the nature of opening or initial toll rates, which have
2. the Joint Venture Agreement dated August 29, 1995;
not yet been implemented since the time the SLTC STOA took effect.159 To note, the toll rates
subject of the TRO were approved and are to be implemented in connection with the new facility, 3. the Joint Investment Proposal, etc. dated June 16, 1996;
such as Project Toll Roads 1 and 2 pursuant to the new SLTC STOA and the expanded and
rehabilitated SLEX.160 As earlier discussed, public hearing is not required in the fixing and 4. the Supplemental Toll Operation Agreement ("STOA") dated April 30, 1998 and the Notice of
implementation of initial toll rates. But an interested party aggrieved by the initial rates imposed Approval of said STOA dated June 15, 1998 by former President Fidel V. Ramos; and
is not without any resource as he may, within the time frame provided by Section 8 (b) of P.D.
1894, repair to the TRB for review and thereafter to the OP.161 As expressly provided in the same 5. the provisional toll rate increases published February 9, 2005, granted by the TRB.
section, however, the pendency of the petition for review, if there be any, shall not suspend the
The petition in G.R. No. 183599 is GRANTED. Accordingly, the Decision dated June 23, 2008
enforceability and collection of the toll in question. In net effect, the challenge before the Court
of the Regional Trial Court, Branch 155 in Pasig City, docketed as SCA No. 3138-PSG, annulling
of the SLEX toll rate imposition is premature. However, the Court treats this Supplemental Petition
the TOC covering the SLEX, enjoining the original toll operating franchisee from collecting toll fees
assailing the toll rates covered by the TRB Notice of Toll Rates published on June 6, 2010 as a
in the SLEX, and ordering the turnover of related assets to the Government, is
petition for review filed under P.D. 1894, and hereby remands the same to the TRB for a review
hereby REVERSED and SET ASIDE, and the petition filed therein by the Young Professionals
of the questioned rates to determine the propriety thereof.
and Entrepreneurs of San Pedro, Laguna with the RTC of Pasig is DISMISSED for lack of merit.
WHEREFORE, the petitions in G.R. Nos. 166910 and 173630 are hereby DENIED for lack of
In view of the foregoing dispositions in the petitions at bar, the TRO issued by the Court on August
merit. Accordingly, We declare as VALID AND CONSTITUTIONAL the following:
13, 2010 is hereby ordered lifted, with respect to the petitions in G.R. Nos. 166910, 169917,
1. the Supplemental Toll Operation Agreement dated April 30, 1998 covering the North Luzon 173630 and 183599.
Tollway Project and the TRB Board Resolution No. 2005-4 issued pursuant thereto;
The challenge contained in the Supplemental Petition in G.R. No. 166910 against the toll rates
2. the Supplemental Toll Operation Agreement dated November 27, 1995 covering the South subject of the TRB Notice of Toll Rates published on June 6, 2010, for the SLEX projects, Toll
Metro Manila Skyway and the TRB Board Resolution No. 2004-53 and previous TRB resolutions Road Projects 1 and 2 of the new SLTC STOA, and the expanded and rehabilitated SLEX, is
issued pursuant thereto; remanded to the TRB for a review of the assailed toll rates to determine whether SLTC and MATES
are entitled to the toll fees.
3. the Supplemental Toll Operation Agreement covering the South Luzon Tollway Project or South
Luzon Expressway and the TRB Board resolutions issued pursuant to the said agreement, No Cost.
particularly the TRB Board resolutions allowing the toll rate increases that are supposed to have
SO ORDERED.
been implemented on June 30, 2010;
PRESBITERO J. VELASCO, JR.
4. Section 3, paragraph (a) of Presidential Decree No. 1112, otherwise known as the "Toll
Associate Justice
Operation Decree," in relation to Section 3, paragraph (d) thereof and Section 8, paragraph (b)
of Presidential Decree No. 1894; and WE CONCUR:
5. Section 3, paragraph (e) 3 of P.D. No. 1112 and Section 13 of P.D. No. 1894. RENATO C. CORONA
Chief Justice
We however declare Clause 11.7 of the Supplemental Toll Operation Agreement between the
Republic of the Philippines, represented by respondent TRB, as grantor, the Philippine National
Construction Corporation, as franchisee, and the Manila North Tollways Corporation ("MNTC")
dated April 30, 1998; and the clause "including if necessary an extension of the CONCESSION
PERIOD which in no case shall exceed a maximum period of fifty (50) years" in Clause 17.5 of the
(On leave)
ANTONIO T. CARPIO
CONCHITA CARPIO MORALES*
Associate Justice
Associate Justice

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

ARTURO D. BRION DIOSDADO M. PERALTA


Associate Justice Associate Justice

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO


Associate Justice Associate Justice

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

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA


Associate Justice Associate Justice

MARIA LOURDES P.A. SERENO


Associate Justice

CERTIFICATION

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

RENATO C. CORONA
Chief Justice
G.R. No. 171396 May 3, 2006 x-------------------------------------x

PROF. RANDOLF S. DAVID, LORENZO TAADA III, RONALD LLAMAS, H. HARRY L. G.R. No. 171400 May 3, 2006
ROQUE, JR., JOEL RUIZ BUTUYAN, ROGER R. RAYEL, GARY S. MALLARI, ROMEL
REGALADO BAGARES, CHRISTOPHER F.C. BOLASTIG, Petitioners, ALTERNATIVE LAW GROUPS, INC. (ALG), Petitioner,
vs. vs.
GLORIA MACAPAGAL-ARROYO, AS PRESIDENT AND COMMANDER-IN-CHIEF, EXECUTIVE SECRETARY EDUARDO R. ERMITA, LT. GEN. GENEROSO SENGA, AND
EXECUTIVE SECRETARY EDUARDO ERMITA, HON. AVELINO CRUZ II, SECRETARY OF DIRECTOR GENERAL ARTURO LOMIBAO, Respondents.
NATIONAL DEFENSE, GENERAL GENEROSO SENGA, CHIEF OF STAFF, ARMED FORCES
G.R. No. 171489 May 3, 2006
OF THE PHILIPPINES, DIRECTOR GENERAL ARTURO LOMIBAO, CHIEF, PHILIPPINE
NATIONAL POLICE, Respondents. JOSE ANSELMO I. CADIZ, FELICIANO M. BAUTISTA, ROMULO R. RIVERA, JOSE AMOR
M. AMORADO, ALICIA A. RISOS-VIDAL, FELIMON C. ABELITA III, MANUEL P.
x-------------------------------------x
LEGASPI, J.B. JOVY C. BERNABE, BERNARD L. DAGCUTA, ROGELIO V. GARCIA AND
G.R. No. 171409 May 3, 2006 INTEGRATED BAR OF THE PHILIPPINES (IBP), Petitioners,
vs.
NIEZ CACHO-OLIVARES AND TRIBUNE PUBLISHING CO., INC., Petitioners, HON. EXECUTIVE SECRETARY EDUARDO ERMITA, GENERAL GENEROSO SENGA, IN
vs. HIS CAPACITY AS AFP CHIEF OF STAFF, AND DIRECTOR GENERAL ARTURO
HONORABLE SECRETARY EDUARDO ERMITA AND HONORABLE DIRECTOR GENERAL LOMIBAO, IN HIS CAPACITY AS PNP CHIEF, Respondents.
ARTURO C. LOMIBAO, Respondents.
x-------------------------------------x
x-------------------------------------x
G.R. No. 171424 May 3, 2006
G.R. No. 171485 May 3, 2006
LOREN B. LEGARDA, Petitioner,
FRANCIS JOSEPH G. ESCUDERO, JOSEPH A. SANTIAGO, TEODORO A. CASINO, vs.
AGAPITO A. AQUINO, MARIO J. AGUJA, SATUR C. OCAMPO, MUJIV S. HATAMAN, GLORIA MACAPAGAL-ARROYO, IN HER CAPACITY AS PRESIDENT AND
JUAN EDGARDO ANGARA, TEOFISTO DL. GUINGONA III, EMMANUEL JOSEL J. COMMANDER-IN-CHIEF; ARTURO LOMIBAO, IN HIS CAPACITY AS DIRECTOR-
VILLANUEVA, LIZA L. MAZA, IMEE R. MARCOS, RENATO B. MAGTUBO, JUSTIN MARC GENERAL OF THE PHILIPPINE NATIONAL POLICE (PNP); GENEROSO SENGA, IN HIS
SB. CHIPECO, ROILO GOLEZ, DARLENE ANTONINO-CUSTODIO, LORETTA ANN P. CAPACITY AS CHIEF OF STAFF OF THE ARMED FORCES OF THE PHILIPPINES (AFP);
ROSALES, JOSEL G. VIRADOR, RAFAEL V. MARIANO, GILBERT C. REMULLA, AND EDUARDO ERMITA, IN HIS CAPACITY AS EXECUTIVE SECRETARY, Respondents.
FLORENCIO G. NOEL, ANA THERESIA HONTIVEROS-BARAQUEL, IMELDA C. NICOLAS,
MARVIC M.V.F. LEONEN, NERI JAVIER COLMENARES, MOVEMENT OF CONCERNED DECISION
CITIZENS FOR CIVIL LIBERTIES REPRESENTED BY AMADO GAT INCIONG, Petitioners,
SANDOVAL-GUTIERREZ, J.:
vs.
EDUARDO R. ERMITA, EXECUTIVE SECRETARY, AVELINO J. CRUZ, JR., SECRETARY, All powers need some restraint; practical adjustments rather than rigid formula are
DND RONALDO V. PUNO, SECRETARY, DILG, GENEROSO SENGA, AFP CHIEF OF necessary.1 Superior strength the use of force cannot make wrongs into rights. In this regard,
STAFF, ARTURO LOMIBAO, CHIEF PNP, Respondents. the courts should be vigilant in safeguarding the constitutional rights of the citizens, specifically
their liberty.
x-------------------------------------x
Chief Justice Artemio V. Panganibans philosophy of liberty is thus most relevant. He said: "In
G.R. No. 171483 May 3, 2006
cases involving liberty, the scales of justice should weigh heavily against government
KILUSANG MAYO UNO, REPRESENTED BY ITS CHAIRPERSON ELMER C. LABOG AND and in favor of the poor, the oppressed, the marginalized, the dispossessed and the
SECRETARY GENERAL JOEL MAGLUNSOD, NATIONAL FEDERATION OF LABOR weak." Laws and actions that restrict fundamental rights come to the courts "with a heavy
UNIONS KILUSANG MAYO UNO (NAFLU-KMU), REPRESENTED BY ITS NATIONAL presumption against their constitutional validity."2
PRESIDENT, JOSELITO V. USTAREZ, ANTONIO C. PASCUAL, SALVADOR T.
These seven (7) consolidated petitions for certiorari and prohibition allege that in issuing
CARRANZA, EMILIA P. DAPULANG, MARTIN CUSTODIO, JR., AND ROQUE M.
Presidential Proclamation No. 1017 (PP 1017) and General Order No. 5 (G.O. No. 5), President
TAN, Petitioners,
Gloria Macapagal-Arroyo committed grave abuse of discretion. Petitioners contend that
vs.
respondent officials of the Government, in their professed efforts to defend and preserve
HER EXCELLENCY, PRESIDENT GLORIA MACAPAGAL-ARROYO, THE HONORABLE
democratic institutions, are actually trampling upon the very freedom guaranteed and protected
EXECUTIVE SECRETARY, EDUARDO ERMITA, THE CHIEF OF STAFF, ARMED FORCES
by the Constitution. Hence, such issuances are void for being unconstitutional.
OF THE PHILIPPINES, GENEROSO SENGA, AND THE PNP DIRECTOR GENERAL,
ARTURO LOMIBAO, Respondents.
Once again, the Court is faced with an age-old but persistently modern problem. How does the represented by military adventurists - the historical enemies of the democratic Philippine State
Constitution of a free people combine the degree of liberty, without which, law becomes tyranny, and who are now in a tactical alliance and engaged in a concerted and systematic conspiracy,
with the degree of law, without which, liberty becomes license?3 over a broad front, to bring down the duly-constituted Government elected in May 2004;

On February 24, 2006, as the nation celebrated the 20th Anniversary of the Edsa People Power I, WHEREAS, these conspirators have repeatedly tried to bring down our republican government;
President Arroyo issued PP 1017 declaring a state of national emergency, thus:
WHEREAS, the claims of these elements have been recklessly magnified by certain segments of
NOW, THEREFORE, I, Gloria Macapagal-Arroyo, President of the Republic of the Philippines and the national media;
Commander-in-Chief of the Armed Forces of the Philippines, by virtue of the powers vested upon
me by Section 18, Article 7 of the Philippine Constitution which states that: "The President. . . WHEREAS, these series of actions is hurting the Philippine State by obstructing governance,
whenever it becomes necessary, . . . may call out (the) armed forces to prevent or suppress. . including hindering the growth of the economy and sabotaging the peoples confidence in the
.rebellion. . .," and in my capacity as their Commander-in-Chief, do hereby command the government and their faith in the future of this country;
Armed Forces of the Philippines, to maintain law and order throughout the Philippines,
WHEREAS, these actions are adversely affecting the economy;
prevent or suppress all forms of lawless violence as well as any act of insurrection or
rebellion and to enforce obedience to all the laws and to all decrees, orders and WHEREAS, these activities give totalitarian forces; of both the extreme Left and extreme Right
regulations promulgated by me personally or upon my direction; and as provided in the opening to intensify their avowed aims to bring down the democratic Philippine State;
Section 17, Article 12 of the Constitution do hereby declare a State of National
Emergency. WHEREAS, Article 2, Section 4 of our Constitution makes the defense and preservation of the
democratic institutions and the State the primary duty of Government;
She cited the following facts as bases:
WHEREAS, the activities above-described, their consequences, ramifications and collateral
WHEREAS, over these past months, elements in the political opposition have conspired effects constitute a clear and present danger to the safety and the integrity of the Philippine State
with authoritarians of the extreme Left represented by the NDF-CPP-NPA and the and of the Filipino people;
extreme Right, represented by military adventurists the historical enemies of the
democratic Philippine State who are now in a tactical alliance and engaged in a concerted WHEREAS, Proclamation 1017 date February 24, 2006 has been issued declaring a State of
and systematic conspiracy, over a broad front, to bring down the duly constituted Government National Emergency;
elected in May 2004;
NOW, THEREFORE, I GLORIA MACAPAGAL-ARROYO, by virtue of the powers vested in me
WHEREAS, these conspirators have repeatedly tried to bring down the President; under the Constitution as President of the Republic of the Philippines, and Commander-in-Chief
of the Republic of the Philippines, and pursuant to Proclamation No. 1017 dated February 24,
WHEREAS, the claims of these elements have been recklessly magnified by certain 2006, do hereby call upon the Armed Forces of the Philippines (AFP) and the Philippine National
segments of the national media; Police (PNP), to prevent and suppress acts of terrorism and lawless violence in the country;
WHEREAS, this series of actions is hurting the Philippine State by obstructing governance I hereby direct the Chief of Staff of the AFP and the Chief of the PNP, as well as the officers and
including hindering the growth of the economy and sabotaging the peoples confidence men of the AFP and PNP, to immediately carry out the necessary and appropriate actions
in government and their faith in the future of this country; and measures to suppress and prevent acts of terrorism and lawless violence.
WHEREAS, these actions are adversely affecting the economy; On March 3, 2006, exactly one week after the declaration of a state of national emergency and
after all these petitions had been filed, the President lifted PP 1017. She issued Proclamation No.
WHEREAS, these activities give totalitarian forces of both the extreme Left and
1021 which reads:
extreme Right the opening to intensify their avowed aims to bring down the
democratic Philippine State; WHEREAS, pursuant to Section 18, Article VII and Section 17, Article XII of the Constitution,
Proclamation No. 1017 dated February 24, 2006, was issued declaring a state of national
WHEREAS, Article 2, Section 4 of the our Constitution makes the defense and preservation of
emergency;
the democratic institutions and the State the primary duty of Government;
WHEREAS, by virtue of General Order No.5 and No.6 dated February 24, 2006, which were
WHEREAS, the activities above-described, their consequences, ramifications and collateral
issued on the basis of Proclamation No. 1017, the Armed Forces of the Philippines (AFP) and the
effects constitute a clear and present danger to the safety and the integrity of the Philippine
Philippine National Police (PNP), were directed to maintain law and order throughout the
State and of the Filipino people;
Philippines, prevent and suppress all form of lawless violence as well as any act of rebellion and
On the same day, the President issued G. O. No. 5 implementing PP 1017, thus: to undertake such action as may be necessary;

WHEREAS, over these past months, elements in the political opposition have conspired with WHEREAS, the AFP and PNP have effectively prevented, suppressed and quelled the acts lawless
authoritarians of the extreme Left, represented by the NDF-CPP-NPA and the extreme Right, violence and rebellion;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the Commander of the Armys elite Scout Ranger. Lim said "it was all systems go for the planned
Philippines, by virtue of the powers vested in me by law, hereby declare that the state of movement against Arroyo."8
national emergency has ceased to exist.
B/Gen. Danilo Lim and Brigade Commander Col. Ariel Querubin confided to Gen. Generoso Senga,
In their presentation of the factual bases of PP 1017 and G.O. No. 5, respondents stated that the Chief of Staff of the Armed Forces of the Philippines (AFP), that a huge number of soldiers would
proximate cause behind the executive issuances was the conspiracy among some military officers, join the rallies to provide a critical mass and armed component to the Anti-Arroyo protests to be
leftist insurgents of the New Peoples Army (NPA), and some members of the political opposition held on February 24, 2005. According to these two (2) officers, there was no way they could
in a plot to unseat or assassinate President Arroyo.4 They considered the aim to oust or possibly stop the soldiers because they too, were breaking the chain of command to join the
assassinate the President and take-over the reigns of government as a clear and present danger. forces foist to unseat the President. However, Gen. Senga has remained faithful to his
Commander-in-Chief and to the chain of command. He immediately took custody of B/Gen. Lim
During the oral arguments held on March 7, 2006, the Solicitor General specified the facts leading and directed Col. Querubin to return to the Philippine Marines Headquarters in Fort Bonifacio.
to the issuance of PP 1017 and G.O. No. 5. Significantly, there was no refutation from
petitioners counsels. Earlier, the CPP-NPA called for intensification of political and revolutionary work within the military
and the police establishments in order to forge alliances with its members and key officials. NPA
The Solicitor General argued that the intent of the Constitution is to give full discretionary spokesman Gregorio "Ka Roger" Rosal declared: "The Communist Party and revolutionary
powers to the President in determining the necessity of calling out the armed forces. He movement and the entire people look forward to the possibility in the coming year of
emphasized that none of the petitioners has shown that PP 1017 was without factual bases. While accomplishing its immediate task of bringing down the Arroyo regime; of rendering it to weaken
he explained that it is not respondents task to state the facts behind the questioned Proclamation, and unable to rule that it will not take much longer to end it."9
however, they are presenting the same, narrated hereunder, for the elucidation of the issues.
On the other hand, Cesar Renerio, spokesman for the National Democratic Front (NDF) at North
On January 17, 2006, Captain Nathaniel Rabonza and First Lieutenants Sonny Sarmiento, Central Mindanao, publicly announced: "Anti-Arroyo groups within the military and police are
Lawrence San Juan and Patricio Bumidang, members of the Magdalo Group indicted in the growing rapidly, hastened by the economic difficulties suffered by the families of AFP officers and
Oakwood mutiny, escaped their detention cell in Fort Bonifacio, Taguig City. In a public statement, enlisted personnel who undertake counter-insurgency operations in the field." He claimed that
they vowed to remain defiant and to elude arrest at all costs. They called upon the people to with the forces of the national democratic movement, the anti-Arroyo conservative political
"show and proclaim our displeasure at the sham regime. Let us demonstrate our disgust, not only parties, coalitions, plus the groups that have been reinforcing since June 2005, it is probable that
by going to the streets in protest, but also by wearing red bands on our left arms." 5 the Presidents ouster is nearing its concluding stage in the first half of 2006.
On February 17, 2006, the authorities got hold of a document entitled " Oplan Hackle I " which Respondents further claimed that the bombing of telecommunication towers and cell sites in
detailed plans for bombings and attacks during the Philippine Military Academy Alumni Bulacan and Bataan was also considered as additional factual basis for the issuance of PP 1017
Homecoming in Baguio City. The plot was to assassinate selected targets including some cabinet and G.O. No. 5. So is the raid of an army outpost in Benguet resulting in the death of three (3)
members and President Arroyo herself.6 Upon the advice of her security, President Arroyo decided soldiers. And also the directive of the Communist Party of the Philippines ordering its front
not to attend the Alumni Homecoming. The next day, at the height of the celebration, a bomb organizations to join 5,000 Metro Manila radicals and 25,000 more from the provinces in mass
was found and detonated at the PMA parade ground. protests.10
On February 21, 2006, Lt. San Juan was recaptured in a communist safehouse in Batangas By midnight of February 23, 2006, the President convened her security advisers and several
province. Found in his possession were two (2) flash disks containing minutes of the meetings cabinet members to assess the gravity of the fermenting peace and order situation. She directed
between members of the Magdalo Group and the National Peoples Army (NPA), a tape recorder, both the AFP and the PNP to account for all their men and ensure that the chain of command
audio cassette cartridges, diskettes, and copies of subversive documents.7 Prior to his arrest, Lt. remains solid and undivided. To protect the young students from any possible trouble that might
San Juan announced through DZRH that the "Magdalos D-Day would be on February 24, 2006, break loose on the streets, the President suspended classes in all levels in the entire National
the 20th Anniversary of Edsa I." Capital Region.
On February 23, 2006, PNP Chief Arturo Lomibao intercepted information that members of the For their part, petitioners cited the events that followed after the issuance of PP 1017
PNP- Special Action Force were planning to defect. Thus, he immediately ordered SAF and G.O. No. 5.
Commanding General Marcelino Franco, Jr. to "disavow" any defection. The latter promptly
obeyed and issued a public statement: "All SAF units are under the effective control of responsible Immediately, the Office of the President announced the cancellation of all programs and activities
and trustworthy officers with proven integrity and unquestionable loyalty." related to the 20th anniversary celebration of Edsa People Power I; and revoked the permits to
hold rallies issued earlier by the local governments. Justice Secretary Raul Gonzales stated that
On the same day, at the house of former Congressman Peping Cojuangco, President Cory Aquinos political rallies, which to the Presidents mind were organized for purposes of destabilization, are
brother, businessmen and mid-level government officials plotted moves to bring down the Arroyo cancelled.Presidential Chief of Staff Michael Defensor announced that "warrantless arrests and
administration. Nelly Sindayen of TIME Magazine reported that Pastor Saycon, longtime Arroyo take-over of facilities, including media, can already be implemented."11
critic, called a U.S. government official about his groups plans if President Arroyo is ousted.
Saycon also phoned a man code-named Delta. Saycon identified him as B/Gen. Danilo Lim, Undeterred by the announcements that rallies and public assemblies would not be allowed, groups
of protesters (members of Kilusang Mayo Uno [KMU] and National Federation of Labor Unions-
Kilusang Mayo Uno [NAFLU-KMU]), marched from various parts of Metro Manila with the intention Retired Major General Ramon Montao, former head of the Philippine Constabulary, was arrested
of converging at the EDSA shrine. Those who were already near the EDSA site were violently while with his wife and golfmates at the Orchard Golf and Country Club in Dasmarias, Cavite.
dispersed by huge clusters of anti-riot police. The well-trained policemen used truncheons, big
fiber glass shields, water cannons, and tear gas to stop and break up the marching groups, and Attempts were made to arrest Anakpawis Representative Satur Ocampo, Representative Rafael
scatter the massed participants. The same police action was used against the protesters marching Mariano, Bayan Muna Representative Teodoro Casio and Gabriela Representative Liza
forward to Cubao, Quezon City and to the corner of Santolan Street and EDSA. That same evening, Maza. Bayan Muna Representative Josel Virador was arrested at the PAL Ticket Office in Davao
hundreds of riot policemen broke up an EDSA celebration rally held along Ayala Avenue and Paseo City. Later, he was turned over to the custody of the House of Representatives where the "Batasan
de Roxas Street in Makati City.12 5" decided to stay indefinitely.

According to petitioner Kilusang Mayo Uno, the police cited PP 1017 as the ground for the dispersal Let it be stressed at this point that the alleged violations of the rights of Representatives Beltran,
of their assemblies. Satur Ocampo, et al., are not being raised in these petitions.

During the dispersal of the rallyists along EDSA, police arrested (without warrant) petitioner On March 3, 2006, President Arroyo issued PP 1021 declaring that the state of national emergency
Randolf S. David, a professor at the University of the Philippines and newspaper columnist. Also has ceased to exist.
arrested was his companion, Ronald Llamas, president of party-list Akbayan.
In the interim, these seven (7) petitions challenging the constitutionality of PP 1017 and G.O. No.
At around 12:20 in the early morning of February 25, 2006, operatives of the Criminal 5 were filed with this Court against the above-named respondents. Three (3) of these petitions
Investigation and Detection Group (CIDG) of the PNP, on the basis of PP 1017 and G.O. No. 5, impleaded President Arroyo as respondent.
raided the Daily Tribune offices in Manila. The raiding team confiscated news stories by reporters,
In G.R. No. 171396, petitioners Randolf S. David, et al. assailed PP 1017 on the grounds
documents, pictures, and mock-ups of the Saturday issue. Policemen from Camp Crame in Quezon
that (1) it encroaches on the emergency powers of Congress; (2) itis a subterfuge to avoid the
City were stationed inside the editorial and business offices of the newspaper; while policemen
constitutional requirements for the imposition of martial law; and (3) it violates the constitutional
from the Manila Police District were stationed outside the building.13
guarantees of freedom of the press, of speech and of assembly.
A few minutes after the search and seizure at the Daily Tribune offices, the police surrounded the
In G.R. No. 171409, petitioners Ninez Cacho-Olivares and Tribune Publishing Co.,
premises of another pro-opposition paper, Malaya, and its sister publication, the tabloid Abante.
Inc. challenged the CIDGs act of raiding the Daily Tribune offices as a clear case of "censorship"
The raid, according to Presidential Chief of Staff Michael Defensor, is "meant to show a strong or "prior restraint." They also claimed that the term "emergency" refers only to tsunami, typhoon,
presence, to tell media outlets not to connive or do anything that would help the rebels in bringing hurricane and similar occurrences, hence, there is "absolutely no emergency" that warrants the
down this government." The PNP warned that it would take over any media organization that issuance of PP 1017.
would not follow "standards set by the government during the state of national
In G.R. No. 171485, petitioners herein are Representative Francis Joseph G. Escudero, and
emergency." Director General Lomibao stated that "if they do not follow the standards and the
twenty one (21) other members of the House of Representatives, including Representatives Satur
standards are - if they would contribute to instability in the government, or if they do not subscribe
Ocampo, Rafael Mariano, Teodoro Casio, Liza Maza, and Josel Virador. They asserted that PP
to what is in General Order No. 5 and Proc. No. 1017 we will recommend a takeover." National
1017 and G.O. No. 5 constitute "usurpation of legislative powers"; "violation of freedom of
Telecommunications Commissioner Ronald Solis urged television and radio networks
expression" and "a declaration of martial law." They alleged that President Arroyo "gravely abused
to "cooperate" with the government for the duration of the state of national emergency. He asked
her discretion in calling out the armed forces without clear and verifiable factual basis of the
for "balanced reporting" from broadcasters when covering the events surrounding the coup
possibility of lawless violence and a showing that there is necessity to do so."
attempt foiled by the government. He warned that his agency will not hesitate to recommend the
closure of any broadcast outfit that violates rules set out for media coverage when the national In G.R. No. 171483,petitioners KMU, NAFLU-KMU, and their members averred that PP 1017 and
security is threatened.14 G.O. No. 5 are unconstitutional because (1) they arrogate unto President Arroyo the power to
enact laws and decrees; (2) their issuance was without factual basis; and (3) they violate
Also, on February 25, 2006, the police arrested Congressman Crispin Beltran, representing
freedom of expression and the right of the people to peaceably assemble to redress their
the Anakpawis Party and Chairman of Kilusang Mayo Uno (KMU), while leaving his farmhouse in
grievances.
Bulacan. The police showed a warrant for his arrest dated 1985. Beltrans lawyer explained that
the warrant, which stemmed from a case of inciting to rebellion filed during the Marcos regime, In G.R. No. 171400, petitioner Alternative Law Groups, Inc. (ALGI) alleged that PP 1017 and
had long been quashed. Beltran, however, is not a party in any of these petitions. G.O. No. 5 are unconstitutional because they violate (a) Section 415 of Article II, (b) Sections
1,16 2,17 and 418 of Article III, (c)Section 2319 of Article VI, and (d) Section 1720 of Article XII of
When members of petitioner KMU went to Camp Crame to visit Beltran, they were told they could
the Constitution.
not be admitted because of PP 1017 and G.O. No. 5. Two members were arrested and detained,
while the rest were dispersed by the police. In G.R. No. 171489, petitioners Jose Anselmo I. Cadiz et al., alleged that PP 1017 is an "arbitrary
and unlawful exercise by the President of her Martial Law powers." And assuming that PP 1017 is
Bayan Muna Representative Satur Ocampo eluded arrest when the police went after him during a
not really a declaration of Martial Law, petitioners argued that "it amounts to an exercise by the
public forum at the Sulo Hotel in Quezon City. But his two drivers, identified as Roel and Art, were
President of emergency powers without congressional approval." In addition, petitioners asserted
taken into custody.
that PP 1017 "goes beyond the nature and function of a proclamation as defined under the Revised Constitution. This power the courts exercise. This is the beginning and the end of the
Administrative Code." theory of judicial review.22

And lastly, in G.R. No. 171424,petitionerLoren B. Legarda maintained that PP 1017 and G.O. But the power of judicial review does not repose upon the courts a "self-starting
No. 5 are "unconstitutional for being violative of the freedom of expression, including its cognate capacity."23 Courts may exercise such power only when the following requisites are
rights such as freedom of the press and the right to access to information on matters of public present: first, there must be an actual case or controversy; second, petitioners have to raise a
concern, all guaranteed under Article III, Section 4 of the 1987 Constitution." In this regard, she question of constitutionality; third, the constitutional question must be raised at the earliest
stated that these issuances prevented her from fully prosecuting her election protest pending opportunity; and fourth, the decision of the constitutional question must be necessary to the
before the Presidential Electoral Tribunal. determination of the case itself.24

In respondents Consolidated Comment, the Solicitor General countered that: first, the petitions Respondents maintain that the first and second requisites are absent, hence, we shall limit our
should be dismissed for being moot; second,petitioners in G.R. Nos. 171400 (ALGI), 171424 discussion thereon.
(Legarda), 171483 (KMU et al.), 171485 (Escudero et al.) and 171489 (Cadiz et al.) have no legal
standing; third, it is not necessary for petitioners to implead President Arroyo as An actual case or controversy involves a conflict of legal right, an opposite legal claims susceptible
respondent; fourth, PP 1017 has constitutional and legal basis; and fifth, PP 1017 does not violate of judicial resolution. It is "definite and concrete, touching the legal relations of parties having
the peoples right to free expression and redress of grievances. adverse legal interest;" a real and substantial controversy admitting of specific relief.25 The
Solicitor General refutes the existence of such actual case or controversy, contending that the
On March 7, 2006, the Court conducted oral arguments and heard the parties on the above present petitions were rendered "moot and academic" by President Arroyos issuance of PP 1021.
interlocking issues which may be summarized as follows:
Such contention lacks merit.
A. PROCEDURAL:
A moot and academic case is one that ceases to present a justiciable controversy by virtue of
1) Whether the issuance of PP 1021 renders the petitions moot and academic. supervening events,26so that a declaration thereon would be of no practical use or
value.27 Generally, courts decline jurisdiction over such case28 or dismiss it on ground of
2) Whether petitioners in 171485 (Escudero et al.), G.R. Nos. mootness.29
171400 (ALGI), 171483 (KMU et al.), 171489(Cadiz et al.), and 171424 (Legarda) have legal
standing. The Court holds that President Arroyos issuance of PP 1021 did not render the present petitions
moot and academic. During the eight (8) days that PP 1017 was operative, the police officers,
B. SUBSTANTIVE: according to petitioners, committed illegal acts in implementing it. Are PP 1017 and G.O. No.
5 constitutional or valid? Do they justify these alleged illegal acts? These are the vital
1) Whetherthe Supreme Court can review the factual bases of PP 1017.
issues that must be resolved in the present petitions. It must be stressed that "an
2) Whether PP 1017 and G.O. No. 5 are unconstitutional. unconstitutional act is not a law, it confers no rights, it imposes no duties, it affords
no protection; it is in legal contemplation, inoperative."30
a. Facial Challenge
The "moot and academic" principle is not a magical formula that can automatically dissuade the
b. Constitutional Basis courts in resolving a case. Courts will decide cases, otherwise moot and academic, if: first, there
is a grave violation of the Constitution;31second, the exceptional character of the situation and the
c. As Applied Challenge paramount public interest is involved;32 third, when constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar, and the public;33and fourth, the
A. PROCEDURAL
case is capable of repetition yet evading review.34
First, we must resolve the procedural roadblocks.
All the foregoing exceptions are present here and justify this Courts assumption of jurisdiction
I- Moot and Academic Principle over the instant petitions. Petitioners alleged that the issuance of PP 1017 and G.O. No. 5 violates
the Constitution. There is no question that the issues being raised affect the publics interest,
One of the greatest contributions of the American system to this country is the concept of judicial involving as they do the peoples basic rights to freedom of expression, of assembly and of the
review enunciated in Marbury v. Madison.21 This concept rests on the extraordinary simple press. Moreover, the Court has the duty to formulate guiding and controlling constitutional
foundation -- precepts, doctrines or rules. It has the symbolic function of educating the bench and the bar, and
in the present petitions, the military and the police, on the extent of the protection given by
The Constitution is the supreme law. It was ordained by the people, the ultimate source of all constitutional guarantees.35 And lastly, respondents contested actions are capable of repetition.
political authority. It confers limited powers on the national government. x x x If the Certainly, the petitions are subject to judicial review.
government consciously or unconsciously oversteps these limitations there must be
some authority competent to hold it in control, to thwart its unconstitutional attempt, In their attempt to prove the alleged mootness of this case, respondents cited Chief Justice
and thus to vindicate and preserve inviolate the will of the people as expressed in the Artemio V. Panganibans Separate Opinion in Sanlakas v. Executive Secretary.36 However, they
failed to take into account the Chief Justices very statement that an otherwise "moot" case may However, being a mere procedural technicality, the requirement of locus standi may be waived
still be decided "provided the party raising it in a proper case has been and/or continues to be by the Court in the exercise of its discretion. This was done in the 1949 Emergency Powers
prejudiced or damaged as a direct result of its issuance." The present case falls right within this Cases, Araneta v. Dinglasan,49 where the "transcendental importance" of the cases prompted
exception to the mootness rule pointed out by the Chief Justice. the Court to act liberally. Such liberality was neither a rarity nor accidental. In Aquino v.
Comelec,50 this Court resolved to pass upon the issues raised due to the "far-reaching
II- Legal Standing implications" of the petition notwithstanding its categorical statement that petitioner therein had
no personality to file the suit. Indeed, there is a chain of cases where this liberal policy has been
In view of the number of petitioners suing in various personalities, the Court deems it imperative
observed, allowing ordinary citizens, members of Congress, and civic organizations to prosecute
to have a more than passing discussion on legal standing or locus standi.
actions involving the constitutionality or validity of laws, regulations and rulings.51
Locus standi is defined as "a right of appearance in a court of justice on a given question." 37 In
Thus, the Court has adopted a rule that even where the petitioners have failed to show direct
private suits, standing is governed by the "real-parties-in interest" rule as contained in Section 2,
injury, they have been allowed to sue under the principle of "transcendental importance."
Rule 3 of the 1997 Rules of Civil Procedure, as amended. It provides that "every action must
Pertinent are the following cases:
be prosecuted or defended in the name of the real party in interest." Accordingly, the
"real-party-in interest" is "the party who stands to be benefited or injured by the (1) Chavez v. Public Estates Authority,52 where the Court ruled that the enforcement of the
judgment in the suit or the party entitled to the avails of the suit."38 Succinctly put, the constitutional right to information and the equitable diffusion of natural resources are
plaintiffs standing is based on his own right to the relief sought. matters of transcendental importance which clothe the petitioner with locus standi;
The difficulty of determining locus standi arises in public suits. Here, the plaintiff who asserts a (2) Bagong Alyansang Makabayan v. Zamora,53 wherein the Court held that "given the
"public right" in assailing an allegedly illegal official action, does so as a representative of the transcendental importance of the issues involved, the Court may relax the standing
general public. He may be a person who is affected no differently from any other person. He could requirements and allow the suit to prosper despite the lack of direct injury to the
be suing as a "stranger," or in the category of a "citizen," or taxpayer." In either case, he has to parties seeking judicial review" of the Visiting Forces Agreement;
adequately show that he is entitled to seek judicial protection. In other words, he has to make
out a sufficient interest in the vindication of the public order and the securing of relief as a "citizen" (3) Lim v. Executive Secretary,54 while the Court noted that the petitioners may not file suit in
or "taxpayer. their capacity as taxpayers absent a showing that "Balikatan 02-01" involves the exercise of
Congress taxing or spending powers, it reiterated its ruling in Bagong Alyansang Makabayan v.
Case law in most jurisdictions now allows both "citizen" and "taxpayer" standing in public actions. Zamora,55that in cases of transcendental importance, the cases must be settled
The distinction was first laid down in Beauchamp v. Silk,39 where it was held that the plaintiff in a promptly and definitely and standing requirements may be relaxed.
taxpayers suit is in a different category from the plaintiff in a citizens suit. In the former, the
plaintiff is affected by the expenditure of public funds, while in the latter, he is but By way of summary, the following rules may be culled from the cases decided by this Court.
the mere instrument of the public concern. As held by the New York Supreme Court Taxpayers, voters, concerned citizens, and legislators may be accorded standing to sue, provided
in People ex rel Case v. Collins:40 "In matter of mere public right, howeverthe people are that the following requirements are met:
the real partiesIt is at least the right, if not the duty, of every citizen to interfere
and see that a public offence be properly pursued and punished, and that a public (1) the cases involve constitutional issues;
grievance be remedied." With respect to taxpayers suits, Terr v. Jordan41 held that "the right
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax
of a citizen and a taxpayer to maintain an action in courts to restrain the unlawful use
measure is unconstitutional;
of public funds to his injury cannot be denied."
(3) for voters, there must be a showing of obvious interest in the validity of the election law in
However, to prevent just about any person from seeking judicial interference in any official policy
question;
or act with which he disagreed with, and thus hinders the activities of governmental agencies
engaged in public service, the United State Supreme Court laid down the more stringent "direct (4) for concerned citizens, there must be a showing that the issues raised are of transcendental
injury" test in Ex Parte Levitt,42 later reaffirmed in Tileston v. Ullman.43 The same Court ruled importance which must be settled early; and
that for a private individual to invoke the judicial power to determine the validity of an executive
or legislative action, he must show that he has sustained a direct injury as a result of (5) for legislators, there must be a claim that the official action complained of infringes upon
that action, and it is not sufficient that he has a general interest common to all their prerogatives as legislators.
members of the public.
Significantly, recent decisions show a certain toughening in the Courts attitude toward legal
This Court adopted the "direct injury" test in our jurisdiction. In People v. Vera,44 it held that standing.
the person who impugns the validity of a statute must have "a personal and substantial
interest in the case such that he has sustained, or will sustain direct injury as a result." In Kilosbayan, Inc. v. Morato,56 the Court ruled that the status of Kilosbayan as a peoples
The Vera doctrine was upheld in a litany of cases, such as, Custodio v. President of the organization does not give it the requisite personality to question the validity of the on-line lottery
Senate,45 Manila Race Horse Trainers Association v. De la Fuente,46 Pascual v. Secretary of Public contract, more so where it does not raise any issue of constitutionality. Moreover, it cannot sue
Works47 and Anti-Chinese League of the Philippines v. Felix.48
as a taxpayer absent any allegation that public funds are being misused. Nor can it sue as a In G.R. No. 171424, Loren Legarda has no personality as a taxpayer to file the instant petition
concerned citizen as it does not allege any specific injury it has suffered. as there are no allegations of illegal disbursement of public funds. The fact that she is a former
Senator is of no consequence. She can no longer sue as a legislator on the allegation that her
In Telecommunications and Broadcast Attorneys of the Philippines, Inc. v. Comelec,57 the Court prerogatives as a lawmaker have been impaired by PP 1017 and G.O. No. 5. Her claim that she is
reiterated the "direct injury" test with respect to concerned citizens cases involving constitutional a media personality will not likewise aid her because there was no showing that the enforcement
issues. It held that "there must be a showing that the citizen personally suffered some actual or of these issuances prevented her from pursuing her occupation. Her submission that she has
threatened injury arising from the alleged illegal official act." pending electoral protest before the Presidential Electoral Tribunal is likewise of no relevance. She
has not sufficiently shown that PP 1017 will affect the proceedings or result of her case. But
In Lacson v. Perez,58 the Court ruled that one of the petitioners, Laban ng Demokratikong
considering once more the transcendental importance of the issue involved, this Court may relax
Pilipino (LDP), is not a real party-in-interest as it had not demonstrated any injury to itself or to
the standing rules.
its leaders, members or supporters.
It must always be borne in mind that the question of locus standi is but corollary to the bigger
In Sanlakas v. Executive Secretary,59 the Court ruled that only the petitioners who are members
question of proper exercise of judicial power. This is the underlying legal tenet of the "liberality
of Congress have standing to sue, as they claim that the Presidents declaration of a state of
doctrine" on legal standing. It cannot be doubted that the validity of PP No. 1017 and G.O. No. 5
rebellion is a usurpation of the emergency powers of Congress, thus impairing their
is a judicial question which is of paramount importance to the Filipino people. To paraphrase
legislative powers. As to petitioners Sanlakas, Partido Manggagawa, and Social Justice Society,
Justice Laurel, the whole of Philippine society now waits with bated breath the ruling of this Court
the Court declared them to be devoid of standing, equating them with the LDP in Lacson.
on this very critical matter. The petitions thus call for the application of the "transcendental
Now, the application of the above principles to the present petitions. importance" doctrine, a relaxation of the standing requirements for the petitioners in the "PP
1017 cases."1avvphil.net
The locus standi of petitioners in G.R. No. 171396, particularly David and Llamas, is beyond
doubt. The same holds true with petitioners in G.R. No. 171409, Cacho-Olivares This Court holds that all the petitioners herein have locus standi.
and Tribune Publishing Co. Inc. They alleged "direct injury" resulting from "illegal arrest" and
Incidentally, it is not proper to implead President Arroyo as respondent. Settled is the doctrine
"unlawful search" committed by police operatives pursuant to PP 1017. Rightly so, the Solicitor
that the President, during his tenure of office or actual incumbency,67 may not be sued in any civil
General does not question their legal standing.
or criminal case, and there is no need to provide for it in the Constitution or law. It will degrade
In G.R. No. 171485, the opposition Congressmen alleged there was usurpation of legislative the dignity of the high office of the President, the Head of State, if he can be dragged into court
powers. They also raised the issue of whether or not the concurrence of Congress is necessary litigations while serving as such. Furthermore, it is important that he be freed from any form of
whenever the alarming powers incident to Martial Law are used. Moreover, it is in the interest of harassment, hindrance or distraction to enable him to fully attend to the performance of his official
justice that those affected by PP 1017 can be represented by their Congressmen in bringing to duties and functions. Unlike the legislative and judicial branch, only one constitutes the executive
the attention of the Court the alleged violations of their basic rights. branch and anything which impairs his usefulness in the discharge of the many great and
important duties imposed upon him by the Constitution necessarily impairs the operation of the
In G.R. No. 171400, (ALGI), this Court applied the liberality rule in Philconsa v. Government. However, this does not mean that the President is not accountable to anyone. Like
Enriquez,60 Kapatiran Ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan,61 Association any other official, he remains accountable to the people68 but he may be removed from office only
of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform,62 Basco v. Philippine in the mode provided by law and that is by impeachment.69
Amusement and Gaming Corporation,63 and Taada v. Tuvera,64 that when the issue concerns a
public right, it is sufficient that the petitioner is a citizen and has an interest in the execution of B. SUBSTANTIVE
the laws.
I. Review of Factual Bases
In G.R. No. 171483, KMUs assertion that PP 1017 and G.O. No. 5 violated its right to peaceful
Petitioners maintain that PP 1017 has no factual basis. Hence, it was not "necessary" for President
assembly may be deemed sufficient to give it legal standing. Organizations may be granted
Arroyo to issue such Proclamation.
standing to assert the rights of their members.65 We take judicial notice of the
announcement by the Office of the President banning all rallies and canceling all permits for public The issue of whether the Court may review the factual bases of the Presidents exercise of his
assemblies following the issuance of PP 1017 and G.O. No. 5. Commander-in-Chief power has reached its distilled point - from the indulgent days of Barcelon
v. Baker70 and Montenegro v. Castaneda71 to the volatile era of Lansang v. Garcia,72 Aquino, Jr. v.
In G.R. No. 171489, petitioners, Cadiz et al., who are national officers of the Integrated Bar of
Enrile,73 and Garcia-Padilla v. Enrile.74 The tug-of-war always cuts across the line defining "political
the Philippines (IBP) have no legal standing, having failed to allege any direct or potential injury
questions," particularly those questions "in regard to which full discretionary authority has been
which the IBP as an institution or its members may suffer as a consequence of the issuance of PP
delegated to the legislative or executive branch of the government."75 Barcelon and
No. 1017 and G.O. No. 5. In Integrated Bar of the Philippines v. Zamora,66 the Court held that the
Montenegro were in unison in declaring that the authority to decide whether an exigency
mere invocation by the IBP of its duty to preserve the rule of law and nothing more, while
has arisen belongs to the President and his decision is final and conclusive on the
undoubtedly true, is not sufficient to clothe it with standing in this case. This is too general an
courts. Lansang took the opposite view. There, the members of the Court were unanimous in
interest which is shared by other groups and the whole citizenry. However, in view of the
the conviction that the Court has the authority to inquire into the existence of factual bases in
transcendental importance of the issue, this Court declares that petitioner have locus standi.
order to determine their constitutional sufficiency. From the principle of separation of
powers, it shifted the focus to the system of checks and balances, "under which the II. Constitutionality of PP 1017 and G.O. No. 5
President is supreme, x x x only if and when he acts within the sphere allotted to him Doctrines of Several Political Theorists
by the Basic Law, and the authority to determine whether or not he has so acted is on the Power of the President in Times of Emergency
vested in the Judicial Department, which in this respect, is, in turn,
constitutionally supreme."76 In 1973, the unanimous Court of Lansang was divided in Aquino This case brings to fore a contentious subject -- the power of the President in times of
v. Enrile.77 There, the Court was almost evenly divided on the issue of whether the validity of the emergency. A glimpse at the various political theories relating to this subject provides an adequate
imposition of Martial Law is a political or justiciable question.78 Then came Garcia-Padilla v. backdrop for our ensuing discussion.
Enrile which greatly diluted Lansang. It declared that there is a need to re-examine the latter
John Locke, describing the architecture of civil government, called upon the English doctrine of
case, ratiocinating that "in times of war or national emergency, the President must be
prerogative to cope with the problem of emergency. In times of danger to the nation, positive law
given absolute control for the very life of the nation and the government is in great
enacted by the legislature might be inadequate or even a fatal obstacle to the promptness of
peril. The President, it intoned, is answerable only to his conscience, the People, and
action necessary to avert catastrophe. In these situations, the Crown retained a prerogative
God."79
"power to act according to discretion for the public good, without the proscription of
The Integrated Bar of the Philippines v. Zamora80 -- a recent case most pertinent to these cases the law and sometimes even against it."84 But Locke recognized that this moral restraint
at bar -- echoed a principle similar to Lansang. While the Court considered the Presidents might not suffice to avoid abuse of prerogative powers. Who shall judge the need for
"calling-out" power as a discretionary power solely vested in his wisdom, it stressed that "this resorting to the prerogative and how may its abuse be avoided? Here, Locke readily
does not prevent an examination of whether such power was exercised within admitted defeat, suggesting that "the people have no other remedy in this, as in all other
permissible constitutional limits or whether it was exercised in a manner constituting cases where they have no judge on earth, but to appeal to Heaven."85
grave abuse of discretion."This ruling is mainly a result of the Courts reliance on Section 1,
Jean-Jacques Rousseau also assumed the need for temporary suspension of democratic processes
Article VIII of 1987 Constitution which fortifies the authority of the courts to determine in an
of government in time of emergency. According to him:
appropriate action the validity of the acts of the political departments. Under the new definition
of judicial power, the courts are authorized not only "to settle actual controversies involving rights The inflexibility of the laws, which prevents them from adopting themselves to circumstances,
which are legally demandable and enforceable," but also "to determine whether or not there may, in certain cases, render them disastrous and make them bring about, at a time of crisis, the
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on ruin of the State
the part of any branch or instrumentality of the government." The latter part of the
authority represents a broadening of judicial power to enable the courts of justice to review what It is wrong therefore to wish to make political institutions as strong as to render it impossible to
was before a forbidden territory, to wit, the discretion of the political departments of the suspend their operation. Even Sparta allowed its law to lapse...
government.81 It speaks of judicial prerogative not only in terms of power but also of duty.82
If the peril is of such a kind that the paraphernalia of the laws are an obstacle to their preservation,
As to how the Court may inquire into the Presidents exercise of power, Lansang adopted the test the method is to nominate a supreme lawyer, who shall silence all the laws and suspend for a
that "judicial inquiry can go no further than to satisfy the Court not that the Presidents decision moment the sovereign authority. In such a case, there is no doubt about the general will, and it
is correct," but that "the President did not act arbitrarily." Thus, the standard laid down is not clear that the peoples first intention is that the State shall not perish.86
correctness, but arbitrariness.83 In Integrated Bar of the Philippines, this Court further ruled that
"it is incumbent upon the petitioner to show that the Presidents decision is totally Rosseau did not fear the abuse of the emergency dictatorship or "supreme magistracy" as he
bereft of factual basis" and that if he fails, by way of proof, to support his assertion, then "this termed it. For him, it would more likely be cheapened by "indiscreet use." He was unwilling to rely
Court cannot undertake an independent investigation beyond the pleadings." upon an "appeal to heaven." Instead, he relied upon a tenure of office of prescribed duration
to avoid perpetuation of the dictatorship.87
Petitioners failed to show that President Arroyos exercise of the calling-out power, by issuing PP
1017, is totally bereft of factual basis. A reading of the Solicitor Generals Consolidated Comment John Stuart Mill concluded his ardent defense of representative government: "I am far from
and Memorandum shows a detailed narration of the events leading to the issuance of PP 1017, condemning, in cases of extreme necessity, the assumption of absolute power in the
with supporting reports forming part of the records. Mentioned are the escape of the Magdalo form of a temporary dictatorship."88
Group, their audacious threat of the Magdalo D-Day, the defections in the military, particularly in
Nicollo Machiavellis view of emergency powers, as one element in the whole scheme of limited
the Philippine Marines, and the reproving statements from the communist leaders. There was also
government, furnished an ironic contrast to the Lockean theory of prerogative. He recognized and
the Minutes of the Intelligence Report and Security Group of the Philippine Army showing the
attempted to bridge this chasm in democratic political theory, thus:
growing alliance between the NPA and the military. Petitioners presented nothing to refute such
events. Thus, absent any contrary allegations, the Court is convinced that the President was Now, in a well-ordered society, it should never be necessary to resort to extra constitutional
justified in issuing PP 1017 calling for military aid. measures; for although they may for a time be beneficial, yet the precedent is pernicious, for if
the practice is once established for good objects, they will in a little while be disregarded under
Indeed, judging the seriousness of the incidents, President Arroyo was not expected to simply
that pretext but for evil purposes. Thus, no republic will ever be perfect if she has not by law
fold her arms and do nothing to prevent or suppress what she believed was lawless violence,
provided for everything, having a remedy for every emergency and fixed rules for applying it.89
invasion or rebellion. However, the exercise of such power or duty must not stifle liberty.
Machiavelli in contrast to Locke, Rosseau and Mill sought to incorporate into the constitution 6) The measures adopted in the prosecution of the a constitutional dictatorship should never be
a regularized system of standby emergency powers to be invoked with suitable checks and permanent in character or effect
controls in time of national danger. He attempted forthrightly to meet the problem of combining
a capacious reserve of power and speed and vigor in its application in time of emergency, with 7) The dictatorship should be carried on by persons representative of every part of the citizenry
effective constitutional restraints.90 interested in the defense of the existing constitutional order. . .

Contemporary political theorists, addressing themselves to the problem of response to emergency 8) Ultimate responsibility should be maintained for every action taken under a constitutional
by constitutional democracies, have employed the doctrine of constitutional dictatorship. . .
dictatorship.91 Frederick M. Watkins saw "no reason why absolutism should not be used as
9) The decision to terminate a constitutional dictatorship, like the decision to institute one should
a means for the defense of liberal institutions," provided it "serves to protect
never be in the hands of the man or men who constitute the dictator. . .
established institutions from the danger of permanent injury in a period of temporary
emergency and is followed by a prompt return to the previous forms of political 10) No constitutional dictatorship should extend beyond the termination of the crisis for which it
life."92 He recognized the two (2) key elements of the problem of emergency governance, as well was instituted
as all constitutional governance: increasing administrative powers of the executive, while
at the same time "imposing limitation upon that power."93Watkins placed his real faith in 11) the termination of the crisis must be followed by a complete return as possible to the
a scheme of constitutional dictatorship. These are the conditions of success of such a political and governmental conditions existing prior to the initiation of the constitutional
dictatorship: "The period of dictatorship must be relatively shortDictatorship should dictatorship99
always be strictly legitimate in characterFinal authority to determine the need for
dictatorship in any given case must never rest with the dictator himself"94 and the Rossiter accorded to legislature a far greater role in the oversight exercise of emergency powers
objective of such an emergency dictatorship should be "strict political conservatism." than did Watkins. He would secure to Congress final responsibility for declaring the existence or
termination of an emergency, and he places great faith in the effectiveness of congressional
Carl J. Friedrich cast his analysis in terms similar to those of Watkins.95 "It is a problem of investigating committees.100
concentrating power in a government where power has consciously been divided to cope
with situations of unprecedented magnitude and gravity. There must be a broad grant of Scott and Cotter, in analyzing the above contemporary theories in light of recent experience, were
powers, subject to equally strong limitations as to who shall exercise such powers, when, for how one in saying that, "the suggestion that democracies surrender the control of
long, and to what end."96 Friedrich, too, offered criteria for judging the adequacy of any of scheme government to an authoritarian ruler in time of grave danger to the nation
of emergency powers, to wit: "The emergency executive must be appointed by is not based upon sound constitutional theory." To appraise emergency power in terms of
constitutional means i.e., he must be legitimate; he should not enjoy power to constitutional dictatorship serves merely to distort the problem and hinder realistic analysis. It
determine the existence of an emergency; emergency powers should be exercised matters not whether the term "dictator" is used in its normal sense (as applied to authoritarian
under a strict time limitation; and last, the objective of emergency action must be the rulers) or is employed to embrace all chief executives administering emergency powers. However
defense of the constitutional order."97 used, "constitutional dictatorship" cannot be divorced from the implication of suspension of the
processes of constitutionalism. Thus, they favored instead the "concept of constitutionalism"
Clinton L. Rossiter, after surveying the history of the employment of emergency powers in Great articulated by Charles H. McIlwain:
Britain, France, Weimar, Germany and the United States, reverted to a description of a scheme of
"constitutional dictatorship" as solution to the vexing problems presented by emergency.98 Like A concept of constitutionalism which is less misleading in the analysis of problems of emergency
Watkins and Friedrich, he stated a priori the conditions of success of the "constitutional powers, and which is consistent with the findings of this study, is that formulated by Charles H.
dictatorship," thus: McIlwain. While it does not by any means necessarily exclude some indeterminate limitations upon
the substantive powers of government, full emphasis is placed upon procedural limitations,
1) No general regime or particular institution of constitutional dictatorship should be initiated and political responsibility. McIlwain clearly recognized the need to repose adequate power in
unless it is necessary or even indispensable to the preservation of the State and its constitutional government. And in discussing the meaning of constitutionalism, he insisted that the historical
order and proper test of constitutionalism was the existence of adequate processes for
keeping government responsible. He refused to equate constitutionalism with the enfeebling
2) the decision to institute a constitutional dictatorship should never be in the hands of the man of government by an exaggerated emphasis upon separation of powers and substantive limitations
or men who will constitute the dictator on governmental power. He found that the really effective checks on despotism have consisted
not in the weakening of government but, but rather in the limiting of it; between which there is
3) No government should initiate a constitutional dictatorship without making specific provisions
a great and very significant difference. In associating constitutionalism with "limited" as
for its termination
distinguished from "weak" government, McIlwain meant government limited to the
4) all uses of emergency powers and all readjustments in the organization of the government orderly procedure of law as opposed to the processes of force. The two fundamental
should be effected in pursuit of constitutional or legal requirements correlative elements of constitutionalism for which all lovers of liberty must yet fight
are the legal limits to arbitrary power and a complete political responsibility of
5) no dictatorial institution should be adopted, no right invaded, no regular procedure altered government to the governed.101
any more than is absolutely necessary for the conquest of the particular crisis . . .
In the final analysis, the various approaches to emergency of the above political theorists - from Thus, claims of facial overbreadth are entertained in cases involving statutes which, by their
Locks "theory of prerogative," to Watkins doctrine of "constitutional dictatorship" and, eventually, terms, seek to regulate only "spoken words" and again, that "overbreadth claims, if
to McIlwains "principle of constitutionalism" --- ultimately aim to solve one real problem in entertained at all, have been curtailed when invoked against ordinary criminal laws
emergency governance, i.e., that of allotting increasing areas of discretionary power to that are sought to be applied to protected conduct."106 Here, the incontrovertible fact
the Chief Executive, while insuring that such powers will be exercised with a sense of remains that PP 1017 pertains to a spectrum of conduct, not free speech, which is manifestly
political responsibility and under effective limitations and checks. subject to state regulation.

Our Constitution has fairly coped with this problem. Fresh from the fetters of a repressive regime, Second, facial invalidation of laws is considered as "manifestly strong medicine," to be used
the 1986 Constitutional Commission, in drafting the 1987 Constitution, endeavored to create a "sparingly and only as a last resort," and is "generally disfavored;"107 The reason for this
government in the concept of Justice Jacksons "balanced power structure."102 Executive, is obvious. Embedded in the traditional rules governing constitutional adjudication is the principle
legislative, and judicial powers are dispersed to the President, the Congress, and the Supreme that a person to whom a law may be applied will not be heard to challenge a law on the ground
Court, respectively. Each is supreme within its own sphere. But none has the monopoly of that it may conceivably be applied unconstitutionally to others, i.e., in other situations not
power in times of emergency. Each branch is given a role to serve as limitation or before the Court.108 A writer and scholar in Constitutional Law explains further:
check upon the other. This system does not weaken the President, it just limits his power,
using the language of McIlwain. In other words, in times of emergency, our Constitution The most distinctive feature of the overbreadth technique is that it marks an exception
reasonably demands that we repose a certain amount of faith in the basic integrity and wisdom to some of the usual rules of constitutional litigation. Ordinarily, a particular litigant
of the Chief Executive but, at the same time, it obliges him to operate within carefully claims that a statute is unconstitutional as applied to him or her; if the litigant
prescribed procedural limitations. prevails, the courts carve away the unconstitutional aspects of the law by invalidating
its improper applications on a case to case basis. Moreover, challengers to a law are
a. "Facial Challenge" not permitted to raise the rights of third parties and can only assert their own
interests. In overbreadth analysis, those rules give way; challenges are permitted to
Petitioners contend that PP 1017 is void on its face because of its "overbreadth." They claim that raise the rights of third parties; and the court invalidates the entire statute "on its face," not
its enforcement encroached on both unprotected and protected rights under Section 4, Article III merely "as applied for" so that the overbroad law becomes unenforceable until a properly
of the Constitution and sent a "chilling effect" to the citizens. authorized court construes it more narrowly. The factor that motivates courts to depart from the
normal adjudicatory rules is the concern with the "chilling;" deterrent effect of the overbroad
A facial review of PP 1017, using the overbreadth doctrine, is uncalled for.
statute on third parties not courageous enough to bring suit. The Court assumes that an overbroad
First and foremost, the overbreadth doctrine is an analytical tool developed for testing "on their laws "very existence may cause others not before the court to refrain from constitutionally
faces" statutes in free speech cases, also known under the American Law as First Amendment protected speech or expression." An overbreadth ruling is designed to remove that deterrent effect
cases.103 on the speech of those third parties.

A plain reading of PP 1017 shows that it is not primarily directed to speech or even speech-related In other words, a facial challenge using the overbreadth doctrine will require the Court to examine
conduct. It is actually a call upon the AFP to prevent or suppress all forms PP 1017 and pinpoint its flaws and defects, not on the basis of its actual operation to petitioners,
of lawless violence. In United States v. Salerno,104the US Supreme Court held that "we have but on the assumption or prediction that its very existence may cause others not before the
not recognized an overbreadth doctrine outside the limited context of the First Court to refrain from constitutionally protected speech or expression. In Younger v. Harris,109 it
Amendment" (freedom of speech). was held that:

Moreover, the overbreadth doctrine is not intended for testing the validity of a law that "reflects [T]he task of analyzing a proposed statute, pinpointing its deficiencies, and requiring correction
legitimate state interest in maintaining comprehensive control over harmful, constitutionally of these deficiencies before the statute is put into effect, is rarely if ever an appropriate task for
unprotected conduct." Undoubtedly, lawless violence, insurrection and rebellion are considered the judiciary. The combination of the relative remoteness of the controversy, the impact
"harmful" and "constitutionally unprotected conduct." In Broadrick v. Oklahoma,105 it was held: on the legislative process of the relief sought, and above all the speculative and
amorphous nature of the required line-by-line analysis of detailed statutes,...ordinarily
It remains a matter of no little difficulty to determine when a law may properly be held void on results in a kind of case that is wholly unsatisfactory for deciding constitutional questions,
its face and when such summary action is inappropriate. But the plain import of our cases whichever way they might be decided.
is, at the very least, that facial overbreadth adjudication is an exception to our
traditional rules of practice and that its function, a limited one at the outset, And third, a facial challenge on the ground of overbreadth is the most difficult challenge to mount
attenuates as the otherwise unprotected behavior that it forbids the State to sanction successfully, since the challenger must establish that there can be no instance when the
moves from pure speech toward conduct and that conduct even if expressive falls assailed law may be valid. Here, petitioners did not even attempt to show whether this
within the scope of otherwise valid criminal laws that reflect legitimate state interests situation exists.
in maintaining comprehensive controls over harmful, constitutionally unprotected
Petitioners likewise seek a facial review of PP 1017 on the ground of vagueness. This, too, is
conduct.
unwarranted.
Related to the "overbreadth" doctrine is the "void for vagueness doctrine" which holds that "a writ or the extension thereof, and must promulgate its decision thereon within thirty days from its
law is facially invalid if men of common intelligence must necessarily guess at its filing.
meaning and differ as to its application."110 It is subject to the same principles governing
overbreadth doctrine. For one, it is also an analytical tool for testing "on their faces" statutes in A state of martial law does not suspend the operation of the Constitution, nor supplant the
free speech cases. And like overbreadth, it is said that a litigant may challenge a statute on its functioning of the civil courts or legislative assemblies, nor authorize the conferment of jurisdiction
face only if it is vague in all its possible applications. Again, petitioners did not even on military courts and agencies over civilians where civil courts are able to function, nor
attempt to show that PP 1017 is vague in all its application. They also failed to establish automatically suspend the privilege of the writ.
that men of common intelligence cannot understand the meaning and application of PP 1017.
The suspension of the privilege of the writ shall apply only to persons judicially charged for
b. Constitutional Basis of PP 1017 rebellion or offenses inherent in or directly connected with invasion.

Now on the constitutional foundation of PP 1017. During the suspension of the privilege of the writ, any person thus arrested or detained shall be
judicially charged within three days, otherwise he shall be released.
The operative portion of PP 1017 may be divided into three important provisions, thus:
grants the President, as Commander-in-Chief, a "sequence" of graduated powers. From the most
First provision: to the least benign, these are: the calling-out power, the power to suspend the privilege of the
writ of habeas corpus, and the power to declare Martial Law. Citing Integrated Bar of the
"by virtue of the power vested upon me by Section 18, Artilce VII do hereby command the Philippines v. Zamora,112 the Court ruled that the only criterion for the exercise of the calling-out
Armed Forces of the Philippines, to maintain law and order throughout the Philippines, prevent or power is that "whenever it becomes necessary," the President may call the armed forces "to
suppress all forms of lawless violence as well any act of insurrection or rebellion" prevent or suppress lawless violence, invasion or rebellion." Are these conditions present
in the instant cases? As stated earlier, considering the circumstances then prevailing, President
Second provision:
Arroyo found it necessary to issue PP 1017. Owing to her Offices vast intelligence network, she
"and to enforce obedience to all the laws and to all decrees, orders and regulations promulgated is in the best position to determine the actual condition of the country.
by me personally or upon my direction;"
Under the calling-out power, the President may summon the armed forces to aid him in
Third provision: suppressing lawless violence, invasion and rebellion. This involves ordinary police action.
But every act that goes beyond the Presidents calling-out power is considered illegal or ultra vires.
"as provided in Section 17, Article XII of the Constitution do hereby declare a State of National For this reason, a President must be careful in the exercise of his powers. He cannot invoke a
Emergency." greater power when he wishes to act under a lesser power. There lies the wisdom of our
Constitution, the greater the power, the greater are the limitations.
First Provision: Calling-out Power
It is pertinent to state, however, that there is a distinction between the Presidents authority to
The first provision pertains to the Presidents calling-out power. In Sanlakas v. Executive declare a "state of rebellion" (in Sanlakas) and the authority to proclaim a state of national
Secretary,111 this Court, through Mr. Justice Dante O. Tinga, held that Section 18, Article VII of emergency. While President Arroyos authority to declare a "state of rebellion" emanates from her
the Constitution reproduced as follows: powers as Chief Executive, the statutory authority cited in Sanlakas was Section 4, Chapter 2,
Book II of the Revised Administrative Code of 1987, which provides:
Sec. 18. The President shall be the Commander-in-Chief of all armed forces of the Philippines
and whenever it becomes necessary, he may call out such armed forces to prevent or SEC. 4. Proclamations. Acts of the President fixing a date or declaring a status or condition of
suppress lawless violence, invasion or rebellion. In case of invasion or rebellion, when the public moment or interest, upon the existence of which the operation of a specific law or regulation
public safety requires it, he may, for a period not exceeding sixty days, suspend the privilege of is made to depend, shall be promulgated in proclamations which shall have the force of an
the writ of habeas corpus or place the Philippines or any part thereof under martial law. Within executive order.
forty-eight hours from the proclamation of martial law or the suspension of the privilege of the
writ of habeas corpus, the President shall submit a report in person or in writing to the Congress. President Arroyos declaration of a "state of rebellion" was merely an act declaring a status or
The Congress, voting jointly, by a vote of at least a majority of all its Members in regular or special condition of public moment or interest, a declaration allowed under Section 4 cited above. Such
session, may revoke such proclamation or suspension, which revocation shall not be set aside by declaration, in the words of Sanlakas, is harmless, without legal significance, and deemed not
the President. Upon the initiative of the President, the Congress may, in the same manner, extend written. In these cases, PP 1017 is more than that. In declaring a state of national emergency,
such proclamation or suspension for a period to be determined by the Congress, if the invasion President Arroyo did not only rely on Section 18, Article VII of the Constitution, a provision calling
or rebellion shall persist and public safety requires it. on the AFP to prevent or suppress lawless violence, invasion or rebellion. She also relied on Section
17, Article XII, a provision on the States extraordinary power to take over privately-owned public
The Congress, if not in session, shall within twenty-four hours following such proclamation or utility and business affected with public interest. Indeed, PP 1017 calls for the exercise of
suspension, convene in accordance with its rules without need of a call. an awesome power. Obviously, such Proclamation cannot be deemed harmless, without legal
significance, or not written, as in the case of Sanlakas.
The Supreme Court may review, in an appropriate proceeding filed by any citizen, the sufficiency
of the factual bases of the proclamation of martial law or the suspension of the privilege of the
Some of the petitioners vehemently maintain that PP 1017 is actually a declaration of Martial Law. Petitioners, especially Representatives Francis Joseph G. Escudero, Satur Ocampo, Rafael
It is no so. What defines the character of PP 1017 are its wordings. It is plain therein that what Mariano, Teodoro Casio, Liza Maza, and Josel Virador argue that PP 1017 is unconstitutional as
the President invoked was her calling-out power. it arrogated upon President Arroyo the power to enact laws and decrees in violation of Section 1,
Article VI of the Constitution, which vests the power to enact laws in Congress. They assail the
The declaration of Martial Law is a "warn[ing] to citizens that the military power has been called clause "to enforce obedience to all the laws and to all decrees, orders and regulations
upon by the executive to assist in the maintenance of law and order, and that, while the promulgated by me personally or upon my direction."
emergency lasts, they must, upon pain of arrest and punishment, not commit any acts which will
in any way render more difficult the restoration of order and the enforcement of law."113 \

In his "Statement before the Senate Committee on Justice" on March 13, 2006, Mr. Justice Vicente Petitioners contention is understandable. A reading of PP 1017 operative clause shows that it was
V. Mendoza,114an authority in constitutional law, said that of the three powers of the President as lifted120 from Former President Marcos Proclamation No. 1081, which partly reads:
Commander-in-Chief, the power to declare Martial Law poses the most severe threat to civil
liberties. It is a strong medicine which should not be resorted to lightly. It cannot be used to stifle NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines by virtue of the
or persecute critics of the government. It is placed in the keeping of the President for the purpose powers vested upon me by Article VII, Section 10, Paragraph (2) of the Constitution, do hereby
of enabling him to secure the people from harm and to restore order so that they can enjoy their place the entire Philippines as defined in Article 1, Section 1 of the Constitution under martial law
individual freedoms. In fact, Section 18, Art. VII, provides: and, in my capacity as their Commander-in-Chief, do hereby command the Armed Forces of
the Philippines, to maintain law and order throughout the Philippines, prevent or
A state of martial law does not suspend the operation of the Constitution, nor supplant the suppress all forms of lawless violence as well as any act of insurrection or rebellion
functioning of the civil courts or legislative assemblies, nor authorize the conferment of jurisdiction and to enforce obedience to all the laws and decrees, orders and regulations
on military courts and agencies over civilians where civil courts are able to function, nor promulgated by me personally or upon my direction.
automatically suspend the privilege of the writ.
We all know that it was PP 1081 which granted President Marcos legislative power. Its enabling
Justice Mendoza also stated that PP 1017 is not a declaration of Martial Law. It is no more than a clause states: "to enforce obedience to all the laws and decrees, orders and regulations
call by the President to the armed forces to prevent or suppress lawless violence. As such, it promulgated by me personally or upon my direction." Upon the other hand, the enabling
cannot be used to justify acts that only under a valid declaration of Martial Law can be done. Its clause of PP 1017 issued by President Arroyo is: to enforce obedience to all the laws and to
use for any other purpose is a perversion of its nature and scope, and any act done contrary to all decrees, orders and regulations promulgated by me personally or upon my
its command is ultra vires. direction."

Justice Mendoza further stated that specifically, (a) arrests and seizures without judicial warrants; Is it within the domain of President Arroyo to promulgate "decrees"?
(b) ban on public assemblies; (c) take-over of news media and agencies and press censorship;
and (d) issuance of Presidential Decrees, are powers which can be exercised by the President as PP 1017 states in part: "to enforce obedience to all the laws and decrees x x x promulgated
Commander-in-Chief only where there is a valid declaration of Martial Law or suspension of the by me personally or upon my direction."
writ of habeas corpus.
The President is granted an Ordinance Power under Chapter 2, Book III of Executive Order No.
Based on the above disquisition, it is clear that PP 1017 is not a declaration of Martial Law. It is 292 (Administrative Code of 1987). She may issue any of the following:
merely an exercise of President Arroyos calling-out power for the armed forces to assist
Sec. 2. Executive Orders. Acts of the President providing for rules of a general or permanent
her in preventing or suppressing lawless violence.
character in implementation or execution of constitutional or statutory powers shall be
Second Provision: "Take Care" Power promulgated in executive orders.

The second provision pertains to the power of the President to ensure that the laws be faithfully Sec. 3. Administrative Orders. Acts of the President which relate to particular aspect of
executed. This is based on Section 17, Article VII which reads: governmental operations in pursuance of his duties as administrative head shall be promulgated
in administrative orders.
SEC. 17. The President shall have control of all the executive departments, bureaus, and
offices. He shall ensure that the laws be faithfully executed. Sec. 4. Proclamations. Acts of the President fixing a date or declaring a status or condition of
public moment or interest, upon the existence of which the operation of a specific law or regulation
As the Executive in whom the executive power is vested,115 the primary function of the President is made to depend, shall be promulgated in proclamations which shall have the force of an
is to enforce the laws as well as to formulate policies to be embodied in existing laws. He sees to executive order.
it that all laws are enforced by the officials and employees of his department. Before assuming
office, he is required to take an oath or affirmation to the effect that as President of the Philippines, Sec. 5. Memorandum Orders. Acts of the President on matters of administrative detail or of
he will, among others, "execute its laws."116 In the exercise of such function, the President, if subordinate or temporary interest which only concern a particular officer or office of the
needed, may employ the powers attached to his office as the Commander-in-Chief of all the armed Government shall be embodied in memorandum orders.
forces of the country,117 including the Philippine National Police118 under the Department of
Interior and Local Government.119
Sec. 6. Memorandum Circulars. Acts of the President on matters relating to internal This provision was first introduced in the 1973 Constitution, as a product of the "martial law"
administration, which the President desires to bring to the attention of all or some of the thinking of the 1971 Constitutional Convention.122 In effect at the time of its approval was
departments, agencies, bureaus or offices of the Government, for information or compliance, shall President Marcos Letter of Instruction No. 2 dated September 22, 1972 instructing the Secretary
be embodied in memorandum circulars. of National Defense to take over "the management, control and operation of the Manila Electric
Company, the Philippine Long Distance Telephone Company, the National Waterworks and
Sec. 7. General or Special Orders. Acts and commands of the President in his capacity as Sewerage Authority, the Philippine National Railways, the Philippine Air Lines, Air Manila (and)
Commander-in-Chief of the Armed Forces of the Philippines shall be issued as general or special Filipinas Orient Airways . . . for the successful prosecution by the Government of its effort to
orders. contain, solve and end the present national emergency."
President Arroyos ordinance power is limited to the foregoing issuances. She cannot Petitioners, particularly the members of the House of Representatives, claim that President
issue decrees similar to those issued by Former President Marcos under PP 1081. Presidential Arroyos inclusion of Section 17, Article XII in PP 1017 is an encroachment on the legislatures
Decrees are laws which are of the same category and binding force as statutes because they were emergency powers.
issued by the President in the exercise of his legislative power during the period of Martial Law
under the 1973 Constitution.121 This is an area that needs delineation.

This Court rules that the assailed PP 1017 is unconstitutional insofar as it grants A distinction must be drawn between the Presidents authority to declare "a state of national
President Arroyo the authority to promulgate "decrees." Legislative power is peculiarly emergency" and to exercise emergency powers. To the first, as elucidated by the Court, Section
within the province of the Legislature. Section 1, Article VI categorically states that "[t]he 18, Article VII grants the President such power, hence, no legitimate constitutional objection can
legislative power shall be vested in the Congress of the Philippines which shall consist be raised. But to the second, manifold constitutional issues arise.
of a Senate and a House of Representatives." To be sure, neither Martial Law nor a state of
rebellion nor a state of emergency can justify President Arroyos exercise of legislative power by Section 23, Article VI of the Constitution reads:
issuing decrees.
SEC. 23. (1) The Congress, by a vote of two-thirds of both Houses in joint session assembled,
Can President Arroyo enforce obedience to all decrees and laws through the military? voting separately, shall have the sole power to declare the existence of a state of war.

As this Court stated earlier, President Arroyo has no authority to enact decrees. It follows that (2) In times of war or other national emergency, the Congress may, by law, authorize the
these decrees are void and, therefore, cannot be enforced. With respect to "laws," she cannot call President, for a limited period and subject to such restrictions as it may prescribe, to exercise
the military to enforce or implement certain laws, such as customs laws, laws governing family powers necessary and proper to carry out a declared national policy. Unless sooner withdrawn by
and property relations, laws on obligations and contracts and the like. She can only order the resolution of the Congress, such powers shall cease upon the next adjournment thereof.
military, under PP 1017, to enforce laws pertinent to its duty to suppress lawless violence.
It may be pointed out that the second paragraph of the above provision refers not only to war
Third Provision: Power to Take Over but also to "other national emergency." If the intention of the Framers of our Constitution was
to withhold from the President the authority to declare a "state of national emergency" pursuant
The pertinent provision of PP 1017 states: to Section 18, Article VII (calling-out power) and grant it to Congress (like the declaration of the
existence of a state of war), then the Framers could have provided so. Clearly, they did not intend
x x x and to enforce obedience to all the laws and to all decrees, orders, and regulations that Congress should first authorize the President before he can declare a "state of national
promulgated by me personally or upon my direction; and as provided in Section 17, Article emergency." The logical conclusion then is that President Arroyo could validly declare the
XII of the Constitution do hereby declare a state of national emergency. existence of a state of national emergency even in the absence of a Congressional enactment.
The import of this provision is that President Arroyo, during the state of national emergency under But the exercise of emergency powers, such as the taking over of privately owned public utility
PP 1017, can call the military not only to enforce obedience "to all the laws and to all decrees x x or business affected with public interest, is a different matter. This requires a delegation from
x" but also to act pursuant to the provision of Section 17, Article XII which reads: Congress.
Sec. 17. In times of national emergency, when the public interest so requires, the State may, Courts have often said that constitutional provisions in pari materia are to be construed together.
during the emergency and under reasonable terms prescribed by it, temporarily take over or direct Otherwise stated, different clauses, sections, and provisions of a constitution which relate to the
the operation of any privately-owned public utility or business affected with public interest. same subject matter will be construed together and considered in the light of each
other.123 Considering that Section 17 of Article XII and Section 23 of Article VI, previously quoted,
What could be the reason of President Arroyo in invoking the above provision when she issued PP
relate to national emergencies, they must be read together to determine the limitation of the
1017?
exercise of emergency powers.
The answer is simple. During the existence of the state of national emergency, PP 1017 purports
Generally, Congress is the repository of emergency powers. This is evident in the tenor
to grant the President, without any authority or delegation from Congress, to take over or direct
of Section 23 (2), Article VI authorizing it to delegate such powers to the President. Certainly, a
the operation of any privately-owned public utility or business affected with public interest.
body cannot delegate a power not reposed upon it. However, knowing that during grave
emergencies, it may not be possible or practicable for Congress to meet and exercise its powers,
the Framers of our Constitution deemed it wise to allow Congress to grant emergency powers to in this definitions are the elements of intensity, variety, and perception.127 Emergencies, as
the President, subject to certain conditions, thus: perceived by legislature or executive in the United Sates since 1933, have been occasioned by a
wide range of situations, classifiable under three (3) principal heads: a)economic,128 b) natural
(1) There must be a war or other emergency. disaster,129 and c) national security.130
(2) The delegation must be for a limited period only. "Emergency," as contemplated in our Constitution, is of the same breadth. It may include
rebellion, economic crisis, pestilence or epidemic, typhoon, flood, or other similar catastrophe of
(3) The delegation must be subject to such restrictions as the Congress may prescribe.
nationwide proportions or effect.131 This is evident in the Records of the Constitutional
(4) The emergency powers must be exercised to carry out a national policy declared by Commission, thus:
Congress.124
MR. GASCON. Yes. What is the Committees definition of "national emergency" which appears in
Section 17, Article XII must be understood as an aspect of the emergency powers clause. The Section 13, page 5? It reads:
taking over of private business affected with public interest is just another facet of the emergency
When the common good so requires, the State may temporarily take over or direct the operation
powers generally reposed upon Congress. Thus, when Section 17 states that the "the State may,
of any privately owned public utility or business affected with public interest.
during the emergency and under reasonable terms prescribed by it, temporarily take
over or direct the operation of any privately owned public utility or business affected MR. VILLEGAS. What I mean is threat from external aggression, for
with public interest," it refers to Congress, not the President. Now, whether or not the President example, calamities or natural disasters.
may exercise such power is dependent on whether Congress may delegate it to him pursuant to
a law prescribing the reasonable terms thereof. Youngstown Sheet & Tube Co. et al. v. MR. GASCON. There is a question by Commissioner de los Reyes. What about strikes and riots?
Sawyer,125 held:
MR. VILLEGAS. Strikes, no; those would not be covered by the term "national emergency."
It is clear that if the President had authority to issue the order he did, it must be found in some
provision of the Constitution. And it is not claimed that express constitutional language grants this MR. BENGZON. Unless they are of such proportions such that they would paralyze government
power to the President. The contention is that presidential power should be implied from the service.132
aggregate of his powers under the Constitution. Particular reliance is placed on provisions in Article
xxxxxx
II which say that "The executive Power shall be vested in a President . . . .;" that "he shall take
Care that the Laws be faithfully executed;" and that he "shall be Commander-in-Chief of the Army MR. TINGSON. May I ask the committee if "national emergency" refers to military national
and Navy of the United States. emergency or could this be economic emergency?"
The order cannot properly be sustained as an exercise of the Presidents military power as MR. VILLEGAS. Yes, it could refer to both military or economic dislocations.
Commander-in-Chief of the Armed Forces. The Government attempts to do so by citing a number
of cases upholding broad powers in military commanders engaged in day-to-day fighting in a MR. TINGSON. Thank you very much.133
theater of war. Such cases need not concern us here. Even though "theater of war" be an
expanding concept, we cannot with faithfulness to our constitutional system hold that It may be argued that when there is national emergency, Congress may not be able to convene
the Commander-in-Chief of the Armed Forces has the ultimate power as such to take and, therefore, unable to delegate to the President the power to take over privately-owned public
possession of private property in order to keep labor disputes from stopping utility or business affected with public interest.
production. This is a job for the nations lawmakers, not for its military authorities.
In Araneta v. Dinglasan,134 this Court emphasized that legislative power, through which
Nor can the seizure order be sustained because of the several constitutional provisions extraordinary measures are exercised, remains in Congress even in times of crisis.
that grant executive power to the President. In the framework of our Constitution,
"x x x
the Presidents power to see that the laws are faithfully executed refutes the idea that
he is to be a lawmaker. The Constitution limits his functions in the lawmaking process After all the criticisms that have been made against the efficiency of the system of the separation
to the recommending of laws he thinks wise and the vetoing of laws he thinks bad. of powers, the fact remains that the Constitution has set up this form of government, with all its
And the Constitution is neither silent nor equivocal about who shall make laws which defects and shortcomings, in preference to the commingling of powers in one man or group of
the President is to execute. The first section of the first article says that "All legislative men. The Filipino people by adopting parliamentary government have given notice that they share
Powers herein granted shall be vested in a Congress of the United States. . ."126 the faith of other democracy-loving peoples in this system, with all its faults, as the ideal. The
point is, under this framework of government, legislation is preserved for Congress all the time,
Petitioner Cacho-Olivares, et al. contends that the term "emergency" under Section 17, Article XII
not excepting periods of crisis no matter how serious. Never in the history of the United States,
refers to "tsunami," "typhoon," "hurricane"and"similar occurrences." This is a limited view
the basic features of whose Constitution have been copied in ours, have specific functions of the
of "emergency."
legislative branch of enacting laws been surrendered to another department unless we regard
Emergency, as a generic term, connotes the existence of conditions suddenly intensifying the as legislating the carrying out of a legislative policy according to prescribed standards; no, not
degree of existing danger to life or well-being beyond that which is accepted as normal. Implicit even when that Republic was fighting a total war, or when it was engaged in a life-and-death
struggle to preserve the Union. The truth is that under our concept of constitutional government, 1017 is merely an invocation of the Presidents calling-out power. Its general purpose is to
in times of extreme perils more than in normal circumstances the various branches, executive, command the AFP to suppress all forms of lawless violence, invasion or rebellion. It had
legislative, and judicial, given the ability to act, are called upon to perform the duties and accomplished the end desired which prompted President Arroyo to issue PP 1021. But there is
discharge the responsibilities committed to them respectively." nothing in PP 1017 allowing the police, expressly or impliedly, to conduct illegal arrest, search or
violate the citizens constitutional rights.
Following our interpretation of Section 17, Article XII, invoked by President Arroyo in issuing PP
1017, this Court rules that such Proclamation does not authorize her during the emergency to Now, may this Court adjudge a law or ordinance unconstitutional on the ground that its
temporarily take over or direct the operation of any privately owned public utility or business implementor committed illegal acts? The answer is no. The criterion by which the validity of the
affected with public interest without authority from Congress. statute or ordinance is to be measured is the essential basis for the exercise of power, and not
a mere incidental result arising from its exertion.138 This is logical. Just imagine the
Let it be emphasized that while the President alone can declare a state of national emergency, absurdity of situations when laws maybe declared unconstitutional just because the officers
however, without legislation, he has no power to take over privately-owned public utility or implementing them have acted arbitrarily. If this were so, judging from the blunders committed
business affected with public interest. The President cannot decide whether exceptional by policemen in the cases passed upon by the Court, majority of the provisions of the Revised
circumstances exist warranting the take over of privately-owned public utility or business affected Penal Code would have been declared unconstitutional a long time ago.
with public interest. Nor can he determine when such exceptional circumstances have ceased.
Likewise, without legislation, the President has no power to point out the types of businesses President Arroyo issued G.O. No. 5 to carry into effect the provisions of PP 1017. General orders
affected with public interest that should be taken over. In short, the President has no absolute are "acts and commands of the President in his capacity as Commander-in-Chief of the Armed
authority to exercise all the powers of the State under Section 17, Article VII in the absence of an Forces of the Philippines." They are internal rules issued by the executive officer to his
emergency powers act passed by Congress. subordinates precisely for the proper and efficientadministration of law. Such rules and
regulations create no relation except between the official who issues them and the official who
c. "AS APPLIED CHALLENGE" receives them.139 They are based on and are the product of, a relationship in which power is their
source, and obedience, their object.140 For these reasons, one requirement for these rules to be
One of the misfortunes of an emergency, particularly, that which pertains to security, is that
valid is that they must be reasonable, not arbitrary or capricious.
military necessity and the guaranteed rights of the individual are often not compatible. Our history
reveals that in the crucible of conflict, many rights are curtailed and trampled upon. Here, G.O. No. 5 mandates the AFP and the PNP to immediately carry out the "necessary and
the right against unreasonable search and seizure; the right against warrantless appropriate actions and measures to suppress and prevent acts of terrorism and
arrest; and the freedom of speech, of expression, of the press, and of assembly under lawless violence."
the Bill of Rights suffered the greatest blow.
Unlike the term "lawless violence" which is unarguably extant in our statutes and the Constitution,
Of the seven (7) petitions, three (3) indicate "direct injury." and which is invariably associated with "invasion, insurrection or rebellion," the phrase "acts of
terrorism" is still an amorphous and vague concept. Congress has yet to enact a law defining and
In G.R. No. 171396, petitioners David and Llamas alleged that, on February 24, 2006, they were
punishing acts of terrorism.
arrested without warrants on their way to EDSA to celebrate the 20th Anniversary of People Power
I. The arresting officers cited PP 1017 as basis of the arrest. In fact, this "definitional predicament" or the "absence of an agreed definition of terrorism"
confronts not only our country, but the international community as well. The following
In G.R. No. 171409, petitioners Cacho-Olivares and Tribune Publishing Co., Inc. claimed that on
observations are quite apropos:
February 25, 2006, the CIDG operatives "raided and ransacked without warrant" their office. Three
policemen were assigned to guard their office as a possible "source of destabilization." Again, the In the actual unipolar context of international relations, the "fight against terrorism" has become
basis was PP 1017. one of the basic slogans when it comes to the justification of the use of force against certain
states and against groups operating internationally. Lists of states "sponsoring terrorism" and of
And in G.R. No. 171483, petitioners KMU and NAFLU-KMU et al. alleged that their members
terrorist organizations are set up and constantly being updated according to criteria that are not
were "turned away and dispersed" when they went to EDSA and later, to Ayala Avenue, to
always known to the public, but are clearly determined by strategic interests.
celebrate the 20th Anniversary of People Power I.
The basic problem underlying all these military actions or threats of the use of force as the most
A perusal of the "direct injuries" allegedly suffered by the said petitioners shows that they resulted
recent by the United States against Iraq consists in the absence of an agreed definition of
from the implementation, pursuant to G.O. No. 5, of PP 1017.
terrorism.
Can this Court adjudge as unconstitutional PP 1017 and G.O. No 5 on the basis of these illegal
Remarkable confusion persists in regard to the legal categorization of acts of violence either by
acts? In general, does the illegal implementation of a law render it unconstitutional?
states, by armed groups such as liberation movements, or by individuals.
Settled is the rule that courts are not at liberty to declare statutes invalid although they may
The dilemma can by summarized in the saying "One countrys terrorist is another countrys
be abused and misabused135 and may afford an opportunity for abuse in the manner of
freedom fighter." The apparent contradiction or lack of consistency in the use of the term
application.136 The validity of a statute or ordinance is to be determined from its general purpose
"terrorism" may further be demonstrated by the historical fact that leaders of national liberation
and its efficiency to accomplish the end desired, not from its effects in a particular case.137 PP
movements such as Nelson Mandela in South Africa, Habib Bourgouiba in Tunisia, or Ahmed Ben part. It must be remembered that an act can only be considered a crime if there is a law defining
Bella in Algeria, to mention only a few, were originally labeled as terrorists by those who controlled the same as such and imposing the corresponding penalty thereon.
the territory at the time, but later became internationally respected statesmen.
So far, the word "terrorism" appears only once in our criminal laws, i.e., in P.D. No. 1835 dated
What, then, is the defining criterion for terrorist acts the differentia specifica distinguishing those January 16, 1981 enacted by President Marcos during the Martial Law regime. This decree is
acts from eventually legitimate acts of national resistance or self-defense? entitled "Codifying The Various Laws on Anti-Subversion and Increasing The Penalties for
Membership in Subversive Organizations." The word "terrorism" is mentioned in the following
Since the times of the Cold War the United Nations Organization has been trying in vain to reach provision: "That one who conspires with any other person for the purpose of overthrowing the
a consensus on the basic issue of definition. The organization has intensified its efforts recently, Government of the Philippines x x x by force, violence, terrorism, x x x shall be punished
but has been unable to bridge the gap between those who associate "terrorism" with any violent by reclusion temporal x x x."
act by non-state groups against civilians, state functionaries or infrastructure or military
installations, and those who believe in the concept of the legitimate use of force when resistance P.D. No. 1835 was repealed by E.O. No. 167 (which outlaws the Communist Party of the
against foreign occupation or against systematic oppression of ethnic and/or religious groups Philippines) enacted by President Corazon Aquino on May 5, 1985. These two (2) laws, however,
within a state is concerned. do not define "acts of terrorism." Since there is no law defining "acts of terrorism," it is President
Arroyo alone, under G.O. No. 5, who has the discretion to determine what acts constitute
The dilemma facing the international community can best be illustrated by reference to the terrorism. Her judgment on this aspect is absolute, without restrictions. Consequently, there can
contradicting categorization of organizations and movements such as Palestine Liberation be indiscriminate arrest without warrants, breaking into offices and residences, taking over the
Organization (PLO) which is a terrorist group for Israel and a liberation movement for Arabs and media enterprises, prohibition and dispersal of all assemblies and gatherings unfriendly to the
Muslims the Kashmiri resistance groups who are terrorists in the perception of India, liberation administration. All these can be effected in the name of G.O. No. 5. These acts go far beyond the
fighters in that of Pakistan the earlier Contras in Nicaragua freedom fighters for the United calling-out power of the President. Certainly, they violate the due process clause of the
States, terrorists for the Socialist camp or, most drastically, the Afghani Mujahedeen (later to Constitution. Thus, this Court declares that the "acts of terrorism" portion of G.O. No. 5 is
become the Taliban movement): during the Cold War period they were a group of freedom fighters unconstitutional.
for the West, nurtured by the United States, and a terrorist gang for the Soviet Union. One could
go on and on in enumerating examples of conflicting categorizations that cannot be reconciled in Significantly, there is nothing in G.O. No. 5 authorizing the military or police to commit acts beyond
any way because of opposing political interests that are at the roots of those perceptions. what are necessary and appropriate to suppress and prevent lawless violence, the
limitation of their authority in pursuing the Order. Otherwise, such acts are considered illegal.
How, then, can those contradicting definitions and conflicting perceptions and evaluations of one
and the same group and its actions be explained? In our analysis, the basic reason for these We first examine G.R. No. 171396 (David et al.)
striking inconsistencies lies in the divergent interest of states. Depending on whether a state is in
the position of an occupying power or in that of a rival, or adversary, of an occupying power in a The Constitution provides that "the right of the people to be secured in their persons, houses,
given territory, the definition of terrorism will "fluctuate" accordingly. A state may eventually see papers and effects against unreasonable search and seizure of whatever nature and for any
itself as protector of the rights of a certain ethnic group outside its territory and will therefore purpose shall be inviolable, and no search warrant or warrant of arrest shall issue except
speak of a "liberation struggle," not of "terrorism" when acts of violence by this group are upon probable cause to be determined personally by the judge after examination under oath or
concerned, and vice-versa. affirmation of the complainant and the witnesses he may produce, and particularly describing the
place to be searched and the persons or things to be seized."142 The plain import of the language
The United Nations Organization has been unable to reach a decision on the definition of terrorism of the Constitution is that searches, seizures and arrests are normally unreasonable unless
exactly because of these conflicting interests of sovereign states that determine in each and every authorized by a validly issued search warrant or warrant of arrest. Thus, the fundamental
instance how a particular armed movement (i.e. a non-state actor) is labeled in regard to the protection given by this provision is that between person and police must stand the protective
terrorists-freedom fighter dichotomy. A "policy of double standards" on this vital issue of authority of a magistrate clothed with power to issue or refuse to issue search warrants or
international affairs has been the unavoidable consequence. warrants of arrest.143

This "definitional predicament" of an organization consisting of sovereign states and not of In the Brief Account144 submitted by petitioner David, certain facts are established: first, he was
peoples, in spite of the emphasis in the Preamble to the United Nations Charter! has become arrested without warrant; second, the PNP operatives arrested him on the basis of PP
even more serious in the present global power constellation: one superpower exercises the 1017; third, he was brought at Camp Karingal, Quezon City where he was fingerprinted,
decisive role in the Security Council, former great powers of the Cold War era as well as medium photographed and booked like a criminal suspect; fourth,he was treated brusquely by policemen
powers are increasingly being marginalized; and the problem has become even more acute since who "held his head and tried to push him" inside an unmarked car; fifth, he was charged with
the terrorist attacks of 11 September 2001 I the United States.141 Violation of Batas Pambansa Bilang No. 880145 and Inciting to Sedition; sixth, he was
detained for seven (7) hours; and seventh,he was eventually released for insufficiency of
The absence of a law defining "acts of terrorism" may result in abuse and oppression on the part evidence.
of the police or military. An illustration is when a group of persons are merely engaged in a
drinking spree. Yet the military or the police may consider the act as an act of terrorism and Section 5, Rule 113 of the Revised Rules on Criminal Procedure provides:
immediately arrest them pursuant to G.O. No. 5. Obviously, this is abuse and oppression on their
Sec. 5. Arrest without warrant; when lawful. - A peace officer or a private person may, assembling have committed crimes elsewhere, if they have formed or are engaged in a conspiracy
without a warrant, arrest a person: against the public peace and order, they may be prosecuted for their conspiracy or other violations
of valid laws. But it is a different matter when the State, instead of prosecuting them
(a) When, in his presence, the person to be arrested has committed, is actually committing, or is for such offenses, seizes upon mere participation in a peaceable assembly and a lawful
attempting to commit an offense. public discussion as the basis for a criminal charge.
(b) When an offense has just been committed and he has probable cause to believe based on On the basis of the above principles, the Court likewise considers the dispersal and arrest of the
personal knowledge of facts or circumstances that the person to be arrested has committed it; members of KMU et al. (G.R. No. 171483) unwarranted. Apparently, their dispersal was done
and merely on the basis of Malacaangs directive canceling all permits previously issued by local
government units. This is arbitrary. The wholesale cancellation of all permits to rally is a blatant
x x x.
disregard of the principle that "freedom of assembly is not to be limited, much less denied,
Neither of the two (2) exceptions mentioned above justifies petitioner Davids warrantless arrest. except on a showing of a clear and present danger of a substantive evil that the State
During the inquest for the charges of inciting to sedition and violation of BP 880, all that the has a right to prevent."149 Tolerance is the rule and limitation is the exception. Only upon a
arresting officers could invoke was their observation that some rallyists were wearing t-shirts with showing that an assembly presents a clear and present danger that the State may deny the
the invective "Oust Gloria Now" and their erroneous assumption that petitioner David was the citizens right to exercise it. Indeed, respondents failed to show or convince the Court that the
leader of the rally.146 Consequently, the Inquest Prosecutor ordered his immediate release on the rallyists committed acts amounting to lawless violence, invasion or rebellion. With the blanket
ground of insufficiency of evidence. He noted that petitioner David was not wearing the subject revocation of permits, the distinction between protected and unprotected assemblies was
t-shirt and even if he was wearing it, such fact is insufficient to charge him with inciting to eliminated.
sedition. Further, he also stated that there is insufficient evidence for the charge of violation
Moreover, under BP 880, the authority to regulate assemblies and rallies is lodged with the local
of BP 880 as it was not even known whether petitioner David was the leader of the rally.147
government units. They have the power to issue permits and to revoke such permits after due
But what made it doubly worse for petitioners David et al. is that not only was their right against notice and hearing on the determination of the presence of clear and present danger. Here,
warrantless arrest violated, but also their right to peaceably assemble. petitioners were not even notified and heard on the revocation of their permits.150 The first time
they learned of it was at the time of the dispersal. Such absence of notice is a fatal defect. When
Section 4 of Article III guarantees: a persons right is restricted by government action, it behooves a democratic government to see
to it that the restriction is fair, reasonable, and according to procedure.
No law shall be passed abridging the freedom of speech, of expression, or of the press, or the
right of the people peaceably to assemble and petition the government for redress of grievances. G.R. No. 171409, (Cacho-Olivares, et al.) presents another facet of freedom of speech i.e., the
freedom of the press. Petitioners narration of facts, which the Solicitor General failed to refute,
"Assembly" means a right on the part of the citizens to meet peaceably for consultation in respect established the following: first, the Daily Tribunes offices were searched without
to public affairs. It is a necessary consequence of our republican institution and complements the warrant;second, the police operatives seized several materials for publication; third, the search
right of speech. As in the case of freedom of expression, this right is not to be limited, much less was conducted at about 1:00 o clock in the morning of February 25, 2006; fourth, the search was
denied, except on a showing of a clear and present danger of a substantive evil that Congress conducted in the absence of any official of the Daily Tribune except the security guard of the
has a right to prevent. In other words, like other rights embraced in the freedom of expression, building; and fifth, policemen stationed themselves at the vicinity of the Daily Tribune offices.
the right to assemble is not subject to previous restraint or censorship. It may not be conditioned
upon the prior issuance of a permit or authorization from the government authorities except, of Thereafter, a wave of warning came from government officials. Presidential Chief of Staff Michael
course, if the assembly is intended to be held in a public place, a permit for the use of such place, Defensor was quoted as saying that such raid was "meant to show a strong presence, to
and not for the assembly itself, may be validly required. tell media outlets not to connive or do anything that would help the rebels in bringing
down this government." Director General Lomibao further stated that "if they do not follow
The ringing truth here is that petitioner David, et al. were arrested while they were exercising the standards and the standards are if they would contribute to instability in the
their right to peaceful assembly. They were not committing any crime, neither was there a showing government, or if they do not subscribe to what is in General Order No. 5 and Proc.
of a clear and present danger that warranted the limitation of that right. As can be gleaned from No. 1017 we will recommend a takeover." National Telecommunications Commissioner
circumstances, the charges of inciting to sedition and violation of BP 880 were mere Ronald Solis urged television and radio networks to "cooperate" with the government for the
afterthought. Even the Solicitor General, during the oral argument, failed to justify the arresting duration of the state of national emergency. He warned that his agency will not hesitate to
officers conduct. In De Jonge v. Oregon,148 it was held that peaceable assembly cannot be made recommend the closure of any broadcast outfit that violates rules set out for media
a crime, thus: coverage during times when the national security is threatened.151

Peaceable assembly for lawful discussion cannot be made a crime. The holding of meetings for The search is illegal. Rule 126 of The Revised Rules on Criminal Procedure lays down the steps in
peaceable political action cannot be proscribed. Those who assist in the conduct of such meetings the conduct of search and seizure. Section 4 requires that a search warrant be issued upon
cannot be branded as criminals on that score. The question, if the rights of free speech and probable cause in connection with one specific offence to be determined personally by the judge
peaceful assembly are not to be preserved, is not as to the auspices under which the meeting was after examination under oath or affirmation of the complainant and the witnesses he may
held but as to its purpose; not as to the relations of the speakers, but whether their utterances produce. Section 8 mandates that the search of a house, room, or any other premise be made in
transcend the bounds of the freedom of speech which the Constitution protects. If the persons the presence of the lawful occupant thereof or any member of his family or in the absence
of the latter, in the presence of two (2) witnesses of sufficient age and discretion residing in the These have been published in the past issues of the Daily Tribune; all you have to do is to get
same locality. And Section 9 states that the warrant must direct that it be served in the daytime, those past issues. So why do you have to go there at 1 oclock in the morning and without any
unless the property is on the person or in the place ordered to be searched, in which case a search warrant? Did they become suddenly part of the evidence of rebellion or inciting to sedition
direction may be inserted that it be served at any time of the day or night. All these rules were or what?
violated by the CIDG operatives.
SOLGEN BENIPAYO:
Not only that, the search violated petitioners freedom of the press. The best gauge of a free and
democratic society rests in the degree of freedom enjoyed by its media. In the Burgos v. Chief of Well, it was the police that did that, Your Honor. Not upon my instructions.
Staff152 this Court held that --
SR. ASSO. JUSTICE PUNO:
As heretofore stated, the premises searched were the business and printing offices of the
Are you saying that the act of the policeman is illegal, it is not based on any law, and it is not
"Metropolitan Mail" and the "We Forum" newspapers. As a consequence of the search and
based on Proclamation 1017.
seizure, these premises were padlocked and sealed, with the further result that the
printing and publication of said newspapers were discontinued. SOLGEN BENIPAYO:
Such closure is in the nature of previous restraint or censorship abhorrent to the It is not based on Proclamation 1017, Your Honor, because there is nothing in 1017 which says
freedom of the press guaranteed under the fundamental law, and constitutes a virtual that the police could go and inspect and gather clippings from Daily Tribune or any other
denial of petitioners' freedom to express themselves in print. This state of being is newspaper.
patently anathematic to a democratic framework where a free, alert and even militant
press is essential for the political enlightenment and growth of the citizenry. SR. ASSO. JUSTICE PUNO:

While admittedly, the Daily Tribune was not padlocked and sealed like the "Metropolitan Mail" and Is it based on any law?
"We Forum" newspapers in the above case, yet it cannot be denied that the CIDG operatives
exceeded their enforcement duties. The search and seizure of materials for publication, the SOLGEN BENIPAYO:
stationing of policemen in the vicinity of the The Daily Tribune offices, and the arrogant warning
As far as I know, no, Your Honor, from the facts, no.
of government officials to media, are plain censorship. It is that officious functionary of the
repressive government who tells the citizen that he may speak only if allowed to do so, and no SR. ASSO. JUSTICE PUNO:
more and no less than what he is permitted to say on pain of punishment should he be so rash
as to disobey.153Undoubtedly, the The Daily Tribune was subjected to these arbitrary intrusions So, it has no basis, no legal basis whatsoever?
because of its anti-government sentiments. This Court cannot tolerate the blatant disregard of a
constitutional right even if it involves the most defiant of our citizens. Freedom to comment on SOLGEN BENIPAYO:
public affairs is essential to the vitality of a representative democracy. It is the duty of the courts
to be watchful for the constitutional rights of the citizen, and against any stealthy encroachments Maybe so, Your Honor. Maybe so, that is why I said, I dont know if it is premature to say this, we
thereon. The motto should always be obsta principiis.154 do not condone this. If the people who have been injured by this would want to sue
them, they can sue and there are remedies for this.156
Incidentally, during the oral arguments, the Solicitor General admitted that the search of
the Tribunes offices and the seizure of its materials for publication and other papers are illegal; Likewise, the warrantless arrests and seizures executed by the police were, according to the
and that the same are inadmissible "for any purpose," thus: Solicitor General, illegal and cannot be condoned, thus:

JUSTICE CALLEJO: CHIEF JUSTICE PANGANIBAN:

You made quite a mouthful of admission when you said that the policemen, when inspected the There seems to be some confusions if not contradiction in your theory.
Tribune for the purpose of gathering evidence and you admitted that the policemen were able to
SOLICITOR GENERAL BENIPAYO:
get the clippings. Is that not in admission of the admissibility of these clippings that were taken
from the Tribune? I dont know whether this will clarify. The acts, the supposed illegal or unlawful acts committed
on the occasion of 1017, as I said, it cannot be condoned. You cannot blame the President for,
SOLICITOR GENERAL BENIPAYO:
as you said, a misapplication of the law. These are acts of the police officers, that is their
Under the law they would seem to be, if they were illegally seized, I think and I know, Your Honor, responsibility.157
and these are inadmissible for any purpose.155
The Dissenting Opinion states that PP 1017 and G.O. No. 5 are constitutional in every aspect and
xxxxxxxxx "should result in no constitutional or statutory breaches if applied according to their letter."

SR. ASSO. JUSTICE PUNO:


The Court has passed upon the constitutionality of these issuances. Its ratiocination has been bars this Court from making any specific pronouncement of civil, criminal or administrative
exhaustively presented. At this point, suffice it to reiterate that PP 1017 is limited to the calling liabilities.
out by the President of the military to prevent or suppress lawless violence, invasion or rebellion.
When in implementing its provisions, pursuant to G.O. No. 5, the military and the police committed It is well to remember that military power is a means to an end and substantive civil
acts which violate the citizens rights under the Constitution, this Court has to declare such acts rights are ends in themselves. How to give the military the power it needs to protect
unconstitutional and illegal. the Republic without unnecessarily trampling individual rights is one of the eternal
balancing tasks of a democratic state.During emergency, governmental action may vary in
In this connection, Chief Justice Artemio V. Panganibans concurring opinion, attached hereto, is breadth and intensity from normal times, yet they should not be arbitrary as to unduly restrain
considered an integral part of this ponencia. our peoples liberty.

SUMMATION Perhaps, the vital lesson that we must learn from the theorists who studied the various competing
political philosophies is that, it is possible to grant government the authority to cope with crises
In sum, the lifting of PP 1017 through the issuance of PP 1021 a supervening event would without surrendering the two vital principles of constitutionalism: the maintenance of legal
have normally rendered this case moot and academic. However, while PP 1017 was still operative, limits to arbitrary power, and political responsibility of the government to the
illegal acts were committed allegedly in pursuance thereof. Besides, there is no guarantee that PP governed.158
1017, or one similar to it, may not again be issued. Already, there have been media reports on
April 30, 2006 that allegedly PP 1017 would be reimposed "if the May 1 rallies" become "unruly WHEREFORE, the Petitions are partly granted. The Court rules that PP 1017
and violent." Consequently, the transcendental issues raised by the parties should not be is CONSTITUTIONAL insofar as it constitutes a call by President Gloria Macapagal-Arroyo on the
"evaded;" they must now be resolved to prevent future constitutional aberration. AFP to prevent or suppress lawless violence. However, the provisions of PP 1017
commanding the AFP to enforce laws not related to lawless violence, as well as decrees
The Court finds and so holds that PP 1017 is constitutional insofar as it constitutes a call by the promulgated by the President, are declared UNCONSTITUTIONAL. In addition, the provision in
President for the AFP to prevent or suppress lawless violence. The proclamation is sustained by PP 1017 declaring national emergency under Section 17, Article VII of the Constitution
Section 18, Article VII of the Constitution and the relevant jurisprudence discussed earlier. is CONSTITUTIONAL, but such declaration does not authorize the President to take over
However, PP 1017s extraneous provisions giving the President express or implied power (1) to privately-owned public utility or business affected with public interest without prior legislation.
issue decrees; (2) to direct the AFP to enforce obedience to all laws even those not related to
lawless violence as well as decrees promulgated by the President; and (3) to impose standards G.O. No. 5 is CONSTITUTIONAL since it provides a standard by which the AFP and the PNP
on media or any form of prior restraint on the press, are ultra vires and unconstitutional. The should implement PP 1017, i.e. whatever is "necessary and appropriate actions and
Court also rules that under Section 17, Article XII of the Constitution, the President, in the absence measures to suppress and prevent acts of lawless violence." Considering that "acts of
of a legislation, cannot take over privately-owned public utility and private business affected with terrorism" have not yet been defined and made punishable by the Legislature, such portion of
public interest. G.O. No. 5 is declared UNCONSTITUTIONAL.

In the same vein, the Court finds G.O. No. 5 valid. It is an Order issued by the President acting The warrantless arrest of Randolf S. David and Ronald Llamas; the dispersal and warrantless
as Commander-in-Chief addressed to subalterns in the AFP to carry out the provisions of PP arrest of the KMU and NAFLU-KMU members during their rallies, in the absence of proof that these
1017. Significantly, it also provides a valid standard that the military and the police should take petitioners were committing acts constituting lawless violence, invasion or rebellion and violating
only the "necessary and appropriate actions and measures to suppress and prevent BP 880; the imposition of standards on media or any form of prior restraint on the press, as well
acts of lawless violence."But the words "acts of terrorism" found in G.O. No. 5 have not as the warrantless search of the Tribune offices and whimsical seizure of its articles for publication
been legally defined and made punishable by Congress and should thus be deemed deleted from and other materials, are declared UNCONSTITUTIONAL.
the said G.O. While "terrorism" has been denounced generally in media, no law has been enacted
to guide the military, and eventually the courts, to determine the limits of the AFPs authority in No costs.
carrying out this portion of G.O. No. 5.
SO ORDERED.
On the basis of the relevant and uncontested facts narrated earlier, it is also pristine clear that
ANGELINA SANDOVAL-GUTIERREZ
(1) the warrantless arrest of petitioners Randolf S. David and Ronald Llamas; (2) the dispersal of
Associate Justice
the rallies and warrantless arrest of the KMU and NAFLU-KMU members; (3) the imposition of
standards on media or any prior restraint on the press; and (4) the warrantless search of WE CONCUR:
the Tribune offices and the whimsical seizures of some articles for publication and other materials,
are not authorized by the Constitution, the law and jurisprudence. Not even by the valid provisions ARTEMIO V. PANGANIBAN
of PP 1017 and G.O. No. 5. Chief Justice

Other than this declaration of invalidity, this Court cannot impose any civil, criminal or
administrative sanctions on the individual police officers concerned. They have not been
individually identified and given their day in court. The civil complaints or causes of action and/or
relevant criminal Informations have not been presented before this Court. Elementary due process
(On leave)
REYNATO S. PUNO LEONARDO A. QUISUMBING
Associate Justice Asscociate Justice

CONSUELO YNARES-SANTIAGO ANTONIO T. CARPIO


Associate Justice Asscociate Justice

MA. ALICIA AUSTRIA-MARTINEZ RENATO C. CORONA


Associate Justice Asscociate Justice

CONCHITA CARPIO MORALES ROMEO J. CALLEJO, SR.


Associate Justice Asscociate Justice

ADOLFO S. AZCUNA DANTE O. TINGA


Associate Justice Asscociate Justice

MINITA V. CHICO-NAZARIO CANCIO C. GARCIA


Associate Justice Asscociate Justice

PRESBITERO J. VELASCO, JR.


Associate Justice

CERTIFICATION

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

ARTEMIO V. PANGANIBAN
Chief Justice
G.R. No. 155001 January 21, 2004 FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE ANG, EUGENE
ARADA, NENETTE BARREIRO, NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, DIVINE BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA CAILAO, ERWIN
MANUEL ANTONIO B. BOE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. CALAR, MARIFEL CONSTANTINO, JANETTE CORDERO, ARNOLD FELICITAS, MARISSA
DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO, GAYAGOY, ALEX GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE
BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION-NATIONAL LABOR UNION IGNACIO, THELMA INFANTE, JOEL JUMAO-AS, MARIETTA LINCHOCO, ROLLY
(MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION LORICO, FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT, DENNIS MANALO, RAUL
(PALEA),petitioners, MANGALIMAN, JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA,
vs. NICHOLS MORALES, ALLEN OLAO, CESAR ORTAL, MICHAEL ORTEGA, WAYNE
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL PLAZA, JOSELITO REYES, ROLANDO REYES, AILEEN SAPINA, RAMIL TAMAYO,
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS PHILLIPS TAN, ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI YUPANO,
and SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department MARY JANE ONG, RICHARD RAMIREZ, CHERYLE MARIE ALFONSO, LYNDON
of Transportation and Communications, respondents, BAUTISTA, MANUEL CABOCAN AND NEDY LAZO, Respondents-in-Intervention,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS NAGKAISANG MARALITA NG TAONG ASSOCIATION, INC., Respondents-in-
CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES Intervention,
AIRPORT SERVICES CORPORATION, MIASCOR CATERING SERVICES CORPORATION,
MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR LOGISTICS x-------------------------x
CORPORATION, Petitioners-in-Intervention,
G.R. No. 155661 January 21, 2004
FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE ANG, EUGENE
ARADA, NENETTE BARREIRO, NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V.
DIVINE BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA CAILAO, ERWIN GAERLAN, LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN, RONALD
CALAR, MARIFEL CONSTANTINO, JANETTE CORDERO, ARNOLD FELICITAS, MARISSA SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and SAMAHANG
GAYAGOY, ALEX GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners,
IGNACIO, THELMA INFANTE, JOEL JUMAO-AS, MARIETTA LINCHOCO, ROLLY vs.
LORICO, FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT, DENNIS MANALO, RAUL PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
MANGALIMAN, JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA, AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
NICHOLS MORALES, ALLEN OLAO, CESAR ORTAL, MICHAEL ORTEGA, WAYNE COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of
PLAZA, JOSELITO REYES, ROLANDO REYES, AILEEN SAPINA, RAMIL TAMAYO, the Department of Transportation and Communications, respondents,
PHILLIPS TAN, ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI YUPANO,
FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE ANG, EUGENE
MARY JANE ONG, RICHARD RAMIREZ, CHERYLE MARIE ALFONSO, LYNDON
ARADA, NENETTE BARREIRO, NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE
BAUTISTA, MANUEL CABOCAN AND NEDY LAZO, Respondents-in-Intervention,
DIVINE BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA CAILAO, ERWIN
NAGKAISANG MARALITA NG TAONG ASSOCIATION, INC., Respondents-in- CALAR, MARIFEL CONSTANTINO, JANETTE CORDERO, ARNOLD FELICITAS, MARISSA
Intervention, GAYAGOY, ALEX GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE
IGNACIO, THELMA INFANTE, JOEL JUMAO-AS, MARIETTA LINCHOCO, ROLLY
x-------------------------x LORICO, FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT, DENNIS MANALO, RAUL
MANGALIMAN, JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA,
G.R. No. 155547 January 21, 2004 NICHOLS MORALES, ALLEN OLAO, CESAR ORTAL, MICHAEL ORTEGA, WAYNE
PLAZA, JOSELITO REYES, ROLANDO REYES, AILEEN SAPINA, RAMIL TAMAYO,
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G.
PHILLIPS TAN, ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI YUPANO,
JARAULA, petitioners,
MARY JANE ONG, RICHARD RAMIREZ, CHERYLE MARIE ALFONSO, LYNDON
vs.
BAUTISTA, MANUEL CABOCAN AND NEDY LAZO, Respondents-in-Intervention,
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND NAGKAISANG MARALITA NG TAONG ASSOCIATION, INC., Respondents-in-
COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, SECRETARY Intervention.
LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation
and Communications, and SECRETARY SIMEON A. DATUMANONG, in his capacity as RESOLUTION
Head of the Department of Public Works and Highways, respondents, JACINTO V.
PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA, PUNO, J.:
PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and
BENASING O. MACARANBON, Respondents-Intervenors,
Before this Court are the separate Motions for Reconsideration filed by respondent Philippine I
International Air Terminals Co., Inc. (PIATCO), respondents-intervenors Jacinto V. Paras, Rafael Procedural Matters
P. Nantes, Eduardo C. Zialcita, Willie Buyson Villarama, Prospero C. Nograles, Prospero A. Pichay,
Jr., Harlin Cast Abayon and Benasing O. Macaranbon, all members of the House of Representatives a. Lack of Jurisdiction
(Respondent Congressmen),1 respondents-intervenors who are employees of PIATCO and other
Private respondents and respondents-intervenors reiterate a number of procedural issues which
workers of the Ninoy Aquino International Airport International Passenger Terminal III (NAIA IPT
they insist deprived this Court of jurisdiction to hear and decide the instant cases on its merits.
III) (PIATCO Employees)2 and respondents-intervenors Nagkaisang Maralita ng Taong
They continue to claim that the cases at bar raise factual questions which this Court is ill-equipped
Association, Inc., (NMTAI)3 of the Decision of this Court dated May 5, 2003 declaring the contracts
to resolve, hence, they must be remanded to the trial court for reception of evidence. Further,
for the NAIA IPT III project null and void.
they allege that although designated as petitions for certiorari and prohibition, the cases at bar
Briefly, the proceedings. On October 5, 1994, Asias Emerging Dragon Corp. (AEDC) submitted an are actually actions for nullity of contracts over which the trial courts have exclusive jurisdiction.
unsolicited proposal to the Philippine Government through the Department of Transportation and Even assuming that the cases at bar are special civil actions for certiorari and prohibition, they
Communication (DOTC) and Manila International Airport Authority (MIAA) for the construction contend that the principle of hierarchy of courts precludes this Court from taking primary
and development of the NAIA IPT III under a build-operate-and-transfer arrangement pursuant jurisdiction over them.
to R.A. No. 6957, as amended by R.A. No. 7718 (BOT Law).4 In accordance with the BOT Law
We are not persuaded.
and its Implementing Rules and Regulations (Implementing Rules), the DOTC/MIAA invited the
public for submission of competitive and comparative proposals to the unsolicited proposal of There is a question of fact when doubt or difference arises as to the truth or falsity of the facts
AEDC. On September 20, 1996 a consortium composed of the Peoples Air Cargo and Warehousing alleged.5 Even a cursory reading of the cases at bar will show that the Court decided them by
Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security interpreting and applying the Constitution, the BOT Law, its Implementing Rules and other
Bank) (collectively, Paircargo Consortium), submitted their competitive proposal to the relevant legal principles on the basis of clearly undisputed facts. All the operative facts were
Prequalification Bids and Awards Committee (PBAC). settled, hence, there is no need for a trial type determination of their truth or falsity by a trial
court.
After finding that the Paircargo Consortium submitted a bid superior to the unsolicited proposal
of AEDC and after failure by AEDC to match the said bid, the DOTC issued the notice of award for We reject the unyielding insistence of PIATCO Employees that the following factual issues are
the NAIA IPT III project to the Paircargo Consortium, which later organized into herein respondent critical and beyond the capability of this Court to resolve, viz: (a) whether the National Economic
PIATCO. Hence, on July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, Development Authority- Investment Coordinating Committee (NEDA-ICC) approved the
and PIATCO, through its President, Henry T. Go, signed the "Concession Agreement for the Build- Supplements; (b) whether the First Supplement created ten (10) new financial obligations on the
Operate-and-Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal part of the government; and (c) whether the 1997 Concession Agreement departed from the draft
III" (1997 Concession Agreement). On November 26, 1998, the 1997 Concession Agreement was Concession Agreement contained in the Bid Documents.6
superseded by the Amended and Restated Concession Agreement (ARCA) containing certain
revisions and modifications from the original contract. A series of supplemental agreements was The factual issue of whether the NEDA-ICC approved the Supplements is hardly relevant. It is
also entered into by the Government and PIATCO. The First Supplement was signed on August clear in our Decision that the PIATCO contracts were invalidated on other and more substantial
27, 1999, the Second Supplement on September 4, 2000, and the Third Supplement on June 22, grounds. It did not rely on the presence or absence of NEDA-ICC approval of the Supplements.
2001 (collectively, Supplements) (the 1997 Concession Agreement, ARCA and the Supplements On the other hand, the last two issues do not involve disputed facts. Rather, they involve
collectively referred to as the PIATCO Contracts). contractual provisions which are clear and categorical and need only to be interpreted.
The interpretation of contracts and the determination of whether their provisions violate our laws
On September 17, 2002, various petitions were filed before this Court to annul the 1997 or contravene any public policy is a legal issue which this Court may properly pass upon.
Concession Agreement, the ARCA and the Supplements and to prohibit the public
respondents DOTC and MIAA from implementing them. Respondents corollary contention that this Court violated the hierarchy of courts when it
entertained the cases at bar must also fail. The rule on hierarchy of courts in cases falling within
In a decision dated May 5, 2003, this Court granted the said petitions and declared the 1997 the concurrent jurisdiction of the trial courts and appellate courts generally applies to cases
Concession Agreement, the ARCA and the Supplements null and void. involving warring factual allegations. For this reason, litigants are required to repair to the trial
courts at the first instance to determine the truth or falsity of these contending allegations on the
Respondent PIATCO, respondent-Congressmen and respondents-intervenors now seek the
basis of the evidence of the parties. Cases which depend on disputed facts for decision cannot be
reversal of the May 5, 2003 decision and pray that the petitions be dismissed. In the alternative,
brought immediately before appellate courts as they are not triers of facts.
PIATCO prays that the Court should not strike down the entire 1997 Concession Agreement, the
ARCA and its supplements in light of their separability clause. Respondent-Congressmen and It goes without saying that when cases brought before the appellate courts do not involve factual
NMTAI also pray that in the alternative, the cases at bar should be referred to arbitration pursuant but legal questions, a strict application of the rule of hierarchy of courts is not necessary. As
to the provisions of the ARCA. PIATCO-Employees pray that the petitions be dismissed and the cases at bar merely concern the construction of the Constitution, the interpretation of the BOT
remanded to the trial courts for trial on the merits or in the alternative that the 1997 Concession Law and its Implementing Rules and Regulations on undisputed contractual provisions and
Agreement, the ARCA and the Supplements be declared valid and binding. government actions, and as the cases concern public interest, this Court resolved to take primary
jurisdiction over them. This choice of action follows the consistent stance of this Court to settle
any controversy with a high public interest component in a single proceeding and to leave no root Over and above all these, constitutional and other legal issues with far-reaching economic and
or branch that could bear the seeds of future litigation. The suggested remand of the cases at bar social implications are embedded in the cases at bar, hence, this Court liberally granted legal
to the trial court will stray away from this policy.7 standing to the petitioning members of the House of Representatives. First, at stake is the build-
operate-andtransfer contract of the countrys premier international airport with a projected
b. Legal Standing capacity of 10 million passengers a year. Second, the huge amount of investment to complete the
project is estimated to be P13,000,000,000.00. Third, the primary issues posed in the cases at
Respondent PIATCO stands pat with its argument that petitioners lack legal personality to file the
bar demand a discussion and interpretation of the Constitution, the BOT Law and its implementing
cases at bar as they are not real parties in interest who are bound principally or subsidiarily to the
rules which have not been passed upon by this Court in previous cases. They can chart the future
PIATCO Contracts. Further, respondent PIATCO contends that petitioners failed to show any
inflow of investment under the BOT Law.
legally demandable or enforceable right to justify their standing to file the cases at bar.
Before writing finis to the issue of legal standing, the Court notes the bid of new parties to
These arguments are not difficult to deflect. The determination of whether a person may institute
participate in the cases at bar as respondents-intervenors, namely, (1) the PIATCO Employees
an action or become a party to a suit brings to fore the concepts of real party in interest, capacity
and (2) NMTAI (collectively, the New Respondents-Intervenors). After the Courts Decision, the
to sue and standing to sue. To the legally discerning, these three concepts are different although
New Respondents-Intervenors filed separate Motions for Reconsideration-In-Intervention alleging
commonly directed towards ensuring that only certain parties can maintain an action.8 As defined
prejudice and direct injury. PIATCO employees claim that "they have a direct and personal interest
in the Rules of Court, a real party in interest is the party who stands to be benefited or injured by
[in the controversy]... since they stand to lose their jobs should the governments contract with
the judgment in the suit or the party entitled to the avails of the suit.9 Capacity to sue deals with
PIATCO be declared null and void."16 NMTAI, on the other hand, represents itself as a corporation
a situation where a person who may have a cause of action is disqualified from bringing a suit
composed of responsible tax-paying Filipino citizens with the objective of "protecting and
under applicable law or is incompetent to bring a suit or is under some legal disability that would
sustaining the rights of its members to civil liberties, decent livelihood, opportunities for social
prevent him from maintaining an action unless represented by a guardian ad litem. Legal standing
advancement, and to a good, conscientious and honest government."17
is relevant in the realm of public law. In certain instances, courts have allowed private parties to
institute actions challenging the validity of governmental action for violation of private rights or The Rules of Court govern the time of filing a Motion to Intervene. Section 2, Rule 19 provides
constitutional principles.10 In these cases, courts apply the doctrine of legal standing by that a Motion to Intervene should be filed "before rendition of judgment...." The New
determining whether the party has a direct and personal interest in the controversy and Respondents-Intervenors filed their separate motions after a decision has been promulgated in
whether such party has sustained or is in imminent danger of sustaining an injury as the present cases. They have not offered any worthy explanation to justify their late intervention.
a result of the act complained of, a standard which is distinct from the concept of real party Consequently, their Motions for Reconsideration-In-Intervention are denied for the rules cannot
in interest.11 Measured by this yardstick, the application of the doctrine on legal standing be relaxed to await litigants who sleep on their rights. In any event, a sideglance at these late
necessarily involves a preliminary consideration of the merits of the case and is not purely a motions will show that they hoist no novel arguments.
procedural issue.12
c. Failure to Implead an Indispensable Party
Considering the nature of the controversy and the issues raised in the cases at bar, this Court
affirms its ruling that the petitioners have the requisite legal standing. The petitioners in G.R. Nos. PIATCO next contends that petitioners should have impleaded the Republic of the Philippines as
155001 and 155661 are employees of service providers operating at the existing international an indispensable party. It alleges that petitioners sued the DOTC, MIAA and the DPWH in their
airports and employees of MIAA while petitioners-intervenors are service providers with existing own capacities or as implementors of the PIATCO Contracts and not as a contract party or as
contracts with MIAA and they will all sustain direct injury upon the implementation of the PIATCO representatives of the Government of the Republic of the Philippines. It then leapfrogs to the
Contracts. The 1997 Concession Agreement and the ARCA both provide that upon the conclusion that the "absence of an indispensable party renders ineffectual all the proceedings
commencement of operations at the NAIA IPT III, NAIA Passenger Terminals I and II will cease subsequent to the filing of the complaint including the judgment."18
to be used as international passenger terminals.13 Further, the ARCA provides:
PIATCOs allegations are inaccurate. The petitions clearly bear out that public respondents DOTC
(d) For the purpose of an orderly transition, MIAA shall not renew any expired concession and MIAA were impleaded as parties to the PIATCO Contracts and not merely as their
agreement relative to any service or operation currently being undertaken at the Ninoy Aquino implementors. The separate petitions filed by the MIAA employees19 and members of the House
International Airport Passenger Terminal I, or extend any concession agreement which may expire of Representatives20 alleged that "public respondents are impleaded herein because they
subsequent hereto, except to the extent that the continuation of the existing services and either executed the PIATCO Contracts or are undertaking acts which are related to the
operations shall lapse on or before the In-Service Date.14 PIATCO Contracts. They are interested and indispensable parties to this Petition."21 Thus, public
respondents DOTC and MIAA were impleaded as parties to the case for having executed the
Beyond iota of doubt, the implementation of the PIATCO Contracts, which the petitioners and contracts.
petitioners-intervenors denounce as unconstitutional and illegal, would deprive them of their
sources of livelihood. Under settled jurisprudence, one's employment, profession, trade, or calling More importantly, it is also too late in the day for PIATCO to raise this issue. If PIATCO seriously
is a property right and is protected from wrongful interference.15 It is also self evident that the views the non-inclusion of the Republic of the Philippines as an indispensable party as fatal to the
petitioning service providers stand in imminent danger of losing legitimate business investments petitions at bar, it should have raised the issue at the onset of the proceedings as a ground to
in the event the PIATCO Contracts are upheld. dismiss. PIATCO cannot litigate issues on a piecemeal basis, otherwise, litigations shall be like a
shore that knows no end. In any event, the Solicitor General, the legal counsel of the Republic,
appeared in the cases at bar in representation of the interest of the government.
II investment to the NAIA IPT III Project only in the amount of P558,384,871.55, when it had to
Pre-qualification of PIATCO show that it had the ability to provide at least P2,755,095,000.00. The huge disparity cannot be
dismissed as of de minimis importance considering the high public interest at stake in the project.
The Implementing Rules provide for the unyielding standards the PBAC should apply to determine
the financial capability of a bidder for pre-qualification purposes: (i) proof of the ability of the PIATCO nimbly tries to sidestep its failure by alleging that it submitted not only audited financial
project proponent and/or the consortium to provide a minimum amount of equity to the statements but also testimonial letters from reputable banks attesting to the good financial
project and (ii) a letter testimonial from reputable banks attesting that the project proponent standing of the Paircargo Consortium. It contends that in adjudging whether the Paircargo
and/or members of the consortium are banking with them, that they are in good Consortium is a pre-qualified bidder, the PBAC should have considered not only its financial
financial standing, and that they have adequate resources.22 The evident intent of these statements but other factors showing its financial capability.
standards is to protect the integrity and insure the viability of the project by seeing to it that the
proponent has the financial capability to carry it out. As a further measure to achieve this intent, Anent this argument, the guidelines provided in the Bid Documents are instructive:
it maintains a certain debt-to-equity ratio for the project.
3.3.4 FINANCING AND FINANCIAL PREQUALIFICATIONS REQUIREMENTS
At the pre-qualification stage, it is most important for a bidder to show that it has the financial
Minimum Amount of Equity
capacity to undertake the project by proving that it can fulfill the requirement on minimum amount
of equity. For this purpose, the Bid Documents require in no uncertain terms: Each member of the proponent entity is to provide evidence of networth in cash and assets
representing the proportionate share in the proponent entity. Audited financial statements for
The minimum amount of equity to which the proponents financial capability will be based shall
the past five (5) years as a company for each member are to be provided.
be thirty percent (30%) of the project cost instead of the twenty percent (20%)
specified in Section 3.6.4 of the Bid Documents. This is to correlate with the required debt- Project Loan Financing
to-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt portion of
the project financing should not exceed 70% of the actual project cost.23 Testimonial letters from reputable banks attesting that each of the members of the
ownership entity are banking with them, in good financial standing and having adequate resources
In relation thereto, section 2.01 (a) of the ARCA provides: are to be provided.26
Section 2.01 Project Scope. It is beyond refutation that Paircargo Consortium failed to prove its ability to provide the
amount of at least P2,755,095,000.00, or 30% of the estimated project cost. Its
The scope of the project shall include:
submission of testimonial letters attesting to its good financial standing will not cure this failure.
(a) Financing the project at an actual Project cost of not less than Three Hundred Fifty Million At best, the said letters merely establish its credit worthiness or its ability to obtain loans to finance
United States Dollars (US$350,000,000.00) while maintaining a debt-to-equity ratio of 70:30, the project. They do not, however, prove compliance with the aforesaid requirement of minimum
provided that if the actual Project costs should exceed the aforesaid amount, Concessionaire shall amount of equity in relation to the prescribed debt-to-equity ratio. This equity cannot be satisfied
ensure that the debt-to-equity ratio is maintained;24 through possible loans.

Under the debt-to-equity restriction, a bidder may only seek financing of the NAIA IPT III Project In sum, we again hold that given the glaring gap between the net worth of Paircargo and PAGS
up to 70% of the project cost. Thirty percent (30%) of the cost must come in the form of equity combined with the amount of maximum funds that Security Bank may invest by equity in a non-
or investment by the bidder itself. It cannot be overly emphasized that the rules require a allied undertaking, Paircargo Consortium, at the time of pre-qualification, failed to show that it
minimum amount of equity to ensure that a bidder is not merely an operator or implementor of had the ability to provide 30% of the project cost and necessarily, its financial capability for the
the project but an investor with a substantial interest in its success. The minimum equity project cannot pass muster.
requirement also guarantees the Philippine government and the general public, who are the
III
ultimate beneficiaries of the project, that a bidder will not be indifferent to the completion of the
Concession Agreement
project. The discontinuance of the project will irreparably damage public interest more than
private interest. Again, we brightline the principle that in public bidding, bids are submitted in accord with the
prescribed terms, conditions and parameters laid down by government and pursuant to the
In the cases at bar, after applying the investment ceilings provided under the General Banking
requirements of the project bidded upon. In light of these parameters, bidders formulate
Act and considering the maximum amounts that each member of the consortium may validly
competing proposals which are evaluated to determine the bid most favorable to the government.
invest in the project, it is daylight clear that the Paircargo Consortium, at the time of pre-
Once the contract based on the bid most favorable to the government is awarded, all that is left
qualification, had a net worth equivalent to only 6.08% of the total estimated project
to be done by the parties is to execute the necessary agreements and implement them. There
cost.25 By any reckoning, a showing by a bidder that at the time of pre-qualification its maximum
can be no substantial or material change to the parameters of the project, including the essential
funds available for investment amount to only 6.08% of the project cost is insufficient to satisfy
terms and conditions of the contract bidded upon, after the contract award. If there were changes
the requirement prescribed by the Implementing Rules that the project proponent must have the
and the contracts end up unfavorable to government, the public bidding becomes a mockery and
ability to provide at least 30% of the total estimated project cost. In peso and centavo terms, at
the modified contracts must be struck down.
the time of pre-qualification, the Paircargo Consortium had maximum funds available for
Respondents insist that there were no substantial or material amendments in the 1997 Concession The plain purpose in re-classifying groundhandling fees, airline office rentals and porterage fees
Agreement as to the technical aspects of the project, i.e., engineering design, technical as non-public utility fees is to remove them from regulation by the MIAA. In excluding these
soundness, operational and maintenance methods and procedures of the project or the technical fees from government regulation, the danger to public interest cannot be downplayed.
proposal of PIATCO. Further, they maintain that there was no modification of the financial
features of the project, i.e., minimum project cost, debt-to-equity ratio, the operations and We are not impressed by the effort of PIATCO to depress this prejudice to public interest by its
maintenance budget, the schedule and amount of annual guaranteed payments, or the financial contention that in the 1997 Concession Agreement governing Non-Public Utility Revenues, it is
proposal of PIATCO. A discussion of some of these changes to determine whether they altered provided that "[PIATCO] shall at all times be judicious in fixing fees and charges constituting
the terms and conditions upon which the bids were made is again in order. Non-Public Utility Revenues in order to ensure that End Users are not unreasonably deprived of
services."31 PIATCO then peddles the proposition that the said provision confers upon MIAA "full
a. Modification on Fees and Charges to be collected by PIATCO regulatory powers to ensure that PIATCO is charging non-public utility revenues
at judicious rates."32 To the trained eye, the argument will not fly for it is obviously non sequitur.
PIATCO clings to the contention that the removal of the groundhandling fees, airline office rentals Fairly read, it is PIATCO that wields the power to determine the judiciousness of the said fees and
and porterage fees from the category of fees subject to MIAA regulation in the 1997 Concession charges. In the draft Concession Agreement the power was expressly lodged with the MIAA and
Agreement does not constitute a substantial amendment as these fees are not really public utility any adjustment can only be done once every two years. The changes are not insignificant specks
fees. In other words, PIATCO justifies the re-classification under the 1997 Concession as interpreted by PIATCO.
Agreement on the ground that these fees are non-public utility revenues.
PIATCO further argues that there is no substantial change in the 1997 Concession Agreement with
We disagree. The removal of groundhandling fees, airline office rentals and porterage fees from respect to fees and charges PIATCO is allowed to impose which are not covered by Administrative
the category of "Public Utility Revenues" under the draft Concession Agreement and its re- Order No. 1, Series of 199333as the "relevant provision of the 1997 Concession Agreement is
classification to "Non-Public Utility Revenues" under the 1997 Concession Agreement is significant practically identical with the draft Concession Agreement."34
and has far reaching consequence. The 1997 Concession Agreement provides that with respect
to Non-Public Utility Revenues, which include groundhandling fees, airline office rentals and We are not persuaded. Under the draft Concession Agreement, PIATCO may impose fees and
porterage fees,27 "[PIATCO] may make any adjustments it deems appropriate without need for charges other than those fees and charges previously imposed or collected at the Ninoy Aquino
the consent of GRP or any government agency."28 In contrast, the draft Concession International Airport Passenger Terminal I, subject to the written approval of MIAA.35 Further, the
Agreement specifies these fees as part of Public Utility Revenues and can be adjusted "only once draft Concession Agreement provides that MIAA reserves the right to regulate these new fees
every two yearsand in accordance with the Parametric Formula" and "the adjustments shall be and charges if in its judgment the users of the airport shall be deprived of a free option for the
made effective only after the written express approval of the MIAA."29 The Bid Documents services they cover.36 In contrast, under the 1997 Concession Agreement, the MIAA merely
themselves clearly provide: retained the right to approve any imposition of new fees and charges which were not
previously collected at the Ninoy Aquino International Airport Passenger Terminal I. The
4.2.3 Mechanism for Adjustment of Fees and Charges agreement did not contain an equivalent provision allowing MIAA to reserve the right
to regulate the adjustments of these new fees and charges.37 PIATCO justifies the amendment
4.2.3.1 Periodic Adjustment in Fees and Charges
by arguing that MIAA can establish terms before approval of new fees and charges, inclusive of
Adjustments in the fees and charges enumerated hereunder, whether or not falling within the mode for their adjustment.
the purview of public utility revenues, shall be allowed only once every two years in
PIATCOs stance is again a strained one. There would have been no need for an amendment if
accordance with the parametric formula attached hereto as Annex 4.2f. Provided that the
there were no change in the power to regulate on the part of MIAA. The deletion of MIAAs
adjustments shall be made effective only after the written express approval of MIAA. Provided,
reservation of its right to regulate the price adjustments of new fees and charges can have no
further, that MIAAs approval, shall be contingent only on conformity of the adjustments to the
other purpose but to dilute the extent of MIAAs regulation in the collection of these fees. Again,
said parametric formula.
the amendment diminished the authority of MIAA to protect the public interest in case of abuse
The fees and charges to be regulated in the above manner shall consist of the following: by PIATCO.

.... b. Assumption by the Government of the liabilities of PIATCO in the event of the
latters default
c) groundhandling fees;
PIATCO posits the thesis that the new provisions in the 1997 Concession Agreement in case of
d) rentals on airline offices; default by PIATCO on its loans were merely meant to prescribe and limit the rights of PIATCOs
creditors with regard to the NAIA Terminal III. PIATCO alleges that Section 4.04 of the 1997
.... Concession Agreement simply provides that PIATCOs creditors have no right to foreclose the
NAIA Terminal III.
(f) porterage fees;
We cannot concur. The pertinent provisions of the 1997 Concession Agreement state:
. . . .30
Section 4.04 Assignment.
.... explanation"39 of the securities allowed in the bid documents. They allege that these provisions
merely provide for "compensation to PIATCO"40 in case of a government buy-out or takeover of
(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the NAIA IPT III. The respondents, particularly respondent PIATCO, also maintain that the guarantee
default has resulted in the acceleration of the payment due date of the Attendant Liability prior to contained in the contracts, if any, is an indirect guarantee allowed under the BOT Law, as
its stated date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP amended.41
in writing of such default. GRP shall, within one hundred eighty (180) Days from receipt of the
joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the We do not agree. Section 4.04(c), Article IV42 of the ARCA should be read in conjunction with
Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, section 1.06, Article I,43 in the same manner that sections 4.04(b) and (c), Article IV of the 1997
if qualified, to be substituted as concessionaire and operator of the Development Facility in Concession Agreement should be related to Article 1.06 of the same contract. Section 1.06, Article
accordance with the terms and conditions hereof, or designate a qualified operator acceptable to I of the ARCA and its counterpart provision in the 1997 Concession Agreement define in no
GRP to operate the Development Facility, likewise under the terms and conditions of this uncertain terms the meaning of "attendant liabilities." They tell us of the amounts that the
Agreement; Provided that if at the end of the 180-day period GRP shall not have served the Unpaid Government has to pay in the event respondent PIATCO defaults in its loan payments to its Senior
Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to Lenders and no qualified transferee or nominee is chosen by the Senior Lenders or is willing to
take over the Development Facility with the concomitant assumption of Attendant take over from respondent PIATCO.
Liabilities.
A reasonable reading of all these relevant provisions would reveal that the ARCA made the
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as Government liable to pay "all amounts ... from time to time owed or which may become
concessionaire, the latter shall form and organize a concession company qualified to take over the owing by Concessionaire [PIATCO] to Senior Lenders or any other persons or entities
operation of the Development Facility. If the concession company should elect to designate an who have provided, loaned, or advanced funds or provided financial facilities to
operator for the Development Facility, the concession company shall in good faith identify and Concessionaire [PIATCO] for the Project [NAIA Terminal 3]."44 These amounts include
designate a qualified operator acceptable to GRP within one hundred eighty (180) days from "without limitation, all principal, interest, associated fees, charges, reimbursements,
receipt of GRPs written notice. If the concession company, acting in good faith and with due and other related expenses... whether payable at maturity, by acceleration or
diligence, is unable to designate a qualified operator within the aforesaid period, then GRP shall otherwise."45 They further include amounts owed by respondent PIATCO to its "professional
at the end of the 180-day period take over the Development Facility and assume Attendant consultants and advisers, suppliers, contractors and sub-contractors" as well as "fees, charges
Liabilities. and expenses of any agents or trustees" of the Senior Lenders or any other persons or entities
who have provided loans or financial facilities to respondent PIATCO in relation to NAIA IPT
A plain reading of the above provision shows that it spells out in limpid language the obligation of III.46 The counterpart provision in the 1997 Concession Agreement specifying the attendant
government in case of default by PIATCO on its loans. There can be no blinking from the fact that liabilities that the Government would be obligated to pay should PIATCO default in its loan
in case of PIATCOs default, the government will assume PIATCOs Attendant Liabilities as defined obligations is equally onerous to the Government as those contained in the ARCA. According to
in the 1997 Concession Agreement.38 This obligation is not found in the draft Concession the 1997 Concession Agreement, in the event the Government is forced to prematurely take over
Agreement and the change runs roughshod to the spirit and policy of the BOT Law which was NAIA IPT III as a result of respondent PIATCOs default in the payment of its loan obligations to
crafted precisely to prevent government from incurring financial risk. its Senior Lenders, it would be liable to pay the following amounts as "attendant liabilities":
In any event, PIATCO pleads that the entire agreement should not be struck down as the 1997 Section 1.06. Attendant Liabilities
Concession Agreement contains a separability clause.
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in
The plea is bereft of merit. The contracts at bar which made a mockery of the bidding process the books of the Concessionaire as owing to Unpaid Creditors who have provided, loaned
cannot be upheld and must be annulled in their entirety for violating law and public policy. As or advanced funds actually used for the Project, including all interests, penalties, associated
demonstrated, the contracts were substantially amended after their award to the successful bidder fees, charges, surcharges, indemnities, reimbursements and other related
on terms more beneficial to PIATCO and prejudicial to public interest. If this flawed process would expenses, and further including amounts owed by Concessionaire to its suppliers, contractors
be allowed, public bidding will cease to be competitive and worse, government would not be and sub-contractors.47
favored with the best bid. Bidders will no longer bid on the basis of the prescribed terms and
conditions in the bid documents but will formulate their bid in anticipation of the execution of a These provisions reject respondents contention that what the Government is obligated to pay, in
future contract containing new and better terms and conditions that were not previously available the event that respondent PIATCO defaults in the payment of its loans, is merely termination
at the time of the bidding. Such a public bidding will not inure to the public good. The resulting payment or just compensation for its takeover of NAIA IPT III. It is clear from said section 1.06
contracts cannot be given half a life but must be struck down as totally lawless. that what the Government would pay is the sum total of all the debts, including all
interest, fees and charges, that respondent PIATCO incurred in pursuance of the NAIA IPT III
IV. Project. This reading is consistent with section 4.04 of the ARCA itself which states that the
Direct Government Guarantee Government "shall make a termination payment to Concessionaire [PIATCO] equal to the
Appraised Value (as hereinafter defined) of the Development Facility [NAIA Terminal III] or the
The respondents further contend that the PIATCO Contracts do not contain direct government
sum of the Attendant Liabilities, if greater." For sure, respondent PIATCO will not
guarantee provisions. They assert that section 4.04 of the ARCA, which superseded sections
receive any amount less than sufficient to cover its debts, regardless of whether or
4.04(b) and (c), Article IV of the 1997 Concession Agreement, is but a "clarification and
not the value of NAIA IPT III, at the time of its turn over to the Government, may
actually be less than the amount of PIATCOs debts. The scheme is a form of direct Environment and Natural Resources is sufficient to bind the Government. These issue and sub-
government guarantee for it is undeniable that it leaves the government no option but to pay the issues are clearly distinguishable and different. For one, the issue of direct government guarantee
"attendant liabilities" in the event that the Senior Lenders are unable or unwilling to appoint a was not considered by this Court when it held the JANCOM contract valid, yet, it is a key reason
qualified nominee or transferee as a result of PIATCOs default in the payment of its Senior Loans. for invalidating the PIATCO Contracts. It is a basic principle in law that cases with dissimilar facts
As we stressed in our Decision, this Court cannot depart from the legal maxim that "those that cannot have similar disposition.
cannot be done directly cannot be done indirectly."
This Court, however, is not unmindful of the reality that the structures comprising the NAIA IPT
This is not to hold, however, that indirect government guarantee is not allowed under the BOT III facility are almost complete and that funds have been spent by PIATCO in their construction.
Law, as amended. The intention to permit indirect government guarantee is evident from the For the government to take over the said facility, it has to compensate respondent PIATCO as
Senate deliberations on the amendments to the BOT Law. The idea is to allow for reasonable builder of the said structures. The compensation must be just and in accordance with law and
government undertakings, such as to authorize the project proponent to undertake related equity for the government can not unjustly enrich itself at the expense of PIATCO and its investors.
ventures within the project area, in order to encourage private sector participation in development
projects.48 An example cited by then Senator Gloria Macapagal-Arroyo, one of the sponsors of II.
R.A. No. 7718, is the Mandaluyong public market which was built under the Build-and-Transfer Temporary takeover of business affected with public interest in times of national
("BT") scheme wherein instead of the government paying for the transfer, the project proponent emergency
was allowed to operate the upper floors of the structure as a commercial mall in order to recoup
Section 17, Article XII of the 1987 Constitution grants the State in times of national emergency
their investments.49 It was repeatedly stressed in the deliberations that in allowing indirect
the right to temporarily take over the operation of any business affected with public interest. This
government guarantee, the law seeks to encourage both the government and the private sector
right is an exercise of police power which is one of the inherent powers of the State.
to formulate reasonable and innovative government undertakings in pursuance of BOT projects.
In no way, however, can the government be made liable for the debts of the project proponent Police power has been defined as the "state authority to enact legislation that may interfere with
as this would be tantamount to a direct government guarantee which is prohibited by the law. personal liberty or property in order to promote the general welfare."54 It consists of two essential
Such liability would defeat the very purpose of the BOT Law which is to encourage the use of elements. First, it is an imposition of restraint upon liberty or property. Second, the power is
private sector resources in the construction, maintenance and/or operation of development exercised for the benefit of the common good. Its definition in elastic terms underscores its all-
projects with no, or at least minimal, capital outlay on the part of the government. encompassing and comprehensive embrace.55 It is and still is the "most essential, insistent, and
illimitable"56 of the States powers. It is familiar knowledge that unlike the power of eminent
The respondents again urge that should this Court affirm its ruling that the PIATCO Contracts
domain, police power is exercised without provision for just compensation for its
contain direct government guarantee provisions, the whole contract should not be nullified. They
paramount consideration is public welfare.57
rely on the separability clause in the PIATCO Contracts.
It is also settled that public interest on the occasion of a national emergency is the primary
We are not persuaded.
consideration when the government decides to temporarily take over or direct the operation of a
The BOT Law and its implementing rules provide that there are three (3) essential requisites for public utility or a business affected with public interest. The nature and extent of the emergency
an unsolicited proposal to be accepted: (1) the project involves a new concept in technology is the measure of the duration of the takeover as well as the terms thereof. It is the State that
and/or is not part of the list of priority projects, (2) no direct government guarantee, subsidy prescribes such reasonable terms which will guide the implementation of the temporary takeover
or equity is required, and (3) the government agency or local government unit has invited by as dictated by the exigencies of the time. As we ruled in our Decision, this power of the State can
publication other interested parties to a public bidding and conducted the same.50 The failure to not be negated by any party nor should its exercise be a source of obligation for the State.
fulfill any of the requisites will result in the denial of the proposal. Indeed, it is further provided
Section 5.10(c), Article V of the ARCA provides that respondent PIATCO "shall be entitled to
that a direct government guarantee, subsidy or equity provision will "necessarily disqualify a
reasonable compensation for the duration of the temporary takeover by GRP, which compensation
proposal from being treated and accepted as an unsolicited proposal."51 In fine, the mere inclusion
shall take into account the reasonable cost for the use of the Terminal and/or Terminal
of a direct government guarantee in an unsolicited proposal is fatal to the proposal. There is more
Complex."58 It clearly obligates the government in the exercise of its police power to compensate
reason to invalidate a contract if a direct government guarantee provision is inserted later in the
respondent PIATCO and this obligation is offensive to the Constitution. Police power can not be
contract via a backdoor amendment. Such an amendment constitutes a crass circumvention of
diminished, let alone defeated by any contract for its paramount consideration is public welfare
the BOT Law and renders the entire contract void.
and interest.59
Respondent PIATCO likewise claims that in view of the fact that other BOT contracts such as the
Again, respondent PIATCOs reliance on the case of Heirs of Suguitan v. City of
JANCOM contract, the Manila Water contract and the MRT contract had been considered valid,
Mandaluyong60 to justify its claim for reasonable compensation for the Governments temporary
the PIATCO contracts should be held valid as well.52 There is no parity in the cited cases. For
takeover of NAIA IPT III in times of national emergency is erroneous. What was involved in Heirs
instance, a reading of Metropolitan Manila Development Authority v. JANCOM
of Suguitan is the exercise of the states power of eminent domain and not of police power,
Environmental Corporation53 will show that its issue is different from the issues in the cases
hence, just compensation was awarded. The cases at bar will not involve the exercise of the power
at bar. In the JANCOM case, the main issue is whether there is a perfected contract between
of eminent domain.
JANCOM and the Government. The resolution of the issue hinged on the following: (1) whether
the conditions precedent to the perfection of the contract were complied with; (2) whether there
is a valid notice of award; and (3) whether the signature of the Secretary of the Department of
III.
Monopoly

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

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

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

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

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

SO ORDERED.

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


Vitug, J., maintains his separate opinion in the main ponencia, promulgated on 05 May 2003.
Panganiban, J., reiterate his separate opinion in the main case, promulgated on May 5, 2003.
Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, and Azcuna, JJ., joins J. Vitugs opinion.
Carpio, and Tinga, JJ., no part.
Callejo, Sr., J., joins J. Panganiban in his concurring opinion
Republic of the Philippines Kuwait Airways sectors, special prorates for use by Philippine Airlines to specified Kuwait Airways
SUPREME COURT sectors, joint advertising by both carriers in each others timetables and other general advertising,
Manila and mutual assistance to each other with respect to the development of traffic on the route.10

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

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

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

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

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