G.R. No. 83551 July 11, 1989
The first
RODOLFO B. ALBANO, petitioner, vs.HON. RAINERIO O. REYES,
PHILIPPINE PORTS AUTHORITY, INTERNATIONAL CONTAINER
TERMINAL SERVICES, INC., E. RAZON, INC., ANSCOR
CONTAINER CORPORATION, and SEALAND SERVICES. LTD.,
respondents.
PARAS, J.:
This is a Petition for Prohibition with prayer for Preliminary
Injunction or Restraining Order seeking to restrain the
respondents Philippine Ports Authority (PPA) and the
Secretary of the Department of Transportation and
Communications Rainerio O. Reyes from awarding to the
International Container Terminal Services, Inc. (ICTSI) the
contract for the development, management and operation of
the Manila International Container Terminal (MICT).
On April 20, 1987, the PPA Board adopted its Resolution No.
850 directing PPA management to prepare the Invitation to Bid
and all relevant bidding documents and technical
requirements necessary for the public bidding of the
development, management and operation of the MICT at the
Port of Manila, and authorizing the Board Chairman, Secretary
Rainerio O. Reyes, to oversee the preparation of the technical
and the documentation requirements for the MICT leasing as
well as to implement this project. Accordingly, respondent
Secretary Reyes, by DOTC Special Order 87-346, created a
seven (7) man "Special MICT Bidding Committee" charged with
evaluating all bid proposals, recommending to the Board the
best bid, and preparing the corresponding contract between
the PPA and the winning bidder or contractor. The Bidding
Committee consisted of three (3) PPA representatives, two (2)
Department of Transportation and Communications (DOTC)
representatives, one (1) Department of Trade and Industry
(DTI) representative and one (1) private sector representative.
The PPA management prepared the terms of reference, bid
documents and draft contract which materials were approved
by the PPA Board.The PPA published the Invitation to Bid
several times in a newspaper of general circulation which
publication included the reservation by the PPA of "the right
to reject any or all bids and to waive any informality in the bids
or to accept such bids which may be considered most
advantageous to the government."Seven (7) consortia of
companies actually submitted bids, which bids were opened
on July 17, 1987 at the PPA Head Office. After evaluation of the
several bids, the Bidding Committee recommended the award
of the contract to develop, manage and operate the MICT to
respondent International Container Terminal Services, Inc.
(ICTSI) as having offered the best Technical and Financial
Proposal. Accordingly, respondent Secretary declared the
ICTSI consortium as the winning bidder.
Before the corresponding MICT contract could be signed, two
successive cases were filed against the respondents which
assailed the legality or regularity of the MICT bidding.
was Special Civil Action 55489 for "Prohibition with Preliminary
Injunction" filed with the RTC of Pasig by Basilio H. Alo, an
alleged "concerned taxpayer", and, the second was Civil Case
88-43616 for "Prohibition with Prayer for Temporary
Restraining Order (TRO)" filed with the RTC of Manila by C.F.
Sharp Co., Inc., a member of the nine (9) firm consortium —
"Manila Container Terminals, Inc." which had actively
participated in the MICT Bidding.
Restraining Orders were issued in Civil Case 88-43616 but
these were subsequently lifted by this Court in Resolutions
dated March 17, 1988 (in G.R. No. 82218 captioned "Hon.
Rainerio O. Reyes etc., et al. vs. Hon. Doroteo N. Caneba, etc.,
et al.) and April 14, 1988 (in G.R. No. 81947 captioned "Hon.
Rainerio O. Reyes etc., et al. vs. Court of Appeals, et al.")
On May 18, 1988, the President of the Philippines approved
the proposed MICT Contract, with directives that "the
responsibility for planning, detailed engineering, construction,
expansion, rehabilitation and capital dredging of the port, as
well as the determination of how the revenues of the port
system shall be allocated for future port works, shall remain
with the PPA; and the contractor shall not collect taxes and
duties except that in the case of wharfage or tonnage dues and
harbor and berthing fees, payment to the Government may be
made through the contractor who shall issue provisional
receipts and turn over the payments to the Government which
will issue the official receipts." (Annex "I").
The next day, the PPA and the ICTSI perfected the MICT
Contract (Annex "3") incorporating therein by "clarificatory
guidelines" the aforementioned presidential directives.
(Annex "4").
Meanwhile, the petitioner, Rodolfo A. Albano filed the present
petition as citizen and taxpayer and as a member of the House
of Representatives, assailing the award of the MICT contract to
the ICTSI by the PPA. The petitioner claims that since the MICT
is a public utility, it needs a legislative franchise before it can
legally operate as a public utility, pursuant to Article 12,
Section 11 of the 1987 Constitution.
The petition is devoid of merit.
A review of the applicable provisions of law indicates that a
franchise specially granted by Congress is not necessary for the
operation of the Manila International Container Port (MICP) by
a private entity, a contract entered into by the PPA and such
entity constituting substantial compliance with the law.
1. Executive Order No. 30, dated July 16, 1986, provides:
WHEREFORE, I, CORAZON C. AQUINO, President of the
Republic of the Philippines, by virtue of the powers vested in
me by the Constitution and the law, do hereby order the
immediate recall of the franchise granted to the Manila
International Port Terminals, Inc. (MIPTI) and authorize the
Philippine Ports Authority (PPA) to take over, manage and
operate the Manila International Port Complex at North
Harbor, Manila and undertake the provision of cargo handling
and port related services thereat, in accordance with P.D. 857
and other applicable laws and regulations.
Section 6 of Presidential Decree No. 857 (the Revised Charter
of the Philippine Ports Authority) states:
a) The corporate duties of the Authority shall be:
xxx xxx xxx
(ii) To supervise, control, regulate, construct, maintain,
operate, and provide such facilities or services as are necessary
in the ports vested in, or belonging to the Authority.
xxx xxx xxx
(v) To provide services (whether on its own, by contract,
or otherwise) within the Port Districts and the approaches
thereof, including but not limited to —— berthing, towing,
mooring, moving, slipping, or docking of any vessel;— loading
or discharging any vessel;— sorting, weighing, measuring,
storing, warehousing, or otherwise handling goods.xxx
xxx xxx
b) The corporate powers of the Authority shall be as
follows:
(vi) To make or enter into contracts of any kind or nature
to enable it to discharge its functions under this Decree.
xxx xxx xxx[Emphasis supplied.]
Thus, while the PPA has been tasked, under E.O. No. 30, with
the management and operation of the Manila International
Port Complex and to undertake the providing of cargo handling
and port related services thereat, the law provides that such
shall be "in accordance with P.D. 857 and other applicable laws
and regulations." On the other hand, P.D. No. 857 expressly
empowers the PPA to provide services within Port Districts
"whether on its own, by contract, or otherwise" [See. 6(a) (v)].
Therefore, under the terms of E.O. No. 30 and P.D. No. 857,
the PPA may contract with the International Container
Terminal Services, Inc. (ICTSI) for the management, operation
and development of the MICP.
2. Even if the MICP be considered a public utility, 1 or a
public service 2 on the theory that it is a "wharf' or a "dock" 3
as contemplated under the Public Service Act, its operation
would not necessarily call for a franchise from the Legislative
Branch. Franchises issued by Congress are not required before
each and every public utility may operate. Thus, the law has
granted certain administrative agencies the power to grant
licenses for or to authorize the operation of certain public
utilities. (See E.O. Nos. 172 and 202)That the Constitution
provides in Art. XII, Sec. 11 that the issuance of a franchise,
certificate or other form of authorization for the operation of
a public utility shall be subject to amendment, alteration or
repeal by Congress does not necessarily, imply, as petitioner
posits that only Congress has the power to grant such
authorization. Our statute books are replete with laws granting
specified agencies in the Executive Branch the power to issue
such authorization for certain classes of public utilities. 4
As stated earlier, E.O. No. 30 has tasked the PPA with the
operation and management of the MICP, in accordance with
P.D. 857 and other applicable laws and regulations. However,
P.D. 857 itself authorizes the PPA to perform the service by
itself, by contracting it out, or through other means. Reading
E.O. No. 30 and P.D. No. 857 together, the inescapable
conclusion is that the lawmaker has empowered the PPA to
undertake by itself the operation and management of the
MICP or to authorize its operation and management by
another by contract or other means, at its option. The latter
power having been delegated to the PPA, a franchise from
Congress to authorize an entity other than the PPA to operate
and manage the MICP becomes unnecessary.
In the instant case, the PPA, in the exercise of the option
granted it by P.D. No. 857, chose to contract out the operation
and management of the MICP to a private corporation. This is
clearly within its power to do. Thus, PPA's acts of privatizing
the MICT and awarding the MICT contract to ICTSI are wholly
within the jurisdiction of the PPA under its Charter which
empowers the PPA to "supervise, control, regulate, construct,
maintain, operate and provide such facilities or services as are
necessary in the ports vested in, or belonging to the PPA."
(Section 6(a) ii, P.D. 857)
The contract between the PPA and ICTSI, coupled with the
President's written approval, constitute the necessary
authorization for ICTSI's operation and management of the
MICP. The award of the MICT contract approved by no less
than the President of the Philippines herself enjoys the legal
presumption of validity and regularity of official action. In the
case at bar, there is no evidence which clearly shows the
constitutional infirmity of the questioned act of government.
For these reasons the contention that the contract between
the PPA and ICTSI is illegal in the absence of a franchise from
Congress appears bereft of any legal basis.
3. On the peripheral issues raised by the party, the
following observations may be made:
A. That petitioner herein is suing as a citizen and
taxpayer and as a Member of the House of Representatives,
sufficiently clothes him with the standing to institute the
instant suit questioning the validity of the assailed contract.
While the expenditure of public funds may not be involved
under the contract, public interest is definitely involved
considering the important role of the MICP in the economic
development of the country and the magnitude of the financial
consideration involved. Consequently, the disclosure provision
in the Constitution 5 would constitute sufficient authority for
upholding petitioner's standing. [Cf. Tañada v. Tuvera, G.R. No.
63915, April 24, 1985,136 SCRA 27, citing Severino v. Governor
General, 16 Phil. 366 (1910), where the Court considered the
petitioners with sufficient standing to institute an action
where a public right is sought to be enforced.]
B. That certain committees in the Senate and the House
of Representatives have, in their respective reports, and the
latter in a resolution as well, declared their opinion that a
franchise from Congress is necessary for the operation of the
MICP by a private individual or entity, does not necessarily
create a conflict between the Executive and the Legislative
Branches needing the intervention of the Judicial Branch. The
court is not faced with a situation where the Executive Branch
has contravened an enactment of Congress. As discussed
earlier, neither is the Court confronted with a case of one
branch usurping a power pertaining to another.
C. Petitioner's contention that what was bid out, i.e., the
development, management and operation of the MICP, was
not what was subsequently contracted, considering the
conditions imposed by the President in her letter of approval,
thus rendering the bids and projections immaterial and the
procedure taken ineffectual, is not supported by the
established facts. The conditions imposed by the President did
not materially alter the substance of the contract, but merely
dealt on the details of its implementation.
D. The determination of whether or not the winning bidder is
qualified to undertake the contracted service should be left to
the sound judgment of the PPA. The PPA, having been tasked
with the formulation of a plan for the development of port
facilities and its implementation [Sec. 6(a) (i)], is the agency in
the best position to evaluate the feasibility of the projections
of the bidders and to decide which bid is compatible with the
development plan. Neither the Court, nor Congress, has the
time and the technical expertise to look into this matter.
Thus, the Court in Manuel v. Villena (G.R. No. L-28218,
February 27, 1971, 37 SCRA 745] stated:
[C]ourts, as a rule, refuse to interfere with proceedings
undertaken by administrative bodies or officials in the exercise
of administrative functions. This is so because such bodies are
generally better equipped technically to decide administrative
questions and that non-legal factors, such as government
policy on the matter, are usually involved in the decisions. [at
p. 750.]
In conclusion, it is evident that petitioner has failed to show a
clear case of grave abuse of discretion amounting to lack or
excess of jurisdiction as to warrant the issuance of the writ of
prohibition.
WHEREFORE, the petition is hereby DISMISSED.
SO ORDERED.
Separate Opinions
GUTIERREZ, JR., J., concurring:
I concur in the Court's decision that the determination of
whether or not the winning bidder is qualified to undertake
the contracted service should be left to the sound judgment of
the Philippine Ports Authority (PPA). I agree that the PPA is the
agency which can best evaluate the comparative qualifications
of the various bidding contractors and that in making such
evaluation it has the technical expertise which neither this
Court nor Congress possesses.
However, I would feel more comfortable in the thought that
the above rulings are not only grounded on firm legal
foundations but are also factually accurate if the PPA shows
greater consistency in its submissions to this Court.
I recall that in E. Razon, Inc. v. Philippine Ports Authority (151
SCRA 233 [1977]), this Court decided the case in favor of the
PPA because, among others, of its submissions that: (1) the
petitioner therein committed violations as to outside
stevedoring services, inadequate equipment, delayed
submission of reports, and non-compliance with certain port
regulations; (2) respondent Marina Port Services and not the
petitioner was better qualified to handle arrastre services; (3)
the petitioner being controlled by Alfredo Romualdez could
not enter into a management contract with PPA and any such
contract would be null and void; and (4) even if the petitioner
may not have shared in the illegal intention behind the transfer
of majority shares, it shared in the benefits of the violation of
law.
I was surprised during the oral arguments of the present
petition to hear the counsel for PPA submit diametrically
different statements regarding the capabilities and worth of E.
Razon, Inc., as an arrastre operator. It now turns out that the
Manila International Container Terminal will depend a great
deal on the expertise, reliability and competence of E. Razon,
Inc., for its successful operations. The time difference between
the two petitions is insubstantial. After going over the
pleadings of the present petition, I am now convinced that it is
the submissions of PPA in this case and not its contentions in
G.R. No. 75197 which are accurate and meritorious. There is
the distinct possibility that we may have been unfair in the
earlier petition because of assertions made therein which are
contradictory to the submissions in the instant petition. No
such doubts would exist if the Government is more consistent
in its pleadings on such important factual matters as those
raised in these two petitions.
Separate Opinions
GUTIERREZ, JR., J., concurring:
I concur in the Court's decision that the determination of
whether or not the winning bidder is qualified to undertake
the contracted service should be left to the sound judgment of
the Philippine Ports Authority (PPA). I agree that the PPA is the
agency which can best evaluate the comparative qualifications
of the various bidding contractors and that in making such
evaluation it has the technical expertise which neither this
Court nor Congress possesses.
However, I would feel more comfortable in the thought that
the above rulings are not only grounded on firm legal
foundations but are also factually accurate if the PPA shows
greater consistency in its submissions to this Court.
I recall that in E. Razon, Inc. v. Philippine Ports Authority (151
SCRA 233 [1977]), this Court decided the case in favor of the
PPA because, among others, of its submissions that: (1) the
petitioner therein committed violations as to outside
stevedoring services, inadequate equipment, delayed
submission of reports, and non-compliance with certain port
regulations; (2) respondent Marina Port Services and not the
petitioner was better qualified to handle arrastre services; (3)
the petitioner being controlled by Alfredo Romualdez could
not enter into a management contract with PPA and any such
contract would be null and void; and (4) even if the petitioner
may not have shared in the illegal intention behind the transfer
of majority shares, it shared in the benefits of the violation of
law.
I was surprised during the oral arguments of the present
petition to hear the counsel for PPA submit diametrically
different statements regarding the capabilities and worth of E.
Razon, Inc., as an arrastre operator. It now turns out that the
Manila International Container Terminal will depend a great
deal on the expertise, reliability and competence of E. Razon,
Inc., for its successful operations. The time difference between
the two petitions is insubstantial. After going over the
pleadings of the present petition, I am now convinced that it is
the submissions of PPA in this case and not its contentions in
G.R. No. 75197 which are accurate and meritorious. There is
the distinct possibility that we may have been unfair in the
earlier petition because of assertions made therein which are
contradictory to the submissions in the instant petition. No
such doubts would exist if the Government is more consistent
in its pleadings on such important factual matters as those
raised in these two petitions.
Footnotes
1 A "Public utility" is a business or service engaged in
regularly supplying the public with some commodity or service
of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service. Apart from
statutes which define the public utilities
that are within the purview of such statutes, it would be
difficult to construct a definition of a public utility which would
fit every conceivable case. As its name indicates, however, the
term public utility implies a public use and service to the public.
(Am. Jur. 2d V. 64, p. 549).
2 The Public Service Act (C.A. No. 146, as amended) provides
that the term public service "includes every person that now
or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited
clientele, whether permanent, occasional or accidental, and
done for general business purposes, any common carrier,
railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both with or without
fixed route and whatever may be its classification, freight or
carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries, and water craft, engaged in
the transportation of passengers and freight or both, shipyard,
marine railway, refrigeration plant, canal, irrigation system,
gas, electric light, heat and power, water supply and power,
petroleum, sewerage system, wire or wireless
communications system, wire or wireless broadcasting
stations and other similar public services. . ." [Sec. 13 (b).].
3 Under P.D. 857 the term dock "includes locks, cuts
entrances, graving docks, inclined planes, slipways, quays and
other works and things appertaining to any dock", while wharf
"means a continuous structure built parallel to along the
margin of the sea or alongside riverbanks, canals, or
waterways where vessels may lie alongside to receive or
discharge cargo, embark or disembark passengers, or lie at
rest." [Sec. 30) and (o).].
4 Examples of such agencies are:
1. The Land Transportation Franchising and Regulatory
Board created under E.O. No. 202, which is empowered to
"issue, amend, revise, suspend or cancel Certificates of Public
Convenience or permits authorizing the operation of public
land transportation services provided by motorized vehicles,
and to prescribe the appropriate terms and conditions
therefor." [Sec. 5(b).].
2. The Board of Energy, reconstituted into the Energy
Regulatory Board created under E.O. No. 172, is empowered
to license refineries and regulate their capacities and to issue
certificates of public convenience for the operation of electric
power utilities and services, except electric cooperatives [Sec.
9 (d) and (e), P.D. No. 1206.].
5 Art. II, Sec. 28. Subject to reasonable conditions
prescribed by law, the State adopts and implements a policy of
full disclosure of all its transactions involving public interest.
G.R. No. 156087 May 8, 2009
KUWAIT AIRWAYS, CORPORATION, Petitioner,
vs.PHILIPPINE AIRLINES, INC., Respondent.
TINGA, J.:
This petition for review1 filed by the duly designated air carrier
of the Kuwait Government assails a decision2 dated 25 October
2002 of the Makati Regional Trial Court (RTC), Branch 60,
ordering Kuwait Airways to pay respondent Philippine Airlines
the amount of US$1,092,690.00, plus interest, attorney’s fees,
and cost of suit.3 The principal liability represents the share to
Philippine Airlines in the revenues the foreign carrier had
earned for the uplift of passengers and cargo in its flights to
and from Kuwait and Manila which the foreign carrier
committed to remit as a contractual obligation.
On 21 October 1981, Kuwait Airways and Philippine Airlines
entered into a Commercial Agreement,4 annexed to which was
a Joint Services Agreement5 between the two airlines. The
Commercial Agreement covered a twice weekly Kuwait
Airways flight on the route Kuwait-Bangkok-Manila and vice
versa.6 The agreement stipulated that "only 3rd and 4th
freedom traffic rights between Kuwait and Manila and vice
versa will be exercised. No 5th freedom traffic rights will be
exercised between Manila on the one hand and Bangkok on
the other."7
The "freedom traffic rights" referred to in the Agreement are
the so-called "five freedoms" contained in the International Air
Transport Agreement (IATA) signed in Chicago on 7 December
1944. Under the IATA, each contracting State agreed to grant
to the other contracting states, five "freedoms of air." Among
these freedoms were "[t]he privilege to put down passengers,
mail and cargo taken on in
the territory of the State whose nationality the aircraft
possesses" (Third Freedom); "[t]he privilege to take on
passengers, mail or cargo destined for the territory of the State
whose nationality the aircraft possesses" (Fourth Freedom);
and the right to carry passengers from one's own country to a
second country, and from that country to a third country (Fifth
Freedom). In essence, the Kuwait Airways flight was
authorized to board passengers in Kuwait and deplane them in
Manila, as well as to board passengers in Manila and deplane
them in Kuwait. At the same time, with the limitation in the
exercise of Fifth Freedom traffic rights, the flight was barred
from boarding passengers in Bangkok and deplaning them in
Manila, or boarding passengers in Manila and deplaning them
in Bangkok.
The Commercial Agreement likewise adverted to the annexed
Joint Services Agreement covering the Kuwait-Manila (and vice
versa) route, which both airlines had entered into "[i]n order
to reflect the high level of friendly relationships between
[Kuwait Airways] and [Philippine Airlines] and to assist each
other to develop traffic on the route."8 The Agreement
likewise stipulated that "[u]ntil such time as [Philippine
Airlines] commences its operations to or via Kuwait, the Joint
Services shall be operated with the use of [Kuwait Airways]
aircraft and crew."9 By virtue of the Joint Services Agreement,
Philippine Airlines was entitled to seat allocations on specified
Kuwait Airways sectors, special prorates for use by Philippine
Airlines to specified Kuwait Airways sectors, joint advertising
by both carriers in each other’s timetables and other general
advertising, and mutual assistance to each other with respect
to the development of traffic on the route.10
Most pertinently for our purposes, under Article 2.1 of the
Commercial Agreement, Kuwait Airways obligated itself to
"share with Philippine Airlines revenue earned from the uplift
of passengers between Kuwait and Manila and vice
versa."11 The succeeding paragraphs of Article 2 stipulated the
basis for the shared revenue earned from the uplift of
passengers.
The Commercial Agreement and the annexed Joint Services
Agreement was subsequently amended by the parties six
times between 1981 and 1994. At one point, in 1988, the
agreement was amended to authorize Philippine Airlines to
operate provisional services, referred to as "ad hoc joint
services," on the Manila-Kuwait (and vice versa) route for the
period between April to June 1988.12 In 1989, another
amendment was agreed to by the parties, subjecting the uplift
of cargo between Kuwait and Manila to the same revenue
sharing arrangement as the uplift of passengers.13From 1981
until when the present incidents arose in 1995, there seems to
have been no serious disagreements relating to the contract.
In April of 1995, delegations from the Philippines and Kuwait
(Philippine Panel and Kuwait Panel) met in Kuwait. The talks
culminated in a Confidential Memorandum of Understanding
(CMU) entered into in Kuwait on 12 April 1995. Among the
members of the Philippine Panel were officials of the Civil
Aeronautics Board (CAB), the Department of Foreign Affairs
(DFA), and four officials of Philippine Airlines: namely its Vice-
President for Marketing, Director for International Relations,
Legal Counsel, and a Senior International Relations Specialist.
Dr. Victor S. Linlingan, the Head of the Delegation and
Executive Director of the CAB, signed the CMU in behalf of the
Government of the Republic of the Philippines.
The present controversy stems from the fourth paragraph of
the CMU, which read:
4. The two delegations agreed that the unilateral operation
and the exercise of third and fourth freedom traffic rights shall
not be subject to any royalty payment or commercial
arrangements, as from the date of signing of this [CMU].The
aeronautical authorities of the two Contracting Parties will
bless and encourage any cooperation between the two
designated airlines.The designated airlines shall enter into
commercial arrangements for the unilateral exercise of fifth
freedom traffic rights. Such arrangements will be subject to
the approval of the aeronautical authorities of both
contracting parties.14
On 15 May 1995, Philippine Airlines received a letter from
Dawoud M. Al-Dawoud, the Deputy Marketing & Sales Director
for International Affairs of Kuwait Airways, addressed to Ms.
Socorro Gonzaga, the Director for International Relations of
Philippine Airlines.15 Both Al-Dawoud and Gonzaga were
members of their country’s respective delegations that had
met in Kuwait the previous month. The letter stated in part:
Regarding the [Kuwait Airways/Philippine Airlines]
Commercial Agreement, pursuant to item 4 of the new MOU[,]
we will advise our Finance Department that the Agreement
concerning royalty for 3rd/4th freedom traffic will be
terminated effective April 12, 1995. Although the royalty
agreement will no longer be valid, we are very keen on seeing
that [Philippine Airlines] continues to enjoy direct participation
in the Kuwait/Philippines market through the Block Space
Agreement and to that extent we would like to maintain the Jt.
Venture (Block Space) Agreement, although with some minor
modifications.16
To this, Gonzaga replied to Kuwait Airways in behalf of
Philippine Airlines in a letter dated 22 June 1995. 17 Philippine
Airlines called attention to Section 6.5 of the Commercial
Agreement, which read:
This agreement may be terminated by either party by giving
ninety (90) days notice in writing to the other party. However,
any termination date must be the last day of any traffic period,
e.g.[,] 31st March or 31st October.18
Pursuant to this clause, Philippine Airlines acknowledged the
15 May 1995 letter as the requisite notice of termination.
However, it also pointed out that the agreement could only be
effectively terminated on 31 October 1995, or the last day of
the then current traffic period. Thus, Philippine Airlines
insisted that the provisions of the Commercial Agreement
"shall continue to be enforced until such date."19
Subsequently, Philippine Airlines insisted that Kuwait Airways
pay it the principal sum of US$1,092,690.00 as revenue for the
uplift of passengers and cargo for the period 13 April 1995 until
28 October 1995.20 When Kuwait Airways refused to pay,
Philippine Airlines filed a Complaint21 against the foreign
airline with the Regional Trial Court (RTC) of Makati City,
seeking the payment of the aforementioned sum with interest,
attorney’s fees, and costs of suit. In its Answer,22 Kuwait
Airways invoked the CMU and argued that its obligations
under the Commercial Agreement were terminated as of the
effectivity date of the CMU, or on 12 April 1995. Philippine
Airlines countered in its Reply that it was "not privy to the
[CMU],"23 though it would eventually concede the existence of
the CMU.24
An exhaustive trial on the merits was had. On 25 October 2002,
the RTC rendered a Decision in favor of Philippine Airlines. The
RTC noted that "the only issue to resolve in this case is a legal
one," particularly whether Philippine Airlines is entitled to the
sums claimed under the terms of the Commercial Agreement.
The RTC also considered as a corollary issue whether Kuwait
Airways "validly terminated the Commercial Agreement x x x,
plaintiff’s contention being that [Kuwait Airways] had not
complied with the terms of termination provided for in the
Commercial Agreement."
The bulk of the RTC’s discussion centered on the Philippine
Airlines’ claim that the execution of the CMU could not
prejudice its existing rights under the Commercial Agreement,
and that the CMU could only be deemed effective only after
31 October 1995, the purported effectivity date of termination
under the Commercial Agreement. The rationale for this
position of Philippine Airlines was that the execution of the
CMU could not divest its proprietary rights under the
Commercial Agreement.
On this crucial point, the RTC agreed with Philippine Airlines. It
asserted the obligatory force of contracts between contracting
parties as the source of vested rights which may not be
modified or impaired. After recasting Kuwait Airway’s
arguments on this point as being that "the Confidential
Memorandum of Understanding is superior to the Commercial
Agreement[,] the same having been supposedly executed by
virtue of the state’s sovereign power," the RTC rejected the
argument, holding that "[t]he fact that the [CMU] may have
been executed by a Philippine Panel consisting of
representative [sic] of CAB, DFA, etc. does not necessarily give
rise to the conclusion that the [CMU] is a superior contract[,]
for the exercise of the State’s sovereign power cannot be
arbitrarily and indiscriminately utilized specifically to impair
contractual vested rights."25
Instead, the RTC held that "[t]he Commercial Agreement and
its specific provisions on revenue sharing having been freely
and voluntarily agreed upon by the affected parties x x x has
the force of law between the parties and they are bound to the
fulfillment of what has been expressly stipulated
therein."26 Accordingly, "the provision of the [CMU] must be
applied in such a manner that it does not impair the vested
rights of the parties."
From this Decision, Kuwait Airways directly filed with this
Court the present Petition for Review, raising pure questions
of law. Kuwait Airways poses three questions of law for
resolution: whether the designated air carrier of the Republic
of the Philippines can have better rights than the government
itself; whether the bilateral agreement between the Republic
of the Philippines and the State of Kuwait is superior to the
Commercial Agreement; and whether the enforcement of the
CMU violates the non-impairment clause of the Constitution.
Let us review the factual backdrop to appreciate the
underlying context behind the Commercial Agreement and the
CMU. The Commercial Agreement was entered into in 1981 at
a time when Philippine Airlines had not provided a route to
Kuwait while Kuwait Airways had a route to Manila. The
Commercial Agreement established a joint commercial
arrangement whereby Philippine Airlines and Kuwait Airways
were to jointly operate the Manila-Kuwait (and vice versa)
route, utilizing the planes and services of Kuwait Airways.
Based on the preambular paragraphs of the Joint Services
Agreement, as of 1981, Kuwait Airways was interested in
establishing a "second frequency" (or an increase of its Manila
flights to two) and that "as a result of cordial and frank
discussions the concept of a joint service emerged as the most
desirable alternative option."27
As a result, the revenue-sharing agreement was reached
between the two airlines, an agreement which stood as an
alternative to both carriers offering competing flights servicing
the Manila-Kuwait route. An apparent concession though by
Philippine Airlines was the preclusion of the exercise of one of
the fundamental air traffic rights, the Fifth Freedom traffic
rights with respect to the Manila-Bangkok-Kuwait, thereby
precluding the deplaning of passengers from Manila in
Bangkok and the boarding in Bangkok of passengers bound for
Manila.
The CMU effectively sought to end the 1981 agreement
between Philippine Airlines and Kuwait Airways, by precluding
any commercial arrangements in the exercise of the Third and
Fourth freedom traffic rights. As a result, both Kuwait and the
Philippines had the respective right to board passengers from
their respective countries and deplane them in the other
country, without having to share any revenue or enter into any
commercial arrangements to exercise such rights. In exchange,
the designated airline or airlines of each country was entitled
to operate six frequencies per week in each direction. In
addition, the designated airlines were allowed to enter into
commercial arrangements for the unilateral exercise of the
Fifth Freedom traffic rights.
Another notable point, one not touched upon by the parties or
the trial court. It is well known that at the time of the execution
of the 1981 agreements, Philippine Airlines was controlled by
the Philippine government, with the Government Service
Insurance System (GSIS) holding the majority of shares.
However, in 1992, Philippine Airlines was privatized, with a
private consortium acquiring 67% of the shares of the
carrier.28 Thus, at the time of the signing of the CMU,
Philippine Airlines was a private corporation no longer
controlled by the Government. This fact is significant. Had
Philippine Airlines remained a government owned or
controlled corporation at the time the CMU was executed in
1995, its status as such would have bound Philippine Airlines
to the commitments made in the document by no less than the
Philippine government. However, since Philippine Airlines had
already become a private corporation at that juncture, the
question of impairment of private rights may come into
consideration.
In this regard, we observe that the RTC appears to have been
under the impression that the CMU was brought about by
machinations of the Philippine Panel and the Kuwait Panel of
which Philippine Airlines was not aware or in which it had a
part. This impression is not exactly borne by the record since
no less than four of the nine members of the Philippine Panel
were officials of Philippine Airlines. It should be noted though
that one of these officials, Senior International Relations
Specialist Arnel Vibar, testified for Philippine Airlines that the
airline voiced its opposition to the withdrawal of the
commercial agreements under the CMU even months before
the signing of the CMU, but the objections were overruled.
Now, the arguments raised in the petition.
One line of argument raised by Kuwait Airways can be
dismissed outright. Kuwait Airways points out that the third
Whereas clause of the 1981 Commercial Agreement stated:
"NOW, it is hereby agreed, subject to and without prejudice to
any existing or future agreements between the Government
Authorities of the Contracting Parties hereto …" That clause, it
is argued, evinces acknowledgement that from the beginning
Philippine Airlines had known fully well that its rights under the
Commercial Agreement would be limited by whatever
agreements the Philippine and Kuwait governments may enter
into later.
But can a perambulatory clause, which is what the adverted
"Whereas" clause is, impose a binding obligation or limitation
on the contracting parties? In the case of statutes, while a
preamble manifests the reasons for the passage of the statute
and aids in the interpretation of any ambiguities within the
statute to which it is prefixed, it nonetheless is not an essential
part of an act, and it neither enlarges nor confers
powers.29 Philippine Airlines submits that the same holds true
as to the preambular whereas clauses of a contract.
What was the intention of the parties in forging the "Whereas"
clause and the contexts the parties understood it in 1981? In
order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered,30 and in doing so, the courts may consider the
relations existing between the parties and the purpose of the
contract.31 In 1981, Philippine Airlines was still owned by the
Philippine government. In that context, it is evident that the
Philippine government, as owner Philippine Airlines, could
enter into agreements with the Kuwait government that would
supersede the Commercial Agreement entered into by one of
its GOCCs, a scenario that changed once Philippine Airlines fell
to private ownership. Philippine Airlines argues before us that
the cited preambular stipulation is in fact superfluous, and we
can agree in the sense that as of the time of the execution of
the Commercial Agreement, it was evident, without need of
stipulation, that the Philippine government could enter into an
agreement with the Kuwait government that would prejudice
the terms of the commercial arrangements between the two
airlines. After all, Philippine Airlines then would not have been
in a position to challenge the wishes of its then majority
stockholder – the Philippine government.
Yet by the time ownership of Philippine Airlines was
transferred into private hands, the controverted "Whereas"
clause had taken on a different complexion, for it was newly
evident that an act of the Philippine government negating the
commercial arrangement between the two airlines would
infringe the vested rights of a private individual. The original
intention of the "Whereas" clause was to reflect what was then
a given fact relative to the nationalized status of Philippine
Airlines. With the change of ownership of Philippine Airlines,
the "Whereas" clause had ceased to be reflective of the
current situation as it now stands as a seeming invitation to
the Philippine government to erode private vested rights. We
would have no problem according the interpretation preferred
by Kuwait Airways of the "Whereas" clause had it been still
reflective of the original intent to waive vested rights of private
persons, rather than the rights in favor of the government by
a GOCC. That is not the case, and we are not inclined to give
effect to the "Whereas" clause in a manner that does not
reflect the original intention of the contracting parties.
Thusly, the proper focus of our deliberation should be whether
the execution of the CMU between the Philippine and Kuwait
governments could have automatically terminated the
Commercial Agreement, as well as the Joint Services
Agreement between Philippine Airlines and Kuwait Airways.
Philippine Airlines is the grantee of a legislative franchise
authorizing it to provide domestic and international air
services.32 Its initial franchise was granted in 1935 through Act
No. 4271, which underwent substantial amendments in 1959
through Republic Act No. 2360.33 It was granted a new
franchise in 1979 through Presidential Decree No. 1590,
wherein statutory recognition was accorded to Philippine
Airlines as the "national flag carrier." P.D. No. 1590 also
recognized that the "ownership, control, and management" of
Philippine Airlines had been reacquired by the Government.
Section 19 of P.D. No. 1590 authorized Philippine Airlines to
contract loans, credits and indebtedness from foreign sources,
including foreign governments, with the unconditional
guarantee of the Republic of the Philippines.
At the same time, Section 8 of P.D. No. 1590 subjects
Philippine Airlines "to the laws of the Philippines now existing
or hereafter enacted." After pointing to this provision, Kuwait
Airways correlates it to Republic Act (R.A.) No. 776, or the Civil
Aeronautics Act of the Philippines, which grants the Civil
Aeronautics Board (CAB) "the power to regulate the economic
aspect of air transportation, [its] general supervision and
regulation of, and jurisdiction and control over, air carriers as
well as their property, property rights, equipment, facilities,
and franchise." R.A. No. 776 also mandates that the CAB "shall
take into consideration the obligation assumed by the Republic
of the Philippines in any treaty, convention or agreement with
foreign countries on matters affecting civil aviation."
There is no doubt that Philippine Airlines forebears under
several regulatory perspectives. First, its authority to operate
air services in the Philippines derives from its legislative
franchise and is accordingly bound by whatever limitations
that are presently in place or may be subsequently
incorporated in its franchise. Second, Philippine Airlines is
subject to the other laws of the Philippines, including R.A. No.
776, which grants regulatory power to the CAB over the
economic aspect of air transportation. Third, there is a very
significant public interest in state regulation of air travel in
view of considerations of public safety, domestic and
international commerce, as well as the fact that air travel
necessitates steady traversal of international boundaries, the
amity between nations.
At the same time, especially since Philippine Airlines was
already under private ownership at the time the CMU was
entered into, we cannot presume that any and all
commitments made by the Philippine government are
unilaterally binding on the carrier even if this comes at the
expense of diplomatic embarrassment. While it may have
been, prior to the privatization of Philippine Airlines, that the
Philippine Government had the authority to bind the airline in
its capacity as owner of the airline, under the post-
privatization era, however, whatever authority of the
Philippine Government to bind Philippine Airlines can only
come in its capacity as regulator.1awphi1
As with all regulatory subjects of the government,
infringement of property rights can only avail with due process
of law. Legislative regulation of public utilities must not have
the effect of depriving an owner of his property without due
process of law, nor of confiscating or appropriating private
property without due process of law, nor of confiscating or
appropriating private property without just compensation, nor
of limiting or prescribing irrevocably vested rights or privileges
lawfully acquired under a charter or franchise. The power to
regulate is subject to these constitutional limits. 34
We can deem that the CAB has ample power under its
organizing charter, to compel Philippine Airlines to terminate
whatever commercial agreements the carrier may have. After
all, Section 10 of R.A. No. 776 grants to the CAB the "general
supervision and regulation of, and jurisdiction and control
over, air carriers as well as their property, property rights,
equipment, facilities and franchise," and this power correlates
to Section 4(c) of the same law, which mandates that the Board
consider in the exercise of its functions "the regulation of air
transportation in such manner as to recognize and preserve
the inherent advantages of, assure the highest degree of safety
in, and foster sound economic condition in, such
transportation, and to improve the relations between, and
coordinate transportation by air carriers."
We do not doubt that the CAB, in the exercise of its statutory
mandate, has the power to compel Philippine Airlines to
immediately terminate its Commercial Agreement with Kuwait
Airways pursuant to the CMU. Considering that it is the
Philippine government that has the sole authority to charter
air policy and negotiate with foreign governments with respect
to air traffic rights, the government through the CAB has the
indispensable authority to compel local air carriers to comply
with government determined policies, even at the expense of
economic rights. The airline industry is a sector where
government abjuration is least desired.
However, this is not a case where the CAB had duly exercised
its regulatory authority over a local airline in order to
implement or further government air policy. What happened
instead was an officer of the CAB, acting in behalf not of the
Board but of the Philippine government, had committed to a
foreign nation the immediate abrogation of Philippine
Airlines’s commercial agreement with Kuwait Airways. And
while we do not question that ability of that member of the
CAB to represent the Philippine government in signing the
CMU, we do question whether such member could have
bound Philippine Airlines in a manner that can be accorded
legal recognition by our courts.
Imagine if the President of the Philippines, or one of his alter
egos, acceded to the demands of a 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 that
there is basis in Philippine law for the closure of such business,
could the mere declaration of the President have the legal
effect of immediately rendering business operations illegal?
We, as magistrates in a functioning democratic State with a
fully fleshed Bill of Rights and a Constitution that emphatically
rejects "l’etat cest moi" as the governing philosophy, think not.
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 effect in this jurisdiction. Even granting that the
"agreement" between the two governments or their
representatives creates a binding obligation under
international law, it remains incumbent for each contracting
party to adhere to its own internal law in the process of
complying with its obligations.
The promises made by a Philippine president or his alter egos
to a foreign monarch are not 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 been bound,
as part of the executive branch, to comply with the dictates of
the President or his alter egos since the President has
executive control and supervision over the components of the
executive branch. Yet Philippine Airlines has become, by this
time, a private corporation – one that may have labored under
the conditions of its legislative franchise that allowed it to
conduct air services, but private in character nonetheless. The
President or his alter egos do not have the legal capacity to
dictate insuperable commands to private persons. And that
undesirable trait would be refuted on the President had
petitioner’s position prevailed, since it is imbued with the
presumption that the commitment made to a foreign
government becomes operative without complying with the
internal processes for the divestiture of private rights.
Herein, we do not see why the Philippine government could
not have observed due process of law, should it have desired
to see the Commercial Agreement immediately terminated in
order to adhere to its apparent commitment to the Kuwait
government. The CAB, with its ample regulatory power over
the economic affairs of local airliners, could have been called
upon to exercise its jurisdiction to make it so. A remedy even
exists in civil law–the judicial annulment or reformation of
contracts–which could have been availed of to effect the
immediate termination of the Commercial Agreement. No
such remedy was attempted by the government.
Nor can we presume, simply because Dr. Linlingan, Executive
Director of the CAB had signed the CMU in behalf of the
Philippine Panel, that he could have done so bearing the
authority of the Board, in the exercise of regulatory jurisdiction
over Philippine Airlines. For one, the CAB is a collegial body
composed of five members,35 and no one member–even the
chairman–can act in behalf of the entire Board. The Board is
disabled from performing as such without a quorum. For
another, the Executive Director of the CAB is not even a
member of the Board, per R.A. No. 776, as amended.
Even granting that the police power of the State, as given flesh
in the various laws governing the regulation of the airline
industry in the Philippines, may be exercised to impair the
vested rights of privately-owned airlines, the deprivation of
property still requires due process of law. In order to validate
petitioner’s position, we will have to concede that the right to
due process may be extinguished by executive command.
While we sympathize with petitioner, who reasonably could
rely on the commitment made to it by the Philippine
government, we still have to respect the segregate identity of
the government and that of a private corporation and give due
meaning to that segregation, vital as it is to the very notion of
democracy.
WHEREFORE, the petition is DENIED. No pronouncement as to
costs.SO ORDERED.
G.R. No. 155001 January 21, 2004
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE
MARI B. REUNILLA, MANUEL ANTONIO B. BOÑE, MAMERTO
S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON,
CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P.
ADOLFO, BIENVENIDO C. HILARIO, MIASCOR WORKERS
UNION-NATIONAL LABOR UNION (MWU-NLU), and
PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION
(PALEA),petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC.,
MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS and SECRETARY LEANDRO M.
MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, respondents,
PUNO, J.:
Before this Court are the separate Motions for
Reconsideration filed by respondent Philippine International
Air Terminals Co., Inc. (PIATCO), respondents-intervenors
Jacinto V. Paras, Rafael P. Nantes, Eduardo C. Zialcita, Willie
Buyson Villarama, Prospero C. Nograles, Prospero A. Pichay,
Jr., Harlin Cast Abayon and Benasing O. Macaranbon, all
members of the House of Representatives (Respondent
Congressmen),1 respondents-intervenors who are employees
of PIATCO and other workers of the Ninoy Aquino
International Airport International Passenger Terminal III
(NAIA IPT III) (PIATCO Employees)2 and respondents-
intervenors Nagkaisang Maralita ng Tañong Association, Inc.,
(NMTAI)3 of the Decision of this Court dated May 5, 2003
declaring the contracts for the NAIA IPT III project null and
void.
Briefly, the proceedings. On October 5, 1994, Asia’s Emerging
Dragon Corp. (AEDC) submitted an unsolicited proposal to the
Philippine Government through the Department of
Transportation and Communication (DOTC) and Manila
International Airport Authority (MIAA) for the construction
and development of the NAIA IPT III under a build-operate-
and-transfer arrangement pursuant to R.A. No. 6957, as
amended by R.A. No. 7718 (BOT Law).4 In accordance with the
BOT Law and its Implementing Rules and Regulations
(Implementing Rules), the DOTC/MIAA invited the public for
submission of competitive and comparative proposals to the
unsolicited proposal of AEDC. On September 20, 1996 a
consortium composed of the People’s Air Cargo and
Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds
Services, Inc. (PAGS) and Security Bank Corp. (Security Bank)
(collectively, Paircargo Consortium), submitted their
competitive proposal to the Prequalification Bids and Awards
Committee (PBAC).
After finding that the Paircargo Consortium submitted a bid
superior to the unsolicited proposal of AEDC and after failure
by AEDC to match the said bid, the DOTC issued the notice of
award for the NAIA IPT III project to the Paircargo Consortium,
which later organized into herein respondent PIATCO. Hence,
on July 12, 1997, the Government, through then DOTC
Secretary Arturo T. Enrile, and PIATCO, through its President,
Henry T. Go, signed the "Concession Agreement for the Build-
Operate-and-Transfer Arrangement of the Ninoy Aquino
International Airport Passenger Terminal III" (1997 Concession
Agreement). On November 26, 1998, the 1997 Concession
Agreement was superseded by the Amended and Restated
Concession Agreement (ARCA) containing certain revisions
and modifications from the original contract. A series of
supplemental agreements was also entered into by the
Government and PIATCO. The First Supplement was signed on
August 27, 1999, the Second Supplement on September 4,
2000, and the Third Supplement on June 22, 2001 (collectively,
Supplements) (the 1997 Concession Agreement, ARCA and the
Supplements collectively referred to as the PIATCO Contracts).
On September 17, 2002, various petitions were filed before
this Court to annul the 1997 Concession Agreement, the
ARCA and the Supplements and to prohibit the public
respondents DOTC and MIAA from implementing them.
In a decision dated May 5, 2003, this Court granted the said
petitions and declared the 1997 Concession Agreement, the
ARCA and the Supplements null and void.
Respondent PIATCO, respondent-Congressmen and
respondents-intervenors now seek the reversal of the May 5,
2003 decision and pray that the petitions be dismissed. In the
alternative, PIATCO prays that the Court should not strike
down the entire 1997 Concession Agreement, the ARCA and its
supplements in light of their separability clause. Respondent-
Congressmen and NMTAI also pray that in the alternative, the
cases at bar should be referred to arbitration pursuant to the
provisions of the ARCA. PIATCO-Employees pray that the
petitions be dismissed and remanded to the trial courts for
trial on the merits or in the alternative that the 1997
Concession Agreement, the ARCA and the Supplements be
declared valid and binding.
I
Procedural Matters
a. Lack of Jurisdiction
Private respondents and respondents-intervenors reiterate a
number of procedural issues which they insist deprived this
Court of jurisdiction to hear and decide the instant cases on its
merits. They continue to claim that the cases at bar raise
factual questions which this Court is ill-equipped to resolve,
hence, they must be remanded to the trial court for reception
of evidence. Further, they allege that although designated as
petitions for certiorari and prohibition, the cases at bar are
actually actions for nullity of contracts over which the trial
courts have exclusive jurisdiction. Even assuming that the
cases at bar are special civil actions for certiorari and
prohibition, they contend that the principle of hierarchy of
courts precludes this Court from taking primary jurisdiction
over them.
We are not persuaded.
There is a question of fact when doubt or difference arises as
to the truth or falsity of the facts alleged.5 Even a cursory
reading of the cases at bar will show that the Court decided
them by interpreting and applying the Constitution, the BOT
Law, its Implementing Rules and other relevant legal principles
on the basis of clearly undisputed facts. All the operative
facts were settled, hence, there is no need for a trial type
determination of their truth or falsity by a trial court.
We reject the unyielding insistence of PIATCO Employees that
the following factual issues are critical and beyond the
capability of this Court to resolve, viz: (a) whether the National
Economic Development Authority- Investment Coordinating
Committee (NEDA-ICC) approved the Supplements; (b)
whether the First Supplement created ten (10) new financial
obligations on the part of the government; and (c) whether the
1997 Concession Agreement departed from the draft
Concession Agreement contained in the Bid Documents. 6
The factual issue of whether the NEDA-ICC approved the
Supplements is hardly relevant. It is clear in our Decision that
the PIATCO contracts were invalidated on other and more
substantial grounds. It did not rely on the presence or absence
of NEDA-ICC approval of the Supplements. On the other hand,
the last two issues do not involve disputed facts. Rather, they
involve contractual provisions which are clear and categorical
and need only to be interpreted. The interpretation of
contracts and the determination of whether their provisions
violate our laws or contravene any public policy is a legal issue
which this Court may properly pass upon.
Respondents’ corollary contention that this Court violated
the hierarchy of courts when it entertained the cases at bar
must also fail. The rule on hierarchy of courts in cases falling
within the concurrent jurisdiction of the trial courts and
appellate courts generally applies to cases involving warring
factual allegations. For this reason, litigants are required to
repair to the trial courts at the first instance to determine the
truth or falsity of these contending allegations on the basis of
the evidence of the parties. Cases which depend on disputed
facts for decision cannot be brought immediately before
appellate courts as they are not triers of facts.
It goes without saying that when cases brought before the
appellate courts do not involve factual but legal questions, a
strict application of the rule of hierarchy of courts is not
necessary. As the cases at bar merely concern the construction
of the Constitution, the interpretation of the BOT Law and its
Implementing Rules and Regulations on undisputed
contractual provisions and government actions, and as the
cases concern public interest, this Court resolved to take
primary jurisdiction over them. This choice of action follows
the consistent stance of this Court to settle any controversy
with a high public interest component in a single proceeding
and to leave no root or branch that could bear the seeds of
future litigation. The suggested remand of the cases at bar to
the trial court will stray away from this policy. 7
b. Legal Standing
Respondent PIATCO stands pat with its argument that
petitioners lack legal personality to file the cases at bar as they
are not real parties in interest who are bound principally or
subsidiarily to the PIATCO Contracts. Further, respondent
PIATCO contends that petitioners failed to show any legally
demandable or enforceable right to justify their standing to file
the cases at bar.
These arguments are not difficult to deflect. The
determination of whether a person may institute an action or
become a party to a suit brings to fore the concepts of real
party in interest, capacity to sue and standing to sue. To the
legally discerning, these three concepts are different although
commonly directed towards ensuring that only certain parties
can maintain an action.8 As defined in the Rules of Court, a real
party in interest is the party who stands to be benefited or
injured by the judgment in the suit or the party entitled to the
avails of the suit.9 Capacity to sue deals with a situation where
a person who may have a cause of action is disqualified from
bringing a suit under applicable law or is incompetent to bring
a suit or is under some legal disability that would prevent him
from maintaining an action unless represented by a guardian
ad litem. Legal standing is relevant in the realm of public law.
In certain instances, courts have allowed private parties to
institute actions challenging the validity of governmental
action for violation of private rights or constitutional
principles.10 In these cases, courts apply the doctrine of legal
standing by determining whether the party has a direct and
personal interest in the controversy and whether such party
has sustained or is in imminent danger of sustaining an injury
as a result of the act complained of, a standard which is
distinct from the concept of real party in interest.11 Measured
by this yardstick, the application of the doctrine on legal
standing necessarily involves a preliminary consideration of
the merits of the case and is not purely a procedural issue.12
Considering the nature of the controversy and the issues
raised in the cases at bar, this Court affirms its ruling that the
petitioners have the requisite legal standing. The petitioners in
G.R. Nos. 155001 and 155661 are employees of service
providers operating at the existing international airports and
employees of MIAA while petitioners-intervenors are service
providers with existing contracts with MIAA and they will all
sustain direct injury upon the implementation of the PIATCO
Contracts. The 1997 Concession Agreement and the ARCA both
provide that upon the commencement of operations at the
NAIA IPT III, NAIA Passenger Terminals I and II will cease to be
used as international passenger terminals.13 Further, the ARCA
provides:
(d) For the purpose of an orderly transition, MIAA shall not
renew any expired concession agreement relative to any
service or operation currently being undertaken at the Ninoy
Aquino International Airport Passenger Terminal I, or extend
any concession agreement which may expire subsequent
hereto, except to the extent that the continuation of the
existing services and operations shall lapse on or before the In-
Service Date.14
Beyond iota of doubt, the implementation of the PIATCO
Contracts, which the petitioners and petitioners-intervenors
denounce as unconstitutional and illegal, would deprive them
of their sources of livelihood. Under settled jurisprudence,
one's employment, profession, trade, or calling is a property
right and is protected from wrongful interference. 15 It is also
self evident that the petitioning service providers stand in
imminent danger of losing legitimate business investments in
the event the PIATCO Contracts are upheld.
Over and above all these, constitutional and other legal issues
with far-reaching economic and social implications are
embedded in the cases at bar, hence, this Court liberally
granted legal standing to the petitioning members of the
House of Representatives. First, at stake is the build-operate-
and–transfer contract of the country’s premier international
airport with a projected capacity of 10 million passengers a
year. Second, the huge amount of investment to complete the
project is estimated to be P13,000,000,000.00. Third, the
primary issues posed in the cases at bar demand a discussion
and interpretation of the Constitution, the BOT Law and its
implementing rules which have not been passed upon by this
Court in previous cases. They can chart the future inflow of
investment under the BOT Law.
Before writing finis to the issue of legal standing, the Court
notes the bid of new parties to participate in the cases at bar
as respondents-intervenors, namely, (1) the PIATCO
Employees and (2) NMTAI (collectively, the New Respondents-
Intervenors). After the Court’s Decision, the New
Respondents-Intervenors filed separate Motions for
Reconsideration-In-Intervention alleging prejudice and direct
injury. PIATCO employees claim that "they have a direct and
personal interest [in the controversy]... since they stand to lose
their jobs should the government’s contract with PIATCO be
declared null and void."16 NMTAI, on the other hand,
represents itself as a corporation composed of responsible tax-
paying Filipino citizens with the objective of "protecting and
sustaining the rights of its members to civil liberties, decent
livelihood, opportunities for social advancement, and to a
good, conscientious and honest government."17
The Rules of Court govern the time of filing a Motion to
Intervene. Section 2, Rule 19 provides that a Motion to
Intervene should be filed "before rendition of judgment...."
The New Respondents-Intervenors filed their separate
motions after a decision has been promulgated in the present
cases. They have not offered any worthy explanation to justify
their late intervention. Consequently, their Motions for
Reconsideration-In-Intervention are denied for the rules
cannot be relaxed to await litigants who sleep on their rights.
In any event, a sideglance at these late motions will show that
they hoist no novel arguments.
c. Failure to Implead an Indispensable Party
PIATCO next contends that petitioners should have impleaded
the Republic of the Philippines as an indispensable party. It
alleges that petitioners sued the DOTC, MIAA and the DPWH
in their own capacities or as implementors of the PIATCO
Contracts and not as a contract party or as representatives of
the Government of the Republic of the Philippines. It then
leapfrogs to the conclusion that the "absence of an
indispensable party renders ineffectual all the proceedings
subsequent to the filing of the complaint including the
judgment."18
PIATCO’s allegations are inaccurate. The petitions clearly bear
out that public respondents DOTC and MIAA were impleaded
as parties to the PIATCO Contracts and not merely as their
implementors. The separate petitions filed by the MIAA
employees19 and members of the House of
Representatives20 alleged that "public respondents are
impleaded herein because they either executed the PIATCO
Contracts or are undertaking acts which are related to the
PIATCO Contracts. They are interested and indispensable
parties to this Petition."21 Thus, public respondents DOTC and
MIAA were impleaded as parties to the case for
having executed the contracts.
More importantly, it is also too late in the day for PIATCO to
raise this issue. If PIATCO seriously views the non-inclusion of
the Republic of the Philippines as an indispensable party as
fatal to the petitions at bar, it should have raised the issue at
the onset of the proceedings as a ground to dismiss. PIATCO
cannot litigate issues on a piecemeal basis, otherwise,
litigations shall be like a shore that knows no end. In any event,
the Solicitor General, the legal counsel of the Republic,
appeared in the cases at bar in representation of the interest
of the government.
II
Pre-qualification of PIATCO
The Implementing Rules provide for the unyielding standards
the PBAC should apply to determine the financial capability of
a bidder for pre-qualification purposes: (i) proof of the ability
of the project proponent and/or the consortium to provide a
minimum amount of equity to the project and (ii) a letter
testimonial from reputable banks attesting that the project
proponent and/or members of the consortium are banking
with them, that they are in good financial standing, and that
they have adequate resources.22 The evident intent of these
standards is to protect the integrity and insure the viability of
the project by seeing to it that the proponent has the financial
capability to carry it out. As a further measure to achieve this
intent, it maintains a certain debt-to-equity ratio for the
project.
At the pre-qualification stage, it is most important for a bidder
to show that it has the financial capacity to undertake the
project by proving that it can fulfill the requirement on
minimum amount of equity. For this purpose, the Bid
Documents require in no uncertain terms:
The minimum amount of equity to which the proponent’s
financial capability will be based shall be thirty percent (30%)
of the project cost instead of the twenty percent (20%)
specified in Section 3.6.4 of the Bid Documents. This is to
correlate with the required debt-to-equity ratio of 70:30 in
Section 2.01a of the draft concession agreement. The debt
portion of the project financing should not exceed 70% of the
actual project cost.23
In relation thereto, section 2.01 (a) of the ARCA provides:
Section 2.01 Project Scope.
The scope of the project shall include:
(a) Financing the project at an actual Project cost of not less
than Three Hundred Fifty Million United States Dollars
(US$350,000,000.00) while maintaining a debt-to-equity ratio
of 70:30, provided that if the actual Project costs should
exceed the aforesaid amount, Concessionaire shall ensure that
the debt-to-equity ratio is maintained;24
Under the debt-to-equity restriction, a bidder may only seek
financing of the NAIA IPT III Project up to 70% of the project
cost. Thirty percent (30%) of the cost must come in the form
of equity or investment by the bidder itself. It cannot be overly
emphasized that the rules require a minimum amount of
equity to ensure that a bidder is not merely an operator or
implementor of the project but an investor with a substantial
interest in its success. The minimum equity requirement also
guarantees the Philippine government and the general public,
who are the ultimate beneficiaries of the project, that a bidder
will not be indifferent to the completion of the project. The
discontinuance of the project will irreparably damage public
interest more than private interest.
In the cases at bar, after applying the investment ceilings
provided under the General Banking Act and considering the
maximum amounts that each member of the consortium may
validly invest in the project, it is daylight clear that the
Paircargo Consortium, at the time of pre-qualification, had a
net worth equivalent to only 6.08% of the total estimated
project cost.25 By any reckoning, a showing by a bidder that at
the time of pre-qualification its maximum funds available for
investment amount to only 6.08% of the project cost is
insufficient to satisfy the requirement prescribed by the
Implementing Rules that the project proponent must have the
ability to provide at least 30% of the total estimated project
cost. In peso and centavo terms, at the time of pre-
qualification, the Paircargo Consortium had maximum funds
available for investment to the NAIA IPT III Project only in the
amount of P558,384,871.55, when it had to show that it had
the ability to provide at least P2,755,095,000.00. The huge
disparity cannot be dismissed as of de minimis importance
considering the high public interest at stake in the project.
PIATCO nimbly tries to sidestep its failure by alleging that it
submitted not only audited financial statements but also
testimonial letters from reputable banks attesting to the good
financial standing of the Paircargo Consortium. It contends
that in adjudging whether the Paircargo Consortium is a pre-
qualified bidder, the PBAC should have considered not only its
financial statements but other factors showing its financial
capability.
Anent this argument, the guidelines provided in the Bid
Documents are instructive:
3.3.4 FINANCING AND FINANCIAL PREQUALIFICATIONS
REQUIREMENTS
· Minimum Amount of Equity
Each member of the proponent entity is to provide evidence
of networth in cash and assets representing the proportionate
share in the proponent entity. Audited financial
statements for the past five (5) years as a company for each
member are to be provided.
· Project Loan Financing
Testimonial letters from reputable banks attesting that each
of the members of the ownership entity are banking with
them, in good financial standing and having adequate
resources are to be provided.26
It is beyond refutation that Paircargo Consortium failed to
prove its ability to provide the amount of at least
P2,755,095,000.00, or 30% of the estimated project cost. Its
submission of testimonial letters attesting to its good financial
standing will not cure this failure. At best, the said letters
merely establish its credit worthiness or its ability to obtain
loans to finance the project. They do not, however, prove
compliance with the aforesaid requirement of minimum
amount of equity in relation to the prescribed debt-to-equity
ratio. This equity cannot be satisfied through possible loans.
In sum, we again hold that given the glaring gap between the
net worth of Paircargo and PAGS combined with the amount
of maximum funds that Security Bank may invest by equity in
a non-allied undertaking, Paircargo Consortium, at the time of
pre-qualification, failed to show that it had the ability to
provide 30% of the project cost and necessarily, its financial
capability for the project cannot pass muster.
III
Concession Agreement
Again, we brightline the principle that in public bidding, bids
are submitted in accord with the prescribed terms, conditions
and parameters laid down by government and pursuant to the
requirements of the project bidded upon. In light of these
parameters, bidders formulate competing proposals which are
evaluated to determine the bid most favorable to the
government. Once the contract based on the bid most
favorable to the government is awarded, all that is left to be
done by the parties is to execute the necessary agreements
and implement them. There can be no substantial or material
change to the parameters of the project, including the
essential terms and conditions of the contract bidded upon,
after the contract award. If there were changes and the
contracts end up unfavorable to government, the public
bidding becomes a mockery and the modified contracts must
be struck down.
Respondents insist that there were no substantial or material
amendments in the 1997 Concession Agreement as to the
technical aspects of the project, i.e., engineering design,
technical soundness, operational and maintenance methods
and procedures of the project or the technical proposal of
PIATCO. Further, they maintain that there was no modification
of the financial features of the project, i.e., minimum project
cost, debt-to-equity ratio, the operations and maintenance
budget, the schedule and amount of annual guaranteed
payments, or the financial proposal of PIATCO. A discussion of
some of these changes to determine whether they altered the
terms and conditions upon which the bids were made is again
in order.
a. Modification on Fees and Charges to be collected by
PIATCO
PIATCO clings to the contention that the removal of the
groundhandling fees, airline office rentals and porterage fees
from the category of fees subject to MIAA regulation in the
1997 Concession Agreement does not constitute a substantial
amendment as these fees are not really public utility fees. In
other words, PIATCO justifies the re-classification under the
1997 Concession Agreement on the ground that these fees
are non-public utility revenues.
We disagree. The removal of groundhandling fees, airline
office rentals and porterage fees from the category of "Public
Utility Revenues" under the draft Concession Agreement and
its re-classification to "Non-Public Utility Revenues" under the
1997 Concession Agreement is significant and has far reaching
consequence. The 1997 Concession Agreement provides that
with respect to Non-Public Utility Revenues, which include
groundhandling fees, airline office rentals and porterage
fees,27 "[PIATCO] may make any adjustments it deems
appropriate without need for the consent of GRP or any
government agency."28 In contrast, the draft Concession
Agreement specifies these fees as part of Public Utility
Revenues and can be adjusted "only once every two yearsand
in accordance with the Parametric Formula" and "the
adjustments shall be made effective only after the written
express approval of the MIAA."29 The Bid Documents
themselves clearly provide:
4.2.3 Mechanism for Adjustment of Fees and Charges
4.2.3.1 Periodic Adjustment in Fees and Charges
Adjustments in the fees and charges enumerated hereunder,
whether or not falling within the purview of public utility
revenues, shall be allowed only once every two years in
accordance with the parametric formula attached hereto as
Annex 4.2f. Provided that the adjustments shall be made
effective only after the written express approval of MIAA.
Provided, further, that MIAA’s approval, shall be contingent
only on conformity of the adjustments to the said parametric
formula. …
The fees and charges to be regulated in the above manner shall
consist of the following:
....
c) groundhandling fees;
d) rentals on airline offices;
....
(f) porterage fees;
. . . .30
The plain purpose in re-classifying groundhandling fees, airline
office rentals and porterage fees as non-public utility fees is to
remove them from regulation by the MIAA. In excluding these
fees from government regulation, the danger to public interest
cannot be downplayed.
We are not impressed by the effort of PIATCO to depress this
prejudice to public interest by its contention that in the 1997
Concession Agreement governing Non-Public Utility Revenues,
it is provided that "[PIATCO] shall at all times be judicious in
fixing fees and charges constituting Non-Public Utility
Revenues in order to ensure that End Users are not
unreasonably deprived of services."31 PIATCO then peddles the
proposition that the said provision confers upon MIAA "full
regulatory powers to ensure that PIATCO is charging non-
public utility revenues at judicious rates."32 To the trained eye,
the argument will not fly for it is obviously non sequitur. Fairly
read, it is PIATCO that wields the power to determine the
judiciousness of the said fees and charges. In the draft
Concession Agreement the power was expressly lodged with
the MIAA and any adjustment can only be done once every two
years. The changes are not insignificant specks as interpreted
by PIATCO.
PIATCO further argues that there is no substantial change in
the 1997 Concession Agreement with respect to fees and
charges PIATCO is allowed to impose which are not covered by
Administrative Order No. 1, Series of 199333as the "relevant
provision of the 1997 Concession Agreement is practically
identical with the draft Concession Agreement."34
We are not persuaded. Under the draft Concession
Agreement, PIATCO may impose fees and charges other than
those fees and charges previously imposed or collected at the
Ninoy Aquino International Airport Passenger Terminal I,
subject to the written approval of MIAA. 35 Further, the draft
Concession Agreement provides that MIAA reserves the right
to regulate these new fees and charges if in its judgment the
users of the airport shall be deprived of a free option for the
services they cover.36 In contrast, under the 1997 Concession
Agreement, the MIAA merely retained the right to approve
any imposition of new fees and charges which were not
previously collected at the Ninoy Aquino International Airport
Passenger Terminal I. The agreement did not contain an
equivalent provision allowing MIAA to reserve the right to
regulate the adjustments of these new fees and
charges.37 PIATCO justifies the amendment by arguing that
MIAA can establish terms before approval of new fees and
charges, inclusive of the mode for their adjustment.
PIATCO’s stance is again a strained one. There would have
been no need for an amendment if there were no change in
the power to regulate on the part of MIAA. The deletion of
MIAA’s reservation of its right to regulate the price
adjustments of new fees and charges can have no other
purpose but to dilute the extent of MIAA’s regulation in the
collection of these fees. Again, the amendment diminished the
authority of MIAA to protect the public interest in case of
abuse by PIATCO.
b. Assumption by the Government of the liabilities of PIATCO
in the event of the latter’s default
PIATCO posits the thesis that the new provisions in the 1997
Concession Agreement in case of default by PIATCO on its
loans were merely meant to prescribe and limit the rights of
PIATCO’s creditors with regard to the NAIA Terminal III.
PIATCO alleges that Section 4.04 of the 1997 Concession
Agreement simply provides that PIATCO’s creditors have no
right to foreclose the NAIA Terminal III.
We cannot concur. The pertinent provisions of the 1997
Concession Agreement state:
Section 4.04 Assignment.
....
(b) In the event Concessionaire should default in the payment
of an Attendant Liability, and the default has resulted in the
acceleration of the payment due date of the Attendant Liability
prior to its stated date of maturity, the Unpaid Creditors and
Concessionaire shall immediately inform GRP in writing of such
default. GRP shall, within one hundred eighty (180) Days from
receipt of the joint written notice of the Unpaid Creditors and
Concessionaire, either (i) take over the Development
Facility and assume the Attendant Liabilities, or (ii) allow the
Unpaid Creditors, if qualified, to be substituted as
concessionaire and operator of the Development Facility in
accordance with the terms and conditions hereof, or designate
a qualified operator acceptable to GRP to operate the
Development Facility, likewise under the terms and conditions
of this Agreement; Provided that if at the end of the 180-day
period GRP shall not have served the Unpaid Creditors and
Concessionaire written notice of its choice, GRP shall be
deemed to have elected to take over the Development
Facility with the concomitant assumption of Attendant
Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors
to be substituted as concessionaire, the latter shall form and
organize a concession company qualified to take over the
operation of the Development Facility. If the concession
company should elect to designate an operator for the
Development Facility, the concession company shall in good
faith identify and designate a qualified operator acceptable to
GRP within one hundred eighty (180) days from receipt of
GRP’s written notice. If the concession company, acting in
good faith and with due diligence, is unable to designate a
qualified operator within the aforesaid period, then GRP shall
at the end of the 180-day period take over the Development
Facility and assume Attendant Liabilities.
A plain reading of the above provision shows that it spells out
in limpid language the obligation of government in case of
default by PIATCO on its loans. There can be no blinking from
the fact that in case of PIATCO’s default, the government will
assume PIATCO’s Attendant Liabilities as defined in the 1997
Concession Agreement.38 This obligation is not found in the
draft Concession Agreement and the change runs roughshod
to the spirit and policy of the BOT Law which was crafted
precisely to prevent government from incurring financial risk.
In any event, PIATCO pleads that the entire agreement should
not be struck down as the 1997 Concession Agreement
contains a separability clause.
The plea is bereft of merit. The contracts at bar which made a
mockery of the bidding process cannot be upheld and must be
annulled in their entirety for violating law and public policy. As
demonstrated, the contracts were substantially amended after
their award to the successful bidder on terms more beneficial
to PIATCO and prejudicial to public interest. If this flawed
process would be allowed, public bidding will cease to be
competitive and worse, government would not be favored
with the best bid. Bidders will no longer bid on the basis of the
prescribed terms and conditions in the bid documents but will
formulate their bid in anticipation of the execution of a future
contract containing new and better terms and conditions that
were not previously available at the time of the bidding. Such
a public bidding will not inure to the public good. The resulting
contracts cannot be given half a life but must be struck down
as totally lawless.
IV.
Direct Government Guarantee
The respondents further contend that the PIATCO Contracts
do not contain direct government guarantee provisions. They
assert that section 4.04 of the ARCA, which superseded
sections 4.04(b) and (c), Article IV of the 1997 Concession
Agreement, is but a "clarification and explanation"39 of the
securities allowed in the bid documents. They allege that these
provisions merely provide for "compensation to PIATCO" 40 in
case of a government buy-out or takeover of NAIA IPT III. The
respondents, particularly respondent PIATCO, also maintain
that the guarantee contained in the contracts, if any, is an
indirect guarantee allowed under the BOT Law, as amended.41
We do not agree. Section 4.04(c), Article IV42 of the ARCA
should be read in conjunction with section 1.06, Article I, 43 in
the same manner that sections 4.04(b) and (c), Article IV of the
1997 Concession Agreement should be related to Article 1.06
of the same contract. Section 1.06, Article I of the ARCA and its
counterpart provision in the 1997 Concession Agreement
define in no uncertain terms the meaning of "attendant
liabilities." They tell us of the amounts that the Government
has to pay in the event respondent PIATCO defaults in its loan
payments to its Senior Lenders and no qualified transferee or
nominee is chosen by the Senior Lenders or is willing to take
over from respondent PIATCO.
A reasonable reading of all these relevant provisions would
reveal that the ARCA made the Government liable to pay "all
amounts ... from time to time owed or which may become
owing by Concessionaire [PIATCO] to Senior Lenders or any
other persons or entities who have provided, loaned, or
advanced funds or provided financial facilities to
Concessionaire [PIATCO] for the Project [NAIA Terminal
3]."44 These amounts include "without limitation, all principal,
interest, associated fees, charges, reimbursements, and
other related expenses... whether payable at maturity, by
acceleration or otherwise."45 They further include amounts
owed by respondent PIATCO to its "professional consultants
and advisers, suppliers, contractors and sub-contractors" as
well as "fees, charges and expenses of any agents or trustees"
of the Senior Lenders or any other persons or entities who
have provided loans or financial facilities to respondent
PIATCO in relation to NAIA IPT III.46 The counterpart provision
in the 1997 Concession Agreement specifying the attendant
liabilities that the Government would be obligated to pay
should PIATCO default in its loan obligations is equally onerous
to the Government as those contained in the ARCA. According
to the 1997 Concession Agreement, in the event the
Government is forced to prematurely take over NAIA IPT III as
a result of respondent PIATCO’s default in the payment of its
loan obligations to its Senior Lenders, it would be liable to pay
the following amounts as "attendant liabilities":
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and from
time to time outstanding in the books of the Concessionaire
as owing to Unpaid Creditors who have provided, loaned or
advanced funds actually used for the Project, including all
interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related
expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-
contractors.47
These provisions reject respondents’ contention that what the
Government is obligated to pay, in the event that respondent
PIATCO defaults in the payment of its loans, is merely
termination payment or just compensation for its takeover of
NAIA IPT III. It is clear from said section 1.06 that what the
Government would pay is the sum total of all the debts,
including all interest, fees and charges, that respondent
PIATCO incurred in pursuance of the NAIA IPT III Project. This
reading is consistent with section 4.04 of the ARCA itself which
states that the Government "shall make a termination
payment to Concessionaire [PIATCO] equal to the Appraised
Value (as hereinafter defined) of the Development Facility
[NAIA Terminal III] or the sum of the Attendant Liabilities, if
greater." For sure, respondent PIATCO will not receive any
amount less than sufficient to cover its debts, regardless of
whether or not the value of NAIA IPT III, at the time of its turn
over to the Government, may actually be less than the
amount of PIATCO’s debts. The scheme is a form of direct
government guarantee for it is undeniable that it leaves the
government no option but to pay the "attendant liabilities" in
the event that the Senior Lenders are unable or unwilling to
appoint a qualified nominee or transferee as a result of
PIATCO’s default in the payment of its Senior Loans. As we
stressed in our Decision, this Court cannot depart from the
legal maxim that "those that cannot be done directly cannot
be done indirectly."
This is not to hold, however, that indirect government
guarantee is not allowed under the BOT Law, as amended. The
intention to permit indirect government guarantee is evident
from the Senate deliberations on the amendments to the BOT
Law. The idea is to allow for reasonable government
undertakings, such as to authorize the project proponent to
undertake related ventures within the project area, in order to
encourage private sector participation in development
projects.48 An example cited by then Senator Gloria
Macapagal-Arroyo, one of the sponsors of R.A. No. 7718, is the
Mandaluyong public market which was built under the Build-
and-Transfer ("BT") scheme wherein instead of the
government paying for the transfer, the project proponent
was allowed to operate the upper floors of the structure as a
commercial mall in order to recoup their investments. 49 It was
repeatedly stressed in the deliberations that in allowing
indirect government guarantee, the law seeks to encourage
both the government and the private sector to formulate
reasonable and innovative government undertakings in
pursuance of BOT projects. In no way, however, can the
government be made liable for the debts of the project
proponent as this would be tantamount to a direct
government guarantee which is prohibited by the law. Such
liability would defeat the very purpose of the BOT Law which
is to encourage the use of private sector resources in the
construction, maintenance and/or operation of development
projects with no, or at least minimal, capital outlay on the part
of the government.
The respondents again urge that should this Court affirm its
ruling that the PIATCO Contracts contain direct government
guarantee provisions, the whole contract should not be
nullified. They rely on the separability clause in the PIATCO
Contracts.
We are not persuaded.
The BOT Law and its implementing rules provide that there are
three (3) essential requisites for an unsolicited proposal to be
accepted: (1) the project involves a new concept in technology
and/or is not part of the list of priority projects, (2) no direct
government guarantee, subsidy or equity is required, and (3)
the government agency or local government unit has invited
by publication other interested parties to a public bidding and
conducted the same.50 The failure to fulfill any of the requisites
will result in the denial of the proposal. Indeed, it is further
provided that a direct government guarantee, subsidy or
equity provision will "necessarily disqualify a proposal from
being treated and accepted as an unsolicited proposal."51 In
fine, the mere inclusion of a direct government guarantee in
an unsolicited proposal is fatal to the proposal. There is more
reason to invalidate a contract if a direct government
guarantee provision is inserted later in the contract via a
backdoor amendment. Such an amendment constitutes a crass
circumvention of the BOT Law and renders the entire contract
void.
Respondent PIATCO likewise claims that in view of the fact that
other BOT contracts such as the JANCOM contract, the Manila
Water contract and the MRT contract had been considered
valid, the PIATCO contracts should be held valid as
well.52 There is no parity in the cited cases. For instance, a
reading of Metropolitan Manila Development Authority v.
JANCOM Environmental Corporation53 will show that its issue
is different from the issues in the cases at bar. In the JANCOM
case, the main issue is whether there is a perfected contract
between JANCOM and the Government. The resolution of the
issue hinged on the following: (1) whether the conditions
precedent to the perfection of the contract were complied
with; (2) whether there is a valid notice of award; and (3)
whether the signature of the Secretary of the Department of
Environment and Natural Resources is sufficient to bind the
Government. These issue and sub-issues are clearly
distinguishable and different. For one, the issue of direct
government guarantee was not considered by this Court when
it held the JANCOM contract valid, yet, it is a key reason for
invalidating the PIATCO Contracts. It is a basic principle in law
that cases with dissimilar facts cannot have similar disposition.
This Court, however, is not unmindful of the reality that the
structures comprising the NAIA IPT III facility are almost
complete and that funds have been spent by PIATCO in their
construction. For the government to take over the said facility,
it has to compensate respondent PIATCO as builder of the said
structures. The compensation must be just and in accordance
with law and equity for the government can not unjustly enrich
itself at the expense of PIATCO and its investors.
II.
Temporary takeover of business affected with public interest
in times of national emergency
Section 17, Article XII of the 1987 Constitution grants the State
in times of national emergency the right to temporarily take
over the operation of any business affected with public
interest. This right is an exercise of police power which is one
of the inherent powers of the State.
Police power has been defined as the "state authority to enact
legislation that may interfere with personal liberty or property
in order to promote the general welfare." 54 It consists of two
essential elements. First, it is an imposition of restraint upon
liberty or property. Second, the power is exercised for the
benefit of the common good. Its definition in elastic terms
underscores its all-encompassing and comprehensive
embrace.55 It is and still is the "most essential, insistent, and
illimitable"56 of the State’s powers. It is familiar knowledge
that unlike the power of eminent domain, police power is
exercised without provision for just compensation for its
paramount consideration is public welfare.57
It is also settled that public interest on the occasion of a
national emergency is the primary consideration when the
government decides to temporarily take over or direct the
operation of a public utility or a business affected with public
interest. The nature and extent of the emergency is the
measure of the duration of the takeover as well as the terms
thereof. It is the State that prescribes such reasonable terms
which will guide the implementation of the temporary
takeover as dictated by the exigencies of the time. As we ruled
in our Decision, this power of the State can not be negated by
any party nor should its exercise be a source of obligation for
the State.
Section 5.10(c), Article V of the ARCA provides that respondent
PIATCO "shall be entitled to reasonable compensation for the
duration of the temporary takeover by GRP, which
compensation shall take into account the reasonable cost for
the use of the Terminal and/or Terminal Complex."58 It clearly
obligates the government in the exercise of its police power to
compensate respondent PIATCO and this obligation is
offensive to the Constitution. Police power can not be
diminished, let alone defeated by any contract for its
paramount consideration is public welfare and interest.59
Again, respondent PIATCO’s reliance on the case of Heirs of
Suguitan v. City of Mandaluyong60 to justify its claim for
reasonable compensation for the Government’s temporary
takeover of NAIA IPT III in times of national emergency is
erroneous. What was involved in Heirs of Suguitan is the
exercise of the state’s power of eminent domain and not of
police power, hence, just compensation was awarded. The
cases at bar will not involve the exercise of the power of
eminent domain.
III.
Monopoly
Section 19, Article XII of the 1987 Constitution mandates that
the State prohibit or regulate monopolies when public interest
so requires. Monopolies are not per se prohibited. Given its
susceptibility to abuse, however, the State has the bounden
duty to regulate monopolies to protect public interest. Such
regulation may be called for, especially in sensitive areas such
as the operation of the country’s premier international airport,
considering the public interest at stake.
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.

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 PIATCO’s 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
G.R. No. 88404 October 18, 1990
PHILIPPINE LONG DISTANCE TELEPHONE CO.
[PLDT], petitioner,
vs.
THE NATIONAL TELECOMMUNICATIONS COMMISSION AND
CELLCOM, INC., (EXPRESS TELECOMMUNICATIONS CO., INC.
[ETCI]), respondents.
Alampan & Manhit Law Offices for petitioner.
Gozon, Fernandez, Defensor & Parel for private respondent.
MELENCIO-HERRERA, J.:
Petitioner Philippine Long Distance Telephone Company
(PLDT) assails, by way of certiorari and Prohibition under Rule
65, two (2) Orders of public respondent National
Telecommunications Commission (NTC), namely, the Order of
12 December 1988 granting private respondent Express
Telecommunications Co., Inc. (ETCI) provisional authority to
install, operate and maintain a Cellular Mobile Telephone
System in Metro-Manila (Phase A) in accordance with specified
conditions, and the Order, dated 8 May 1988, denying
reconsideration.
On 22 June 1958, Rep. Act No. 2090, was enacted, otherwise
known as "An Act Granting Felix Alberto and Company,
Incorporated, a Franchise to Establish Radio Stations for
Domestic and Transoceanic Telecommunications." Felix
Alberto & Co., Inc. (FACI) was the original corporate name,
which was changed to ETCI with the amendment of the Articles
of Incorporation in 1964. Much later, "CELLCOM, Inc." was the
name sought to be adopted before the Securities and
Exchange Commission, but this was withdrawn and
abandoned.
On 13 May 1987, alleging urgent public need, ETCI filed an
application with public respondent NTC (docketed as NTC Case
No. 87-89) for the issuance of a Certificate of Public
Convenience and Necessity (CPCN) to construct, install,
establish, operate and maintain a Cellular Mobile Telephone
System and an Alpha Numeric Paging System in Metro Manila
and in the Southern Luzon regions, with a prayer for
provisional authority to operate Phase A of its proposal within
Metro Manila.
PLDT filed an Opposition with a Motion to Dismiss, based
primarily on the following grounds: (1) ETCI is not capacitated
or qualified under its legislative franchise to operate a
systemwide telephone or network of telephone service such
as the one proposed in its application; (2) ETCI lacks the
facilities needed and indispensable to the successful operation
of the proposed cellular mobile telephone system; (3) PLDT has
itself a pending application with NTC, Case No. 86-86, to install
and operate a Cellular Mobile Telephone System for domestic
and international service not only in Manila but also in the
provinces and that under the "prior operator" or "protection
of investment" doctrine, PLDT has the priority or preference in
the operation of such service; and (4) the provisional authority,
if granted, will result in needless, uneconomical and harmful
duplication, among others.
In an Order, dated 12 November 1987, NTC overruled PLDT's
Opposition and declared that Rep. Act No. 2090 (1958) should
be liberally construed as to include among the services under
said franchise the operation of a cellular mobile telephone
service.
In the same Order, ETCI was required to submit the certificate
of registration of its Articles of Incorporation with the
Securities and Exchange Commission, the present capital and
ownership structure of the company and such other evidence,
oral or documentary, as may be necessary to prove its legal,
financial and technical capabilities as well as the economic
justifications to warrant the setting up of cellular mobile
telephone and paging systems. The continuance of the
hearings was also directed.
After evaluating the reconsideration sought by PLDT, the NTC,
in October 1988, maintained its ruling that liberally construed,
applicant's franchise carries with it the privilege to operate and
maintain a cellular mobile telephone service.
On 12 December 1988, NTC issued the first challenged Order.
Opining that "public interest, convenience and necessity
further demand a second cellular mobile telephone service
provider and finds PRIMA FACIE evidence showing applicant's
legal, financial and technical capabilities to provide a cellular
mobile service using the AMPS system," NTC granted ETCI
provisional authority to install, operate and maintain a cellular
mobile telephone system initially in Metro Manila, Phase A
only, subject to the terms and conditions set forth in the same
Order. One of the conditions prescribed (Condition No. 5) was
that, within ninety (90) days from date of the acceptance by
ETCI of the terms and conditions of the provisional authority,
ETCI and PLDT "shall enter into an interconnection agreement
for the provision of adequate interconnection facilities
between applicant's cellular mobile telephone switch and the
public switched telephone network and shall jointly submit
such interconnection agreement to the Commission for
approval."
In a "Motion to Set Aside the Order" granting provisional
authority, PLDT alleged essentially that the interconnection
ordered was in violation of due process and that the grant of
provisional authority was jurisdictionally and procedurally
infirm. On 8 May 1989, NTC denied reconsideration and set the
date for continuation of the hearings on the main proceedings.
This is the second questioned Order.
PLDT urges us now to annul the NTC Orders of 12 December
1988 and 8 May 1989 and to order ETCI to desist from,
suspend, and/or discontinue any and all acts intended for its
implementation.
On 15 June 1989, we resolved to dismiss the petition for its
failure to comply fully with the requirements of Circular No. 1-
88. Upon satisfactory showing, however, that there was, in
fact, such compliance, we reconsidered the order, reinstated
the Petition, and required the respondents NTC and ETCI to
submit their respective Comments.
On 27 February 1990, we issued a Temporary Restraining
Order enjoining NTC to "Cease and Desist from all or any of its
on-going proceedings and ETCI from continuing any and all
acts intended or related to or which will amount to the
implementation/execution of its provisional authority." This
was upon PLDT's urgent manifestation that it had been served
an NTC Order, dated 14 February 1990, directing immediate
compliance with its Order of 12 December 1988, "otherwise
the Commission shall be constrained to take the necessary
measures and bring to bear upon PLDT the full sanctions
provided by law."
We required PLDT to post a bond of P 5M. It has complied, with
the statement that it was "post(ing) the same on its agreement
and/or consent to have the same forfeited in favor of Private
Respondent ETCI/CELLCOM should the instant Petition be
dismissed for lack of merit." ETCI took exception to the
sufficiency of the bond considering its initial investment of
approximately P 225M, but accepted the forfeiture proferred.
ETCI moved to have the TRO lifted, which we denied on 6
March 1990. We stated, however, that the inaugural ceremony
ETCI had scheduled for that day could proceed, as the same
was not covered by the TRO.
PLDT relies on the following grounds for the issuance of the
Writs prayed for:
1. Respondent NTC's subject order effectively licensed and/or
authorized a corporate entity without any franchise to operate
a public utility, legislative or otherwise, to establish and
operate a telecommunications system.
2. The same order validated stock transactions of a public
service enterprise contrary to and/or in direct violation of
Section 20(h) of the Public Service Act.
3. Respondent NTC adjudicated in the same order a
controverted matter that was not heard at all in the
proceedings under which it was promulgated.
As correctly pointed out by respondents, this being a special
civil action for certiorari and Prohibition, we only need
determine if NTC acted without jurisdiction or with grave
abuse of discretion amounting to lack or excess of jurisdiction
in granting provisional authority to ETCI under the NTC
questioned Orders of 12 December 1988 and 8 May 1989.
The case was set for oral argument on 21 August 1990 with the
parties directed to address, but not limited to, the following
issues: (1) the status and coverage of Rep. Act No. 2090 as a
franchise; (2) the transfer of shares of stock of a corporation
holding a CPCN; and (3) the principle and procedure of
interconnection. The parties were thereafter required to
submit their respective Memoranda, with which they have
complied.
We find no grave abuse of discretion on the part of NTC, upon
the following considerations:
1. NTC Jurisdiction
There can be no question that the NTC is the regulatory agency
of the national government with jurisdiction over all
telecommunications entities. It is legally clothed with authority
and given ample discretion to grant a provisional permit or
authority. In fact, NTC may, on its own initiative, grant such
relief even in the absence of a motion from an applicant.
Sec. 3. Provisional Relief. — Upon the filing of an application,
complaint or petition or at any stage thereafter, the Board may
grant on motion of the pleaders or on its own initiative, the
relief prayed for, based on the pleading, together with the
affidavits and supporting documents attached thereto,
without prejudice to a final decision after completion of the
hearing which shall be called within thirty (30) days from grant
of authority asked for. (Rule 15, Rules of Practice and
Procedure Before the Board of Communications (now NTC).
What the NTC granted was such a provisional authority, with a
definite expiry period of eighteen (18) months unless sooner
renewed, and which may be revoked, amended or revised by
the NTC. It is also limited to Metro Manila only. What is more,
the main proceedings are clearly to continue as stated in the
NTC Order of 8 May 1989.
The provisional authority was issued after due hearing,
reception of evidence and evaluation thereof, with the
hearings attended by various oppositors, including PLDT. It was
granted only after a prima facie showing that ETCI has the
necessary legal, financial and technical capabilities and that
public interest, convenience and necessity so demanded.
PLDT argues, however, that a provisional authority is nothing
short of a Certificate of Public Convenience and Necessity
(CPCN) and that it is merely a "distinction without a
difference." That is not so. Basic differences do exist, which
need not be elaborated on. What should be borne in mind is
that provisional authority would be meaningless if the grantee
were not allowed to operate. Moreover, it is clear from the
very Order of 12 December 1988 itself that its scope is limited
only to the first phase, out of four, of the proposed nationwide
telephone system. The installation and operation of an alpha
numeric paging system was not authorized. The provisional
authority is not exclusive. Its lifetime is limited and may be
revoked by the NTC at any time in accordance with law. The
initial expenditure of P130M more or less, is rendered
necessary even under a provisional authority to enable ETCI to
prove its capability. And as pointed out by the Solicitor
General, on behalf of the NTC, if what had been granted were
a CPCN, it would constitute a final order or award reviewable
only by ordinary appeal to the Court of Appeals pursuant to
Section 9(3) of BP Blg. 129, and not by certiorari before this
Court.
The final outcome of the application rests within the exclusive
prerogative of the NTC. Whether or not a CPCN would
eventually issue would depend on the evidence to be
presented during the hearings still to be conducted, and only
after a full evaluation of the proof thus presented.
2. The Coverage of ETCI's Franchise
Rep. Act No. 2090 grants ETCI (formerly FACI) "the right and
privilege of constructing, installing, establishing and operating
in the entire Philippines radio stations for reception and
transmission of messages on radio stations in the foreign and
domestic public fixed point-to-point and public base,
aeronautical and land mobile stations, ... with the
corresponding relay stations for the reception and
transmission of wireless messages on radiotelegraphy and/or
radiotelephony ...." PLDT maintains that the scope of the
franchise is limited to "radio stations" and excludes telephone
services such as the establishment of the proposed Cellular
Mobile Telephone System (CMTS). However, in its Order of 12
November 1987, the NTC construed the technical term
"radiotelephony" liberally as to include the operation of a
cellular mobile telephone system. It said:
In resolving the said issue, the Commission takes into
consideration the different definitions of the term
"radiotelephony." As defined by the New International
Webster Dictionary the term "radiotelephony" is defined as a
telephone carried on by aid of radiowaves without connecting
wires. The International Telecommunications Union (ITU)
defines a "radiotelephone call" as a "telephone call, originating
in or intended on all or part of its route over the radio
communications channels of the mobile service or of the
mobile satellite service." From the above definitions, while
under Republic Act 2090 a system-wide telephone or network
of telephone service by means of connecting wires may not
have been contemplated, it can be construed liberally that the
operation of a cellular mobile telephone service which carries
messages, either voice or record, with the aid of radiowaves or
a part of its route carried over radio communication channels,
is one included among the services under said franchise for
which a certificate of public convenience and necessity may be
applied for.
The foregoing is the construction given by an administrative
agency possessed of the necessary special knowledge,
expertise and experience and deserves great weight and
respect (Asturias Sugar Central, Inc. v. Commissioner of
Customs, et al., L-19337, September 30, 1969, 29 SCRA 617). It
can only be set aside on proof of gross abuse of discretion,
fraud, or error of law (Tupas Local Chapter No. 979 v. NLRC, et
al., L-60532-33, November 5, 1985, 139 SCRA 478). We discern
none of those considerations sufficient to warrant judicial
intervention.
3. The Status of ETCI Franchise
PLDT alleges that the ETCI franchise had lapsed into
nonexistence for failure of the franchise holder to begin and
complete construction of the radio system authorized under
the franchise as explicitly required in Section 4 of its franchise,
Rep. Act No. 2090. 1 PLDT also invokes Pres. Decree No. 36,
enacted on 2 November 1972, which legislates the mandatory
cancellation or invalidation of all franchises for the operation
of communications services, which have not been availed of or
used by the party or parties in whose name they were issued.
However, whether or not ETCI, and before it FACI, in
contravention of its franchise, started the first of its radio
telecommunication stations within (2) years from the grant of
its franchise and completed the construction within ten (10)
years from said date; and whether or not its franchise had
remained unused from the time of its issuance, are questions
of fact beyond the province of this Court, besides the well-
settled procedural consideration that factual issues are not
subjects of a special civil action for certiorari (Central Bank of
the Philippines vs. Court of Appeals, G.R. No. 41859, 8 March
1989, 171 SCRA 49; Ygay vs. Escareal, G.R. No. 44189, 8
February 1985, 135 SCRA 78; Filipino Merchant's Insurance
Co., Inc. vs. Intermediate Appellate Court, G.R. No. 71640, 27
June 1988, 162 SCRA 669). Moreover, neither Section 4, Rep.
Act No. 2090 nor Pres. Decree No. 36 should be construed as
self-executing in working a forfeiture. Franchise holders should
be given an opportunity to be heard, particularly so, where, as
in this case, ETCI does not admit any breach, in consonance
with the rudiments of fair play. Thus, the factual situation of
this case differs from that in Angeles Ry Co. vs. City of Los
Angeles (92 Pacific Reporter 490) cited by PLDT, where the
grantee therein admitted its failure to complete the conditions
of its franchise and yet insisted on a decree of forfeiture.
More importantly, PLDT's allegation partakes of a Collateral
attack on a franchise Rep. Act No. 2090), which is not allowed.
A franchise is a property right and cannot be revoked or
forfeited without due process of law. The determination of the
right to the exercise of a franchise, or whether the right to
enjoy such privilege has been forfeited by non-user, is more
properly the subject of the prerogative writ of quo warranto,
the right to assert which, as a rule, belongs to the State "upon
complaint or otherwise" (Sections 1, 2 and 3, Rule 66, Rules of
Court), 2 the reason being that the abuse of a franchise is a
public wrong and not a private injury. A forfeiture of a
franchise will have to be declared in a direct proceeding for the
purpose brought by the State because a franchise is granted by
law and its unlawful exercise is primarily a concern of
Government.
A ... franchise is ... granted by law, and its ... unlawful exercise
is the concern primarily of the Government. Hence, the latter
as a rule is the party called upon to bring the action for such ...
unlawful exercise of franchise. (IV-B V. FRANCISCO, 298 [1963
ed.], citing Cruz vs. Ramos, 84 Phil. 226).
4. ETCI's Stock Transactions
ETCI admits that in 1964, the Albertos, as original owners of
more than 40% of the outstanding capital stock sold their
holdings to the Orbes. In 1968, the Albertos re-acquired the
shares they had sold to the Orbes. In 1987, the Albertos sold
more than 40% of their shares to Horacio Yalung. Thereafter,
the present stockholders acquired their ETCI shares.
Moreover, in 1964, ETCI had increased its capital stock from
P40,000.00 to P360,000.00; and in 1987, from P360,000.00 to
P40M.
PLDT contends that the transfers in 1987 of the shares of stock
to the new stockholders amount to a transfer of ETCI's
franchise, which needs Congressional approval pursuant to
Rep. Act No. 2090, and since such approval had not been
obtained, ETCI's franchise had been invalidated. The provision
relied on reads, in part, as follows:
SECTION 10. The grantee shall not lease, transfer, grant the
usufruct of, sell or assign this franchise nor the rights and
privileges acquired thereunder to any person, firm, company,
corporation or other commercial or legal entity nor merge with
any other person, company or corporation organized for the
same purpose, without the approval of the Congress of the
Philippines first had. ...
It should be noted, however, that the foregoing provision is,
directed to the "grantee" of the franchise, which is the
corporation itself and refers to a sale, lease, or assignment of
that franchise. It does not include the transfer or sale of shares
of stock of a corporation by the latter's stockholders.
The sale of shares of stock of a public utility is governed by
another law, i.e., Section 20(h) of the Public Service Act
(Commonwealth Act No. 146). Pursuant thereto, the Public
Service Commission (now the NTC) is the government agency
vested with the authority to approve the transfer of more than
40% of the subscribed capital stock of a telecommunications
company to a single transferee, thus:
SEC. 20. Acts requiring the approval of the Commission.
Subject to established stations and exceptions and saving
provisions to the contrary, it shall be unlawful for any public
service or for the owner, lessee or operator thereof, without
the approval and authorization of the Commission previously
had
xxx xxx xxx
(h) To sell or register in its books the transfer or sale of shares
of its capital stock, if the result of that sale in itself or in
connection with another previous sale, shall be to vest in the
transferee more than forty per centum of the subscribed
capital of said public service. Any transfer made in violation of
this provision shall be void and of no effect and shall not be
registered in the books of the public service corporation.
Nothing herein contained shall be construed to prevent the
holding of shares lawfully acquired. (As amended by Com. Act
No. 454).
In other words, transfers of shares of a public utility
corporation need only NTC approval, not Congressional
authorization. What transpired in ETCI were a series of
transfers of shares starting in 1964 until 1987. The approval of
the NTC may be deemed to have been met when it authorized
the issuance of the provisional authority to ETCI. There was full
disclosure before the NTC of the transfers. In fact, the NTC
Order of 12 November 1987 required ETCI to submit its
"present capital and ownership structure." Further, ETCI even
filed a Motion before the NTC, dated 8 December 1987, or
more than a year prior to the grant of provisional authority,
seeking approval of the increase in its capital stock from
P360,000.00 to P40M, and the stock transfers made by its
stockholders.
A distinction should be made between shares of stock, which
are owned by stockholders, the sale of which requires only NTC
approval, and the franchise itself which is owned by the
corporation as the grantee thereof, the sale or transfer of
which requires Congressional sanction. Since stockholders
own the shares of stock, they may dispose of the same as they
see fit. They may not, however, transfer or assign the property
of a corporation, like its franchise. In other words, even if the
original stockholders had transferred their shares to another
group of shareholders, the franchise granted to the
corporation subsists as long as the corporation, as an entity,
continues to exist The franchise is not thereby invalidated by
the transfer of the shares. A corporation has a personality
separate and distinct from that of each stockholder. It has the
right of continuity or perpetual succession (Corporation Code,
Sec. 2).
To all appearances, the stock transfers were not just for the
purpose of acquiring the ETCI franchise, considering that, as
heretofore stated, a series of transfers was involved from 1964
to 1987. And, contrary to PLDT's assertion, the franchise was
not the only property of ETCI of meaningful value. The "zero"
book value of ETCI assets, as reflected in its balance sheet, was
plausibly explained as due to the accumulated depreciation
over the years entered for accounting purposes and was not
reflective of the actual value that those assets would
command in the market.
But again, whether ETCI has offended against a provision of its
franchise, or has subjected it to misuse or abuse, may more
properly be inquired into in quo warranto proceedings
instituted by the State. It is the condition of every franchise
that it is subject to amendment, alteration, or repeal when the
common good so requires (1987 Constitution, Article XII,
Section 11).
5. The NTC Interconnection Order
In the provisional authority granted by NTC to ETCI, one of the
conditions imposed was that the latter and PLDT were to enter
into an interconnection agreement to be jointly submitted to
NTC for approval.
PLDT vehemently opposes interconnection with its own public
switched telephone network. It contends: that while PLDT
welcomes interconnections in the furtherance of public
interest, only parties who can establish that they have valid
and subsisting legislative franchises are entitled to apply for a
CPCN or provisional authority, absent which, NTC has no
jurisdiction to grant them the CPCN or interconnection with
PLDT; that the 73 telephone systems operating all over the
Philippines have a viability and feasibility independent of any
interconnection with PLDT; that "the NTC is not empowered to
compel such a private raid on PLDT's legitimate income arising
out of its gigantic investment;" that "it is not public interest,
but purely a private and selfish interest which will be served by
an interconnection under ETCI's terms;" and that "to compel
PLDT to interconnect merely to give viability to a prospective
competitor, which cannot stand on its own feet, cannot be
justified in the name of a non-existent public need" (PLDT
Memorandum, pp. 48 and 50).
PLDT cannot justifiably refuse to interconnect.
Rep. Act No. 6849, or the Municipal Telephone Act of 1989,
approved on 8 February 1990, mandates interconnection
providing as it does that "all domestic telecommunications
carriers or utilities ... shall be interconnected to the public
switch telephone network." Such regulation of the use and
ownership of telecommunications systems is in the exercise of
the plenary police power of the State for the promotion of the
general welfare. The 1987 Constitution recognizes the
existence of that power when it provides.
SEC. 6. The use of property bears a social function, and all
economic agents shall contribute to the common good.
Individuals and private groups, including corporations,
cooperatives, and similar collective organizations, shall have
the right to own, establish, and operate economic enterprises,
subject to the duty of the State to promote distributive justice
and to intervene when the common good so demands (Article
XII).
The interconnection which has been required of PLDT is a form
of "intervention" with property rights dictated by "the
objective of government to promote the rapid expansion of
telecommunications services in all areas of the Philippines, ...
to maximize the use of telecommunications facilities available,
... in recognition of the vital role of communications in nation
building ... and to ensure that all users of the public
telecommunications service have access to all other users of
the service wherever they may be within the Philippines at an
acceptable standard of service and at reasonable cost" (DOTC
Circular No. 90-248). Undoubtedly, the encompassing
objective is the common good. The NTC, as the regulatory
agency of the State, merely exercised its delegated authority
to regulate the use of telecommunications networks when it
decreed interconnection.
The importance and emphasis given to interconnection dates
back to Ministry Circular No. 82-81, dated 6 December 1982,
providing:
Sec. 1. That the government encourages the provision and
operation of public mobile telephone service within local sub-
base stations, particularly, in the highly commercialized areas;
Sec. 5. That, in the event the authority to operate said service
be granted to other applicants, other than the franchise
holder, the franchise operator shall be under obligation to
enter into an agreement with the domestic telephone
network, under an interconnection agreement;
Department of Transportation and Communication (DOTC)
Circular No. 87-188, issued in 1987, also decrees:
12. All public communications carriers shall interconnect their
facilities pursuant to comparatively efficient interconnection
(CEI) as defined by the NTC in the interest of economic
efficiency.
The sharing of revenue was an additional feature considered
in DOTC Circular No. 90-248, dated 14 June 1990, laying down
the "Policy on Interconnection and Revenue Sharing by Public
Communications Carriers," thus:
WHEREAS, it is the objective of government to promote the
rapid expansion of telecommunications services in all areas of
the Philippines;
WHEREAS, there is a need to maximize the use of
telecommunications facilities available and encourage
investment in telecommunications infrastructure by suitably
qualified service providers;
WHEREAS, in recognition of the vital role of communications
in nation building, there is a need to ensure that all users of
the public telecommunications service have access to all other
users of the service wherever they may be within the
Philippines at an acceptable standard of service and at
reasonable cost.
WHEREFORE, ... the following Department policies on
interconnection and revenue sharing are hereby promulgated:
1. All facilities offering public telecommunication services shall
be interconnected into the nationwide telecommunications
network/s.
xxx xxx xxx
4. The interconnection of networks shall be effected in a fair
and non-discriminatory manner and within the shortest time-
frame practicable.
5. The precise points of interface between service operators
shall be as defined by the NTC; and the apportionment of costs
and division of revenues resulting from interconnection of
telecommunications networks shall be as approved and/or
prescribed by the NTC.
xxx xxx xxx
Since then, the NTC, on 12 July 1990, issued Memorandum
Circular No. 7-13-90 prescribing the "Rules and Regulations
Governing the Interconnection of Local Telephone Exchanges
and Public Calling Offices with the Nationwide
Telecommunications Network/s, the Sharing of Revenue
Derived Therefrom, and for Other Purposes."
The NTC order to interconnect allows the parties themselves
to discuss and agree upon the specific terms and conditions of
the interconnection agreement instead of the NTC itself laying
down the standards of interconnection which it can very well
impose. Thus it is that PLDT cannot justifiably claim denial of
clue process. It has been heard. It will continue to be heard in
the main proceedings. It will surely heard in the negotiations
concerning the interconnection agreement.
As disclosed during the hearing, the interconnection sought by
ETCI is by no means a "parasitic dependence" on PLDT. The
ETCI system can operate on its own even without
interconnection, but it will be limited to its own subscribers.
What interconnection seeks to accomplish is to enable the
system to reach out to the greatest number of people possible
in line with governmental policies laid down. Cellular phones
can access PLDT units and vice versa in as wide an area as
attainable. With the broader reach, public interest and
convenience will be better served. To be sure, ETCI could
provide no mean competition (although PLDT maintains that it
has nothing to fear from the "innocuous interconnection"),
and eat into PLDT's own toll revenue cream PLDT revenue," in
its own words), but all for the eventual benefit of all that the
system can reach.
6. Ultimate Considerations
The decisive consideration are public need, public interest, and
the common good. Those were the overriding factors which
motivated NTC in granting provisional authority to ETCI. Article
II, Section 24 of the 1987 Constitution, recognizes the vital role
of communication and information in nation building. It is
likewise a State policy to provide the environment for the
emergence of communications structures suitable to the
balanced flow of information into, out of, and across the
country (Article XVI, Section 10, Ibid.). A modern and
dependable communications network rendering efficient and
reasonably priced services is also indispensable for accelerated
economic recovery and development. To these public and
national interests, public utility companies must bow and
yield.
Despite the fact that there is a virtual monopoly of the
telephone system in the country at present. service is sadly
inadequate. Customer demands are hardly met, whether fixed
or mobile. There is a unanimous cry to hasten the
development of a modern, efficient, satisfactory and
continuous telecommunications service not only in Metro
Manila but throughout the archipelago. The need therefor was
dramatically emphasized by the destructive earthquake of 16
July 1990. It may be that users of the cellular mobile telephone
would initially be limited to a few and to highly commercialized
areas. However, it is a step in the right direction towards the
enhancement of the telecommunications infrastructure, the
expansion of telecommunications services in, hopefully, all
areas of the country, with chances of complete disruption of
communications minimized. It will thus impact on, the total
development of the country's telecommunications systems
and redound to the benefit of even those who may not be able
to subscribe to ETCI.
Free competition in the industry may also provide the answer
to a much-desired improvement in the quality and delivery of
this type of public utility, to improved technology, fast and
handy mobile service, and reduced user dissatisfaction. After
all, neither PLDT nor any other public utility has a
constitutional right to a monopoly position in view of the
Constitutional proscription that no franchise certificate or
authorization shall be exclusive in character or shall last longer
than fifty (50) years (ibid., Section 11; Article XIV Section 5,
1973 Constitution; Article XIV, Section 8, 1935 Constitution).
Additionally, the State is empowered to decide whether public
interest demands that monopolies be regulated or prohibited
(1987 Constitution. Article XII, Section 19).
WHEREFORE, finding no grave abuse of discretion, tantamount
to lack of or excess of jurisdiction, on the part of the National
Telecommunications Commission in issuing its challenged
Orders of 12 December 1988 and 8 May 1989 in NTC Case No.
87-39, this Petition is DISMISSED for lack of merit. The
Temporary Restraining Order heretofore issued is LIFTED. The
bond issued as a condition for the issuance of said restraining
Order is declared forfeited in favor of private respondent
Express Telecommunications Co., Inc. Costs against petitioner.
SO ORDERED.
Separate Opinions
GUTIERREZ, JR., J., dissenting:
I share with the rest of the Court the desire to have a "modern,
efficient, satisfactory, and continuous telecommunications
service" in the Philippines. I register this dissent, however,
because I believe that any frustrations over the present state
of telephone services do not justify our affirming an illegal and
inequitable order of the National Telecommunications
Commission (NTC). More so when it appears that the
questioned order is not really a solution to the problems
bugging our telephone industry.
My dissent is based on three primary considerations, namely:
(1) The Court has sustained nothing less than the desire of
respondent ETCI to set-up a profitable business catering to an
affluent clientele through the use of billions of pesos worth of
another company's properties. No issues of public welfare,
breaking up of monopolies, or other high sounding principles
are involved. The core question is purely and simply whether
or not to grant ETCI's desire for economic gains through riding
on another firm's investments.
(2) The Court has permitted respondent ETCI to operate a
telephone system without a valid legislative franchise. It
strains the imagination too much to interpret a legislative
franchise authorizing "radio stations" as including the
provisional permit for a sophisticated telephone system which
has absolutely nothing to do with radio broadcasts and
transmissions. The Court subverts the legislative will when it
validates a provisional permit on the basis of authority which
never envisioned much less intended its use for a regular
telephone system catering to thousands of individual receiver
units. There is nothing in Rep. Act No. 2090 which remotely
suggests a cellular mobile telephone system.
(3) The authority given by Rep. Act No. 2090 has expired. ETCI
is not only riding on another company's investments and using
legislative authority for a purpose never dreamed of by the
legislators but is also trying to extract life from and resurrect
an unused and dead franchise.
My principal objection to the disputed NTC order arises from
the fact that respondent Express Telecommunications Co. Inc.
(ETCI) cannot exist without using the facilities of Philippine
Long Distance Telephone Co. (PLDT). Practically all of its
business will be conducted through another company's
property.
While pretending to set up a separate phone company, ETCI's
cellular phones would be useless most of the time, if not all the
time, unless they use PLDT lines. It would be different if ETCI
phone owners would primarily communicate with one another
and tap into PLDT lines only rarely or occasionally.
To compare ETCI with the Government Telephone System
(GTS) or with an independent phone company serving a
province or city is misleading. The defunct GTS was set up to
connect government offices and personnel with one another.
It could exist independently and was not primarily or wholly
dependent on PLDT connections. A provincial or city system
serves the residents of a province or city. It primarily relies on
its own investments and infrastructure. It asks for PLDT
services only when long distance calls to another country, city,
or province have to be made.
I can, therefore, understand PLDT's reluctance Since it has its
own franchise to operate exactly the same services which ETCI
is endeavoring to establish. PLDT would be using its own
existing lines. Under the Court's decision, it would be
compelled to allow another company to use those same lines
in direct competition with the lines owner. The cellular system
is actually only an adjunct to a regular telephone system, not a
separate and independent system. As an adjunct and
component unit or as a parasite (if a foreign body) it must be
fed by the mother organism or unit if it is to survive.
Under the disputed order, ETCI will be completely dependent
upon its use of the P16 billions worth of infrastructure which
PLDT has built over several decades. The vaunted payment of
compensation everytime an ETCI phone taps into a PLDT line is
illusory. There can be no adequate payment for the use of
billions of pesos of investments built up over 60 years.
Moreover, it is actually the phone owner or consumer who
pays the fee. The rate will be fixed by Government and will be
based on the consumer's best interests and capacity, ignoring
or subordinating the petitioner's investments. Payment will
depend on how much the phone user should be charged for
making a single phone call and will disregard the millions of
pesos that ETCI will earn through its use of billions of pesos
worth of another company's investments and properties.
The "hated monopoly" and "improved services" arguments are
not only misleading but also illusory.
To sustain the questioned NTC order will not in any way
improve telephone services nor would any monopoly be
dismantled. The answer to inadequate telephone facilities is
better administrative supervision. The NTC should pay
attention to its work and compel PLDT to improve its services
instead of saddling with the burden of carrying another
company's system.
For better services, what the country needs is to improve the
existing system and provide enough telephone lines for all who
really need them. The proposed ETCI cellular phones will serve
mostly those who can afford to tide in expensive cars and
who already have two or three telephones in their offices and
residences. Cellular phones should legally and fairly be
provided by PLDT as just another facet of its expansion
program.
The mass of applicants for new telephones will not benefit
from cellular phones. In fact, if PLDT is required by NTC to open
up new exchanges or interconnections for the rich ETCI
consumers, this will mean an equivalent number of low
income or middle income applicants who will have to wait
longer for their own PLDT lines. The Court's resolution favors
the conveniences of the rich at the expense of the necessities
of the poor. *
I agree with the petitioner that what NTC granted is not merely
provisional authority but what is in effect a regular certificate
of public convenience and necessity or "CPCN".
Starting with seven cell sites for 3,000 subscribers in Metro
Manila, the cellular mobile system will establish 67 cell sites
beginning October 1991. The initial expenses alone will
amount to P130 million. At page 8 of its Comment, ETCI admits
that that "the provisional authority to operate will
be useless to ETCI if it does not put up the system and
interconnnect said system with the existing PLDT
network."(Emphasis supplied) The completion of
interconnection arrangements, the setting up of expensive
installations, the requirements as to maintenance and
operation, and other conditions found in the NTC order are
anything but provisional.
The authority given to ETCI is entirely different from the
provisional authority given to MERALCO or oil companies to
increase the price of oil or electricity or to bus and jeepney
operators to raise fares a few centavos. In these cases the need
for increases is not only urgent but is usually a foregone
conclusion dictated by pressing circumstances. Further
hearings are needed only to fix the amount which will be finally
authorized. The NTC orders can also be easily revoked.
Increased prices of oil or rates of transportation services can
be lowered or struck down if the preliminary determinations
are wrong. In the instant case, NTC has authorized a new
company to start operations even if the issues have not been
thoroughly threshed out. There is no urgent need which
warrants operations before a final permit is granted. Once in
operation, there can be no cancelling or revocation of the
authority to operate, no dismantling of thousands of cellular
phones and throwing to waste of over P100 million worth of
investments in fixed facilities. Theoretically, it can be done but
it is clear from the records that what was granted is really a
CPCN.
There is no dispute that a legislative franchise is necessary for
the operation of a telephone system. The NTC has no
jurisdiction to grant the authority. The fact that ETCI has to rely
on a 1958 legislative franchise shows that only Congress can
give the franchise which will empower NTC to issue the
certificate or CPCN.
Rep. Act No. 2090 is a franchise for the construction and
operation of radio stations. Felix Alberto and Co. Inc. (FACI)
was authorized in the operation of those radio stations to
acquire and handle transmitters, receivers, electrical
machinery and other related devises. The use of radio
telephone was never intended or envisioned for a regular
telephone company. "Radio telephony" is governed and
circumscribed by the basic purpose of operating radio stations.
Telephony may be used only to enable communications
between the stations, to transmit a radio message to a station
where it would be transcribed into a form suitable for delivery
to the intended recipient. FACI was authorized to
communicate to, between, and among its radio stations. There
is no authority for thousands of customers to be talking to
PLDT subscribers directly. FACI was never given authority by
Rep. Act 2090 to operate switching facilities, wire-line
transmissions, and telecommunication stations of a telephone
company. The entire records can be scrutinized and they will
show that ETCI has all but ignored and kept silent about the
purpose of its alleged franchise-which is for the real operation
of radio stations. There can be no equating of "radio stations"
with a complete cellular mobile telephone system. The two are
poles apart.
The most liberal interpretation can not possibly read in a 1958
franchise for radio stations, the authority for a mobile cellular
system vintage 1990. No amount of liberal interpretation can
supply the missing requirement. And besides, we are not
interpreting a Constitution which is intended to cover changing
situations and must be read liberally. Legislative franchises are
always construed strictly against the franchise.
The remedy is for ETCI to go to Congress. I regret that in
dismissing this petition, we may be withholding from Congress
the courtesy we owe to it as a co-equal body and denigrating
its power to examine whether or not ETCI really deserves a
legislative franchise.
My third point has to do with the sudden resurrection of a
dead franchise and its coming to life in an entirely different
form-no longer a radio station but a modern telephone
company.
I have searched the records in vain for any plan of ETCI to
operate radio stations. It has not operated and does not plan
to operate radio stations. Its sole objective is to set up a
telephone company. For that purpose, it should go to Congress
and get a franchise for a telephone company. NTC cannot give
it such a franchise.
Section 10 of Rep. Act No. 2090 prohibits the transfer of the
franchise and the rights and privileges under that franchise
without the express approval of Congress. No amount of legal
niceties can cloak the fact that ETCI is not FACI, that the
franchise was sold by FACI to ETCI, and that the permit given
by NTC to ETCI is based on a purchased franchise.
When the owners of FACI sold out their stocks, the 3,900
shares were on paper worth only 35 centavos each. The
company had no assets and physical properties. All it had was
the franchise, for whatever it was worth. The buyers paid
P4,618,185.00 for the company's stocks, almost all of the
amount intended for the franchise. It was, therefore, a sale or
transfer of the franchise in violation of the express terms of
Rep. Act No. 2090 which call for approval by Congress.
ETCI tried to show a series of transactions involving the sales
of almost all of its stocks. Not only are the circumstances
surrounding the transfers quite suspicious, but they were
effected without the approval and authorization of the
Commission as required by law.
Sec. 4 of Rep. Act No. 2090 also provides that the
franchise shall be void unless the construction of radio stations
is begun within two years or June 22, 1960 and completed
within ten years or June 22, 1968.
As of April 14, 1987, ETCI formally admitted that it was still in
the pre-operating stage. Almost 30 years later, it had not even
started the business authorized by the franchise. It is only now
that it proposes to construct, not radio stations, but a
telephone system.
During the oral arguments and in its memorandum, ETCI
presented proof of several radio station construction permits.
A construction permit authorizes a construction but does not
prove it. There is no proof that the entire construction of all
stations was completed within ten years. In fact, there is not
the slightest intimation that ETCI, today, is operating radio
stations. What it wants is to set up a telephone system.
In addition to the franchise being void under its own charter,
P.D. 36 on November 2, 1972, cancelled all unused or dormant
legislative franchises. Rep. Act No. 2090, having been voided
by its own Section 4, suffered a second death if that is at all
possible.
The violations of law-(1) the giving of life to an already dead
franchise, (2) the transfer of ownership against an express
statutory provision, and (3) the use of a franchise for radio
stations to justify the setting up of a cellular mobile telephone
system are too glaring for us to ignore on the basis of "respect"
for a questionable NTC order and other purely technical
considerations. We should not force PLDT to open its lines to
enable a competitor to operate a system which cannot survive
unless it uses PLDT properties.
The NTC bases its order on alleged grounds of public need,
public interest, and the common good. There is no showing
that these considerations will be satisfied, at least sufficient to
warrant a strained interpretation of legal provisions. Any slight
improvement which the expensive ETCI project will accomplish
cannot offset its violation of law and fair dealing.
I, THEREFORE, VOTE to GRANT the petition.
Fernan, C.J., Narvasa, Gancayco, Bidin and Medialdea, JJ.,
concur.
CRUZ, J., concurring and dissenting:
As one of the many dissatisfied customers of PLDT, I should
have no objection to the grant of the provisional authority to
ETCI. I have none. Its admission will improve communication
facilities in the country conformably to the constitutional
objective. It will also keep PLDT on its toes and encourage it to
correct its deficient service in view of the competition.
I fully agree with all the rulings in the ponencia except the
approval of the requirement for PLDT to interconnect with
ETCI. I think it violates due process. It reminds me of the story
of the little red hen who found some rice and asked who would
help her plant it. None of the animals in the farm was willing
and neither did they help in watering, harvesting and finally
cooking it. But when she asked, "Who will help me eat the
rice?" everyone wanted to join in. The little red hen is like
PLDT.
If ETCI wants to operate its own telephone system, it should
rely on its own resources instead of riding piggy-back on PLDT.
It seems to me rather unfair for the Government to require
PLDT to share with a newcomer and potential rival what it took
PLDT tremendous effort and long years and billions of pesos to
build .
The case of Republic of the Philippines v. PLDT, 26 SCRA 620, is
not applicable because it was the Government itself that was
there seeking interconnection of its own telephone system,
with PLDT. The Court recognized the obvious public purpose
that justified the special exercise (by the Government of the
power of eminent domain. But in the case before us, the
intended beneficiary is a private enterprise primarily organized
for profit and, indeed, to compete with PLDT. In effect, the
Government is forcing PLDT to surrender its competitive
advantage and share its resources with ETCI, which may not
only supplement but, possibly, even ultimately supplant PLDT.
I do not think government authority extends that far.
The majority disposes of the question of due process by simply
saying that PLDT will have frill opportunity to be heard in the
ascertainment of the just compensation ETCI will have to pay
for the interconnection. That is not the issue. What PLDT is
objecting to is not the amount of the just compensation but
the interconnection itself that is being forced upon it.
I feel there is no due process where private property is taken
by the Government from one private person and given to
another private person for the latter's direct benefit. The fact
that compensation is paid is immaterial; the flaw lies in the
taking itself (Davidson v. New Orleans, 90 U.S. 97). The
circumstance that PLDT is a public utility is no warrant for
taking undue liberties with its property, which is protected by
the Bill of Rights. "Public need" cannot be a blanket
justification for favoring one investor against another in
contravention of the system of free enterprise. If PLDT has
misused its franchise, I should think the solution is to revoke
its authority, not to force it to share its resources with its
private competitors.
The rule is that where it is the legislature itself that directly
calls for the expropriation of private property, its
determination of the thing to be condemned and the purpose
of the taking is conclusive on the courts (City of Manila v.
Chinese Community, 40 Phil. 349). But where the power of
eminent domain is exercised only by a delegate of the
legislature, like ETCI, the courts may inquire into the necessity
or propriety of the expropriation and, when warranted,
pronounce its invalidity (Republic of the Philippines v. La Orden
de PO Benedictinos de Filipinas, 1 SCRA 649). I think this is
what the Court should do in the case at bar.
A final point. It is argued that requiring ETCI to start from
scratch (as PLDT did) and import its own equipment would
entail a tremendous outflow of foreign currency we can ill
afford at this time. Perhaps so. But we must remember that
the Bill of Rights is not a marketable commodity, like a piece of
machinery. Due process is an indispensable requirement that
cannot be assessed in dollar and cents.
Fernan, C.J., and Narvasa, J., concur.
Separate Opinions
GUTIERREZ, JR., J., dissenting:
I share with the rest of the Court the desire to have a "modern,
efficient, satisfactory, and continuous telecommunications
service" in the Philippines. I register this dissent, however,
because I believe that any frustrations over the present state
of telephone services do not justify our affirming an illegal and
inequitable order of the National Telecommunications
Commission (NTC). More so when it appears that the
questioned order is not really a solution to the problems
bugging our telephone industry.
My dissent is based on three primary considerations, namely:
(1) The Court has sustained nothing less than the desire of
respondent ETCI to set-up a profitable business catering to an
affluent clientele through the use of billions of pesos worth of
another company's properties. No issues of public welfare,
breaking up of monopolies, or other high sounding principles
are involved. The core question is purely and simply whether
or not to grant ETCI's desire for economic gains through riding
on another firm's investments.
(2) The Court has permitted respondent ETCI to operate a
telephone system without a valid legislative franchise. It
strains the imagination too much to interpret a legislative
franchise authorizing "radio stations" as including the
provisional permit for a sophisticated telephone system which
has absolutely nothing to do with radio broadcasts and
transmissions. The Court subverts the legislative will when it
validates a provisional permit on the basis of authority which
never envisioned much less intended its use for a regular
telephone system catering to thousands of individual receiver
units. There is nothing in Rep. Act No. 2090 which remotely
suggests a cellular mobile telephone system.
(3) The authority given by Rep. Act No. 2090 has expired. ETCI
is not only riding on another company's investments and using
legislative authority for a purpose never dreamed of by the
legislators but is also trying to extract life from and resurrect
an unused and dead franchise.
My principal objection to the disputed NTC order arises from
the fact that respondent Express Telecommunications Co. Inc.
(ETCI) cannot exist without using the facilities of Philippine
Long Distance Telephone Co. (PLDT). Practically all of its
business will be conducted through another company's
property.
While pretending to set up a separate phone company, ETCI's
cellular phones would be useless most of the time, if not all the
time, unless they use PLDT lines. It would be different if ETCI
phone owners would primarily communicate with one another
and tap into PLDT lines only rarely or occasionally.
To compare ETCI with the Government Telephone System
(GTS) or with an independent phone company serving a
province or city is misleading. The defunct GTS was set up to
connect government offices and personnel with one another.
It could exist independently and was not primarily or wholly
dependent on PLDT connections. A provincial or city system
serves the residents of a province or city. It primarily relies on
its own investments and infrastructure. It asks for PLDT
services only when long distance calls to another country, city,
or province have to be made.
I can, therefore, understand PLDT's reluctance Since it has its
own franchise to operate exactly the same services which ETCI
is endeavoring to establish. PLDT would be using its own
existing lines. Under the Court's decision, it would be
compelled to allow another company to use those same lines
in direct competition with the lines owner. The cellular system
is actually only an adjunct to a regular telephone system, not a
separate and independent system. As an adjunct and
component unit or as a parasite (if a foreign body) it must be
fed by the mother organism or unit if it is to survive.
Under the disputed order, ETCI will be completely dependent
upon its use of the P16 billions worth of infrastructure which
PLDT has built over several decades. The vaunted payment of
compensation everytime an ETCI phone taps into a PLDT line is
illusory. There can be no adequate payment for the use of
billions of pesos of investments built up over 60 years.
Moreover, it is actually the phone owner or consumer who
pays the fee. The rate will be fixed by Government and will be
based on the consumer's best interests and capacity, ignoring
or subordinating the petitioner's investments. Payment will
depend on how much the phone user should be charged for
making a single phone call and will disregard the millions of
pesos that ETCI will earn through its use of billions of pesos
worth of another company's investments and properties.
The "hated monopoly" and "improved services" arguments are
not only misleading but also illusory.
To sustain the questioned NTC order will not in any way
improve telephone services nor would any monopoly be
dismantled. The answer to inadequate telephone facilities is
better administrative supervision. The NTC should pay
attention to its work and compel PLDT to improve its services
instead of saddling with the burden of carrying another
company's system.
For better services, what the country needs is to improve the
existing system and provide enough telephone lines for all who
really need them. The proposed ETCI cellular phones will serve
mostly those who can afford to tide in expensive cars and
who already have two or three telephones in their offices and
residences. Cellular phones should legally and fairly be
provided by PLDT as just another facet of its expansion
program.
The mass of applicants for new telephones will not benefit
from cellular phones. In fact, if PLDT is required by NTC to open
up new exchanges or interconnections for the rich ETCI
consumers, this will mean an equivalent number of low
income or middle income applicants who will have to wait
longer for their own PLDT lines. The Court's resolution favors
the conveniences of the rich at the expense of the necessities
of the poor. *
I agree with the petitioner that what NTC granted is not merely
provisional authority but what is in effect a regular certificate
of public convenience and necessity or "CPCN".
Starting with seven cell sites for 3,000 subscribers in Metro
Manila, the cellular mobile system will establish 67 cell sites
beginning October 1991. The initial expenses alone will
amount to P130 million. At page 8 of its Comment, ETCI admits
that that "the provisional authority to operate will
be useless to ETCI if it does not put up the system and
interconnnect said system with the existing PLDT
network."(Emphasis supplied) The completion of
interconnection arrangements, the setting up of expensive
installations, the requirements as to maintenance and
operation, and other conditions found in the NTC order are
anything but provisional.
The authority given to ETCI is entirely different from the
provisional authority given to MERALCO or oil companies to
increase the price of oil or electricity or to bus and jeepney
operators to raise fares a few centavos. In these cases the need
for increases is not only urgent but is usually a foregone
conclusion dictated by pressing circumstances. Further
hearings are needed only to fix the amount which will be finally
authorized. The NTC orders can also be easily revoked.
Increased prices of oil or rates of transportation services can
be lowered or struck down if the preliminary determinations
are wrong. In the instant case, NTC has authorized a new
company to start operations even if the issues have not been
thoroughly threshed out. There is no urgent need which
warrants operations before a final permit is granted. Once in
operation, there can be no cancelling or revocation of the
authority to operate, no dismantling of thousands of cellular
phones and throwing to waste of over P100 million worth of
investments in fixed facilities. Theoretically, it can be done but
it is clear from the records that what was granted is really a
CPCN.
There is no dispute that a legislative franchise is necessary for
the operation of a telephone system. The NTC has no
jurisdiction to grant the authority. The fact that ETCI has to rely
on a 1958 legislative franchise shows that only Congress can
give the franchise which will empower NTC to issue the
certificate or CPCN.
Rep. Act No. 2090 is a franchise for the construction and
operation of radio stations. Felix Alberto and Co. Inc. (FACI)
was authorized in the operation of those radio stations to
acquire and handle transmitters, receivers, electrical
machinery and other related devises. The use of radio
telephone was never intended or envisioned for a regular
telephone company. "Radio telephony" is governed and
circumscribed by the basic purpose of operating radio stations.
Telephony may be used only to enable communications
between the stations, to transmit a radio message to a station
where it would be transcribed into a form suitable for delivery
to the intended recipient. FACI was authorized to
communicate to, between, and among its radio stations. There
is no authority for thousands of customers to be talking to
PLDT subscribers directly. FACI was never given authority by
Rep. Act 2090 to operate switching facilities, wire-line
transmissions, and telecommunication stations of a telephone
company. The entire records can be scrutinized and they will
show that ETCI has all but ignored and kept silent about the
purpose of its alleged franchise-which is for the real operation
of radio stations. There can be no equating of "radio stations"
with a complete cellular mobile telephone system. The two are
poles apart.
The most liberal interpretation can not possibly read in a 1958
franchise for radio stations, the authority for a mobile cellular
system vintage 1990. No amount of liberal interpretation can
supply the missing requirement. And besides, we are not
interpreting a Constitution which is intended to cover changing
situations and must be read liberally. Legislative franchises are
always construed strictly against the franchise.
The remedy is for ETCI to go to Congress. I regret that in
dismissing this petition, we may be withholding from Congress
the courtesy we owe to it as a co-equal body and denigrating
its power to examine whether or not ETCI really deserves a
legislative franchise.
My third point has to do with the sudden resurrection of a
dead franchise and its coming to life in an entirely different
form-no longer a radio station but a modern telephone
company.
I have searched the records in vain for any plan of ETCI to
operate radio stations. It has not operated and does not plan
to operate radio stations. Its sole objective is to set up a
telephone company. For that purpose, it should go to Congress
and get a franchise for a telephone company. NTC cannot give
it such a franchise.
Section 10 of Rep. Act No. 2090 prohibits the transfer of the
franchise and the rights and privileges under that franchise
without the express approval of Congress. No amount of legal
niceties can cloak the fact that ETCI is not FACI, that the
franchise was sold by FACI to ETCI, and that the permit given
by NTC to ETCI is based on a purchased franchise.
When the owners of FACI sold out their stocks, the 3,900
shares were on paper worth only 35 centavos each. The
company had no assets and physical properties. All it had was
the franchise, for whatever it was worth. The buyers paid
P4,618,185.00 for the company's stocks, almost all of the
amount intended for the franchise. It was, therefore, a sale or
transfer of the franchise in violation of the express terms of
Rep. Act No. 2090 which call for approval by Congress.
ETCI tried to show a series of transactions involving the sales
of almost all of its stocks. Not only are the circumstances
surrounding the transfers quite suspicious, but they were
effected without the approval and authorization of the
Commission as required by law.
Sec. 4 of Rep. Act No. 2090 also provides that the
franchise shall be void unless the construction of radio stations
is begun within two years or June 22, 1960 and completed
within ten years or June 22, 1968.
As of April 14, 1987, ETCI formally admitted that it was still in
the pre-operating stage. Almost 30 years later, it had not even
started the business authorized by the franchise. It is only now
that it proposes to construct, not radio stations, but a
telephone system.
During the oral arguments and in its memorandum, ETCI
presented proof of several radio station construction permits.
A construction permit authorizes a construction but does not
prove it. There is no proof that the entire construction of all
stations was completed within ten years. In fact, there is not
the slightest intimation that ETCI, today, is operating radio
stations. What it wants is to set up a telephone system.
In addition to the franchise being void under its own charter,
P.D. 36 on November 2, 1972, cancelled all unused or dormant
legislative franchises. Rep. Act No. 2090, having been voided
by its own Section 4, suffered a second death if that is at all
possible.
The violations of law-(1) the giving of life to an already dead
franchise, (2) the transfer of ownership against an express
statutory provision, and (3) the use of a franchise for radio
stations to justify the setting up of a cellular mobile telephone
system are too glaring for us to ignore on the basis of "respect"
for a questionable NTC order and other purely technical
considerations. We should not force PLDT to open its lines to
enable a competitor to operate a system which cannot survive
unless it uses PLDT properties.
The NTC bases its order on alleged grounds of public need,
public interest, and the common good. There is no showing
that these considerations will be satisfied, at least sufficient to
warrant a strained interpretation of legal provisions. Any slight
improvement which the expensive ETCI project will accomplish
cannot offset its violation of law and fair dealing.
I, THEREFORE, VOTE to GRANT the petition.
Fernan, C.J., Narvasa, Gancayco, Bidin and Medialdea, JJ.,
concur.
CRUZ, J., concurring and dissenting:
As one of the many dissatisfied customers of PLDT, I should
have no objection to the grant of the provisional authority to
ETCI. I have none. Its admission will improve communication
facilities in the country conformably to the constitutional
objective. It will also keep PLDT on its toes and encourage it to
correct its deficient service in view of the competition.
I fully agree with all the rulings in the ponencia except the
approval of the requirement for PLDT to interconnect with
ETCI. I think it violates due process. It reminds me of the story
of the little red hen who found some rice and asked who would
help her plant it. None of the animals in the farm was willing
and neither did they help in watering, harvesting and finally
cooking it. But when she asked, "Who will help me eat the
rice?" everyone wanted to join in. The little red hen is like
PLDT.
If ETCI wants to operate its own telephone system, it should
rely on its own resources instead of riding piggy-back on PLDT.
It seems to me rather unfair for the Government to require
PLDT to share with a newcomer and potential rival what it took
PLDT tremendous effort and long years and billions of pesos to
build .
The case of Republic of the Philippines v. PLDT, 26 SCRA 620, is
not applicable because it was the Government itself that was
there seeking interconnection of its own telephone system,
with PLDT. The Court recognized the obvious public purpose
that justified the special exercise (by the Government of the
power of eminent domain. But in the case before us, the
intended beneficiary is a private enterprise primarily organized
for profit and, indeed, to compete with PLDT. In effect, the
Government is forcing PLDT to surrender its competitive
advantage and share its resources with ETCI, which may not
only supplement but, possibly, even ultimately supplant PLDT.
I do not think government authority extends that far.
The majority disposes of the question of due process by simply
saying that PLDT will have frill opportunity to be heard in the
ascertainment of the just compensation ETCI will have to pay
for the interconnection. That is not the issue. What PLDT is
objecting to is not the amount of the just compensation but
the interconnection itself that is being forced upon it.
I feel there is no due process where private property is taken
by the Government from one private person and given to
another private person for the latter's direct benefit. The fact
that compensation is paid is immaterial; the flaw lies in the
taking itself (Davidson v. New Orleans, 90 U.S. 97). The
circumstance that PLDT is a public utility is no warrant for
taking undue liberties with its property, which is protected by
the Bill of Rights. "Public need" cannot be a blanket
justification for favoring one investor against another in
contravention of the system of free enterprise. If PLDT has
misused its franchise, I should think the solution is to revoke
its authority, not to force it to share its resources with its
private competitors.
The rule is that where it is the legislature itself that directly
calls for the expropriation of private property, its
determination of the thing to be condemned and the purpose
of the taking is conclusive on the courts (City of Manila v.
Chinese Community, 40 Phil. 349). But where the power of
eminent domain is exercised only by a delegate of the
legislature, like ETCI, the courts may inquire into the necessity
or propriety of the expropriation and, when warranted,
pronounce its invalidity (Republic of the Philippines v. La Orden
de PO Benedictinos de Filipinas, 1 SCRA 649). I think this is
what the Court should do in the case at bar.
A final point. It is argued that requiring ETCI to start from
scratch (as PLDT did) and import its own equipment would
entail a tremendous outflow of foreign currency we can ill
afford at this time. Perhaps so. But we must remember that
the Bill of Rights is not a marketable commodity, like a piece of
machinery. Due process is an indispensable requirement that
cannot be assessed in dollar and cents.
Fernan, C.J., and Narvasa, J., concur.
Footnotes
1 SEC. 4. This franchise shall continue for a period of fifty years
from the date the first of said stations shall be placed in
operation, and is granted upon the express condition that
same shall be void unless the construction of said station be
begun within two years from the date of the approval of this
Act and be completed within ten years from said date.
2 SECTION 1. Action by Government against individuals. An
action for the usurpation of office or franchise may be brought
in the name of the Republic of the Philippines against:
(a) A person who usurps, intrudes into, or unlawfully holds or
exercises a public office, or a franchise, or an office in a
corporation created by authority of law;
xxx xxx xxx
SECTION 2. Like actions against corporations. — A like action
may be brought against a corporation:
(a) When it has offended against a provision of an Act for its
creation or renewal;
(b) When it has forfeited its privileges and franchises by non-
user;
(c) When it has committed or omitted an act which amounts
to a surrender of its corporate rights, privileges, or franchises;
(d) When it has misused a right, privilege, or franchise
conferred upon it by law, or when it has exercised a right,
privilege, or franchise in contravention of law.
SECTION 3. When Solicitor General or fiscal must commence
action.-The Solicitor General or a fiscal, when directed by the
President of the Philippines, or when upon complaint or
otherwise he has good reason to believe that any case
specified in the last two preceding sections can be established
by proof, must commence such action.
GUTIERREZ, JR., J.: Dissenting Opinion
* The subscriber pays P38,000.00 for a vehicle borne
telephone for a portable phone. and P57,000.00 for a
Pocketphone, although NTC allow 15% discounts on these
amounts. There is a basic charge which includes P750.00 a
month for free answering services. If the subscriber uses his
phone from 7:00 AM to 7:00 PM, he pays P7.00 for the first
minute and P5.50 for each additional minute. For a long
distance calls, the PLDT toll is added. Even for unsuccessful and
unconnected operator assisted calls there is a P4.00 charge per
call.
G.R. No. 166910 October 19, 2010
ERNESTO B. FRANCISCO, JR. and JOSE MA. O.
HIZON, Petitioners,
vs.
TOLL REGULATORY BOARD, PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION, MANILA NORTH TOLLWAYS
CORPORATION, BENPRES HOLDINGS CORPORATION, FIRST
PHILIPPINE INFRASTRUCTURE DEVELOPMENT
CORPORATION, TOLLWAY MANAGEMENT CORPORATION,
PNCC SKYWAY CORPORATION, CITRA METRO MANILA
TOLLWAYS CORPORATION and HOPEWELL CROWN
INFRASTRUCTURE, INC., Respondents.
VELASCO, JR., J.:
Before us are four petitions; the first three are special civil
actions under Rule 65, assailing and seeking to nullify certain
statutory provisions, presidential actions and implementing
orders, toll operation-related contracts and issuances on the
construction, maintenance and operation of the major tollway
systems in Luzon. The petitions likewise seek to restrain and
permanently prohibit the implementation of the allegedly
illegal toll fee rate hikes for the use of the North Luzon
Expressway ("NLEX"), South Luzon Expressway ("SLEX") and
the South Metro Manila Skyway ("SMMS"). The fourth, a
petition for review under Rule 45, seeks to annul and set aside
the decision dated June 23, 2008 of the Regional Trial Court
("RTC") of Pasig, in SCA No. 3138-PSG, enjoining the original
toll operating franchisee from collecting toll fees in the SLEX.
By Resolution of March 20, 2007, the Court ordered the
consolidation of the first three petitions, docketed as G.R. Nos.
166910, 169917 and 173630, respectively. The fourth
petition, G.R. No. 183599, would later be ordered
consolidated with the earlier three petitions.
The Facts
The antecedent facts are as follows—
On March 31, 1977, then President Ferdinand E. Marcos issued
Presidential Decree No. ("P.D.") 1112, authorizing the
establishment of toll facilities on public improvements.1 This
issuance, in its preamble, explicitly acknowledged "the huge
financial requirements" and the necessity of tapping "the
resources of the private sector" to implement the
government’s infrastructure programs. In order to attract
private sector involvement, P.D. 1112 allowed "the collection
of toll fees for the use of certain public improvements that
would allow a reasonable rate of return on investments." The
same decree created the Toll Regulatory Board ("TRB") and
invested it under Section 3 (a) (d) and (e) with the power to
enter, for the Republic, into contracts for the construction,
maintenance and operation of tollways, grant authority to
operate a toll facility, issue therefor the necessary Toll
Operation Certificate ("TOC") and fix initial toll rates, and, from
time to time, adjust the same after due notice and hearing.
On the same date, P.D. 1113 was issued, granting to the
Philippine National Construction Corporation ("PNCC"), then
known as the Construction and Development Corporation of
the Philippines ("CDCP"), for a period of thirty years from May
1977 – or up to May 2007 – a franchise to construct, maintain
and operate toll facilities in the North Luzon and South Luzon
Expressways, with the right to collect toll fees at such rates as
the TRB may fix and/or authorize. Particularly, Section 1 of P.D.
1113 delineates the coverage of the expressways from
Balintawak, Caloocan City to Carmen, Rosales, Pangasinan and
from Nichols, Pasay City to Lucena, Quezon. And because the
franchise is not self-executing, as it was in fact made subject,
under Section 3 of P.D. 1113, to "such conditions as may be
imposed by the Board in an appropriate contract to be
executed for such purpose," TRB and PNCC signed in October
1977, a Toll Operation Agreement ("TOA") on the North Luzon
and South Luzon Tollways, providing for the detailed terms and
conditions for the construction, maintenance and operation of
the expressway.2
On December 22, 1983, P.D. 1894 was issued therein further
granting PNCC a franchise over the Metro Manila Expressway
("MMEX"), and the expanded and delineated NLEX and SLEX.
Particularly, PNCC was granted the "right, privilege and
authority to construct, maintain and operate any and all such
extensions, linkages or stretches, together with the toll
facilities appurtenant thereto, from any part of the North
Luzon Expressway, South Luzon Expressway and/or Metro
Manila Expressway and/or to divert the original route and
change the original end-points of the North Luzon Expressway
and/or South Luzon Expressway as may be approved by the
[TRB]."3 Under Section 2 of P.D. 1894, "the franchise granted
the [MMEX] and all extensions, linkages, stretches and
diversions after the approval of the decree that may be
constructed after the approval of this decree [on December 22,
1983] shall likewise have a term of thirty (30) years,
commencing from the date of completion of the project."
As expressly set out in P.D. 1113 and reiterated in P.D. 1894,
PNCC may sell or assign its franchise thereunder granted or
cede the usufruct4 thereof upon the President’s
approval.5 This same provision on franchise transfer and
cession of usufruct is likewise found in P.D. 1112.6
Then came the 1987 Constitution with its franchise provision.7
In 1993, the Government Corporate Counsel ("GCC"), acting on
PNCC’s request, issued Opinion No. 224, s. 1993,8later
affirmed by the Secretary of Justice,9 holding that PNCC may,
subject to certain clearance and approval requirements, enter
into a joint venture ("JV") agreement ("JVA") with private
entities without going into public bidding in the selection of its
JV partners. PNCC’s query was evidently prompted by the need
to seek out alternative sources of financing for expanding and
improving existing expressways, and to link them to economic
zones in the north and to the CALABARZON area in the south.
MOU for the construction, rehabilitation
and expansion of expressways
On February 8, 1994, the Department of Public Works and
Highways ("DPWH"), TRB, PNCC, Benpres Holdings
Corporation ("Benpres") and First Philippine Holdings
Corporation ("FPHC"), among other private and government
entities/agencies, executed a Memorandum of Understanding
("MOU") envisaged to open the door for the entry of private
capital in the rehabilitation, expansion (to Subic and Clark) and
extension, as flagship projects, of the expressways north of
Manila, over which PNCC has a franchise. To carry out their
undertakings under the MOU, Benpres and FPHC formed, as
their infrastructure holding arm, the First Philippine
Infrastructure and Development Corporation ("FPIDC").
Consequent to the MOU execution, PNCC entered into
financial and/or technical JVAs with private entities/investors
for the toll operation of its franchised areas following what
may be considered as a standard pattern, viz.: (a) after a JVA is
concluded and the usual government approval of the
assignment by PNCC of the usufruct in the franchise under P.D.
1113, as amended, secured, a new JV company is specifically
formed to undertake a defined toll road project; (b) the
Republic of the Philippines, through the TRB, as grantor, PNCC,
as operator, and the new corporation, as
investor/concessionaire, with its lender, as the case may be,
then execute a Supplemental Toll Operation Agreement
("STOA") to implement the TOA previously issued; and (c) once
the requisite STOA approval is given, project prosecution starts
and upon the completion of the toll road project or of a
divisible phase thereof, the TRB fixes or approves the initial toll
rate after which, it passes a board resolution prescribing the
periodic toll rate adjustment.
The STOA defines the scope of the road project coverage, the
terminal date of the concession, and includes provisions on
initial toll rate and a built-in formula for adjustment of toll
rates, investment recovery clauses and contract termination in
the event of the concessionaire’s, PNCC’s or TRB’s default, as
the case may be.
The following events or transactions, involving the
personalities as indicated, transpired with respect to the
following projects:
The South Metro Manila Skyway (SMMS)
(Buendia – Bicutan elevated stretch) Project
PNCC entered into a JV partnership arrangement with P.T.
Citra, an Indonesian company, and created, for the SMMS
project, the Citra Metro Manila Tollways Corporation
("CMMTC").
On November 27, 1995, TRB, PNCC and CMMTC executed a
STOA for the SMMS project ("CITRA STOA"). And on April 7,
1996, then President Fidel V. Ramos approved the CITRA STOA.
Phase I of the SMMS project – the Bicutan to Buendia elevated
expressway stretch – was completed in December 1998, and
the consequent initial toll rates for its use implemented a
month after. On November 26, 2004, the TRB passed
Resolution No. 2004-53, approving the periodic toll rate
adjustment for the SMMS.
The NLEX Expansion Project (Rehabilitated and Widened
NLEX, Subic Expressway, Circumferential Road C-5)
In reply to the query of the then TRB Chairman, the
Department of Justice ("DOJ") issued DOJ Opinion No. 79, s. of
1994, echoing an earlier opinion of the GCC, that the TRB can
implement the NLEX expansion project through a JV scheme
with private investors possessing the requisite technical and
financial capabilities.
On May 16, 1995, then President Ramos approved the
assignment of PNCC’s usufructuary rights as franchise holder
to a JV company to be formed by PNCC and FPIDC. PNCC and
FPIDC would later ink a JVA for the rehabilitation and
modernization of the NLEX – referred in certain pleadings as
the North Luzon Tollway project.10The Manila North Tollways
Corporation ("MNTC") was formed for the purpose.
On April 30, 1998, the Republic, through the TRB, PNCC and
MNTC, executed a STOA for the North Luzon Tollway project
("MNTC STOA") in which MNTC was authorized, inter alia, to
subcontract the operation and maintenance of the project,
provided that the majority of the outstanding shares of the
contractor shall be owned by MNTC. The MNTC STOA covers
three phases comprising of ten segments, including the
rehabilitated and widened NLEX, the Subic Expressway and the
circumferential Road C-5.11 The STOA is to be effective for
thirty years, reckoned from the issuance of the toll operation
permit for the last completed phase or until December 31,
2030, whichever is earlier. The Office of the President ("OP")
approved the STOA on June 15, 1998.
On August 2, 2000, pursuant to the MNTC STOA, the Tollways
Management Corporation ("TMC")—formerly known as the
Manila North Tollways Operation and Maintenance
Corporation—was created to undertake the operation and
maintenance of the NLEX tollway facilities, interchanges and
related works.
On January 27, 2005, the TRB issued Resolution No. 2005-04
approving the initial authorized toll rates for the closed and flat
toll systems applicable to the new NLEX.
The South Luzon Expressway Project (Nichols to Lucena City)
For the SLEX expansion project, PNCC and Hopewell Holdings
Limited ("HHL"), as JV partners, executed a Memorandum of
Agreement ("MOA"),12 which eventually led to the formation TOA and, at the same time, be the regulator of the tollway
of a JV company – Hopewell Crown Infrastructure, Inc. ("HCII"), industry and an adjudicator of rate exactions disputes.
now MTD Manila Expressways, Inc., ("MTDME"). And pursuant
Additionally, petitioners also seek to nullify certain provisions
to the PNCC-MTDME JVA, the South Luzon Tollway
of P.D. 1113 and P.D. 1894, which uniformly grant the
Corporation ("SLTC") and the Manila Toll Expressway Systems,
President the power to approve the transfer or assignment of
Inc. ("MATES") were incorporated to undertake the financing,
usufruct or the rights and privileges thereunder by the tollway
construction, operation and maintenance of the resulting
operator to third parties, particularly the transfer effected by
Project Toll Roads forming part of the SLEX. The toll road
PNCC to MNTC. As argued, the authority to approve partakes
projects are divisible toll sections or segments, each segment
of an exercise of legislative power under Article VI, Section 1
defined as to its starting and end points and each with the
of the Constitution.15
corresponding distance coverage. The proposed JVA, as later
amended, between PNCC and MTDME was approved by the In the meantime, or on April 8, 2010, the TRB issued a
OP on June 30, 2000. Certificate of Substantial Completion16 with respect to PTR 1
(Alabang-Filinvest stretch) and PTR 2 (Alabang-Calamba
Eventually, or on February 1, 2006, a STOA13 for the financing,
segments) of SLEX, signifying the completion of the full
design, construction, lane expansion and maintenance of the
rehabilitation/expansion of both segments and the
Project Toll Roads (PTR) of the rehabilitated and improved
linkages/interchanges in between pursuant to the
SLEX was executed by and among the Republic, PNCC, SLTC, as
requirements of the corresponding STOA. TRB on even date
investor, and MATES, as operator. To be precise, the PTRs,
issued a Toll Operation Permit in favor of MATES over said PTRs
under the STOA, comprise and contemplated the full
1 and 2.17 Accordingly, upon due application, the TRB
rehabilitation and/or roadway widening of the following
approved the publication of the toll rate matrix for PTRs 1 and
existing toll roads or facilities: PTR 1 – that portion of the
2, the rate to take effect on June 30, 2010. 18 The
tollway commencing at the end of South MM Skyway to the
implementation of the published rate would, however, be
Filinvest exit at Alabang (1-242 km); PTR 2 – the tollway from
postponed to August 2010.
Alabang to Calamba, Laguna (27.28 km); PTR 3 – the tollway
from Calamba to Sto. Tomas, Batangas (7.6 km) and PTR 4 – On July 5, 2010, petitioner Francisco filed a Supplemental
the tollway from Sto. Tomas to Lucena City (54.27 km).14 Petition with prayer for the issuance of a temporary restraining
order ("TRO") and/or status quo order focused on the
Under Clause 6.03 of the STOA, the Operator, after
impending collection of what was perceived to be toll rate
substantially completing a TPR, shall file an application for a
increases in the SLEX. The assailed adjustments were made
Toll Operation Permit over the relevant completed TPR or
public in a TRB notice of toll rate increases for the SLEX from
segment, which shall include a request for a review and
Alabang to Calamba on June 6, 2010, and were supposed to
approval by the TRB of the calculation of the new current
have been implemented on June 30, 2010. On August 13, 2010,
authorized toll rate.
the Court granted the desired TRO, enjoining the respondents
G.R. No. 166910 in the consolidated cases from implementing the toll rate
increases in the SLEX.
Petitioners Francisco and Hizon, as taxpayers and expressway
users, seek to nullify the various STOAs adverted to above and In their Consolidated Comment/Opposition to the
the corresponding TRB resolutions, i.e. Res. Nos. 2004-53 and Supplemental Petition, respondents SLTC et al., aver that the
2005-04, fixing initial rates and/or approving periodic toll rate disputed rates are actually initial and opening rates, not an
adjustments therefor. To the petitioners, the STOAs and the increase or adjustment of the prevailing rate, for the new
toll rate-fixing resolutions violate the Constitution in that they expanded and rehabilitated SLEX. In fine, the new toll rates
veritably impose on the public the burden of financing tollways are, per SLTC, for a new and upgraded facility, i.e. the
by way of exorbitant fees and thus depriving the public of aforementioned Project Toll Roads 1 and 2 put up pursuant to
property without due process. These STOAs are also alleged to the 2006 Republic-PNCC-SLTC-MATES STOA adverted to.
be infirm as they effectively awarded purported "build-
G.R. No. 169917
operate-transfer" ("BOT") projects without public bidding in
violation of the BOT Law (R.A. 6957, as amended by R.A. 7718). While they raise, for the most part, the same issues articulated
in G.R. No. 166910, such as the public bidding requirement, the
Petitioners likewise assail the constitutionality of Sections 3 (a)
power of the President to approve the assignment of PNCC’s
and (d) of P.D. 1112 in relation to Section 8 (b) of P.D. 1894
usufructuary rights to cover (as petitioners Imee R. Marcos, et
insofar as they vested the TRB, on one hand, toll operation
al., would stress) even the assignment of the expressway from
awarding power while, on the other hand, granting it also the
Balintawak to Tabang, the virtual amendment and extension
power to issue, modify and promulgate toll rate charges. The
of a statutory franchise by way of administrative action (e.g.,
TRB, so petitioners bemoan, cannot be an awarding party of a
the execution of a STOA or issuance of a TOC), petitioners
in G.R. No. 169917 – some of them then and still are members
of the House of Representatives – have, as their main focus,
the North Luzon Tollway project and the agreements and
devices entered in relation therewith.
Petitioners also assail the MNTC STOA on the ground that it
granted the lenders (Asian Development Bank/World Bank) of
MNTC, as project concessionaire, the unrestricted rights to
appoint a substitute entity to replace MNTC in case of an
MNTC Default before prepayment of the loans, while also
granting said lenders, in appropriate cases, the option to
extend the "concession or franchise" for a period not
exceeding fifty years coinciding with the full payment of the
loans.
G.R. No. 173630
Apart from those taken up in the other petitions for certiorari
and prohibition, petitioners, in G.R. No. 173630, whose
members and constituents allegedly traverse SLEX daily, aver
that TRB ought to have applied the provisions of R.A. 6957
[BOT Law] and R.A. 9184 [Government Procurement Reform
Act], which require public bidding for the prosecution of the
SLEX project.
G.R. No. 183599
Civil Case – SCA No. 3138-PSG before the RTC
On September 14, 2007, the Young Professionals and
Entrepreneurs of San Pedro, Laguna ("YPES"), one of the
petitioners in G.R. No. 173630, filed before the RTC, Branch
155, in Pasig City, a special civil action for certiorari, etc.,
against the TRB, docketed as SCA No. 3138-PSG, containing
practically identical issues raised in G.R. No. 173630. Like its
petition in G.R. No. 173630, YPES, before the RTC, assailed and
sought to nullify the April 27, 2007 TOC, which TRB issued to
PNCC inasmuch as the TOC worked to extend PNCC’s tollway
operation franchise for the SLEX. As YPES argued, only the
Congress can extend the term of PNCC’s franchise which
expired on May 1, 2007.
Ruling of the RTC in SCA No. 3138-PSG
By Decision19 dated June 23, 2008, the RTC, for the main stated
reason that the authority to grant or renew franchises belongs
only to Congress, granted YPES’ petition, disposing as follows:
ACCORDINGLY, the instant Petition for Certiorari, Prohibition
and Mandamus is hereby GRANTED and the questioned Toll
Operation Certificate (TOC) covering the [SLEX] issued by
respondent TRB in April, 2007, is hereby ordered ANNULLED
and SET ASIDE.
FURTHER, respondent PNCC is hereby immediately
PROHIBITED from collecting toll fess along the SLEX facilities as
it no longer has the power and authority to do so.
FINALLY, as mandated under Section 9 of PD No. 1113,
respondent PNCC is hereby COMMANDED to turn over
without further delay the physical assets and facilities of the
SLEX including improvements thereon, together with the
equipment and appurtenances directly related to their
operations, without any cost, to the Government through the
Toll Regulatory Board x x x.20
Thus, the instant petition for review on certiorari under Rule
45, filed by the TRB on pure questions of law, docketed as G.R.
No. 183599.
In their separate comments, public and private respondents
uniformly seek the dismissal of the three special civil actions
on the threshold issue of the absence of a justiciable case and
lack of locus standi on the part of the petitioners
therein. Other grounds raised range from the impropriety of
certiorari to nullify toll operation agreements; the
inapplicability of the public bidding rules in the selection by
PNCC of its JV partners and the authority of the President to
approve TOAs and the transfer of usufructuary rights. PNCC
argues, in esse, that its continuous toll operations did not
constitute an extension of its franchise, its authority to operate
after the expiry date thereof in May 2007 being based on the
valid authority of TRB to issue TOC.
The Issues
The principal consolidated but interrelated issues tendered
before the Court, most of which with constitutional
undertones, may be reduced into six (6) and formulated in the
following wise: first, whether or not an actual case or
controversy exists and, relevantly, whether petitioners in the
first three petitions have locus standi; second, whether the
TRB is vested with the power and authority to grant what
amounts to a franchise over tollway facilities; third, corollary
to the second, whether the TRB can enter into TOAs and, at
the same time, promulgate toll rates and rule on petitions for
toll rate adjustments; fourth, whether the President is duly
authorized to approve contracts, inclusive of assignment of
contracts, entered into by the TRB relative to tollway
operations; fifth, whether the subject STOAs covering the
NLEX, SLEX and SMMS and their respective extensions,
linkages, etc. are valid; sixth, whether a public bidding is
required or mandatory for these tollway projects.
Expressly prayed, if not subsumed, in the first three petitions,
is to prohibit TRB and its concessionaires from collecting toll
fees along the Skyway and Luzon Tollways.
Preliminary Issues
Existence of an Actual Controversy, its Ripeness and
the Locus Standi to Sue
The power of judicial review can only be exercised in
connection with a bona fide controversy involving a statute, its
implementation or a government action.21 Withal, courts will
decline to pass upon constitutional issues through advisory
opinions, bereft as they are of authority to resolve
hypothetical or moot questions.22 The limitation on the power
of judicial review to actual cases and controversies defines the
role assigned to the judiciary in a tripartite allocation of power,
to assure that the courts will not intrude into areas committed
to the other branches of government.23
In The Province of North Cotabato v. The Government of the
Republic of the Philippines Peace Panel on Ancestral Domain
(GRP), the Court has expounded anew on the concept of actual
case or controversy and the requirement of ripeness for
judicial review, thus:
An actual case or controversy involves a conflict of legal rights,
an assertion of opposite legal claims, susceptible of judicial
resolution as distinguished from a hypothetical or abstract
difference or dispute. There must be a contrariety of legal
rights x x x. The Court can decide the constitutionality of an act
x x x only when a proper case between opposing parties is
submitted for judicial determination.
Related to the requirement of an actual case or controversy is
the requirement of ripeness. A question is ripe for adjudication
when the act being challenged has had a direct adverse effect
on the individual challenging it. x x x [I]t is a prerequisite that
something had then been accomplished or performed by
either branch before a court may come into the picture, and
the petitioner must allege the existence of an immediate or
threatened injury to itself as a result of the challenged action.
He must show that he has sustained or is immediately in
danger of sustaining some direct injury as a result of the act
complained of.24
But even with the presence of an actual case or controversy,
the Court may refuse judicial review unless the constitutional
question or the assailed illegal government act is brought
before it by a party who possesses what in Latin is technically
called locus standi or the standing to challenge it.25 To have
standing, one must establish that he has a "personal and
substantial interest in the case such that he has sustained, or
will sustain, direct injury as a result of its
enforcement."26 Particularly, he must show that (1) he has
suffered some actual or threatened injury as a result of the
allegedly illegal conduct of the government; (2) the injury is
fairly traceable to the challenged action; and (3) the injury is
likely to be redressed by a favorable action.27
Petitions for certiorari and prohibition are, as here,
appropriate remedies to raise constitutional issues and to
review and/or prohibit or nullify, when proper, acts of
legislative and executive officials.28 The present petitions
allege that then President Ramos had exercised vis-à-vis an
assignment of franchise, a function legislative in character. As
alleged, too, the TRB, in the guise of entering into contracts or
agreements with PNCC and other juridical entities, virtually
enlarged, modified to the core and/or extended the statutory
franchise of PNCC, thereby usurping a legislative prerogative.
The usurpation came in the form of executing the assailed
STOAs and the issuance of TOCs. Grave abuse of discretion is
also laid on the doorstep of the TRB for its act of entering into
these same contracts or agreements without the required
public bidding mandated by law, specifically the BOT Law (R.A.
6957, as amended) and the Government Procurement Reform
Act (R.A. 9184).
In fine, the certiorari petitions impute on then President
Ramos and the TRB, the commission of acts that translate inter
alia into usurpation of the congressional authority to grant
franchises and violation of extant statutes. The petitions make
a prima facie case for certiorari and prohibition; an actual case
or controversy ripe for judicial review exists. Verily, when an
act of a branch of government is seriously alleged to have
infringed the Constitution, it becomes not only the right but in
fact the duty of the judiciary to settle the dispute. In doing so,
the judiciary merely defends the sanctity of its duties and
powers under the Constitution.29
In any case, the rule on standing is a matter of procedural
technicality, which may be relaxed when the subject in issue
or the legal question to be resolved is of transcendental
importance to the public.30 Hence, even absent any direct
injury to the suitor, the Court can relax the application of legal
standing or altogether set it aside for non-traditional plaintiffs,
like ordinary citizens, when the public interest so
requires.31 There is no doubt that individual petitioners,
Marcos, et al., in G.R. No. 169917, as then members of the
House of Representatives, possess the requisite legal standing
since they assail acts of the executive they perceive to injure
the institution of Congress. On the other hand, petitioners
Francisco, Hizon, and the other petitioning associations, as
taxpayers and/or mere users of the tollways or representatives
of such users, would ordinarily not be clothed with the
requisite standing. While this is so, the Court is wont to
presently relax the rule on locus standi owing primarily to the
transcendental importance and the paramount public interest
involved in the implementation of the laws on the Luzon
tollways, a roadway complex used daily by hundreds of
thousands of motorists. What we said a century ago
in Severino v. Governor General is just as apropos today:
When the relief is sought merely for the protection of private
rights, x x x [the relator’s] right must clearly appear. On the
other hand, when the question is one of public right and the
object of the mandamus is to procure the enforcement of a
public duty, the people are regarded as the real party in
interest, and the relator at whose instigation the proceedings
are instituted need not show that he has any legal or special
interest in the result, it being sufficient to show that he is a
citizen and as such interested in the execution of the
laws.32 (Words in bracket and emphasis added.)
Accordingly, We take cognizance of the present case on
account of its transcendental importance to the public.
Second Issue: TRB Empowered to Grant Authority to Operate
Toll Facility /System
It is abundantly clear that Sections 3 (a) and (e) of P.D. 1112 in
relation to Section 4 of P.D. 1894 have invested the TRB with
sufficient power to grant a qualified person or entity with
authority to construct, maintain, and operate a toll facility and
to issue the corresponding toll operating permit or TOC.
Sections 3 (a) and (e) of P.D. 1112 and Section 4 of P.D. 1894
amply provide the power to grant authority to operate toll
facilities:
Section 3. Powers and Duties of the Board. The Board shall
have in addition to its general powers of administration the
following powers and duties:
(a) Subject to the approval of the President of the Philippines,
to enter into contracts in behalf of the Republic of the
Philippines with persons, natural or juridical, for the
construction, operation and maintenance of toll facilities such
as but not limited to national highways, roads, bridges, and
public thoroughfares. Said contract shall be open to citizens of
the Philippines and/or to corporations or associations qualified
under the Constitution and authorized by law to engage in toll
operations;
xxxx
(e) To grant authority to operate a toll facility and to issue
therefore the necessary "Toll Operation Certificate" subject to
such conditions as shall be imposed by the Board including
inter alia the following:
(1) That the Operator shall desist from collecting toll upon the
expiration of the Toll Operation Certificate.
(2) That the entire facility operated as a toll system including
all operation and maintenance equipment directly related
thereto shall be turned over to the government immediately
upon the expiration of the Toll Operation Certificate.
(3) That the toll operator shall not lease, transfer, grant the
usufruct of, sell or assign the rights or privileges acquired
under the Toll Operation Certificate to any person, firm,
company, corporation or other commercial or legal entity, nor
merge with any other company or corporation organized for
the same purpose, without the prior approval of the President
of the Philippines. In the event of any valid transfer of the Toll
Operation Certificate, the Transferee shall be subject to all the
conditions, terms, restrictions and limitations of this Decree as
fully and completely and to the same extent as if the Toll
Operation Certificate has been granted to the same person,
firm, company, corporation or other commercial or legal
entity.
(4) That in time of war, rebellion, public peril, emergency,
calamity, disaster or disturbance of peace and order, the
President of the Philippines may cause the total or partial
closing of the toll facility or order to take over thereof by the
Government without prejudice to the payment of just
compensation.
(5) That no guarantee, Certificate of Indebtedness, collateral,
securities, or bonds shall be issued by any government agency
or government-owned or controlled corporation on any
financing program of the toll operator in connection with his
undertaking under the Toll Operation Certificate.
(6) The Toll Operation Certificate may be amended, modified
or revoked whenever the public interest so requires.
(a) The Board shall promulgate rules and regulations governing
the procedures for the grant of Toll Certificates. The rights and
privileges of a grantee under a Toll Operation Certificate shall
be defined by the Board.
(b) To issue rules and regulations to carry out the purposes of
this Decree.
SECTION 4. The Toll Regulatory Board is hereby given
jurisdiction and supervision over the GRANTEE with respect to
the Expressways, the toll facilities necessarily appurtenant
thereto and, subject to the provisions of Section 8 and 9
hereof, the toll that the GRANTEE will charge the users thereof.
By explicit provision of law, the TRB was given the power to
grant administrative franchise for toll facility projects.
The concerned petitioners would argue, however, that PNCC’s
[then CDCP’s] franchise, as toll operator, was granted via P.D.
1113, on the same day P.D. 1112, creating the TRB, was issued.
It is thus pointed out that P.D. 1112 could not have plausibly
granted the TRB with the power and jurisdiction to issue a
similar franchise. Pushing the point, they maintain that only
Congress has, under the 1987 Constitution, the exclusive
prerogative to grant franchise to operate public utilities.
We are unable to agree with petitioners’ stance and their
undue reliance on Article XII, Section 11 of the Constitution,
which states that:
SEC. 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines at
least sixty per centum of whose capital is owned by such
citizens, nor shall such franchise, certificate, or authorization
be exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good
so requires x x x.
The limiting thrust of the foregoing constitutional provision on
the grant of franchise or other forms of authorization to
operate public utilities may, in context, be stated as follows:
(a) the grant shall be made only in favor of qualified Filipino
citizens or corporations; (b) Congress can impair the obligation
of franchises, as contracts; and (c) no such authorization shall
be exclusive or exceed fifty years.
A franchise is basically a legislative grant of a special privilege
to a person.33 Particularly, the term, franchise, "includes not
only authorizations issuing directly from Congress in the form
of statute, but also those granted by administrative agencies
to which the power to grant franchise has been delegated by
Congress."34 The power to authorize and control a public utility
is admittedly a prerogative that stems from the Legislature.
Any suggestion, however, that only Congress has the authority
to grant a public utility franchise is less than accurate. As
stressed in Albano v. Reyes—a case decided under the aegis of
the 1987 Constitution—there is nothing in the Constitution
remotely indicating the necessity of a congressional franchise
before "each and every public utility may operate," thus:
That the Constitution provides x x x that the issuance of a
franchise, certificate or other form of authorization for the
operation of a public utility shall be subject to amendment,
alteration or repeal by Congress does not necessarily imply x x
x that only Congress has the power to grant such authorization.
Our statute books are replete with laws granting specified
agencies in the Executive Branch the power to issue such
authorization for certain classes of public utilities.35 (Emphasis
ours.)
In such a case, therefore, a special franchise directly emanating
from Congress is not necessary if the law already specifically
authorizes an administrative body to grant a franchise or to
award a contract.36 This is the same view espoused by the
Secretary of Justice in his opinion dated January 9, 2006, when
he stated:
That the administrative agencies may be vested with the
authority to grant administrative franchises or concessions
over the operation of public utilities under their respective
jurisdiction and regulation, without need of the grant of a
separate legislative franchise, has been upheld by the Supreme
Court x x x.37
Under the 1987 Constitution, Congress has an explicit
authority to grant a public utility franchise. However, it may
validly delegate its legislative authority, under the power of
subordinate legislation,38 to issue franchises of certain public
utilities to some administrative agencies. In Kilusang Mayo
Uno Labor Center v. Garcia, Jr., We explained the reason for
the validity of subordinate legislation, thus:
Such delegation of legislative power to an administrative
agency is permitted in order to adapt to the increasing
complexity of modern life. As subjects for governmental
regulation multiply, so does the difficulty of administering the
laws. Hence, specialization even in legislation has become
necessary.39 (Emphasis ours.)
As aptly pointed out by the TRB and other private respondents,
the Land Transportation Franchising and Regulatory Board
("LTFRB"), the Civil Aeronautics Board ("CAB"), the National
Telecommunications Commission ("NTC"), and the Philippine
Ports Authority ("PPA"), to name a few, have been such
delegates. The TRB may very well be added to the growing list,
having been statutorily endowed, as earlier indicated, the
power to grant to qualified persons, authority to construct
road projects and operate thereon toll facilities. Such grant, as
evidenced by the corresponding TOC or set out in a TOA, "may
be amended, modified, or revoked [by the TRB] whenever the
public interest so requires."40
In Philippine Airlines, Inc. v. Civil Aeronautics Board,41 the
Court reiterated its holding in Albano that the CAB, like the
PPA, has sufficient statutory powers under R.A. 776 to issue
a Certificate of Public Convenience and Necessity, or
Temporary Operating Permit to a domestic air transport
operator who, although not possessing a legislative franchise,
meets all the other requirements prescribed by law. We held
therein that "there is nothing in the law nor in the Constitution
which indicates that a legislative franchise is an indispensable
requirement for an entity to operate as a domestic air
transport operator."42 We further explicated:
Congress has granted certain administrative agencies the
power to grant licenses for, or to authorize the operation of
certain public utilities. With the growing complexity of modern
life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the
laws, there is a constantly growing tendency towards the
delegation of greater powers by the legislature, and towards
the approval of the practice by the courts. It is generally
recognized that a franchise may be derived indirectly from the
state through a duly designated agency, and to this extent,
even the power to grant franchises has frequently been
delegated, even to agencies other than those of a legislative
nature. In pursuance of this, it has been held that privileges
conferred by grant by local authorities as agents for the state
constitute as much a legislative franchise as though the grant
had been made by an act of the Legislature.43 (Emphasis ours.)
The validity of the delegation by Congress of its franchising
prerogative is beyond cavil. So it was that in Tatad v. Secretary
of the Department of Energy,44 We again ruled that the
delegation of legislative power to administrative agencies is
valid. In the instant case, the certiorari petitioners assume and
harp on the lack of authority of PNCC to continue with its NLEX,
SLEX, MMEX operations, in joint venture with private
investors, after the lapse of its P.D. 1113 franchise. None of
these petitioners seemed to have taken due stock of and
appreciated the valid delegation of the appropriate power to
TRB under P.D. 1112, as enlarged in P.D. 1894. To be sure, a
franchise may be derived indirectly from the state through a
duly designated agency, and to this extent, the power to grant
franchises has frequently been delegated, even to agencies
other than those of a legislative nature. 45 Consequently, it has
been held that privileges conferred by grant by administrative
agencies as agents for the state constitute as much a legislative
franchise as though the grant had been made by an act of the
Legislature.46
While it may be, as held in Strategic Alliance Development
Corporation v. Radstock Securities Limited,47 that PNCC’s P.D.
1113 franchise had already expired effective May 1, 2007, this
fact of expiration did not, however, carry with it the
cancellation of PNCC’s authority and that of its JV partners
granted under P.D. 1112 in relation to Section 1 of P.D. 1894
to construct, operate and maintain "any and all such
extensions, linkages or stretches, together with the toll
facilities appurtenant thereto, from any part of the North
Luzon Expressway, South Luzon Expressway and/or Metro
Manila Expressway and/or to divert the original route and
change the original end-points of the [NLEX]and/or [SLEX] as
may be approved by the [TRB]. And to highlight the point, the
succeeding Section 2 of P.D. 1894 specifically provides that the
franchise for the extension and toll road projects constructed
after the approval of P.D. 1894 shall be thirty years, counted
from project completion. Indeed, prior to the expiration of
PNCC’s original franchise in May 2007, the TRB, in the exercise
of its special powers under P.D. 1112, signed supplemental
TOAs with PNCC and its JV partners. These STOAs covered the
expansion and rehabilitation of NLEX and SLEX, as the case may
be, and/or the construction, operation and maintenance of toll
road projects contemplated in P.D.1894. And there can be no
denying that the corresponding toll operation permits have
been issued.
In fine, the STOAs48 TRB entered with PNCC and its JV partners
had the effect of granting authorities to construct, operate and
maintain toll facilities, but with the injection of additional
private sector investments consistent with the intent of P.D.
Nos. 1112, 1113 and 1894.49 The execution of these STOAs
came in 1995, 1998 and 2006, or before the expiration of
PNCC’s original franchise on May 1, 2007. In accordance with
applicable laws, these transactions have actually been
authorized and approved by the President of the
Philippines.50 And as a measure to ensure the legality of the
said transactions and in line with due diligence requirements,
a review thereof was secured from the GCC and the DOJ, prior
to their execution.
Inasmuch as its charter empowered the TRB to authorize the
PNCC and like entities to maintain and operate toll facilities, it
may be stated as a corollary that the TRB, subject to certain
qualifications, infra, can alter the conditions of such
authorization. Well settled is the rule that a legislative
franchise cannot be modified or amended by an administrative
body with general delegated powers to grant authorities or
franchises. However, in the instant case, the law granting a
direct franchise to PNCC51 evidently and specifically conferred
upon the TRB the power to impose conditions in an
appropriate contract.52 And to reiterate, Section 3 of P.D. 1113
provides that "[t]his [PNCC] franchise is granted subject to
such conditions as may be imposed by the [TRB] in an
appropriate contract to be executed for this purpose, and with
the understanding and upon the condition that it shall be
subject to amendment, alteration or repeal when public
interest so requires."53 A similarly worded proviso is found in
Section 6 of P.D. 1894. It is in this light that the TRB entered
into the subject STOAs in order to allow the infusion of
additional investments in the subject infrastructure projects.
Prior to the expiration of PNCC’s franchise on May 1, 2007, the
STOAs merely imposed additional conditionalities, or as aptly
pointed out by SLTC et al., obviously having in mind par. 16.06
of its STOA with TRB,54 served as supplement, to the existing
TOA of PNCC with TRB. We have carefully gone over the
different STOAs and discovered that the tollway projects
covered thereby were all undertaken under the P.D. 1113
franchise of PNCC. And it cannot be over-emphasized that the
respective STOAs of MNTC and SLTC each contain provisions
addressing the eventual expiration of PNCC’s P.D. 1113
franchise and authorizing, thru the issuance by the TRB of a
TOC, the implementation of a given toll project even after May
1, 2007. Thus:
MNTC STOA
2.6 CONCESSION PERIOD. In order to sustain the financial
viability and integrity of the Project, GRANTOR [TRB] hereby
grants MNTC the CONCESSION for the PROJECT ROADS for a
period commencing upon the date that this [STOA] comes into
effect under Clause 4.1 until 31 December 2030 or thirty years
after the issuance of the corresponding TOLL OPERATION
PERMIT for the last completed phase…. Accordingly, unless the
PNCC FRANCHISE is further extended beyond its expiry on 01
May 2007, GRANTOR undertakes to issue the necessary [TOC]
for the rehabilitated and refurbished [NLEX] six months prior
to the expiry of the PNCC FRANCHISE on 01 May 2007….
SLTC STOA
2.03 Authority of Investor and Operator to Undertake the
Project
(1) The GRANTOR [TRB] has determined that the Project Toll
Roads are within the existing SLEX and are thus covered by the
PNCC Franchise that is due to expire on May 1, 2007. PNCC has
committed to exert its best efforts to obtain an extension x x x
It is understood and agreed that in the event the PNCC
Franchise is not renewed beyond the said expiry date, this
[STOA] and the Concession granted x x x will stand in place of
the PNCC Franchise and serve as a new concession, or
authority, pursuant to Section 3 (a) of the TRB Charter, for the
Investor to undertake the Project and for the Operator to
Operate and Maintain the Project Toll Roads immediately
upon the expiration of the PNCC Franchise, without need of
the execution x x x of any other document to effect the same.
(2) x x x in the event it is subsequently decreed by competent
authority that the issuance by the Grantor of a [TOC] is
necessary x x x the Grantor shall x x x cause the TRB x x x to
issue such [TOC] in favor of the Operator, embodying the
terms and conditions of this Agreement.
The foregoing notwithstanding, there are to be sure certain
aspects in PNCC’s legislative franchise beyond the altering
reach of TRB. We refer to the coverage area of the tollways
and the expiry date of PNCC’s original franchise, which is May
1, 2007, as expressly stated under Sections 1 and 2 of P.D.
1894, respectively. The fact that these two items were
specifically and expressly defined by law, i.e. P.D. 1113,
indicates an intention that any alteration, modification or
repeal thereof should only be done through the same medium.
We said as much in Radstock, thus: "[T]he term of the x x x
franchise, ‘which is 30 years from 1 May 1977, shall remain the
same,’ as expressly provided in the first sentence of x x x
Section 2 of P.D. 1894."55 It is likewise worth noting what We
further held in that case:
The TRB does not have the power to give back to PNCC the toll
assets and facilities which were automatically turned over to
the Government, by operation of law, upon the expiration of
the franchise of the PNCC on 1 May 2007. Whatever power the
TRB may have to grant authority to operate a toll facility or to
issue a "[TOC]," such power does not obviously include the
authority to transfer back to PNCC ownership of National
Government assets, like the toll assets and facilities, which
have become National Government property upon the expiry
of PNCC’s franchise x x x.56 (Emphasis in the original.)
Verily, upon the expiration of PNCC’s legislative franchise on
May 1, 2007, the new authorities to construct, maintain and
operate the subject tollways and toll facilities granted by the
TRB pursuant to the validly executed STOAs and TOCs, shall
begin to operate and be treated as administrative franchises
or authorities. Pursuant to Section 3 (e) P.D. 1112, TRB
possesses the power and duty, inter alia to:
x x x grant authority to operate a toll facility and to issue
therefore the necessary "Toll Operation Certificate" subject to
such conditions as shall be imposed by the [TRB] including inter
alia x x x.
This is likewise consistent with the position of the Secretary of
Justice in Opinion No. 122 on November 24, 1995,57thus:
TRB has no authority to extend the legislative franchise of
PNCC over the existing NSLE (North and South Luzon
Expressways). However, TRB is not precluded under Section 3
(e) of P.D. No. 1112 (TRB Charter) to grant PNCC and its joint
venture partner the authority to operate the existing toll
facility of the NSLE and to issue therefore the necessary "Toll
Operation Certificate x x x.
It should be noted that the existing franchise of PNCC over the
NSLE, which will expire on May 1, 2007, gives it the "right,
privilege and authority to construct, maintain and operate" the
NSLE. The Toll Operation Certificate which TRB may issue to
the PNCC and its joint venture partner after the expiration of
its franchise on May 1, 2007 is an entirely new authorization,
this time for the operation and maintenance of the NSLE x x x.
In other words, the right of PNCC and its joint venture partner,
after May 7, 2007 [sic] to operate and maintain the existing
NSLE will no longer be founded on its legislative franchise
which is not thereby extended, but on the new authorization
to be granted by the TRB pursuant to Section 3 (e), above
quoted, of P.D. No. 1112. (Emphasis ours.)
The same opinion was thereafter made by the Secretary of
Justice on January 9, 2006, in Opinion No. 1,58 stating that:
The existing franchise of PNCC over the NSLE, which will expire
on May 1, 2007, gives it the "right, privilege and authority to
construct, maintain and operate the NSLE." The Toll Operation
Certificate which the TRB may issue to the PNCC and its joint
venture partner after the expiration of its franchise on May 1,
2007 is an entirely new authorization, this time for the
operation and maintenance of the NSLE…. [T]he right of PNCC
and its joint venture partner, after May 1, 2007, to operate and
maintain the existing NSLE will no longer be founded on its
legislative franchise which is not thereby extended, but on the
new authorization to be granted by the TRB pursuant to
Section 3 (e) of PD No. 1112.
It appears therefore, that the effect of the STOA is not to
extend the Franchise of PNCC, but rather, to grant a new
Concession over the SLEX Project and the OMCo., entities
which are separate and distinct from PNCC. While initially, the
authority of SLTC and OMCo. to enter into the STOA with the
TRB and thereby become grantees of the Concession, will stem
from and be based on the JVA and the assignment by PNCC to
the OMCo. of the Usufruct in the Franchise, we submit that
upon the execution by SLTC and the TRB of the STOA, the right
to the Concession will emanate from the STOA itself and from
the authority of the TRB under Section 3 (a) of the TRB Charter.
Such being the case, the expiration of the Franchise on 1 May
2007, since such Concession is an entirely new and distinct
concession from the Franchise and is, as stated, granted to
entities other than PNCC.
Finally, with regards (sic) the authority of the TRB this Office in
Secretary of Justice Opinion No. 92, s. 2000, stated that:
"Suffice it to say that official acts of the President enjoy full
faith and confidence of the Government of the Republic of the
Philippines which he represents. Furthermore, considering
that the queries raised herein relates to the exercise by the
TRB of its regulatory powers over toll road project, the same
falls squarely within the exclusive jurisdiction of TRB pursuant
to P.D. No. 1112. Consequently, it is, therefore, solely within
TRB’s prerogative and determination as to what rule shall
govern and is made applicable to a specific toll road project
proposal."
The STOA is an explicit grant of the Concession by the Republic
of the Philippines, through the TRB pursuant to P.D. (No.) 1112
and as approved by the President xxx. The foregoing grant is in
full accord with the provisions of P.D. (No.) 1112 which
authorizes TRB to enter into contracts on behalf of the
Republic of the Philippines for the construction, operation and
maintenance of toll facilities. Such being the case, we opine
that no other legal requirement is necessary to make the STOA
effective of to confirm MNTC’s (In this case, SLTC and the
OMCO) rights and privileges granted therein." (Emphasis in the
original.)
Considering, however, that all toll assets and facilities
pertaining to PNCC pursuant to its P.D. 1113 franchise are
deemed to have already been turned over to the National
Government on May 1, 2007,59 whatever participation that
PNCC may have in the new authorities to construct, maintain
and operate the subject tollways, shall be limited to doing the
same in trust for the National Government. In Radstock, the
Court held that "[w]ith the expiration of PNCC’s franchise, [its]
assets and facilities … were automatically turned over, by
operation of law, to the government at no cost."60 The Court
went on further to state that the Government’s ownership of
PNCC’s toll assets inevitably resulted in its owning too of the
toll fees and the net income derived, after May 1, 2007, from
the toll assets and facilities.61 But as We have earlier discussed,
the tollways and toll facilities should remain functioning in
accordance with the validly executed STOAs and TOCs.
However, PNCC’s assets and facilities, or, in short, its very
share/participation in the JVAs and the STOAs, inclusive of its
percentage share in the toll fees collected by the JV companies
currently operating the tollways shall likewise automatically
accrue to the Government.
In fine, petitioners’ claim about PNCC’s franchise being
amenable to an amendment only by an act of Congress, or,
what practically amounts to the same thing, that the TRB is
without authority at all to modify the terms and conditions of
PNCC’s franchise, i.e. by amending its TOA/TOC, has to be
rejected. Their lament then that the TRB, through the
instrumentality of mere contracts and an administrative
operating certificate, or STOAs and TOC, to be precise,
effectively, but invalidly amended PNCC legislative franchise,
are untenable. For, the bottom line is, the TRB has, through the
interplay of the pertinent provisions of P.D. Nos. 1112, 1113
and 1894, the power to grant the authority to construct and
operate toll road projects and toll facilities by way of a TOA and
the corresponding TOC. What is otherwise a legislative power
to grant or renew a franchise is not usurped by the issuance by
the TRB of a TOC. But to emphasize, the case of the TRB is quite
peculiarly unique as the special law conferring the legislative
franchise likewise vested the TRB with the power to impose
conditions on the franchise, albeit in a limited sense, by
excluding from the investiture the power to amend or modify
the stated lifetime of the franchise, its coverage and the
ownership arrangement of the toll assets following the
expiration of the legislative franchise.62
At this juncture, the Court wishes to express the observation
that P.D. Nos. 1112, 1113 and 1894, as couched and
considered as a package, very well endowed the TRB with
extraordinary powers. For, subject to well-defined limitations
and approval requirements, the TRB can, by way of STOAs,
allow and authorize, as it has allowed and authorized, a
legislative franchisee, PNCC, to share its concession with
another entity or JV partners, the authorization effectively
covering periods beyond May 2007. However, this unpalatable
reality, a leftover of the martial law regime, presents issues on
the merits and the wisdom of the economic programs, which
properly belong to the legislature or the executive to address.
The TRB is not precluded from granting PNCC and its joint
venture partners authority, through a TOC for a period
following the term of the proposed SMMS, with the said TOC
serving as an entirely new authorization upon the expiration of
PNCC’s franchise on May 1, 2007. In short, after May 1, 2007,
the operation and maintenance of the NLEX and the other
subject tollways will no longer be founded on P.D. 1113 or
portions of P.D. 1894 (PNCC’s original franchise) but on an
entirely new authorization, i.e. a TOC, granted by the TRB
pursuant to its statutory authority under Sections 3 (a) and (e)
of P.D. 1112.
Likewise needing no extended belaboring, in the light of the
foregoing dispositions, is the untenable holding of the RTC in
SCA No. 3138-PSG that the TRB is without power to issue a TOC
to PNCC, amend or renew its authority over the SLEX tollways
without separate legislative enactment. And lest it be
overlooked, the TRB may validly issue an entirely new
authorization to a JV company after the lapse of PNCC’s
franchise under P.D. 1113. Its thirty-year concession under
P.D. 1894, however, does not have the quality of definiteness
as to its start, as by the terms of the issuance, it commences
and is to be counted "from the date of approval of the project,"
the term project obviously referring to "Metro Manila
Expressways and all extensions, linkages, stretches and
diversions refurbishing and rehabilitation of the existing NLEX
and SLEX constructed after the approval of the decree in
December 1983." The suggestion, therefore, of the petitioners
in G.R. No. 169917, citing a 1989 Court of Appeals ("CA")
decision in CA-G.R. 13235 (Republic v. Guerrero, et al.), that the
Balintawak to Tabang portion of the expressway no longer
forms part of PNCC’s franchise and, therefore, PNCC is without
any right to assign the same to MNTC via a JVA, is specious.
Firstly, in its Decision63 in G.R. No. 89557, a certiorari
proceeding commenced by PNCC to nullify the CA decision
adverted to, the Court approved a compromise agreement,
which referred to (1) the PNCC’s authority to collect toll and
maintenance fees; and (2) the supervision, approval and
control by the DPWH64 of the construction of additional
facilities, on the questioned portion of the NLEX. 65 And still in
another Decision,66 the Court ruled that the Balintawak to
Tabang stretch was recognized as "part of the franchise of, or
otherwise restored as toll facilities to be operated by x x x
PNCC."67 Once stamped with judicial imprimatur, and unless
amended, modified or revoked by the parties, a compromise
agreement becomes more than a mere binding contract; as
thus sanctioned, the agreement constitutes the court’s
determination of the controversy, enjoining the parties to
faithfully comply thereto.68 Verily, like any other judgment, it
has the effect and authority of res judicata.69
At any rate, the PNCC was likewise granted temporary or
interim authority by the TRB to operate the SLEX, 70 to ensure
the continued development, operations and progress of the
projects. We have ruled in Oroport Cargohandling Services,
Inc. v. Phividec Industrial Authority that an administrative
agency vested by law with the power to grant franchises or
authority to operate can validly grant the same in the interim
when it is necessary, temporary and beneficial to the
public.71 The grant by the TRB to PNCC as interim operator of
the SLEX was certainly intended to guarantee the continued
operation of the said tollway facility, and to ensure the want
of any delay and inconvenience to the motoring public.
All given, the cited CA holding is not a binding precedent. The
time limitation on PNCC’s franchise under either P.D. 1113 or
P.D. 1894 does not detract from or diminish the TRB’s
delegated authority under P.D. 1112 to enter into separate toll
concessions apart and distinct from PNCC’s original legislative
franchise.
Third Issue: TRB’s Power to Enter into Contracts; Issue,
Modify And Promulgate Toll Rates; and to Rule on Petitions
Relative to Toll Rates Level and Increases Valid
The petitioners in the special civil actions cases would have the
Court declare as invalid (a) Section 3 (a) and (d) of P.D. 1112
(which accord the TRB, on one hand, the power to enter into
contracts for the construction, and operation of toll facilities,
while, on the other hand, granting it the power to issue and
promulgate toll rates) and (b) Section 8 (b) of P.D. 1894
(granting TRB adjudicatory jurisdiction over matters involving
toll rate movements). As submitted, granting the TRB the
power to award toll contracts is inconsistent with its quasi-
judicial function of adjudicating petitions for initial toll and
periodic toll rate adjustments. There cannot, so petitioners
would postulate, be impartiality in such a situation.
The assailed provisions of P.D. 1112 and P.D. 1894 read:
P.D. 1112
Section 3. Powers and Duties of the Board. The Board shall
have in addition to its general powers of administration the
following powers and duties:
(a) Subject to the approval of the President of the
Philippines, to enter into contracts in behalf of the Republic of
the Philippines with persons, natural or juridical, for the
construction, operation and maintenance of toll facilities such
as but not limited to national highways, roads, bridges, and
public thoroughfares. Said contract shall be open to citizens of
the Philippines and/or to corporations or associations qualified
under the Constitution and authorized by law to engage in toll
operations;
(d) Issue, modify and promulgate from time to time the rates
of toll that will be charged the direct users of toll facilities and
upon notice and hearing, to approve or disapprove petitions
for the increase thereof. Decisions of the Board on petitions
for the increase of toll rate shall be appealable to the Office of
the President within ten (10) days from the promulgation
thereof. Such appeal shall not suspend the imposition of the
new rates, provided however, that pending the resolution of
the appeal, the petitioner for increased rates in such case shall
deposit in a trust fund such amounts as may be necessary to
reimburse toll payers affected in case a reversal of the
decision. (Emphasis ours.)
P.D. 1894
SECTION 8. x x x
(b) For the Metro Manila Expressway and such extensions,
linkages, stretches and diversions of the Expressways which
may henceforth be constructed, maintained and operated by
the GRANTEE, the GRANTEE shall collect toll at such rates as
shall initially be approved by the Toll Regulatory Board. The
Toll Regulatory Board shall have the authority to approve such
initial toll rates without the necessity of any notice and
hearing, except as provided in the immediately succeeding
paragraph of this Section. For such purpose, the GRANTEE shall
submit for the approval of the Toll Regulatory Board the toll
proposed to be charged the users. After approval of the toll
rate(s) by the Toll Regulatory Board and publication thereof by
the GRANTEE once in a newspaper of general circulation, the
toll shall immediately be enforceable and collectible upon
opening of the expressway to traffic use.
Any interested Expressways users shall have the right to file,
within a period of ninety (90) days after the date of publication
of the initial toll rate, a petition with the Toll Regulatory Board
for a review of the initial toll rate; provided, however, that the
filing of such petition and the pendency of the resolution
thereof shall not suspend the enforceability and collection of
the toll in question. The Toll Regulatory Board, at a public
hearing called for the purpose after due notice, shall then
conduct a review of the initial toll shall be appealable (sic) to
the Office of the President within ten (10) days from the
promulgation thereof. The GRANTEE may be required to post
a bond in such amount and from such surety or sureties and
under such terms and conditions as the Toll Regulatory Board
shall fix in case of any petition for review of, or appeal from,
decisions of the Toll Regulatory Board.
In case it is finally determined, after a review by the Toll
Regulatory Board or appeal therefrom, that the GRANTEE is
not entitled, in whole or in part, to the initial toll, the GRANTEE
shall deposit in the escrow account the amount collected
under the approved initial toll fee and such amount shall be
refunded to Expressways users who had paid said toll in
accordance with the procedure as may be prescribed or
promulgated by the Toll Regulatory Board. (Emphasis ours.)
The petitioners are indulging in gratuitous, if not unfair,
conclusion as to the capacity of the TRB to act as a fair and
objective tribunal on matters of toll fee fixing.
Administrative bodies have expertise in specific matters within
the purview of their respective jurisdictions. Accordingly, the
law concedes to them the power to promulgate implementing
rules and regulations ("IRR") to carry out declared statutory
policies – provided that the IRR conforms to the terms and
standards prescribed by that statute.72
The Court does not perceive an irreconcilable clash in the
enumerated TRB’s statutory powers, such that the exercise of
one negates another. The ascription of impartiality on the part
of the TRB cannot, under the premises, be accorded cogency.
Petitioners have not shown that the TRB lacks the expertise,
competence and capacity to implement its mandate of
balancing the interests of the toll-paying motoring public and
the imperative of allowing the concessionaires to recoup their
investment with reasonable profits. As it were, Section 9 of
P.D. 1894 provides a parametric formula for adjustment of toll
rates that takes into account the Peso-US Dollar exchange rate,
interest rate and construction materials price index, among
other verifiable and quantifiable variables.
While not determinative of the issue immediately at hand, the
grant to and the exercise by an administrative agency of
regulating and allowing the operation of public utilities and, at
the same time, fixing the fees that they may charge their
customers is now commonplace. It must be presumed that the
Congress, in creating said agencies and clothing them with
both adjudicative powers and contract-making prerogatives,
must have carefully studied such dual authority and found the
same not breaching any constitutional principle or
concept.73 So must it be for P.D. Nos. 1112 and 1894.
The Court can take judicial cognizance of the exercise by the
LTFRB and NTC – both spin-off agencies of the now defunct
Public Service Commission – of similar concurrent powers. The
LTFRB, under Executive Order No. ("E.O.") 202,74 series of
1987, is empowered,75 among others, to regulate the
operation of public utilities or "for hire" vehicles and to grant
franchises or certificates of public convenience ("CPC"); and to
fix rates or fares, to approve petitions for fare rate increases
and to resolve oppositions to such petitions.
The NTC, on the other hand, has been granted similar powers
of granting franchises, allocating areas of operations, rate-
fixing and to rule on petitions for rate increases under E.O.
546,76 s. of 1979.
The Energy Regulatory Commission ("ERC") likewise enjoys on
the one hand, the power (a) to grant, modify or revoke an
authority to operate facilities used in the generation of
electricity, and on the other, (b) to determine, fix and approve
rates and tariffs of transmission, and distribution retail
wheeling charges and tariffs of franchise electric utilities and
all electric power rates including that which is charged to end-
users.77 In Chamber of Real Estate and Builders’ Association,
Inc. v. ERC, We even categorically stated that the ERC is a
"quasi-judicial and quasi-legislative regulatory body created
under Section 38 of the EPIRA, [and] x x x an administrative
agency vested with broad regulatory and monitoring functions
over the Philippine electric industry to ensure its successful
restructuring and modernization x x x."78
To summarize, the fact that an administrative agency is
exercising its administrative or executive functions (such as the
granting of franchises or awarding of contracts) and at the
same time exercising its quasi-legislative (e.g. rule-making)
and/or quasi-judicial functions (e.g. rate-fixing), does not
support a finding of a violation of due process or the
Constitution. In C.T. Torres Enterprises, Inc. v. Hibionada,79 We
explained the rationale, thus:
It is by now commonplace learning that many administrative
agencies exercise and perform adjudicatory powers and
functions, though to a limited extent only. Limited delegation
of judicial or quasi-judicial authority to administrative agencies
(e.g. the Securities and Exchange Commission and the National
Labor Relations Commission) is well recognized in our
jurisdiction, basically because the need for special competence
and experience has been recognized as essential in the
resolution of questions of complex or specialized character
and because of a companion recognition that the dockets of
our regular courts have remained crowded and clogged.
xxxx
As a result of the growing complexity of the modern society, it
has become necessary to create more and more administrative
bodies to help in the regulation of its ramified activities.
Specialized in the particular fields assigned to them, they can
deal with the problems thereof with more expertise and
dispatch than can be expected from the legislature or the
courts of justice. This is the reason for the increasing vesture
of quasi-legislative and quasi-judicial powers in what is now
not unquestionably called the fourth department of the
government.
xxxx
There is no question that a statute may vest exclusive original
jurisdiction in an administrative agency over certain disputes
and controversies falling within the agency's special
expertise. The very definition of an administrative agency
includes its being vested with quasi-judicial powers. The ever
increasing variety of powers and functions given to
administrative agencies recognizes the need for the active
intervention of administrative agencies in matters calling for
technical knowledge and speed in countless controversies
which cannot possibly be handled by regular courts. (Emphasis
ours.)
Fourth Issue: President Amply Vested With Statutory
Power To Approve TRB Contracts
Just like their parallel stance on the grant to TRB of the power
to enter into toll agreements, e.g., TOAs or STOAs, the
petitioners in the first three petitions would assert that the
grant to the President of the power to peremptorily authorize
the assignment by PNCC, as franchise holder, of its franchise
or the usufruct in its franchise is unconstitutional. It is
unconstitutional, so petitioners would claim, for being an
encroachment of legislative power.
As earlier indicated, Section 3 (a) of P.D. 1112 requires
approval by the President of any contract TRB may have
entered into or effected for the construction and operation of
toll facilities. Complementing Section 3 (a) is 3 (e) (3) of P.D.
1112 enjoining the transfer of the usufruct of PNCC’s franchise
without the President’s prior approval. For perspective,
Section 3 (e) (3) of P.D. 1112 provides:
That the toll operator shall not lease, transfer, grant the
usufruct of, sell or assign the rights or privileges acquired
under the [TOC] to any person x x x or legal entity nor merge
with any other company or corporation organized for the same
purpose without the prior approval of the President of the
Philippines. In the event of any valid transfer of the TOC, the
Transferee shall be subject to all the conditions, terms,
restrictions and limitations of this Decree x x x. 80
The President’s approving authority is of statutory origin. To
us, there is nothing illegal, let alone unconstitutional, with the
delegation to the President of the authority to approve the
assignment by PNCC of its rights and interest in its franchise,
the assignment and delegation being circumscribed by
restrictions in the delegating law itself. As the Court stressed
in Kilosbayan v. Guingona, Jr.,81 the rights and privileges
conferred under a franchise may be assigned if authorized by
a statute, subject to such restrictions as may be provided by
law, such as the prior approval of the grantor or a government
agency.82
There can, therefore, be no serious challenge to this
presidential- approving prerogative. Should grave abuse of
discretion in some way infect the exercise of the prerogative,
then the approval action may be nullified for that reason, but
not on the ground that the underlying authority is
constitutionally doubtful. If the TRB may validly be empowered
to grant private entities the authority to operate toll facilities,
would a delegation of a lesser authority to approve the grant
to the head of the administrative machinery of the
government be objectionable?
The fact that P.D. 1112 partakes of a martial law issuance does
not per se provide an objectionable feature to the decree,
albeit it may be argued with some plausibility that then
President Marcos intended to have the final say as to who shall
act as the toll operators of the Luzon expressways. Be that as
it may, "all proclamations, orders, decrees, instructions, and
acts promulgated, issued, or done by the former President
(Ferdinand E. Marcos) are part of the law of the land, and shall
remain valid, legal, binding, and effective, unless modified,
revoked or superseded by subsequent proclamations, orders,
decrees, instructions, or other acts of the President."83 To
emphasize, Padua v. Ranada cited Association of Small
Landowners in the Philippines, Inc. v. Secretary of Agrarian
Reform, quoting that:
The Court wryly observes that during the past dictatorship,
every presidential issuance, by whatever name it was called,
had the force and effect of law because it came from President
Marcos. Such are the ways of despots. Hence, it is futile to
argue … that LOI 474 could not have repealed P.D. No. 27
because the former was only a letter of instruction. The
important thing is that it was issued by President Marcos,
whose word was law during that time.84
Fifth Issue: Assailed STOAs Validly Entered
This brings us to the issue of the validity of certain provisions
of the STOAs and related agreements entered into by the TRB,
as duly approved by the President.
Relying on Clause 17.4.185 of the MNTC STOA that the lenders
have the unrestricted right to appoint a substitute entity in
case of default of MNTC or of the occurrence of an event of
default in respect of the loans, petitioners argue that since
MNTC is the assignee or transferee of PNCC’s franchise, then it
steps into the shoes of PNCC. They contend that the act of
replacing MNTC as grantee is tantamount to an amendment or
alteration of the PNCC’s original franchise and hence
unconstitutional, considering that the constitutional power to
appoint a new franchise holder is reserved to Congress. 86
This contention is bereft of merit.
Petitioners’ presupposition that only Congress has the power
to directly grant franchises is misplaced. Time and again, We
have held that administrative agencies may be empowered by
the Legislature by means of a law to grant franchises or similar
authorizations.87 And this, We have sufficiently addressed in
the present case.88 To reiterate, We discussed in Albano that
our statute books are replete with laws granting administrative
agencies the power to issue authorizations.89 This delegation
of legislative power to administrative agencies is allowed "in
order to adapt to the increasing complexity of modern
life."90 Consequently, We have held that the "privileges
conferred by grant by local authorities as agents for the state
constitute as much a legislative franchise as though the grant
had been made by an act of the Legislature." 91
In this case, the TRB’s charter itself, or Section 3 (e) of P.D.
1112, specifically empowers it to "grant authority to operate a
toll facility and to issue therefore the necessary ‘Toll Operation
Certificate’ subject to such conditions as shall be imposed by
the [TRB]x x x."92 Section 3 (a) of the same law permits the TRB
to enter into contracts for the construction, operation and
maintenance of toll facilities. Clearly, there is no question that
the TRB is vested by the Legislature, through P.D. 1112, with
the power not only to grant an authority to operate a toll
facility, but also to enter into contracts for the construction,
operation and maintenance thereof.
Petitioners also contend that substituting MNTC as the grantee
in case of its default with respect to its loans is tantamount to
an amendment of PNCC’s original franchise and is hence,
unconstitutional. We also find this assertion to be without
merit. Besides holding that the Legislature may properly
empower administrative agencies to grant franchises pursuant
to a law, We have also earlier explained in this case that P.D.
1113 and the amendatory P.D. 1894 both vested the TRB with
the power to impose conditions on PNCC’s franchise in an
appropriate contract and may therefore amend or alter the
same when public interest so requires;93 save for the
conditions stated in Sections 1 and 2 of P.D. 1894, which
relates to the coverage area of the tollways and the expiration
of PNCC’s original franchise.94 P.D. 1112 provided further that
the TRB has the power to amend or modify a Toll Operation
Certificate that it issued when public interest so
requires.95 Accordingly, to Our mind, there is nothing infirm
much less questionable about the provision in the STOA,
allowing the substitution of MNTC in case it defaults in its
loans.
Furthermore, in the subject provision (Clause 17.4.196), the
"unrestricted right" of the lender to appoint a substituted
entity is never intended to afford such lender a plenary power
to do so. The subject clause states:
17.4.1 The PARTIES acknowledge that following a Notice of
Substitution under clauses 17.2 or 17.3 the LENDERS have,
subject to the provisions of Clause 17.4.3, the unrestricted
right to appoint a SUBSTITUTED ENTITY in place of MNTC
following the declaration of the occurrence of a MNTC
DEFAULT prior to full repayment of the LOANS or of an event
of default in respect of the LOANS. GRANTOR shall extend all
reasonable assistance to the AGENT to put in place a
SUBSTITUTED ENTITY. MNTC shall make available all necessary
information to potential SUBSTITUTED ENTITY to enable such
entity to evaluate the Project. (Emphasis ours.)
It is clear from the above-quoted provision that Clause 17.4.1
should always be construed and read in conjunction with
Clauses 17.2, 17.3, 17.4.2, 17.4.3 and 20.12. Clauses 17.2 and
17.3 discuss the procedures that must be followed and
undertaken in case of MNTC’s default prior to the full
repayment of the loans, and before the substitution under
Clause 17.4.1 could take place. These clauses provide the
following process:
Prior to Full Repayment of the LOANS:
17.2 Upon occurrence of an MNTC DEFAULT under Clause
17.1(a) and (e) prior to full repayment of the LOANS, GRANTOR
shall serve a written Notice of Default to MNTC with copy to
the AGENT giving a reasonable period of time to cure the
MNTC DEFAULT, such period being three (3) months from
receipt of the notice or such longer period as may be approved
by GRANTOR, taking due consideration of the nature of the
default and of the repair works required. If MNTC fails to
remedy such default during such three (3) month or [sic] curing
period, GRANTOR may issue a Notice of Substitution on MNTC,
copy furnished to the AGENT, which shall take effect upon the
assumption and take over by the SUBSTITUTED ENTITY
pursuant to the provisions of Clause 17.4 hereof; Provided,
However, that prior to such assumption and take over by the
SUBSTITUTED ENTITY, MNTC shall continue to operate and
maintain the project roads and shall place in an escrow
account the toll revenues, save such amounts as may be
needed to primarily cover the operating costs and as may be
owing and due to the lenders under the loans and, secondarily,
to cover the PNCC Gross Toll Revenue Share, Provided,
Further, that upon the assumption and take over by the
SUBSTITUTED ENTITY, such assumption and take over shall
have the effect of revoking the rights, privileges and
obligations of MNTC under this AGREEMENT in favor of the
SUBSTITUTED ENTITY and MNTC shall cease to be a PARTY to
this AGREEMENT.
17.3 If prior to full repayment of the LOANS MNTC fails to
remedy MNTC DEFAULT under Clause 17.1 (b) or an MNTC
DEFAULT occurs under Clause 17.1 (c), (d) or (f) prior to full
repayment of the LOANS, GRANTOR shall serve a Notice of
Substitution on MNTC, copy furnished to the AGENT, as
provided under Clause 17.4.97 (Emphasis ours)
It is apparent from the above-quoted provision that it is the
TRB – representing the Republic of the Philippines as Grantor
– which has control over the situation before Clause 17.4.1
could come into place. To stress, following the condition under
Clause 17.4.1, it is only when Clauses 17.2 and 17.3 have been
complied with that the entire Clause 17.4 could begin to
materialize.
Clauses 17.4.2 and 17.4.3 also provide for certain parameters
as to when a substituted entity could be considered
acceptable, and enumerate the conditions that should be
undertaken and complied with.98 Particularly, the subject
provisions state:
17.4.2 The SUBSTITUTED ENTITY shall be required to provide
evidence to GRANTOR that at the time of substitution:
(i) it is legally and validly nominated by the AGENT as MNTC’s
substitute to continue the implementation of the PROJECT.
(ii) it is legally and validly constituted and has the capability to
enter into such agreement as may be required to give effect to
the substitution;
17.4.3 The AGENT shall have one (1) year to effect a
substitution under Clause 17.4; Provided, However, that
during this time the AGENT shall not take any action which may
jeopardize the continuity of the service and shall take the
necessary action to ensure its continuation. To effect such
substitution, the AGENT shall notify its intention to GRANTOR
and shall, at the same time, give all necessary information to
GRANTOR. GRANTOR shall, within one (1) month following
such notification, inform the AGENT of its acceptance of the
substitution, if the conditions set forth in Clause 17.4.2 have
been satisfied. The SUBSTITUTED ENTITY shall be permitted a
reasonable period to cure any MNTC DEFAULT under Clause
17.1 (a), (b) or (e).
From the foregoing, it is clear that the lenders do not actually
have an absolute or "unrestricted" right to appoint the
SUBSTITUTED ENTITY in view of TRB’s right to accept or reject
the substitution within one (1) month from notice and such
right to appoint comes into force only if and when the TRB
decides to effectuate the substitution of MNTC as allowed in
Clause 17.2 of the MNTC STOA.
At the same time, Clause 17.4.4 particularizes the conditions
upon which the substitution shall become effective, to wit:
17.4.4 The Substitution shall be effective upon:
(a) the appointment of a SUBSTITUTED ENTITY in accordance
with the provisions of this Clause 17.4; and,
(b) assumption by the SUBSTITUTED ENTITY of all of the rights
and obligations of MNTC under this AGREEMENT, including the
payment of PNCC’s Gross Toll Revenue Share under the JOINT
VENTURE AGREEMENT dated 29 August 1995 and all other
agreements in connection with this agreement signed and
executed by and between PNCC and MNTC.
The afore-quoted Section (a) of Clause 17.4.4 reiterates the
necessity of compliance by the substituted entity with all the
conditions provided under Clause 17.4. Furthermore,
following the above-quoted conditions veritably protects the
interests of the Government. As previously discussed supra,
PNCC’s assets with respect to its legislative franchise under
P.D. 1113, as amended, has already been automatically turned
over to the Government. And whatever share PNCC has in
relation to the currently implemented administrative authority
granted by the TRB is merely being held in trust by it in favor
of the Government. Accordingly, the fact that Section "b" of
Clause 17.4.4 ensures that the obligation to pay PNCC’s Gross
Toll Revenue Share is assumed by the substituted entity,
necessarily means that the Government’s Gross Toll Revenue
Share is safeguarded and kept intact.
The MNTC STOA also states that only in case no substituted
entity is established in accordance with Clause 17.4 that Clause
17.5 shall be applied. Clause 17.5 grants the lenders the power
to extend the concession in case the Grantor (Republic of the
Philippines) takes over the same, for a period not exceeding
fifty years, until full payment of the loans.99 Petitioners
contend that the option to extend the concession for that
stated period is, however, unconstitutional.
This assertion is impressed with merit. At the outset, Clause
17.5 does not actually grant the lenders of the defaulting
concessionaire, the power to unilaterally extend the
concession for a period not exceeding fifty years. For
reference, the pertinent provision states:
17.5 Only if no SUBSTITUTE ENTITY is established … shall the
GRANTOR [TRB] be entitled to take-over the CONCESSION with
no commitment on the LOANS in which case the OPERATION
AND MAINTENANCE CONTRACT shall be assigned to any entity
that the AGENT100 may designate provided such entity has a
sufficient legal and technical capacity to perform and assume
the obligations of the OPERATION AND MAINTENANCE
CONTRACT under this AGREEMENT. The LENDERS shall receive
all TOLL, excepting PNCC’s revenue shareprovided for under
the JOINT INVESTMENT PROPOSAL (vide: Annex "C" hereof),
for as long as required until full repayment of the
LOANS including if necessary an extension of the CONCESSION
PERIOD which in no case shall exceed fifty (50) years; Provided
that the LENDERS support all amounts payable under the
OPERATION AND MAINTENANCE CONTRACT. For avoidance of
doubt, the GRANTOR will have no obligation in relation to
liabilities incurred by MNTC prior to such take-
over.101 (Emphasis supplied)
The afore-quoted provision should be read in conjunction with
Clause 20.12, which expressly provides that the MNTC STOA is
"made under and shall be governed by and construed in
accordance with" the laws of the Philippines, and particularly,
by the provisions of P.D. Nos. 1112, 1113 and 1894. Under the
applicable laws, the TRB may very well amend, modify, alter or
revoke the authority/franchise "whenever the public interest
so requires."102 In a word, the power to determine whether or
not to continue or extend the authority granted to a
concessionaire to operate and maintain a tollway is vested to
the TRB by the applicable laws. The necessity of whether or not
to extend the concession or the authority to construct, operate
and maintain a tollway rests, by operation of law, with the TRB.
As such, the lenders cannot unilaterally extend the concession
period, or, with like effect, impose upon or demand that the
TRB agree to extend such concession.
Be that as it may, it must be noted, however, that while the
TRB is vested by law with the power to extend the
administrative franchise or authority that it granted,
nevertheless, it cannot do so for an accumulated period
exceeding fifty years. Otherwise, it would violate the
proscription under Article XII, Section 11 of the 1987
Constitution, which states that:103
Sec. 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines at
least sixty per centum of whose capital is owned by such
citizens, nor shall such franchise, certificate, or authorization
be exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment,
alteration or repeal by the Congress when the common good
so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of
foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such
corporation or associations must be citizens of the Philippines.
(Emphasis Ours)
In this case, the MNTC STOA already has an original stipulated
period of thirty years.104 Clause 17.5 allows the extension of
this period if necessary to fully repay the loans made by MNTC
to the lenders, thus:
x x x The LENDERS shall receive all TOLL, excepting PNCC’s
revenue share provided for under the JOINT INVESTMENT
PROPOSAL (vide: Annex "C" hereof), for as long as required
until full repayment of the LOANS including if necessary an
extension of the CONCESSION PERIOD which in no case shall
exceed a maximum period of fifty (50) years; x x x (Emphasis
ours.)
If the maximum extension as provided for in Clause 17.5, i.e.
fifty years, shall be utilized, the accumulated concession
period that would be granted in this case would effectively be
eighty years. To Us, this is a clear violation of the fifty-year
franchise threshold set by the Constitution. It is in this regard
that we strike down the above-quoted clause, "including if
necessary an extension of the CONCESSION PERIOD which in
no case shall exceed a maximum period of fifty (50) years" in
Clause 17.5 as void for being violative of the Constitution.105 It
must be made abundantly clear, however, that the nullity shall
be limited to such extension beyond the 50-year constitutional
limit.
All told, petitioners’ allegations that the TRB acted with grave
abuse of discretion and with gross disadvantage to the
Government with respect to Clauses 17.4.1 and 17.5 of the
MNTC STOA are unfounded and speculative.
Petitioners also allege that the MNTC STOA is grossly
disadvantageous to the Government since under Clause 11.7
thereof, the Government, through the TRB, guarantees the
viability of the financing program of a toll operator. Under
Clause 11.7 of the MNTC STOA, the TRB agreed to pay monthly,
the difference in the toll fees actually collected by MNTC and
that which it could have realized under the STOA. The
pertinent provisions states:
11.7 To insure the viability and integrity of the Project, the
Parties recognize the necessity for adjustments of the
AUTHORIZED TOLL RATE …. In the event that said adjustment
are not effected as provided under this Agreement for reasons
not attributable to MNTC, the GRANTOR [TRB] warrants and so
undertakes to compensate, on a monthly basis, the resulting
loss of revenue due to the difference between the
AUTHORIZED TOLL RATE actually collected and the
AUTHORIZED TOLL RATE which MNTC would have been able
to collect had the … adjustments been implemented.
(Emphasis ours)
As set out in the preamble of P.D. 1112, the need to encourage
the infusion of private capital in tollway projects is the
underlying rationale behind the enactment of said decree.
Owing to the scarce capital available to bankroll a huge capital-
intensive project, such as the North Luzon Tollway project, it is
well-nigh inevitable that the financing of these types of
projects is sourced from private investors. Quite naturally, the
investors expect the regularity of the cash flow. It is perhaps in
this broad context that the obligation of the Grantor under
Clause 11.7 of the MNTC STOA was included in the STOA. To
Us, Clause 11.7 is not only grossly disadvantageous to the
Government but a manifest violation of the Constitution.
Section 3 (e) (5) of P.D. 1112 explicitly states:
[t]hat no guarantee, Certificate of Indebtedness, collateral
securities, or bonds shall be issued by any government agency
or government-owned or controlled corporation on any
financing program of the toll operator in connection with his
undertaking under the Toll Operation Certificate.
What the law seeks to prevent in this situation is the
eventuality that the Government, through any of its agencies,
could be obligated to pay or secure, whether directly or
indirectly, the financing by the private investor of the project.
In this case, under Clause 11.7 of the MNTC STOA, the Republic
of the Philippines (through the TRB) guaranteed the security of
the project against revenue losses that could result, in case the
TRB, based on its determination of a just and reasonable toll
fee, decides not to effect a toll fee adjustment under the
STOA’s periodic/interim adjustment formula. The OSG, in its
Comment, admitted that "the amounts the government
undertook to pay in case of Clause 11.7 violation … is … an
undertaking to pay compensatory damage for something akin
to a breach of contract."106As P.D. 1112 itself expressly
prohibits the guarantee of a security in the financing of the toll
operator pursuant to its tollway project, Clause 11.7 cannot be
a valid stipulation in the STOA.
This is more so for being in violation of the Constitution. Article
VI, Section 29 (1) of the Constitution mandates that "[n]o
money shall be paid out of the Treasury except in pursuance of
an appropriation made by law."107 We have held in Radstock
that "government funds or property shall be spent or used
solely for public purposes, as expressly mandated by Section 4
(2) of PD 1445 or the Government Auditing
Code."108 Particularly, We held in Radstock case that:
[t]he power to appropriate money from the General Funds of
the Government belongs exclusively to the Legislature. Any act
in violation of this iron-clad rule is unconstitutional.
Reinforcing this Constitutional mandate, Sections 84 and 85 of
PD 1445 require that before a government agency can enter
into a contract involving the expenditure of government funds,
there must be an appropriation law for such expenditure, thus:
Section 84. Disbursement of government funds.
1. Revenue funds shall not be paid out of any public treasury
or depository except in pursuance of an appropriation law or
other specific statutory authority.
xxxx
Section 85. Appropriation before entering into contract.
No contract involving the expenditure of public funds shall be
entered into unless there is an appropriation therefor, the
unexpended balance of which, free of other obligations, is
sufficient to cover the proposed expenditure.
xxxx
Section 86 of PD 1445, on the other hand, requires that the
proper accounting official must certify that funds have been
appropriated for the purpose. Section 87 of PD 1445 provides
that any contract entered into contrary to the requirements of
Sections 85 and 86 shall be void….109 (Emphasis ours.)
In the instant case, the TRB, by warranting to compensate
MNTC with the loss of revenue resulting from the non-
implementation of the periodic and interim toll fee
adjustments, violates the very constitutionally guaranteed
power of the Legislature, to exclusively appropriate money for
public purpose from the General Funds of the Government.
The TRB veritably accorded unto itself the exclusive authority
granted to Congress to appropriate money that comes from
the General Funds, by making a warranty to compensate a
revenue loss under Clause 11.7 of the MNTC STOA. There is not
even a badge of indication that the aforementioned requisites
under the Constitution and P.D. 1445 in respect of
appropriation of money from the General Funds of the
Government have been properly complied with. Worse, P.D.
1112 expressly prohibits the guarantee of security of the
financing of a toll operator in connection with his undertaking
under the Toll Operation Certificate. Accordingly, Clause 11.7
of the MNTC STOA, under which the TRB warrants and
undertakes to compensate MNTC’s loss of revenue resulting
from the non-implementation of the periodic and interim toll
fee adjustments, is illegal, unconstitutional and hence void.
Parenthetically, We also find a similar provision in the SLTC
STOA under Clause 8.08 thereof, which states that:110
(2) In the event the Authorized Toll Rate and adjustments
thereto are not implemented or made effective in accordance
with the provisions of this Agreement, for reasons not
attributable to the fault of the Investor and/or the Operator,
including the reversal by the TRB or by any competent court or
authority of any such adjustment in the Authorized Toll Rate
previously approved by the TRB, except where such reversal is
by reason of a determination of the misapplication of the
Authorized Toll Rates, the Grantor shall compensate the
Operator, on a monthly basis and within thirty (30) days of
submission by the Operator of a notice thereof, without
interest, for the resulting loss of revenue computed as the
difference between:
(a) the actual traffic volume for the month in question
multiplied by the Current Authorized Toll Rate as escalated
and/or adjusted, that should be in effect; and
(b) the Gross Toll Revenue for the month in question.
(3) The obligation of the Grantor to compensate the Operator
shall continue until the applicable Current Authorized Toll Rate
is implemented.
Akin to what is contemplated in Clause 11.7 of the MNTC
STOA, Clauses 8.08 (2) and (3) of the SLTC STOA, under which
the TRB warrants or is obligated to compensate the Operator
for its loss of revenue resulting from the non-implementation
of the calculation/formula of authorized toll price and toll rate
adjustments found in Clause 8 thereof, are illegal,
unconstitutional and, hence, void. This ruling is consistent with
the TRB’s power to determine, without any influence or
compulsion – direct or indirect – as to whether a change in the
toll fee rates is warranted. We will discuss the same below.
Petitioners argue that the CITRA, SLTC and MNTC STOAs tie the
hands of the TRB as it is bound by the stipulated periodic and
interim toll rate adjustments provided therein. Petitioners
contend that the SMMS (CITRA STOA), the SLTC and the MNTC
STOA’s provisions on initial toll rates and periodic/interim toll
rate adjustments, by using a built-in automatic toll rate
adjustment formula,111 allegedly guaranteed fixed returns for
the investors and negated the public hearing requirement.
This contention is erroneous. The requisite public hearings
under Section 3 (d) of P.D. 1112 and Section 8 (b) of P.D. 1894
are not negated by the fixing of the initial toll rates and the
periodic adjustments under the STOA.
Prefatorily, a clear distinction must be made between the
statutory prescription on the fixing of initial toll rates, on the
one hand, and of periodic/interim or subsequent toll rates, on
the other. First, the hearing required under the said provisos
refers to notice and hearing for the approval or denial of
petitions for toll rate adjustments – or the subsequent toll
rates, not to the fixing of initial toll rates. By express legal
provision, the TRB is authorized to approve the initial toll rates
without the necessity of a hearing. It is only when a challenge
on the initial toll rates fixed ensues that public hearings are
required. Section 8 of P.D. 1894 says so:
x x x the GRANTEE shall collect toll at such rates as shall initially
be approved by the [TRB]. The [TRB] shall have the authority
to approve such initial toll rates without the necessity of any
notice and hearing, except as provided in the immediately
succeeding paragraph of this Section. For such purpose, the
GRANTEE shall submit for the approval of the [TRB] the toll
proposed to be charged the users. After approval of the toll
rate(s) by the [TRB] and publication thereof by the GRANTEE
once in a newspaper of general circulation, the toll shall
immediately be enforceable and collectible upon opening of
the expressway to traffic use.
Any interested Expressways users shall have the right to file,
within x x x (90) days after the date of publication of the initial
toll rate, a petition with the [TRB] for a review of the initial
toll rate; provided, however, that the filing of such petition and
the pendency of the resolution thereof shall not suspend the
enforceability and collection of the toll in question. The [TRB],
at a public hearing called for the purpose … shall then conduct
a review of the initial toll (sic) shall be appealable to the [OP]
within ten (10) days from the promulgation thereof. (Emphasis
ours.)
Of the same tenor is Section 3 (d) of P.D. 1112 stating that the
TRB has the power and duty to:
[i]ssue, modify and promulgate from time to time the rates of
toll that will be charged the direct users of toll facilities and
upon notice and hearing, to approve or disapprove petitions
for the increase thereof. Decisions of the [TRB] on petitions for
the increase of toll rate shall be appealable to the [OP] within
ten (10) days from the promulgation thereof. Such appeal shall
not suspend the imposition of the new rates, provided
however, that pending the resolution of the appeal, the
petitioner for increased rates in such case shall deposit in a
trust fund such amounts as may be necessary to reimburse toll
payers affected in case a (sic) reversal of the
decision.112 (Emphasis Ours.)
Similarly in Padua v. Ranada, the fixing of provisional toll rates
by the TRB without a public hearing was held to be valid, such
procedure being expressly provided by law.113 To be very clear,
it is only the fixing of the initial and the provisional toll rates
where a public hearing is not a vitiating requirement.
Accordingly, subsequent toll rate adjustments are mandated
by law to undergo both the requirements of public hearing and
publication.
In Manila International Airport Authority ("MIAA") v.
Blancaflor, the Court expounded on the necessity of a public
hearing in rate fixing/increases scenario. There, the Court
ruled that the MIAA, being an agency attached to the
Department of Transportation and Communications ("DOTC"),
is governed by Administrative Code of 1987,114 Book VII,
Section 9 of which specifically mandates the conduct of a
public hearing.115 Accordingly, the MIAA’s resolutions, which
increased the rates and charges for the use of its facilities
without the required hearing, were struck down as
void.116 Similarly, as We do concede, the TRB, being likewise an
agency attached to the DOTC,117 is governed by the same Code
and consequently requires public hearing in appropriate cases.
It is, therefore, imperative that in implementing and imposing
new, i.e. subsequent toll rates arrived at using the toll rate
adjustment formula, the subject tollway operators and the TRB
must necessarily comply not only with the requirement of
publication but also with the equally important public hearing.
Accordingly, any fixing of the toll rate, which did not or does
not comply with the twin requirements of public hearing and
publication, must therefore be struck down as void. In such
case, the previously valid toll rate shall consequently apply,
pending compliance with the twin requirements for the new
toll rate.
In the instant consolidated cases, the fixing of the initial toll
rates may have indeed come to pass without any public
hearing.118 Unfortunately for petitioners, and notwithstanding
its presumptive validity, they did not assail the initial toll rates
within the timeframe provided in P.D. 1112 and P.D.
1894.119 Besides, as earlier explicated, the STOA provisions on
periodic rate adjustments are not a bar to a public hearing as
the formula set forth therein remains constant, serving only as
a guide in the determination of the level of toll rates that may
be allowed.
It is apropos to state at this juncture that, in determining the
reasonableness of the subsequent toll rate increases, it
behooves the TRB to seek out the Commission on Audit
("COA") for assistance in examining and auditing the financial
books of the public utilities concerned. Section 22, Chapter 4,
Subtitle B, Title 1, Book V of the Administrative Code of 1987
expressly authorizes the COA to examine the aforementioned
documents in connection with the fixing of rates of every
nature, including as in this case, the fixing of toll fees. 120 We
have on certain occasions applied this provision. Manila
Electric Company, Inc. v. Lualhati easily comes to mind where
this Court tasked the Energy Regulatory Commission to seek
the assistance of the COA in determining the reasonableness
of the rate increases that MERALCO intended to
implement.121 We have consistently held that "the law is
deemed written into every contract."122 Being a provision of
law, this authority of the COA under the Administrative Code
should therefore be deemed written in the subject contracts
i.e. the STOAs.
In this regard, during the examination and audit, the public
utilities concerned are mandated to "produce all the reports,
records, books of accounts and such other papers as may be
required," and the COA is empowered to "examine under oath
any official or employee of the said public utilit[ies]."123 Any
public utility unreasonably denying COA access to the
aforementioned documents, unnecessarily obstructs the
examination and audit and may be adjudged liable "of
concealing any material information concerning its financial
status, shall be subject to the penalties provided by
law."124 Finally, the TRB is further obliged to take the
appropriate action on the COA Report with respect to its
finding of reasonableness of the proposed rate increases.125
Furthermore, while the periodic, interim and other toll rate
adjustment formulas are indicated in the STOAs, 126 it does not
necessarily mean that the TRB should accept a rate adjustment
predicated on the economic data, references or assumptions
adopted by the toll operator. At the end of the day, the final
figures should be those of the TRB based on its appreciation of
the relevant rate-influencing data. In fine, the TRB should
exercise its rate-fixing powers vested to it by law within the
context of the agreed formula, but always having in mind that
the rates should be just and reasonable. Conversely, it is very
well within the power of the TRB under the law to approve the
change in the current toll fees.127 Section 3 (d) of P.D. 1112
grants the TRB the power to "[i]ssue, modify and promulgate
from time to time the rates of toll that will be charged the
direct users of toll facilities." But the reasonableness of a
possible increase in the fees must first be clearly and
convincingly established by the petitioning entities, i.e. the toll
operators. Otherwise, the same should not be granted by the
approving authority concerned. In Philippine Communications
Satellite Corporation v. Alcuaz,128 the Court had the
opportunity to explain what is meant by a just and reasonable
fixing of rates, thus:
Hence, the inherent power and authority of the State, or its
authorized agent, to regulate the rates charged by public
utilities should be subject always to the requirement that the
rates so fixed shall be reasonable and just. A commission has
no power to fix rates which are unreasonable or to regulate
them arbitrarily. This basic requirement of reasonableness
comprehends such rates which must not be so low as to be
confiscatory, or too high as to be oppressive.
What is a just and reasonable rate is not a question of formula
but of sound business judgment based upon the evidence it is
a question of fact calling for the exercise of discretion, good
sense, and a fair, enlightened and independent judgment. In
determining whether a rate is confiscatory, it is essential also
to consider the given situation, requirements and
opportunities of the utility. A method often employed in
determining reasonableness is the fair return upon the value
of the property to the public utility x x x. (Emphasis ours.)
If in case the TRB finds the change in the rates to be reasonable
and therefore merited, the increase shall then be
implemented after the formalities of public hearing and
publication are complied with. In this case, it is clear that the
change in the toll fees is immediately effective and
implementable. This is notwithstanding that, in case of an
increase in the toll fees, an appeal thereon is filed. The law is
clear. Thus:
x x x Decisions of the [TRB] on petitions for the increase of toll
rate shall be appealable to the Office of the President within
ten (10) days from the promulgation thereof. Such appeal shall
not suspend the imposition of the new rates, provided
however, that pending the resolution of the appeal, the
petitioner for increased rates in such case shall deposit in a
trust fund such amounts as may be necessary to reimburse toll
payers affected in case a reversal of the decision.129 (Emphasis
ours.)
Besides the settled rule under Section 3 (d) of P.D. 1112 that
the power to issue, modify and promulgate toll fees rests with
the TRB, it must also be underscored that the periodic and the
interim adjustments found in Clauses 11.4 to 11.6 of the MNTC
STOA do not necessarily guarantee an increase in the toll fees.
To stress, the formula is based on many variable factors that
could mean either an increase or a decrease in the toll fees,
depending, inter alia, on how well certain economies are
doing; and on the projections and figures published by the
Bangko Sentral ng Pilipinas ("BSP").130 It is therefore arduous
to contemplate a grossness in a disadvantage that could only
possibly arise in case of a non-implementation of a change –
particularly, an increase – in the toll rates.
Petitioners have not incidentally shown that it is the traveling
public, the users of the expressways, who shouldered or will
shoulder the completion of the projects by way of exorbitant
fees payment, with the investors ending up with a "killing"
therefrom. This conclusion, for all its factual dimension, is too
simplistic for acceptance. And it does not consider the reality
that the Court is not a trier of facts. Neither does it take stock
of the nature and function of toll roads and toll fees paid by
motorists, as aptly elucidated in North Negros Sugar Co., Inc.
v. Hidalgo,131 thus:
"Toll" is the price of the privilege to travel over that particular
highway, and it is a quid pro quo. It rests on the principle that
he who, receives the toll does or has done something as an
equivalent to him who pays it. Every traveler has the right to
use the turnpike as any other highway, but he must pay the
toll.132
A toll road is a public highway, differing from the ordinary
public highways chiefly in this: that the cost of its construction
in the first instance is borne by individuals, or by a corporation,
having authority from the state to build it, and, further, in the
right of the public to use the road after completion, subject
only to the payment of toll.133
Toll roads are in a limited sense public roads, and are highways
for travel, but we do not regard them as public roads in a just
sense, since there is in them a private proprietary right x x
x.134 (Emphasis ours.)
Parenthetically, our review of Section 7 of the SMMS STOA
readily yields the information that the level of the initial toll
rates hinges on a mix of factors. Tax holidays that may be
granted and the tax treatment of dividends may be mentioned.
On the other hand, the subsequent periodic adjustments are
provided to address factors that usually weigh on the financial
condition of any business endeavor, such as currency
devaluation, inflation and the usual increases in maintenance
and operational costs incorporated into the formula provided
therefor. Even with the existence of an automatic toll rate
adjustment formula, compliance by the TRB and the other
respondents with the twin requirements of public hearing and
publication is still mandatory. To reiterate, laws always occupy
a plane higher than mere contract provisions. In case the
minimum statutory requirements are stiffer than that of a
contract, or when the contract does not expressly stipulate the
minimum requirements of the law, then We rule that
compliance with such minimum legal requirements should be
done. To summarize, any toll fee increase should comply with
the legal twin requirements of publication and public hearing,
the absence of which will nullify the imposition and collection
of the new toll fees.
In all, the initial toll rates and periodic adjustments appear to
Us as simply predicated on the basic rationale for investing in
a toll project, which to repeat is: a reasonable rate of return
for the investment. Section 2 (o) of the BOT Law, as amended,
provides for a definition for a reasonable rate of return on
investments and operating and maintenance cost.135 Running
through the gamut of our statutes providing for and
encouraging partnership of the public and private sector is the
paramount common good for infrastructure projects and the
equally important factor of giving a reasonable rate of return
to private sector’s investments. The viability of any
infrastructure project depends on the returns – which should
be reasonable – of the investment coming from the private
sector.
While the interests of the public are ideally to be accorded
primacy in considering government contracts, the reality on
the ground is that the tollway projects may not at all be
possible or would be difficult to realize without the
involvement of the investing private sector, which expects its
usual share of profit. Thus, the Court is at a loss to understand
how the level of the initial toll rates, which depended on
several factors indicated above, and the subsequent
adjustments resulted in the charging of exorbitant toll fees
that, to petitioners, enabled the investors to shift the burden
of financing the completion of the projects on the motoring
public.
Neither does the alleged drastic—if we may characterize it as
such—steep increase in the level of toll rates for NLEX
constitute a "killing" for PNCC and its partner MNTC.
Petitioners make much of the amount of the toll fees vis-à-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-à-vis the investments sunk in the NLEX
project with a view, on the part of private investors, to a
reasonable return on their investment. Where no substantial
figures were provided on the investments, the projected
operating and maintenance costs vis-à-vis the projected
revenue from the toll fees, no substantial conclusions may
reasonably be deduced therefrom. Besides, to be taken into
account in relation to the costs of the construction and
rehabilitation of the NLEX is the length of the tollway and for
which motorists have to pay the corresponding toll. Certainly,
the allegations and conclusions of petitioners as to the
unreasonable increase of the toll rates are without adequate
factual mooring.
The use of a tollway is a privilege that comes at a cost. The toll
is a price paid for the use of a privilege. There are to be sure
alternative roads and routes, which motorists may fall back on
if they are unwilling to pay the toll. The toll, as might be
expected, is pegged at a level that makes the developmental
projects and their maintenance viable; otherwise, no
investment can be expected for the furtherance of the
projects.
Petitioners Francisco and Hizon alleged that, per the minutes
of the TRB meetings, the Board deliberately refrained,
particularly with respect to the Skyway project, from
conducting public hearings for the grant of the initial toll rates
and on the rate adjustment formula to be used in order to
accelerate the implementation of the projects. The allegation
is far from correct. A perusal of the pertinent minutes of the
TRB meetings, particularly that held on August 17, 1995, 136 in
fact would disclose a picture different from that depicted by
said petitioners. Nothing in the minutes of said meeting tends
to indicate that the TRB resolved to dispense with public
hearings. We, therefore, find petitioners Francisco and Hizon’s
attempt to mislead the Court by falsely citing supposed
portions137 of the August 17, 1995 TRB meeting very
unfortunate. They quoted a correction on the minutes of the
Special Board Meeting No. 95-05 held on July 26, 1995, which
was taken up in the August 17, 1995 meeting for the approval
of the minutes of the previous meeting. In said special meeting
of July 26, 1995,138 the Board deliberated on the
recommendation of ADG Santos for the conduct of a public
hearing or soliciting the endorsement of the Metro Manila
Development Authority ("MMDA").139 But the TRB did not
resolve to omit a public hearing with respect to the toll rates.
In fact, the deliberations used the words "in the event the
Board decides" and "if the Board conducts," clearly conveying
the notion that the TRB had not decided or resolved the issue
of public hearings. Be that as it may, We rule that the TRB is
mandated to comply with the twin requirements of public
hearing and publication.
Petitioners Francisco and Hizon’s lament about the TRB merely
relying on, if not yielding to, the recommendation and findings
of the Technical Working Group ("TWG") of the DPWH on
matters relative to STOA stipulations and toll-rate fixing
cannot be accorded cogency. In the area involving big finance
and complex project planning, banking on the data supplied by
technicians and experts is at once practical as it is inevitable.
The Court cannot see its way clear to understand why
petitioners would begrudge the TRB for tapping the technical
know-how of others. And it cannot be overemphasized that a
recommendation is no more than an exhortation or an urging
as to what is advisable or expedient, not binding on the person
to which it is being made.140 To recommend involves the idea
that another has the final decision.141 The ultimate decision
still rests with the TRB whether or not to accept the findings of
the TWG. The minutes of the TRB meetings show that its
members went through the tedious process of deliberating on
the formula to be used in computing the toll rates. The fact
that the TRB might have adopted the TWG’s recommendation
would not, on that ground alone, vitiate the bona fides of the
former’s decision nor stain the proceedings leading to such
decision. In any case, as earlier held, the toll rate adjustment
formula does not and cannot contravene the legal twin
requirements of public hearing and publication.
In another bid to nullify the STOAs in question, petitioners
would foist on the Court the arguments that, firstly, President
Ramos twisted the arms of the TRB towards entering into the
agreements in question and, secondly, that the CITRA STOA
contained restrictive confidentiality provisions barring the
public from knowing their contents and the details of the
negotiations related thereto.
We are not persuaded by the first ground, not necessarily
because the pressure brought to bear on TRB rendered the
STOAs infirm, but because the allegations on pressure-tactics
allegedly employed by President Ramos are too speculative for
acceptance.
On the second ground, We fail to see how the insertion of the
alleged confidentiality clause in the CITRA STOA translates into
grave abuse of discretion or a violation of the Constitution,
particularly Article III, Section 7142 thereof. First off, the Court
can take judicial notice that most commercial contracts,
including finance-related project agreements carry the
standard confidentiality clause to protect proprietary data
and/or intellectual property rights. This protection angle
appears to be the intent of Clause 14.04(l) 143 of the CITRA
STOA. And as may be noted, the succeeding Clause 14.04
(2)144 removes from the ambit of the confidentiality restriction
the following: disclosure of any information: (a) not otherwise
done by the parties; (b) which is required by law to be
disclosed to any person who is authorized by law to receive
the same; (c) to a tribunal hearing pertinent proceedings
relative to the contract or agreement; and (d) to confidential
entities and persons relative to the disclosing party like its
banks, consultants, financiers and advisors. The second (item
b) exception provides a reasonable dimension to the assailed
confidentiality clause.
Needless to stress, the obligation of the government to make
information available cannot be exaggerated.145 The
constitutional right to information does not mean that every
day and every hour is open house in government offices having
custody of the desired documents.146 Petitioners have not
sufficiently shown, thus cannot really be heard to complain,
that they had been unreasonably denied access to information
with regard to the MNTC or SMMS STOA. Besides, the remedy
for unreasonable denial of information that is a matter of
public concern is by way of mandamus.147
Finally, as to petitioners’ catch-all claim that the STOAs are
disadvantageous to the government, as therein represented
by the TRB, suffice it to state for the nonce that behind these
agreements are the Board’s expertise and policy
determination on technical, financial and operational matters
involving expressways and tollways. It is not for courts to look
into the wisdom and practicalities behind the exercise by the
TRB of its contract-making prerogatives under P.D. Nos. 1112,
1113 and 1894, absent proof of grave abuse of discretion
which would justify judicial review. In this regard, the Court
recalls what it wrote in G & S Transport Corporation v. Court of
Appeals,148 to wit:
x x x courts, as a rule, refuse to interfere with proceedings
undertaken by administrative bodies or officials in the exercise
of administrative functions. This is because such bodies are
generally better equipped technically to decide administrative
questions and that non-legal factors, such as government
policy on the matter are usually involved in the decision.
Sixth Issue: Public Bidding Not Required
Private petitioners would finally maintain that public bidding is
required for the SMMS and the North Luzon/South Luzon
Tollways, partaking as these projects allegedly do of the nature
of a BOT infrastructure undertaking under the BOT Law.
Prescinding from this premise, they would conclude that the
STOAs in question and related preliminary and post-STOA
agreements are null and void for want of the necessary public
bidding required for government infrastructure projects.
The contention is patently flawed.
The BOT Law does not squarely apply to the peculiar case of
PNCC, which exercised its prerogatives and obligations under
its franchise to pursue the construction, rehabilitation and
expansion of the tollways with chosen partners. The tollway
projects may very well qualify as a build-operate-transfer
undertaking. However, given that the projects in the instant
case have been undertaken by PNCC in the exercise of its
franchise under P.D. Nos. 1113 and 1894, in joint partnership
with its chosen partners at the time when it was held valid to
do so by the OGCC and the DOJ, the public bidding provisions
under the BOT Law do not strictly apply. For, as aptly noted by
the OSG, the subject STOAs are not ordinary contracts for the
construction of government infrastructure projects, which
requires under the Government Procurement Reform Act or
the now-repealed P.D. 1594,149 public bidding as the preferred
mode of contract award. Neither are they contracts where
financing or financial guarantees for the project are obtained
from the government. Rather, the STOAs actually constitute a
statutorily-authorized transfer or assignment of usufruct of
PNCC’s existing franchise to construct, maintain and operate
expressways.150
The conclusion would perhaps be different if the tollway
projects were to be prosecuted by an outfit completely
different from, and not related to, PNCC. In such a scenario,
the entity awarded the winning bid in a BOT-scheme
infrastructure project will have to construct, operate and
maintain the tollways through an automatic grant of a
franchise or TOC, in which case, public bidding is required
under the law.
Where, in the instant case, a franchisee undertakes the tollway
projects of construction, rehabilitation and expansion of the
tollways under its franchise, there is no need for a public
bidding. In pursuing the projects with the vast resource
requirements, the franchisee can partner with other investors,
which it may choose in the exercise of its management
prerogatives. In this case, no public bidding is required upon
the franchisee in choosing its partners as such process was
done in the exercise of management prerogatives and in
pursuit of its right of delectus personae.151 Thus, the subject
tollway projects were undertaken by companies, which are the
product of the joint ventures between PNCC and its chosen
partners.
Petitioners Francisco and Hizon’s assertions about the TRB
awarding the tollway projects to favored companies,
unsubstantiated as they are, need no belaboring. Suffice it to
state that the discretion to choose who shall stand as critical
JV partners remained all along with PNCC, at least
theoretically. Needless to say, the records do not show that
the TRB committed an oversight as an administrative body
over any aspect of tollway operations with regard to PNCC’s
selection of partners.
The foregoing disquisitions considered, there is no more point
in passing upon the propriety of prohibiting or enjoining, on
the ground of unconstitutionality or grave abuse of discretion,
the implementation of the initial toll rates and/or the adjusted
toll rates for the SMSS, expanded NLEX and SLEX, as authorized
by the separate TRB resolutions, subject of and originally
challenged in these proceedings.
These TRB resolutions and the STOAs upon which they are
predicated have long been in effect. The parties have acted on
these issuances and contracts whose existence, as an
operative fact, cannot be ignored, let alone erased, even if the
charge of unconstitutionality is given currency.
While not exactly of governing applicability in this case, what
the Court wrote in De Agbayani v. Philippine National
Bank,152 on the operative fact doctrine is apropos:
x x x When the courts declare a law to be inconsistent with the
Constitution, the former shall be void and the latter shall
govern. Administrative or executive acts, orders and
regulations shall be valid only when they are not contrary to
the laws of the Constitution." ….
Such a view has support in logic and possesses the merit of
simplicity. It may not however be sufficiently realistic. It does
not admit of doubt that prior to the declaration of nullity such
challenged legislative or executive act must have been in
force and had to be complied with. This is so as until after the
judiciary, in an appropriate case, declares its invalidity, it is
entitled to obedience and respect. Parties may have acted
under it and may have changed their positions. What could be
more fitting than that in a subsequent litigation regard be had
to what has been done while such legislative or executive act
was in operation and presumed to be valid in all respects. It is
now accepted as a doctrine that prior to its being nullified, its
existence as a fact must be reckoned with. This is merely to
reflect awareness that precisely because the judiciary is the
governmental organ which has the final say on whether or not
a legislative or executive measure is valid, a period of time may
have elapsed before it can exercise the power of judicial
review that may lead to a declaration of nullity. It would be to
deprive the law of its quality of fairness and justice then, if
there be no recognition of what had transpired prior to such
adjudication.
In the language of an American Supreme Court decision: "The
actual existence of a statute, prior to such a determination
[of constitutionality], is an operative fact and may have
consequences which cannot justly be ignored. The past
cannot always be erased by a new judicial declaration x x x."
(Emphasis in the original.)
The petitioners in the first three (3) petitions and the
respondent in the fourth have not so said explicitly, but their
brief is against the issuance of P.D. Nos. 1112, 1113 and 1894,
which conferred a package of express and implied powers and
discretion to the TRB and the President resulting in the
execution of what is perceived to be offending STOAs and the
runaway collection of illegal toll fees. And they have come to
the Court to strike down all these issuances, agreements and
exactions. While the Court is not insensitive to their concerns,
the rule is that all reasonable doubts should be resolved in
favor of the constitutionality of a statute,153 and the validity of
the acts taken in pursuant thereof. It follows, therefore, that
the Court will not set aside a law as violative of the
Constitution except in a clear case of breach 154 and only as a
last resort.155 And as the theory of separation of powers
prescribes, the Court does not pass upon questions of wisdom,
expediency and justice of legislation. To Us, petitioners and
respondent YPES in the fourth petition have not discharged the
heavy burden of demonstrating in a clear and convincing
manner the unconstitutionality of the decrees challenged or
the invalidity of assailed acts of the President and the TRB.
Because they failed to do so, the Court must uphold the
presumptive constitutionality and validity of the provisions of
the three decrees in question, and the subject contracts and
TOCs.
Regarding petitioner Francisco’s Supplemental Petition, the
toll rates, the collection of which in the amount based on the
formula and assumptions set forth in the law, and the adverted
STOA dated February 1, 2006 and subject of the TRO issued on
August 13, 2010, has been duly published156 and approved by
the TRB, as required by Section 5 of P.D. 1112. 157 And the
party-concessionaires have adequately demonstrated, and the
TRB has virtually acknowledged158 that the said rates subject
of the TRO partake of the nature of opening or initial toll rates,
which have not yet been implemented since the time the SLTC
STOA took effect.159 To note, the toll rates subject of the TRO
were approved and are to be implemented in connection with
the new facility, such as Project Toll Roads 1 and 2 pursuant to
the new SLTC STOA and the expanded and rehabilitated
SLEX.160 As earlier discussed, public hearing is not required in
the fixing and implementation of initial toll rates. But an
interested party aggrieved by the initial rates imposed is not
without any resource as he may, within the time frame
provided by Section 8 (b) of P.D. 1894, repair to the TRB for
review and thereafter to the OP.161 As expressly provided in
the same section, however, the pendency of the petition for
review, if there be any, shall not suspend the enforceability
and collection of the toll in question. In net effect, the
challenge before the Court of the SLEX toll rate imposition is
premature. However, the Court treats this Supplemental
Petition assailing the toll rates covered by the TRB Notice of
Toll Rates published on June 6, 2010 as a petition for review
filed under P.D. 1894, and hereby remands the same to the
TRB for a review of the questioned rates to determine the
propriety thereof.
WHEREFORE, the petitions in G.R. Nos.
166910 and 173630 are hereby DENIED for lack of merit.
Accordingly, We declare as VALID AND CONSTITUTIONAL the
following:
1. the Supplemental Toll Operation Agreement dated April 30,
1998 covering the North Luzon Tollway Project and the TRB
Board Resolution No. 2005-4 issued pursuant thereto;
2. the Supplemental Toll Operation Agreement dated
November 27, 1995 covering the South Metro Manila Skyway
and the TRB Board Resolution No. 2004-53 and previous TRB
resolutions issued pursuant thereto;
3. the Supplemental Toll Operation Agreement covering the
South Luzon Tollway Project or South Luzon Expressway and
the TRB Board resolutions issued pursuant to the said
agreement, particularly the TRB Board resolutions allowing the
toll rate increases that are supposed to have been
implemented on June 30, 2010;
4. Section 3, paragraph (a) of Presidential Decree No. 1112,
otherwise known as the "Toll Operation Decree," in relation to
Section 3, paragraph (d) thereof and Section 8, paragraph (b)
of Presidential Decree No. 1894; and
5. Section 3, paragraph (e) 3 of P.D. No. 1112 and Section 13 of
P.D. No. 1894.
We however declare Clause 11.7 of the Supplemental Toll
Operation Agreement between the Republic of the Philippines,
represented by respondent TRB, as grantor, the Philippine
National Construction Corporation, as franchisee, and the
Manila North Tollways Corporation ("MNTC") dated April 30,
1998; and the clause "including if necessary an extension of
the CONCESSION PERIOD which in no case shall exceed a
maximum period of fifty (50) years" in Clause 17.5 of the same
STOA, as VOID and UNCONSTITUTIONAL for being contrary to
Section 2, Article XII of the 1987 Constitution. We likewise
declare Clauses 8.08 (2) & (3) of the Supplemental Toll
Operation Agreement between the Republic of the Philippines,
represented by respondent TRB, as grantor, the Philippine
National Construction Corporation as franchisee, the South
Luzon Tollway Corporation as investor, and the Manila Toll
Expressway Systems, Inc. as operator, dated February 1, 2006,
as VOID and UNCONSTITUTIONAL.

The petition in G.R. No. 169917 is likewise hereby DENIED for

lack of merit. We declare as VALID and CONSTITUTIONAL the
following:

1. Notice of Approval dated May 16, 1995 by former President

Fidel V. Ramos on the assignment of PNCC’s usufructuary
rights;

2. the Joint Venture Agreement dated August 29, 1995;

3. the Joint Investment Proposal, etc. dated June 16, 1996;

4. the Supplemental Toll Operation Agreement ("STOA") dated

April 30, 1998 and the Notice of Approval of said STOA dated
June 15, 1998 by former President Fidel V. Ramos; and

5. the provisional toll rate increases published February 9,

2005, granted by the TRB.

The petition in G.R. No. 183599 is GRANTED. Accordingly, the

Decision dated June 23, 2008 of the Regional Trial Court,
Branch 155 in Pasig City, docketed as SCA No. 3138-PSG,
annulling the TOC covering the SLEX, enjoining the original toll
operating franchisee from collecting toll fees in the SLEX, and
ordering the turnover of related assets to the Government, is
hereby REVERSED and SET ASIDE, and the petition filed
therein by the Young Professionals and Entrepreneurs of San
Pedro, Laguna with the RTC of Pasig is DISMISSED for lack of
merit.

In view of the foregoing dispositions in the petitions at bar, the

TRO issued by the Court on August 13, 2010 is hereby ordered
lifted, with respect to the petitions in G.R. Nos. 166910,
169917, 173630 and 183599.

The challenge contained in the Supplemental Petition in G.R.

No. 166910 against the toll rates subject of the TRB Notice of
Toll Rates published on June 6, 2010, for the SLEX projects, Toll
Road Projects 1 and 2 of the new SLTC STOA, and the expanded
and rehabilitated SLEX, is remanded to the TRB for a review of
the assailed toll rates to determine whether SLTC and MATES
are entitled to the toll fees.

No Cost.

SO ORDERED.
G.R. No. 112702 September 26, 1997 of Tagoloan and Villanueva.3 This area forms part of the
PHIVIDEC Industrial Estate Misamis Oriental (PIE-MO).
NATIONAL POWER CORPORATION, petitioner,
vs. As manager of PIE-MO, PIA granted the Ferrochrome
COURT OF APPEALS and CAGAYAN ELECTRIC POWER AND Philippines, Inc. (FPI) and Metal Alloys Corporation (MAC)
LIGHT CO., INC. (CEPALCO), respondents. authority to operate in its area of development. On July 6,
1979, PIA granted CEPALCO a temporary authority to retail
G.R. No. 113613 September 26, 1997
electric power to the industries operating within the PIE-
PHIVIDEC INDUSTRIAL AUTHORITY, petitioner, MO.4 The Agreement executed by PIA and CEPALCO
vs. authorized CEPALCO "to operate, administer, construct and
COURT OF APPEALS and CAGAYAN ELECTRIC POWER AND distribute electric power within the PHIVIDEC Industrial Estate,
LIGHT CO., INC. (CEPALCO), respondents. Misamis Oriental, such authority to be co-extensive with the
territorial jurisdiction of PHIVIDEC Industrial Estate, as defined
in Sec. 3 of P.D. No. 538 and shall be for a period of five (5)
years, renewable for another five (5) years at the option of
ROMERO, J.:
CEPALCO." The parties provided further that:
Offered for resolution in these consolidated petitions for
9. At the end of the fifth year, or at the end of the 10th year,
review on certiorari is the issue of whether or not the National
should this Agreement be thus renewed, PIA has the option to
Power Corporation (NPC) has jurisdiction to determine
take over the operation of the electric service and acquire by
whether it may supply electric power directly to the facilities
purchase CEPALCO's assets within PIE-MO. This option shall be
of an industrial corporation in areas where there is an existing
communicated to CEPALCO in writing at least 24 months
and operating electric power franchisee.
before the date of acquisition of assets and takeover of
On June 17, 1961, the Cagayan Electric and power Light operation by PIA. Should PIA exercise its option to purchase
Company (CEPALCO) was enfranchised by Republic Act No. the assets of CEPALCO in PIE-MO, PIA shall respect the right of
3247 "to construct, maintain and operate an electric light, heat ownership of and maintenance by CEPALCO of those assets
and power system for the purpose of generating and/or inside PIE-MO not covered by such purchase. . . .
distributing electric light, heat and/or power for sale within the
According to PIA,5 CEPALCO proved no match to the power
City of Cagayan de Oro and its suburbs" for fifty (50) years.
demands of the industries in PIE-MO that most of these
Republic Act No. 3570, approved on June 21, 1963, expanded
companies operating therein closed shop.6 Impelled by a
the area of coverage of the franchise to include the
"desire to provide cheap power costs to power-intensive
municipalities of Tagoloan and Opol, both in the Province of
industries operating within the Estate," PIA applied with the
Misamis Oriental. On August 4, 1969, Republic Act No. 6020
National Power Corporation (NPC) for direct power connection
further amended the same franchise to include in the areas of
which the latter in due course approved.7 One of the
CEPALCO's authority of "generating and distributing electric
companies which entered into an agreement with the NPC for
light and power for sale," the municipalities of Villanueva and
a direct sale and supply of power was the Ferrochrome Phils.,
Jasaan, also of the said province.
Inc. (FPI).
Presidential Decree No. 243, issued on July 12, 1973, created a
Contending that the said agreement violated its right as the
"body corporate and politic" to be known as the Philippine
authorized operator of an electric light and power system in
Veterans Investment Development Corporation (PHIVIDEC)
the area and the national electrification policy, CEPALCO filed
vested with authority to engage in "commercial, industrial,
Civil Case No. Q-35945, a petition for
mining, agricultural and other enterprises" among other
prohibition, mandamus and injunction before the Regional
powers1 and "to allow the full and continued employment of
Trial Court of Quezon City against the NPC. Notwithstanding
the productive capabilities of and investment of the veterans
NPC's claim that it was authorized by its Charter to sell electric
and retirees of the Armed Forces of the Philippines." On
power "in bulk" to industrial enterprises, the lower court
August 13, 1974, Presidential Decree No. 538 was
rendered a decision on May 2, 1984, restraining the NPC from
promulgated to create the PHIVIDEC Industrial Authority (PIA),
supplying power directly to FPI upon the ground that such
a subsidiary of PHIVIDEC, to carry out the government policy
direct sale, supply and delivery of electric power by the NPC to
"to encourage, promote and sustain the economic and social
FPI was violative of the rights of CEPALCO under its legislative
growth of the country and that the establishment of
franchise. Hence, the lower court ordered the NPC to
professionalized management of well-planned industrial areas
"permanently desist" from effecting direct supply of power to
shall further this objective."2 Under Sec. 3 of P.D. No. 538, the
the FPI and "from entering into and/or implementing any
first area for development shall be located in the municipalities
agreement or arrangement for such direct power connection,
unless coursed through the power line" of CEPALCO.
Eventually, the case reached this Court through G.R. No.
72085.8 On December 28, 1989, the Court denied the appeal
interposed by NPC on the ground that the statutory authority
given to the NPC as regards direct supply of power to BOI-
registered enterprises "should always be subordinate to the
'total-electrification-of-the-entire-country-on-an-area-
coverage basis policy' enunciated in P. D. No. 40,"9 We held
further that:
Nor should we lose sight of the factual findings of the court a
quo that petitioner-appellee CEPALCO had not only been
authorized by the Phividec Industrial Authority to provide
electrical power to the Phividec Industrial Estate within which
the FPI plant is located, but that petitioner-appellee CEPALCO
had in fact, supplied the latter's power requirements for the
construction of its plant, upon FPI's application therefor as
early as October 17, 1980.
It bears emphasis then that "it is only after a hearing (or an
opportunity for such a hearing) where it is established that the
affected private franchise holder is incapable or unwilling to
match the reliability and rates of NPC that direct connection
with NPC may be granted." Here, petitioner-appellee's
reliability as a power supplier and ability to match the NPC
rates were never put in issue.
It is immaterial that petitioner-appellee's franchise was not
exclusive. A privilege to sell within specified territory, even if
not exclusive, is a valuable property right entitled to protection
against unauthorized competition.10
Notwithstanding said decision, in September 1990, FPI filed a
new application for the direct supply of electric power from
NPC. The Hearing Committee of the NPC had started hearing
the application but CEPALCO filed with the Regional Trial Court
of Quezon City a petition for contempt against NPC officials led
by Ernesto Aboitiz. On August 10, 1992, the trial court found
the respondents in direct contempt of court and accordingly
imposed upon them a fine of P500.00 each.
The respondent NPC officials challenged before this Court the
judgment holding them in contempt of court through G.R. No.
107809, (Aboitiz v. Regino).11 In the Decision of July 5, 1993,
the Court upheld the contempt ruling and, after quoting the
lower court's decision of May 2, 1984 which the Court upheld
in G.R. No. 72085, said:
These directives show that the lower court (and this Court)
intended the arrangement between FPI and CEPALCO to be
permanent and free from NAPOCOR's influence or
intervention. Any attempt on the part of NAPOCOR or its
officers and/or employees to strike a deal with FPI would be a
clear and direct disobedience to a lawful order and therefore
contemptuous.
The petitioners call the attention of the Court to the statement
of CEPALCO that "NAPOCOR has already implemented in full"
the May 2, 1984 decision of the lower court as affirmed by this
Court. They suggest that in view of this, the decision no longer
has any binding effect upon the parties, or to put it another
way, has become functus officio. Consequently, when they
entertained the re-application of FPI for direct power
connection to NAPOCOR, they were not disobeying the May 2,
1984 order of the trial court and so should not be held in
contempt.
This argument must be rejected in view of our finding of the
permanence and comprehensiveness of the challenged order
of the trial court. "Permanent" is not a difficult word to
understand. It means "lasting or intended to last indefinitely
without change." As for the scope of the order, NAPOCOR was
directed to "desist from effecting, causing, and continuing the
direct supply, sale and delivery of electricity from its power line
to the plant of Ferrochrome Philippines, Inc., and from
entering into and/or implementing any agreement or
arrangement for such direct power connection, unless coursed
through the power line of petitioner." (Emphasis supplied.)
Meanwhile, the NPC Hearing Committee12 proceeded with its
hearings. CEPALCO was duly notified thereof but it opted to
question the committee's jurisdiction. It did not submit any
evidence. Consequently, in its Report and Recommendation
dated September 27, 1991, the committee gave weight to the
evidence presented by FPI that CEPALCO charged higher rates
than what the NPC would if allowed to supply power directly
to FPI. Although the committee considered as unfounded FPI's
claim of CEPALCO's unreliability as a power supplier,13 it
nonetheless held that:
Form (sic) the foregoing and on the basis of the decision of the
Supreme Court in the case of National Power Corporation and
Fine Chemicals (Phils.) Inc. v. The Court of Appeals and the
Manila Electric Company, G.R. No. 84695, May 8, 1990, FPI is
entitled to a direct connection to NPC as applied for
considering that CEPALCO is unwilling to match the rates of
NPC for directly serving FPI and that FPI is a duly registered BOI
registered enterprises (sic). The Supreme Court in the
aforestated case has ruled as follows:
As consistently ruled by the Court pursuant to P.D. No. 380 as
amended by P.D. No. 395, NPC is statutorily empowered to
directly service all the requirements of a BOI registered
enterprise provided that, first, any affected private franchise
holder is afforded an opportunity to be heard on the
application therefor and second, from such a hearing, it is
established that said private franchise holder is incapable or
unwilling to match the reliability and rates of NPC for directly
serving the latter (National Power Corporation v. Jacinto, 134
SCRA 435 [1985]. National Power Corporation v. Court of
Appeals, 161 SCRA 103 [1988]).14
However, considering the "better and priority right" of PIA, the
committee recommended that instead of a direct power
connection by the NPC to FPI, the connection should be made
to PIA "as a utility user for its industrial Estate at Tagoloan,
Misamis Oriental."15
For its part, on November 3, 1989, CEPALCO filed with the
Energy Regulatory Board (ERB) a petition praying that the ERB
"order the discontinuance of all existing direct supply of power
by the NPC within petitioner's franchise area" (ERB Case No.
89-430). On July 17, 1992, the ERB ruled that CEPALCO "is
relatively efficient and reliable as manifested by its very low
system losses (far from the 14% standard) and very high power
factors" and therefore CEPALCO is technically capable "to
distribute power to its consumers within its franchise area,
particularly the industrial customers." It disposed of the
petition as follows:
WHEREFORE, in view of the foregoing premises, when the
petitioner has been proven to be capable of distributing power
to its industrial consumers and having passed the secondary
considerations with a passing mark of 85%, judgment is hereby
rendered granting the relief prayed for. Accordingly, it is
hereby declared that all direct connection of industries to NPC
within the franchise area of CEPALCO is no longer necessary.
Therefore, all existing NPC direct supply of power to industrial
consumers within the franchise area of CEPALCO is hereby
ordered discontinued. . . . .16
However, during the pendency of the Aboitiz case in this Court
or on August 3, 1992, PIA contracted the NPC for the
construction of a 138 kilovolt (KV) transmission line from
Namutulan substation to the receiving and/or substation of
PIA.17
As expected, on February 17, 1993, CEPALCO filed in the
Regional Trial Court of Pasig (Branch 68), a petition
for certiorari, prohibition, mandamus and injunction against
the NPC and some officials of both the NPC and PIA.18Docketed
as SCA No. 290, the petition specifically sought the issuance of
a temporary restraining order. However, after hearing, the
prayer for the temporary restraining order was denied by the
court in its order of March 12, 1993.19CEPALCO filed a motion
for the reconsideration of said order while NPC and PIA moved
for the dismissal of the petition.20
On June 23, 1993, noting the cases filed by CEPALCO all seeking
exclusivity in the distribution of electric power to areas
covered by its franchise, the court21 ruled that "the right of
petitioner to supply electric power in the aforesaid area to the
exclusion of other entities had been settled once and for all by
the Regional Trial Court of Quezon City wherein petitioner
obtained a favorable judgment." Hence, the petition was
dismissed on the ground of res judicata.22
Forthwith, CEPALCO elevated the case to this Court through a
petition for certiorari, prohibition and injunction with prayer
for the issuance of a preliminary injunction or a temporary
restraining order. The petition was docketed as G.R. No.
110686 but on August 18, 1993, the Court referred it to the
Court of Appeals pursuant to Sec. 9, paragraph 1 of B.P. Blg.
129 conferring upon the appellate court original jurisdiction to
issue writs of prohibition and certiorariand auxiliary writs.23 In
the Court of Appeals, the petition was docketed as CA-G.R. No.
31935-SP.
On September 10, 1993, the Fifteenth Division of the Court of
Appeals issued a resolution 24 denying the prayer for the
issuance of a temporary restraining order on the strength of
Sec. 1 of P.D. No. 1818. It ruled that since the NPC is a public
utility, it "enjoys the protective mantle" of said decree
prohibiting courts from issuing restraining orders or
preliminary injunctions in cases involving infrastructure and
natural resource development projects of, and operated by,
the government.25
However, on September 17, 1993, upon a motion for
reconsideration filed by CEPALCO and a re-evaluation of the
provisions of P.D. No. 1818, the Court of Appeals set aside its
resolution of September 10, 1993 and held that:
. . . the project intended by respondent NPC, which is the
construction, completion and operation of the 138-kv line, is
not in consonance with the intendment of said Decree which
is to protect public utilities and their projects and activities
intended for public convenience and necessity. The project of
respondent NPC is intended to serve exclusively the needs of
private entities, Metal Alloys Corporation and Ferrochrome
Philippine in Tagoloan, Misamis Oriental.
Accordingly, the Court of Appeals issued a temporary
restraining order directing the private respondents therein "to
immediately cease and desist from proceeding with the
construction, completion and operation of the 138-kv line
subject of the petition." The NPC, PIA and the officers of both
were directed to explain why the preliminary injunction
prayed for should not issue.26
In due course, the Court of Appeals rendered the decision 27 of
November 15, 1993 assailed herein. After ruling that the lower
court gravely abused its discretion in dismissing the petition
below on the grounds of res judicata and litis pendentia, the
Court of Appeals confronted squarely the issue of whether or
not "the NPC itself has the power to determine the propriety
of direct power connection from its lines to any entity located
within the franchise area of another public utility."28
Elucidating that the ruling of this Court in both G.R. No. 78609
(NPC v. Court of Appeals) 29 and G.R. No. 87697 (Del Monte
[Philippines], Inc. v. Hon. Felix M. de Guzman, etc., etc., et
al.)30 categorically held that before a direct connection to the
NPC maybe granted, a proper administrative body must
conduct a hearing "to determine which entity, the franchise
holder or the NPC, has the right to supply electric power to the
entity applying for direct connection," the Court of Appeals
declared:
We have no doubt that the ERB, and not the NPC, is the
administrative body referred to by the Supreme Court where
the hearing is to be conducted to determine the propriety of
direct connection. The charter of the ERB (PD 1206 in relation
to EO 172) is clear on this:
The Board shall, after due notice and hearing, exercise the
following powers and functions, among others:
xxx xxx xxx
e. Issue Certificate of Public Convenience for the operation of
electric power utilities and services, . . . including the
establishment and regulation of areas of operation of
particular operators of public power utilities and services, the
fixing of standards and specifications in all cases related to the
issued Certificate of Public Convenience . . .
Moreover, NPC is not an administrative body as
jurisprudentially defined, and that the NPC cannot usurp a
power it has never been conferred by its charter or by other
law — the power to determine the validity of direct connection
agreement it enters into in violation of a power distributor's
franchise.
Thus, considering that PIA professes to be and intends to
engage in the business of a public power utility, it must first
apply for a public convenience and necessity (conferment of
operating authority) with the ERB. This may have been the
opportune time for ERB to determine whether to allow PIA to
directly connect with NPC, with notice and opportunity for
CEPALCO considering that, as the latter alleges, this new line
which NPC is installing duplicates that existing Cepalco 138 kv
line which NPC itself turned over to Cepalco and for which it
was paid in full.
Consequently, the Court of Appeals affirmed the dismissal of
the petition, annulled and set aside the decision of the Hearing
Committee of the NPC on direct connection with PIA, and
ordered the NPC "to desist from continuing the construction
of that NPC-Natumulan-Phividec 138 kv transmission line."31
Without filing a motion for the reconsideration of said
Decision, NPC filed in this Court on December 9, 1993, a
motion for an extension of time within which to file "the
proper petition." The motion which was docketed as G.R. No.
112702, was granted on December 20, 1993 with warning that
no further extension would be granted. Thereafter, NPC filed a
motion praying that it be excused from filing the petition on
account of the filing by PIA in the Court of Appeals of a motion
for the reconsideration of the Decision of November 15, 1993.
In the Resolution of February 2, 1994, the Court noted and
granted petitioner' s motion and considered the case "closed
and terminated."32 This resolution was withdrawn in the
Resolution of February 8, 199533 in view of the "inadvertent
clerical error" terminating the case, after the NPC had mailed
its petition for review on certiorari on February 21, 1994.34
In the meantime, PIA filed a motion for reconsideration of the
appellate court's Decision of November 15, 1993 arguing in the
main that, not being a party to previous cases between
CEPALCO and NPC, it was not bound by decisions of this Court.
The Court of Appeals denied the motion on January 28, 1994
on the basis of stare decisiswhere once the court has laid down
a principle of law as applicable to a certain state of facts, it will
adhere to and apply the principle to all future cases where the
facts are substantially the
35
same. Hence, PIA filed a petition for review
on certiorari which was docketed as G.R. No. 113613.
G.R. Nos. 112702 and 113613 were consolidated on June 15,
1994.36
In G.R. No. 112702, petitioner NPC contends that private
respondent CEPALCO is not entitled to relief because it has
been forum-shopping. Private respondent had filed Civil Case
No. Q-93-14597 in the Regional Trial Court of Quezon City
which had been forwarded to it by the Regional Trial Court of
Pasig. Said case and the instant case (SCA No. 290) deal with
the same issue of restoring CEPALCO' s right to supply power
to FPI and MAC. Petitioner thus contends that because the
principle of litis pendentia applies, although other parties are
involved in the case before the Quezon City court, there is no
basis for granting relief to private respondent CEPALCO
"(s)ince the dismissal for lack of jurisdiction was affirmed by
the respondent court."37 Corollarily, petitioner asserts that
because the main case herein was dismissed "without trial,"
the respondent appellate court should not have accorded
private respondent affirmative relief.38
Petitioner NPC's contention is based on the fact that on
October 6, 1992, private respondent CEPALCO filed against the
NPC in the Regional Trial Court of Pasig, Civil Case No. 62490,
an action for specific performance and damages with prayer
for preliminary mandatory injunction directing the NPC to
immediately restore to CEPALCO the distribution of power
pertaining to MAC's consumption.39 However, no summons
was served and the ex-parte writ prayed for was not issued.
Nevertheless, the case was forwarded to the Regional Trial
Court of Quezon City where it was docketed as Civil Case No.
93-14597. That case was pending when SCA No. 290 was filed
before the Regional Trial Court of Pasig.
The Court of Appeals affirmed the lower court's dismissal of
the case neither on the grounds of res judicata nor ligis
pendentia but on the "only one unresolved issue, which
is whether the NPC itself has the power to determine the
propriety of direct power connection from its lines to any entity
located within the franchise area of another public
utility."40 The Court of Appeals opined that the effects of litis
pendentia could not have resulted in the dismissal of SCA No.
290 because Civil Case No. Q-35945 which
became G.R. No. 72085 was based on facts totally different
from that of SCA No. 290.
In invoking litis pendentia, however, petitioner NPC refers to A "public utility" is a business or service engaged in regularly
this case, SCA No. 290, and Civil Case No. 93-14597. SCA No. supplying the public with some commodity or service of public
290 and Civil Case No. 93-14597 may both have the same consequence such as electricity, gas, water, transportation,
objective, the restoration of CEPALCO's right to distribute telephone or telegraph service.45 The term
46
power to PIE-MO areas under its franchise aside from the fact implies public use and service.
that the cases involve practically the same parties.
Petitioner PIA is a subsidiary of the PHIVIDEC with
However, litis pendentia may not be successfully invoked to
"governmental and proprietary functions."47 Sec. 4 of P.D. No.
cause the dismissal of SCA No. 290.
538 specifically confers upon it the following powers:
In order to constitute a ground for the abatement or dismissal
a. To operate, administer and manage the PHIVIDEC Industrial
of an action, litis pendentia must exhibit the concurrence of
Areas and other areas which shall hereafter be proclaimed,
the following requisites: (a) identity of parties, or at least such
designated and specified in subsequent Presidential
as representing the same interest in both actions; (b) identity
Proclamation; to construct acquire, own, lease, operate and
of rights asserted and relief prayed for, the relief being
maintain infrastructure facilities, factory buildings,
founded on the same facts, and (c) identity in the two (2) cases
warehouses, dams, reservoirs, water distribution, electric light
should be such that the judgment that may be rendered in the
and power systems, telecommunications and transportation
pending case would, regardless of which party is successful,
networks, or such other facilities and services necessary or
amount to res judicata in the other.41 As a rule, the second
useful in the conduct of industry and commerce or in the
case filed should be abated under the maxim qui prior est
attainment of the purposes and objectives of this Decree;
tempore, potior est jure. However, this rule is not a hard and
(Emphasis supplied.)
fast one. The "priority-in-time rule" may give way to the
criterion of "more appropriate action." More recently, the Clearly then, the PIA is authorized to render indirect service to
criterion used was the "interest of justice rule."42 the public by its administration of the PHIVIDEC industrial
areas like the PIE-MO and may, therefore, be considered a
We hold that the last criterion should be the basis for resolving
public utility. As it is expressly authorized by law to perform
this case, although it was filed later than Civil Case No. 62490
the functions of a public utility, a certificate of public
which, upon its transfer, became Civil Case No. 93-14795. In so
convenience, as suggested by the Court of Appeals, is not
doing, we shall avoid multiplicity of suits which is the matrix
necessary for it to avail of a direct power connection from the
upon which litis pendentia is anchored and eventually bring
NPC. However, such authority to be a public utility may not be
about the final settlement of the recurring issue of whether or
exercised in such a manner as to prejudice the rights of existing
not the NPC may supply power directly to the industries within
franchisees. In fact, by its actions, PIA recognized the rights of
PIE-MO, notwithstanding the operation of franchisee CEPALCO
the franchisees in the area.
in the same area.
Accordingly, in pursuit of its powers "to grant such franchise
It should be noted that there is yet pending another case,
for and to operate and maintain within the Areas electric light,
namely, Civil Case No. 91-383, instituted by PIA against
heat or power systems," etc. under Sec. 4 (i) of P.D. No. 538
CEPALCO in the Regional Trial Court of Misamis Oriental which
and its rule-making power under Sec. 4 (1) of the same law, on
apparently deals with a related issue — PIA' s franchise or
July 20, 1979, the PIA Board of Directors promulgated the
authority to provide power to enterprises within the PIE-
"Rules and Regulations To Implement the Intent and Provisions
MO.43 Hence, the principle of litis pendentiawhich ordinarily
of Presidential Decree No. 538."48 Rule XI thereof on "Utilities
demands the dismissal of an action filed later than another,
and Services" provides as follows:
should be considered under the primordial concept of
"interest of justice," in order that a recurrent issue common to Sec. 1. Utilities — It is the responsibility of the Authority to
all cases may be definitively resolved. provide all required utilities and services inside the Estate:
The principal and common question raised in these xxx xxx xxx
consolidated cases is: whether or not the NPC may supply
power directly to PIA in the PIE-MO area where CEPALCO has a) Contracts for the purchase of public utilities and/or services
a directly franchise. Petitioner PIA in G.R. No. 113613 asserts shall be subject to the prior approval of the
that it may receive power directly from the NPC because it is a Authority; Provided, however, that similar contract(s) existing
public utility. It avers that P.D. No. 538, as amended, prior to the effectivity of this Rules and Regulations shall
empowers PIA "as and to be a public utility to operate and continue to be in full force and effect.
serve the power needs within PIE-MO, i.e., a specific area
xxx xxx xxx
constituting a small portion of petitioner's franchise
coverage," without, however, specifying the particular (Emphasis supplied.)
provision which so empower PIA.44
It should be noted that the Rules and Regulations took effect
thirty (30) days after its publication in the Official Gazette on
September 24, 1979 or more than three (3) months after the
July 6, 1979 contract between PIA and CEPALCO was entered
into. As such, the Rules and Regulations itself allowed the
continuance of the supply of electric power to PIE-MO by
CEPALCO.
That the contract of July 6, 1979 was not renewed by the
parties after the expiration of the five-year period stipulated
therein did not change the fact that within that five-year
period, in violation of both the contract and its Rules and
Regulations, PIA applied with the NPC for direct power
connection. The
matter was aggravated by NPC's favorable action on the
application, totally unmindful of the extent of its powers under
the law which, in National Power Corporation v. Court of
Appeals,49 the Court delimits as follows:
. . . . It is immaterial whether the direct connection is merely
an improvement or an increase in existing voltage, as alleged
by petitioner, or a totally new and separate electric service as
claimed by private respondent. The law on the matter is clear.
PD 40 promulgated on 7 November 1972 expressly provides
that the generation of electric power shall be undertaken solely
by the NPC. However Section 3 of the same decree also
provides that the distribution of electric power shall be
undertaken by cooperatives, private utilities (such as the
CEPALCO), local governments and other entities duly
authorized, subject to state regulation. ( Emphasis supplied.)
The same case ruled that "(i)t is only after a hearing (or an
opportunity for such a hearing) where it is established that the
affected private franchise holder is incapable or unwilling to
match the reliability and rates of NPC that a direct connection
with NPC may be granted."50 As earlier stated, the Court
arrived at the same ruling in the later cases of G.R. Nos. 72085,
84695 and 87697.
Petitioner NPC attempted to abide by these rulings when it
conducted a hearing to determine whether it may supply
power directly to PIA. While it notified CEPALCO of the hearing,
the NPC is not the proper authority referred to by this Court in
the aforementioned earlier decisions, not only because the
subject of the hearing is a matter involving the NPC itself, but
also because the law has created the proper administrative
body vested with authority to conduct a hearing.
CEPALCO shares the view of the Court of Appeals that the
Energy Regulatory Board (ERB) is the proper administrative
body for such hearings. However, a recent legislative
development has overtaken said view.
The ERB, which used to be the Board of Energy, is tasked with
the following powers and functions by Executive Order No. 172
which took effect immediately after its issuance on May 8,
1987:
Sec. 3. Jurisdiction, Powers and Functions of the Board. —
When warranted and only when public necessity requires, the
Board may regulate the business of importing, exporting, re-
exporting, shipping, transporting, processing, refining,
marketing and importing, distributing energy resources. . . .
The Board shall, upon prior notice and hearing, exercise the
following, among other powers and functions:
(a) Fix and regulate the prices of petroleum products;
(b) Fix and regulate the rate schedule or prices of piped gas to
be charged by duly franchised gas companies which distribute
gas by means of underground pipe system;
(c) Fix and regulate the rates of pipeline concessionaires under
the provisions of Republic Act No. 387, as amended, otherwise
known as the "Petroleum Act of 1949," as amended by
Presidential Decree No. 1700;
(d) Regulate the capacities of new refineries or additional
capacities of existing refineries and license refineries that may
be organized after the issuance of this Executive Order, under
such terms and conditions as are consistent with the national
interest;
(e) Whenever the Board has determined that there is a
shortage or any petroleum product, or when public interest so
requires, it may take such steps as it may consider necessary,
including the temporary adjustment of the levels of prices of
petroleum products and the payment to the Oil Price
Stabilization Fund created under Presidential Decree No. 1956
by persons or entities engaged in the petroleum industry of
such amounts as may be determined by the Board, which will
enable the importer to recover its cost of importation.
As may be gleaned from said provisions, the ERB is basically a
price or rate-fixing agency. Apparently recognizing this basic
function, Republic Act No. 7638 (An Act Creating the
Department of Energy, Rationalizing the Organization and
Functions of Government Agencies Related to Energy, and for
Other Purposes),51 which was approved on December 9, 1992
and which took effect fifteen days after its complete
publication in at least two (2) national newspapers of general
circulation, specifically provides as follows:
Sec. 18. Rationalization or Transfer of Functions of Attached or
Related Agencies. — The non-price regulatory jurisdiction,
powers, and functions of the Energy Regulatory Board as
provided for in Section 3 of Executive Order No. 172 are hereby
transferred to the Department.
The foregoing transfer of powers and functions shall include all
applicable funds and appropriations, records, equipment,
property, and such personnel as may be necessary. Provided,
That only such amount of funds and appropriations of the
Board as well as only the personnel thereof which are
completely or primarily involved in the exercise by said Board
of its non-price regulatory powers and functions shall be and prior acts of the same subject matter. Such being the case,
affected by such transfer. the presumption against implied repeals and the rule on strict
construction regarding implied repeals shall apply ex propio
The power of the NPC to determine, fix, and prescribe the rates
vigore. For the legislature is presumed to know the existing
being charged to its customers under Section 4 of Republic Act
laws so that, if repeal of particular or specific laws is intended,
No. 6395, as amended, as well as the power of electric
the proper step is to so express it. The failure to add a specific
cooperatives to fix rates under Section 16 (o), Chapter II of
repealing clause particularly mentioning the statute to be
Presidential Decree No. 269, as amended, are hereby
repealed indicates that the intent was not to repeal any
transferred to the Energy Regulatory Board. The Board shall
existing law on the matter, unless an irreconcilable
exercise its new powers only after due notice and hearing and
inconsistency and repugnancy exists in the terms of the new
under the same procedure provided for in Executive Order No.
and the old laws (Iloilo Palay and Corn Planters Association,
172.
Inc. vs. Feliciano, 13 SCRA 377; City of Naga vs. Agna, 71 SCRA
Upon the effectivity of Republic Act No. 7638, then Acting 176, cited in Agpalo, Statutory Construction, 1990 Edition, pp.
Chairman of the Energy Coordinating Council Delfin Lazaro 191-192).
transmitted to the Department of Justice the query of whether
In view of the foregoing, it is our opinion that only the non-
or not the "non-power rate powers and functions" of the ERB
price regulatory functions of ERB under Section 3 of E.O. 172
are included in the "jurisdiction, powers and functions
are transferred to the DOE. All other powers of ERB which are
transferred to the Department of Energy." Answering the
not within the purview of its "non-price regulatory jurisdiction,
query in the affirmative, the Department of Justice rendered
powers and functions" as defined in Section 3 are not so
Opinion No. 22 dated February 12, 1993 the pertinent portion
transferred to DOE and accordingly remain vested in ERB.
of which states:
The determination of which of two public utilities has the right
. . . we believe that since the provision of Section 18 on the
to supply electric power to an area which is within the
transfer of certain powers and functions from ERB to DOE is
coverage of both is certainly not a rate-fixing function which
clear and unequivocal, and devoid of any ambiguity, in the
should remain with the ERB. It deals with the regulation of the
sense that it categorically refers to "non-price jurisdiction,
distribution of energy resources which, under Executive Order
powers and functions" of ERB under Section 3 of E.O. No. 172,
No. 172, was expressly a function of ERB. However, with the
there is no room for interpretation, but only for application, of
enactment of Republic Act No. 7638, the Department of
the law. This is a cardinal rule of statutory construction.
Energy took over such function. Hence, it is this Department
Clearly, the parameters of the transfer of functions from ERB which shall then determine whether CEPALCO or PIA should
to DOE pursuant to Section 18, are circumscribed by the supply power to PIE-MO.
provision of Section 3 of E.O. No. 172 alone so that, if there are
Clearly, petitioner NPC's assertion that its "authority to
other "related" functions of ERB under other provisions of E.O.
entertain and hear direct connection applications is a
No. 172 or other energy laws, these "related" functions, which
necessary incident of its express authority to sell electric
may conceivably refer to what you call "non-power rate
power in bulk" is now baseless.52 Even without the new
powers and functions" of ERB, are clearly not contemplated by
legislation affecting its power to conduct hearings, it is
Section 18 and are, therefore, not to be deemed included in
certainly irregular, if not downright anomalous for the NPC
the transfer of functions from ERB to DOE under the said
itself to determine whether it should supply power directly to
provision.
the PIA or the industries within the PIE-MO. It simply cannot
It may be argued that Section 26 of R.A. No. 7638 contains a arrogate unto itself the authority to exercise non-rate fixing
repealing clause which provides that: powers which now devolves upon the Department of Energy
and to hear and eventually grant itself the right to supply
All laws, presidential decrees, executive orders, rules and power in bulk.53
regulations or parts thereof, inconsistent with the provisions
of this Act, are hereby repealed or modified accordingly. . . . On the other hand, ventilating the issue in a public hearing
would not unduly prejudice CEPALCO although it was
and, therefore, all provisions of E.O. No. 172 and related laws enfranchised by law earlier than the PIA. Exclusivity of any
which are inconsistent with the policy, purpose and intent of public franchise has not been favored by this Court such that
R.A. No. 7638 are deemed repealed. It has been said, however, in most, if not all, grants by the government to private
that a general repealing clause of such nature does not operate corporations, the interpretation of rights, privileges or
as an express repeal because it fails to identify or designate the franchises is taken against the grantee. Thus in Alger Electric,
act or acts that are intended to be repealed. Rather, it is a Inc. v. Court of Appeals,54 the Court said.
clause which predicates the intended repeal upon the
condition that a substantial conflict must be found on existing
. . . Exclusivity is given by law with the understanding that the
company enjoying it is self-sufficient and capable of supplying
the needed service or product at moderate or reasonable
prices. It would be against public interest where the firm
granted a monopoly is merely an unnecessary conduit of
electric power, jacking up prices as a superfluous middleman
or an inefficient producer which cannot supply cheap
electricity to power intensive industries. It is in the public
interest when industries dependent on heavy use of electricity
are given reliable and direct power at the lower costs thus
enabling the sale of nationally marketed products at prices
within the reach of the masses. . . .

WHEREFORE, both petitions in G.R. No. 112702 and 113613

are hereby DENIED. The Department of Energy is directed to
conduct a hearing with utmost dispatch to determine whether
it is the Cagayan Electric Power and Light Co., Inc. or the
National Power Corporation, through the PHIVIDEC Industrial
Authority, which should supply electric power to the industries
in the PHIVIDEC Industrial Estate-Misamis Oriental.

This Decision is immediately executory.

SO ORDERED.
G.R. No. L-34978 February 26, 1988
ANGELES C. VDA. DE LAT, CAROLINA LAT PEREZ DE TAGLE,
and PEDRO C. LAT, JR., petitioners,
vs.
THE PUBLIC SERVICE COMMISSION and ROBERTO C.
DIAZ, respondents.
GANCAYCO, J.:
This is a petition for the review of a Decision of the Public
Service Commission, dated February 24, 1972, granting the
application of the herein private respondent, Roberto C. Diaz,
for a Certificate of Public Convenience.
The facts of the case are as follows:
On May 11, 1970, the herein private respondent Roberto C.
Diaz filed an application with the respondent Public Service
Commission for a Certificate of Public Convenience and
Necessity to operate and maintain an ice plant service in Davao
City alleging among others that he is financially capable to
operate and maintain the proposed service, and that public
necessity and convenience will be promoted in a proper and
suitable manner with the approval of his application. 1 Said
application was published in two newspapers of general
circulation namely: El Debate and The Philippine Herald, and
copies thereof were sent to affected operators including the
herein petitioners Angeles C. Vda. de Lat Carolina Lat, Perez de
Tagle and Pedro C. Lat, Jr. Only the petitioners filed an
Opposition to the Application and the same was submitted on
July 3,1970.
By agreement of the parties, the hearing of the Application and
the Opposition was set by the respondent Commission for
August 17,1970 at 9 o'clock in the morning. However, when
the case was called for hearing as late as 10 o'clock in the
morning on the said date, neither the oppositors nor their
counsel was present. Hence, the respondent Commission
declared the case uncontested and received the evidence of
the private respondent.
In this petition, the petitioners contend that they filed an
Urgent Motion for Postponement and of Hearing on August
17, 1970, with the respondent Commission on the ground that
their counsel made the mistake of noting down in his calendar
the hearing on August 6, 1970, a Sunday and that it was already
too late when he discovered the said mistake. 2 On August
18,1970,the petitioners filed a motion for reopening of the
case and allowance to present evidence but unfortunately, on
the same date respondent Commission issued an Order
granting the private respondent provisional authority to
operate the ice plant for six (6) months. This was based on the
findings of the Commission that there was indeed an urgent
need for an ice plant in Davao City as its population has
increased tremendously. Petitioners then filed a motion for
reconsideration but this was denied in a Resolution signed by
all the members of the respondent Commission, said motion
having been heard by the Commission en banc. 3
The above-mentioned provisional authority granted to the
private respondent was extended twice. The first extension
was given on February 12, 1971 and the second, on December
10, 1971. Finally on February 24, 1972, the respondent
Commission handed down a Decision approving the
Application of the private respondent and granting him a
Certificate of Public Convenience to operate a 2-ton ice plant
in Davao City.
In this petition for review, the petitioners are asking that the
Decision rendered by the respondent Commission on February
24, 1972 be set aside and declared null and void, as it has been
rendered without due process. Their claim is that they were
deprived of their day in court when they were not allowed to
cross-examine the witnesses of the private respondent and to
present their evidence in support of their
Opposition. 4 Furthermore, they submit that the decision
awarding the Certificate of Public Convenience to the private
respondent was based merely on the latter's uncorroborated
testimony and would amount to competition that would
damage their business. 5
Two issues are raised in this petition. The first is whether or
not the petitioners were deprived of their day in Court to make
the proceeding in the respondent Public Service Commission
nun and void. And the other is whether or not the private
respondent was validly awarded the questioned Certificate of
Public Convenience to operate an ice plant in Davao City.
As regards the first issue, We reject the petitioners' assertion
that their right to due process was violated. It is very clear from
the records that the petitioners were given notice and
opportunity to be heard negating the petitioners' declaration
that they were deprived of their day in court.
Going back to the facts of this Case, We find, as the respondent
Commission did, 6 that the private respondent duly complied
with the required notice of hearing. There was
publication. 7 The petitioners could not have been denied the
right to be heard because as their counsel even admits, he
agreed to the setting of the hearing of the case for August 19,
1970 at 9 o'clock in the morning. 8
The Petitioners should have known about the date of the
hearing. Yet, when the case was called, neither they nor their
counsel showed up. There was not even any word from them.
Their lame excuse that their lawyer made the mistake of noting
down the healing on a Sunday instead of a Monday is
unacceptable. There were three of them who presented
themselves as oppositors. It is unbelievable that no one of
them found out about the mistake of their counsel had they
shown any slight interest in the case. Their negligence cannot
now be passed on to the respondent Commission which only
did the right thing of proceeding with the case, which had
become uncontested.
Nor can it be said that the Decision of the respondent
Commission is arbitrary. The application was not outrightly
approved upon reception of the evidence of the private
respondent. On the contrary, the respondent Commission
took time to consider and weigh such evidence as can be seen
from the fact that the private respondent was granted only a
provisional authority on August 18, 1970, which was twice
extended, before the case was finally determined on February
24, 1972.
We are convinced that the private respondent deserves to be
awarded the Certificate of Public Convenience. He was able to
fully satisfy the requisites before such a certificate may be
granted, namely: (1) the applicant must be a citizen of the
Philippines, or a corporation or co-partnership, association or
joint stock company constituted and organized under the laws
of the Philippines, 60 per centum at least of the stock or paid-
up capital of which belong entirely to citizens of the
Philippines; (2) the applicant must be financially capable of
undertaking the proposed service and meeting the
responsibilities incident to its operations; and (3) the applicant
must prove that the operation of the public service proposed
and the authorization to do business wig promote the public
interest in a proper and suitable manner. 9
Before We end, it is apt to stress the principle that nobody has
the exclusive right to secure a franchise or a Certificate of
Public Convenience. The paramount consideration should
always be the public interest and public convenience. 11
Furthermore, the allegation of the petitioners that the grant of
Certificate of Public Convenience to the private respondent
would result in ruinous competition amounting to damage of
their business 12 is unconvincing. The grant is for the operation
of a mere 2-ton ice plant and only in Davao City whereas the
petitioners are big operators producing no less than 63 tons of
ice daily and who are authorized to operate ice plants not only
in the City of Davao but also in the three Davao provinces. And
We have held before, in order that the opposition based on
ruinous competition may prosper, it must be shown that the
opponent would be deprived of their profits on the capital
invested in its business. The mere possibility of reduction in the
earnings of a business is not sufficient to prove ruinous
competition. It must be shown that the business would not
have sufficient gains to pay a fair rate of interest on its capital
investments. 13
WHEREFORE, the decision of the Public Service Commission
appealed from is hereby AFFIRMED, with costs against the
petitioners.
SO ORDERED.

There is no question that the private respondent is a Filipino

Citizen. Regarding his financial capacity and public necessity
for the ice plant, the finding of the Public Service Commission
on these are relevant, to wit:

It appears from the evidence adduced by the applicant, that he

is a co-owner of a parcel of land situated at Barrio Magugpo,
Tagum, Davao (Exhibit "F" & "F-l") with an area of 15,738
square meters and having a present market value of
P25,000.00 (Exhibits "G" & "G-1") with the Bank of the
Philippine Islands; and that, he is engaged in the fishing
business with an investment of P10,000.00 to P15,000.00 and
from which he earns a monthly income of P2,000.00 to
P3,000.00. As regards the necessity for the service applied for,
applicant testified that the only oppositors here are serving
almost 1/3 of the population of Davao; that Davao City is a
tourist belt and the population has increased from 225.7 in
1960 to 389.3 in 1970, as evidenced by Exhibit "1"; that there
are two (2) or (3) three barrios in said city; that being a fishing
ground, there are plenty of fish wherein ice is very much
needed in order to preserve them; that he received a request
from the Barrio Captain of Bo. Buhangin, Davao City (Exhibit
"J") clamoring for ice in behalf of its 9,431 inhabitants; and that
there is an urgent need for an ice plant in Davao City, to serve
the requirements for ice in the said city. 10
G.R. No. 115381 December 23, 1994
KILUSANG MAYO UNO LABOR CENTER, petitioner,
vs.
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION
FRANCHISING AND REGULATORY BOARD, and the
PROVINCIAL BUS OPERATORS ASSOCIATION OF THE
PHILIPPINES, respondents.
Potenciano A. Flores for petitioner.
Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim
for private respondent.
Jose F. Miravite for movants.
KAPUNAN, J.:
Public utilities are privately owned and operated businesses
whose service are essential to the general public. They are
enterprises which specially cater to the needs of the public and
conduce to their comfort and convenience. As such, public
utility services are impressed with public interest and concern.
The same is true with respect to the business of common
carrier which holds such a peculiar relation to the public
interest that there is superinduced upon it the right of public
regulation when private properties are affected with public
interest, hence, they cease to be juris privati only. When,
therefore, one devotes his property to a use in which the
public has an interest, he, in effect grants to the public an
interest in that use, and must submit to the control by the
public for the common good, to the extent of the interest he
has thus created.1
An abdication of the licensing and regulatory government
agencies of their functions as the instant petition seeks to
show, is indeed lamentable. Not only is it an unsound
administrative policy but it is inimical to public trust and public
interest as well.
The instant petition for certiorari assails the constitutionality
and validity of certain memoranda, circulars and/or orders of
the Department of Transportation and Communications
(DOTC) and the Land Transportation Franchising and
Regulatory Board LTFRB)2 which, among others, (a) authorize
provincial bus and jeepney operators to increase or decrease
the prescribed transportation fares without application
therefor with the LTFRB and without hearing and approval
thereof by said agency in violation of Sec. 16(c) of
Commonwealth Act No. 146, as amended, otherwise known as
the Public Service Act, and in derogation of LTFRB's duty to fix
and determine just and reasonable fares by delegating that
function to bus operators, and (b) establish a presumption of
public need in favor of applicants for certificates of public
convenience (CPC) and place on the oppositor the burden of
proving that there is no need for the proposed service, in
patent violation not only of Sec. 16(c) of CA 146, as amended,
but also of Sec. 20(a) of the same Act mandating that fares
should be "just and reasonable." It is, likewise, violative of the
Rules of Court which places upon each party the burden to
prove his own affirmative allegations.3 The offending
provisions contained in the questioned issuances pointed out
by petitioner, have resulted in the introduction into our
highways and thoroughfares thousands of old and smoke-
belching buses, many of which are right-hand driven, and have
exposed our consumers to the burden of spiraling costs of
public transportation without hearing and due process.
The following memoranda, circulars and/or orders are sought
to be nullified by the instant petition, viz: (a) DOTC
Memorandum Order 90-395, dated June 26, 1990 relative to
the implementation of a fare range scheme for provincial bus
services in the country; (b) DOTC Department Order No.
92-587, dated March 30, 1992, defining the policy framework
on the regulation of transport services; (c) DOTC
Memorandum dated October 8, 1992, laying down rules and
procedures to implement Department Order No. 92-587; (d)
LTFRB Memorandum Circular No. 92-009, providing
implementing guidelines on the DOTC Department Order No.
92-587; and (e) LTFRB Order dated March 24, 1994 in Case No.
94-3112.
The relevant antecedents are as follows:
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos,
issued Memorandum Circular No. 90-395 to then LTFRB
Chairman, Remedios A.S. Fernando allowing provincial bus
operators to charge passengers rates within a range of 15%
above and 15% below the LTFRB official rate for a period of
one (1) year. The text of the memorandum order reads in full:
One of the policy reforms and measures that is in line with the
thrusts and the priorities set out in the Medium-Term
Philippine Development Plan (MTPDP) 1987 — 1992) is the
liberalization of regulations in the transport sector. Along this
line, the Government intends to move away gradually from
regulatory policies and make progress towards greater
reliance on free market forces.
Based on several surveys and observations, bus companies are
already charging passenger rates above and below the official
fare declared by LTFRB on many provincial routes. It is in this
context that some form of liberalization on public transport
fares is to be tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately
publicize a fare range scheme for all provincial bus routes in
country (except those operating within Metro
Manila). Transport Operators shall be allowed to charge
passengers within a range of fifteen percent (15%) above and
fifteen percent (15%) below the LTFRB official rate for a period
of one year.
Guidelines and procedures for the said scheme shall be 4. In lieu of the said proposal, the DOTC with its agencies
prepared by LTFRB in coordination with the DOTC Planning involved in public transportation can consider measures and
Service. reforms in the industry that will be socially uplifting, especially
for the people in the areas devastated by the recent
The implementation of the said fare range scheme shall start
earthquake.
on 6 August 1990.
In view of the foregoing considerations, the undersigned
For compliance. (Emphasis ours.)
respectfully suggests that the implementation of the proposed
Finding the implementation of the fare range scheme "not fare range scheme this year be further studied and evaluated.
legally feasible," Remedios A.S. Fernando submitted the
On December 5, 1990, private respondent Provincial Bus
following memorandum to Oscar M. Orbos on July 24, 1990, to
Operators Association of the Philippines, Inc. (PBOAP) filed an
wit:
application for fare rate increase. An across-the-board
With reference to DOTC Memorandum Order No. 90-395 increase of eight and a half centavos (P0.085) per kilometer for
dated 26 June 1990 which the LTFRB received on 19 July 1990, all types of provincial buses with a minimum-maximum fare
directing the Board "to immediately publicize a fare range range of fifteen (15%) percent over and below the proposed
scheme for all provincial bus routes in the country (except basic per kilometer fare rate, with the said minimum-
those operating within Metro Manila)" that will allow maximum fare range applying only to ordinary, first class and
operators "to charge passengers within a range of fifteen premium class buses and a fifty-centavo (P0.50) minimum per
percent (15%) above and fifteen percent (15%) below the kilometer fare for aircon buses, was sought.
LTFRB official rate for a period of one year" the undersigned is
On December 6, 1990, private respondent PBOAP reduced its
respectfully adverting the Secretary's attention to the
applied proposed fare to an across-the-board increase of six
following for his consideration:
and a half (P0.065) centavos per kilometer for ordinary buses.
1. Section 16(c) of the Public Service Act prescribes the The decrease was due to the drop in the expected price of
following for the fixing and determination of rates — (a) the diesel.
rates to be approved should be proposed by public service
The application was opposed by the Philippine Consumers
operators; (b) there should be a publication and notice to
Foundation, Inc. and Perla C. Bautista alleging that the
concerned or affected parties in the territory affected; (c) a
proposed rates were exorbitant and unreasonable and that
public hearing should be held for the fixing of the rates; hence,
the application contained no allegation on the rate of return of
implementation of the proposed fare range scheme on August
the proposed increase in rates.
6 without complying with the requirements of the Public
Service Act may not be legally feasible. On December 14, 1990, public respondent LTFRB rendered a
decision granting the fare rate increase in accordance with the
2. To allow bus operators in the country to charge fares fifteen
following schedule of fares on a straight computation method,
(15%) above the present LTFRB fares in the wake of the
viz:
devastation, death and suffering caused by the July 16
earthquake will not be socially warranted and will be politically AUTHORIZED FARES
unsound; most likely public criticism against the DOTC and the
LUZON
LTFRB will be triggered by the untimely motu
MIN. OF 5 KMS. SUCCEEDING KM.
propioimplementation of the proposal by the mere expedient
of publicizing the fare range scheme without calling a public REGULAR P1.50 P0.37
hearing, which scheme many as early as during the Secretary's STUDENT P1.15 P0.28
predecessor know through newspaper reports and columnists'
comments to be Asian Development Bank and World Bank VISAYAS/MINDANAO
inspired.
REGULAR P1.60 P0.375
3. More than inducing a reduction in bus fares by fifteen STUDENT P1.20 P0.285
percent (15%) the implementation of the proposal will instead FIRST CLASS (PER KM.)
trigger an upward adjustment in bus fares by fifteen percent LUZON P0.385
(15%) at a time when hundreds of thousands of people in VISAYAS/
Central and Northern Luzon, particularly in Central MINDANAO P0.395
Pangasinan, La Union, Baguio City, Nueva Ecija, and the PREMIERE CLASS (PER KM.)
Cagayan Valley are suffering from the devastation and havoc LUZON P0.395
caused by the recent earthquake. VISAYAS/
MINDANAO P0.405
AIRCON (PER KM.) P0.415.4
On March 30, 1992, then Secretary of the Department of
Transportation and Communications Pete Nicomedes Prado
issued Department Order No.
92-587 defining the policy framework on the regulation of
transport services. The full text of the said order is reproduced
below in view of the importance of the provisions contained
therein:
WHEREAS, Executive Order No. 125 as amended, designates
the Department of Transportation and Communications
(DOTC) as the primary policy, planning, regulating and
implementing agency on transportation;
WHEREAS, to achieve the objective of a viable, efficient, and
dependable transportation system, the transportation
regulatory agencies under or attached to the DOTC have to
harmonize their decisions and adopt a common philosophy
and direction;
WHEREAS, the government proposes to build on the successful
liberalization measures pursued over the last five years and
bring the transport sector nearer to a balanced longer term
regulatory framework;
NOW, THEREFORE, pursuant to the powers granted by laws to
the DOTC, the following policies and principles in the economic
regulation of land, air, and water transportation services are
hereby adopted:
1. Entry into and exit out of the industry. Following the
Constitutional dictum against monopoly, no franchise holder
shall be permitted to maintain a monopoly on any route. A
minimum of two franchise holders shall be permitted to
operate on any route.
The requirements to grant a certificate to operate, or
certificate of public convenience, shall be: proof of Filipino
citizenship, financial capability, public need, and sufficient
insurance cover to protect the riding public.
In determining public need, the presumption of need for a
service shall be deemed in favor of the applicant. The burden
of proving that there is no need for a proposed service shall be
with the oppositor(s).
In the interest of providing efficient public transport services,
the use of the "prior operator" and the "priority of filing" rules
shall be discontinued. The route measured capacity test or
other similar tests of demand for vehicle/vessel fleet on any
route shall be used only as a guide in weighing the merits of
each franchise application and not as a limit to the services
offered.
Where there are limitations in facilities, such as congested
road space in urban areas, or at airports and ports, the use of
demand management measures in conformity with market
principles may be considered.
The right of an operator to leave the industry is recognized as
a business decision, subject only to the filing of appropriate
notice and following a phase-out period, to inform the public
and to minimize disruption of services.
2. Rate and Fare Setting. Freight rates shall be freed gradually
from government controls. Passenger fares shall also be
deregulated, except for the lowest class of passenger service
(normally third class passenger transport) for which the
government will fix indicative or reference fares. Operators of
particular services may fix their own fares within a range 15%
above and below the indicative or reference rate.
Where there is lack of effective competition for services, or on
specific routes, or for the transport of particular commodities,
maximum mandatory freight rates or passenger fares shall be
set temporarily by the government pending actions to increase
the level of competition.
For unserved or single operator routes, the government shall
contract such services in the most advantageous terms to the
public and the government, following public bids for the
services. The advisability of bidding out the services or using
other kinds of incentives on such routes shall be studied by the
government.
3. Special Incentives and Financing for Fleet Acquisition. As a
matter of policy, the government shall not engage in special
financing and incentive programs, including direct subsidies
for fleet acquisition and expansion. Only when the market
situation warrants government intervention shall programs of
this type be considered. Existing programs shall be phased out
gradually.
The Land Transportation Franchising and Regulatory Board,
the Civil Aeronautics Board, the Maritime Industry Authority
are hereby directed to submit to the Office of the Secretary,
within forty-five (45) days of this Order, the detailed rules and
procedures for the Implementation of the policies herein set
forth. In the formulation of such rules, the concerned agencies
shall be guided by the most recent studies on the subjects,
such as the Provincial Road Passenger Transport Study, the
Civil Aviation Master Plan, the Presidential Task Force on the
Inter-island Shipping Industry, and the Inter-island Liner
Shipping Rate Rationalization Study.
For the compliance of all concerned. (Emphasis ours)
On October 8, 1992, public respondent Secretary of the
Department of Transportation and Communications Jesus B.
Garcia, Jr. issued a memorandum to the Acting Chairman of
the LTFRB suggesting swift action on the adoption of rules and
procedures to implement above-quoted Department Order
No. 92-587 that laid down deregulation and other
liberalization policies for the transport sector. Attached to the
said memorandum was a revised draft of the required rules
and procedures covering (i) Entry Into and Exit Out of the
Industry and (ii) Rate and Fare Setting, with comments and
suggestions from the World Bank incorporated therein.
Likewise, resplendent from the said memorandum is the
statement of the DOTC Secretary that the adoption of the rules
and procedures is a pre-requisite to the approval of the
Economic Integration Loan from the World Bank.5
On February 17, 1993, the LTFRB issued Memorandum Circular
No. 92-009 promulgating the guidelines for the
implementation of DOTC Department Order No. 92-587. The
Circular provides, among others, the following challenged
portions:
xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public
Convenience.
The issuance of a Certificate of Public Convenience is
determined by public need. The presumption of public need for
a service shall be deemed in favor of the applicant, while
burden of proving that there is no need for the proposed service
shall be the oppositor'(s).
xxx xxx xxx
V. Rate and Fare Setting
The control in pricing shall be liberalized to introduce price
competition complementary with the quality of service,
subject to prior notice and public hearing. Fares shall not be
provisionally authorized without public hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus
15 per cent for provincial buses and jeepneys shall be widened
to 20% and -25% limit in 1994 with the authorized fare to be
replaced by an indicative or reference rate as the basis for the
expanded fare range.
2. Fare systems for aircon buses are liberalized to cover first
class and premier services.
xxx xxx xxx
(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing
itself of the deregulation policy of the DOTC allowing provincial
bus operators to collect plus 20% and minus 25% of the
prescribed fare without first having filed a petition for the
purpose and without the benefit of a public hearing,
announced a fare increase of twenty (20%) percent of the
existing fares. Said increased fares were to be made effective
on March 16, 1994.
On March 16, 1994, petitioner KMU filed a petition before the
LTFRB opposing the upward adjustment of bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders
dismissing the petition for lack of merit. The dispositive portion
reads:
PREMISES CONSIDERED, this Board after considering the
arguments of the parties, hereby DISMISSES FOR LACK OF
MERIT the petition filed in the above-entitled case. This
petition in this case was resolved with dispatch at the request
of petitioner to enable it to immediately avail of the legal
remedies or options it is entitled under existing laws.
SO ORDERED.6
Hence, the instant petition for certiorari with an urgent prayer
for issuance of a temporary restraining order.
The Court, on June 20, 1994, issued a temporary restraining
order enjoining, prohibiting and preventing respondents from
implementing the bus fare rate increase as well as the
questioned orders and memorandum circulars. This meant
that provincial bus fares were rolled back to the levels duly
authorized by the LTFRB prior to March 16, 1994. A
moratorium was likewise enforced on the issuance of
franchises for the operation of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the
authority given by respondent LTFRB to provincial bus
operators to set a fare range of plus or minus fifteen (15%)
percent, later increased to plus twenty (20%) and minus
twenty-five (-25%) percent, over and above the existing
authorized fare without having to file a petition for the
purpose, is unconstitutional, invalid and illegal. Second, the
establishment of a presumption of public need in favor of an
applicant for a proposed transport service without having to
prove public necessity, is illegal for being violative of the Public
Service Act and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually
touching upon the issues raised by the petitioner, questions
the wisdom and the manner by which the instant petition was
filed. It asserts that the petitioner has no legal standing to sue
or has no real interest in the case at bench and in obtaining the
reliefs prayed for.
In their Comment filed by the Office of the Solicitor General,
public respondents DOTC Secretary Jesus B. Garcia, Jr. and the
LTFRB asseverate that the petitioner does not have the
standing to maintain the instant suit. They further claim that it
is within DOTC and LTFRB's authority to set a fare range
scheme and establish a presumption of public need in
applications for certificates of public convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be
struck. Petitioner KMU has the standing to sue.
The requirement of locus standi inheres from the definition of
judicial power. Section 1 of Article VIII of the Constitution
provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to
settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or
not there has been a grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.
In Lamb v. Phipps,7 we ruled that judicial power is the power
to hear and decide causes pending between parties who have
the right to sue in the courts of law and equity. Corollary to this
provision is the principle of locus standi of a party litigant. One
who is directly affected by and whose interest is immediate
and substantial in the controversy has the standing to sue. The
rule therefore requires that a party must show a personal
stake in the outcome of the case or an injury to himself that
can be redressed by a favorable decision so as to warrant an
invocation of the court's jurisdiction and to justify the exercise
of the court's remedial powers in his behalf. 8
In the case at bench, petitioner, whose members had suffered
and continue to suffer grave and irreparable injury and
damage from the implementation of the questioned
memoranda, circulars and/or orders, has shown that it has a
clear legal right that was violated and continues to be violated
with the enforcement of the challenged memoranda, circulars
and/or orders. KMU members, who avail of the use of buses,
trains and jeepneys everyday, are directly affected by the
burdensome cost of arbitrary increase in passenger fares. They
are part of the millions of commuters who comprise the riding
public. Certainly, their rights must be protected, not neglected
nor ignored.
Assuming arguendo that petitioner is not possessed of the
standing to sue, this court is ready to brush aside this barren
procedural infirmity and recognize the legal standing of the
petitioner in view of the transcendental importance of the
issues raised. And this act of liberality is not without judicial
precedent. As early as the Emergency Powers Cases, this Court
had exercised its discretion and waived the requirement of
proper party. In the recent case of Kilosbayan, Inc., et al. v.
Teofisto Guingona, Jr., et al.,9 we ruled in the same lines and
enumerated some of the cases where the same policy was
adopted, viz:
. . . A party's standing before this Court is a procedural
technicality which it may, in the exercise of its discretion, set
aside in view of the importance of the issues raised. In the
landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta
v. Dinglasan); G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de
Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of
Customs); and G.R. No. L-3056 (Barredo v. Commission on
Elections), 84 Phil. 368 (1949)], this Court brushed aside this
technicality because "the transcendental importance to the
public of these cases demands that they be settled promptly
and definitely, brushing aside, if we must, technicalities of
procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as
taxpayers' suits are concerned, this Court had declared that it
"is not devoid of discretion as to whether or not it should be
entertained," (Tan v. Macapagal, 43 SCRA 677, 680 [1972]) or
that it "enjoys an open discretion to entertain the same or
not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].
xxx xxx xxx
In line with the liberal policy of this Court on locus standi,
ordinary taxpayers, members of Congress, and even
association of planters, and
non-profit civic organizations were allowed to initiate and
prosecute actions before this court to question the
constitutionality or validity of laws, acts, decisions, rulings, or
orders of various government agencies or instrumentalities.
Among such cases were those assailing the constitutionality of
(a) R.A. No. 3836 insofar as it allows retirement gratuity and
commutation of vacation and sick leave to Senators and
Representatives and to elective officials of both Houses of
Congress (Philippine Constitution Association, Inc. v. Gimenez,
15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by
President Corazon C. Aquino on 25 July 1987, which allowed
members of the cabinet, their undersecretaries, and assistant
secretaries to hold other government offices or positions (Civil
Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]);
(c) the automatic appropriation for debt service in the General
Appropriations Act (Guingona v. Carague, 196 SCRA 221
[1991]; (d) R.A. No. 7056 on the holding of desynchronized
elections (Osmeña v. Commission on Elections, 199 SCRA 750
[1991]); (e) P.D. No. 1869 (the charter of the Philippine
Amusement and Gaming Corporation) on the ground that it is
contrary to morals, public policy, and order (Basco v. Philippine
Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f)
R.A. No. 6975, establishing the Philippine National Police.
(Carpio v. Executive Secretary, 206 SCRA 290 [1992]).
Other cases where we have followed a liberal policy
regarding locus standi include those attacking the validity or
legality of (a) an order allowing the importation of rice in the
light of the prohibition imposed by R.A. No. 3452 (Iloilo Palay
and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377
[1965]; (b) P.D. Nos. 991 and 1033 insofar as they proposed
amendments to the Constitution and P.D. No. 1031 insofar as
it directed the COMELEC to supervise, control, hold, and
conduct the referendum-plebiscite on 16 October 1976
(Sanidad v. Commission on Elections, supra); (c) the bidding for
the sale of the 3,179 square meters of land at Roppongi,
Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797
[1990]); (d) the approval without hearing by the Board of
Investments of the amended application of the Bataan
Petrochemical Corporation to transfer the site of its plant from
Bataan to Batangas and the validity of such transfer and the
shift of feedstock from naphtha only to naphtha and/or
liquefied petroleum gas (Garcia v. Board of Investments, 177
SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288
[1990]); (e) the decisions, orders, rulings, and resolutions of
the Executive Secretary, Secretary of Finance, Commissioner
of Internal Revenue, Commissioner of Customs, and the Fiscal
Incentives Review Board exempting the National Power
Corporation from indirect tax and duties (Maceda v. Macaraig,
197 SCRA 771 [1991]); (f) the orders of the Energy Regulatory
Board of 5 and 6 December 1990 on the ground that the
hearings conducted on the second provisional increase in oil
prices did not allow the petitioner substantial cross-
examination; (Maceda v. Energy Regulatory Board, 199 SCRA
454 [1991]); (g) Executive Order No. 478 which levied a special
duty of P0.95 per liter of imported oil products (Garcia v.
Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of
the Commission on Elections concerning the apportionment,
by district, of the number of elective members of Sanggunians
(De Guia vs. Commission on Elections, 208 SCRA 420 [1992]);
and (i) memorandum orders issued by a Mayor affecting the
Chief of Police of Pasay City (Pasay Law and Conscience Union,
Inc. v. Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections (62
SCRA 275 [1975]), this Court, despite its unequivocal ruling
that the petitioners therein had no personality to file the
petition, resolved nevertheless to pass upon the issues raised
because of the far-reaching implications of the petition. We
did no less in De Guia v. COMELEC (Supra) where, although we
declared that De Guia "does not appear to have locus standi, a
standing in law, a personal or substantial interest," we brushed
aside the procedural infirmity "considering the importance of
the issue involved, concerning as it does the political exercise
of qualified voters affected by the apportionment, and
petitioner alleging abuse of discretion and violation of the
Constitution by respondent."
Now on the merits of the case.
On the fare range scheme.
Section 16(c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and
hearing. — The Commission shall have power, upon proper
notice and hearing in accordance with the rules and provisions
of this Act, subject to the limitations and exceptions
mentioned and saving provisions to the contrary:
xxx xxx xxx
(c) To fix and determine individual or joint rates, tolls, charges,
classifications, or schedules thereof, as well as commutation,
mileage kilometrage, and other special rates which shall be
imposed, observed, and followed thereafter by any public
service: Provided, That the Commission may, in its discretion,
approve rates proposed by public services provisionally and
without necessity of any hearing; but it shall call a hearing
thereon within thirty days thereafter, upon publication and
notice to the concerns operating in the territory
affected: Provided, further, That in case the public service
equipment of an operator is used principally or secondarily for
the promotion of a private business, the net profits of said
private business shall be considered in relation with the public
service of such operator for the purpose of fixing the rates.
(Emphasis ours).
xxx xxx xxx
Under the foregoing provision, the Legislature delegated to
the defunct Public Service Commission the power of fixing the
rates of public services. Respondent LTFRB, the existing
regulatory body today, is likewise vested with the same under
Executive Order No. 202 dated June 19, 1987. Section 5(c) of
the said executive order authorizes LTFRB "to determine,
prescribe, approve and periodically review and adjust,
reasonable fares, rates and other related charges, relative to
the operation of public land transportation services provided
by motorized vehicles."
Such delegation of legislative power to an administrative
agency is permitted in order to adapt to the increasing
complexity of modern life. As subjects for governmental
regulation multiply, so does the difficulty of administering the
laws. Hence, specialization even in legislation has become
necessary. Given the task of determining sensitive and delicate
matters as
route-fixing and rate-making for the transport sector, the
responsible regulatory body is entrusted with the power of
subordinate legislation. With this authority, an administrative
body and in this case, the LTFRB, may implement broad
policies laid down in a statute by "filling in" the details which
the Legislature may neither have time or competence to
provide. However, nowhere under the aforesaid provisions of
law are the regulatory bodies, the PSC and LTFRB alike,
authorized to delegate that power to a common carrier, a
transport operator, or other public service.
In the case at bench, the authority given by the LTFRB to the
provincial bus operators to set a fare range over and above the
authorized existing fare, is illegal and invalid as it is tantamount
to an undue delegation of legislative authority. Potestas
delegata non delegari potest. What has been delegated cannot
be delegated. This doctrine is based on the ethical principle
that such a delegated power constitutes not only a right but a
duty to be performed by the delegate through the
instrumentality of his own judgment and not through the
intervening mind of another.10 A further delegation of such
power would indeed constitute a negation of the duty in
violation of the trust reposed in the delegate mandated to
discharge it directly.11 The policy of allowing the provincial bus
operators to change and increase their fares at will would
result not only to a chaotic situation but to an anarchic state
of affairs. This would leave the riding public at the mercy of
transport operators who may increase fares every hour, every
day, every month or every year, whenever it pleases them or
whenever they deem it "necessary" to do so. In Panay Autobus
Co. v. Philippine Railway Co.,12 where respondent Philippine
Railway Co. was granted by the Public Service Commission the
authority to change its freight rates at will, this Court
categorically declared that:
In our opinion, the Public Service Commission was not
authorized by law to delegate to the Philippine Railway Co. the
power of altering its freight rates whenever it should find it
necessary to do so in order to meet the competition of road
trucks and autobuses, or to change its freight rates at will, or
to regard its present rates as maximum rates, and to fix lower
rates whenever in the opinion of the Philippine Railway Co. it
would be to its advantage to do so.
The mere recital of the language of the application of the
Philippine Railway Co. is enough to show that it is
untenable. The Legislature has delegated to the Public Service
Commission the power of fixing the rates of public services, but
it has not authorized the Public Service Commission to delegate
that power to a common carrier or other public service. The
rates of public services like the Philippine Railway Co. have
been approved or fixed by the Public Service Commission, and
any change in such rates must be authorized or approved by
the Public Service Commission after they have been shown to
be just and reasonable. The public service may, of course,
propose new rates, as the Philippine Railway Co. did in case
No. 31827, but it cannot lawfully make said new rates effective
without the approval of the Public Service Commission, and
the Public Service Commission itself cannot authorize a public
service to enforce new rates without the prior approval of said
rates by the commission. The commission must approve new
rates when they are submitted to it, if the evidence shows
them to be just and reasonable, otherwise it must disapprove
them. Clearly, the commission cannot determine in advance
whether or not the new rates of the Philippine Railway Co. will
be just and reasonable, because it does not know what those
rates will be.
In the present case the Philippine Railway Co. in effect asked
for permission to change its freight rates at will. It may change
them every day or every hour, whenever it deems it necessary
to do so in order to meet competition or whenever in its
opinion it would be to its advantage. Such a procedure would
create a most unsatisfactory state of affairs and largely defeat
the purposes of the public service law.13(Emphasis ours).
One veritable consequence of the deregulation of transport
fares is a compounded fare. If transport operators will be
authorized to impose and collect an additional amount
equivalent to 20% over and above the authorized fare over a
period of time, this will unduly prejudice a commuter who will
be made to pay a fare that has been computed in a manner
similar to those of compounded bank interest rates.
Picture this situation. On December 14, 1990, the LTFRB
authorized provincial bus operators to collect a thirty-seven
(P0.37) centavo per kilometer fare for ordinary buses. At the
same time, they were allowed to impose and collect a fare
range of plus or minus 15% over the authorized rate. Thus
P0.37 centavo per kilometer authorized fare plus P0.05
centavos (which is 15% of P0.37 centavos) is equivalent to
P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB
grants another five (P0.05) centavo increase per kilometer in
1994, then, the base or reference for computation would have
to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus
operators will exercise their authority to impose an additional
20% over and above the authorized fare, then the fare to be
collected shall amount to P0.56 (that is, P0.47 authorized
LTFRB rate plus 20% of P0.47 which is P0.29). In effect,
commuters will be continuously subjected, not only to a
double fare adjustment but to a compounding fare as well. On
their part, transport operators shall enjoy a bigger chunk of the
pie. Aside from fare increase applied for, they can still collect
an additional amount by virtue of the authorized fare range.
Mathematically, the situation translates into the following:
Year** LTFRB authorized Fare Range Fare to be
rate*** collected per
kilometer
1990 P0.37 15% (P0.05) P0.42
1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94
Moreover, rate making or rate fixing is not an easy task. It is a
delicate and sensitive government function that requires
dexterity of judgment and sound discretion with the settled
goal of arriving at a just and reasonable rate acceptable to both
the public utility and the public. Several factors, in fact, have
to be taken into consideration before a balance could be
achieved. A rate should not be confiscatory as would place an
operator in a situation where he will continue to operate at a
loss. Hence, the rate should enable public utilities to generate
revenues sufficient to cover operational costs and provide
reasonable return on the investments. On the other hand, a
rate which is too high becomes discriminatory. It is contrary to
public interest. A rate, therefore, must be reasonable and fair
and must be affordable to the end user who will utilize the
services.
Given the complexity of the nature of the function of rate-
fixing and its far-reaching effects on millions of commuters,
government must not relinquish this important function in
favor of those who would benefit and profit from the industry.
Neither should the requisite notice and hearing be done away
with. The people, represented by reputable oppositors,
deserve to be given full opportunity to be heard in their
opposition to any fare increase.
The present administrative procedure, 14 to our mind, already
mirrors an orderly and satisfactory arrangement for all parties
involved. To do away with such a procedure and allow just one
party, an interested party at that, to determine what the rate
should be, will undermine the right of the other parties to due
process. The purpose of a hearing is precisely to determine
what a just and reasonable rate is. 15 Discarding such
procedural and constitutional right is certainly inimical to our
fundamental law and to public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization
granted by the LTFRB for the operation of land transportation
services for public use as required by law. Pursuant to Section
16(a) of the Public Service Act, as amended, the following
requirements must be met before a CPC may be granted, to
wit: (i) the applicant must be a citizen of the Philippines, or a
corporation or co-partnership, association or joint-stock
company constituted and organized under the laws of the
Philippines, at least 60 per centum of its stock or paid-up
capital must belong entirely to citizens of the Philippines; (ii)
the applicant must be financially capable of undertaking the
proposed service and meeting the responsibilities incident to
its operation; and (iii) the applicant must prove that the
operation of the public service proposed and the authorization
to do business will promote the public interest in a proper and
suitable manner. It is understood that there must be proper
notice and hearing before the PSC can exercise its power to
issue a CPC.
While adopting in toto the foregoing requisites for the
issuance of a CPC, LTFRB Memorandum Circular No. 92-009,
Part IV, provides for yet incongruous and contradictory policy
guideline on the issuance of a CPC. The guidelines states:
The issuance of a Certificate of Public Convenience is
determined by public need. The presumption of public need for
a service shall be deemed in favor of the applicant, while the
burden of proving that there is no need for the proposed service
shall be the oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and
inconsistent with Section 16(c)(iii) of the Public Service Act
which requires that before a CPC will be issued, the applicant
must prove by proper notice and hearing that the operation of
the public service proposed will promote public interest in a
proper and suitable manner. On the contrary, the policy
guideline states that the presumption of public need for a
public service shall be deemed in favor of the applicant. In case
of conflict between a statute and an administrative order, the
former must prevail.
By its terms, public convenience or necessity generally means
something fitting or suited to the public need.16 As one of the
basic requirements for the grant of a CPC, public convenience
and necessity exists when the proposed facility or service
meets a reasonable want of the public and supply a need which
the existing facilities do not adequately supply. The existence
or
non-existence of public convenience and necessity is therefore
a question of fact that must be established by evidence, real
and/or testimonial; empirical data; statistics and such other
means necessary, in a public hearing conducted for that
purpose. The object and purpose of such procedure, among
other things, is to look out for, and protect, the interests of
both the public and the existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded
on the condition that after full-dress hearing and investigation,
it shall find, as a fact, that the proposed operation is for the
convenience of the public.17 Basic convenience is the primary
consideration for which a CPC is issued, and that fact alone
must be consistently borne in mind. Also, existing operators in
subject routes must be given an opportunity to offer proof and
oppose the application. Therefore, an applicant must, at all
times, be required to prove his capacity and capability to
furnish the service which he has undertaken to
render. 18 And all this will be possible only if a public hearing
were conducted for that purpose.
Otherwise stated, the establishment of public need in favor of
an applicant reverses well-settled and institutionalized judicial,
quasi-judicial and administrative procedures. It allows the
party who initiates the proceedings to prove, by mere
application, his affirmative allegations. Moreover, the
offending provisions of the LTFRB memorandum circular in
question would in effect amend the Rules of Court by adding
another disputable presumption in the enumeration of 37
presumptions under Rule 131, Section 5 of the Rules of Court.
Such usurpation of this Court's authority cannot be
countenanced as only this Court is mandated by law to
promulgate rules concerning pleading, practice and
procedure. 19
Deregulation, while it may be ideal in certain situations, may
not be ideal at all in our country given the present
circumstances. Advocacy of liberalized franchising and
regulatory process is tantamount to an abdication by the
government of its inherent right to exercise police power, that
is, the right of government to regulate public utilities for
protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB
to issue administrative orders to regulate the transport sector,
we find that they committed grave abuse of discretion in
issuing DOTC Department Order
No. 92-587 defining the policy framework on the regulation of
transport services and LTFRB Memorandum Circular No. 92-
009 promulgating the implementing guidelines on DOTC
Department Order No. 92-587, the said administrative
issuances being amendatory and violative of the Public Service
Act and the Rules of Court. Consequently, we rule that the
twenty (20%) per centum fare increase imposed by
respondent PBOAP on March 16, 1994 without the benefit of
a petition and a public hearing is null and void and of no force
and effect. No grave abuse of discretion however was
committed in the issuance of DOTC Memorandum Order No.
90-395 and DOTC Memorandum dated October 8, 1992, the
same being merely internal communications between
administrative officers.

WHEREFORE, in view of the foregoing, the instant petition is

hereby GRANTED and the challenged administrative issuances
and orders, namely: DOTC Department Order No. 92-587,
LTFRB Memorandum Circular
No. 92-009, and the order dated March 24, 1994 issued by
respondent LTFRB are hereby DECLARED contrary to law and
invalid insofar as they affect provisions therein (a) delegating
to provincial bus and jeepney operators the authority to
increase or decrease the duly prescribed transportation fares;
and (b) creating a presumption of public need for a service in
favor of the applicant for a certificate of public convenience
and placing the burden of proving that there is no need for the
proposed service to the oppositor.

The Temporary Restraining Order issued on June 20, 1994 is

hereby MADE PERMANENT insofar as it enjoined the bus fare
rate increase granted under the provisions of the
aforementioned administrative circulars, memoranda and/or
orders declared invalid.

No pronouncement as to costs.

SO ORDERED.
G.R. No. 115381 December 23, 1994
KILUSANG MAYO UNO LABOR CENTER, petitioner,
vs.
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION
FRANCHISING AND REGULATORY BOARD, and the
PROVINCIAL BUS OPERATORS ASSOCIATION OF THE
PHILIPPINES, respondents.
Potenciano A. Flores for petitioner.
Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim
for private respondent.
Jose F. Miravite for movants.
KAPUNAN, J.:
Public utilities are privately owned and operated businesses
whose service are essential to the general public. They are
enterprises which specially cater to the needs of the public and
conduce to their comfort and convenience. As such, public
utility services are impressed with public interest and concern.
The same is true with respect to the business of common
carrier which holds such a peculiar relation to the public
interest that there is superinduced upon it the right of public
regulation when private properties are affected with public
interest, hence, they cease to be juris privati only. When,
therefore, one devotes his property to a use in which the
public has an interest, he, in effect grants to the public an
interest in that use, and must submit to the control by the
public for the common good, to the extent of the interest he
has thus created.1
An abdication of the licensing and regulatory government
agencies of their functions as the instant petition seeks to
show, is indeed lamentable. Not only is it an unsound
administrative policy but it is inimical to public trust and public
interest as well.
The instant petition for certiorari assails the constitutionality
and validity of certain memoranda, circulars and/or orders of
the Department of Transportation and Communications
(DOTC) and the Land Transportation Franchising and
Regulatory Board LTFRB)2 which, among others, (a) authorize
provincial bus and jeepney operators to increase or decrease
the prescribed transportation fares without application
therefor with the LTFRB and without hearing and approval
thereof by said agency in violation of Sec. 16(c) of
Commonwealth Act No. 146, as amended, otherwise known as
the Public Service Act, and in derogation of LTFRB's duty to fix
and determine just and reasonable fares by delegating that
function to bus operators, and (b) establish a presumption of
public need in favor of applicants for certificates of public
convenience (CPC) and place on the oppositor the burden of
proving that there is no need for the proposed service, in
patent violation not only of Sec. 16(c) of CA 146, as amended,
but also of Sec. 20(a) of the same Act mandating that fares
should be "just and reasonable." It is, likewise, violative of the
Rules of Court which places upon each party the burden to
prove his own affirmative allegations.3 The offending
provisions contained in the questioned issuances pointed out
by petitioner, have resulted in the introduction into our
highways and thoroughfares thousands of old and smoke-
belching buses, many of which are right-hand driven, and have
exposed our consumers to the burden of spiraling costs of
public transportation without hearing and due process.
The following memoranda, circulars and/or orders are sought
to be nullified by the instant petition, viz: (a) DOTC
Memorandum Order 90-395, dated June 26, 1990 relative to
the implementation of a fare range scheme for provincial bus
services in the country; (b) DOTC Department Order No.
92-587, dated March 30, 1992, defining the policy framework
on the regulation of transport services; (c) DOTC
Memorandum dated October 8, 1992, laying down rules and
procedures to implement Department Order No. 92-587; (d)
LTFRB Memorandum Circular No. 92-009, providing
implementing guidelines on the DOTC Department Order No.
92-587; and (e) LTFRB Order dated March 24, 1994 in Case No.
94-3112.
The relevant antecedents are as follows:
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos,
issued Memorandum Circular No. 90-395 to then LTFRB
Chairman, Remedios A.S. Fernando allowing provincial bus
operators to charge passengers rates within a range of 15%
above and 15% below the LTFRB official rate for a period of
one (1) year. The text of the memorandum order reads in full:
One of the policy reforms and measures that is in line with the
thrusts and the priorities set out in the Medium-Term
Philippine Development Plan (MTPDP) 1987 — 1992) is the
liberalization of regulations in the transport sector. Along this
line, the Government intends to move away gradually from
regulatory policies and make progress towards greater
reliance on free market forces.
Based on several surveys and observations, bus companies are
already charging passenger rates above and below the official
fare declared by LTFRB on many provincial routes. It is in this
context that some form of liberalization on public transport
fares is to be tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately
publicize a fare range scheme for all provincial bus routes in
country (except those operating within Metro
Manila). Transport Operators shall be allowed to charge
passengers within a range of fifteen percent (15%) above and
fifteen percent (15%) below the LTFRB official rate for a period
of one year.
Guidelines and procedures for the said scheme shall be 4. In lieu of the said proposal, the DOTC with its agencies
prepared by LTFRB in coordination with the DOTC Planning involved in public transportation can consider measures and
Service. reforms in the industry that will be socially uplifting, especially
for the people in the areas devastated by the recent
The implementation of the said fare range scheme shall start
earthquake.
on 6 August 1990.
In view of the foregoing considerations, the undersigned
For compliance. (Emphasis ours.)
respectfully suggests that the implementation of the proposed
Finding the implementation of the fare range scheme "not fare range scheme this year be further studied and evaluated.
legally feasible," Remedios A.S. Fernando submitted the
On December 5, 1990, private respondent Provincial Bus
following memorandum to Oscar M. Orbos on July 24, 1990, to
Operators Association of the Philippines, Inc. (PBOAP) filed an
wit:
application for fare rate increase. An across-the-board
With reference to DOTC Memorandum Order No. 90-395 increase of eight and a half centavos (P0.085) per kilometer for
dated 26 June 1990 which the LTFRB received on 19 July 1990, all types of provincial buses with a minimum-maximum fare
directing the Board "to immediately publicize a fare range range of fifteen (15%) percent over and below the proposed
scheme for all provincial bus routes in the country (except basic per kilometer fare rate, with the said minimum-
those operating within Metro Manila)" that will allow maximum fare range applying only to ordinary, first class and
operators "to charge passengers within a range of fifteen premium class buses and a fifty-centavo (P0.50) minimum per
percent (15%) above and fifteen percent (15%) below the kilometer fare for aircon buses, was sought.
LTFRB official rate for a period of one year" the undersigned is
On December 6, 1990, private respondent PBOAP reduced its
respectfully adverting the Secretary's attention to the
applied proposed fare to an across-the-board increase of six
following for his consideration:
and a half (P0.065) centavos per kilometer for ordinary buses.
1. Section 16(c) of the Public Service Act prescribes the The decrease was due to the drop in the expected price of
following for the fixing and determination of rates — (a) the diesel.
rates to be approved should be proposed by public service
The application was opposed by the Philippine Consumers
operators; (b) there should be a publication and notice to
Foundation, Inc. and Perla C. Bautista alleging that the
concerned or affected parties in the territory affected; (c) a
proposed rates were exorbitant and unreasonable and that
public hearing should be held for the fixing of the rates; hence,
the application contained no allegation on the rate of return of
implementation of the proposed fare range scheme on August
the proposed increase in rates.
6 without complying with the requirements of the Public
Service Act may not be legally feasible. On December 14, 1990, public respondent LTFRB rendered a
decision granting the fare rate increase in accordance with the
2. To allow bus operators in the country to charge fares fifteen
following schedule of fares on a straight computation method,
(15%) above the present LTFRB fares in the wake of the
viz:
devastation, death and suffering caused by the July 16
earthquake will not be socially warranted and will be politically AUTHORIZED FARES
unsound; most likely public criticism against the DOTC and the
LUZON
LTFRB will be triggered by the untimely motu
MIN. OF 5 KMS. SUCCEEDING KM.
propioimplementation of the proposal by the mere expedient
of publicizing the fare range scheme without calling a public REGULAR P1.50 P0.37
hearing, which scheme many as early as during the Secretary's STUDENT P1.15 P0.28
predecessor know through newspaper reports and columnists'
comments to be Asian Development Bank and World Bank VISAYAS/MINDANAO
inspired.
REGULAR P1.60 P0.375
3. More than inducing a reduction in bus fares by fifteen STUDENT P1.20 P0.285
percent (15%) the implementation of the proposal will instead FIRST CLASS (PER KM.)
trigger an upward adjustment in bus fares by fifteen percent LUZON P0.385
(15%) at a time when hundreds of thousands of people in VISAYAS/
Central and Northern Luzon, particularly in Central MINDANAO P0.395
Pangasinan, La Union, Baguio City, Nueva Ecija, and the PREMIERE CLASS (PER KM.)
Cagayan Valley are suffering from the devastation and havoc LUZON P0.395
caused by the recent earthquake. VISAYAS/
MINDANAO P0.405
AIRCON (PER KM.) P0.415.4
On March 30, 1992, then Secretary of the Department of
Transportation and Communications Pete Nicomedes Prado
issued Department Order No.
92-587 defining the policy framework on the regulation of
transport services. The full text of the said order is reproduced
below in view of the importance of the provisions contained
therein:
WHEREAS, Executive Order No. 125 as amended, designates
the Department of Transportation and Communications
(DOTC) as the primary policy, planning, regulating and
implementing agency on transportation;
WHEREAS, to achieve the objective of a viable, efficient, and
dependable transportation system, the transportation
regulatory agencies under or attached to the DOTC have to
harmonize their decisions and adopt a common philosophy
and direction;
WHEREAS, the government proposes to build on the successful
liberalization measures pursued over the last five years and
bring the transport sector nearer to a balanced longer term
regulatory framework;
NOW, THEREFORE, pursuant to the powers granted by laws to
the DOTC, the following policies and principles in the economic
regulation of land, air, and water transportation services are
hereby adopted:
1. Entry into and exit out of the industry. Following the
Constitutional dictum against monopoly, no franchise holder
shall be permitted to maintain a monopoly on any route. A
minimum of two franchise holders shall be permitted to
operate on any route.
The requirements to grant a certificate to operate, or
certificate of public convenience, shall be: proof of Filipino
citizenship, financial capability, public need, and sufficient
insurance cover to protect the riding public.
In determining public need, the presumption of need for a
service shall be deemed in favor of the applicant. The burden
of proving that there is no need for a proposed service shall be
with the oppositor(s).
In the interest of providing efficient public transport services,
the use of the "prior operator" and the "priority of filing" rules
shall be discontinued. The route measured capacity test or
other similar tests of demand for vehicle/vessel fleet on any
route shall be used only as a guide in weighing the merits of
each franchise application and not as a limit to the services
offered.
Where there are limitations in facilities, such as congested
road space in urban areas, or at airports and ports, the use of
demand management measures in conformity with market
principles may be considered.
The right of an operator to leave the industry is recognized as
a business decision, subject only to the filing of appropriate
notice and following a phase-out period, to inform the public
and to minimize disruption of services.
2. Rate and Fare Setting. Freight rates shall be freed gradually
from government controls. Passenger fares shall also be
deregulated, except for the lowest class of passenger service
(normally third class passenger transport) for which the
government will fix indicative or reference fares. Operators of
particular services may fix their own fares within a range 15%
above and below the indicative or reference rate.
Where there is lack of effective competition for services, or on
specific routes, or for the transport of particular commodities,
maximum mandatory freight rates or passenger fares shall be
set temporarily by the government pending actions to increase
the level of competition.
For unserved or single operator routes, the government shall
contract such services in the most advantageous terms to the
public and the government, following public bids for the
services. The advisability of bidding out the services or using
other kinds of incentives on such routes shall be studied by the
government.
3. Special Incentives and Financing for Fleet Acquisition. As a
matter of policy, the government shall not engage in special
financing and incentive programs, including direct subsidies
for fleet acquisition and expansion. Only when the market
situation warrants government intervention shall programs of
this type be considered. Existing programs shall be phased out
gradually.
The Land Transportation Franchising and Regulatory Board,
the Civil Aeronautics Board, the Maritime Industry Authority
are hereby directed to submit to the Office of the Secretary,
within forty-five (45) days of this Order, the detailed rules and
procedures for the Implementation of the policies herein set
forth. In the formulation of such rules, the concerned agencies
shall be guided by the most recent studies on the subjects,
such as the Provincial Road Passenger Transport Study, the
Civil Aviation Master Plan, the Presidential Task Force on the
Inter-island Shipping Industry, and the Inter-island Liner
Shipping Rate Rationalization Study.
For the compliance of all concerned. (Emphasis ours)
On October 8, 1992, public respondent Secretary of the
Department of Transportation and Communications Jesus B.
Garcia, Jr. issued a memorandum to the Acting Chairman of
the LTFRB suggesting swift action on the adoption of rules and
procedures to implement above-quoted Department Order
No. 92-587 that laid down deregulation and other
liberalization policies for the transport sector. Attached to the
said memorandum was a revised draft of the required rules
and procedures covering (i) Entry Into and Exit Out of the
Industry and (ii) Rate and Fare Setting, with comments and
suggestions from the World Bank incorporated therein.
Likewise, resplendent from the said memorandum is the
statement of the DOTC Secretary that the adoption of the rules
and procedures is a pre-requisite to the approval of the
Economic Integration Loan from the World Bank.5
On February 17, 1993, the LTFRB issued Memorandum Circular
No. 92-009 promulgating the guidelines for the
implementation of DOTC Department Order No. 92-587. The
Circular provides, among others, the following challenged
portions:
xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public
Convenience.
The issuance of a Certificate of Public Convenience is
determined by public need. The presumption of public need for
a service shall be deemed in favor of the applicant, while
burden of proving that there is no need for the proposed service
shall be the oppositor'(s).
xxx xxx xxx
V. Rate and Fare Setting
The control in pricing shall be liberalized to introduce price
competition complementary with the quality of service,
subject to prior notice and public hearing. Fares shall not be
provisionally authorized without public hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus
15 per cent for provincial buses and jeepneys shall be widened
to 20% and -25% limit in 1994 with the authorized fare to be
replaced by an indicative or reference rate as the basis for the
expanded fare range.
2. Fare systems for aircon buses are liberalized to cover first
class and premier services.
xxx xxx xxx
(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing
itself of the deregulation policy of the DOTC allowing provincial
bus operators to collect plus 20% and minus 25% of the
prescribed fare without first having filed a petition for the
purpose and without the benefit of a public hearing,
announced a fare increase of twenty (20%) percent of the
existing fares. Said increased fares were to be made effective
on March 16, 1994.
On March 16, 1994, petitioner KMU filed a petition before the
LTFRB opposing the upward adjustment of bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders
dismissing the petition for lack of merit. The dispositive portion
reads:
PREMISES CONSIDERED, this Board after considering the
arguments of the parties, hereby DISMISSES FOR LACK OF
MERIT the petition filed in the above-entitled case. This
petition in this case was resolved with dispatch at the request
of petitioner to enable it to immediately avail of the legal
remedies or options it is entitled under existing laws.
SO ORDERED.6
Hence, the instant petition for certiorari with an urgent prayer
for issuance of a temporary restraining order.
The Court, on June 20, 1994, issued a temporary restraining
order enjoining, prohibiting and preventing respondents from
implementing the bus fare rate increase as well as the
questioned orders and memorandum circulars. This meant
that provincial bus fares were rolled back to the levels duly
authorized by the LTFRB prior to March 16, 1994. A
moratorium was likewise enforced on the issuance of
franchises for the operation of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the
authority given by respondent LTFRB to provincial bus
operators to set a fare range of plus or minus fifteen (15%)
percent, later increased to plus twenty (20%) and minus
twenty-five (-25%) percent, over and above the existing
authorized fare without having to file a petition for the
purpose, is unconstitutional, invalid and illegal. Second, the
establishment of a presumption of public need in favor of an
applicant for a proposed transport service without having to
prove public necessity, is illegal for being violative of the Public
Service Act and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually
touching upon the issues raised by the petitioner, questions
the wisdom and the manner by which the instant petition was
filed. It asserts that the petitioner has no legal standing to sue
or has no real interest in the case at bench and in obtaining the
reliefs prayed for.
In their Comment filed by the Office of the Solicitor General,
public respondents DOTC Secretary Jesus B. Garcia, Jr. and the
LTFRB asseverate that the petitioner does not have the
standing to maintain the instant suit. They further claim that it
is within DOTC and LTFRB's authority to set a fare range
scheme and establish a presumption of public need in
applications for certificates of public convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be
struck. Petitioner KMU has the standing to sue.
The requirement of locus standi inheres from the definition of
judicial power. Section 1 of Article VIII of the Constitution
provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to
settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or
not there has been a grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.
In Lamb v. Phipps,7 we ruled that judicial power is the power
to hear and decide causes pending between parties who have
the right to sue in the courts of law and equity. Corollary to this
provision is the principle of locus standi of a party litigant. One
who is directly affected by and whose interest is immediate
and substantial in the controversy has the standing to sue. The
rule therefore requires that a party must show a personal
stake in the outcome of the case or an injury to himself that
can be redressed by a favorable decision so as to warrant an
invocation of the court's jurisdiction and to justify the exercise
of the court's remedial powers in his behalf. 8
In the case at bench, petitioner, whose members had suffered
and continue to suffer grave and irreparable injury and
damage from the implementation of the questioned
memoranda, circulars and/or orders, has shown that it has a
clear legal right that was violated and continues to be violated
with the enforcement of the challenged memoranda, circulars
and/or orders. KMU members, who avail of the use of buses,
trains and jeepneys everyday, are directly affected by the
burdensome cost of arbitrary increase in passenger fares. They
are part of the millions of commuters who comprise the riding
public. Certainly, their rights must be protected, not neglected
nor ignored.
Assuming arguendo that petitioner is not possessed of the
standing to sue, this court is ready to brush aside this barren
procedural infirmity and recognize the legal standing of the
petitioner in view of the transcendental importance of the
issues raised. And this act of liberality is not without judicial
precedent. As early as the Emergency Powers Cases, this Court
had exercised its discretion and waived the requirement of
proper party. In the recent case of Kilosbayan, Inc., et al. v.
Teofisto Guingona, Jr., et al.,9 we ruled in the same lines and
enumerated some of the cases where the same policy was
adopted, viz:
. . . A party's standing before this Court is a procedural
technicality which it may, in the exercise of its discretion, set
aside in view of the importance of the issues raised. In the
landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta
v. Dinglasan); G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de
Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of
Customs); and G.R. No. L-3056 (Barredo v. Commission on
Elections), 84 Phil. 368 (1949)], this Court brushed aside this
technicality because "the transcendental importance to the
public of these cases demands that they be settled promptly
and definitely, brushing aside, if we must, technicalities of
procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as
taxpayers' suits are concerned, this Court had declared that it
"is not devoid of discretion as to whether or not it should be
entertained," (Tan v. Macapagal, 43 SCRA 677, 680 [1972]) or
that it "enjoys an open discretion to entertain the same or
not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].
xxx xxx xxx
In line with the liberal policy of this Court on locus standi,
ordinary taxpayers, members of Congress, and even
association of planters, and
non-profit civic organizations were allowed to initiate and
prosecute actions before this court to question the
constitutionality or validity of laws, acts, decisions, rulings, or
orders of various government agencies or instrumentalities.
Among such cases were those assailing the constitutionality of
(a) R.A. No. 3836 insofar as it allows retirement gratuity and
commutation of vacation and sick leave to Senators and
Representatives and to elective officials of both Houses of
Congress (Philippine Constitution Association, Inc. v. Gimenez,
15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by
President Corazon C. Aquino on 25 July 1987, which allowed
members of the cabinet, their undersecretaries, and assistant
secretaries to hold other government offices or positions (Civil
Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]);
(c) the automatic appropriation for debt service in the General
Appropriations Act (Guingona v. Carague, 196 SCRA 221
[1991]; (d) R.A. No. 7056 on the holding of desynchronized
elections (Osmeña v. Commission on Elections, 199 SCRA 750
[1991]); (e) P.D. No. 1869 (the charter of the Philippine
Amusement and Gaming Corporation) on the ground that it is
contrary to morals, public policy, and order (Basco v. Philippine
Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f)
R.A. No. 6975, establishing the Philippine National Police.
(Carpio v. Executive Secretary, 206 SCRA 290 [1992]).
Other cases where we have followed a liberal policy
regarding locus standi include those attacking the validity or
legality of (a) an order allowing the importation of rice in the
light of the prohibition imposed by R.A. No. 3452 (Iloilo Palay
and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377
[1965]; (b) P.D. Nos. 991 and 1033 insofar as they proposed
amendments to the Constitution and P.D. No. 1031 insofar as
it directed the COMELEC to supervise, control, hold, and
conduct the referendum-plebiscite on 16 October 1976
(Sanidad v. Commission on Elections, supra); (c) the bidding for
the sale of the 3,179 square meters of land at Roppongi,
Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797
[1990]); (d) the approval without hearing by the Board of
Investments of the amended application of the Bataan
Petrochemical Corporation to transfer the site of its plant from
Bataan to Batangas and the validity of such transfer and the
shift of feedstock from naphtha only to naphtha and/or
liquefied petroleum gas (Garcia v. Board of Investments, 177
SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288
[1990]); (e) the decisions, orders, rulings, and resolutions of
the Executive Secretary, Secretary of Finance, Commissioner
of Internal Revenue, Commissioner of Customs, and the Fiscal
Incentives Review Board exempting the National Power
Corporation from indirect tax and duties (Maceda v. Macaraig,
197 SCRA 771 [1991]); (f) the orders of the Energy Regulatory
Board of 5 and 6 December 1990 on the ground that the
hearings conducted on the second provisional increase in oil
prices did not allow the petitioner substantial cross-
examination; (Maceda v. Energy Regulatory Board, 199 SCRA
454 [1991]); (g) Executive Order No. 478 which levied a special
duty of P0.95 per liter of imported oil products (Garcia v.
Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of
the Commission on Elections concerning the apportionment,
by district, of the number of elective members of Sanggunians
(De Guia vs. Commission on Elections, 208 SCRA 420 [1992]);
and (i) memorandum orders issued by a Mayor affecting the
Chief of Police of Pasay City (Pasay Law and Conscience Union,
Inc. v. Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections (62
SCRA 275 [1975]), this Court, despite its unequivocal ruling
that the petitioners therein had no personality to file the
petition, resolved nevertheless to pass upon the issues raised
because of the far-reaching implications of the petition. We
did no less in De Guia v. COMELEC (Supra) where, although we
declared that De Guia "does not appear to have locus standi, a
standing in law, a personal or substantial interest," we brushed
aside the procedural infirmity "considering the importance of
the issue involved, concerning as it does the political exercise
of qualified voters affected by the apportionment, and
petitioner alleging abuse of discretion and violation of the
Constitution by respondent."
Now on the merits of the case.
On the fare range scheme.
Section 16(c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and
hearing. — The Commission shall have power, upon proper
notice and hearing in accordance with the rules and provisions
of this Act, subject to the limitations and exceptions
mentioned and saving provisions to the contrary:
xxx xxx xxx
(c) To fix and determine individual or joint rates, tolls, charges,
classifications, or schedules thereof, as well as commutation,
mileage kilometrage, and other special rates which shall be
imposed, observed, and followed thereafter by any public
service: Provided, That the Commission may, in its discretion,
approve rates proposed by public services provisionally and
without necessity of any hearing; but it shall call a hearing
thereon within thirty days thereafter, upon publication and
notice to the concerns operating in the territory
affected: Provided, further, That in case the public service
equipment of an operator is used principally or secondarily for
the promotion of a private business, the net profits of said
private business shall be considered in relation with the public
service of such operator for the purpose of fixing the rates.
(Emphasis ours).
xxx xxx xxx
Under the foregoing provision, the Legislature delegated to
the defunct Public Service Commission the power of fixing the
rates of public services. Respondent LTFRB, the existing
regulatory body today, is likewise vested with the same under
Executive Order No. 202 dated June 19, 1987. Section 5(c) of
the said executive order authorizes LTFRB "to determine,
prescribe, approve and periodically review and adjust,
reasonable fares, rates and other related charges, relative to
the operation of public land transportation services provided
by motorized vehicles."
Such delegation of legislative power to an administrative
agency is permitted in order to adapt to the increasing
complexity of modern life. As subjects for governmental
regulation multiply, so does the difficulty of administering the
laws. Hence, specialization even in legislation has become
necessary. Given the task of determining sensitive and delicate
matters as
route-fixing and rate-making for the transport sector, the
responsible regulatory body is entrusted with the power of
subordinate legislation. With this authority, an administrative
body and in this case, the LTFRB, may implement broad
policies laid down in a statute by "filling in" the details which
the Legislature may neither have time or competence to
provide. However, nowhere under the aforesaid provisions of
law are the regulatory bodies, the PSC and LTFRB alike,
authorized to delegate that power to a common carrier, a
transport operator, or other public service.
In the case at bench, the authority given by the LTFRB to the
provincial bus operators to set a fare range over and above the
authorized existing fare, is illegal and invalid as it is tantamount
to an undue delegation of legislative authority. Potestas
delegata non delegari potest. What has been delegated cannot
be delegated. This doctrine is based on the ethical principle
that such a delegated power constitutes not only a right but a
duty to be performed by the delegate through the
instrumentality of his own judgment and not through the
intervening mind of another.10 A further delegation of such
power would indeed constitute a negation of the duty in
violation of the trust reposed in the delegate mandated to
discharge it directly.11 The policy of allowing the provincial bus
operators to change and increase their fares at will would
result not only to a chaotic situation but to an anarchic state
of affairs. This would leave the riding public at the mercy of
transport operators who may increase fares every hour, every
day, every month or every year, whenever it pleases them or
whenever they deem it "necessary" to do so. In Panay Autobus
Co. v. Philippine Railway Co.,12 where respondent Philippine
Railway Co. was granted by the Public Service Commission the
authority to change its freight rates at will, this Court
categorically declared that:
In our opinion, the Public Service Commission was not
authorized by law to delegate to the Philippine Railway Co. the
power of altering its freight rates whenever it should find it
necessary to do so in order to meet the competition of road
trucks and autobuses, or to change its freight rates at will, or
to regard its present rates as maximum rates, and to fix lower
rates whenever in the opinion of the Philippine Railway Co. it
would be to its advantage to do so.
The mere recital of the language of the application of the
Philippine Railway Co. is enough to show that it is
untenable. The Legislature has delegated to the Public Service
Commission the power of fixing the rates of public services, but
it has not authorized the Public Service Commission to delegate
that power to a common carrier or other public service. The
rates of public services like the Philippine Railway Co. have
been approved or fixed by the Public Service Commission, and
any change in such rates must be authorized or approved by
the Public Service Commission after they have been shown to
be just and reasonable. The public service may, of course,
propose new rates, as the Philippine Railway Co. did in case
No. 31827, but it cannot lawfully make said new rates effective
without the approval of the Public Service Commission, and
the Public Service Commission itself cannot authorize a public
service to enforce new rates without the prior approval of said
rates by the commission. The commission must approve new
rates when they are submitted to it, if the evidence shows
them to be just and reasonable, otherwise it must disapprove
them. Clearly, the commission cannot determine in advance
whether or not the new rates of the Philippine Railway Co. will
be just and reasonable, because it does not know what those
rates will be.
In the present case the Philippine Railway Co. in effect asked
for permission to change its freight rates at will. It may change
them every day or every hour, whenever it deems it necessary
to do so in order to meet competition or whenever in its
opinion it would be to its advantage. Such a procedure would
create a most unsatisfactory state of affairs and largely defeat
the purposes of the public service law.13(Emphasis ours).
One veritable consequence of the deregulation of transport
fares is a compounded fare. If transport operators will be
authorized to impose and collect an additional amount
equivalent to 20% over and above the authorized fare over a
period of time, this will unduly prejudice a commuter who will
be made to pay a fare that has been computed in a manner
similar to those of compounded bank interest rates.
Picture this situation. On December 14, 1990, the LTFRB
authorized provincial bus operators to collect a thirty-seven
(P0.37) centavo per kilometer fare for ordinary buses. At the
same time, they were allowed to impose and collect a fare
range of plus or minus 15% over the authorized rate. Thus
P0.37 centavo per kilometer authorized fare plus P0.05
centavos (which is 15% of P0.37 centavos) is equivalent to
P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB
grants another five (P0.05) centavo increase per kilometer in
1994, then, the base or reference for computation would have
to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus
operators will exercise their authority to impose an additional
20% over and above the authorized fare, then the fare to be
collected shall amount to P0.56 (that is, P0.47 authorized
LTFRB rate plus 20% of P0.47 which is P0.29). In effect,
commuters will be continuously subjected, not only to a
double fare adjustment but to a compounding fare as well. On
their part, transport operators shall enjoy a bigger chunk of the
pie. Aside from fare increase applied for, they can still collect
an additional amount by virtue of the authorized fare range.
Mathematically, the situation translates into the following:
Year** LTFRB authorized Fare Range Fare to be
rate*** collected per
kilometer
1990 P0.37 15% (P0.05) P0.42
1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94
Moreover, rate making or rate fixing is not an easy task. It is a
delicate and sensitive government function that requires
dexterity of judgment and sound discretion with the settled
goal of arriving at a just and reasonable rate acceptable to both
the public utility and the public. Several factors, in fact, have
to be taken into consideration before a balance could be
achieved. A rate should not be confiscatory as would place an
operator in a situation where he will continue to operate at a
loss. Hence, the rate should enable public utilities to generate
revenues sufficient to cover operational costs and provide
reasonable return on the investments. On the other hand, a
rate which is too high becomes discriminatory. It is contrary to
public interest. A rate, therefore, must be reasonable and fair
and must be affordable to the end user who will utilize the
services.
Given the complexity of the nature of the function of rate-
fixing and its far-reaching effects on millions of commuters,
government must not relinquish this important function in
favor of those who would benefit and profit from the industry.
Neither should the requisite notice and hearing be done away
with. The people, represented by reputable oppositors,
deserve to be given full opportunity to be heard in their
opposition to any fare increase.
The present administrative procedure, 14 to our mind, already
mirrors an orderly and satisfactory arrangement for all parties
involved. To do away with such a procedure and allow just one
party, an interested party at that, to determine what the rate
should be, will undermine the right of the other parties to due
process. The purpose of a hearing is precisely to determine
what a just and reasonable rate is. 15 Discarding such
procedural and constitutional right is certainly inimical to our
fundamental law and to public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization
granted by the LTFRB for the operation of land transportation
services for public use as required by law. Pursuant to Section
16(a) of the Public Service Act, as amended, the following
requirements must be met before a CPC may be granted, to
wit: (i) the applicant must be a citizen of the Philippines, or a
corporation or co-partnership, association or joint-stock
company constituted and organized under the laws of the
Philippines, at least 60 per centum of its stock or paid-up
capital must belong entirely to citizens of the Philippines; (ii)
the applicant must be financially capable of undertaking the
proposed service and meeting the responsibilities incident to
its operation; and (iii) the applicant must prove that the
operation of the public service proposed and the authorization
to do business will promote the public interest in a proper and
suitable manner. It is understood that there must be proper
notice and hearing before the PSC can exercise its power to
issue a CPC.
While adopting in toto the foregoing requisites for the
issuance of a CPC, LTFRB Memorandum Circular No. 92-009,
Part IV, provides for yet incongruous and contradictory policy
guideline on the issuance of a CPC. The guidelines states:
The issuance of a Certificate of Public Convenience is
determined by public need. The presumption of public need for
a service shall be deemed in favor of the applicant, while the
burden of proving that there is no need for the proposed service
shall be the oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and
inconsistent with Section 16(c)(iii) of the Public Service Act
which requires that before a CPC will be issued, the applicant
must prove by proper notice and hearing that the operation of
the public service proposed will promote public interest in a
proper and suitable manner. On the contrary, the policy
guideline states that the presumption of public need for a
public service shall be deemed in favor of the applicant. In case
of conflict between a statute and an administrative order, the
former must prevail.
By its terms, public convenience or necessity generally means
something fitting or suited to the public need.16 As one of the
basic requirements for the grant of a CPC, public convenience
and necessity exists when the proposed facility or service
meets a reasonable want of the public and supply a need which
the existing facilities do not adequately supply. The existence
or
non-existence of public convenience and necessity is therefore
a question of fact that must be established by evidence, real
and/or testimonial; empirical data; statistics and such other
means necessary, in a public hearing conducted for that
purpose. The object and purpose of such procedure, among
other things, is to look out for, and protect, the interests of
both the public and the existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded
on the condition that after full-dress hearing and investigation,
it shall find, as a fact, that the proposed operation is for the
convenience of the public.17 Basic convenience is the primary
consideration for which a CPC is issued, and that fact alone
must be consistently borne in mind. Also, existing operators in
subject routes must be given an opportunity to offer proof and
oppose the application. Therefore, an applicant must, at all
times, be required to prove his capacity and capability to
furnish the service which he has undertaken to
render. 18 And all this will be possible only if a public hearing
were conducted for that purpose.
Otherwise stated, the establishment of public need in favor of
an applicant reverses well-settled and institutionalized judicial,
quasi-judicial and administrative procedures. It allows the
party who initiates the proceedings to prove, by mere
application, his affirmative allegations. Moreover, the
offending provisions of the LTFRB memorandum circular in
question would in effect amend the Rules of Court by adding
another disputable presumption in the enumeration of 37
presumptions under Rule 131, Section 5 of the Rules of Court.
Such usurpation of this Court's authority cannot be
countenanced as only this Court is mandated by law to
promulgate rules concerning pleading, practice and
procedure. 19
Deregulation, while it may be ideal in certain situations, may
not be ideal at all in our country given the present
circumstances. Advocacy of liberalized franchising and
regulatory process is tantamount to an abdication by the
government of its inherent right to exercise police power, that
is, the right of government to regulate public utilities for
protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB
to issue administrative orders to regulate the transport sector,
we find that they committed grave abuse of discretion in
issuing DOTC Department Order
No. 92-587 defining the policy framework on the regulation of
transport services and LTFRB Memorandum Circular No. 92-
009 promulgating the implementing guidelines on DOTC
Department Order No. 92-587, the said administrative
issuances being amendatory and violative of the Public Service
Act and the Rules of Court. Consequently, we rule that the
twenty (20%) per centum fare increase imposed by
respondent PBOAP on March 16, 1994 without the benefit of
a petition and a public hearing is null and void and of no force
and effect. No grave abuse of discretion however was
committed in the issuance of DOTC Memorandum Order No.
90-395 and DOTC Memorandum dated October 8, 1992, the
same being merely internal communications between
administrative officers.

WHEREFORE, in view of the foregoing, the instant petition is

hereby GRANTED and the challenged administrative issuances
and orders, namely: DOTC Department Order No. 92-587,
LTFRB Memorandum Circular
No. 92-009, and the order dated March 24, 1994 issued by
respondent LTFRB are hereby DECLARED contrary to law and
invalid insofar as they affect provisions therein (a) delegating
to provincial bus and jeepney operators the authority to
increase or decrease the duly prescribed transportation fares;
and (b) creating a presumption of public need for a service in
favor of the applicant for a certificate of public convenience
and placing the burden of proving that there is no need for the
proposed service to the oppositor.

The Temporary Restraining Order issued on June 20, 1994 is

hereby MADE PERMANENT insofar as it enjoined the bus fare
rate increase granted under the provisions of the
aforementioned administrative circulars, memoranda and/or
orders declared invalid.

No pronouncement as to costs.

SO ORDERED.
G.R. No. 162272 April 7, 2009
SANTIAGO C. DIVINAGRACIA, Petitioner,
vs.
CONSOLIDATED BROADCASTING SYSTEM, INC. and PEOPLE'S
BROADCASTING SERVICE, INC.,Respondents.
DECISION
TINGA, J.:
Does the National Telecommunications Commission (NTC)
have jurisdiction over complaints seeking the cancellation of
certificates of public convenience (CPCs) and other licenses it
had issued to the holders of duly-issued legislative franchises
on the ground that the franchisees had violated the terms of
their franchises? The Court, in resolving that question, takes
the opportunity to elaborate on the dynamic behind the
regulation of broadcast media in the Philippines, particularly
the interrelationship between the twin franchise and licensing
requirements.
I.
Respondents Consolidated Broadcasting System, Inc. (CBS)
and People’s Broadcasting Service, Inc. (PBS) were
incorporated in 1961 and 1965, respectively. Both are involved
in the operation of radio broadcasting services in the
Philippines, they being the grantees of legislative franchises by
virtue of two laws, Republic Act (R.A.) No. 7477 and R.A. No.
7582. R.A. No. 7477, enacted on 5 May 1992, granted PBS a
legislative franchise to construct, install, maintain and operate
radio and television stations within the Philippines for a period
of 25 years. R.A. No. 7582, enacted on 27 May 1992, extended
CBS’s previous legislative franchise1 to operate radio stations
for another 25 years. The CBS and PBS radio networks are two
of the three networks that comprise the well-known "Bombo
Radyo Philippines."2
Section 9 of R.A. No. 7477 and Section 3 of R.A. No. 7582
contain a common provision predicated on the "constitutional
mandate to democratize ownership of public utilities." 3 The
common provision states:
SEC. 9. Democratization of ownership.― In compliance with
the constitutional mandate to democratize ownership of
public utilities, the herein grantee shall make public offering
through the stock exchanges of at least thirty percent (30%) of
its common stocks within a period of three (3) years from the
date of effectivity of this Act: Provided, That no single person
or entity shall be allowed to own more than five percent (5%)
of the stock offerings.4
It further appears that following the enactment of these
franchise laws, the NTC issued four (4) Provisional Authorities
to PBS and six (6) Provisional Authorities to CBS, allowing them
to install, operate and maintain various AM and FM broadcast
stations in various locations throughout the nation. 5 These
Provisional Authorities were issued between 1993 to 1998, or
after the enactment of R.A. No. 7477 and R.A. No. 7582.
Petitioner Santiago C. Divinagracia6 filed two complaints both
dated 1 March 1999 with the NTC, respectively lodged against
PBS7 and CBS.8 He alleged that he was "the actual and
beneficial owner of Twelve percent (12%) of the shares of
stock" of PBS and CBS separately,9 and that despite the
provisions in R.A. No. 7477 and R.A. No. 7582 mandating the
public offering of at least 30% of the common stocks of PBS
and CBS, both entities had failed to make such offering. Thus,
Divinagracia commonly argued in his complaints that the
failure on the part of PBS and CBS "to comply with the mandate
of their legislative franchise is a misuse of the franchise
conferred upon it by law and it continues to exercise its
franchise in contravention of the law to the detriment of the
general public and of complainant who are unable to enjoy the
benefits being offered by a publicly listed company."10 He thus
prayed for the cancellation of all the Provisional Authorities or
CPCs of PBS and CBS on account of the alleged violation of the
conditions set therein, as well as in its legislative franchises.11
On 1 August 2000, the NTC issued a consolidated decision
dismissing both complaints.12 While the NTC posited that it
had full jurisdiction to revoke or cancel a Provisional Authority
or CPC for violations or infractions of the terms and conditions
embodied therein,13 it held that the complaints actually
constituted collateral attacks on the legislative franchises of
PBS and CBS since the sole issue for determination was
whether the franchisees had violated the mandate to
democratize ownership in their respective legislative
franchises. The NTC ruled that it was not competent to render
a ruling on that issue, the same being more properly the
subject of an action for quo warranto to be commenced by the
Solicitor General in the name of the Republic of the Philippines,
pursuant to Rule 66 of the Rules of Court.14
After the NTC had denied Divinagracia’s motion for
reconsideration,15 he filed a petition for review under Rule 43
of the Rules of Court with the Court of Appeals.16 On 18
February 2004, the Court of Appeals rendered a
decision17upholding the NTC. The appellate court agreed with
the earlier conclusion that the complaints were indeed a
collateral attack on the legislative franchises of CBS and PBS
and that a quo warranto action was the proper mode to thresh
out the issues raised in the complaints.
Hence this petition, which submits as the principal issue,
whether the NTC, with its retinue of regulatory powers, is
powerless to cancel Provisional Authorities and Certificates of
Public Convenience it issued to legislative franchise-holders.
That central issue devolves into several narrower arguments,
some of which hinge on the authority of the NTC to cancel the
very Provisional Authorities and CPCs which it is empowered
to issue, as distinguished from the legislative franchise itself,
the cancellation of which Divinagracia points out was not the
relief he had sought from the NTC. Questions are raised as to
whether the complaints did actually constitute a collateral
attack on the legislative franchises.
Yet this case ultimately rests to a large degree on
fundamentals. Divinagracia’s case rotates on the singular
thesis that the NTC has the power to cancel Provisional
Authorities and CPCs, or in effect, the power to cancel the
licenses that allow broadcast stations to operate. The NTC, in
its assailed Decision, expressly admits that it has such power
even as it refrained from exercising the same. 18 The Court has
yet to engage in a deep inquiry into the question of whether
the NTC has the power to cancel the operating licenses of
entities to whom Congress has issued franchises to operate
broadcast stations, especially on account of an alleged
violation of the terms of their franchises. This is the opportune
time to examine the issue.
II.
To fully understand the scope and dimensions of the
regulatory realm of the NTC, it is essential to review the legal
background of the regulation process. As operative fact, any
person or enterprise which wishes to operate a broadcast
radio or television station in the Philippines has to secure a
legislative franchise in the form of a law passed by Congress,
and thereafter a license to operate from the NTC.
The franchise requirement traces its genesis to Act No. 3846,
otherwise known as the Radio Control Act, enacted in
1931.19 Section 1 thereof provided that "[n]o person, firm,
company, association or corporation shall construct, install,
establish, or operate x x x a radio broadcasting station, without
having first obtained a franchise therefor from the National
Assembly x x x"20 Section 2 of the law prohibited the
construction or installation of any station without a permit
granted by the Secretary of Public Works and Communication,
and the operation of such station without a license issued by
the same Department Secretary.21 The law likewise
empowered the Secretary of Public Works and Communication
"to regulate the establishment, use, and operation of all radio
stations and of all forms of radio communications and
transmissions within the Philippine Islands and to issue such
rules and regulations as may be necessary."22
Noticeably, our Radio Control Act was enacted a few years
after the United States Congress had passed the Radio Act of
1927. American broadcasters themselves had asked their
Congress to step in and regulate the radio industry, which was
then in its infancy. The absence of government regulation in
that market had led to the emergence of hundreds of radio
broadcasting stations, each using frequencies of their choice
and changing frequencies at will, leading to literal chaos on the
airwaves. It was the Radio Act of 1927 which introduced a
licensing requirement for American broadcast stations, to be
overseen eventually by the Federal Communications
Commission (FCC).23
This pre-regulation history of radio broadcast stations
illustrates the continuing necessity of a government role in
overseeing the broadcast media industry, as opposed to other
industries such as print media and the Internet.24Without
regulation, the result would be a free-for-all market with rival
broadcasters able with impunity to sabotage the use by others
of the airwaves.25 Moreover, the airwaves themselves the very
medium utilized by broadcast―are by their very nature not
susceptible to appropriation, much less be the object of any
claim of private or exclusive ownership. No private individual
or enterprise has the physical means, acting alone to actualize
exclusive ownership and use of a particular frequency. That
end, desirable as it is among broadcasters, can only be
accomplished if the industry itself is subjected to a regime of
government regulation whereby broadcasters receive
entitlement to exclusive use of their respective or particular
frequencies, with the State correspondingly able by force of
law to confine all broadcasters to the use of the frequencies
assigned to them.
Still, the dominant jurisprudential rationale for state
regulation of broadcast media is more sophisticated than a
mere recognition of a need for the orderly administration of
the airwaves. After all, a united broadcast industry can
theoretically achieve that goal through determined self-
regulation. The key basis for regulation is rooted in empiricism
– "that broadcast frequencies are a scarce resource whose use
could be regulated and rationalized only by the Government."
This concept was first introduced in jurisprudence in the U.S.
case of Red Lion v. Federal Communications Commission.26
Red Lion enunciated the most comprehensive statement of
the necessity of government oversight over broadcast media.
The U.S. Supreme Court observed that within years from the
introduction of radio broadcasting in the United States, "it
became apparent that broadcast frequencies constituted a
scarce resource whose use could be regulated and rationalized
only by the Government… without government control, the
medium would be of little use because of the cacophony of
competing voices, none of which could be clearly and
predictably heard." The difficulties posed by spectrum scarcity
was concretized by the U.S. High Court in this manner:
Scarcity is not entirely a thing of the past. Advances in
technology, such as microwave transmission, have led to more
efficient utilization of the frequency spectrum, but uses for
that spectrum have also grown apace. Portions of the
spectrum must be reserved for vital uses unconnected with
human communication, such as radio-navigational aids used
by aircraft and vessels. Conflicts have even emerged between
such vital functions as defense preparedness and
experimentation in methods of averting midair collisions
through radio warning devices. "Land mobile services" such as
police, ambulance, fire department, public utility, and other
communications systems have been occupying an increasingly
crowded portion of the frequency spectrum and there are,
apart from licensed amateur radio operators' equipment,
5,000,000 transmitters operated on the "citizens' band" which
is also increasingly congested. Among the various uses for
radio frequency space, including marine, aviation, amateur,
military, and common carrier users, there are easily enough
claimants to permit use of the whole with an even smaller
allocation to broadcast radio and television uses than now
exists.(citations omitted)27
After interrelating the premise of scarcity of resources with the
First Amendment rights of broadcasters, Red Lion concluded
that government regulation of broadcast media was a
necessity:
Where there are substantially more individuals who want to
broadcast than there are frequencies to allocate, it is idle to
posit an unabridgeable First Amendment right to broadcast
comparable to the right of every individual to speak, write, or
publish. If 100 persons want broadcast [395 U.S. 367, 389]
licenses but there are only 10 frequencies to allocate, all of
them may have the same "right" to a license; but if there is to
be any effective communication by radio, only a few can be
licensed and the rest must be barred from the airwaves. It
would be strange if the First Amendment, aimed at protecting
and furthering communications, prevented the Government
from making radio communication possible by requiring
licenses to broadcast and by limiting the number of licenses so
as not to overcrowd the spectrum.
This has been the consistent view of the Court. Congress
unquestionably has the power to grant and deny licenses and
to eliminate existing stations. No one has a First Amendment
right to a license or to monopolize a radio frequency; to deny
a station license because "the public interest" requires it "is
not a denial of free speech."
By the same token, as far as the First Amendment is concerned
those who are licensed stand no better than those to whom
licenses are refused. A license permits broadcasting, but the
licensee has no constitutional right to be the one who holds
the license or to monopolize a radio frequency to the exclusion
of his fellow citizens. There is nothing in the First Amendment
which prevents the Government from requiring a licensee to
share his frequency with others and to conduct himself as a
proxy or fiduciary with obligations to present those views and
voices which are representative of his community and which
would otherwise, by necessity, be barred from the airwaves.28
xxxx
Rather than confer frequency monopolies on a relatively small
number of licensees, in a Nation of 200,000,000, the
Government could surely have decreed that each frequency
should be shared among all or some of those who wish to use
it, each being assigned a portion of the broadcast day or the
broadcast week. The ruling and regulations at issue here do
not go quite so far. They assert that under specified
circumstances, a licensee must offer to make available a
reasonable amount of broadcast time to those who have a
view different from that which has already been expressed on
his station. The expression of a political endorsement, or of a
personal attack while dealing with a controversial public issue,
simply triggers this time sharing. As we have said, the First
Amendment confers no right on licensees to prevent others
from broadcasting on "their" frequencies and no right to an
unconditional monopoly of a scarce resource which the
Government has denied others the right to use.
In terms of constitutional principle, and as enforced sharing of
a scarce resource, the personal attack and political editorial
rules are indistinguishable from the equal-time provision of
§315, a specific enactment of Congress requiring stations to
set aside reply time under specified circumstances and to
which the fairness doctrine and these constituent regulations
are important complements. That provision, which has been
part of the law since 1927, Radio Act of 1927, §18, 44 Stat.
1170, has been held valid by this Court as an obligation of the
licensee relieving him of any power in any way to prevent or
censor the broadcast, and thus insulating him from liability for
defamation. The constitutionality of the statute under the First
Amendment was unquestioned.(citations omitted)29
As made clear in Red Lion, the scarcity of radio frequencies
made it necessary for the government to step in and allocate
frequencies to competing broadcasters. In undertaking that
function, the government is impelled to adjudge which of the
competing applicants are worthy of frequency allocation. It is
through that role that it becomes legally viable for the
government to impose its own values and goals through a
regulatory regime that extends beyond the assignation of
frequencies, notwithstanding the free expression guarantees
enjoyed by broadcasters. As the government is put in a
position to determine who should be worthy to be accorded
the privilege to broadcast from a finite and limited spectrum,
it may impose regulations to see to it that broadcasters
promote the public good deemed important by the State, and
to withdraw that privilege from those who fall short of the
standards set in favor of other worthy applicants.
Such conditions are peculiar to broadcast media because of
the scarcity of the airwaves. Indeed, any attempt to impose
such a regulatory regime on a medium that is not belabored
under similar physical conditions, such as print media, will be
clearly antithetical to democratic values and the free
expression clause. This Court, which has adopted the "scarcity
of resources" doctrine in cases such as Telecom. & Broadcast
Attys. of the Phils., Inc. v. COMELEC,30 emphasized the
distinction citing Red Lion:
Petitioners complain that B.P. Blg. 881, §92 singles out radio
and television stations to provide free air time. They contend
that newspapers and magazines are not similarly required as,
in fact, in Philippine Press Institute v. COMELEC we upheld
their right to the payment of just compensation for the print
space they may provide under §90.
The argument will not bear analysis. It rests on the fallacy that
broadcast media are entitled to the same treatment under the
free speech guarantee of the Constitution as the print media.
There are important differences in the characteristics of the
two media, however, which justify their differential treatment
for free speech purposes. Because of the physical limitations
of the broadcast spectrum, the government must, of necessity,
allocate broadcast frequencies to those wishing to use them.
There is no similar justification for government allocation and
regulation of the print media.
In the allocation of limited resources, relevant conditions may
validly be imposed on the grantees or licensees. The reason for
this is that, as already noted, the government spends public
funds for the allocation and regulation of the broadcast
industry, which it does not do in the case of the print media.
To require the radio and television broadcast industry to
provide free air time for the COMELEC Time is a fair exchange
for what the industry gets.31
Other rationales may have emerged as well validating state
regulation of broadcast media,32 but the reality of scarce
airwaves remains the primary, indisputable and indispensable
justification for the government regulatory role. The
integration of the scarcity doctrine into the jurisprudence on
broadcast media illustrates how the libertarian ideal of the
free expression clause may be tempered and balanced by
actualities in the real world while preserving the core essence
of the constitutional guarantee. Indeed, without government
regulation of the broadcast spectrum, the ability of
broadcasters to clearly express their views would be inhibited
by the anarchy of competition. Since the airwaves themselves
are not susceptible to physical appropriation and private
ownership, it is but indispensable that the government step in
as the guardian of the spectrum.
Reference to the scarcity doctrine is necessary to gain a full
understanding of the paradigm that governs the state
regulation of broadcast media. That paradigm, as it exists in
the United States, is contextually similar to our own, except in
one very crucial regard – the dual franchise/license
requirements we impose.
III.
Recall that the Radio Control Act specifically required the
obtention of a legislative franchise for the operation of a radio
station in the Philippines. When the Public Service Act was
enacted in 1936, the Public Service Commission (PSC) was
vested with jurisdiction over "public services," including over
"wire or wireless broadcasting stations."33However, among
those specifically exempted from the regulatory reach of the
PSC were "radio companies, except with respect to the fixing
of rates."34 Thus, following the Radio Control Act, the
administrative regulation of "radio companies" remained with
the Secretary of Public Works and Communications. It appears
that despite the advent of commercial television in the 1950s,
no corresponding amendment to either the Radio Control Act
or the Public Service Act was passed to reflect that new
technology then.
Shortly after the 1972 declaration of martial law, President
Marcos issued Presidential Decree (P.D.) No. 1, which allocated
to the Board of Communications the authority to issue CPCs
for the operation of radio and television broadcasting systems
and to grant permits for the use of radio frequencies for such
broadcasting systems. In 1974, President Marcos promulgated
Presidential Decree No. 576-A, entitled "Regulating the
Ownership and Operation of Radio and Television Stations and
for other Purposes." Section 6 of that law reads:
Section 6. All franchises, grants, licenses, permits, certificates
or other forms of authority to operate radio or television
broadcasting systems shall terminate on December 31, 1981.
Thereafter, irrespective of any franchise, grants, license,
permit, certificate or other forms of authority to operate
granted by any office, agency or person, no radio or television
station shall be authorized to operated without the authority
of the Board of Communications and the Secretary of Public
Works and Communications or their successors who have the
right and authority to assign to qualified parties frequencies,
channels or other means of identifying broadcasting
systems; Provided, however, that any conflict over, or
disagreement with a decision of the aforementioned
authorities may be appealed finally to the Office of the
President within fifteen days from the date the decision is
received by the party in interest.
A few years later, President Marcos promulgated Executive
Order (E.O.) No. 546, establishing among others the National
Telecommunications Commission. Section 15 thereof
enumerates the various functions of the NTC.
Section 15. Functions of the Commission.― The Commission
shall exercise the following functions:
a. Issue Certificate of Public Convenience for the operation of
communications utilities and services, radio communications
systems, wire or wireless telephone or telegraph systems,
radio and television broadcasting system and other similar
public utilities;
b. Establish, prescribe and regulate areas of operation of
particular operators of public service communications; and
determine and prescribe charges or rates pertinent to the
operation of such public utility facilities and services except in
cases where charges or rates are established by international
bodies or associations of which the Philippines is a
participating member or by bodies recognized by the
Philippine Government as the proper arbiter of such charges
or rates;
c. Grant permits for the use of radio frequencies for wireless
telephone and telegraph systems and radio communication
systems including amateur radio stations and radio and
television broadcasting systems;
d. Sub-allocate series of frequencies of bands allocated by the
International Telecommunications Union to the specific
services;
e. Establish and prescribe rules, regulations, standards,
specifications in all cases related to the issued Certificate of
Public Convenience and administer and enforce the same;
f. Coordinate and cooperate with government agencies and
other entities concerned with any aspect involving
communications with a view to continuously improve the
communications service in the country;
g. Promulgate such rules and regulations, as public safety and
interest may require, to encourage a larger and more effective
use of communications, radio and television broadcasting
facilities, and to maintain effective competition among private
entities in these activities whenever the Commission finds it
reasonably feasible;
h. Supervise and inspect the operation of radio stations and
telecommunications facilities;
i. Undertake the examination and licensing of radio operators;
j. Undertake, whenever necessary, the registration of radio
transmitters and transceivers; and
k. Perform such other functions as may be prescribed by law.
These enactments were considered when in 2003 the Court
definitively resolved that the operation of a radio or television
station does require a congressional franchise. In Associated
Communications & Wireless Services v. NTC,35 the Court took
note of the confusion then within the broadcast industry as to
whether the franchise requirement first ordained in the 1931
Radio Control Act remained extant given the enactment of P.D.
No. 576-A in 1974 and E.O. No. 546 in 1979. Notably, neither
law had specifically required legislative franchises for the
operation of broadcast stations. Nonetheless, the Court noted
that Section 1 of P.D. No. 576-A had expressly referred to the
franchise requirement in stating that "[n]o radio station or
television channel may obtain a franchise unless it has
sufficient capital on the basis of equity for its operation for at
least one year… ."36 Section 6 of that law made a similar
reference to the franchise requirement.37 From those
references, the Court concluded that the franchise
requirement under the Radio Control Act was not repealed by
P.D. No. 576-A.38
Turning to E.O. No. 546, the Court arrived at a similar
conclusion, despite a Department of Justice Opinion stating
that the 1979 enactment had dispensed with the congressional
franchise requirement. The Court clarified that the 1989 ruling
in Albano v. Reyes, to the effect that "franchises issued by
Congress are not required before each and every public utility
may operate" did not dispense with the franchise requirement
insofar as broadcast stations are concerned.
Our ruling in Albano that a congressional franchise is not
required before "each and every public utility may operate"
should be viewed in its proper light. Where there is a law such
as P.D. No. 576-A which requires a franchise for the operation
of radio and television stations, that law must be followed until
subsequently repealed. As we have earlier shown, however,
there is nothing in the subsequent E.O. No. 546 which evinces
an intent to dispense with the franchise requirement. In
contradistinction with the case at bar, the law applicable in
Albano, i.e., E.O. No. 30, did not require a franchise for the
Philippine Ports Authority to take over, manage and operate
the Manila International Port Complex and undertake the
providing of cargo handling and port related services thereat.
Similarly, in Philippine Airlines, Inc. v. Civil Aeronautics Board,
et al., we ruled that a legislative franchise is not necessary for
the operation of domestic air transport because "there is
nothing in the law nor in the Constitution which indicates that
a legislative franchise is an indispensable requirement for an
entity to operate as a domestic air transport operator." Thus,
while it is correct to say that specified agencies in the Executive
Branch have the power to issue authorization for certain
classes of public utilities, this does not mean that the
authorization or CPC issued by the NTC dispenses with the
requirement of a franchise as this is clearly required under P.D.
No. 576-A.39
The Court further observed that Congress itself had accepted
it as a given that a legislative franchise is still required to
operate a broadcasting station in the Philippines.
That the legislative intent is to continue requiring a franchise
for the operation of radio and television broadcasting stations
is clear from the franchises granted by Congress after the
effectivity of E.O. No. 546 in 1979 for the operation of radio
and television stations. Among these are: (1) R.A. No. 9131
dated April 24, 2001, entitled "An Act Granting the Iddes
Broadcast Group, Inc., a Franchise to Construct, Install,
Establish, Operate and Maintain Radio and Television
Broadcasting Stations in the Philippines"; (2) R.A. No. 9148
dated July 31, 2001, entitled "An Act Granting the Hypersonic
Broadcasting Center, Inc., a Franchise to Construct, Install,
Establish, Operate and Maintain Radio Broadcasting Stations
in the Philippines;" and (3) R.A. No. 7678 dated February 17,
1994, entitled "An Act Granting the Digital Telecommunication
Philippines, Incorporated, a Franchise to Install, Operate and
Maintain Telecommunications Systems Throughout the
Philippines." All three franchises require the grantees to
secure a CPCN/license/permit to construct and operate their
stations/systems. Likewise, the Tax Reform Act of 1997
provides in Section 119 for tax on franchise of radio and/or
television broadcasting companies x x x 40
Associated Communications makes clear that presently
broadcast stations are still required to obtain a legislative
franchise, as they have been so since the passage of the Radio
Control Act in 1931. By virtue of this requirement, the
broadcast industry falls within the ambit of Section 11, Article
XII of the 1987 Constitution, the one constitutional provision
concerned with the grant of franchises in the Philippines.41 The
requirement of a legislative franchise likewise differentiates
the Philippine broadcast industry from that in America, where
there is no need to secure a franchise from the U.S. Congress.
It is thus clear that the operators of broadcast stations in the
Philippines must secure a legislative franchise, a requirement
imposed by the Radio Control Act of 1931 and accommodated
under the 1987 Constitution. At the same time, the Court in
Associated Communications referred to another form of
"permission" required of broadcast stations, that is the CPC
issued by the NTC. What is the source of such requirement?
The Radio Control Act had also obliged radio broadcast
stations to secure a permit from the Secretary of Commerce
and Industry42 prior to the construction or installation of any
station.43 Said Department Secretary was also empowered to
regulate "the establishment, use and operation of all radio
stations and of all forms of radio communications and
transmission within the Philippines."44 Among the specific
powers granted to the Secretary over radio stations are the
approval or disapproval of any application for the
construction, installation, establishment or operation of a
radio station45 and the approval or disapproval of any
application for renewal of station or operation license. 46
As earlier noted, radio broadcasting companies were
exempted from the jurisdiction of the defunct Public Service
Commission except with respect to their rates; thus, they did
not fall within the same regulatory regime as other public
services, the regime which was characterized by the need for
CPC or CPCN. However, following the Radio Control Act, it
became clear that radio broadcast companies need to obtain
a similar license from the government in order to operate, at
that time from the Department of Public Works and
Communications.
Then, as earlier noted, in 1972, President Marcos through P.D.
No. 1, transferred to the Board of Communications the
function of issuing CPCs for the operation of radio and
television broadcasting systems, as well as the granting of
permits for the use of radio frequencies for such broadcasting
systems. With the creation of the NTC, through E.O. No. 546 in
1979, that agency was vested with the power to "[i]ssue
certificate[s] of public convenience for the operation of… radio
and television broadcasting system[s]."47 That power remains
extant and undisputed to date.
This much thus is clear. Broadcast and television stations are
required to obtain a legislative franchise, a requirement
imposed by the Radio Control Act and affirmed by our ruling in
Associated Broadcasting. After securing their legislative
franchises, stations are required to obtain CPCs from the NTC
before they can operate their radio or television broadcasting
systems. Such requirement while traceable also to the Radio
Control Act, currently finds its basis in E.O. No. 546, the law
establishing the NTC.
From these same legal premises, the next and most critical
question is whether the NTC has the power to cancel the CPCs
it has issued to legislative franchisees.
IV.
The complexities of our dual franchise/license regime for
broadcast media should be understood within the context of
separation of powers. The right of a particular entity to
broadcast over the airwaves is established by law —i.e., the
legislative franchise — and determined by Congress, the
branch of government tasked with the creation of rights and
obligations. As with all other laws passed by Congress, the
function of the executive branch of government, to which the
NTC belongs, is the implementation of the law. In broad
theory, the legal obligation of the NTC once Congress has
established a legislative franchise for a broadcast media
station is to facilitate the operation by the franchisee of its
broadcast stations. However, since the public administration
of the airwaves is a requisite for the operation of a franchise
and is moreover a highly technical function, Congress has
delegated to the NTC the task of administration over the
broadcast spectrum, including the determination of available
bandwidths and the allocation of such available bandwidths
among the various legislative franchisees. The licensing power
of the NTC thus arises from the necessary delegation by
Congress of legislative power geared towards the orderly
exercise by franchisees of the rights granted them by Congress.
Congress may very well in its wisdom impose additional
obligations on the various franchisees and accordingly
delegate to the NTC the power to ensure that the broadcast
stations comply with their obligations under the law. Because
broadcast media enjoys a lesser degree of free expression
protection as compared to their counterparts in print, these
legislative restrictions are generally permissible under the
Constitution. Yet no enactment of Congress may contravene
the Constitution and its Bill of Rights; hence, whatever
restrictions are imposed by Congress on broadcast media
franchisees remain susceptible to judicial review and analysis
under the jurisprudential framework for scrutiny of free
expression cases involving the broadcast media.
The restrictions enacted by Congress on broadcast media
franchisees have to pass the mettle of constitutionality. On the
other hand, the restrictions imposed by an administrative
agency such as the NTC on broadcast media franchisees will
have to pass not only the test of constitutionality, but also the
test of authority and legitimacy, i.e., whether such restrictions
have been imposed in the exercise of duly delegated legislative
powers from Congress. If the restriction or sanction imposed
by the administrative agency cannot trace its origin from
legislative delegation, whether it is by virtue of a specific grant
or from valid delegation of rule-making power to the
administrative agency, then the action of such administrative
agency cannot be sustained. The life and authority of an
administrative agency emanates solely from an Act of
Congress, and its faculties confined within the parameters set
by the legislative branch of government.
We earlier replicated the various functions of the NTC, as
established by E.O. No. 546. One can readily notice that even
as the NTC is vested with the power to issue CPCs to broadcast
stations, it is not expressly vested with the power to cancel
such CPCs, or otherwise empowered to prevent broadcast
stations with duly issued franchises and CPCs from operating
radio or television stations.1avvphi1
In contrast, when the Radio Control Act of 1931 maintained a
similar requirement for radio stations to obtain a license from
a government official (the Secretary of Commerce and
Industry), it similarly empowered the government, through the
Secretary of Public Works and Communications, to suspend or
revoke such license, as indicated in Section 3(m):
Section 3. The Secretary of Public Works and Communications
is hereby empowered, to regulate the construction or
manufacture, possession, control, sale and transfer of radio
transmitters or transceivers (combination transmitter-
receiver) and the establishment, use, the operation of all radio
stations and of all form of radio communications and
transmissions within the Philippines. In addition to the above
he shall have the following specific powers and duties:
(m) He may, at his direction bring criminal action against
violators of the radio laws or the regulations and confiscate the
radio apparatus in case of illegal operation; or simply suspend
or revoke the offender’s station or operator licenses or refuse
to renew such licenses; or just reprimand and warn the
offenders;48
Section 3(m) begets the question – did the NTC retain the
power granted in 1931 to the Secretary of Public Works and
Communications to "x x x suspend or revoke the offender’s
station or operator licenses or refuse to renew such licenses"?
We earlier adverted to the statutory history. The enactment of
the Public Service Act in 1936 did not deprive the Secretary of
regulatory jurisdiction over radio stations, which included the
power to impose fines. In fact, the Public Service Commission
was precluded from exercising such jurisdiction, except with
respect to the fixing of rates.
Then, in 1972, the regulatory authority over broadcast media
was transferred to the Board of Communications by virtue of
P. D. No. 1, which adopted, approved, and made as part of the
law of the land the Integrated Reorganization Plan which was
prepared by the Commission on Reorganization. 49 Among the
cabinet departments affected by the plan was the Department
of Public Works and Communications, which was now
renamed the Department of Public Works, Transportation and
Communication.50 New regulatory boards under the
administrative supervision of the Department were created,
including the Board of Communications.51
The functions of the Board of Communications were
enumerated in Part X, Chapter I, Article III, Sec. 5 of the
Integrated Reorganization Plan.52 What is noticeably missing
from these enumerated functions of the Board of
Communications is the power to revoke or cancel CPCs, even
as the Board was vested the power to issue the same. That
same pattern held true in 1976, when the Board of
Communications was abolished by E.O. No. 546.53Said
executive order, promulgated by then President Marcos in the
exercise of his legislative powers, created the NTC but likewise
withheld from it the authority to cancel licenses and CPCs,
even as it was empowered to issue CPCs. Given the very
specific functions allocated by law to the NTC, it would be very
difficult to recognize any intent to allocate to the Commission
such regulatory functions previously granted to the Secretary
of Public Works and Communications, but not included in the
exhaustive list of functions enumerated in Section 15.
Certainly, petitioner fails to point to any provision of E.O. No.
546 authorizing the NTC to cancel licenses. Neither does he
cite any provision under P.D. No. 1 or the Radio Control Act,
even if Section 3(m) of the latter law provides at least, the
starting point of a fair argument. Instead, petitioner relies on
the power granted to the Public Service Commission to revoke
CPCs or CPCNs under Section 16(m) of the Public Service
Act.54 That argument has been irrefragably refuted by Section
14 of the Public Service Act, and by jurisprudence, most
especially RCPI v. NTC.55As earlier noted, at no time did radio
companies fall under the jurisdiction of the Public Service
Commission as they were expressly excluded from its mandate
under Section 14. In addition, the Court ruled in RCPI that since
radio companies, including broadcast stations and telegraphic
agencies, were never under the jurisdiction of the Public
Service Commission except as to rate-fixing, that Commission’s
authority to impose fines did not carry over to the NTC even
while the other regulatory agencies that emanated from the
Commission did retain the previous authority their
predecessor had exercised.56 No provision in the Public Service
Act thus can be relied upon by the petitioner to claim that the
NTC has the authority to cancel CPCs or licenses.
It is still evident that E.O. No. 546 provides no explicit basis to
assert that the NTC has the power to cancel the licenses or
CPCs it has duly issued, even as the government office
previously tasked with the regulation of radio stations, the
Secretary of Public Works and Communications, previously
possessed such power by express mandate of law. In order to
sustain petitioner’s premise, the Court will be unable to rely on
an unequivocally current and extant provision of law that
justifies the NTC’s power to cancel CPCs. Petitioner suggests
that since the NTC has the power to issue CPCs, it necessarily
has the power to revoke the same. One might also argue that
through the general rule-making power of the NTC, we can
discern a right of the NTC to cancel CPCs.
We must be mindful that the issue for resolution is not a run-
of-the-mill matter which would be settled with ease with the
application of the principles of statutory construction. It is at
this juncture that the constitutional implications of this case
must ascend to preeminence.
A.
It is beyond question that respondents, as with all other radio
and television broadcast stations, find shelter in the Bill of
Rights, particularly Section 3, Article III of the Constitution. At
the same time, as we have labored earlier to point out,
broadcast media stands, by reason of the conditions of
scarcity, within a different tier of protection from print media,
which unlike broadcast, does not have any regulatory
interaction with the government during its operation.
Still, the fact that state regulation of broadcast media is
constitutionally justified does not mean that its practitioners
are precluded from invoking Section 3, Article III of the
Constitution in their behalf. Far from it. Our democratic way of
life is actualized by the existence of a free press, whether print
media or broadcast media. As with print media, free
expression through broadcast media is protected from prior
restraint or subsequent punishment. The franchise and
licensing requirements are mainly impositions of the laws of
physics which would stand to periodic reassessment as
technology advances. The science of today renders state
regulation as a necessity, yet this should not encumber the
courts from accommodating greater freedoms to broadcast
media when doing so would not interfere with the existing
legitimate state interests in regulating the industry.
In FCC v. League of Women Voters of California,57 the U.S.
Supreme Court reviewed a law prohibiting noncommercial
broadcast stations that received funding from a public
corporation from "engaging in editorializing." The U.S.
Supreme Court acknowledged the differentiated First
Amendment standard of review that applied to broadcast
media. Still, it struck down the restriction, holding that "[the]
regulation impermissibly sweeps within its prohibition a wide
range of speech by wholly private stations on topics that do
not take a directly partisan stand or that have nothing
whatever to do with federal, state, or local government."58 We
are similarly able to maintain fidelity to the fundamental rights
of broadcasters even while upholding the rationale behind the
regulatory regime governing them.
Should petitioner’s position that the NTC has the power to
cancel CPCs or licenses it has issued to broadcast stations
although they are in the first place empowered by their
respective franchise to exercise their rights to free expression
and as members of a free press, be adopted broadcast media
would be encumbered by another layer of state restrictions.
As things stand, they are already required to secure a franchise
from Congress and a CPC from the NTC in order to operate.
Upon operation, they are obliged to comply with the various
regulatory issuances of the NTC, which has the power to
impose fees and fines and other mandates it may deem fit to
prescribe in the exercise of its rule-making power.
The fact that broadcast media already labors under this
concededly valid regulatory framework necessarily creates
inhibitions on its practitioners as they operate on a daily basis.
Newspapers are able to print out their daily editions without
fear that a government agency such as the NTC will be able to
suspend their publication or fine them based on their content.
Broadcast stations do already operate with that possibility in
mind, and that circumstance ineluctably restrains its content,
notwithstanding the constitutional right to free expression.
However, the cancellation of a CPC or license to operate of a
broadcast station, if we recognize that possibility, is essentially
a death sentence, the most drastic means to inhibit a
broadcast media practitioner from exercising the
constitutional right to free speech, expression and of the press.
This judicial philosophy aligns well with the preferred mode of
scrutiny in the analysis of cases with dimensions of the right to
free expression. When confronted with laws dealing with
freedom of the mind or restricting the political process, of laws
dealing with the regulation of speech, gender, or race as well
as other fundamental rights as expansion from its earlier
applications to equal protection, the Court has deemed it
appropriate to apply "strict scrutiny" when assessing the laws
involved or the legal arguments pursued that would diminish
the efficacy of such constitutional right. The assumed authority
of the NTC to cancel CPCs or licenses, if sustained, will create a
permanent atmosphere of a less free right to express on the
part of broadcast media. So that argument could be sustained,
it will have to withstand the strict scrutiny from this Court.
Strict scrutiny entails that the presumed law or policy must be
justified by a compelling state or government interest, that
such law or policy must be narrowly tailored to achieve that
goal or interest, and that the law or policy must be the least
restrictive means for achieving that interest. It is through that due compensation to the grantee, for the use of said stations
lens that we examine petitioner’s premise that the NTC has the during the period when they shall be so operated.
authority to cancel licenses of broadcast franchisees.
The provision authorizes the President of the Philippines to
B. exercise considerable infringements on the right of the
franchisees to operate their enterprises and the right to free
In analyzing the compelling government interest that may
expression. Such authority finds corollary constitutional
justify the investiture of authority on the NTC advocated by
justification as well under Section 17, Article XII, which allows
petitioner, we cannot ignore the interest of the State as
the State "in times of national emergency, when the public
expressed in the respective legislative franchises of the
interest so requires x x x during the emergency and under
petitioner, R.A. No. 7477 and R. A. Act No. 7582. Since
reasonable terms prescribed by it, temporarily take over or
legislative franchises are extended through statutes, they
direct the operation of any privately-owned public utility or
should receive recognition as the ultimate expression of State
business affected with public interest." We do not doubt that
policy. What the legislative franchises of respondents express
the President or the State can exercise such authority through
is that the Congress, after due debate and deliberation,
the NTC, which remains an agency within the executive branch
declares it as State policy that respondents should have the
of government, but such can be exercised only under limited
right to operate broadcast stations. The President of the
and rather drastic circumstances. They still do not vest in the
Philippines, by affixing his signature to the law, concurs in such
NTC the broad authority to cancel licenses and permits.
State policy.
These provisions granting special rights to the President in
Allowing the NTC to countermand State policy by revoking
times of emergency are incorporated in our understanding of
respondent’s vested legal right to operate broadcast stations
the legislated state policy with respect to the operation by
unduly gives to a mere administrative agency veto power over
private respondents of their legislative franchises. There are
the implementation of the law and the enforcement of
restrictions to the operation of such franchises, and when
especially vested legal rights. That concern would not arise if
these restrictions are indeed exercised there still may be cause
Congress had similarly empowered the NTC with the power to
for the courts to review whether said limitations are justified
revoke a franchisee’s right to operate broadcast stations. But
despite Section 3, Article I of the Constitution. At the same
as earlier stated, there is no such expression in the law, and by
time, the state policy as embodied in these franchises is to
presuming such right the Court will be acting contrary to the
restrict the government’s ability to impair the freedom to
stated State interest as expressed in respondents’ legislative
broadcast of the stations only upon the occurrence of national
franchises.
emergencies or events that compromise the national security.
If we examine the particular franchises of respondents, it is
It should be further noted that even the aforequoted provision
readily apparent that Congress has especially invested the NTC
does not authorize the President or the government to cancel
with certain powers with respect to their broadcast
the licenses of the respondents. The temporary nature of the
operations. Both R.A. No. 747759 and R.A. No. 758260require
takeover or closure of the station is emphasized in the
the grantee "to secure from the [NTC] the appropriate permits
provision. That fact further disengages the provision from any
and licenses for its stations," barring the private respondents
sense that such delegated authority can be the source of a
from "using any frequency in the radio spectrum without
broad ruling affirming the right of the NTC to cancel the
having been authorized by the [NTC]." At the same time, both
licenses of franchisees.
laws provided that "[the NTC], however, shall not
unreasonably withhold or delay the grant of any such With the legislated state policy strongly favoring the
authority." unimpeded operation of the franchisee’s stations, it becomes
even more difficult to discern what compelling State interest
An important proviso is stipulated in the legislative franchises,
may be fulfilled in ceding to the NTC the general power to
particularly under Section 5 of R.A. No. 7477 and Section 3 of
cancel the franchisee’s CPC’s or licenses absent explicit
R.A. No. 7582, in relation to Section 11 of R.A. No. 3902.
statutory authorization. This absence of a compelling state
Section 5. Right of Government. ― A special right is hereby interest strongly disfavors petitioner’s cause.
reserved to the President of the Philippines, in times of
C.
rebellion, public peril, calamity, emergency, disaster or
disturbance of peace and order, to temporarily take over and Now, we shall tackle jointly whether a law or policy allowing
operate the stations of the grantee, temporarily suspend the the NTC to cancel CPCs or licenses is to be narrowly tailored to
operation of any stations in the interest of public safety, achieve that requisite compelling State goal or interest, and
security and public welfare, or authorize the temporary use whether such a law or policy is the least restrictive means for
and operation thereof by any agency of the Government, upon achieving that interest. We addressed earlier the difficulty of
envisioning the compelling State interest in granting the NTC
such authority. But let us assume for argument’s sake, that
relieving the injury complained off by petitioner – the failure
of private respondents to open up ownership through the
initial public offering mandated by law – is a compelling
enough State interest to allow the NTC to extend
consequences by canceling the licenses or CPCs of the erring
franchisee.
There is in fact a more appropriate, more narrowly-tailored
and least restrictive remedy that is afforded by the law. Such
remedy is that adverted to by the NTC and the Court of Appeals
– the resort to quo warranto proceedings under Rule 66 of the
Rules of Court.
Under Section 1 of Rule 66, "an action for the usurpation of a
public office, position or franchise may be brought in the name
of the Republic of the Philippines against a person who usurps,
intrudes into, or unlawfully holds or exercises public office,
position or franchise."61 Even while the action is maintained in
the name of the Republic62 , the Solicitor General or a public
prosecutor is obliged to commence such action upon
complaint, and upon good reason to believe that any case
specified under Section 1 of Rule 66 can be established by
proof.63
The special civil action of quo warranto is a prerogative writ by
which the Government can call upon any person to show by
what warrant he holds a public office or exercises a public
franchise.64 It is settled that "[t]he determination of the right
to the exercise of a franchise, or whether the right to enjoy
such privilege has been forfeited by non-user, is more properly
the subject of the prerogative writ of quo warranto, the right
to assert which, as a rule, belongs to the State ‘upon complaint
or otherwise,’ the reason being that the abuse of a franchise is
a public wrong and not a private injury."65 A forfeiture of a
franchise will have to be declared in a direct proceeding for the
purpose brought by the State because a franchise is granted by
law and its unlawful exercise is primarily a concern of
Government.66Quo warranto is specifically available as a
remedy if it is thought that a government corporation has
offended against its corporate charter or misused its
franchise.67
The Court of Appeals correctly noted that in PLDT v. NTC,68 the
Court had cited quo warranto as the appropriate recourse with
respect to an allegation by petitioner therein that a rival
telecommunications competitor had failed to construct its
radio system within the ten (10) years from approval of its
franchise, as mandated by its legislative franchise. 69 It is
beyond dispute that quo warranto exists as an available and
appropriate remedy against the wrong imputed on private
respondents.
Petitioners argue that since their prayer involves the
cancellation of the provisional authority and CPCs, and not the
legislative franchise, then quo warranto fails as a remedy. The
argument is artificial. The authority of the franchisee to engage
in broadcast operations is derived in the legislative mandate.
To cancel the provisional authority or the CPC is, in effect, to
cancel the franchise or otherwise prevent its exercise. By law,
the NTC is incapacitated to frustrate such mandate by unduly
withholding or canceling the provisional authority or the CPC
for reasons other than the orderly administration of the
frequencies in the radio spectrum.
What should occur instead is the converse. If the courts
conclude that private respondents have violated the terms of
their franchise and thus issue the writs of quo
warranto against them, then the NTC is obliged to cancel any
existing licenses and CPCs since these permits draw strength
from the possession of a valid franchise. If the point has not
already been made clear, then licenses issued by the NTC such
as CPCs and provisional authorities are junior to the legislative
franchise enacted by Congress. The licensing authority of the
NTC is not on equal footing with the franchising authority of
the State through Congress. The issuance of licenses by the
NTC implements the legislative franchises established by
Congress, in the same manner that the executive branch
implements the laws of Congress rather than creates its own
laws. And similar to the inability of the executive branch to
prevent the implementation of laws by Congress, the NTC
cannot, without clear and proper delegation by Congress,
prevent the exercise of a legislative franchise by withholding
or canceling the licenses of the franchisee.
And the role of the courts, through quo warranto proceedings,
neatly complements the traditional separation of powers that
come to bear in our analysis. The courts are entrusted with the
adjudication of the legal status of persons, the final arbiter of
their rights and obligations under law. The question of
whether a franchisee is in breach of the franchise specially
enacted for it by Congress is one inherently suited to a court
of law, and not for an administrative agency, much less one to
which no such function has been delegated by Congress. In the
same way that availability of judicial review over laws does not
preclude Congress from undertaking its own remedial
measures by appropriately amending laws, the viability of quo
warranto in the instant cases does not preclude Congress from
enforcing its own prerogative by abrogating the legislative
franchises of respondents should it be distressed enough by
the franchisees’ violation of the franchises extended to them.
Evidently, the suggested theory of petitioner to address his
plaints simply overpowers the delicate balance of separation
of powers, and unduly grants superlative prerogatives to the
NTC to frustrate the exercise of the constitutional freedom
speech, expression, and of the press. A more narrowly-tailored
relief that is responsive to the cause of petitioner not only
exists, but is in fact tailor-fitted to the constitutional
framework of our government and the adjudication of legal
and constitutional rights. Given the current status of the law,
there is utterly no reason for this Court to subscribe to the
theory that the NTC has the presumed authority to cancel
licenses and CPCs issued to due holders of legislative franchise
to engage in broadcast operations.

V.

An entire subset of questions may arise following this decision,

involving issues or situations not presently before us. We wish
to make clear that the only aspect of the regulatory jurisdiction
of the NTC that we are ruling upon is its presumed power to
cancel provisional authorities, CPCs or CPCNs and other such
licenses required of franchisees before they can engage in
broadcast operations. Moreover, our conclusion that the NTC
has no such power is borne not simply from the statutory
language of E.O. No. 546 or the respective stipulations in
private respondents’ franchises, but moreso, from the
application of the strict scrutiny standard which, despite its
weight towards free speech, still involves the analysis of the
competing interests of the regulator and the regulated.

In resolving the present questions, it was of marked impact to

the Court that the presumed power to cancel would lead to
utterly fatal consequences to the constitutional right to
expression, as well as the legislated right of these franchisees
to broadcast. Other regulatory measures of less drastic impact
will have to be assessed on their own terms in the proper
cases, and our decision today should not be accepted or cited
as a blanket shearing of the NTC’s regulatory jurisdiction. In
addition, considering our own present recognition of
legislative authority to regulate broadcast media on terms
more cumbersome than print media, it should not be
discounted that Congress may enact amendments to the
organic law of the NTC that would alter the legal milieu from
which we adjudicated today.1avvphi1.zw+

Still, the Court sees all benefit and no detriment in striking this
blow in favor of free expression and of the press. While the
ability of the State to broadly regulate broadcast media is
ultimately dictated by physics, regulation with a light touch
evokes a democracy mature enough to withstand competing
viewpoints and tastes. Perhaps unwittingly, the position
advocated by petitioner curdles a most vital sector of the press
– broadcast media – within the heavy hand of the State. The
argument is not warranted by law, and it betrays the
constitutional expectations on this Court to assert lines not
drawn and connect the dots around throats that are free to
speak.

WHEREFORE, the instant petition is DENIED. No

pronouncement as to costs.

SO ORDERED
[G.R. No. 119528. March 26, 1997.] certain administrative agencies the power to grant licenses for,
or to authorize the operation of certain public utilities. With
PHILIPPINE AIRLINES, INC., Petitioner, v. CIVIL AERONAUTICS the growing complexity of modern life, the multiplication of
BOARD and GRAND INTERNATIONAL AIRWAYS, the subjects of governmental regulation, and the increased
INC., Respondents. difficulty of administering the laws, there is a constantly
growing tendency towards the delegation of greater powers
Estelito P. Mendoza and Alberto E. Valenzuela, Jr. by the legislature, and towards the approval of the practice by
for Petitioner. the courts. It is generally recognized that a franchise may be
derived indirectly from the state through a duly designated
Belo Gozon Elma Parez Asuncion & Lucila for Grand Air. agency, and to this extent, the power to grant franchises has
frequently been delegated, even to agencies other than those
of a legislative nature. In pursuance of this, it has been held
that privileges conferred by grant by local authorities as agents
SYLLABUS for the state constitute as much a legislative franchise as
though the grant had been made by an act of the Legislature.
The trend of modern legislation is to vest the Public Service
Commissioner with the power to regulate and control the
operation of public services under reasonable rules and
1. ADMINISTRATIVE LAW; CIVIL AERONAUTICS BOARD;
regulations, and as a general rule, courts will not interfere with
JURISDICTION ON APPLICATION FOR TEMPORARY OPERATING
the exercise of that discretion when it is just and reasonable
PERMIT. — The Civil Aeronautics Board has jurisdiction over
and founded upon a legal right. Congress, by giving the
GrandAir’s Application for a Temporary Operating Permit. This
respondent Board the power to issue permits for the operation
rule has been established in the case of Philippine Air Lines
of domestic transport services, has delegated to the said body
Inc., v. Civil Aeronautics Board, promulgated on June 13, 1968.
the authority to determine the capability and competence of a
The Board is expressly authorized by Republic Act 776 to issue
prospective domestic air transport operator to engage in such
a temporary operating permit or Certificate of Public
venture. This is not an instance of transforming the respondent
Convenience and Necessity, and nothing contained in the said
Board into a mini-legislative body, with unbridled authority to
law negates the power to issue said permit before the
choose who should be given authority to operate domestic air
completion of the applicant’s evidence and that of the
transport services. Congress, in this instance, has set specific
oppositor thereto on the main petition. Indeed, the CAB’s
limitations on how such authority should be exercised, Section
authority to grant a temporary permit "upon its own initiative"
4 of R.A. No. 776, as amended, sets out guidelines or policies.
strongly suggests the power to exercise said authority, even
Section 12 and 21 of the same enumerated the requirements
before the presentation of said evidence has begun. Assuming
to determine the competency of a prospective operator to
arguendo that a legislative franchise is prerequisite to the
engage in the public service of air transportation.
issuance of a permit, the absence of the same does not affect
Furthermore, the procedure for the processing of the
the jurisdiction of the Board to hear the application, but tolls
application of a Certificate of Public Convenience and
only upon the ultimate issuance of the requested permit.
Necessity had been established to ensure the weeding out of
There is nothing in the law nor in the Constitution, which
those entities that are not deserving of public service.
indicates that a Legislative franchise is an indispensable
requirement for an entity to operate as a domestic air
3. ID; CERTIFICATES OF PUBLIC CONVENIENCE; ELUCIDATED. —
transport operator. Although Section 11 of Article XII
Many and varied are the definitions of certificates of public
recognizes Congress’ control over any franchise, certificate or
convenience which courts and legal writers have drafted.
authority to operate a public utility, it does not mean Congress
Some statutes use the terms "convenience and necessity"
has exclusive authority to issue the same. Franchise issued by
while others use only the words "public convenience." The
Congress are not required before each and every public utility
terms "convenience and necessity", if used together in a
may operate. In many instances, Congress has seen it fit to
statute, are usually held not to be separable, but are construed
delegate this function to government agencies, specialized
together. Both words modify each other and must be
particularly in their respective areas of public service. A
construed together. The word ‘necessity’ is so connected, not
reading of Section 10 of RA 776, as amended by PD 1462
as an additional requirement but to modify and qualify what
reveals the clear intent of Congress to delegate the authority
might otherwise be taken as the strict significance of the word
to regulate the issuance of a license to operate domestic air
necessity. Public convenience and necessity exists when the
transport services.
proposed facility will meet a reasonable want of the public and
supply a need which the existing facilities do not adequately
2. ID; DELEGATION OF POWERS; POWER TO GRANT LICENSE
afford. It does not mean or require an actual physical necessity
FOR OPERATION OF PUBLIC UTILITIES. — Congress has granted
or an indispensable thing. The use of the word "necessity", in
conjunction with "public convenience" in a certificate of
authorization to a public service entity to operate, does not in
any way modify the nature of such certification, or the
requirements for the issuance of the same. It is the law which
determines the requisites for the issuance of such certification,
and not the titled indicating the certificate.
DECISION
TORRES, JR., J.:
This Special Civil Action for Certiorari and Prohibition under
Rule 65 of the Rules of Court seeks to prohibit respondent Civil
Aeronautics Board from exercising jurisdiction over private
respondent’s Application for the issuance of a Certificate of
Public Convenience and Necessity, and to annul and set aside
a temporary operating permit issued by the Civil Aeronautics
Board in favor of Grand International Airways (GrandAir, for
brevity) allowing the same to engage in scheduled domestic air
transportation services, particularly the Manila-Cebu, Manila-
Davao, and converse routes.
The main reason submitted by petitioner Philippine Airlines,
Inc. (PAL) to support its petition is the fact that GrandAir does
not possess a legislative franchise authorizing it to engage in
air transportation service within the Philippines or elsewhere.
Such franchise is, allegedly, a requisite for the issuance of a
Certificate of Public Convenience or Necessity by the
respondent Board, as mandated under Section 11, Article XII
of the Constitution.
Respondent GrandAir, on the other hand, posits that a
legislative franchise is no longer a requirement for the issuance
of a Certificate of Public Convenience and Necessity or a
Temporary Operating Permit, following the Court’s
pronouncements in the case of Albano v. Reyes, 1 as restated
by the Court of Appeals in Avia Filipinas International v. Civil
Aeronautics Board 2 and Silangan Airways, Inc. v. Grand
International Airways, Inc., and the Hon. Civil Aeronautics
Board. 3
On November 24, 1994, private respondent GrandAir applied
for a Certificate of Public Convenience and Necessity with the
Board, which application was docketed as CAB Case No. EP-
12711. 4 Accordingly, the Chief Hearing Officer of the CAB
issued a Notice of Hearing setting the application for initial
hearing on December 16, 1994, and directing GrandAir to
serve a copy of the application and corresponding notice to all
scheduled Philippine Domestic operators. On December 14,
1994, GrandAir filed its Compliance, and requested for the
issuance of a Temporary Operating Permit. Petitioner, itself
the holder of a legislative franchise to operate air transport
services, filed an Opposition to the application for a Certificate
of Public Convenience and Necessity on December 16, 1995 on
the following grounds:jgc:chanrobles.com.ph
"A. The CAB has no jurisdiction to hear the petitioner’s
application until the latter has first obtained a franchise to
operate from Congress.
B. The petitioner’s application is deficient in form and
substance in that:chanrob1es virtual 1aw library
1. The application does not indicate a route structure including
a computation of trunkline, secondary and rural available seat
kilometers (ASK) which shall always be maintained at a
monthly level at least 5% and 20% of the ASK offered into and
out of the proposed base of operations for rural and
secondary, respectively.
2. It does not contain a project/feasibility study, projected
profit and loss statements, projected balance sheet, insurance
coverage, list of personnel, list of spare parts inventory, tariff
structure, documents supportive of financial capacity, route
flight schedule, contracts on facilities (hangars, maintenance,
lot) etc.
C. Approval of petitioner’s application would violate the equal
protection clause of the constitution.
D. There is no urgent need and demand for the services applied
for.
E. To grant petitioner’s application would only result in ruinous
competition contrary to Section 4(d) of R.A. 776." 5
At the initial hearing for the application, petitioner raised the
issue of lack of jurisdiction of the Board to hear the application
because GrandAir did not possess a legislative
franchise.chanroblesvirtuallawlibrary
On December 20, 1994, the Chief Hearing Officer of CAB issued
an Order denying petitioner’s Opposition. Pertinent portions
of the Order read:jgc:chanrobles.com.ph
"PAL alleges that the CAB has no jurisdiction to hear the
petitioner’s application until the latter has first obtained a
franchise to operate from Congress.
The Civil Aeronautics Board has jurisdiction to hear and resolve
the application. In Avia Filipina v. CAB, CA G.R. No. 23365, it
has been ruled that under Section 10 (c) (I) of R.A. 776, the
Board possesses this specific power and duty.
In view thereof, the opposition of PAL on this ground is hereby
denied.
SO ORDERED."cralaw virtua1aw library
Meantime, on December 22, 1994, petitioner this time,
opposed private respondent’s application for a temporary
permit maintaining that:jgc:chanrobles.com.ph
"1. The applicant does not possess the required fitness and
capability of operating the services applied for under RA 776;
and,
2. Applicant has failed to prove that there is clear and urgent
public need for the services applied for." 6
On December 23, 1994, the Board promulgated Resolution No.
119(92) approving the issuance of a Temporary Operating
Permit in favor of GrandAir 7 for a period of three months, i.e.,
from December 22, 1994 to March 22, 1994. Petitioner moved
for the reconsideration of the issuance of the Temporary
Operating Permit on January 11, 1995, but the same was
denied in CAB Resolution No. 02 (95) on February 2, 1995. 8 In
the said Resolution, the Board justified its assumption of
jurisdiction over GrandAir’s application.
"WHEREAS, the CAB is specifically authorized under Section
10-C (1) of Republic Act No. 776 as follows:chanrob1es virtual
1aw library
‘(c) The Board shall have the following specific powers and
duties:chanrob1es virtual 1aw library
(1) In accordance with the provision of Chapter IV of this Act,
to issue, deny, amend, revise, alter, modify, cancel, suspend or
revoke, in whole or in part, upon petitioner-complaint, or upon
its own initiative, any temporary operating permit or
Certificate of Public Convenience and Necessity; Provided,
however; that in the case of foreign air carriers, the permit
shall be issued with the approval of the President of the
Republic of the Philippines."cralaw virtua1aw library
WHEREAS, such authority was affirmed in PAL v. CAB, (23 SCRA
992), wherein the Supreme Court held that the CAB can even
on its own initiative, grant a TOP even before the presentation
of evidence;
WHEREAS, more recently, Avia Filipinas v. CAB, (CA-GR No.
23365), promulgated on October 30, 1991, held that in
accordance with its mandate, the CAB can issue not only a TOP
but also a Certificate of Public Convenience and Necessity
(CPCN) to a qualified applicant therefor in the absence of a
legislative franchise, citing therein as basis the decision of
Albano v. Reyes (175 SCRA 264) which provides (inter alia)
that:chanrob1es virtual 1aw library
a) Franchises by Congress are not required before each and
every public utility may operate when the law has granted
certain administrative agencies the power to grant licenses for
or to authorize the operation of certain public utilities;
b) The Constitutional provision in Article XII, Section 11 that
the issuance of a franchise, certificate or other form of
authorization for the operation of a public utility does not
necessarily imply that only Congress has the power to grant
such authorization since our statute books are replete with
laws granting specified agencies in the Executive Branch the
power to issue such authorization for certain classes of public
utilities.
WHEREAS, Executive Order No. 219 which took effect on 22
January 1995, provides in Section 2.1 that a minimum of two
(2) operators in each route/link shall be encouraged and that
routes/links presently serviced by only one (1) operator shall
be open for entry to additional operators.
RESOLVED, (T)HEREFORE, that the Motion for Reconsideration
filed by Philippine Airlines on January 05, 1995 on the Grant by
this Board of a Temporary Operating Permit (TOP) to Grand
International Airways, Inc. alleging among others that the CAB
has no such jurisdiction, is hereby DENIED, as it hereby denied,
in view of the foregoing and considering that the grounds
relied upon by the movant are not indubitable."cralaw
virtua1aw library
On March 21, 1995, upon motion by private respondent, the
temporary permit was extended for a period of six (6) months
or up to September 22, 1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its
powers and jurisdiction in taking cognizance of GrandAir’s
application for the issuance of a Certificate of Public
Convenience and Necessity, and in issuing a temporary
operating permit in the meantime, since GrandAir has not
been granted and does not possess a legislative franchise to
engage in scheduled domestic air transportation. A legislative
franchise is necessary before anyone may engage in air
transport services, and a franchise may only be granted by
Congress. This is the meaning given by the petitioner upon a
reading of Section 11, Article XII, 9 and Section 1, Article VI, 10
of the Constitution.
To support its theory, PAL submits Opinion No. 163, S. 1989 of
the Department of Justice, which reads:jgc:chanrobles.com.ph
"Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:chanrob1es virtual 1aw library
This has reference to your request for opinion on the necessity
of a legislative franchise before the Civil Aeronautics Board
("CAB") may issue a Certificate of Public Convenience and
Necessity and/or permit to engage in air commerce or air
transportation to an individual or entity.
You state that during the hearing on the application of Cebu
Air for a congressional franchise, the House Committee on
Corporations and Franchises contended that under the
present Constitution, the CAB may not issue the abovestated
certificate or permit, unless the individual or entity concerned
possesses a legislative franchise. You believe otherwise,
however, for the reason that under R.A. No. 776, as amended,
the CAB is explicitly empowered to issue operating permits or
certificates of public convenience and necessity and that this
statutory provision is not inconsistent with the current charter.
We concur with the view expressed by the House Committee
on Corporations and Franchises. In an opinion rendered in
favor of your predecessor-in-office, this Department observed
that, — the Court’s pronouncement in Albano v. Reyes (supra), the
". . . it is useful to note the distinction between the franchise
to operate and a permit to commence operation. The former
is sovereign and legislative in nature; it can be conferred only
by the lawmaking authority (17 W and P, pp. 691-697). The
latter is administrative and regulatory in character (In re
Application of Fort Crook-Bellevue Boulevard Line, 283 NW
223); it is granted by an administrative agency, such as the
Public Service Commission [now Board of Transportation], in
the case of land transportation, and the Civil Aeronautics
Board, in case of air services. While a legislative franchise is a
pre-requisite to a grant of a certificate of public convenience
and necessity to an airline company, such franchise alone
cannot constitute the authority to commence operations,
inasmuch as there are still matters relevant to such operations
which are not determined in the franchise, like rates,
schedules and routes, and which matters are resolved in the
process of issuance of permit by the administrative. (Secretary
of Justice Opn. No. 45, s. 1981)
Indeed, authorities are agreed that a certificate of public
convenience and necessity is an authorization issued by the
appropriate governmental agency for the operation of public
services for which a franchise is required by law (Almario,
Transportation and Public Service Law, 1977 Ed., p. 293;
Agbayani, Commercial Law of the Phil., Vol. 4, 1979 Ed., pp.
380-381).
Based on the foregoing, it is clear that a franchise is the
legislative authorization to engage in a business activity or
enterprise of a public nature, whereas a certificate of public
convenience and necessity is a regulatory measure which
constitutes the franchise’s authority to commence operations.
It is thus logical that the grant of the former should precede
the latter.
Please be guided accordingly.
(SGD.) SEDFREY A. ORDOÑEZ
Secretary of Justice"
Respondent GrandAir, on the other hand, relies on its
interpretation of the provisions of Republic Act 776, which
follows the pronouncements of the Court of Appeals in the
cases of Avia Filipinas v. Civil Aeronautics Board, and Silangan
Airways, Inc. v. Grand International Airways (supra).
In both cases, the issue resolved was whether or not the Civil
Aeronautics Board can issue the Certificate of Public
Convenience and Necessity or Temporary Operating Permit to
a prospective domestic air transport operator who does not
possess a legislative franchise to operate as such. Relying on
Court of Appeals upheld the authority of the Board to issue
such authority, even in the absence of a legislative franchise,
which authority is derived from Section 10 of Republic Act 776,
as amended by P.D. 1462. 11
The Civil Aeronautics Board has jurisdiction over GrandAir’s
Application for a Temporary Operating Permit. This rule has
been established in the case of Philippine Air Lines Inc., v. Civil
Aeronautics Board, promulgated on June 13, 1968. 12 The
Board is expressly authorized by Republic Act 776 to issue a
temporary operating permit or Certificate of Public
Convenience and Necessity, and nothing contained in the said
law negates the power to issue said permit before the
completion of the applicant’s evidence and that of the
oppositor thereto on the main petition. Indeed, the CAB’s
authority to grant a temporary permit "upon its own initiative"
strongly suggests the power to exercise said authority, even
before the presentation of said evidence has begun. Assuming
arguendo that a legislative franchise is prerequisite to the
issuance of a permit, the absence of the same does not affect
the jurisdiction of the Board to hear the application, but tolls
only upon the ultimate issuance of the requested permit.
The power to authorize and control the operation of a public
utility is admittedly a prerogative of the legislature, since
Congress is that branch of government vested with plenary
powers of legislation.
"The franchise is a legislative grant, whether made directly by
the legislature itself, or by any one of its properly constituted
instrumentalities. The grant, when made, binds the public, and
is, directly or indirectly, the act of the state." 13
The issue in this petition is whether or not Congress, in
enacting Republic Act 776, has delegated the authority to
authorize the operation of domestic air transport services to
the respondent Board, such that Congressional mandate for
the approval of such authority is no longer necessary.
Congress has granted certain administrative agencies the
power to grant licenses for, or to authorize the operation of
certain public utilities. With the growing complexity of modern
life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the
laws, there is a constantly growing tendency towards the
delegation of greater powers by the legislature, and towards
the approval of the practice by the courts. 14 It is generally
recognized that a franchise may be derived indirectly from the
state through a duly designated agency, and to this extent, the
power to grant franchises has frequently been delegated, even
to agencies other than those of a legislative nature. 15 In
pursuance of this, it has been held that privileges conferred by
grant by local authorities as agents for the state constitute as
much a legislative franchise as though the grant had been
made by an act of the Legislature. 16
The trend of modern legislation is to vest the Public Service
Commissioner with the power to regulate and control the
operation of public services under reasonable rules and
regulations, and as a general rule, courts will not interfere with
the exercise of that discretion when it is just and reasonable
and founded upon a legal right. 17
It is this policy which was pursued by the Court in Albano v.
Reyes. Thus, a reading of the pertinent issuances governing the
Philippine Ports Authority, 18 proves that the PPA is
empowered to undertake by itself the operation and
management of the Manila International Container Terminal,
or to authorize its operation and management by another by
contract or other means, at its option. The latter power having
been delegated to the PPA, a franchise from Congress to
authorize an entity other than the PPA to operate and manage
the MICP becomes unnecessary.
Given the foregoing postulates, we find that the Civil
Aeronautics Board has the authority to issue a Certificate of
Public Convenience and Necessity, or Temporary Operating
Permit to a domestic air transport operator, who, though not
possessing a legislative franchise, meets all the other
requirements prescribed by the law. Such requirements were
enumerated in Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which
indicates that a legislative franchise is an indispensable
requirement for an entity to operate as a domestic air
transport operator. Although Section 11 of Article XII
recognizes Congress’ control over any franchise, certificate or
authority to operate a public utility, it does not mean Congress
has exclusive authority to issue the same. Franchises issued by
Congress are not required before each and every public utility
may operate. 19 In many instances, Congress has seen it fit to
delegate this function to government agencies, specialized
particularly in their respective areas of public service.
A reading of Section 10 of the same reveals the clear intent of
Congress to delegate the authority to regulate the issuance of
a license to operate domestic air transport
services:chanrob1es virtual 1aw library
SEC. 10. Powers and Duties of the Board. (A) Except as
otherwise provided herein, the Board shall have the power to
regulate the economic aspect of air transportation, and shall
have general supervision and regulation of, the jurisdiction and
control over air carriers, general sales agents, cargo sales
agents, and air freight forwarders as well as their property
rights, equipment, facilities and franchise, insofar as may be
necessary for the purpose of carrying out the provision of this
Act.
In support of the Board’s authority as stated above, it is given
the following specific powers and duties:chanrob1es virtual
1aw library
(C) The Board shall have the following specific powers and
duties:chanrob1es virtual 1aw library
(1) In accordance with the provisions of Chapter IV of this Act,
to issue, deny, amend, revise, alter, modify, cancel, suspend or
revoke in whole or in part upon petition or complaint or upon
its own initiative any Temporary Operating Permit or
Certificate of Public Convenience and Necessity: Provided
however, That in the case of foreign air carriers, the permit
shall be issued with the approval of the President of the
Republic of the Philippines.
Petitioner argues that since R.A. 776 gives the Board the
authority to issue "Certificates of Public Convenience and
Necessity", this, according to petitioner, means that a
legislative franchise is an absolute requirement. It cites a
number of authorities supporting the view that a Certificate of
Public Convenience and Necessity is issued to a public service
for which a franchise is required by law, as distinguished from
a "Certificate of Public Convenience" which is an authorization
issued for the operation of public services for which no
franchise, either municipal or legislative, is required by law. 20
This submission relies on the premise that the authority to
issue a certificate of public convenience and necessity is a
regulatory measure separate and distinct from the authority to
grant a franchise for the operation of the public utility subject
of this particular case, which is exclusively lodged by petitioner
in Congress.
We do not agree with the petitioner.
Many and varied are the definitions of certificates of public
convenience which courts and legal writers have drafted.
Some statutes use the terms "convenience and necessity"
while others use only the words "public convenience." The
terms "convenience and necessity", if used together in a
statute, are usually held not to be separable, but are construed
together. Both words modify each other and must be
construed together. The word ‘necessity’ is so connected, not
as an additional requirement but to modify and qualify what
might otherwise be taken as the strict significance of the word
necessity. Public convenience and necessity exists when the
proposed facility will meet a reasonable want of the public and
supply a need which the existing facilities do not adequately
afford. It does not mean or require an actual physical necessity
or an indispensable thing. 21
"The terms ‘convenience’ and ‘necessity’ are to be construed
together, although they are not synonymous, and effect must
be given both. The convenience of the public must not be
circumscribed by according to the word ‘necessity’ its strict
meaning or an essential requisites." 22
The use of the word "necessity", in conjunction with "public
convenience" in a certificate of authorization to a public
service entity to operate, does not in any way modify the
nature of such certification, or the requirements for the
issuance of the same. It is the law which determines the
requisites for the issuance of such certification, and not the
title indicating the certificate.
Congress, by giving the respondent Board the power to issue
permits for the operation of domestic transport services, has
delegated to the said body the authority to determine the
capability and competence of a prospective domestic air
transport operator to engage in such venture. This is not an
instance of transforming the respondent Board into a mini-
legislative body, with unbridled authority to choose who
should be given authority to operate domestic air transport
services.
"To be valid, the delegation itself must be circumscribed by
legislative restrictions, not a "roving commission" that will give
the delegate unlimited legislative authority. It must not be a
delegation "running riot" and "not canalized with banks that
keep it from overflowing." Otherwise, the delegation is in legal
effect an abdication of legislative authority, a total surrender
by the legislature of its prerogatives in favor of the delegate."
23
Congress, in this instance, has set specific limitations on how
such authority should be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the
following guidelines or policies:jgc:chanrobles.com.ph
"SEC. 4. Declaration of policies. In the exercise and
performance of its powers and duties under this Act, the Civil
Aeronautics Board and the Civil Aeronautics Administrator
shall consider the following, among other things, as being in
the public interest, and in accordance with the public
convenience and necessity:chanrob1es virtual 1aw library
(a) The development and utilization of the air potential of the
Philippines;
(b) The encouragement and development of an air
transportation system properly adapted to the present and
future of foreign and domestic commerce of the Philippines, of
the Postal Service and of the National Defense;
(c) The regulation of air transportation in such manner as to
recognize and preserve the inherent advantages of, assure the
highest degree of safety in, and foster sound economic
condition in, such transportation, and to improve the relations
between, and coordinate transportation by, air carriers;
(d) The promotion of adequate, economical and efficient
service by air carriers at reasonable charges, without unjust
discriminations, undue preferences or advantages, or unfair or
destructive competitive practices;
(e) Competition between air carriers to the extent necessary
to assure the sound development of an air transportation
system properly adapted to the need of the foreign and
domestic commerce of the Philippines, of the Postal Service,
and of the National Defense;
(f) To promote safety of flight in air commerce in the
Philippines; and,
(g) The encouragement and development of civil aeronautics.

More importantly, the said law has enumerated the

requirements to determine the competency of a prospective
operator to engage in the public service of air transportation.

SEC. 12. Citizenship requirement. Except as otherwise

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

SEC. 21. Issuance of permit. The Board shall issue a permit

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

Furthermore, the procedure for the processing of the

application of a Certificate of Public Convenience and
Necessity had been established to ensure the weeding out of
those entities that are not deserving of public
service.25cralaw:red

In sum, respondent Board should now be allowed to continue

hearing the application of GrandAir for the issuance of a
Certificate of Public Convenience and Necessity, there being
no legal obstacle to the exercise of its
jurisdiction.chanroblesvirtual|awlibrary

ACCORDINGLY, in view of the foregoing considerations, the

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

SO ORDERED.
G.R. No. 84818 December 18, 1989
PHILIPPINE COMMUNICATIONS SATELLITE
CORPORATION, petitioner,
vs.
JOSE LUIS A. ALCUAZ, as NTC Commissioner, and NATIONAL
TELECOMMUNICATIONS COMMISSION, respondents.
Rilloraza, Africa, De Ocampo & Africa for petitioner.
Victor de la Serna for respondent Alcuaz.
REGALADO, J.:
This case is posed as one of first impression in the sense that it
involves the public utility services of the petitioner Philippine
Communications Satellite Corporation (PHILCOMSAT, for
short) which is the only one rendering such services in the
Philippines.
The petition before us seeks to annul and set aside an
Order 1 issued by respondent Commissioner Jose Luis Alcuaz of
the National Telecommunications Commission (hereafter,
NTC), dated September 2, 1988, which directs the provisional
reduction of the rates which may be charged by petitioner for
certain specified lines of its services by fifteen percent (15%)
with the reservation to make further reductions later, for being
violative of the constitutional prohibition against undue
delegation of legislative power and a denial of procedural, as
well as substantive, due process of law.
The antecedental facts as summarized by petitioner 2 are not
in dispute. By virtue of Republic Act No. 5514, PHILCOMSAT
was granted "a franchise to establish, construct, maintain and
operate in the Philippines, at such places as the grantee may
select, station or stations and associated equipment and
facilities for international satellite communications." Under
this franchise, it was likewise granted the authority to
"construct and operate such ground facilities as needed to
deliver telecommunications services from the
communications satellite system and ground terminal or
terminals."
Pursuant to said franchise, petitioner puts on record that it
undertook the following activities and established the
following installations:
1. In 1967, PHILCOMSAT established its provisional earth
station in Pinugay, Rizal.
2. In 1968, earth station standard "A" antenna (Pinugay I) was
established. Pinugay I provided direct satellite communication
links with the Pacific Ocean Region (the United States,
Australia, Canada, Hawaii, Guam, Korea, Thailand, China
[PROC], New Zealand and Brunei) thru the Pacific Ocean
INTELSAT satellite.
3. In 1971, a second earth station standard "A"
antenna(Pinugay III) was established. Pinugay II provided links
with the Indian Ocean Region (major cities in Europe, Middle
East, Africa, and other Asia Pacific countries operating within
the region) thru the Indian Ocean INTELSAT satellite.
4. In 1983, a third earth station standard "B" antenna (Pinugay
III) was established to temporarily assume the functions of
Pinugay I and then Pinugay II while they were being
refurbished. Pinugay III now serves as spare or reserved
antenna for possible contingencies.
5. In 1983, PHILCOMSAT constructed and installed a standard
"B" antenna at Clark Air Field, Pampanga as a television
receive-only earth station which provides the U.S. Military
bases with a 24-hour television service.
6. In 1989, petitioner completed the installation of a third
standard "A" earth station (Pinugay IV) to take over the links in
Pinugay I due to obsolescence. 3
By designation of the Republic of the Philippines, the
petitioner is also the sole signatory for the Philippines in the
Agreement and the Operating Agreement relating to the
International Telecommunications Satellite Organization
(INTELSAT) of 115 member nations, as well as in the
Convention and the Operating Agreement of the International
Maritime Satellite Organization (INMARSAT) of 53 member
nations, which two global commercial telecommunications
satellite corporations were collectively established by various
states in line with the principles set forth in Resolution 1721
(XVI) of the General Assembly of the United Nations.
Since 1968, the petitioner has been leasing its satellite circuits
to:
1. Philippine Long Distance Telephone Company;
2. Philippine Global Communications, Inc.;
3. Eastern Telecommunications Phils., Inc.;
4. Globe Mackay Cable and Radio Corp. ITT; and
5. Capitol Wireless, Inc.
or their predecessors-in-interest. The satellite services thus
provided by petitioner enable said international carriers to
serve the public with indispensable communication services,
such as overseas telephone, telex, facsimile, telegrams, high
speed data, live television in full color, and television standard
conversion from European to American or vice versa.
Under Section 5 of Republic Act No. 5514, petitioner was
exempt from the jurisdiction of the then Public Service
Commission, now respondent NTC. However, pursuant to
Executive Order No. 196 issued on June 17, 1987, petitioner
was placed under the jurisdiction, control and regulation of
respondent NTC, including all its facilities and services and the
fixing of rates. Implementing said Executive Order No. 196,
respondents required petitioner to apply for the requisite
certificate of public convenience and necessity covering its
facilities and the services it renders, as well as the
corresponding authority to charge rates therefor.
Consequently, under date of September 9, 1987, petitioner
filed with respondent NTC an application 4 for authority to
continue operating and maintaining the same facilities it has
been continuously operating and maintaining since 1967, to
continue providing the international satellite communications
services it has likewise been providing since 1967, and to
charge the current rates applied for in rendering such services.
Pending hearing, it also applied for a provisional authority so
that it can continue to operate and maintain the above
mentioned facilities, provide the services and charge therefor
the aforesaid rates therein applied for.
On September 16, 1987, petitioner was granted a provisional
authority to continue operating its existing facilities, to render
the services it was then offering, and to charge the rates it was
then charging. This authority was valid for six (6) months from
the date of said order. 5 When said provisional authority
expired on March 17, 1988, it was extended for another six (6)
months, or up to September 16, 1988.
The NTC order now in controversy had further extended the
provisional authority of the petitioner for another six (6)
months, counted from September 16, 1988, but it directed the
petitioner to charge modified reduced rates through a
reduction of fifteen percent (15%) on the present authorized
rates. Respondent Commissioner ordered said reduction on
the following ground:
The Commission in its on-going review of present service rates
takes note that after an initial evaluation by the Rates
Regulation Division of the Common Carriers Authorization
Department of the financial statements of applicant, there is
merit in a REDUCTION in some of applicant's rates, subject to
further reductions, should the Commission finds (sic) in its
further evaluation that more reduction should be effected
either on the basis of a provisional authorization or in the final
consideration of the case. 6
PHILCOMSAT assails the above-quoted order for the following
reasons:
1. The enabling act (Executive Order No. 546) of respondent
NTC empowering it to fix rates for public service
communications does not provide the necessary standards
constitutionally required, hence there is an undue delegation
of legislative power, particularly the adjudicatory powers of
NTC;
2. Assuming arguendo that the rate-fixing power was properly
and constitutionally conferred, the same was exercised in an
unconstitutional manner, hence it is ultra vires, in that (a) the
questioned order violates procedural due process for having
been issued without prior notice and hearing; and (b) the rate
reduction it imposes is unjust, unreasonable and confiscatory,
thus constitutive of a violation of substantive due process.
I. Petitioner asseverates that nowhere in the provisions of
Executive Order No. 546, providing for the creation of
respondent NTC and granting its rate-fixing powers, nor of
Executive Order No. 196, placing petitioner under the
jurisdiction of respondent NTC, can it be inferred that
respondent NTC is guided by any standard in the exercise of its
rate-fixing and adjudicatory powers. While petitioner in its
petition-in-chief raised the issue of undue delegation of
legislative power, it subsequently clarified its said submission
to mean that the order mandating a reduction of certain rates
is undue delegation not of legislative but of quasi-judicial
power to respondent NTC, the exercise of which allegedly
requires an express conferment by the legislative body.
Whichever way it is presented, petitioner is in effect
questioning the constitutionality of Executive Orders Nos. 546
and 196 on the ground that the same do not fix a standard for
the exercise of the power therein conferred.
We hold otherwise.
Fundamental is the rule that delegation of legislative power
may be sustained only upon the ground that some standard
for its exercise is provided and that the legislature in making
the delegation has prescribed the manner of the exercise of
the delegated power. Therefore, when the administrative
agency concerned, respondent NTC in this case, establishes a
rate, its act must both be non- confiscatory and must have
been established in the manner prescribed by the legislature;
otherwise, in the absence of a fixed standard, the delegation
of power becomes unconstitutional. In case of a delegation of
rate-fixing power, the only standard which the legislature is
required to prescribe for the guidance of the administrative
authority is that the rate be reasonable and just. However, it
has been held that even in the absence of an express
requirement as to reasonableness, this standard may be
implied. 7
It becomes important then to ascertain the nature of the
power delegated to respondent NTC and the manner required
by the statute for the lawful exercise thereof.
Pursuant to Executive Orders Nos. 546 and 196, respondent
NTC is empowered, among others, to determine and prescribe
rates pertinent to the operation of public service
communications which necessarily include the power to
promulgate rules and regulations in connection therewith.
And, under Section 15(g) of Executive Order No. 546,
respondent NTC should be guided by the requirements of
public safety, public interest and reasonable feasibility of
maintaining effective competition of private entities in
communications and broadcasting facilities. Likewise, in
Section 6(d) thereof, which provides for the creation of the
Ministry of Transportation and Communications with control
and supervision over respondent NTC, it is specifically provided
that the national economic viability of the entire network or
components of the communications systems contemplated
therein should be maintained at reasonable rates. We need
not go into an in-depth analysis of the pertinent provisions of
the law in order to conclude that respondent NTC, in the
exercise of its rate-fixing power, is limited by the requirements
of public safety, public interest, reasonable feasibility and
reasonable rates, which conjointly more than satisfy the
requirements of a valid delegation of legislative power.
II. On another tack, petitioner submits that the questioned
order violates procedural due process because it was issued
motu proprio, without notice to petitioner and without the
benefit of a hearing. Petitioner laments that said order was
based merely on an "initial evaluation," which is a unilateral
evaluation, but had petitioner been given an opportunity to
present its side before the order in question was issued, the
confiscatory nature of the rate reduction and the consequent
deterioration of the public service could have been shown and
demonstrated to respondents. Petitioner argues that the
function involved in the rate fixing-power of NTC is
adjudicatory and hence quasi-judicial, not quasi- legislative;
thus, notice and hearing are necessary and the absence
thereof results in a violation of due process.
Respondents admit that the application of a policy like the
fixing of rates as exercised by administrative bodies is quasi-
judicial rather than quasi-legislative: that where the function
of the administrative agency is legislative, notice and hearing
are not required, but where an order applies to a named
person, as in the instant case, the function involved is
adjudicatory. 8 Nonetheless, they insist that under the facts
obtaining the order in question need not be preceded by a
hearing, not because it was issued pursuant to respondent
NTC's legislative function but because the assailed order is
merely interlocutory, it being an incident in the ongoing
proceedings on petitioner's application for a certificate of
public convenience; and that petitioner is not the only primary
source of data or information since respondent is currently
engaged in a continuing review of the rates charged.
We find merit in petitioner's contention.
In Vigan Electric Light Co., Inc. vs. Public Service
Commission,9 we made a categorical classification as to when
the rate-filing power of administrative bodies is quasi-judicial
and when it is legislative, thus:
Moreover, although the rule-making power and even the
power to fix rates- when such rules and/or rates are meant to
apply to all enterprises of a given kind throughout the
Philippines-may partake of a legislative character, such is not
the nature of the order complained of. Indeed, the same
applies exclusively to petitioner herein. What is more, it is
predicated upon the finding of fact-based upon a report
submitted by the General Auditing Office-that petitioner is
making a profit of more than 12% of its invested capital, which
is denied by petitioner. Obviously, the latter is entitled to
cross-examine the maker of said report, and to introduce
evidence to disprove the contents thereof and/or explain or
complement the same, as well as to refute the conclusion
drawn therefrom by the respondent. In other words, in making
said finding of fact, respondent performed a function
partaking of a quasi-judicial character, the valid exercise of
which demands previous notice and hearing.
This rule was further explained in the subsequent case of The
Central Bank of the Philippines vs. Cloribel, et al. 10 to wit:
It is also clear from the authorities that where the function of
the administrative body is legislative, notice of hearing is not
required by due process of law (See Oppenheimer,
Administrative Law, 2 Md. L.R. 185, 204, supra, where it is said:
'If the nature of the administrative agency is essentially
legislative, the requirements of notice and hearing are not
necessary. The validity of a rule of future action which affects
a group, if vested rights of liberty or property are not involved,
is not determined according to the same rules which apply in
the case of the direct application of a policy to a specific
individual) ... It is said in 73 C.J.S. Public Administrative Bodies
and Procedure, sec. 130, pages 452 and 453: 'Aside from
statute, the necessity of notice and hearing in an
administrative proceeding depends on the character of the
proceeding and the circumstances involved. In so far as
generalization is possible in view of the great variety of
administrative proceedings, it may be stated as a general rule
that notice and hearing are not essential to the validity of
administrative action where the administrative body acts in
the exercise of executive, administrative, or legislative
functions; but where a public administrative body acts in a
judicial or quasi-judicial matter, and its acts are particular and
immediate rather than general and prospective, the person
whose rights or property may be affected by the action is
entitled to notice and hearing. 11
The order in question which was issued by respondent Alcuaz
no doubt contains all the attributes of a quasi-judicial
adjudication. Foremost is the fact that said order pertains
exclusively to petitioner and to no other. Further, it is premised
on a finding of fact, although patently superficial, that there is
merit in a reduction of some of the rates charged- based on an
initial evaluation of petitioner's financial statements-without
affording petitioner the benefit of an explanation as to what
particular aspect or aspects of the financial statements
warranted a corresponding rate reduction. No rationalization
was offered nor were the attending contingencies, if any,
discussed, which prompted respondents to impose as much as
a fifteen percent (15%) rate reduction. It is not far-fetched to
assume that petitioner could be in a better position to
rationalize its rates vis-a-vis the viability of its business
requirements. The rates it charges result from an exhaustive
and detailed study it conducts of the multi-faceted intricacies
attendant to a public service undertaking of such nature and
magnitude. We are, therefore, inclined to lend greater
credence to petitioner's ratiocination that an immediate
reduction in its rates would adversely affect its operations and
the quality of its service to the public considering the
maintenance requirements, the projects it still has to
undertake and the financial outlay involved. Notably,
petitioner was not even afforded the opportunity to cross-
examine the inspector who issued the report on which
respondent NTC based its questioned order.
At any rate, there remains the categorical admission made by
respondent NTC that the questioned order was issued
pursuant to its quasi-judicial functions. It, however, insists that
notice and hearing are not necessary since the assailed order
is merely incidental to the entire proceedings and, therefore,
temporary in nature. This postulate is bereft of merit.
While respondents may fix a temporary rate pending final
determination of the application of petitioner, such rate-fixing
order, temporary though it may be, is not exempt from the
statutory procedural requirements of notice and hearing, as
well as the requirement of reasonableness. Assuming that
such power is vested in NTC, it may not exercise the same in
an arbitrary and confiscatory manner. Categorizing such an
order as temporary in nature does not perforce entail the
applicability of a different rule of statutory procedure than
would otherwise be applied to any other order on the same
matter unless otherwise provided by the applicable law. In the
case at bar, the applicable statutory provision is Section 16(c)
of the Public Service Act which provides:
Section 16. Proceedings of the Commission, upon notice and
hearing the Commission shall have power, upon proper notice
and hearing in accordance with the rules and provisions of this
Act, subject to the limitations and exceptions mentioned and
saving provisions to the contrary:
xxx xxx xxx
(c) To fix and determine individual or joint rates, ... which shall
be imposed, observed and followed thereafter by any public
service; ...
There is no reason to assume that the aforesaid provision does
not apply to respondent NTC, there being no limiting,
excepting, or saving provisions to the contrary in Executive
Orders Nos. 546 and 196.
It is thus clear that with regard to rate-fixing, respondent has
no authority to make such order without first giving petitioner
a hearing, whether the order be temporary or permanent, and
it is immaterial whether the same is made upon a complaint, a
summary investigation, or upon the commission's own motion
as in the present case. That such a hearing is required is
evident in respondents' order of September 16, 1987 in NTC
Case No. 87-94 which granted PHILCOMSAT a provisional
authority "to continue operating its existing facilities, to render
the services it presently offers, and to charge the rates as
reduced by them "under the condition that "(s)ubject to
hearing and the final consideration of the merit of this
application, the Commission may modify, revise or amend the
rates ..." 12
While it may be true that for purposes of rate-fixing
respondents may have other sources of information or data,
still, since a hearing is essential, respondent NTC should act
solely on the basis of the evidence before it and not on
knowledge or information otherwise acquired by it but which
is not offered in evidence or, even if so adduced, petitioner
was given no opportunity to controvert.
Again, the order requires the new reduced rates to be made
effective on a specified date. It becomes a final legislative act
as to the period during which it has to remain in force pending
the final determination of the case. 13An order of respondent
NTC prescribing reduced rates, even for a temporary period,
could be unjust, unreasonable or even confiscatory, especially
if the rates are unreasonably low, since the utility permanently
loses its just revenue during the prescribed period. In fact, such
order is in effect final insofar as the revenue during the period
covered by the order is concerned. Upon a showing, therefore,
that the order requiring a reduced rate is confiscatory, and will
unduly deprive petitioner of a reasonable return upon its
property, a declaration of its nullity becomes inductible, which
brings us to the issue on substantive due process.
III. Petitioner contends that the rate reduction is confiscatory
in that its implementation would virtually result in a cessation
of its operations and eventual closure of business. On the
other hand, respondents assert that since petitioner is
operating its communications satellite facilities through a
legislative franchise, as such grantee it has no vested right
therein. What it has is merely a privilege or license which may
be revoked at will by the State at any time without necessarily
violating any vested property right of herein petitioner. While
petitioner concedes this thesis of respondent, it counters that
the withdrawal of such privilege should nevertheless be
neither whimsical nor arbitrary, but it must be fair and
reasonable.
There is no question that petitioner is a mere grantee of a
legislative franchise which is subject to amendment,
alteration, or repeal by Congress when the common good so
requires. 14 Apparently, therefore, such grant cannot be
unilaterally revoked absent a showing that the termination of
the operation of said utility is required by the common good.
The rule is that the power of the State to regulate the conduct
and business of public utilities is limited by the consideration
that it is not the owner of the property of the utility, or clothed
with the general power of management incident to ownership,
since the private right of ownership to such property remains
and is not to be destroyed by the regulatory power. The power
to regulate is not the power to destroy useful and harmless
enterprises, but is the power to protect, foster, promote,
preserve, and control with due regard for the interest, first and
foremost, of the public, then of the utility and of its patrons.
Any regulation, therefore, which operates as an effective
confiscation of private property or constitutes an arbitrary or
unreasonable infringement of property rights is void, because
it is repugnant to the constitutional guaranties of due process
and equal protection of the laws. 15
Hence, the inherent power and authority of the State, or its
authorized agent, to regulate the rates charged by public
utilities should be subject always to the requirement that the
rates so fixed shall be reasonable and just. A commission has
no power to fix rates which are unreasonable or to regulate
them arbitrarily. This basic requirement of reasonableness
comprehends such rates which must not be so low as to be
confiscatory, or too high as to be oppressive. 16
What is a just and reasonable rate is not a question of formula
but of sound business judgment based upon the evidence 17 it
is a question of fact calling for the exercise of discretion, good
sense, and a fair, enlightened and independent judgment. 18 In
determining whether a rate is confiscatory, it is essential also
to consider the given situation, requirements and
opportunities of the utility. A method often employed in
determining reasonableness is the fair return upon the value
of the property to the public utility. Competition is also a very
important factor in determining the reasonableness of rates
since a carrier is allowed to make such rates as are necessary
to meet competition. 19
A cursory perusal of the assailed order reveals that the rate
reduction is solely and primarily based on the initial evaluation
made on the financial statements of petitioner, contrary to
respondent NTC's allegation that it has several other sources
of information without, however, divulging such sources.
Furthermore, it did not as much as make an attempt to
elaborate on how it arrived at the prescribed rates. It just
perfunctorily declared that based on the financial statements,
there is merit for a rate reduction without any elucidation on
what implications and conclusions were necessarily inferred by
it from said statements. Nor did it deign to explain how the
data reflected in the financial statements influenced its
decision to impose a rate reduction.
On the other hand, petitioner may likely suffer a severe
drawback, with the consequent detriment to the public
service, should the order of respondent NTC turn out to be
unreasonable and improvident. The business in which
petitioner is engaged is unique in that its machinery and
equipment have always to be taken in relation to the
equipment on the other end of the transmission arrangement.
Any lack, aging, acquisition, rehabilitation, or refurbishment of
machinery and equipment necessarily entails a major
adjustment or innovation on the business of petitioner. As
pointed out by petitioner, any change in the sending end
abroad has to be matched with the corresponding change in
the receiving end in the Philippines. Conversely, any in the
receiving end abroad has to be matched with the
corresponding change in the sending end in the Philippines. An
inability on the part of petitioner to meet the variegations
demanded be technology could result in a deterioration or
total failure of the service of satellite communications.
At present, petitioner is engaged in several projects aimed at
refurbishing, rehabilitating, and renewing its machinery and
equipment in order to keep up with the continuing charges of
the times and to maintain its facilities at a competitive level
with the technological advances abroad. There projected
undertakings were formulated on the premise that rates are
maintained at their present or at reasonable levels. Hence, an
undue reduction thereof may practically lead to a cessation of
its business. While we concede the primacy of the public
interest in an adequate and efficient service, the same is not
necessarily to be equated with reduced rates. Reasonableness
in the rates assumes that the same is fair to both the public
utility and the consumer.
Consequently, we hold that the challenged order, particularly
on the issue of rates provided therein, being violative of the
due process clause is void and should be nullified. Respondents
should now proceed, as they should heretofore have done,
with the hearing and determination of petitioner's pending
application for a certificate of public convenience and
necessity and in which proceeding the subject of rates involved
in the present controversy, as well as other matter involved in
said application, be duly adjudicated with reasonable dispatch
and with due observance of our pronouncements herein.
WHEREFORE, the writ prayed for is GRANTED and the order of
respondents, dated September 2, 1988, in NTC Case No. 87-94
is hereby SET ASIDE. The temporary restraining order issued
under our resolution of September 13, 1988, as specifically
directed against the aforesaid order of respondents on the
matter of existing rates on petitioner's present authorized
services, is hereby made permanent.
SO ORDERED.
Fernan, (C.J.), Narvasa, Melencio-Herrera, Cruz, Paras,
Feliciano, Gancayco, Bidin, Sarmiento, Cortes, Griño-Aquino
and Medialdea, JJ., concur.
Padilla, J., took no part.
Separate Opinions
GUTIERREZ, JR., J., concurring:
I concur in the ponencia of Justice Regalado and join him in the
erudite and thorough discussion of the respondent's authority.
However, I have reservations about our continuing to abide by
the dictum that in the exercise of quasi-legislative power,
notice and hearing are not required. I believe that this doctrine
is ripe for re- examination.
Senators and Congressmen are directly elected by the people.
Administrative officials are not. If the members of an
administrative body are, as is so often the case, appointed not
on the basis of competence and qualifications but out of
political or personal considerations, it is not only the sense of
personal responsibility to the electorate affected by legislation
which is missing. The expertise and experience needed for the
issuance of sound rules and regulations would also be sorely
lacking.
Congress never passes truly important legislation without
holding public hearings. Yet, administrative officials who are
not directly attuned to the public pulse see no need for
hearings. They issue rules and circulars with far reaching
effects on our economy and our nation's future on the
assumption that the head of an agency knows best what is
good for the people. I believe that in the exercise of quasi-
legislative powers, administrative agencies, much, much more
than Congress, should hold hearings and should be given
guidelines as to when notices and hearings are essential even
in quasi-legislation.
Separate Opinions
GUTIERREZ, JR., J., concurring:
I concur in the ponencia of Justice Regalado and join him in the
erudite and thorough discussion of the respondent's authority.
However, I have reservations about our continuing to abide by
the dictum that in the exercise of quasi-legislative power,
notice and hearing are not required. I believe that this doctrine
is ripe for re- examination.
Senators and Congressmen are directly elected by the people.
Administrative officials are not. If the members of an
administrative body are, as is so often the case, appointed not
on the basis of competence and qualifications but out of
political or personal considerations, it is not only the sense of
personal responsibility to the electorate affected by legislation
which is missing. The expertise and experience needed for the
issuance of sound rules and regulations would also be sorely
lacking.
Congress never passes truly important legislation without
holding public hearings. Yet, administrative officials who are
not directly attuned to the public pulse see no need for
hearings. They issue rules and circulars with far reaching
effects on our economy and our nation's future on the
assumption that the head of an agency knows best what is
good for the people. I believe that in the exercise of quasi-
legislative powers, administrative agencies, much, much more
than Congress, should hold hearings and should be given
guidelines as to when notices and hearings are essential even
in quasi-legislation.
Separate Opinions
GUTIERREZ, JR., J., concurring:
I concur in the ponencia of Justice Regalado and join him in the
erudite and thorough discussion of the respondent's authority.
However, I have reservations about our continuing to abide by
the dictum that in the exercise of quasi-legislative power,
notice and hearing are not required. I believe that this doctrine
is ripe for re- examination.
Senators and Congressmen are directly elected by the people.
Administrative officials are not. If the members of an
administrative body are, as is so often the case, appointed not
on the basis of competence and qualifications but out of
political or personal considerations, it is not only the sense of
personal responsibility to the electorate affected by legislation
which is missing. The expertise and experience needed for the
issuance of sound rules and regulations would also be sorely
lacking.
Congress never passes truly important legislation without
holding public hearings. Yet, administrative officials who are
not directly attuned to the public pulse see no need for
hearings. They issue rules and circulars with far reaching
effects on our economy and our nation's future on the
assumption that the head of an agency knows best what is
good for the people. I believe that in the exercise of quasi-
legislative powers, administrative agencies, much, much more
than Congress, should hold hearings and should be given
guidelines as to when notices and hearings are essential even
in quasi-legislation.
G.R. No. 141314 April 9, 2003
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGY
REGULATORY BOARD, petitioner,
vs.
MANILA ELECTRIC COMPANY, respondent.
x-----------------------------x
G.R. No. 141369 April 9, 2003
LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP)
consisting of CEFERINO PADUA, Chairman, G. FULTON
ACOSTA, GALILEO BRION, ANATALIA BUENAVENTURA,
PEDRO CASTILLO, NAPOLEON CORONADO, ROMEO ECHAUZ,
FERNANDO GAITE, ALFREDO DE GUZMAN, ROGELIO
KARAGDAG, JR., MA. LUZ ARZAGA-MENDOZA, ANSBERTO
PAREDES, AQUILINO PIMENTEL III, MARIO REYES,
EMMANUEL SANTOS, RUDEGELIO TACORDA, members, and
ROLANDO ARZAGA, Secretary-General, JUSTICE ABRAHAM
SARMIENTO, SENATOR AQUILINO PIMENTEL, JR. and
COMMISSIONER BARTOLOME FERNANDEZ, JR., Board of
Consultants, and Lawyer GENARO LUALHATI, petitioners,
vs.
MANILA ELECTRIC COMPANY (MERALCO), respondent.
RESOLUTION
PUNO, J.:
The business and operations of a public utility are imbued with
public interest. In a very real sense, a public utility is engaged
in public service-- providing basic commodities and services
indispensable to the interest of the general public. For this
reason, a public utility submits to the regulation of
government authorities and surrenders certain business
prerogatives, including the amount of rates that may be
charged by it. It is the imperative duty of the State to interpose
its protective power whenever too much profits become the
priority of public utilities.
For resolution is the Motion for Reconsideration filed by
respondent Manila Electric Company (MERALCO) on
December 5, 2002 from the decision of this Court dated
November 15, 2002 reducing MERALCO's rate adjustment in
the amount of P0.017 per kilowatthour (kwh) for its billing
cycles beginning 1994 and further directing MERALCO to credit
the excess average amount of P0.167 per kwh to its customers
starting with MERALCO's billing cycles beginning February
1994.1
First, we leapfrog through the facts. On December 23, 1993,
MERALCO filed with the Energy Regulatory Board (ERB) an
application for revised rates, with an average increase of P0.21
per kwh in its distribution charge. On January 28, 1994 the ERB
granted a provisional increase of P0.184 per kwh subject to the
condition that in the event the ERB determines that MERALCO
is entitled to a lesser increase in rates, all excess amounts
collected by MERALCO shall be refunded to its customers or
credited in their favor. The Commission on Audit (COA)
conducted an examination of the books of accounts and
records of MERALCO and thereafter recommended, among
others, that: (1) income taxes paid by MERALCO should not be
included as part of MERALCO's operating expenses and (2) the
"net average investment method" or the "number of months
use method" should be applied in determining the
proportionate value of the properties used by MERALCO
during the test year.
In its decision dated February 16, 1998, the ERB adopted the
recommendations of the COA and authorized MERALCO to
adopt a rate adjustment of P0.017 per kilowatthour (kwh) for
its billing cycles beginning 1994. The ERB further directed
MERALCO to credit the excess average amount of P0.167 per
kwh to its customers starting with MERALCO's billing cycles
beginning February 1994. The said ruling of the ERB was
affirmed by this Court in its decision dated November 15, 2002.
In its Motion for Reconsideration, respondent MERALCO
contends that: (1) the deduction of income tax from revenues
allowed for rate determination of public utilities is part of its
constitutional right to property; (2) it correctly used the
"average investment method" or the "simple average" in
computing the value of its properties entitled to a return
instead of the "net average investment method" or the
"number of months use method"; and (3) the decision of the
ERB ordering the refund of P0.167 per kwh to its customers
should not be given retroactive effect. 2
The Republic of the Philippines through the ERB, now Energy
Regulatory Commission (ERC), represented by the Office of the
Solicitor General, filed its Comment on March 7, 2003.
Surprisingly, in its Comment, the ERC proffered a divergent
view from the Office of the Solicitor General. The ERC submits
that income taxes are not operating expenses but are
reasonable costs that may be recoverable from the consuming
public. While the ERC admits that "there is still no categorical
determination on whether income tax should indeed be
deducted from revenues of a public utility," it agrees with
MERALCO that to disallow public utilities from recovering its
income tax payments will effectively lower the return on rate
base enjoyed by a public utility to 8%. The ERC, however,
agrees with this Court's ruling that the use of the "net average
investment method" or the "number of months use method"
is not unreasonable.3
The Office of the Solicitor General, under its solemn duty to
protect the interests of the people, defended the thesis that
income tax payments by a public utility should not be
recovered as costs from the consuming public. It contended
that: (1) the foreign jurisprudence cited by MERALCO in
support of its position is not applicable in this jurisdiction; (2)
MERALCO was given a fair rate of return; (3) the COA and the
ERB followed the National Accounting and Auditing Manual
which expressly disallows the treatment of income tax as
operating expense; (4) Executive Order No. 72 does not grant
electric utilities the privilege of treating income tax as
operating expense; (5) the COA and the ERB have been
consistent in not allowing income tax as part of operating
expenses; (6) ERB decisions allowing the application of a tax
recovery clause are inapropos; (7) allowing MERALCO to treat
income tax as an operating expense would set a dangerous
precedent; (8) assuming that the disallowance of income tax
as operating expense would discourage foreign investors and
lenders, the government is not precluded from enacting laws
and instituting measures to lure them back; and (9) the
findings and conclusions of the ERB carry great weight and
should be binding on the courts in the absence of grave abuse
of discretion. The Solicitor General agrees with the ERC that
the "net average investment method" is a reasonable method
for property valuation. Finally, the Solicitor General argues
that the ERB decision may be applied retroactively and the use
of a test period to determine the rate base and allowable rates
to be collected by a public utility is an accepted practice. 4
We shall discuss the main issues in seriatim.
I
MERALCO argues that deduction of all kinds of taxes, including
income tax, from the gross revenues of a public utility is firmly
entrenched in American jurisprudence. It contends that the
Public Service Act (Commonwealth Act No. 146) was patterned
after Act 2306 of the Philippine Commission, which, in turn,
was borrowed from American state public utility laws such as
the New Jersey Public Utility Act. Hence, it maintains that
American jurisprudence on the inclusion of income taxes as a
lawful charge to operating expenses should be controlling. It
cites the rule on statutory construction that a statute adopted
from a foreign country will be presumed to be adopted with
the construction placed upon it by the courts of that country
before its adoption.5
We are not persuaded. American decisions and authorities are
not per se controlling in this jurisdiction. At best, they are
persuasive for no court holds a patent on correct decisions. Our
laws must be construed in accordance with the intention of
our own lawmakers and such intent may be deduced from the
language of each law and the context of other local legislation
related thereto. More importantly, they must be construed to
serve our own public interest which is the be-all and the end-all
of all our laws. And it need not be stressed that our public
interest is distinct and different from others.
Rate regulation calls for a careful consideration of the totality
of facts and circumstances material to each application for an
upward rate revision. Rate regulators should strain to strike a
balance between the clashing interests of the public utility and
the consuming public and the balance must assure a
reasonable rate of return to public utilities without being
unreasonable to the consuming public. What is reasonable or
unreasonable depends on a calculus of changing circumstances
that ebb and flow with time. Yesterday cannot govern today,
no more than today can determine tomorrow.
Prescinding from these premises, we reject MERALCO's
insistence that the non-inclusion of income tax payments as a
legitimate operating expense will deny public utilities a fair
return of their investment. This stubborn stance is belied by
the report submitted by the COA on the audit conducted on
MERALCO's books of accounts and the findings of the ERB.6
Upon the instructions of the ERB, the COA conducted an audit
of the operations of MERALCO covering the period from
February 1, 1994 to January 31, 1995, or the period
immediately after the implementation of the provisional rate
increase.7 Hence, amounts culled by the COA from its
examination of the books of MERALCO already included the
provisional rate increase of P0.184 granted by the ERB.
From the figures submitted by the COA, the ERB was able to
determine that MERALCO derived excess revenueduring the
test year in the amount of P2,448,378,000.8 This means that
during the test year, and after the rates were increased by
P0.184, MERALCO earned P2,448,378,000 or 8.15% more than
the amount it should have earned at a 12% rate of return on
rate base. Accordingly, based on this amount of excess
revenue, the ERB determined that the provisional rate granted
by it to MERALCO was P0.167 per kwh more than the amount
MERALCO ought to charge its customers to obtain the
prescribed 12% rate of return on rate base. Thus, the ERB
correspondingly lowered the provisional increase by P0.167
per kwh and ordered MERALCO to increase its rates at a
reduced amount of P0.017 per kwh, computed as follows:9
At a
Total Invested Capital Entitled P 30
to Return
12% return thereon P 3,
Add: Total Operating expenses P 38
for Rate Determination
Purposes P 41
Computed Revenue
Actual Revenue P 44
Excess Revenue P 2,
Percent of Excess Revenue to 8.15
 Invested Capital
Authorized Rate of Return
Actual Rate of Return
Total kwh sold
Ratio of Excess Revenue to
Total kwh Sold
In fact, even if MERALCO's income tax liability would be
included as an operating expense, MERALCO would still enjoy
excess revenue of P312,738,000.00 or 1.04% above the
authorized rate of return of 12%. Based on its audit, the COA
determined that the provision for income tax liability of
MERALCO amounted to P2,135,639,000.00.12Thus, even if
such amount of income tax liability would be included as
operating expense, the amount of excess revenue earned by
MERALCO during the test year would be more than sufficient
to cover the additional income tax expense. Thus:
Total Invested Capital Entitled to Return
12% return thereon
Add: Total Operating expenses for Rate P 40,396,059,00013
Determination Purposes
Computed Revenue
Actual Revenue
Excess Revenue
Percent of Excess Revenue to Invested Capital
Authorized Rate of Return
Actual Rate of Return
It is crystal clear, therefore, that even if income tax is to be
included as an operating expense and hence, recoverable from
the consuming public, MERALCO would still enjoy a rate of
return that is above the authorized rate of 12%. Public utilities
cannot be allowed to overcharge at the expense of the public
and worse, they cannot complain that they are not
overcharging enough.
Be that as it may, MERALCO contends that considering income
tax payments of public utilities constitute one-third of their net
income, public utilities will effectively get, not the 12% rate of
return on rate base allowed them, but only about 8%.14 Again,
we are not persuaded.
12.00%
The foregoing argument assumes that the 12% return allowed
to public utilities is equivalent to its taxable incomewhich will
20.15%
be subject to income tax. The 12% rate of return is
computed only for the purpose of fixing the allowable rates to
14,640,094,000
be charged by a public utility and is in no way determinative of
the income subject to income tax of the public utility. The
computation of a corporation's income tax liability is an
altogether different matter, with the corporation's taxable
P 0.167
income derived by taking into account the corporation's gross
revenues less allowable deductions.15
At any rate, even on the assumption that in the test year
involved (February 1, 1994 to January 31, 1995), MERALCO's
computed revenue of P 41,867,573,000 or the amount that it
is allowed to earn based on a 12% rate of return is its taxable
income, after payment of its income tax liability of
P2,135,639,000.00, MERALCO would still obtain an 11.38%
rate of return or a return that is well within the 12% rate
allowed to public utilities.16
MERALCO also contends that even the successor of the ERB or
At appraised value
the ERC created under the Electric Power Industry Reform Act
of 2001 (EPIRA)17 "adheres to the principle that income tax is
P 30,059,614,000
part of operating expense."18 To bolster its argument,
MERALCO cites Article 36 of the EPIRA which charges the ERC
P 3,607,154,000
with the responsibility of unbundling the rates of the National
Power Corporation (NPC) and each distribution utility coming
within the coverage of the law.19 MERALCO alleges that
pursuant to said provision, the ERC issued a set of Uniform
Rate Filing Requirements (UFR) containing guidelines to be
P 44,003,213,000
followed with respect to rate unbundling applications to be
filed. MERALCO asserts that under the UFR, the enumeration
P 44,315,951,000
of the expenses which are to be recovered through the rates,
and which are to be separated or allocated for the purpose of
P 312,738,000
unbundling of these rates include income tax expenses.
1.04% Under Section 36 of the EPIRA, the NPC and every distribution
facility covered by the law is mandated to unbundle, segregate
12.00% or itemize its rates according to the various sectors of the
electric power industry identified in the law, namely:
13.04%
generation, transmission, distribution and supply.20 The law
further directs the ERC to regulate and facilitate the
unbundling of rates prescribed by Section 36. Thus, on October
30, 2001, the ERC issued guidelines prescribing the uniform
rate filing requirements to be followed by distribution facilities
for the purposes of unbundling rates. 21
A proper appreciation of the UFR shows that it simply specifies
a uniform accounting system to be complied with by a
distribution facility when filing an application for revised rates
under the EPIRA. As the EPIRA requires the unbundling or
segregation of rates according to the different sectors of the
electric power industry, the UFR seeks to facilitate this process
by properly identifying the accounts or information required
for proper evaluation by the ERB. Thus, the introductory
statements of the UFR provide:
These uniform rate filing requirements are intended to
promote consistency and completeness in the rate filings
required by Republic Act No. 9136 (RA 9136), Section 36. To
that end, the filing requirements only specify minimum form
and content. A rate application in all its aspects continues to be
subject to subsequent Commission review and deliberation.22
At the onset, it is clear that the UFR does not seek to determine
which accounting method will be used by the ERC for
determination of rate base or the items of expenses that may
be recovered by a public utility from its customers.The UFR only
seeks to prescribe a uniform system or format to standardize
or facilitate the process of unbundling of rates mandated by
the EPIRA. At best, the UFR prescribes the set of raw data or
figures to be disclosed by a distribution facility that the ERC will
need to determine the authorized rates that a distribution
facility may charge. The UFR does not, in any way, determine
the manner by which the set of data or figures indicated in the
rate application will be evaluated by the ERC for rate
determination purposes.
II
MERALCO also challenges the use of the "net average
investment method" or the "number of months use method"
on the ground that MERALCO and the Public Service
Commission (PSC) have been consistently applying the
"average investment method" or "simple average", which it
alleged was also affirmed by this Court in the case of MERALCO
v. PSC23 and Republic v. Medina.24
It is true that in MERALCO v. PSC,25 the issue of the proper
valuation method to be used in determining the value of
MERALCO's utility plants for rate fixing purposes was brought
to fore. In the said case, MERALCO applied the "average
investment method" or "simple average" by obtaining the
average value of the utility plants, using its values at the
beginning and at the end of the test year. In contrast, the
General Auditing Office used the "appraisal method" which
fixes the value of the utility plants by ascertaining the cost of
production per kilowatt and multiplying the same by the total
capacity of said plants, less the corresponding
depreciation.26 In upholding the "average investment method"
used by MERALCO, this Court adopted the findings of the PSC
for being "by and large, supported by the records of the
case."27 This Court did not make an independent assessment
of the validity or applicability of the average investment
method but simply did not disturb the findings of the PSC for
being supported by substantial evidence. To conclude that the
said decision "affirmed" the use of the "average investment
method" thereby implying that the said method is the only
method to be applied in all instances, is a strained reading of
the decision.
In fact, in the case of Republic v. Medina, 28 also cited by
MERALCO to have affirmed the use of the "average investment
method", this Court ruled:
The decided weight of authority, however, is to the effect
that property valuation is not to be solved by formula but
depends upon the particular circumstances and relevant facts
affecting each utility as to what constitutes a just rate base and
what would be a fair return, just to both the utility and the
public.29
Further, Mr. Justice Castro in his concurring opinion in the
same case elucidated:
A regulatory commission's field of inquiry, however, is not
confined to the computation of the cost of service or capital
nor to a mere prognostication of the future behavior of the
money and capital markets. It must also balance investor and
consumer expectations in such a way that broad requirements
of public interest may be meaningfully realized. It would hence
appear in keeping with its public duty if a regulatory body is
allowed wide discretion in the choice of methods rationally
related to the achievement of this end.30
Thus, the rule then as it is now, is that rate regulating
authorities are not hidebound to use any single formula or
combination of formulas for property valuation purposes
because the rate-making process involves the balancing of
investor and consumer interests which takes into account
various factors that may be unique or peculiar to a particular
rate revision application.
We again stress the long established doctrine that findings of
administrative or regulatory agencies on matters which are
within their technical area of expertise are generally accorded
not only respect but at times even finality if such findings and
conclusions are supported by substantial evidence. 31 Rate
fixing calls for a technical examination and a specialized review
of specific details which the courts are ill-equipped to enter,
hence, such matters are primarily entrusted to the
administrative or regulating authority.32
Thus, this Court finds no reversible error on the part of the COA
and the ERB in adopting the "net average investment method"
or the "number of months use method" for property valuation
purposes in the cases at bar.
III
MERALCO also rants against the retroactive application of the
rate adjustment ordered by the ERB and affirmed by this Court.
In its decision, the ERB, after authorizing MERALCO to adopt a
rate adjustment in the amount of P0.017 per kwh, directed
MERALCO to refund or credit to its customers' future
consumption the excess average amount of P0.167 per kwh
from its billing cycles beginning February 199433 until its billing
cycles beginning February 1998.34In the decision appealed
from, this Court likewise ordered that the refund in the
average amount of P0.167 per kwh be made to retroact from
MERALCO's billing cycles beginning February 1994.
MERALCO contends that the refund cannot be given
retroactive effect as the figures determined by the ERB only
apply to the test year or the period subject of the COA Audit,
i.e., February 1, 1994 to January 31, 1995. It reasoned that the
amounts used to determine the proper rates to be charged by
MERALCO would vary from year to year and thus the
computation of the excess average charge of P0.167 would
hold true only for the test year. Thus, MERALCO argues that if
a refund of P0.167 would be uniformly applied to its billing
cycles beginning 1994, with respect to periods after January
31, 1995, there will be instances wherein its operating
revenues would fall below the 12% authorized rate of return.
MERALCO therefore suggests that the dispositive portion be
modified and order that "the refund applicable to the periods
after January 31, 1995 is to be computed on the basis of the
excess collection in proportion to the excess over the 12%
return."35
The purpose of the audit procedures conducted in a rate
application proceeding is to determine whether the rate
applied for will generate a reasonable return for the public
utility, which, in accordance with settled laws and
jurisprudence, is 12% on rate base or the present value of the
assets used in the operations of a public utility. For audit
purposes, however, there is a need to obtain a sample set of
data-- usually derived from figures within a designated period
of time-- to determine the amount of returns obtained by a
public utility during such period. In the cases at bar, the COA
conducted an audit for the test year beginning February 1,
1994 and ending January 31, 1995 or a 12-month period
immediately after the order of the ERB granting a provisional
increase in the amount of P0.184 per kwh was issued. Thus,
the ultimate issue resolved by the COA when it conducted its
audit was whether the provisional increase granted by the ERB
generated an amount of return well within the rates
authorized by law. As stated earlier, based on the findings of
the ERB, with the increase of P0.184 per kwh, MERALCO
obtained a rate of return which was 8.15% more than the
authorized rate of return of 12%.36 Thus, a refund in the
amount of P0.167 was determined and ordered by ERB.
The essence of the use of a "test year" for auditing purposes is
to obtain a sample or representative set of figures to enable
the examining authority to arrive at a conclusion or finding
based on the gathered data. The use of a "test year" does not
mean that the information and conclusions so derived would
only be correct for that year and would be incorrect on the
succeeding years. The use of a "test year" assumes that within
a reasonable period after such test year, figures used to
determine the amount of return would only vary slightly from
the figures culled during the test year such that the impact on
the utility's rate of return would not be very significant. Thus,
in the event that there is a substantial change in circumstances
significantly affecting the variable amounts that would
determine the reasonableness of a return, an event which
would normally occur after a certain period of time has
elapsed, the public utility may subsequently apply for a rate
revision.
We agree with the Solicitor General that following MERALCO's
reasoning that the figures culled from a test year would only
be relevant during such year, there would be a need for public
utilities to apply for a rate adjustment every year and perform
an audit examination on a public utility's books of
accounts every year as the amount of a utility's revenue may
fall above or below the authorized rates at any given year.
Needless to say, the trajectory of MERALCO's arguments will
lead to an absurdity.
From the time the order granting a provisional increase was
issued by the ERB, nowhere in the records does it appear that
the subsequent refund of P0.167 per kwh ordered by the ERB
was ever implemented or executed by
MERALCO.37 Accordingly, from January 28, 1994 MERALCO
imposed on its customers a charge that is P0.167 in excess of
the proper amount. In fact, any application for rate adjustment
that may have been applied for and/or granted to MERALCO
during the intervening period would have to be reckoned from
rates increased by P0.184 per kwh as these were the rates
prevailing at the time any application for rate adjustment was
made by MERALCO.
While we agree that the amounts used to determine the
utility's rate of return would vary from year to year, we are
unable to subscribe to the view that the refund applicable to
the periods after January 31, 1995 should be computed on the
basis of the excess collection in proportion to the excess over
the 12% return. MERALCO's contention that the refund for
periods after January 31, 1995 should be computed on the
basis of revenue of each year in excess of the 12% authorized
rate of return calls for a year-by-year computation of
MERALCO's revenues and assets which would be contrary to
the essence of an audit examination of a public utility based on
a test year. To grant MERALCO's prayer would, in effect, allow
MERALCO the benefit of a year-by-year adjustment of rates
not normally enjoyed by any other public utility required to
adopt a subsequent rate modification. Indeed, had the ERB
ordered an increase in the provisional rates it previously
granted, said increase in rates would apply retroactively and
would not have varied from year to year, depending on the
variable amounts used to determine the authorized rates that
may be charged by MERALCO. We find no significant
circumstance prevailing in the cases at bar that would justify
the application of a yearly adjustment as requested by
MERALCO.
WHEREFORE, in view of the foregoing, the petitioner's Motion
for Reconsideration is DENIED WITH FINALITY.
SO ORDERED.
Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.
Panganiban, J., please see separate opinion.
Separate Opinions
PANGANIBAN, J.:
After perusing the respondent's Motion for Reconsideration,
the Comment thereon by the Office of the Solicitor General
(OSG) and the other pleadings filed by the parties, I believe
there are still lingering questions that need to be answered or
clarified before the Motion for Reconsideration should be
resolved. Some of the more important questions are the
following:
Effect of
Self-Reversal
First, this case reached this Court because the Energy
Regulatory Board (ERB), now known as the Energy Regulatory
Commission (ERC), appealed to us the Decision of the Court of
Appeals (CA), which upheld Meralco. In its Comment to
Meralco's Motion for Reconsideration, however, the OSG — as
counsel for ERC — informed this Court that ERC has reversed
its position and now believes that "income taxes . . . are
reasonable costs that may be recoverable from the consuming
public." In the words of the ponencia, ERC "agrees with
Meralco that to disallow public utilities from recovering its
income tax payments will effectively lower the return on rate
base enjoyed by a public utility to 8%."
1. By reversing itself, is the ERC effectively abandoning its
appeal before this Court? If so, is it still proper for this Court to
uphold the old ERB Decision? Be it remembered that our own
Decision is anchored on the theory that ERB should be
affirmed, because it is the knowledgeable and specialized
government agency tasked with electric rate determination,
and thus its findings and opinions — unless obviously faulty —
merit full faith and credit.
2. Is the OSG, as counsel for the ERC and the government,
authorized to argue against its own clients' position and
thereby leave them without any lawyer?
Effects of
EPIRA Law
Second, in its Comment, OSG informs us that a new law, RA
9136 — the Electric Power Industry Reform Act (EPIRA) — was
enacted on June 16, 2002. This law allegedly authorizes ERC to
determine rates that will "allow the recovery of a just and
reasonable return of rate base (RORB) to enable the entity to
operate viably." On this basis, ERC opines that actual income
taxes paid should now be deemed "reasonable costs" of
operating a public utility.
1. Does this mean that effective June 16, 2002, ERC may allow
the deduction of income taxes from operating expenses? Does
this render our Decision obsolete?
Our Decision Allegedly
Reduce Earnings to Only 8%
Third, citing the report of the Commission on Audit (COA), the
OSG originally opined that MERALCO — after the infusion of
the provisional rate increase of 18.4 centavos — would still
earn 13% RORB if income taxes are not treated as operating
expenses, and 20% if they are deducted as operating expenses.
1. If this is so, why is Meralco still complaining that the old ERB
Decision, which this Court is affirming, bars it from earning the
maximum allowable profit of 12%? How accurate are the OSG
ERC's
and COA computations? Or, is Meralco just misleading the
Court?
2. In any event, despite the COA figures, the OSG contends that
— at least theoretically — Meralco's profit would be reduced
by our Decision to a maximum of only 8% RORB, instead of the
allowable 12%. At the same time, it justifies the 8% RORB by
arguing that the World Bank and the Asian Development Bank
consider a public utility of 8% RORB still viable (p. 42 of the OSG
Comment). Which is which?
Special Privilege
to Meralco
Fourth, in its Comment, the OSG argues that other public
utilities are not allowed to deduct income taxes as operating
expenses. Why then should Meralco be given this special
privilege, it rhetorically asks?
1. Is this true? If so, why has the ERC changed its position? Why
is it now allowing Meralco to deduct income tax payments as
"reasonable costs" of operation?
Oral Argument
Is the Proper Thing
The foregoing are the more important questions I posed when
I asked the Third Division to refer this case to the Court en banc
and to conduct oral arguments on the Motion for
New Reconsideration of Meralco. These questions were not fully
taken up by the pleadings of the parties. Thus, it would be
pretentious for me to render an opinion on them. On the other
hand, I believe that a decision that does not take up these
questions would be incomplete.

Hearing the parties on Oral Argument before the entire Court

or even by just the Third Division, prior to resolving with
finality the motion for reconsideration on a very important
matter such as the present case is not unusual. In fact, with
due respect, I believe that this is the proper thing to do.

After all, very recently in PLDT v. City of Davao (GR No. 143863,
March 27, 1993), the Court en banc conducted an Oral
Argument on the Motion for Reconsideration challenging the
unanimous Decision of the Second Division. That case involved
the legality of whether a local government unit (LGU) like the
City of Davao may impose local taxes on the Philippine Long
Distance Telephone Company. The amount involved there was
only about P4 million. On the other hand, the present case
involves the refund of about P2.5 billion per year starting 1994,
or about P20 billion up to the year 2003.

Apart from the monetary consideration, I believe the issues

raised — including the foregoing questions — are important
enough to merit a hearing also. May I stress that this case will
affect not only Meralco and its customers but all electric
utilities and all their customers all over the Philippines, which
means this case will affect all the people of this country.

Finally, it is interesting to note that the unanimous Second

Division Decision in the above cited PLDT case was upheld by
the banc with some dissents led by the herein ponente, Mr.
Justice Reynato S. Puno himself, but only after a full hearing by
the full Court.

WHEREFORE, I regret I cannot cast my vote in favor of (or even

against) the ponencia until and unless an Oral Argument is first
called, preferably by the full Court, to clarify the above
questions.
 G. R. No. 141949 - October 14, 2002
Elevated Portion 75.00 75.00 150.00 225.00
CEFERINO PADUA, Petitioner, vs. HON. SANTIAGO RANADA,
PRESIDING JUDGE OF MAKATI, RTC, BRANCH 137, At-Grade Portion
PHILIPPINE NATIONAL CONSTRUCTION CORP.,
TOLL REGULATORY BOARD, Magallanes to Bicutan 19.35 19.50 38.50 58.00
DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, and
REPUBLIC OF THE PHILIPPINES, Respondents.
Bicutan to Sucat 11.21 11.00 22.50 34.00
-----------------------------

G. R. No. 151108 - October 14, 2002 Sucat to Alabang 10.99 11.00 21.00 32.50

EDUARDO C. ZIALCITA, Petitioner, vs. TOLL REGULATORY * includes C5 entry/exit and Merville exit.
BOARD AND CITRA METRO MANILA TOLLWAYS
CORPORATION, Respondents. "For implementation starting January 1, 2002 after its
publication once a week for three (3) consecutive weeks in a
DECISION newspaper of general circulation and that said Provisional Toll
Rate Increase shall remain in effect until such time that the TRB
SANDOVAL-GUTIERREZ, J.:
Board has determined otherwise:
The focal point upon which these two consolidated cases
"Be APPROVED as it is hereby APPROVED.
converge is whether Resolution No. 2001-89 issued by the Toll
Regulatory Board (TRB) is valid. "RESOLVED FURTHERMORE, as it is hereby RESOLVED that the
Provisional Toll Rates be implemented in two (2) stages in
A brief narration of the factual backdrop is imperative, thus:
accordance with the following schedule:
On November 9, 2001, the TRB issued Resolution No. 2001-89
authorizing provisional toll rate adjustments at the Metro Unrounded Toll Toll Rates for Implementation For Class 1 as Refer
Manila Skyway, effective January 1, 2002,[1] thus: Rates as
Section
Maximum for JANUARY 1, 2002 to JULY JUNE 30, 2002
"NOW THEREFORE, it is RESOLVED, as it is hereby RESOLVED:
One (1) Year 1, 2002 DECEMBER 31, 2002
1. That in view of urgent public interest, the Board hereby
GRANTS to the Metro Manila Skyway Project, Provisional Relief Elevated
in accordance with Rule 10, Section 3 of the Rules of Practice 75.00 65.00 75.00
Portion
and Procedure Governing Hearing before the Toll Regulatory
Board which states, among others "that the Board may grant
At-Grade
(provisional relief).in its own initiative.without prejudice to the
Portion
final decision after completion of the hearing.;"

2. That the Provisional Relief shall be in form of an interim toll

Magallanes to
rate adjustment in accordance with Section 7.04(3) ofBicutan the 19.35 15.00 20.00
Supplemental Toll Operation Agreement, dated November 27,
1995, referring to Interim Adjustments in Toll Rates upon the
Bicutan to
occurrence of a significant currency devaluation: 11.21 9.00 11.00
Sucat
"Be APPROVED, as it is hereby APPROVED.

"RESOLVED FURTHER, as it is hereby RESOLVED: Sucat to

10.99 9.00 11.00
Alabang
"That the ProvisionalToll Rates, which are not to exceed the
following: "PROVIDED that the recovery of the sum from the interim rate
adjustment shall be applied starting the year 2003.
Toll Rates for Implementation
Unrounded "APPROVED as it is hereby APPROVED."
Section
Toll Rates
CLASS 1 CLASS 2 CLASS 3 On December 17, 24 and 31, 2001, the above Resolution
approving provisional toll rate adjustments was published in
the newspapers of general circulation.[2]
Tracing back the events that led to the issuance of the said
Resolution, it appears that on February 27, 2001 the Citra
Metro Manila Tollways Corporation (CITRA) filed with the TRB
an application for an interim adjustment of the toll rates at the
Metro Manila Skyway Project - Stage 1.[3] CITRA moored its
petition on the provisions of the "Supplemental Toll Operation
Agreement" (STOA),[4] authorizing it, as the investor, to apply
for and if warranted, to be granted an interim adjustment of
toll rates in the event of a "significant currency devaluation."
The relevant portions of the STOA read:
a. The Investor and/or the Operator shall be entitled to apply
for and if warranted, to be granted an interim adjustment of
Toll Rates upon the occurrence of any of the following events:
xxx-xxx
(ii) a significant currency devaluation
xxx-xxx
(i) A currency devaluation shall be deemed "significant" if it
results in a depreciation of the value of the Philippine peso
relative to the US dollar by at least 10%. For purposes hereof
the exchange rate between the Philippine peso and the US
dollar which shall be applicable shall be the exchange rate
between the above mentioned currencies in effect as of the
date of approval of the prevailing preceding Toll Rate.
(ii) The Investor's right to apply for an interim Toll Rate
adjustment under section 7.04 (3) (a) (ii) shall be effective only
while any Financing is outstanding and have not yet been paid
in full.
xxx-xxx
(iv) An interim adjustment in Toll Rate shall be considered such
amount as may be required to provide interim relief to the
Investor from a substantial increase in debt-service burden
resulting from the devaluation."[5]
Claiming that the peso exchange rate to a U.S. dollar had
devaluated from P26.1671 in 1995 to P48.00 in 2000, CITRA
alleged that there was a compelling need for the increase of
the toll rates to meet the loan obligations of the Project and
the substantial increase in debt-service burden.
Due to heavy opposition, CITRA's petition remained
unresolved. This prompted CITRA to file on October 9, 2001 an
"Urgent Motion for Provisional Approval,"[6] this time,
invoking Section 3, Rule 10 of the "Rules of Practice and
Procedure Governing Hearing Before the Toll Regulatory
Board" (TRB Rules of Procedure) which provides:
"SECTION 3. Provisional Relief. - Upon the filing of an
application or petition for the approval of the initial toll rate or
toll rate adjustment, or at any stage, thereafter, the Board may
grant on motion of the pleader or in its own initiative, the relief
prayed for without prejudice to a final decision after
completion of the hearing should the Board find that the
pleading, together with the affidavits and supporting
documents attached thereto and such additional evidence as
may have been requested and presented, substantially
support the provisional order; Provided: That the Board may,
motu proprio, continue to issue orders or grant relief in the
exercise of its powers of general supervision under existing
laws. Provided: Finally, that pending finality of the decision,
the Board may require the Petitioner to deposit in whole or in
part in escrow the provisionally approved adjustment or initial
toll rates." (Emphasis supplied)
On October 30, 2001, CITRA moved to withdraw[7] its "Urgent
Motion for Provisional Approval" without prejudice to its right
to seek or be granted provisional relief under the above-
quoted provisions of the TRB Rules of Procedure, obviously,
referring to the power of the Board to act on its own initiative.
On November 7, 2001, CITRA wrote a letter[8] to TRB
expressing its concern over the undue delay in the proceeding,
stressing that any further setback would bring the Project's
financial condition, as well as the Philippine banking system, to
a total collapse. CITRA recounted that out of the US$354
million funding from creditors, two-thirds (2/3) thereof came
from the Philippine banks and financial institutions, such as the
Landbank of the Philippines and the Government Service
Insurance Services. Thus, CITRA requested TRB to find a timely
solution to its predicament.
On November 9, 2001, TRB granted CITRA's motion to
withdraw[9] the Urgent Motion for Provisional Approval and,
at the same time, issued Resolution No. 2001-89,[10] earlier
quoted.
Hence, petitioners Ceferino Padua and Eduardo Zialcita assail
before this Court the validity and legality of TRB Resolution No.
2001-89.
Petitioner Ceferino Padua, as a toll payer, filed an "Urgent
Motion for a Temporary Restraining Order to Stop Arbitrary
Toll Fee Increases"[11] in G.R. No. 141949,[12] a petition for
mandamus earlier filed by him. In that petition, Padua seeks to
compel respondent Judge Santiago Ranada of the Regional
Trial Court, Branch 137, Makati City, to issue a writ of
execution for the enforcement of the Court of Appeals'
Decision dated August 4, 1989 in CA-G.R. SP No. 13235. In its
Decision, the Court of Appeals ordered the exclusion of certain
portions of the expressways (from Villamor Air Base to Alabang
in the South, and from Balintawak to Tabang in the North) from
the franchise of the PNCC.
In his urgent motion, petitioner Padua claims that: (1)
Resolution No. 2001-89 was issued without the required
publication and in violation of due process; (2) alone, TRB
Executive Director Jaime S. Dumlao, Jr., could not authorize
the provisional toll rate adjustments because the TRB is a
collegial body; and (3) CITRA has no standing to apply for a toll
fee increase since it is an "investor" and not a "franchisee-
operator."
On January 4, 2002, petitioner Padua filed a "Supplemental
Urgent Motion for a TRO against Toll Fee Increases,"[13]
arguing further that: (1) Resolution 2001-89 refers exclusively
to the Metro Manila Skyway Project, hence, there is no legal
basis for the imposition of the increased rate at the at-grade
portions; (2) Resolution No. 2001-89 was issued without basis
considering that while it was signed by three (3) of the five
members of the TRB, none of them actually attended the
hearing; and 3) the computation of the rate adjustment under
the STOA is inconsistent with the rate adjustment formula
under Presidential Decree No. 1894.[14]
On January 10, 2002, the Office of the Solicitor General (OSG)
filed, in behalf of public respondent TRB, Philippine National
Construction Corporation (PNCC), Department of Public Works
and Highways (DPWH) and Judge Ranada, a "Consolidated
Comment"[15] contending that: (1) the TRB has the exclusive
jurisdiction over all matters relating to toll rates; (2) Resolution
No. 2001-89 covers both the Skyway and the at-grade level of
the South Luzon Expressway as provided under the STOA; (3)
that while Resolution No. 2001-89 does not mention any
factual basis to justify its issuance, however, it does not mean
that TRB's finding of facts is not supported by evidence; and (4)
petitioner Padua cannot assail the validity of the STOA because
he is not a party thereto.
Upon the other hand, on January 9, 2002, petitioner Eduardo
Zialcita, as a taxpayer and as Congressman of Parañaque City,
filed the present petition for prohibition[16] with prayer for a
temporary restraining order and/or writ of preliminary
injunction against TRB and CITRA, docketed as G.R. No.
151108, impugning the same Resolution No. 2001-89.
Petitioner Zialcita asserts that the provisional toll rate
adjustments are exorbitant and that the TRB violated its own
Charter, Presidential Decree No. 1112,[17] when it
promulgated Resolution No. 2001-89 without the benefit of
any public hearing. He also maintains that the TRB violated the
Constitution when it did not express clearly and distinctly the
facts and the law on which Resolution No. 2001-89 was based.
And lastly, he claims that Section 3, Rule 10 of the TRB Rules of
Procedure is not sanctioned by P.D. No. 1112.
Private respondent CITRA, in its comment[18] on Congressman
Zialcita's petition, counters that: (1) the TRB has primary
administrative jurisdiction over all matters relating to toll
rates; (2) prohibition is an inappropriate remedy because its
function is to restrain acts about to be done and not acts
already accomplished; (3) Resolution No. 2001-89 was issued
in accordance with law; (4) Section 3, Rule 10 of the TRB Rules
is constitutional; and (5) private respondent and the Republic
of the Philippines would suffer more irreparable damages than
petitioner.
The TRB, through the OSG, filed a separate comment[19]
reiterating the same arguments raised by private respondent
CITRA.
On January 11, 2002, this Court resolved to consolidate the
instant petitions, G.R. No. 141949 and G.R. No. 151108.[20]
We rule for the respondents.
In assailing Resolution No. 2001-89, petitioners came to us via
two unconventional remedies - one is an urgent motion for a
TRO to stop arbitrary toll fee increases; and the other is a
petition for prohibition. Unfortunately, both are procedurally
impermissible.
I
Petitioner Padua's motion is a leap to a legal contest of
different dimension. As previously stated, G.R. No. 141949 is a
petition for mandamus seeking to compel respondent Judge
Ranada to issue a writ of execution for the enforcement of the
Court of Appeal's Decision dated August 4, 1989 in CA-G.R. SP
No. 13235. The issue therein is whether the application for a
writ of execution should be by a mere motion or by an action
for revival of judgment. Thus, for petitioner Padua to suddenly
interject in the same petition the issue of whether Resolution
No. 2001-89 is valid is to drag this Court to his web of legal
convolution. Courts cannot, as a case progresses, resolve the
intrinsic merit of every issue that comes along its way,
particularly those which bear no relevance to the resolution of
the case.
Certainly, petitioner Padua's recourse in challenging the
validity of TRB Resolution No. 2001-89 should have been to
institute an action, separate and independent from G.R. No.
141949.
II
The remedy of prohibition initiated by petitioner Zialcita in
G.R. No. 151108 also suffers several infirmities. Initially, it
violates the twin doctrine of primary administrative
jurisdiction and non-exhaustion of administrative remedies.
P.D. No. 1112 explicitly provides that "the decisions of the TRB
on petitions for the increase of toll rate shall be appealable to
the Office of the President within ten (10) days from the
promulgation thereof."[21] P.D. No. 1894 reiterates this
instruction and further provides:
"SECTION 9. The GRANTEE shall have the right and authority to
adjust any existing toll being charged the users of the
Expressways under the following guidelines:
xxx-xxx
c) Any interested Expressways user shall have the right to file,
within a period of ninety (90) days after the date of publication
of the adjusted toll rate (s), a petition with the Toll Regulatory
Board for a review of the adjusted toll rate (s); provided,
however, that notwithstanding the filing of such petition and
the pendency of the resolution thereof, the adjusted toll shall
be enforceable and collectible by the GRANTEE effective on
the first day of January in accordance with the immediately
preceding paragraph.
xxx-xxx
e) Decisions of the Toll Regulatory Board on petitions for
review of adjusted toll shall be appealable to the Office of the
President within ten (10) days from the promulgation thereof."
These same provisions are incorporated in the TRB Rules of
Procedure, particularly in Section 6, Rule 5 and Section 1, Rule
12 thereof.[22]
Obviously, the laws and the TRB Rules of Procedure have
provided the remedies of an interested Expressways user.[23]
The initial proper recourse is to file a petition for review of the
adjusted toll rates with the TRB. The need for a prior resort to
this body is with reason. The TRB, as the agency assigned to
supervise the collection of toll fees and the operation of toll
facilities, has the necessary expertise, training and skills to
judiciously decide matters of this kind. As may be gleaned from
the petition, the main thrust of petitioner Zialcita's argument
is that the provisional toll rate adjustments are exorbitant,
oppressive, onerous and unconscionable. This is obviously a
question of fact requiring knowledge of the formula used and
the factors considered in determining the assailed rates.
Definitely, this task is within the province of the TRB.
We take cognizance of the wealth of jurisprudence on the
doctrine of primary administrative jurisdiction and exhaustion
of administrative remedies. In this era of clogged court
dockets, the need for specialized administrative boards or
commissions with the special knowledge, experience and
capability to hear and determine promptly disputes on
technical matters or intricate questions of facts, subject to
judicial review in case of grave abuse of discretion, is
indispensable. Between the power lodged in an administrative
body and a court, the unmistakable trend is to refer it to the
former."[24] In Industrial Enterprises, Inc. vs. Court of
Appeals,[25] we ruled:
"x x x, if the case is such that its determination requires the
expertise, specialized skills and knowledge of the proper
administrative bodies because technical matters or intricate
questions of facts are involved, then relief must first be
obtained in an administrative proceeding before a remedy will
be supplied by the courts even though the matter is within the
proper jurisdiction of a court."
Moreover, petitioner Zialcita's resort to prohibition is
intrinsically inappropriate. It bears stressing that the office of
this remedy is not to correct errors of judgment but to prevent
or restrain usurpation of jurisdiction or authority by inferior
tribunals and to compel them to observe the limitation of their
jurisdictions. G.R. No. 151108, while designated as a petition
for prohibition, has for its object the setting aside of Resolution
No. 2001-89 on the ground that it was issued without prior
notice, hearing and publication and that the provisional toll
rate adjustments are exorbitant. This is not the proper subject
of prohibition because as long as the inferior court, tribunal or
board has jurisdiction over the person and subject matter of
the controversy, the writ will not lie to correct errors and
irregularities in procedure, or to prevent an erroneous
decision or an enforcement of an erroneous judgment. And
even in cases of encroachment, usurpation, and improper
assumption of jurisdiction, the writ will not issue where an
adequate and applicable remedy by appeal, writ or error,
certiorari, or other prescribed methods of review are
available.[26] In this case, petitioner Zialcita should have
sought a review of the assailed Resolution before the TRB.
III
Even granting that petitioners' recourse to the instant
remedies is in order, still, we cannot rule in their favor.
For one, it is not true that the provisional toll rate adjustments
were not published prior to its implementation on January 1,
2002. Records show that they were published on December
17, 24 and 31, 2001[27] in three newspapers of general
circulation, particularly the Philippine Star, Philippine Daily
Inquirer and The Manila Bulletin. Surely, such publications
sufficiently complied with Section 5 of P.D. No. 1112 which
mandates that "no new rates shall be collected unless
published in a newspaper of general publication at least once
a week for three consecutive weeks." At any rate, it must be
pointed out that under Letter of Instruction No. 1334-A,[28]
the TRB may grant and issue ex-parte to any petitioner,
without need of notice, publication or hearing, provisional
authority to collect, pending hearing and decision on the
merits of the petition, the increase in rates prayed for or such
lesser amount as the TRB may in its discretion provisionally
grant. That LOI No. 1334-A has the force and effect of law finds
support in a catena of cases decreeing that "all proclamations,
orders, decrees, instructions, and acts promulgated, issued, or
done by the former President (Ferdinand E. Marcos) are part
of the law of the land, and shall remain valid, legal, binding,
and effective, unless modified, revoked or superseded by
subsequent proclamations, orders, decrees, instructions, or
other acts of the President."[29] In Association of Small
Landowners in the Philippines, Inc. vs. Secretary of Agrarian
Reform,[30] this Court held:
"The Court wryly observes that during the past dictatorship,
every presidential issuance, by whatever name it was called,
had the force and effect of law because it came from President
Marcos. Such are the ways of despots. Hence, it is futile to
argue, as the petitioners do in G.R. No. 79744, that LOI 474
could not have repealed P.D. No. 27 because the former was
only a letter of instruction. The important thing is that it was
issued by President Marcos, whose word was law during that
time." (Emphasis supplied)
For another, it is not true that it was TRB Executive Director
Dumlao, Jr. alone who issued Resolution No. 2001-89. The
Resolution itself contains the signature of the four TRB
Directors, namely, Simeon A. Datumanong, Emmanuel P.
Bonoan, Ruben S. Reinoso, Jr. and Mario K. Espinosa.[31]
Petitioner Padua would argue that while these Directors
signed the Resolution, none of them personally attended the
hearing. This argument is misplaced. Under our jurisprudence,
an administrative agency may employ other persons, such as a
hearing officer, examiner or investigator, to receive evidence,
conduct hearing and make reports, on the basis of which the
agency shall render its decision. Such a procedure is a practical
necessity.[32] Thus, in Mollaneda vs. Umacob,[33] we ruled:
" x x x At any rate, it cannot be gainsaid that the term
"administrative body or agency" includes the subordinate
officials upon whose hand the body or agency delegates a
portion of its authority. Included therein are the hearing
officers through whose eyes and ears the administrative body
or agency observes the demeanor, conduct and attitude of the
witnesses and listens to their testimonies.
"It must be emphasized that the appointment of competent
officers to hear and receive evidence is commonly resorted to
by administrative bodies or agencies in the interest of an
orderly and efficient disposition of administrative cases. x x x
"x x x Corollarily, in a catena of cases, this Court laid down the
cardinal requirements of due process in administrative
proceedings, one of which is that "the tribunal or body or any
of its judges must act on its or his own independent
consideration of the law and facts of the controversy, and not
simply accept the views of a subordinate." Thus, it is logical to
say that this mandate was rendered precisely to ensure that in
cases where the hearing or reception of evidence is assigned
to a subordinate, the body or agency shall not merely rely on
his recommendation but instead shall personally weigh and
assess the evidence which the said subordinate has gathered."
Be that as it may, we must stress that the TRB's authority to
grant provisional toll rate adjustments does not require the
conduct of a hearing. Pertinent laws and jurisprudence
support this conclusion.
It may be recalled that Former President Ferdinand E. Marcos
promulgated P.D. No. 1112 creating the TRB on March 31,
1977. The end in view was to authorize the collection of toll
fees for the use of certain public improvements in order to
attract private sector investment in the government
infrastructure projects. The TRB was tasked to supervise the
collection of toll fees and the operation of toll facilities. One of
its powers is to "issue, modify and promulgate from time to
time the rates of toll that will be charged the direct users of
toll facilities and upon notice and hearing, to approve or
disapprove petitions for the increase thereof."[34]
To clarify the intent of P.D. No. 1112 as to the extent of the
TRB's power,[35] Former President Marcos further issued LOI
No. 1334-A expressly allowing the TRB to grant ex-parte
provisional or temporary increase in toll rates, thus:
"NOW, THEREFORE, I, FERDINAND E. MARCOS, President of
the Republic of the Philippines, by virtue of the powers vested
in me by the Constitution, do hereby direct, order and instruct
the Toll Regulatory Board to grant and issue ex-parte to any
petitioner, without need of notice, publication or hearing,
provisional authority to collect, pending hearing of and
decision on the merits of such petition, the increase in rates
prayed for or such lesser amount as the Board may in its
discretion provisionally grant, upon (a) a finding that the said
petition is sufficient in form and substance, (b) the submission
of an affidavit by the petitioner showing that the increase in
rates substantially conforms to the formula, if any stipulated
in the franchise or toll operation agreement/certificate of the
petitioner and that failure to immediately impose and collect
the increase in rates would result in outright delay or stoppage
of urgently needed improvements, expansion or repairs of toll
facilities and/or in great irreparable injury to the petitioner,
and (c) the submission by the petitioner to the Board of a bond,
in such amount and from such surety or sureties and under
such terms and conditions as the Board shall fix, to guarantee
the refund of the increase in rates to the affected toll payers in
case it is finally determined, after notice and hearing, that the
petitioner is not entitled, in whole or in part, to the same. Any
provisional toll rate increases shall be effective immediately
upon approval without need of publication."
Thereafter, the TRB promulgated as part of its Rules of
Procedure, the following provision:
"RULE 5
PROCEDURE FOR APPROVAL OF TOLL RATE
"Section 2. Provisional Relief - Upon initial findings of the
Board that the Petition for the approval of initial toll rate or
the petition for toll rate adjustment is in accordance with
Sections 1 and 2 of Rule 2, Section 2 of Rule 3 and Section 1 of
Rule 4 hereof, the Board within a reasonable time after the
filing of the Petition, may in an en banc decision provisionally
approve the initial toll rate or toll rate adjustment, without the
necessity of any notice and hearing."
From the foregoing, it is clear that a hearing is not necessary
for the grant of provisional toll rate adjustment. The language
of LOI No. 1334-A is not susceptible of equivocation. It "directs,
orders and instructs" the TRB to issue provisional toll rates
adjustment ex-parte without the need of notice, hearing and
publication. All that is necessary is that it be issued upon (1) a
finding that the main petition is sufficient in form and
substance; (2) the submission of an affidavit showing that the
increase in rates substantially conforms to the formula, if any
is stipulated in the franchise or toll operation agreement, and
that failure to immediately impose and collect the increase in
rates would result in great irreparable injury to the petitioner;
and (3) the submission of a bond. Again, whether or not CITRA
complied with these requirements is an issue that must be
addressed to the TRB.
The practice is not something peculiar. We have ruled in a
number of cases that an administrative agency may be
empowered to approve provisionally, when demanded by
urgent public need, rates of public utilities without a hearing.
The reason is easily discerned from the fact that provisional
rates are by their nature temporary and subject to adjustment
in conformity with the definitive rates approved after final
hearing.[36] In Maceda vs. Energy Regulatory Board,[37] we
ruled that while the ERB is not precluded from conducting a
hearing on the grant of provisional authority -which is of
course, the better procedure - however, it can not be
stigmatized if it failed to conduct one. Citing Citizens' Alliance
for Consumer Protection vs. Energy Regulatory Board,[38] this
Court held:
In the light of Section 8 quoted above, public respondent
Board need not even have conducted formal hearings in these
cases prior to issuance of its Order of 14 August 1987 granting
a provisional increase of prices. The Board, upon its own
discretion and on the basis of documents and evidence
submitted by private respondents, could have issued an order
granting provisional relief immediately upon filing by private
respondents of their respective applications. In this respect,
the Court considers the evidence presented by private
respondents in support of their applications --.i.e., evidence
showing that importation costs of petroleum products had
gone up; that the peso had depreciated in value; and that the
Oil Price Stabilization Fund (OPSF) had been depleted - as
substantial and hence constitutive of at least prima facie basis
for issuance by the Board of a provisional relief order granting
an increase in the prices of petroleum products.
Anent petitioner Padua's contention that CITRA has no
standing to apply for a toll fee increase, suffice it to say that
CITRA's right stems from the STOA which was entered into by
no less than the Republic of the Philippines and by the PNCC.
Section 7.04 of the STOA provides that the Investor, CITRA,
and/or the Operator, PNCC, shall be entitled to apply for and if
warranted, to be granted an interim adjustment of toll rates in
case of force majeure and a significant currency valuation.[39]
Now, unless set aside through proper action, the STOA has the
force and effect of law between the contracting parties, and is
entitled to recognition by this Court. [40] On the same breath,
we cannot sustain Padua's contention that the term "Metro
Manila Skyway" Project excludes the at-grade portions of the
South Luzon Expressway considering that under the same
STOA the "Metro Manila Skyway" includes: "(a) the South
Metro Manila Skyway, coupled with the rehabilitated at-grade
portion of the South Luzon Expressway, from Alabang to
Quirino Avenue; (b) the Central Metro Manila Skyway, from
Quirino Avenue to A. Bonifacio Avenue; x x x."[41]
Petitioner Zialcita faults the TRB for not stating the facts and
the law on which Resolution No. 2001-89 is based. Petitioner
is wrong. Suffice it to state that while Section 14, Article VIII of
the 1987 Constitution provides that "no decision shall be
rendered by any court without expressing therein clearly and
distinctly the facts and the law on which it is based," this rule
applies only to a decision of a court of justice, not TRB.[42]
At this point, let it be stressed that we are not passing upon
the reasonableness of the provisional toll rate adjustments. As
we have earlier mentioned, this matter is best addressed to
the TRB.
IV
In fine, as what we intimated in Philippine National
Construction Corp. vs. Court of Appeals,[43] we commend
petitioners for devoting their time and effort on a matter so
imbued with public interest as in this case. But we can do no
better than to brush aside their chief objections to the
provisional toll rate adjustments, for a different approach
would lead this Court astray into the field of factual conflict
where its pronouncements would not rest on solid grounds.
Time and again, we have impressed that this Court is not a trier
of facts, more so, in the consideration of an extraordinary
remedy of prohibition where only questions of lack or excess
of jurisdiction or grave abuse of discretion is to be entertained.
And to accord the main petition for mandamus in G.R. No.
141949 the full deliberation it deserves, we deem it
appropriate to discuss its merit on another occasion. Anyway,
G.R. No. 141949 was consolidated with G.R. No. 151108 only
by reason of petitioner Padua's deviant motion assailing
Resolution 2001-89. As we have previously said, the main
petition in G.R. No. 141949 presents an entirely different issue
and is set on a different factual landscape.
WHEREFORE, petitioner Padua's "Urgent Motion for
Temporary Restraining Order to Stop Arbitrary Toll Fee
Increases" is DENIED and petitioner Zialcita's "Petition for
Prohibition" is DISMISSED.
SO ORDERED.