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G.R. No. 131282 January 4, 2002
GABRIEL L. DUERO, petitioner,
vs.
HON.COURT OF APPEALS, and BERNARDO A. ERADEL, respondents.
This petition for certiorari assails the Decisionl dated September 17, 1997,
of the Court of Appeals in CA-G.R. No. SP No.. 2340- UDK, entitled
Bernardo Eradel vs. Non. Ermelino G. Andal, setting aside all proceedings
in Civil Case No.1075, Gabriel L. Duero vs. Bernardo Eradel, before the
Branch 27 of the Regional Trial Court of Tandag, Surigao del Sur .
The pertinent facts are as follow.
Sometime in 1988, according to petitioner, private respondent Bemardo
Eradel2 entered and occupied petitioner's land covered by Tax Declaration
No. A-16-13-302, located in Baras, San Miguel, Surigao del Sur. As shown
in the tax declaration, the land had an assessed value of P5,240. When
petitioner politely informed private respondent that the land was his and
requested the latter to vacate the land, private respondent refused, but
instead threatened him with bodily harm. Despite repeated demands,
private respondent remained steadfast in his refusal to leave the land.
On June 16, 1995, petitioner filed before the RTC a complaint for Recovery
of Possession and Ownership with Damages and Attorney's Fees against
private respondent and two others, namely, Apolinario and Inocencio
Ruena. Petitioner appended to the complaint the aforementioned tax
declaration. The counsel of the Ruenas asked for extension to file their
Answer and was given until July 18, 1995. Meanwhile, petitioner and the,
Ruenas executed a compromise agreement, which became the trial
court's basis for a partial judgment rendered on January 12, 1996. In this
agreement, the Ruenas through their counsel, Atty. Eusebio Avila, entered
into a Compromise Agreement with herein petitioner, Gabriel Duero. Inter
alia, the agreement stated that the Ruenas recognized and bound
themselves to respect the ownership and possession of Duero.3 Herein
private respondent Eradel was not a party to the agreement, and he was
declared in default for failure to file his answer to the complaint.4
Petitioner presented his evidence ex parte on February 13, 1996. On May
8, 1996, judgment was rendered in his favor, and private respondent was
ordered to peacefully vacate and turn over Lot No.1065 Cad. 537-D to
petitioner; pay petitioner P2,000 annual rental from 1988 up the time he
vacates the land, and P5,000 as attorney's fees and the cost of the suit. 5
Private respondent received a copy of the decision on May 25, 1996.
On June 10, 1996, private respondent filed a Motion for New Trial, alleging
that he has been occupying the land as a tenant of Artemio Laurente, Sr.,
since 1958. He explained that he turned over the complaint and summons
to Laurente in the honest belief that as landlord, the latter had a better
right to the land and was responsible to defend any adverse claim on it.
However, the trial court denied the motion for new trial.
Meanwhile, RED Conflict Case No.1029, an administrative case between
petitioner and applicant-contestants Romeo, Artemio and Jury Laurente,
remained pending with the Office of the Regional Director of the

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Department of Environment and Natural Resources in Davao City.
Eventually, it was forwarded to the DENR Regional Office in Prosperidad,
Agusan del Sur .
On July 24, 1996, private respondent filed before the RTC a Petition for
Relief from Judgment, reiterating the same allegation in his Motion for New
Trial. He averred that unless there is a determination on who owned the
land, he could not be made to vacate the land. He also averred that the
judgment of the trial court was void inasmuch as the heirs of Artemio
Laurente, Sr., who are indispensable parties, were not impleaded.
On September 24, 1996, Josephine, Ana Soledad and Virginia, all
surnamed Laurente, grandchildren of Artemio who were claiming
ownership of the land, filed a Motion for Intervention. The RTC denied the
motion.
On October 8, 1996, the trial court issued an order denying the Petition for
Relief from Judgment. In a Motion for Reconsideration of said order,
private respondent alleged that the RTC had no jurisdiction over the case,
since the value of the land was only P5,240 and therefore it was under the
jurisdiction of the municipal trial court. On November 22, 1996, the RTC
denied the motion for reconsideration.
On January 22, 1997, petitioner filed a Motion for Execution, which the RTC
granted on January 28. On February 18, 1997, Entry of Judgment was
made of record and a writ of execution was issued by the RTC on February
27,1997. On March 12,1997, private respondent filed his petition for
certiorari before the Court of Appeals.
The Court of Appeals gave due course to the petition, maintaining that
private respondent is not estopped from assailing the jurisdiction 'of the
RTC, Branch 27 in Tandag, Surigao del Sur, when private respondent filed
with said court his Motion for Reconsideration And/Or Annulment of
Judgment. The Court of Appeals decreed as follows:
IN THE LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. All
proceedings in "Gabriel L. Duero vs. Bernardo Eradel, et. al. Civil Case
1075" filed in the Court a quo, including its Decision, Annex "E" of the
petition, and its Orders and Writ of Execution and the turn over of the
property to the Private Respondent by the Sheriff of the Court a quo, are
declared null and void and hereby SET ASIDE, No pronouncement as to
costs.
SO ORDERED.6
Petitioner now comes before this Court, alleging that the Court of Appeals
acted with grave abuse of discretion amounting to lack or in excess of
jurisdiction when it held that:
1. THE LOWER COURT HAS NO JURISDICTION OVER THE SUBJECT MA
TTER OF THE CASE.
2. PRIVATE RESPONDENT WAS NOT THEREBY ESTOPPED FROM
QUESTIONING THE JURISDICTION OF THE LOWER COURT EVEN
AFTER IT SUCCESSFULLY SOUGHT AFFIRMATIVE RELIEF THEREFROM.

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3. THE FAlLURE OF PRIVATE RESPONDENT TO FILE HIS ANSWER IS
JUSTIFIED. 7
The main issue before us is whether the Court of Appeals gravely abused
its discretion when it held that the municipal trial court had jurisdiction,
and that private respondent was not estopped from assailing the
jurisdiction of the RTC after he had filed several motions before it. The
secondary issue is whether the Court of appeals erred in holding that
private respondent's failure to file an answer to the complaint was
justified.
At the outset, however, we note that petitioner through counsel submitted
to this Court pleadings that contain inaccurate statements. Thus, on page
5 of his petition,8 we find that to bolster the claim that the appellate court
erred in holding that the RTC had no jurisdiction, petitioner pointed to
Annex E9 of his petition which supposedly is the Certification issued by the
Municipal Treasurer of San Miguel, Surigao, specifically containing the
notation, "Note: Subject for General Revision Effective 1994." But it
appears that Annex E of his petition is not a Certification but a xerox copy
of a Declaration of Real Property. Nowhere does the document contain a
notation, "Note: Subject for General Revision Effective 1994." Petitioner
also asked this Court to refer to Annex F,10 where he said the zonal value
of the disputed land was P1.40 per sq.m., thus placing the computed
value of the land at the time the complaint was filed before the RTC at
P57,113.98, hence beyond the jurisdiction of the municipal court and
within the jurisdiction of the regional trial court. However, we find that
these annexes are both merely xerox copies. They are obviously without
evidentiary weight or value.
Coming now to the principal issue, petitioner contends that respondent
appellate court acted with grave abuse of discretion. By "grave abuse of
discretion" is meant such capricious and whimsical exercise of judgment
which is equivalent to an excess or a lack of jurisdiction. The abuse of
discretion must be so patent and gross as to amount to an evasion of a
positive duty or a virtual refusal to perform a duty enjoined by law, or to
act at all in contemplation of law as where the power is exercised in an
arbitrary and despotic manner by reason of passion or hostility. 11 But here
we find that in its decision holding that the municipal court has jurisdiction
over the case and that private respondent was not estopped from
questioning the jurisdiction of the RTC, respondent Court of Appeals
discussed the facts on which its decision is grounded as well as the law
and jurisprudence on the matter.12 Its action was neither whimsical nor
capricious.
Was private respondent estopped from questioning the jurisdiction of the
RTC? In this case, we are in agreement with the Court of Appeals that he
was not. While participation in all stages of a case before the trial court,
including invocation of its authority in asking for affirmative relief,
effectively bars a party by estoppel from challenging the court's
jurisdiction,13 we note that estoppel has become an equitable defense that
is both substantive and remedial and its successful invocation can bar a
right and not merely its equitable enforcement.14 Hence, estoppel ought to

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be applied with caution. For estoppel to apply, the action giving rise
thereto must be unequivocal and intentional because, if misapplied,
estoppel may become a tool of injustice.15
In the present case, private respondent questions the jurisdiction of RTC in
Tandag, Surigao del Sur, on legal grounds. Recall that it was petitioner
who filed the complaint against private respondent and two other parties
before the said court,16 believing that the RTC had jurisdiction over his
complaint. But by then, Republic Act 769117 amending BP 129 had become
effective, such that jurisdiction already belongs not to the RTC but to the
MTC pursuant to said amendment. Private respondent, an unschooled
farmer, in the mistaken belief that since he was merely a tenant of the
late Artemio Laurente Sr., his landlord, gave the summons to a Hipolito
Laurente, one of the surviving heirs of Artemio Sr., who did not do
anything about the summons. For failure to answer the complaint, private
respondent was declared in default. He then filed a Motion for New Trial in
the same court and explained that he defaulted because of his belief that
the suit ought to be answered by his landlord. In that motion he stated
that he had by then the evidence to prove that he had a better right than
petitioner over the land because of his long, continuous and uninterrupted
possession as bona-fide tenant-lessee of the land.18 But his motion was
denied. He tried an alternative recourse. He filed before the RTC a Motion
for Relief from Judgment. Again, the same court denied his motion, hence
he moved for reconsideration of the denial. In his Motion for
Reconsideration, he raised for the first time the RTC's lack of jurisdiction.
This motion was again denied. Note that private respondent raised the
issue of lack of jurisdiction, not when the case was already on appeal, but
when the case, was still before the RTC that ruled him in default, denied
his motion for new trial as well as for relief from judgment, and denied
likewise his two motions for reconsideration. After the RTC still refused to
reconsider the denial of private respondent's motion for relief from
judgment, it went on to issue the order for entry of judgment and a writ of
execution.
Under these circumstances, we could not fault the Court of Appeals in
overruling the RTC and in holding that private respondent was not
estopped from questioning the jurisdiction of the regional trial court. The
fundamental rule is that, the lack of jurisdiction of the court over an action
cannot be waived by the parties, or even cured by their silence,
acquiescence or even by their express consent.19 Further, a party may
assail the jurisdiction of the court over the action at any stage of the
proceedings and even on appeal.20 The appellate court did not err in
saying that the RTC should have declared itself barren of jurisdiction over
the action. Even if private respondent actively participated in the
proceedings before said court, the doctrine of estoppel cannot still be
properly invoked against him because the question of lack of jurisdiction
may be raised at anytime and at any stage of the action. 21 Precedents tell
us that as a general rule, the jurisdiction of a court is not a question of
acquiescence as a matter of fact, but an issue of conferment as a matter
of law.22 Also, neither waiver nor estoppel shall apply to confer jurisdiction
upon a court, barring highly meritorious and exceptional circumstances.23
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The Court of Appeals found support for its ruling in our decision in Javier
vs. Court of Appeals, thus:
x x x The point simply is that when a party commits error in filing his suit
or proceeding in a court that lacks jurisdiction to take cognizance of the
same, such act may not at once be deemed sufficient basis of estoppel. It
could have been the result of an honest mistake, or of divergent
interpretations of doubtful legal provisions. If any fault is to be
imputed to a party taking such course of action, part of the blame
should be placed on the court which shall entertain the suit,
thereby lulling the parties into believing that they pursued their
remedies in the correct forum. Under the rules, it is the duty of the
court to dismiss an action 'whenever it appears that the court has no
jurisdiction over the subject matter.' (Sec. 2, Rule 9, Rules of Court) Should
the Court render a judgment without jurisdiction, such judgment may be
impeached or annulled for lack of jurisdiction (Sec. 30, Rule 132, Ibid),
within ten (10) years from the finality of the same. [Emphasis ours.]24
Indeed, "...the trial court was duty-bound to take judicial notice of the
parameters of its jurisdiction and its failure to do so, makes its decision a
'lawless' thing."25
Since a decision of a court without jurisdiction is null and void, it could
logically never become final and executory, hence appeal therefrom by
writ of error would be out of the question. Resort by private respondent to
a petition for certiorari before the Court of Appeals was in order .
In holding that estoppel did not prevent private respondent from
questioning the RTC's jurisdiction, the appellate court reiterated the
doctrine that estoppel must be applied only in exceptional cases, as its
misapplication could result in a miscarriage of justice. Here, we find that
petitioner, who claims ownership of a parcel of land, filed his complaint
before a court without appropriate jurisdiction. Defendant, a farmer whose
tenancy status is still pending before the proper administrative agency
concerned, could have moved for dismissal of the case on jurisdictional
grounds. But the farmer as defendant therein could not be expected to
know the nuances of jurisdiction and related issues. This farmer, who is
now the private respondent, ought not to be penalized when he claims
that he made an honest mistake when he initially submitted his motions
before the RTC, before he realized that the controversy was outside the
RTC's cognizance but within the jurisdiction of the municipal trial court. To
hold him in estoppel as the RTC did would amount to foreclosing his
avenue to obtain a proper resolution of his case. Furthermore, if the RTC's
order were to be sustained, he would be evicted from the land
prematurely, while RED Conflict Case No.1029 would remain unresolved.
Such eviction on a technicality if allowed could result in an injustice, if it is
later found that he has a legal right to till the land he now occupies as
tenant-lessee.1âwphi1.nêt
Having determined that there was no grave abuse of discretion by the
appellate court in ruling that private respondent was not estopped from
questioning the jurisdiction of the RTC, we need not tarry to consider in
detail the second issue. Suffice it to say that, given the circumstances in
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this case, no error was committed on this score by respondent appellate
court. Since the RTC had no jurisdiction over the case, private respondent
had justifiable reason in law not to file an answer, aside from the fact that
he believed the suit was properly his landlord's concern.
WHEREFORE, the petition is DISMISSED. The assailed decision of the
Court of Appeals is AFFIRMED. The decision of the Regional Trial Court in
Civil Case No.1075 entitled Gabriel L. Duero vs. Bernardo Eradel, its Order
that private respondent turn over the disputed land to petitioner, and the
Writ of Execution it issued, are ANNULLED and SET ASIDE. Costs
against petitioner .
SO ORDERED.

[G.R. No. 139539. February 5, 2002]


CEROFERR REALTY CORPORATION, petitioner, vs. COURT OF
APPEALS and ERNESTO D. SANTIAGO, respondents.

The Case

This is an appeal via certiorari from the decision of the Court of Appeals
1 2

dismissing petitioner’s appeal from the order of the Regional Trial Court,
3

Branch 93, Quezon City, which dismissed petitioner’s complaint for


damages and injunction with preliminary injunction, as well as its
resolution denying reconsideration.
4 5

The Facts

The facts, as found by the Court of Appeals, are as follows:


6

“On March 16, 1994, plaintiff (Ceroferr Realty Corporation) filed with the
Regional Trial Court, Quezon City, Branch 93, a complaint against 7

defendant Ernesto D. Santiago (Santiago), for “damages and injunction,


with preliminary injunction.” In the complaint, Ceroferr prayed that
Santiago and his agents be enjoined from - claiming possession and
ownership over Lot No. 68 of the Tala Estate Subdivision, Quezon City,
covered by TCT No. RT-90200 (334555); that Santiago and his agents be
prevented from making use of the vacant lot as a jeepney terminal; that
Santiago be ordered to pay Ceroferr P650.00 daily as lost income for the
use of the lot until possession is restored to the latter; and that Santiago
be directed to pay plaintiff Ceroferr moral, actual and exemplary damages
and attorney’s fees, plus expenses of litigation.

“In his answer, defendant Santiago alleged that the vacant lot referred to
in the complaint was within Lot No. 90 of the Tala Estate Subdivision,
covered by his TCT No. RT-78 110 (3538); that he was not claiming any

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portion of Lot No. 68 claimed by Ceroferr; that he had the legal right to
fence Lot No. 90 since this belonged to him, and he had a permit for the
purpose; that Ceroferr had no color of right over Lot No. 90 and, hence,
was not entitled to an injunction to prevent Santiago from exercising acts
of ownership thereon; and that the complaint did not state a cause of
action.

“In the course of the proceedings, an important issue metamorphosed as


a result of the conflicting claims of the parties over the vacant lot actually
used as a jeepney terminal – the exact identity and location thereof. There
was a verification survey, followed by a relocation survey, whereby it
would appear that the vacant lot is inside Lot No. 68. The outcome of the
survey, however, was vigorously objected to by defendant who insisted
that the area is inside his lot. Defendant, in his manifestation dated
November 2, 1994, adverted to the report of a geodetic engineer. Mariano
V. Flotildes, to the effect that the disputed portion is inside the boundaries
of Lot No. 90 of the Tala Estate Subdivision which is separate and distinct
from Lot No. 68, and that the two lots are separated by a concrete fence.

“Because of the competing claims of ownership of the parties over the


vacant lot, it became inevitable that the eye of the storm centered on the
correctness of property boundaries which would necessarily result in an
inquiry as to the regularity and validity of the respective titles of the
parties. While both parties have been brandishing separate certificates of
title, defendant asserted a superior claim as against that of the plaintiff in
that, according to defendant, his title has been confirmed through judicial
reconstitution proceedings, whereas plaintiff’s title does not carry any
technical description of the property except only as it is designated in the
title as Lot No. 68 of the Tala Estate Subdivision.

“It thus became clear, at least from the viewpoint of defendant, that the
case would no longer merely involve a simple case of collection of
damages and injunction – which was the main objective of the complaint -
but a review of the title of defendant vis-à-vis that of plaintiff. At this point,
defendant filed a motion to dismiss the complaint premised primarily on
his contention that the trial court cannot adjudicate the issue of damages
without passing over the conflicting claims of ownership of the parties
over the disputed portion.

“On May 14, 1996, the trial court issued the order now subject of this
appeal which, as earlier pointed out, dismissed the case for lack of cause
of action and lack of jurisdiction. The court held that plaintiff was in effect
impugning the title of defendant which could not be done in the case for
damages and injunction before it. The court cited the hoary rule that a
Torens certificate of title cannot be the subject of collateral attack but can
only be challenged through a direct proceeding. It concluded that it could
not proceed to decide plaintiff’s claim for damages and injunction for lack
of jurisdiction because its judgment would depend upon a determination
of the validity of defendant’s title and the identity of the land covered by
it.

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“From this ruling, plaintiff appealed to this court insisting that the
complaint stated a valid cause of action which was determinable from the
face thereof, and that, in any event, the trial court could proceed to try
and decide the case before it since, under present law, there is now no
substantial distinction between the general jurisdiction vested in a
regional trial court and its limited jurisdiction when acting as a land
registration court, citing Ignacio v. Court of Appeals 246 SCRA 242
(1995).”

On March 26, 1999, the Court of Appeals promulgated a decision


dismissing the appeal. On May 13, 1999, petitioner filed with the Court of
8

Appeals a motion for reconsideration of the decision. On July 29, 1999,


9

the Court of Appeals denied petitioner’s motion for reconsideration for


lack of merit. 10

Hence, this appeal. 11

The Issues

The issues are: (1) whether Ceroferr’s complaint states a sufficient cause
of action and (2) whether the trial court has jurisdiction to determine the
identity and location of the vacant lot involved in the case.

The Court’s Ruling

We grant the petition.

The rules of procedure require that the complaint must state a concise
statement of the ultimate facts or the essential facts constituting the
plaintiff’s cause of action. A fact is essential if it cannot be stricken out
without leaving the statement of the cause of action inadequate. A
complaint states a cause of action only when it has its three indispensable
elements, namely: (1) a right in favor of the plaintiff by whatever means
and under whatever law it arises or is created; (2) an obligation on the
part of the named defendant to respect or not to violate such right; and
(3) an act or omission on the part of such defendant violative of the right
of plaintiff or constituting a breach of the obligation of defendant to the
plaintiff for which the latter may maintain an action for recovery of
damages. If these elements are not extant, the complaint becomes
12

vulnerable to a motion to dismiss on the ground of failure to state a cause


of action.
13

These elements are present in the case at bar.

The complaint alleged that petitioner Ceroferr owned Lot 68 covered by


14

TCT No. RT-90200 (334555). Petitioner Ceroferr used a portion of Lot 68 as


a jeepney terminal.

The complaint further alleged that respondent Santiago claimed the


portion of Lot 68 used as a jeepney terminal since he claimed that the

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jeepney terminal was within Lot 90 owned by him and covered by TCT No.
RT-781 10 (3538) issued in his name.

Despite clarification from petitioner Ceroferr that the jeepney terminal was
within Lot 68 and not within Lot 90, respondent Santiago persisted in his
plans to have the area fenced. He applied for and was issued a fencing
permit by the Building Official, Quezon City. It was even alleged in the
complaint that respondent- Santiago was preventing petitioner Ceroferr
and its agents from entering the property under threats of bodily harm
and destroying existing structures thereon.

A defendant who moves to dismiss the complaint on the ground of lack of


cause of action, as in this case, hypothetically admits all the averments
thereof. The test of sufficiency of the facts found in a complaint as
constituting a cause of action is whether or not admitting the facts alleged
the court can render a valid judgement upon the same in accordance with
the prayer thereof. The hypothetical admission extends to the relevant
and material facts well pleaded in the complaint and inferences fairly
deducible therefrom. Hence, if the allegations in the complaint furnish
sufficient basis by which the complaint can be maintained, the same
should not be dismissed regardless of the defense that may be assessed
by the defendants. 15

In this case, petitioner Ceroferr’s cause of action has been sufficiently


averred in the complaint. If it were admitted that the right of ownership of
petitioner Ceroferr to the peaceful use and possession of Lot 68 was
violated by respondent Santiago’s act of encroachment and fencing of the
same, then petitioner Ceroferr would be entitled to damages.

On the issue of jurisdiction, we hold that the trial court has jurisdiction to
determine the identity and location of the vacant lot in question.

Jurisdiction over the subject matter is conferred by law and is determined


by the allegations of the complaint irrespective of whether the plaintiff is
entitled to all or some of the claims asserted therein. The jurisdiction of a
16

court over the subject matter is determined by the allegations of the


complaint and cannot be made to depend upon the defenses set up in the
answer or pleadings filed by the defendant. 17

While the lack of jurisdiction of a court may be raised at any stage of an


action, nevertheless, the party raising such question may be estopped if
he has actively taken part in the very proceedings which he questions and
he only objects to the court’s jurisdiction because the judgment or the
order subsequently rendered is adverse to him. 18

In this case, respondent Santiago may be considered estopped to question


the jurisdiction of the trial court for he took an active part in the case. In
his answer, respondent Santiago did not question the jurisdiction of the
trial court to grant the reliefs prayed for in the complaint. His geodetic
engineers were present in the first and second surveys that the LRA

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conducted. It was only when the second survey report showed results
adverse to his case that he submitted a motion to dismiss.

Both parties in this case claim that the vacant lot is within their property.
This is an issue that can be best resolved by the trial court in the exercise
of its general jurisdiction.

After the land has been originally registered, the Court of Land
Registration ceases to have jurisdiction over contests concerning the
location of boundary lines. In such case, the action in personam has to be
instituted before an ordinary court of general jurisdiction.
19

The regional trial court has jurisdiction to determine the precise identity
and location of the vacant lot used as a jeepney terminal.

The Fallo

IN VIEW WHEREOF, we GRANT the petition. We REVERSE the decision of


the Court of Appeals and the order of the trial court dismissing the case.
20 21

We remand the case to the Regional Trial Court, Branch 93, Quezon City,
for further proceedings.

No costs.
SO ORDERED.

G.R. No. 102603 January 18, 1993


SPOUSES VILLAMOR DONATO and LUZONIA O. DONATO, petitioner,
vs.
THE COURT OF APPEALS and HEIRS OF ROSARIO FONTANILLA,
represented by RODOLFO RARANG, respondents.

This is a Petition to review the decision * of the Court of Appeals in CA-


G.R. CV No. 19644, entitled "Heirs of Rosario Fontanilla, represented by
Rodolfo F. Rarang, Plaintiffs-Appellees, versus Spouses Villamor and
Luzonia O. Donato, Defendants-Appellants" which affirmed in toto the
decision ** of the Regional Trial Court in Alaminos, Pangasinan, Branch 54,
the dispositive portion of which is reproduced as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs:

1. ORDERING defendants to vacate lot 5145, CAD, 325-D of the Alaminos


Cadastre and to deliver possession thereof to the plaintiffs;

2. ORDERING defendants to pay to plaintiffs the sum of TEN THOUSAND


PESOS (P10,000.00) as and for attorney's fees, and to pay the cost of the
suit.

Defendant's counterclaim is hereby DISMISSED for lack of merit.

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SO ORDERED. 1

The antecedent facts, as can be gathered from the findings of the trial
court are as quoted:

Based on the evidence adduced by the parties as well as their admissions,


there is no dispute as to the following facts: As described in par. 2 of the
Complaint, the land in dispute is Lot 5145, CAD, 325-D of the Alaminos
Cadastre, located at Brgy. Inerangan, Alaminos, Pangasinan. The said land
is an unregistered riceland with an area of 4,280 square meters and used
to be owned by Rosario Fontanilla, deceased mother of the plaintiffs, as
her paraphernal property . . . . Said Rosario Fontanilla died in 1971 in
Davao City . . . and is survived by her five (5) children to wit: Rodolfo,
Plotarco, Ernesto, Edgardo, and Lolita, all surnamed Rarang . . . as her
heirs. All of the said children . . . were born in Inerangan, Alaminos,
Pangasinan; However, between 1957 and 1967, Rosario Fontanilla and her
children migrated separately to Davao City . . . .

There is likewise no dispute that defendants are the registered owners of a


parcel of land, denominated as Lot No. 5303, CAD, 325-D of Alaminos
Cadastre, which is covered by Transfer Certificate of Title No. 5535 and
located near the land in question at Brgy. Inerangan, Alaminos,
Pangasinan . . . . Sometime in 1982, defendants purchased the aforesaid
land from the Rural Bank of Urbiztondo, Inc. after the said bank foreclosed
the mortgage constituted thereon by one Carolina Abrigo . . . . Believing
that the land which they purchased from the Rural Bank of Urbiztondo is
Lot 5145, CAD, 325-A of Alaminos Cadastre, defendants occupied the said
land in 1982 and are still in possession of the same up to this date . . . . 2

In the complaint, private respondents claim ownership over the parcel of


land in dispute allegedly inherited by them from their late mother,
Rosario. They contend that petitioners herein own a parcel of land covered
by Transfer Certificate of Title No. 5535 and denominated as Lot No. 5303,
CAD, 325-D, as appearing in the Registry of Deeds of Pangasinan, which is
not the same nor is it identical with the land in dispute.

In their answer, however, petitioners maintain that Lot No. 5303 as


evidenced by Transfer Certificate of Title No. 5535 was originally applied
for titling by one Carolina Abrigo on the strength of a Deed of Sale
executed by Jose Ochave as vendor and Carolina Abrigo as vendee. As an
affirmative defense, they allege that the parcel subject of this controversy
is the very same Lot No. 5303 over which petitioners hold the title of
ownership. It was a matter of oversight, they assert, on the part of the
Bureau of Lands, that the identity of these parcels was not reflected in
their title. According to the petitioners, Jose Ochave's ownership over the
same parcel finds support in the Deed of Sale executed by Basilio Rarang,
who allegedly derives his authority as Rosario's agent from a Special
Power of Attorney duly executed in his favor.

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During the trial on the merits, private respondents, through Rodolfo
Rarang who is the lone witness, disputed the validity of the Special Power
of Attorney. The rest of their evidence consisted of documents.

Petitioners countered and presented the Notary Public who notarized the
Deed of Sale between Basilio Rarang and Jose Ochave. Among the
documents presented by the petitioners were the controverted Deed of
Sale and the Special Power of Attorney said to have been executed by
Rosario Fontanilla-Rarang in favor of Basilio Rarang.

In finding for the private respondents, the trial court held:

The Court finds defendants' claim of ownership of Lot 5145 to be devoid of


merit for several reasons:

In the first place, the land which defendants brought from the Rural Bank
of Urbiztondo, Inc. is Lot 5403, CAD, 325-D of Alaminos Cadastre, which
land is covered by TCT No. 5535 in the name of defendants (pp.
26-27, TSN, Oct. 2, 1987). Having knowingly bought a registered land, the
identity and metes and bounds of which are clearly set forth in detail in its
certificate of title, defendants are plainly estopped from claiming that they
acquired thereby a parcel of land (Lot 5145) which is entirely distinct and
different from the parcel of and (Lot 5303) described and identified in the
certificate of title; otherwise, the very purpose and essence of a certificate
of title under the Torrens System would thereby be impaired, if not totally
negated. Verily, the infirmity of defendants' claim that it was not Lot 5303
which they purchased from the Rural Bank of Urbiztondo is further
underscored by their own admission that they have successively
mortgaged the said land to the China Banking Corporation and thereafter
to the Pangasinan Development Bank (par. 3 of Amended Answer in
relation to par. 4 of Complaint). Accordingly, defendants' contention that
"the title (TCT No. 5535) is not a true and faithful reproduction of what
was actually applied for" and contains discrepancies due to the fault of the
Bureau of Lands (pars. 10 and 14, Amended Answer) is beside the point
and of no help to defendants' position. Suffice it to state that defendants
are deemed to know the identity of the registered land which they were
buying when they contracted with the Rural Bank of Urbiztondo.

In the second place, the Court is not convinced as to the validity of the
sale of the land in question in 1967 by Basilio Rarang in favor of Jose
Ochave (Exhibit 6). Article 1874 of the Civil Code provides that:

When a sale of a piece of land or any interest therein is through an agent,


the authority of the latter shall be in writing; otherwise, the sale shall be
void.

. . . . Defendants point to the Power of Attorney dated September 27, 1966


as sufficient authority, . . . the said Power of Attorney shows on its face
that it was not signed by the supposed notary public Anastacio D. Deluao
of Davao City, although his name is stamped thereon. The person who

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appeared, signed, and acknowledged the said Power of Attorney before
the notary public was Basilio Rarang (the agent) and not Rosario Rarang
(the principal), . . . . The said Power of Attorney was purportedly
acknowledged by Basilio Rarang, the supposed attorney-in-fact, on
September 22, 1966 or five days before the said Power of Attorney was
allegedly signed by Rosario Rarang, the supposed principal. Further, the
Court takes note of the fact that the first page of the Power of Attorney,
which contains all the material allegations thereof, does not bear any
signature at all. Compounding the aforesaid discrepancies of the said
Power of Attorney, defendants also failed to present any evidence to prove
the genuineness and due execution of said instrument, particularly the
supposed signature of Rosario Rarang on the second page thereof.
Accordingly, the Court must give credence to the testimony of Rodolfo
Rarang (p. 22-28, TSN, July 13, 1987) and concludes that the signature
above the typewritten name Rosario Rarang on the second page of the
Power of Attorney (Exh.
7-A) is not the true signature of plaintiffs' mother Rosario Fontanilla
Rarang.

The contention of defendants that they have been in peaceful possession


of the land in question since 1982 (par. 15, Amended Answer) and have
introduced improvements thereon (pars. 16 and 17, Amended Answer)
albeit upon their mistaken belief that it is the land which they purchased
from the Rural Bank of Urbiztondo, does not detract anything from the fact
that the defendants are illegally occupying plaintiffs' property without any
just or legal ground. Neither can defendants be heard to plead good faith
as a defense since, by their own admission, they negligently bought a
registered land without first examining the title and true identity of the
land (p. 23-25, TSN, Oct. 2, 1987). Be that as it may, Article 22 of the Civil
code mandates that —

Every person who through an act of performance by another or any other


means, acquires or comes into possession of something at the expense of
the latter without just or legal ground, shall return the same to him. 3

This decision was affirmed by the Respondent Court in toto. Hence, this
appeal.

A review of the appellate court's decision is anchored on the following, as


stated by the petitioners:

A. THE RESPONDENT COURT OF APPEALS ERRED IN AFFIRMING THE


DECISION OF THE LOWER COURT IN DECLARING THE SPECIAL POWER OF
ATTORNEY EXECUTED BY THE LATE MOTHER OF PRIVATE RESPONDENTS
AS NULL AND VOID AND RELYING SOLELY ON THE UNCORROBORATED
TESTIMONY OF RODOLFO RARANG, WHO IS THE LONE WITNESS IN COURT
DESPITE THE FACT THAT THE TWO MATERIAL WITNESSES TO THE
EXECUTION OF THE SPECIAL POWER OF ATTORNEY WERE STILL VERY
MUCH ALIVE AND ARE IN THEMSELVES CO-PRIVATE RESPONDENTS OF

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RODOLFO RARANG, AND WERE NEVER PRESENTED IN COURT TO DISPUTE
THE VERACITY OF SAID DOCUMENT.

B. THE HONORABLE COURT OF APPEALS ALSO FAILED TO TAKE INTO


CONSIDERATION THE LONG AND CONTINUOUS POSSESSION OF THE
PETITIONERS AND THEIR PREDECESSORS-IN-INTEREST IN THE CONCEPT
OF OWNERS UNTIL IT WAS TRANSFERRED TO THE PETITIONERS.

C. THE HONORABLE COURT OF APPEALS ERRED IN NOT POINTING OUT


CATEGORICALLY THE BASIS OF OWNERSHIP OF THE LOT IN DISPUTE WHEN
THE RECORDS OF THE CASE DOES NOT BEAR ANY PROOF AS TO THEIR
RIGHT OF OWNERSHIP EXCEPT THE TESTIMONY OF PRIVATE RESPONDENT
RODOLFO RARANG ON THE STAND THAT THEY INHERITED THE SAME FROM
THEIR LATE MOTHER.

D. THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT PRIVATE


RESPONDENTS WERE NOT PARTIES TO THE SPECIAL POWER OF
ATTORNEY, HENCE FAILURE TO DENY SAID ACTIONABLE DOCUMENT
UNDER OATH IS NOT DEEMED AN ADMISSION OF ITS GENUINENESS AND
DUE EXECUTION.

E. THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING THAT


PRIVATE RESPONDENTS EITHER WAIVED THEIR RIGHT AND/OR THEIR
RIGHTS HAVE ALREADY PRESCRIBED DUE TO INACTION.

F. THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING THAT THE


TRIAL COURT'S DECISION SHOULD NEVER BE TARNISHED WITH ANY
PERCEPTION OF IMPROPRIETY.

G. THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING THAT


PETITIONERS ARE GUILTY OF EVIDENT BAD FAITH WAS UNJUSTIFIED.

H. THE HONORABLE COURT OF APPEALS' DECISION MUST BE REVERSED


FOR IT IS CONTRARY TO LAW AND JURISPRUDENCE ON THE MATTER.

The disposition of the first assignment of error involves the appreciation of


facts surrounding the execution of the controversial Special Power of
Attorney, a task which has been delegated to the trial court. In this
jurisdiction, it is a fundamental and settled rule that conclusions and
findings of fact by the trial court are entitled to great weight on appeal an
should not be disturbed unless for strong and cogent reasons because the
trial court is in a better position to examine real evidence, as well as to
observe the demeanor of the witnesses while testifying in the case.

After a careful study of the records, there appears to be no cogent reason


to fault the findings of the trial court that the Special Power of Attorney is
null and void. This being the case, all subsequent transactions involving
Lot 5145 and springing from the Special Power of Attorney are also null
and void. Consequently, on this alone, petitioner's claim of ownership
should be rejected outright.

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Petitioners assert that the appellate court failed to consider their long and
continuous possession over the disputed lot as equivalent to possession in
the concept of owners. This is preposterous. How can they be considered
possessors in the concept of owners when the land over which they hold
title is not the same as that which they possess? Possession, to constitute
the foundation of a prescriptive right, must be possession under a claim of
title or it must be adverse, 4 Petitioners herein cannot be said to be in
possession of the land under a claim of title, since it has been established
that petitioners' title covers a different parcel of land; more so, can it be
considered that petitioners are in adverse possession thereof.

At this juncture, it would be appropriate to rule on the seventh assignment


of error. We agree that petitioners are guilty of bad faith. Having been
issued a certificate of title, which states the exact metes and bounds of
the real property covered, they are thus aware of the extent of their
domain. Hence, they are estopped from claiming a piece of land that is
entirely distinct from that which is covered by their title. This Court cannot
simply support the argument set forth by petitioners based merely on
their honest belief that their title pertained to the disputed land.

Anent petitioners' fourth assignment of error, We hold that the appellate


court did not commit a mistake. While it is true that Section 8, Rule 8 of
the Revised Rules of Court provides for the rule on implied admission of
the genuineness and due execution of a document subject of an action or
defense, the same is not without exception. One such exception is when
the adverse party does not appear to be a party to the instrument. 5
Private respondents Lolita and Ernesto were mere witnesses to the Special
Power of Attorney in question and as such, they cannot be considered as
parties to the instrument. Moreover, the same document should not be
afforded a presumption of genuineness and due execution. In view of the
various discrepancies found by the trial court, 6 it lacks the veracity to
entitle it to any degree of credibility.

Neither can prescription be appreciated in favor of herein petitioners. As


properly held by the appellate court, petitioners are guilty of evident bad
faith. Therefore, for prescription to apply the period that is material for
Our consideration is thirty years. Since only twenty years have lapsed
from the alleged first transaction concerning the land until the institution
of the case at bar, petitioners cannot lay claim as owners by acquisitive
prescription. 7

Moreover, private respondents cannot be penalized for having allegedly


slept on their rights. Laches is not concerned with mere lapse of time. The
mere fact of delay is insufficient to constitute laches. It is required that (1)
complainant must have knowledge of the conduct of the defendant or of
one under whom he claims, and (2) he must have been afforded an
opportunity to institute suit. 8 In the instant case, the first requisite is
absent. Even assuming arguendo that the petitioners have been in
possession through their predecessors, private respondents were not
aware of said possession until Rodolfo Rarang came home in 1985, after

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which they lost no time in instituting his case. Moreover, there is no
absolute rule as to what constitute laches or staleness of demand; each
case is to be determined according to its particular circumstances. In the
case of Jimenez vs. Fernandez, 9 the court declared that the question of
laches is an equitable doctrine and its application is controlled by
equitable considerations. The Court further stated that laches cannot be
worked to defeat justice or to perpetuate fraud or injustice. It would be
rank injustice and patently inequitable to deprive the lawful heirs of their
rightful inheritance.

Finding no truth to the petitioners' claim of validity of the instrument from


which their title emanates and their argument of title by prescription, we
consider it unnecessary to discuss at length or to determine the other
issues presented, they being immaterial to the resolution of this appeal.

For reasons indicated, the petition for review is hereby DISMISSED. The
decision of the respondent Court is AFFIRMED. With costs.

SO ORDERED.

G.R. No. 138955 October 29, 2002


AMPARO ROXAS, petitioner,
vs.
HON. COURT OF APPEALS, and MANOTOK REALTY, INC.,
respondents.

This is a petition for review on certiorari under Rule 45 of the Rules of


Court, seeking the reversal of the decision1 of the Honorable Court of
Appeals in CA-G.R. SP No. 44650. The CA had affirmed that of the Regional
Trial Court2 of Marikina, Branch 273, in SCA No. 97-198-MK, which earlier
overturned the order3 of the Metropolitan Trial Court of Marikina, Branch
76, in Civil Case No. 96-6235, for unlawful detainer.

The factual antecedents as found by the Court of Appeals are as follows:

A complaint for unlawful detainer was filed by herein private respondent


Manotok Realty, Inc. against herein petitioner Amparo Roxas before the
Metropolitan Trial Court of Marikina, Branch 76. Manotok Realty, Inc.
alleged in its complaint that: it is the registered owner of a parcel of land
located at the Manotok-Ramos Subdivision IX, City of Marikina, Metro
Manila, known as Lot 14, Block 9 duly covered under Transfer Certificate of
Title No. 100498; that sometime on September 18, 1961, plaintiff and
defendant entered into a Contract to Sell covering the subject property,

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however, on September 14, 1973, plaintiff notarially rescinded and
cancelled the contract as of June 25, 1966 for defendant’s failure to
comply with the terms thereof, specifically for her failure to pay the
stipulated monthly payments; that despite receipt of said notice of
cancellation however, defendant continued in her possession and
occupation of subject parcel of land without any legal basis except by
mere tolerance of plaintiff; that defendant since and from that time of the
service of the notice of rescission and the demand to vacate on
September 14, 1973, defendant has possessed and occupied said
property without making any payment to plaintiff of such reasonable
compensation for her use and occupancy thereof; that on August 3, 1995,
plaintiff needing said property for its own use, made a final demand to
defendant, through counsel, to vacate subject property within three (3)
months from receipt thereof; that notwithstanding however her receipt of
said final demand and the lapse of the three (3) months period within
which to vacate, defendant unlawfully failed and refused to vacate the
same without legal basis.

In her answer, Amparo Roxas denied the material allegations of the


complaint, and by way of special and affirmative defenses, alleged that
the notice of cancellation has not been received by defendant hence, a
condition precedent has not been complied with, thus subject to dismissal;
that she has complied with all the terms and conditions of the Contract to
Sell, but Manotok Realty, Inc. has not been recording defendant’s
compliance, amounting to plaintiff’s dealing in bad faith and with malice
afterthought; and by way of special and affirmative defense alleged that
there is no cause of action and therefore, the complaint must be
dismissed; and by way of counterclaim seeks moral and exemplary
damages in the total amount of P200,000.00 and an award of attorney’s
fee in the amount of P50,000.00.

After the requisite preliminary conference and the submission of affidavits


and position papers by both parties, Hon. Judge Jerry B. Gonzales of MeTC,
Marikina City, Branch 76, dismissed the complaint on the ground of lack of
jurisdiction. In an order dated November 20, 1996, Judge Gonzales
ratiocinated:

This is a clear case of ejectment through accion publiciana, jurisdiction of


which belongs to the Regional Trial Court because the cause of action is
tolerance.

The Honorable Supreme Court in the case of Magin vs. Avelino,4 127 SCRA
602, said:

"Where the possession of the land by another is due to tolerance of owner


the action for ejectment is accion publiciana, not unlawful detainer or
forcible entry."

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Under the above doctrine, the demand being that of terminating
possession allowed by tolerance of the alleged owner, this Court has no
jurisdiction to try the case.5

Aggrieved, Manotok Realty, Inc. appealed the matter before the Regional
Trial Court of Marikina, Branch 273. The RTC ruled for Manotok Realty, Inc.
holding that the MeTC had jurisdiction to hear and decide the case as "the
complaint is one for unlawful detainer" as clearly alleged in the complaint,
"and not for accion publiciana as incorrectly ruled by the lower court."6

The RTC disposed of the case as follows:

WHEREFORE, foregoing premises considered, the judgement appealed


from is hereby REVERSED and SET ASIDE. Judgment is hereby rendered in
favor of plaintiff-appellant and against defendant-appellee Amparo Roxas,
ordering the latter and all persons claiming rights under her:

1) to immediately vacate and surrender the possession of the premises in


question described in paragraph 3 of the complaint;

2) to pay plaintiff-appellant the amount of P2,000.00 per month as


reasonable compensation for the use and occupation of the subject
premises from November 4, 1995 up to the time the premises in question
is fully vacated, and possession thereof is surrendered to plaintiff-
appellant;

3) to pay plaintiff-appellant the sum of TEN THOUSAND (P10,000.00)


PESOS as reasonable attorney’s fees, and the costs of suit.

SO ORDERED.7

The reversal of the MeTC order prompted Amparo Roxas to elevate the
matter to the Court of Appeals for review under Rule 42. However, the
appellate court affirmed the aforequoted RTC decision opining that
Amparo’s reliance on Velez vs. Avelino8 is misplaced for the latter partakes
of a different factual setting. The RTC of Marikina had found, inter alia:

In this particular case, the private respondents from the very beginning
occupied the subject premises without any contract and constructed
thereon houses sans any building permits. The Court described them as
squatters and characterized their possession as one of tolerance…in the
case at bench, the petitioner was not a squatter but a lawful possessor of
the property by virtue of a contract to sell duly entered into by the
petitioner and private respondent. Her occupation became illegal only
upon her refusal to vacate despite the cancellation of the contract to sell
and a demand letter dated August 3, 1995 for her to vacate.

While in the Velez case, supra, there was no contract, express or implied,
at the start, in the case at bench, there was such an express contract to
sell that governed the relationship between the petitioner and private
respondent… Accordingly, it is imperative in a case of unlawful detainer

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that the incipient occupancy is founded on some legal authority such as
an express or implied contract, which however, has expired. In the Velez
case supra, there was no expiration or termination to speak of because
there was really no contract in the first place, whereas, in the instant case
there was.9

The aforesaid finding was upheld by the Court of Appeals.

Hence, this petition for review on certiorari raising the lone issue of:lawp!
1.net

WHETHER OR NOT THE REGULAR COURT HAS JURISDICTION TO TRY AND


HEAR THE INSTANT CASE.10

While this petition for review does not assign any specific error committed
by the court a quo in affirming the decision of the RTC, what petitioner
raises is the question of jurisdiction of the regular courts of justice over
the subject matter of this case. According to her petition,11 the matter
involved in the present petition falls squarely within the jurisdiction of an
administrative agency, namely the Housing and Land Use Regulatory
Board (HLURB).12 She explains that "this is for the simple reason that the
issue between the parties is the determination of whether or not the terms
and conditions of their contract to sell are violated." She adds that she is
one of the buyers on installment of a subdivision lot in private
respondent’s subdivision. For Manotok Realty Inc. is the subdivision owner
and/or developer. Consequently, according to petitioner, any question that
may arise regarding their contract, be it for non-payment of amortization,
specific performance, or in general, violation of any term or condition
thereof, including a special instance of ejectment13 if proper, should be
resolved before the HLURB by a proper initiatory pleading filed thereat.14

Moreover, petitioner Amparo Roxas reiterated in her memorandum15 that


although the complaint has been framed to be one for unlawful detainer,
the truth is that the matter involves a dispute between a subdivision
owner/developer and a subdivision lot buyer. She further asserts that she
could not be estopped from raising the question of lack of jurisdiction of
the courts to try and hear the case because, in her position paper filed
with the MeTC, she has already raised the argument that the matter was
cognizable by the HLURB.

Respondent Manotok Realty, Inc., maintains the contrary, to wit, that the
settled rule is that the question of jurisdiction must be raised before the
inferior court. Otherwise, petitioner is barred by estoppel or even laches.
Respondent contends that in the determination of whether or not an
inferior court has jurisdiction over ejectment suits, what determines the
nature of the action as well as the court that has jurisdiction over the case
are the allegations in the complaint. Citing Sumulong vs. CA,16 private
respondent avers that the cause of action in a complaint is not what the
designation of the complaint states, but what the allegations in the body
of the complaint define or prescribe. Private respondent claims that the

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CA correctly pointed out that the complaint expressly provides that the
case is one for unlawful detainer and not an accion publiciana.

In our view, the following issues now appear for the Court’s resolution: (1)
whether petitioner could still raise the issue of jurisdiction at this stage of
the proceedings; and (2) whether the instant case falls within the
exclusive jurisdiction of the HLURB.

Considering the circumstances of the cases, including the averments of


the parties, we find the present petition without merit.

On the first issue, we hold that petitioner is already estopped from raising
the issue of jurisdiction. What she raised in her position paper as a special
and affirmative defense was the purported failure of the complaint to
state a cause of action, arising from an alleged failure to exhaust
administrative remedies before the HLURB as a condition precedent to
filing a case in court. This is not an explicit attack on the court’s
jurisdiction over the subject matter of the complaint, but merely a claim
for the need to go through an alleged jurisdictional requirement, namely
exhaustion of administrative remedies.

Granted that she placed MeTC’s jurisdiction at issue, on the supposition


that it is the HLURB that has jurisdiction over Manotok’s complaint below,
she abandoned her theory after she obtained a favorable judgment at the
MeTC. She chose not to appeal the MeTC’s decision and instead
consistently adopted in her pleadings before the RTC and CA, the MeTC’s
ruling that the action is one for accion publiciana. Nowhere in her
pleadings before the RTC and CA did she raise the argument that
jurisdiction properly lies with the HLURB. As earlier mentioned, it was only
in her present petition with this Court that she squarely asserted for the
first time that the HLURB has exclusive jurisdiction over the instant case.

Indeed, the general rule is that a question of jurisdiction may be raised at


any time, even on appeal, provided that doing so does not result in a
mockery of the tenets of fair play.17 When, however, a party adopts a
particular theory, and the case is tried and decided upon that theory in
the court below, he will not be permitted to change his theory on appeal.18
Where the case was tried by the lower court and the parties on a certain
theory, it will be reviewed and decided on that theory, insofar as the
pleadings, liberally construed, permit, and not be approached from a
different point of view.19

Petitioner is bound by the theory behind her arguments before the RTC
and CA that the case is properly an accion publiciana as the cause of
action arises from the termination of possession by mere tolerance. Her
assertion now that the issue involves the determination of whether or not
the terms and conditions of the contract to sell have been violated by
private respondent, which must be decided by the HLURB, constitutes a
change of theory that could require presentation of further evidence.
Given this premise, the Court cannot countenance petitioner’s act of

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adopting inconsistent postures by attacking the jurisdiction of the regular
courts to which she has submitted, voluntarily. Estoppel bars her from
doing so.1avvphil.net

Nevertheless, to avoid further delay in this case, let us resolve the second
issue of whether the HLURB has the exclusive primary jurisdiction to try
and hear the instant case.20

In support of her position, petitioner cites Sec. 1 of P.D. 1344,21 to wit:

Sec. 1. In the exercise of its function to regulate the real estate trade and
business and in addition to its powers provided for in Presidential Decree
No. 957, the National Housing Authority shall have exclusive jurisdiction to
hear and decide the cases of the following nature:

a. Unsound real estate business practices;

b. Claims involving refund and any other claims filed by subdivision lot or
condominium unit buyer against the project owner, developer, dealer,
broker or salesman; and

c. Cases involving specific performance of contractual and statutory


obligations filed by buyers of subdivision lot or condominium unit against
the owner, developer, dealer, broker or salesman.

In our view, the mere relationship between the parties, i.e., that of being
subdivision owner/developer and subdivision lot buyer, does not
automatically vest jurisdiction in the HLURB. For an action to fall within the
exclusive jurisdiction of the HLURB, the decisive element is the nature of
the action as enumerated in Section 1 of P.D. 1344. On this matter, we
have consistently held that the concerned administrative agency, the
National Housing Authority (NHA) before and now the HLURB, has
jurisdiction over complaints aimed at compelling the subdivision
developer to comply with its contractual and statutory obligations.

Thus, in Arranza vs. B.F. Homes, Inc.,22 we sustained the HLURB’s


jurisdiction over petitioners’ complaint for specific performance to enforce
their rights as purchasers of subdivision lots as regards rights of way,
water, open spaces, road and perimeter wall repairs, and security. Also, in
Que vs. CA,23 we noted that:

… the complaint against Que is distinct from the complaint against GDREC
and its officers before the HLURB. The first basically pertains to non-
performance by the buyer of her obligations to Klaver, whereas the
second deals with non-performance by the seller of its own obligations to
the buyer, such that Klaver properly sued them before different fora.

Accordingly, the second complaint by Klaver against GDREC and its


officers for unsound real estate practices consisting in their unwarranted
delay in the delivery of Unit No. 1902-A to him was properly lodged with
the HLURB. Moreover, in Siasoco vs. Narvaja,24 we ruled that it is the

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HLURB, not the trial court that has jurisdiction over complaints for specific
performance filed against subdivision developers to compel the latter to
execute deeds of absolute sale and to deliver the certificates of titles to
buyers.

But the antecedent circumstances to the present petition are in stark


contrast to those in the cited cases of Arranza and Que. Perusal of
paragraphs (a), (b), and (c) of Sec. 1, P.D. 1344 abovecited, vis-à-vis the
allegations of the complaint25 for ejectment filed by Manotok Realty, Inc.
with the MeTC, shows clearly that the HLURB has no jurisdiction over the
complaint. Note particularly pars. (b) and (c) as worded, where the
HLURB’s jurisdiction concerns cases commenced by subdivision lot or
condominium unit buyers. As to par. (a), concerning "unsound real estate
practices," it would appear that the logical complainant would be the
buyers and customers against the sellers (subdivision owners and
developers or condominium builders and realtors), and not vice versa.

Petitioner’s reliance on Francel Realty Corporation vs. CA, is misplaced. In


that case, the complaint for unlawful detainer was premised on the
"failure of the buyer on installment basis of real property to pay based on
the right to stop paying monthly amortizations under P.D. 957."26 That
involves, "a determinative question…exclusively cognizable by the
HLURB," i.e., a determination of the rights and obligations of parties in a
sale of real estate under P.D. 957, not P.D. 1344. Private respondent
therein, Francisco Sycip, in fact, filed earlier a complaint against Francel
Realty Corp. for "unsound real estate business practices" with the HLURB.
Thus, per Mendoza, J., "Petitioner’s cause of action against private
respondent [Sycip] should instead be filed as a counterclaim in HLURB
Case No. REM-07-9004-80 in accordance with Rule 6, S.6 of the Rules of
Court…"27 That situation does not obtain in the present case.

Petitioner Amparo Roxas’ attempt to bring the case within HLURB’s


jurisdiction, by belatedly asserting that the matter involved is the
determination of whether or not the terms and conditions of the contract
to sell between the parties have been violated, would contravene settled
jural principles.

First, the jurisdiction of a court over the subject matter is determined by


the allegations of the complaint and cannot be made to depend upon the
defenses set up in the answer or pleadings filed by the defendant. 28 Since
there is no dispute that the allegations of the complaint filed below by
Manotok Realty, Inc., sufficiently describe unlawful detainer, the MeTC of
Marikina properly acquired jurisdiction over the subject matter thereof.

Second, the cause of action for unlawful detainer between the present
parties springs from the failure of petitioner to vacate the premises upon
lawful demand of the owner, the private respondent. For petitioner’s
possession of the land in question is allegedly by mere tolerance or
permission. Our ruling in Banco de Oro Savings and Mortgage Bank vs.
Court of Appeals29 is demonstrably applicable:

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A person who occupies the land of another at the latter’s tolerance or
permission, without any contract between them, is necessarily bound by
an implied promise that he will vacate upon demand, failing which, a
summary action for ejectment is the proper remedy against him.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 44650


is AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 144025 December 27, 2002


SPS. RENE GONZAGA and LERIO GONZAGA, petitioners,
vs.
HON. COURT OF APPEALS, Second Division, Manila,
HON. QUIRICO G. DEFENSOR, Judge, RTC, Branch 36, Sixth Judicial
Region, Iloilo City,
and LUCKY HOMES, INC., represented by WILSON JESENA, JR., as
Manager, respondents.

Before this Court is a petition for review on certiorari seeking the reversal
of the decision1 of the Court of Appeals dated December 29, 1999 and its
resolution dated June 1, 2000 in CA-G.R. SP No. 54587.

The records disclose that, sometime in 1970, petitioner-spouses


purchased a parcel of land from private respondent Lucky Homes, Inc.,
situated in Iloilo and containing an area of 240 square meters. Said lot
was specifically denominated as Lot No. 19 under Transfer Certificate of
Title (TCT) No. 28254 and was mortgaged to the Social Security System
(SSS) as security for their housing loan. Petitioners then started the
construction of their house, not on Lot No. 19 but on Lot No. 18, as private
respondent mistakenly identified Lot No. 18 as Lot No. 19. Upon realizing
its error, private respondent, through its general manager, informed
petitioners of such mistake but the latter offered to buy Lot No. 18 in order
to widen their premises. Thus, petitioners continued with the construction
of their house. However, petitioners defaulted in the payment of their
housing loan from SSS. Consequently, Lot No. 19 was foreclosed by SSS
and petitioners’ certificate of title was cancelled and a new one was
issued in the name of SSS. After Lot No. 19 was foreclosed, petitioners
offered to swap Lot Nos. 18 and 19 and demanded from private
respondent that their contract of sale be reformed and another deed of
sale be executed with respect to Lot No. 18, considering that their house
was built therein. However, private respondent refused. This prompted
petitioners to file, on June 13, 1996, an action for reformation of contract

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and damages with the Regional Trial Court of Iloilo City, Branch 36, which
was docketed as Civil Case No. 17115.

On January 15, 1998, the trial court2 rendered its decision dismissing the
complaint for lack of merit and ordering herein petitioners to pay private
respondent the amount of P10,000 as moral damages and another
P10,000 as attorney’s fees. The pertinent conclusion of the trial court
reads as follows:

"Aware of such fact, the plaintiff nonetheless continued to stay in the


premises of Lot 18 on the proposal that he would also buy the same.
Plaintiff however failed to buy Lot 18 and likewise defaulted in the
payment of his loan with the SSS involving Lot 19. Consequently Lot 19
was foreclosed and sold at public auction. Thereafter TCT No. T-29950 was
cancelled and in lieu thereof TCT No. T-86612 (Exh. ‘9’) was issued in favor
of SSS. This being the situation obtaining, the reformation of instruments,
even if allowed, or the swapping of Lot 18 and Lot 19 as earlier proposed
by the plaintiff, is no longer feasible considering that plaintiff is no longer
the owner of Lot 19, otherwise, defendant will be losing Lot 18 without any
substitute therefore (sic). Upon the other hand, plaintiff will be unjustly
enriching himself having in its favor both Lot 19 which was earlier
mortgaged by him and subsequently foreclosed by SSS, as well as Lot 18
where his house is presently standing.

"The logic and common sense of the situation lean heavily in favor of the
defendant. It is evident that what plaintiff had bought from the defendant
is Lot 19 covered by TCT No. 28254 which parcel of land has been properly
indicated in the instruments and not Lot 18 as claimed by the plaintiff. The
contracts being clear and unmistakable, they reflect the true intention of
the parties, besides the plaintiff failed to assail the contracts on mutual
mistake, hence the same need no longer be reformed."3

On June 22, 1998, a writ of execution was issued by the trial court. Thus,
on September 17, 1998, petitioners filed an urgent motion to recall writ of
execution, alleging that the court a quo had no jurisdiction to try the case
as it was vested in the Housing and Land Use Regulatory Board (HLURB)
pursuant to PD 957 (The Subdivision and Condominium Buyers Protective
Decree). Conformably, petitioners filed a new complaint against private
respondent with the HLURB. Likewise, on June 30, 1999, petitioner-
spouses filed before the Court of Appeals a petition for annulment of
judgment, premised on the ground that the trial court had no jurisdiction
to try and decide Civil Case No. 17115.

In a decision rendered on December 29, 1999, the Court of Appeals


denied the petition for annulment of judgment, relying mainly on the
jurisprudential doctrine of estoppel as laid down in the case of Tijam vs.
Sibonghanoy.4

Their subsequent motion for reconsideration having been denied,


petitioners filed this instant petition, contending that the Court of Appeals

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erred in dismissing the petition by applying the principle of estoppel, even
if the Regional Trial Court, Branch 36 of Iloilo City had no jurisdiction to
decide Civil Case No. 17115.

At the outset, it should be stressed that petitioners are seeking from us


the annulment of a trial court judgment based on lack of jurisdiction.
Because it is not an appeal, the correctness of the judgment is not in issue
here. Accordingly, there is no need to delve into the propriety of the
decision rendered by the trial court.

Petitioners claim that the recent decisions of this Court have already
abandoned the doctrine laid down in Tijam vs. Sibonghanoy.5 We do not
agree. In countless decisions, this Court has consistently held that, while
an order or decision rendered without jurisdiction is a total nullity and may
be assailed at any stage, active participation in the proceedings in the
court which rendered the order or decision will bar such party from
attacking its jurisdiction. As we held in the leading case of Tijam vs.
Sibonghanoy:6

"A party may be estopped or barred from raising a question in different


ways and for different reasons. Thus we speak of estoppel in pais, or
estoppel by deed or by record, and of estoppel by laches.

xxx

"It has been held that a party cannot invoke the jurisdiction of a court to
secure affirmative relief against his opponent and, after obtaining or
failing to obtain such relief, repudiate, or question that same jurisdiction x
x x x [T]he question whether the court had jurisdiction either of the
subject matter of the action or of the parties was not important in such
cases because the party is barred from such conduct not because the
judgment or order of the court is valid and conclusive as an adjudication,
but for the reason that such a practice can not be tolerated –– obviously
for reasons of public policy."

Tijam has been reiterated in many succeeding cases. Thus, in Orosa vs.
Court of Appeals;7 Ang Ping vs. Court of Appeals;8 Salva vs. Court of
Appeals;9 National Steel Corporation vs. Court of Appeals;10 Province of
Bulacan vs. Court of Appeals;11 PNOC Shipping and Transport Corporation
vs. Court of Appeals,12 this Court affirmed the rule that a party’s active
participation in all stages of the case before the trial court, which includes
invoking the court’s authority to grant affirmative relief, effectively estops
such party from later challenging that same court’s jurisdiction.

In the case at bar, it was petitioners themselves who invoked the


jurisdiction of the court a quo by instituting an action for reformation of
contract against private respondents. It appears that, in the proceedings
before the trial court, petitioners vigorously asserted their cause from
start to finish. Not even once did petitioners ever raise the issue of the
court’s jurisdiction during the entire proceedings which lasted for two

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years. It was only after the trial court rendered its decision and issued a
writ of execution against them in 1998 did petitioners first raise the issue
of jurisdiction ─ and it was only because said decision was unfavorable to
them. Petitioners thus effectively waived their right to question the court’s
jurisdiction over the case they themselves filed.

Petitioners should bear the consequence of their act. They cannot be


allowed to profit from their omission to the damage and prejudice of the
private respondent. This Court frowns upon the undesirable practice of a
party submitting his case for decision and then accepting the judgment
but only if favorable, and attacking it for lack of jurisdiction if not.13

Public policy dictates that this Court must strongly condemn any double-
dealing by parties who are disposed to trifle with the courts by
deliberately taking inconsistent positions, in utter disregard of the
elementary principles of justice and good faith.14 There is no denying that,
in this case, petitioners never raised the issue of jurisdiction throughout
the entire proceedings in the trial court. Instead, they voluntarily and
willingly submitted themselves to the jurisdiction of said court. It is now
too late in the day for them to repudiate the jurisdiction they were
invoking all along.

WHEREFORE, the petition for review is hereby DENIED.

SO ORDERED.

G.R. No. 124644 February 5, 2004


ARNEL ESCOBAL, petitioner,
vs
HON. FRANCIS GARCHITORENA, Presiding Justice of the
Sandiganbayan, Atty. Luisabel Alfonso-Cortez, Executive Clerk of
Court IV of the Sandiganbayan, Hon. David C. Naval, Presiding
Judge of the Regional Trial Court of Naga City, Branch 21, Luz N.
Nueca, respondents.

This is a petition for certiorari with a prayer for the issuance of a


temporary restraining order and preliminary injunction filed by Arnel
Escobal seeking the nullification of the remand by the Presiding Justice of

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the Sandiganbayan of the records of Criminal Case No. 90-3184 to the
Regional Trial Court (RTC) of Naga City, Branch 21.

The petition at bench arose from the following milieu:

The petitioner is a graduate of the Philippine Military Academy, a member


of the Armed Forces of the Philippines and the Philippine Constabulary, as
well as the Intelligence Group of the Philippine National Police. On March
16, 1990, the petitioner was conducting surveillance operations on drug
trafficking at the Sa Harong Café Bar and Restaurant located along Barlin
St., Naga City. He somehow got involved in a shooting incident, resulting
in the death of one Rodney Rafael N. Nueca. On February 6, 1991, an
amended Information was filed with the RTC of Naga City, Branch 21,
docketed as Criminal Case No. 90-3184 charging the petitioner and a
certain Natividad Bombita, Jr. alias "Jun Bombita" with murder. The
accusatory portion of the amended Information reads:

That on or about March 16, 1990, in the City of Naga, Philippines, and
within the jurisdiction of this Honorable Court by virtue of the Presidential
Waiver, dated June 1, 1990, with intent to kill, conspiring and
confederating together and mutually helping each other, did, then and
there, willfully, unlawfully and feloniously attack, assault and maul one
Rodney Nueca and accused 2Lt Arnel Escobal armed with a caliber .45
service pistol shoot said Rodney Nueca thereby inflicting upon him
serious, mortal and fatal wounds which caused his death, and as a
consequence thereof, complainant LUZ N. NUECA, mother of the deceased
victim, suffered actual and compensatory damages in the amount of
THREE HUNDRED SIXTY-SEVEN THOUSAND ONE HUNDRED SEVEN &
95/100 (P367,107.95) PESOS, Philippine Currency, and moral and
exemplary damages in the amount of ONE HUNDRED THIRTY-FIVE
THOUSAND (P135,000.00) PESOS, Philippine Currency.1

On March 19, 1991, the RTC issued an Order preventively suspending the
petitioner from the service under Presidential Decree No. 971, as
amended by P.D. No. 1847. When apprised of the said order, the General
Headquarters of the PNP issued on October 6, 1992 Special Order No. 91,
preventively suspending the petitioner from the service until the case was
terminated.2

The petitioner was arrested by virtue of a warrant issued by the RTC, while
accused Bombita remained at large. The petitioner posted bail and was
granted temporary liberty.

When arraigned on April 9, 1991,3 the petitioner, assisted by counsel,


pleaded not guilty to the offense charged. Thereafter, on December 23,
1991, the petitioner filed a Motion to Quash4 the Information alleging that
as mandated by Commonwealth Act No. 408,5 in relation to Section 1,
Presidential Decree No. 1822 and Section 95 of R.A. No. 6975, the court
martial, not the RTC, had jurisdiction over criminal cases involving PNP
members and officers.

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Pending the resolution of the motion, the petitioner on June 25, 1993
requested the Chief of the PNP for his reinstatement. He alleged that
under R.A. No. 6975, his suspension should last for only 90 days, and,
having served the same, he should now be reinstated. On September 23,
1993,6 the PNP Region V Headquarters wrote Judge David C. Naval
requesting information on whether he issued an order lifting the
petitioner’s suspension. The RTC did not reply. Thus, on February 22, 1994,
the petitioner filed a motion in the RTC for the lifting of the order of
suspension. He alleged that he had served the 90-day preventive
suspension and pleaded for compassionate justice. The RTC denied the
motion on March 9, 1994.7 Trial thereafter proceeded, and the prosecution
rested its case. The petitioner commenced the presentation of his
evidence. On July 20, 1994, he filed a Motion to Dismiss 8 the case. Citing
Republic of the Philippines v. Asuncion, et al.,9 he argued that since he
committed the crime in the performance of his duties, the Sandiganbayan
had exclusive jurisdiction over the case.

On October 28, 1994, the RTC issued an Order10 denying the motion to
dismiss. It, however, ordered the conduct of a preliminary hearing to
determine whether or not the crime charged was committed by the
petitioner in relation to his office as a member of the PNP.

In the preliminary hearing, the prosecution manifested that it was no


longer presenting any evidence in connection with the petitioner’s motion.
It reasoned that it had already rested its case, and that its evidence
showed that the petitioner did not commit the offense charged in
connection with the performance of his duties as a member of the
Philippine Constabulary. According to the prosecution, they were able to
show the following facts: (a) the petitioner was not wearing his uniform
during the incident; (b) the offense was committed just after midnight; (c)
the petitioner was drunk when the crime was committed; (d) the
petitioner was in the company of civilians; and, (e) the offense was
committed in a beerhouse called "Sa Harong Café Bar and Restaurant."11

For his part, the petitioner testified that at about 10:00 p.m. on March 15,
1990, he was at the Sa Harong Café Bar and Restaurant at Barlin St.,
Naga City, to conduct surveillance on alleged drug trafficking, pursuant to
Mission Order No. 03-04 issued by Police Superintendent Rufo R. Pulido.
The petitioner adduced in evidence the sworn statements of Benjamin
Cariño and Roberto Fajardo who corroborated his testimony that he was
on a surveillance mission on the aforestated date.12

On July 31, 1995, the trial court issued an Order declaring that the
petitioner committed the crime charged while not in the performance of
his official function. The trial court added that upon the enactment of R.A.
No. 7975,13 the issue had become moot and academic. The amendatory
law transferred the jurisdiction over the offense charged from the
Sandiganbayan to the RTC since the petitioner did not have a salary grade
of "27" as provided for in or by Section 4(a)(1), (3) thereof. The trial court
nevertheless ordered the prosecution to amend the Information pursuant

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to the ruling in Republic v. Asuncion14 and R.A. No. 7975. The amendment
consisted in the inclusion therein of an allegation that the offense charged
was not committed by the petitioner in the performance of his
duties/functions, nor in relation to his office.lawphi1.nêt

The petitioner filed a motion for the reconsideration15 of the said order,
reiterating that based on his testimony and those of Benjamin Cariño and
Roberto Fajardo, the offense charged was committed by him in relation to
his official functions. He asserted that the trial court failed to consider the
exceptions to the prohibition. He asserted that R.A. No. 7975, which was
enacted on March 30, 1995, could not be applied retroactively.16

The petitioner further alleged that Luz Nacario Nueca, the mother of the
victim, through counsel, categorically and unequivocably admitted in her
complaint filed with the People’s Law Enforcement Board (PLEB) that he
was on an official mission when the crime was committed.

On November 24, 1995, the RTC made a volte face and issued an Order
reversing and setting aside its July 31, 1995 Order. It declared that based
on the petitioner’s evidence, he was on official mission when the shooting
occurred. It concluded that the prosecution failed to adduce controverting
evidence thereto. It likewise considered Luz Nacario Nueca’s admission in
her complaint before the PLEB that the petitioner was on official mission
when the shooting happened.

The RTC ordered the public prosecutor to file a Re-Amended Information


and to allege that the offense charged was committed by the petitioner in
the performance of his duties/functions or in relation to his office; and,
conformably to R.A. No. 7975, to thereafter transmit the same, as well as
the complete records with the stenographic notes, to the Sandiganbayan,
to wit:

WHEREFORE, the Order dated July 31, 1995 is hereby SET ASIDE and
RECONSIDERED, and it is hereby declared that after preliminary hearing,
this Court has found that the offense charged in the Information herein
was committed by the accused in his relation to his function and duty as
member of the then Philippine Constabulary.

Conformably with R.A. No. 7975 and the ruling of the Supreme Court in
Republic v. Asuncion, et al., G.R. No. 180208, March 11, 1994:

(1) The City Prosecutor is hereby ordered to file a Re-Amended Information


alleging that the offense charged was committed by the Accused in the
performance of his duties/functions or in relation to his office, within
fifteen (15) days from receipt hereof;

(2) After the filing of the Re-Amended Information, the complete records of
this case, together with the transcripts of the stenographic notes taken
during the entire proceedings herein, are hereby ordered transmitted

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immediately to the Honorable Sandiganbayan, through its Clerk of Court,
Manila, for appropriate proceedings.17

On January 8, 1996, the Presiding Justice of the Sandiganbayan ordered


the Executive Clerk of Court IV, Atty. Luisabel Alfonso-Cortez, to return the
records of Criminal Case No. 90-3184 to the court of origin, RTC of Naga
City, Branch 21. It reasoned that under P.D. No. 1606, as amended by R.A.
No. 7975,18 the RTC retained jurisdiction over the case, considering that
the petitioner had a salary grade of "23." Furthermore, the prosecution
had already rested its case and the petitioner had commenced presenting
his evidence in the RTC; following the rule on continuity of jurisdiction, the
latter court should continue with the case and render judgment therein
after trial.

Upon the remand of the records, the RTC set the case for trial on May 3,
1996, for the petitioner to continue presenting his evidence. Instead of
adducing his evidence, the petitioner filed a petition for certiorari,
assailing the Order of the Presiding Justice of the Sandiganbayan
remanding the records of the case to the RTC.

The threshold issue for resolution is whether or not the Presiding Justice of
the Sandiganbayan committed a grave abuse of his discretion amounting
to excess or lack of jurisdiction in ordering the remand of the case to the
RTC.

The petitioner contends that when the amended information was filed with
the RTC on February 6, 1991, P.D. No. 1606 was still in effect. Under
Section 4(a) of the decree, the Sandiganbayan had exclusive jurisdiction
over the case against him as he was charged with homicide with the
imposable penalty of reclusion temporal, and the crime was committed
while in the performance of his duties. He further asserts that although
P.D. No. 1606, as amended by P.D. No. 1861 and by R.A. No. 7975 provides
that crimes committed by members and officers of the PNP with a salary
grade below "27" committed in relation to office are within the exclusive
jurisdiction of the proper RTC, the amendment thus introduced by R.A. No.
7975 should not be applied retroactively. This is so, the petitioner asserts,
because under Section 7 of R.A. No. 7975, only those cases where trial has
not begun in the Sandiganbayan upon the effectivity of the law should be
referred to the proper trial court.

The private complainant agrees with the contention of the petitioner. In


contrast, the Office of the Special Prosecutor contends that the Presiding
Justice of the Sandiganbayan acted in accordance with law when he
ordered the remand of the case to the RTC. It asserts that R.A. No. 7975
should be applied retroactively. Although the Sandiganbayan had
jurisdiction over the crime committed by the petitioner when the amended
information was filed with the RTC, by the time it resolved petitioner’s
motion to dismiss on July 31, 1995, R.A. No. 7975 had already taken
effect. Thus, the law should be given retroactive effect.

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The Ruling of the Court

The respondent Presiding Justice acted in accordance with law and the
rulings of this Court when he ordered the remand of the case to the RTC,
the court of origin.

The jurisdiction of the court over criminal cases is determined by the


allegations in the Information or the Complaint and the statute in effect at
the time of the commencement of the action, unless such statute provides
for a retroactive application thereof. The jurisdictional requirements must
be alleged in the Information.19 Such jurisdiction of the court acquired at
the inception of the case continues until the case is terminated.20

Under Section 4(a) of P.D. No. 1606 as amended by P.D. No. 1861, the
Sandiganbayan had exclusive jurisdiction in all cases involving the
following:

(1) Violations of Republic Act No. 3019, as amended, otherwise known as


the Anti-Graft and Corrupt Practices Act, Republic Act No. 1379, and
Chapter II, Section 2, Title VII of the Revised Penal Code;

(2) Other offenses or felonies committed by public officers and employees


in relation to their office, including those employed in government-owned
or controlled corporations, whether simple or complexed with other
crimes, where the penalty prescribed by law is higher than prision
correccional or imprisonment for six (6) years, or a fine of P6,000.00 ….21

However, for the Sandiganbayan to have exclusive jurisdiction under the


said law over crimes committed by public officers in relation to their
office, it is essential that the facts showing the intimate relation between
the office of the offender and the discharge of official duties must be
alleged in the Information. It is not enough to merely allege in the
Information that the crime charged was committed by the offender in
relation to his office because that would be a conclusion of law. 22 The
amended Information filed with the RTC against the petitioner does not
contain any allegation showing the intimate relation between his office
and the discharge of his duties. Hence, the RTC had jurisdiction over the
offense charged when on November 24, 1995, it ordered the re-
amendment of the Information to include therein an allegation that the
petitioner committed the crime in relation to office. The trial court erred
when it ordered the elevation of the records to the Sandiganbayan. It
bears stressing that R.A. No. 7975 amending P.D. No. 1606 was already in
effect and under Section 2 of the law:

In cases where none of the principal accused are occupying positions


corresponding to salary grade "27" or higher, as prescribed in the said
Republic Act No. 6758, or PNP officers occupying the rank of
superintendent or higher, or their equivalent, exclusive jurisdiction thereof
shall be vested in the proper Regional Trial Court, Metropolitan Trial Court,
Municipal Trial Court, and Municipal Circuit Trial Court, as the case may be,

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pursuant to their respective jurisdiction as provided in Batas Pambansa
Blg. 129.

Under the law, even if the offender committed the crime charged in
relation to his office but occupies a position corresponding to a salary
grade below "27," the proper Regional Trial Court or Municipal Trial Court,
as the case may be, shall have exclusive jurisdiction over the case. In this
case, the petitioner was a Police Senior Inspector, with salary grade "23."
He was charged with homicide punishable by reclusion temporal. Hence,
the RTC had exclusive jurisdiction over the crime charged conformably to
Sections 20 and 32 of Batas Pambansa Blg. 129, as amended by Section 2
of R.A. No. 7691.

The petitioner’s contention that R.A. No. 7975 should not be applied
retroactively has no legal basis. It bears stressing that R.A. No. 7975 is a
substantive procedural law which may be applied retroactively.23

IN LIGHT OF ALL THE FOREGOING, the petition is DISMISSED. No


pronouncement as to costs.

SO ORDERED.

G.R. No. 155001 May 5, 2003


DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B.
REUNILLA, MANUEL ANTONIO B. BOÑE, MAMERTO S. CLARA,
REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G.
DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO, BIENVENIDO C.
HILARIO, MIASCOR WORKERS UNION - NATIONAL LABOR UNION
(MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION
(PALEA), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS and SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the
Department of Transportation and Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS
AVIATION SYSTEMS CORPORATION, MACROASIA-EUREST
SERVICES, INC., MACROASIA-MENZIES AIRPORT SERVICES
CORPORATION, MIASCOR CATERING SERVICES CORPORATION,
MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR
LOGISTICS CORPORATION, petitioners-in-intervention,
x---------------------------------------------------------x
G.R. No. 155547 May 5, 2003
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO
G. JARAULA, petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA

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INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF
PUBLIC WORKS AND HIGHWAYS, SECRETARY LEANDRO M.
MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, and SECRETARY SIMEON A.
DATUMANONG, in his capacity as Head of the Department of
Public Works and Highways, respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA,
WILLY BUYSON VILLARAMA, PROSPERO C. NOGRALES, PROSPERO
A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING O.
MACARANBON, respondents-intervenors,
x---------------------------------------------------------x
G.R. No. 155661 May 5, 2003
CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA,
MA. TERESA V. GAERLAN, LEONARDO DE LA ROSA, DINA C. DE
LEON, VIRGIE CATAMIN RONALD SCHLOBOM, ANGELITO SANTOS,
MA. LUISA M. PALCON and SAMAHANG MANGGAGAWA SA
PALIPARAN NG PILIPINAS (SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS, SECRETARY LEANDRO
M. MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, respondents.

Petitioners and petitioners-in-intervention filed the instant petitions for


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

The facts are as follows:

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

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building. The ADP submitted a Draft Final Report to the DOTC in December
1989.

Some time in 1993, six business leaders consisting of John Gokongwei,


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

On October 5, 1994, AEDC submitted an unsolicited proposal to the


Government through the DOTC/MIAA for the development of NAIA
International Passenger Terminal III (NAIA IPT III) under a build-operate-
and-transfer arrangement pursuant to RA 6957 as amended by RA 7718
(BOT Law).1

On December 2, 1994, the DOTC issued Dept. Order No. 94-832


constituting the Prequalification Bids and Awards Committee (PBAC) for
the implementation of the NAIA IPT III project.

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

On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two
daily newspapers of an invitation for competitive or comparative
proposals on AEDC's unsolicited proposal, in accordance with Sec. 4-A of
RA 6957, as amended. The alternative bidders were required to submit
three (3) sealed envelopes on or before 5:00 p.m. of September 20, 1996.
The first envelope should contain the Prequalification Documents, the
second envelope the Technical Proposal, and the third envelope the
Financial Proposal of the proponent.

On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the
availment of the Bid Documents and the submission of the comparative
bid proposals. Interested firms were permitted to obtain the Request for
Proposal Documents beginning June 28, 1996, upon submission of a
written application and payment of a non-refundable fee of P50,000.00
(US$2,000).

The Bid Documents issued by the PBAC provided among others that the
proponent must have adequate capability to sustain the financing

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requirement for the detailed engineering, design, construction, operation,
and maintenance phases of the project. The proponent would be
evaluated based on its ability to provide a minimum amount of equity to
the project, and its capacity to secure external financing for the project.

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

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

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

i. First 5 years 5.0%

ii. Next 10 years 7.5%

iii. Next 10 years 10.0%

b. The amount of the fixed Annual Guaranteed Payment shall be subject of


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

c. The project proponent must have adequate capability to sustain the


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

i. Proof of the availability of the project proponent and/or the consortium


to provide the minimum amount of equity for the project; and

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

d. The basis for the prequalification shall be the proponent's compliance


with the minimum technical and financial requirements provided in the Bid
Documents and the IRR of the BOT Law. The minimum amount of equity
shall be 30% of the Project Cost.

e. Amendments to the draft Concession Agreement shall be issued from


time to time. Said amendments shall only cover items that would not
materially affect the preparation of the proponent's proposal.

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

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

1. It is difficult for Paircargo and Associates to meet the required minimum


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

In prequalification, the agency is interested in one's financial capability at


the time of prequalification, not future or potential capability.

A commitment to put up equity once awarded the project is not enough to


establish that "present" financial capability. However, total financial
capability of all member companies of the Consortium, to be established
by submitting the respective companies' audited financial statements,
shall be acceptable.

2. At present, Paircargo is negotiating with banks and other institutions for


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

A copy of the draft Concession Agreement is included in the Bid


Documents. Any material changes would be made known to prospective

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challengers through bid bulletins. However, a final version will be issued
before the award of contract.

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

On September 20, 1996, the consortium composed of People's Air Cargo


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

On September 26, 1996, AEDC informed the PBAC in writing of its


reservations as regards the Paircargo Consortium, which include:

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

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

c. The prohibition imposed by RA 337, as amended (the General Banking


Act) on the amount that Security Bank could legally invest in the project;

d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint


Venture, for prequalification purposes; and

e. The appointment of Lufthansa as the facility operator, in view of the


Philippine requirement in the operation of a public utility.

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

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

On October 3, 1996, AEDC reiterated its objections, particularly with


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

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

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

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

On February 27, 1997, Paircargo Consortium incorporated into Philippine


International Airport Terminals Co., Inc. (PIATCO).

AEDC subsequently protested the alleged undue preference given to


PIATCO and reiterated its objections as regards the prequalification of
PIATCO.

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

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

On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate


the approval, on a no-objection basis, of the BOT agreement between the
DOTC and PIATCO. As the ad referendum gathered only four (4) of the
required six (6) signatures, the NEDA merely noted the agreement.

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

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

On November 26, 1998, the Government and PIATCO signed an Amended


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

Subsequently, the Government and PIATCO signed three Supplements to


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

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

The Second Supplement to the ARCA contained provisions concerning the


clearing, removal, demolition or disposal of subterranean structures
uncovered or discovered at the site of the construction of the terminal by
the Concessionaire. It defined the scope of works; it provided for the

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procedure for the demolition of the said structures and the consideration
for the same which the GRP shall pay PIATCO; it provided for time
extensions, incremental and consequential costs and losses consequent to
the existence of such structures; and it provided for some additional
obligations on the part of PIATCO as regards the said structures.

Finally, the Third Supplement provided for the obligations of the


Concessionaire as regards the construction of the surface road connecting
Terminals II and III.

Meanwhile, the MIAA which is charged with the maintenance and


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

On September 17, 2002, the workers of the international airline service


providers, claiming that they stand to lose their employment upon the
implementation of the questioned agreements, filed before this Court a
petition for prohibition to enjoin the enforcement of said agreements.2

On October 15, 2002, the service providers, joining the cause of the
petitioning workers, filed a motion for intervention and a petition-in-
intervention.

On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez


and Constantino Jaraula filed a similar petition with this Court.3

On November 6, 2002, several employees of the MIAA likewise filed a


petition assailing the legality of the various agreements.4

On December 11, 2002. another group of Congressmen, Hon. Jacinto V.


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

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

Respondent PIATCO filed its Comments to the present petitions on


November 7 and 27, 2002. The Office of the Solicitor General and the
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Office of the Government Corporate Counsel filed their respective
Comments in behalf of the public respondents.

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

In their consolidated Memorandum, the Office of the Solicitor General and


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

On March 6, 2003, respondent PIATCO informed the Court that on March 4,


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

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

We shall first dispose of the procedural issues raised by respondent


PIATCO which they allege will bar the resolution of the instant controversy.

Petitioners' Legal Standing to File

the present Petitions

a. G.R. Nos. 155001 and 155661

In G.R. No. 155001 individual petitioners are employees of various service


providers7 having separate concession contracts with MIAA and continuing
service agreements with various international airlines to provide in-flight
catering, passenger handling, ramp and ground support, aircraft
maintenance and provisions, cargo handling and warehousing and other
services. Also included as petitioners are labor unions MIASCOR Workers
Union-National Labor Union and Philippine Airlines Employees Association.
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These petitioners filed the instant action for prohibition as taxpayers and
as parties whose rights and interests stand to be violated by the
implementation of the PIATCO Contracts.

Petitioners-Intervenors in the same case are all corporations organized


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

In G.R. No. 155661, petitioners constitute employees of MIAA and


Samahang Manggagawa sa Paliparan ng Pilipinas - a legitimate labor
union and accredited as the sole and exclusive bargaining agent of all the
employees in MIAA. Petitioners anchor their petition for prohibition on the
nullity of the contracts entered into by the Government and PIATCO
regarding the build-operate-and-transfer of the NAIA IPT III. They filed the
petition as taxpayers and persons who have a legitimate interest to
protect in the implementation of the PIATCO Contracts.

Petitioners in both cases raise the argument that the PIATCO Contracts
contain stipulations which directly contravene numerous provisions of the
Constitution, specific provisions of the BOT Law and its Implementing
Rules and Regulations, and public policy. Petitioners contend that the
DOTC and the MIAA, by entering into said contracts, have committed
grave abuse of discretion amounting to lack or excess of jurisdiction which
can be remedied only by a writ of prohibition, there being no plain, speedy
or adequate remedy in the ordinary course of law.

In particular, petitioners assail the provisions in the 1997 Concession


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

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

Petitioning employees of various service providers at the NAIA Terminals I


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

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

We hold that petitioners have the requisite standing. In the above-


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

b. G.R. No. 155547

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

Standing is a peculiar concept in constitutional law because in some


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

Other Procedural Matters

Respondent PIATCO further alleges that this Court is without jurisdiction to


review the instant cases as factual issues are involved which this Court is
ill-equipped to resolve. Moreover, PIATCO alleges that submission of this
controversy to this Court at the first instance is a violation of the rule on
hierarchy of courts. They contend that trial courts have concurrent
jurisdiction with this Court with respect to a special civil action for
prohibition and hence, following the rule on hierarchy of courts, resort
must first be had before the trial courts.

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

The rule on hierarchy of courts will not also prevent this Court from
assuming jurisdiction over the cases at bar. The said rule may be relaxed
when the redress desired cannot be obtained in the appropriate courts or
where exceptional and compelling circumstances justify availment of a
remedy within and calling for the exercise of this Court's primary
jurisdiction.19

It is easy to discern that exceptional circumstances exist in the cases


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

Legal Effect of the Commencement

of Arbitration Proceedings by

PIATCO

There is one more procedural obstacle which must be overcome. The


Court is aware that arbitration proceedings pursuant to Section 10.02 of
the ARCA have been filed at the instance of respondent PIATCO. Again, we
hold that the arbitration step taken by PIATCO will not oust this Court of its
jurisdiction over the cases at bar.

In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that


the arbitration clause in the Distributorship Agreement in question is valid
and the dispute between the parties is arbitrable, this Court affirmed the
trial court's decision denying petitioner's Motion to Suspend Proceedings
pursuant to the arbitration clause under the contract. In so ruling, this
Court held that as contracts produce legal effect between the parties,
their assigns and heirs, only the parties to the Distributorship Agreement
are bound by its terms, including the arbitration clause stipulated therein.
This Court ruled that arbitration proceedings could be called for but only
with respect to the parties to the contract in question. Considering that
there are parties to the case who are neither parties to the Distributorship
Agreement nor heirs or assigns of the parties thereto, this Court, citing its
previous ruling in Salas, Jr. v. Laperal Realty Corporation,21 held that to
tolerate the splitting of proceedings by allowing arbitration as to some of

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the parties on the one hand and trial for the others on the other hand
would, in effect, result in multiplicity of suits, duplicitous procedure
and unnecessary delay.22 Thus, we ruled that the interest of justice
would best be served if the trial court hears and adjudicates the case in a
single and complete proceeding.

It is established that petitioners in the present cases who have


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

Now, to the merits of the instant controversy.

Is PIATCO a qualified bidder?

Public respondents argue that the Paircargo Consortium, PIATCO's


predecessor, was not a duly pre-qualified bidder on the unsolicited
proposal submitted by AEDC as the Paircargo Consortium failed to meet
the financial capability required under the BOT Law and the Bid
Documents. They allege that in computing the ability of the Paircargo
Consortium to meet the minimum equity requirements for the project, the
entire net worth of Security Bank, a member of the consortium,
should not be considered.

PIATCO relies, on the other hand, on the strength of the Memorandum


dated October 14, 1996 issued by the DOTC Undersecretary Primitivo C.
Cal stating that the Paircargo Consortium is found to have a combined net
worth of P3,900,000,000.00, sufficient to meet the equity requirements of
the project. The said Memorandum was in response to a letter from Mr.
Antonio Henson of AEDC to President Fidel V. Ramos questioning the
financial capability of the Paircargo Consortium on the ground that it does
not have the financial resources to put up the required minimum equity of
P2,700,000,000.00. This contention is based on the restriction under R.A.
No. 337, as amended or the General Banking Act that a commercial bank
cannot invest in any single enterprise in an amount more than 15% of its
net worth. In the said Memorandum, Undersecretary Cal opined:

The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require
that financial capability will be evaluated based on total financial
capability of all the member companies of the [Paircargo] Consortium. In

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this connection, the Challenger was found to have a combined net worth
of P3,926,421,242.00 that could support a project costing approximately
P13 Billion.

It is not a requirement that the net worth must be "unrestricted." To


impose that as a requirement now will be nothing less than unfair.

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

To recap, net worth reflected in the Financial Statement should not be


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

Under the BOT Law, in case of a build-operate-and-transfer arrangement,


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

Section 5.4 Pre-qualification Requirements.

xxx xxx xxx

c. Financial Capability: The project proponent must have adequate


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

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

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

The minimum amount of equity to which the proponent's financial


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

Accordingly, based on the above provisions of law, the Paircargo


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

As the minimum project cost was estimated to be US$350,000,000.00 or


roughly P9,183,650,000.00,25 the Paircargo Consortium had to show to the
satisfaction of the PBAC that it had the ability to provide the minimum
equity for the project in the amount of at least P2,755,095,000.00.

Paircargo's Audited Financial Statements as of 1993 and 1994 indicated


that it had a net worth of P2,783,592.00 and P3,123,515.00 respectively.26
PAGS' Audited Financial Statements as of 1995 indicate that it has
approximately P26,735,700.00 to invest as its equity for the project.27
Security Bank's Audited Financial Statements as of 1995 show that it has a
net worth equivalent to its capital funds in the amount of
P3,523,504,377.00.28

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

Sec. 21-B. The provisions in this or in any other Act to the contrary
notwithstanding, the Monetary Board, whenever it shall deem appropriate
and necessary to further national development objectives or support
national priority projects, may authorize a commercial bank, a bank
authorized to provide commercial banking services, as well as a
government-owned and controlled bank, to operate under an
expanded commercial banking authority and by virtue thereof
exercise, in addition to powers authorized for commercial banks,
the powers of an Investment House as provided in Presidential

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Decree No. 129, invest in the equity of a non-allied undertaking,
or own a majority or all of the equity in a financial intermediary other than
a commercial bank or a bank authorized to provide commercial banking
services: Provided, That (a) the total investment in equities shall not
exceed fifty percent (50%) of the net worth of the bank; (b) the equity
investment in any one enterprise whether allied or non-allied
shall not exceed fifteen percent (15%) of the net worth of the
bank; (c) the equity investment of the bank, or of its wholly or majority-
owned subsidiary, in a single non-allied undertaking shall not exceed
thirty-five percent (35%) of the total equity in the enterprise nor shall it
exceed thirty-five percent (35%) of the voting stock in that enterprise; and
(d) the equity investment in other banks shall be deducted from the
investing bank's net worth for purposes of computing the prescribed ratio
of net worth to risk assets.

xxx xxx xxx

Further, the 1993 Manual of Regulations for Banks provides:

SECTION X383. Other Limitations and Restrictions. — The following


limitations and restrictions shall also apply regarding equity investments
of banks.

a. In any single enterprise. — The equity investments of banks in any


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

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

The purpose of pre-qualification in any public bidding is to determine, at


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

The PBAC has determined that any prospective bidder for the
construction, operation and maintenance of the NAIA IPT III project should
prove that it has the ability to provide equity in the minimum amount of
30% of the project cost, in accordance with the 70:30 debt-to-equity ratio
prescribed in the Bid Documents. Thus, in the case of Paircargo

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Consortium, the PBAC should determine the maximum amounts that
each member of the consortium may commit for the construction,
operation and maintenance of the NAIA IPT III project at the time of pre-
qualification. With respect to Security Bank, the maximum amount
which may be invested by it would only be 15% of its net worth in view of
the restrictions imposed by the General Banking Act. Disregarding the
investment ceilings provided by applicable law would not result in a
proper evaluation of whether or not a bidder is pre-qualified to undertake
the project as for all intents and purposes, such ceiling or legal restriction
determines the true maximum amount which a bidder may invest in the
project.

Further, the determination of whether or not a bidder is pre-qualified to


undertake the project requires an evaluation of the financial capacity of
the said bidder at the time the bid is submitted based on the required
documents presented by the bidder. The PBAC should not be allowed to
speculate on the future financial ability of the bidder to undertake the
project on the basis of documents submitted. This would open doors to
abuse and defeat the very purpose of a public bidding. This is especially
true in the case at bar which involves the investment of billions of pesos
by the project proponent. The relevant government authority is duty-
bound to ensure that the awardee of the contract possesses the minimum
required financial capability to complete the project. To allow the PBAC to
estimate the bidder's future financial capability would not secure the
viability and integrity of the project. A restrictive and conservative
application of the rules and procedures of public bidding is necessary not
only to protect the impartiality and regularity of the proceedings but also
to ensure the financial and technical reliability of the project. It has been
held that:

The basic rule in public bidding is that bids should be evaluated based on
the required documents submitted before and not after the opening of
bids. Otherwise, the foundation of a fair and competitive public bidding
would be defeated. Strict observance of the rules, regulations, and
guidelines of the bidding process is the only safeguard to a fair,
honest and competitive public bidding.30

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

While it would be proper at this juncture to end the resolution of the


instant controversy, as the legal effects of the disqualification of
respondent PIATCO's predecessor would come into play and necessarily

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result in the nullity of all the subsequent contracts entered by it in
pursuance of the project, the Court feels that it is necessary to discuss in
full the pressing issues of the present controversy for a complete
resolution thereof.

II

Is the 1997 Concession Agreement valid?

Petitioners and public respondents contend that the 1997 Concession


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

PIATCO maintains, however, that the Concession Agreement attached to


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

6. Amendments to the Draft Concessions Agreement

Amendments to the Draft Concessions Agreement shall be issued from


time to time. Said amendments shall only cover items that would not
materially affect the preparation of the proponent's proposal.

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

Competition must be legitimate, fair and honest. In the field of


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

An essential element of a publicly bidded contract is that all bidders must


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

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favorable to it that were not previously made available to the other
bidders. Thus:

It is inherent in public biddings that there shall be a fair competition


among the bidders. The specifications in such biddings provide the
common ground or basis for the bidders. The specifications should,
accordingly, operate equally or indiscriminately upon all bidders.32

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

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

In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its
argument that the draft concession agreement is subject to amendment,
the pertinent portion of which was quoted above, the PBAC also clarified
that "[s]aid amendments shall only cover items that would not
materially affect the preparation of the proponent's proposal."

While we concede that a winning bidder is not precluded from modifying


or amending certain provisions of the contract bidded upon, such changes
must not constitute substantial or material amendments that
would alter the basic parameters of the contract and would
constitute a denial to the other bidders of the opportunity to bid
on the same terms. Hence, the determination of whether or not a
modification or amendment of a contract bidded out constitutes a
substantial amendment rests on whether the contract, when taken as a
whole, would contain substantially different terms and conditions that
would have the effect of altering the technical and/or financial proposals
previously submitted by other bidders. The alterations and modifications
in the contract executed between the government and the winning bidder
must be such as to render such executed contract to be an entirely
different contract from the one that was bidded upon.

In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34


this Court quoted with approval the ruling of the trial court that an
amendment to a contract awarded through public bidding, when such
subsequent amendment was made without a new public bidding, is null
and void:

The Court agrees with the contention of counsel for the plaintiffs that the
due execution of a contract after public bidding is a limitation upon the
right of the contracting parties to alter or amend it without another public
bidding, for otherwise what would a public bidding be good for if

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after the execution of a contract after public bidding, the
contracting parties may alter or amend the contract, or even
cancel it, at their will? Public biddings are held for the protection of the
public, and to give the public the best possible advantages by means of
open competition between the bidders. He who bids or offers the best
terms is awarded the contract subject of the bid, and it is obvious that
such protection and best possible advantages to the public will disappear
if the parties to a contract executed after public bidding may alter or
amend it without another previous public bidding.35

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

a. Modification on the Public

Utility Revenues and Non-Public

Utility Revenues that may be

collected by PIATCO

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

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

(1) aircraft parking fees;

(2) aircraft tacking fees;

(3) groundhandling fees;

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(4) rentals and airline offices;

(5) check-in counter rentals; and

(6) porterage fees.

Under the 1997 Concession Agreement, fees which are subject to


adjustment and effective upon MIAA approval are classified as "Public
Utility Revenues" and include:37

(1) aircraft parking fees;

(2) aircraft tacking fees;

(3) check-in counter fees; and

(4) Terminal Fees.

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

Further, under Section 6.03 of the draft Concession Agreement, MIAA


reserves the right to regulate (1) lobby and vehicular parking fees and (2)
other new fees and charges that may be imposed by PIATCO. Such
regulation may be made by periodic adjustment and is effective only upon
written approval of MIAA. The full text of said provision is quoted below:

Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the


aircraft parking fees, aircraft tacking fees, groundhandling fees, rentals
and airline offices, check-in-counter rentals and porterage fees shall be
allowed only once every two years and in accordance with the Parametric
Formula attached hereto as Annex F. Provided that adjustments shall be
made effective only after the written express approval of the MIAA.
Provided, further, that such approval of the MIAA, shall be contingent only
on the conformity of the adjustments with the above said parametric
formula. The first adjustment shall be made prior to the In-Service Date of
the Terminal.

The MIAA reserves the right to regulate under the foregoing


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

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

Section 6.03 Periodic Adjustment in Fees and Charges.

xxx xxx xxx

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

Thus, under the 1997 Concession Agreement, with respect to (1)


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

Moreover, with respect to the third category of fees that may be


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

With respect to terminal fees that may be charged by PIATCO,41 as shown


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

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

When taken as a whole, the changes under the 1997 Concession


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

b. Assumption by the

Government of the liabilities of

PIATCO in the event of the latter's

default thereof

Under the draft Concession Agreement, default by PIATCO of any of its


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

However, the 1997 Concession Agreement provides:

Section 4.04 Assignment.

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xxx xxx xxx

(b) In the event Concessionaire should default in the payment of an


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

(c) If GRP should, by written notice, allow the Unpaid Creditors to be


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

The term "Attendant Liabilities" under the 1997 Concession Agreement


is defined as:

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

Under the above quoted portions of Section 4.04 in relation to the


definition of "Attendant Liabilities," default by PIATCO of its loans
used to finance the NAIA IPT III project triggers the occurrence of
certain events that leads to the assumption by the Government of
the liability for the loans. Only in one instance may the Government
escape the assumption of PIATCO's liabilities, i.e., when the Government
so elects and allows a qualified operator to take over as Concessionaire.

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However, this circumstance is dependent on the existence and
availability of a qualified operator who is willing to take over the
rights and obligations of PIATCO under the contract, a
circumstance that is not entirely within the control of the
Government.

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

PIATCO, however, argues that the parties to the bidding procedure


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

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

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

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

III

Direct Government Guarantee

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

Section 4.04 Assignment

xxx xxx xxx

(b) In the event Concessionaire should default in the payment of an


Attendant Liability, and the default resulted in the acceleration of the
payment due date of the Attendant Liability prior to its stated date of
maturity, the Unpaid Creditors and Concessionaire shall immediately
inform GRP in writing of such default. GRP shall within one hundred eighty
(180) days from receipt of the joint written notice of the Unpaid Creditors
and Concessionaire, either (i) take over the Development Facility and
assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if
qualified to be substituted as concessionaire and operator of the
Development facility in accordance with the terms and conditions hereof,

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or designate a qualified operator acceptable to GRP to operate the
Development Facility, likewise under the terms and conditions of this
Agreement; Provided, that if at the end of the 180-day period GRP shall
not have served the Unpaid Creditors and Concessionaire written notice of
its choice, GRP shall be deemed to have elected to take over the
Development Facility with the concomitant assumption of
Attendant Liabilities.

(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted


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

….

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts recorded and from time to


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

It is clear from the above-quoted provisions that Government, in the


event that PIATCO defaults in its loan obligations, is obligated to
pay "all amounts recorded and from time to time outstanding from the
books" of PIATCO which the latter owes to its creditors.49 These amounts
include "all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses."50 This
obligation of the Government to pay PIATCO's creditors upon PIATCO's
default would arise if the Government opts to take over NAIA IPT III. It
should be noted, however, that even if the Government chooses the
second option, which is to allow PIATCO's unpaid creditors operate NAIA
IPT III, the Government is still at a risk of being liable to PIATCO's creditors
should the latter be unable to designate a qualified operator within the
prescribed period.51 In effect, whatever option the Government
chooses to take in the event of PIATCO's failure to fulfill its loan
obligations, the Government is still at a risk of assuming PIATCO's
outstanding loans. This is due to the fact that the Government would
only be free from assuming PIATCO's debts if the unpaid creditors would
be able to designate a qualified operator within the period provided for in

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the contract. Thus, the Government's assumption of liability is
virtually out of its control. The Government under the circumstances
provided for in the 1997 Concession Agreement is at the mercy of the
existence, availability and willingness of a qualified operator. The above
contractual provisions constitute a direct government guarantee which is
prohibited by law.

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

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

(n) Direct government guarantee — An agreement whereby the


government or any of its agencies or local government units assume
responsibility for the repayment of debt directly incurred by the
project proponent in implementing the project in case of a loan
default.

Clearly by providing that the Government "assumes" the attendant


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

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

Section 4.04 Security

xxx xxx xxx

(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in


good faith and enter into direct agreement with the Senior
Lenders, or with an agent of such Senior Lenders (which agreement shall
be subject to the approval of the Bangko Sentral ng Pilipinas), in such form

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as may be reasonably acceptable to both GRP and Senior Lenders, with
regard, inter alia, to the following parameters:

xxx xxx xxx

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


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

xxx xxx xxx

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

xxx xxx xxx

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts in each case supported by


verifiable evidence from time to time owed or which may become
owing by Concessionaire [PIATCO] to Senior Lenders or any other
persons or entities who have provided, loaned, or advanced funds or
provided financial facilities to Concessionaire [PIATCO] for the
Project [NAIA Terminal 3], including, without limitation, all principal,
interest, associated fees, charges, reimbursements, and other

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related expenses (including the fees, charges and expenses of any
agents or trustees of such persons or entities), whether payable at
maturity, by acceleration or otherwise, and further including amounts
owed by Concessionaire [PIATCO] to its professional consultants and
advisers, suppliers, contractors and sub-contractors.54

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

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

The proscription against government guarantee in any form is


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

The BOT Law and its implementing rules provide that in order for an
unsolicited proposal for a BOT project may be accepted, the following
conditions must first be met: (1) the project involves a new concept in
technology and/or is not part of the list of priority projects, (2) no direct
government guarantee, subsidy or equity is required, and (3) the
government agency or local government unit has invited by publication
other interested parties to a public bidding and conducted the same. 56 The
failure to meet any of the above conditions will result in the denial of the
proposal. It is further provided that the presence of direct government
guarantee, subsidy or equity will "necessarily disqualify a proposal from
being treated and accepted as an unsolicited proposal."57 The BOT Law
clearly and strictly prohibits direct government guarantee, subsidy and
equity in unsolicited proposals that the mere inclusion of a provision to
that effect is fatal and is sufficient to deny the proposal. It stands to
reason therefore that if a proposal can be denied by reason of the
existence of direct government guarantee, then its inclusion in the
contract executed after the said proposal has been accepted is likewise
sufficient to invalidate the contract itself. A prohibited provision, the
inclusion of which would result in the denial of a proposal cannot, and
should not, be allowed to later on be inserted in the contract resulting
from the said proposal. The basic rules of justice and fair play alone
militate against such an occurrence and must not, therefore, be
countenanced particularly in this instance where the government is
exposed to the risk of shouldering hundreds of million of dollars in debt.

This Court has long and consistently adhered to the legal maxim that
those that cannot be done directly cannot be done indirectly. 58 To declare

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the PIATCO contracts valid despite the clear statutory prohibition
against a direct government guarantee would not only make a
mockery of what the BOT Law seeks to prevent -- which is to
expose the government to the risk of incurring a monetary
obligation resulting from a contract of loan between the project
proponent and its lenders and to which the Government is not a
party to -- but would also render the BOT Law useless for what it
seeks to achieve –- to make use of the resources of the private
sector in the "financing, operation and maintenance of
infrastructure and development projects"59 which are necessary
for national growth and development but which the government,
unfortunately, could ill-afford to finance at this point in time.

IV

Temporary takeover of business affected with public interest

Article XII, Section 17 of the 1987 Constitution provides:

Section 17. In times of national emergency, when the public interest so


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

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

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

Section 5.10 Temporary Take-over of operations by GRP.

….

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

PIATCO cannot, by mere contractual stipulation, contravene the


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

Regulation of Monopolies

A monopoly is "a privilege or peculiar advantage vested in one or more


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

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

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

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

The operation of an international passenger airport terminal is no doubt


an undertaking imbued with public interest. In entering into a Build–
Operate-and-Transfer contract for the construction, operation and
maintenance of NAIA IPT III, the government has determined that public
interest would be served better if private sector resources were used in its
construction and an exclusive right to operate be granted to the private
entity undertaking the said project, in this case PIATCO. Nonetheless, the
privilege given to PIATCO is subject to reasonable regulation and
supervision by the Government through the MIAA, which is the
government agency authorized to operate the NAIA complex, as well as
DOTC, the department to which MIAA is attached.74

This is in accord with the Constitutional mandate that a monopoly which is


not prohibited must be regulated.75 While it is the declared policy of the

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

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

3.01 Concession Period

xxx xxx xxx

(e) GRP confirms that certain concession agreements relative to


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

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

We hold that while the service providers presently operating at NAIA


Terminal 1 do not have an absolute right for the renewal or the extension
of their respective contracts, those contracts whose duration extends
beyond NAIA IPT III's In-Service-Date should not be unduly prejudiced.
These contracts must be respected not just by the parties thereto but also
by third parties. PIATCO cannot, by law and certainly not by contract,
render a valid and binding contract nugatory. PIATCO, by the mere
expedient of claiming an exclusive right to operate, cannot require the
Government to break its contractual obligations to the service providers.

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In contrast to the arrastre and stevedoring service providers in the case of
Anglo-Fil Trading Corporation v. Lazaro78 whose contracts consist of
temporary hold-over permits, the affected service providers in the cases
at bar, have a valid and binding contract with the Government, through
MIAA, whose period of effectivity, as well as the other terms and
conditions thereof, cannot be violated.

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

VI

CONCLUSION

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

WHEREFORE, the 1997 Concession Agreement, the Amended and


Restated Concession Agreement and the Supplements thereto are set
aside for being null and void.

SO ORDERED.

SEPARATE OPINIONS

VITUG, J.:

This Court is bereft of jurisdiction to hear the petitions at bar. The


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

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

"When the proceedings of any tribunal, corporation, board, officer or


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

The rule is explicit. A petition for prohibition may be filed against a


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

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

As I have so expressed in Tolentino vs. Secretary of Finance,6 reiterated in


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

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Accordingly, I vote for the dismissal of the petition.

Quisumbing, and Azcuna, JJ., concur.

PANGANIBAN, J.:

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

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

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

2. The second one is substantive in character: Did the subject


contracts violate the Constitution, the laws, and public policy to such an
extent as to render all of them void and inexistent?

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

The Procedural Issue:


Jurisdiction, Standing and Arbitration

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

Thus, objections to these Petitions, grounded upon (a) the hierarchy of


courts, (b) the need for arbitration prior to court action, and (c) the
alleged lack of sufficient personality, standing or interest, being in the
main procedural matters, must now be set aside, as they have been in

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past cases. This Court must be permitted to perform its constitutional duty
of determining whether the other agencies of government have acted
within the limits of the Constitution and the laws, or if they have gravely
abused the discretion entrusted to them.1

Hierarchy of Courts

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

Nevertheless, the unavoidable consequence of having to await the


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

Contrary to Piatco's argument that the resolution of the issues raised in


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

Arbitration

Should the dispute be referred to arbitration prior to judicial recourse?


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

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

Locus Standi

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

In the cases presently under consideration, petitioners' personal and


substantial interest in the controversy is shown by the fact that certain
provisions in the Piatco contracts create obligations on the part of
government (through the DOTC and the MIAA) to disburse public funds
without prior congressional appropriations.

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

Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus
possessed of standing to challenge the illegal disbursement of public
funds. Messrs. Agan et al., in particular, are employees (or representatives
of employees) of various service providers that have (1) existing

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concession agreements with the MIAA to provide airport services
necessary to the operation of the NAIA and (2) service agreements to
furnish essential support services to the international airlines operating at
the NAIA.

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

Petitioners-in-intervention are service providers in the business of


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

And even if petitioners and petitioners-in-intervention were not sufficiently


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

The Substantive Issue:


Violations of the Constitution and the Laws

From the Outset, the Bidding Process Was Flawed and Tainted

After studying the documents submitted and arguments advanced by the


parties, I have no doubt that, right at the outset, Piatco was not qualified
to participate in the bidding process for the Terminal III project, but was
nevertheless permitted to do so. It even won the bidding and was helped
along by what appears to be a series of collusive and corrosive acts.

The build-operate-and-transfer (BOT) project for the NAIA Passenger


Terminal III comes under the category of an "unsolicited proposal," which
is the subject of Section 4-A of the BOT Law. 10 The unsolicited proposal
was originally submitted by the Asia's Emerging Dragon Corporation

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(AEDC) to the Department of Transportation and Communications (DOTC)
and the Manila International Airport Authority (MIAA), which reviewed and
approved the proposal.

The draft of the concession agreement as negotiated between AEDC and


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

The DOTC/MIAA then prepared the Bid Documents, incorporating therein


the negotiated Draft Concession Agreement, and published invitations for
public bidding, i.e., for the submission of comparative or competitive
proposals. Piatco's predecessor-in-interest, the Paircargo Consortium, was
the only company that submitted a competitive bid or price challenge.

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

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

"In the case of a build-operate-and-transfer arrangement, the contract


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

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

In other words, prospective bidders must prequalify by submitting their


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

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

"Sec. 5.4. Prequalification Requirements. - To pre-qualify, a project


proponent must comply with the following requirements:

xxx xxx xxx

"c. Financial Capability. The project proponent must have adequate


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

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

However, the combined equity or net worth of the Paircargo consortium


stood at only P558,384,871.55.13 This amount was only slightly over 6
percent of the minimum project cost and very much short of the required
minimum equity, which was equivalent to 30 percent of the project cost.
Such deficiency should have immediately caused the disqualification of
the Paircargo consortium. This matter was brought to the attention of the
Prequalification and Bidding Committee (PBAC).

Notwithstanding the glaring deficiency, DOTC Undersecretary Primitivo C.


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

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

On the basis of the foregoing dubious declaration, the Paircargo


consortium was deemed prequalified and thus permitted to proceed to the
other stages of the bidding process.

By virtue of the prequalified status conferred upon the Paircargo,


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

Republic v. Capulong,14 teaches that if one bidder is relieved from having


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

Inasmuch as the Paircargo consortium did not possess the minimum


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

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

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

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

This pronouncement, I believe, was a grievous misapplication of the


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

To be considered as utilizing a new concept or technology, a project must


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

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

In this instance, the financial and technical proposals of Piatco would have
provided AEDC with the necessary information to enable it to make a
reasonably informed matching bid. To put it more simply, a bidder unable
to access the competitor's assumptions will never figure out how the

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competing bid came about; requiring him to "counter-propose" is like
having him shoot at a target in the dark while blindfolded.

By withholding from AEDC the challenger's financial and technical


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

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

Delayed Issuance of the Notice of Award Violated the BOT Law


and the IRR

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

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

Nevertheless, this provision can be easily circumvented by merely


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

In particular, Section 9.1 of the 1994 IRR prescribed that within 30


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

Section 9.2 of the IRR set the procedure applicable to projects involving
substantial government undertakings as follows: Within 7 days after the

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decision to award is made, the draft contract shall be submitted to the ICC
for clearance on a no-objection basis. If the draft contract includes
government undertakings already previously approved, then the
submission shall be for information only.

However, should there be additional or new provisions different from the


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

The highly regulated time-frames within which the agents of government


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

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

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

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

"16 April 1997 - The PBAC resolved that the period of signing the
Concession Agreement be extended by 15 days.

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

"09 July 1997 - The Notice of Award was issued to PIATCO. Following the
provisions of the IRR, the Notice of Award should have been issued
fourteen days after NEDA's approval, or the 28th of January 1997. In any

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case, even if it were to be assumed that the release of NEDA's approval on
the 18th of April was timely, the Notice of Award should have been issued
on the 9th of May 1997. In both cases, therefore, the release of the Notice
of Award occurred in a decidedly less than timely fashion."

This chronology of events bespeaks an unmistakable disregard, if not


disdain, by the persons in charge of the award process for the time
limitations prescribed by the IRR. Their attitude flies in the face of this
Court's solemn pronouncement in Republic v. Capulong,20 that "strict
observance of the rules, regulations and guidelines of the bidding process
is the only safeguard to a fair, honest and competitive public bidding."

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

Further Amendments Resulted in a Substantially Different


Contract, Awarded Without Public Bidding

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

1. The CA inserted stipulations creating a monopoly in favor of Piatco


in the business of providing airport-related services for international
airlines and passengers.21

2. The CA provided that government is to answer for Piatco's unpaid


loans and debts (lumped under the term Attendant Liabilities) in the event
Piatco fails to pay its senior lenders.22

3. The CA provided that in case of termination of the contract due to


the fault of government, government shall pay all expenses that Piatco
incurred for the project plus the appraised value of the Terminal.23

4. The CA imposed new and special obligations on government,


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

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

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

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

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

9. Per Sections 8.04 and 8.06 of the DCA, government may, on


account of the contractors breach, rescind the contract and select one of
four options: (a) take over the terminal and assume all its attendant
liabilities; (b) allow the contractor's creditors to assign the Project to
another entity acceptable to DOTC/MIAA; (c) pay the contractor rent for
the facilities and equipment the DOTC may utilize; or (d) purchase the
terminal at a price established by independent appraisers. Depending on

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the option selected, government may take immediate possession and
control of the terminal and its operations. Government will be obligated to
compensate the contractor for the "equivalent or proportionate contract
costs actually disbursed," but only where government is the one in breach
of the contract. But under Section 8.06(a) of the CA, whether on account
of Piatco's breach of contract or its inability to pay its creditors,
government is obliged to either (a) take over Terminal III and assume all of
Piatco's debts or (b) permit the qualified unpaid creditors to be substituted
in place of Piatco or to designate a new operator. And in the event of
government's breach of contract, Piatco may compel it to purchase the
terminal at fair market value, per Section 8.06(b) of the CA.

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

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

In a relatively early case, Caltex v. Delgado Brothers,27 this Court made it


clear that substantive amendments to a contract for which a public
bidding has already been finished should only be awarded after another
public bidding:

"The due execution of a contract after public bidding is a limitation upon


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

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

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

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

Piatco's counter-argument may be summed up thus: There was nothing in


the 1994 IRR that prohibited further negotiations and eventual
amendments to the DCA even after the bidding had been concluded. In
fact, PBAC Bid Bulletin No. 3 states: "[A]mendments to the Draft
Concession Agreement shall be issued from time to time. Said
amendments will only cover items that would not materially affect the
preparation of the proponent's proposal."

I submit that accepting such warped argument will result in perverting the
policy underlying public bidding. The BOT Law cannot be said to allow the
negotiation of contractual stipulations resulting in a substantially new
contract after the bidding process and price challenge had been
concluded. In fact, the BOT Law, in recognition of the time, money and
effort invested in an unsolicited proposal, accords its originator the
privilege of matching the challenger's bid.

Section 4-A of the BOT Law specifically refers to a "lower price proposal"
by a competing bidder; and to the right of the original proponent "to
match the price" of the challenger. Thus, only the price proposals are in
play. The terms, conditions and stipulations in the contract for which
public bidding has been concluded are understood to remain intact and
not be subject to further negotiation. Otherwise, the very essence of
public bidding will be destroyed - there will be no basis for an exact
comparison between bids.

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

Piatco's Concession Agreement Was Further Amended, (ARCA)


Again Without Public Bidding

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

1. The definition of Attendant Liabilities was further amended with the


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

2. Although the contract may be terminated due to breach by Piatco, it


will not be liable to pay the government any Liquidated Damages if a new
operator is designated to take over the operation of the terminal.31

3. The Liquidated Damages which government becomes liable for in


case of its breach of contract were substantially increased.32

4. Government's right to appoint a comptroller for Piatco in case the


latter encounters liquidity problems was deleted.33

5. Government is made liable for Incremental and Consequential Costs


and Losses in case it fails to comply or cause any third party under its
direct or indirect control to comply with the special obligations imposed on
government.34

6. The insurance policies obtained by Piatco covering the terminal are


now required to be assigned to the Senior Lenders as security for the
loans; previously, their proceeds were to be used to repair and rehabilitate
the facility in case of damage.35

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

8. Government waived its defense of the illegality of the contract and


even agreed to be liable to pay damages to Piatco in the event the
contract was declared illegal.37

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

10. Government is obligated to take the administrative action required


for Piatco's imposition, collection and application of all Public Utility
Revenues.39 No such obligation existed previously.

11. Government is now also obligated to perform and cause other


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

12. DOTC/MIAA's right of intervention in instances where Piatco's Non-


Public Utility Revenues become exorbitant or excessive has been
removed.41

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

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

15. The Parametric Formula in the contract, which is utilized to compute


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

16. The Certificate of Completion simply deleted the successful


performance-testing of the terminal facility in accordance with defined
performance standards as a pre-condition for government's acceptance of
the terminal facility.44

In sum, the foregoing revisions and amendments as embodied in the ARCA


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

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

There is no question in my mind that the ARCA was unauthorized and


illegal for lack of public bidding and for being patently disadvantageous to
government.

The Three Supplements Imposed New Obligations on


Government, Also Without Prior Public Bidding

After Piatco had managed to breach the protective rampart of public


bidding, it recklessly went on a rampage of further assaults on the ARCA.

The First Supplement Is as Void as the ARCA

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

1. The amounts payable by Piatco to government were reduced by


allowing additional exceptions to the Gross Revenues in which
government is supposed to participate.45

2. Made part of the properties which government is obliged to


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

3. The MIAA is obligated to provide funding for the maintenance and


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

4. The FS also imposed on government ten (10) "Additional Special


Obligations," including the following:

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

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

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


plan50

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

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

5. Government is required to work for the immediate reversion to MIAA


of the Nayong Pilipino National Park.54

6. Government's share in the terminal fees collected was revised from


a flat rate of P180 to 36 percent thereof; together with government's
percentage share in the gross revenues of Piatco, the amount will be
remitted to government in pesos instead of US dollars.55 This amendment
enables Piatco to benefit from the further erosion of the peso-dollar
exchange rate, while preventing government from building up its foreign
exchange reserves.

7. All payments from Piatco to government are now to be invoiced to


MIAA, and payments are to accrue to the latter's exclusive benefit.56 This
move appears to be in support of the funds MIAA advanced to DPWH.

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

The Second Supplement Is Similarly Void and Inexistent

The Second Supplement ("SS") was executed between the government


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

The scope of the works, the procedures involved, and the obligations of
the contractor are provided for in Parts II and III of the SS. Section 4.1 sets
out the compensation to be paid, listing specific rates per cubic meter of
materials for each phase of the work - excavation, leveling, removal and

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disposal, backfilling and dewatering. The amounts collectible by Piatco are
to be offset against the Annual Guaranteed Payments it must pay
government.

Though denominated as Second Supplement, it was nothing less than an


entirely new public works contract. Yet it, too, did not undergo any public
bidding, for which reason it is also void and inoperative.

Not surprisingly, Piatco had to subcontract the works to a certain Wintrack


Builders, a firm reputedly owned by a former high-ranking DOTC official.
But that is another story altogether.

The Third Supplement Is Likewise Void and Inexistent

The Third Supplement ("TS"), executed between the government and


Piatco on June 22, 2001, passed on to the government certain obligations
of Piatco as Terminal III concessionaire, with respect to the surface road
connecting Terminals II and III.

By way of background, at the inception of and forming part of the NAIA


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

However, in Section 5 of the First Supplement, the parties declared that


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

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

1. Government is now obliged to remove at its own expense all


tenants, squatters, improvements and/or waste materials on the site
where the T2-T3 road is to be constructed.58 There was no similar
obligation on the part of government insofar as the access tunnel was
concerned.

2. Should government fail to carry out its obligation as above


described, Piatco may undertake it on government's behalf, subject to the

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terms and conditions (including compensation payments) contained in the
Second Supplement.59

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

The TS depends upon and is intended to supplement the ARCA as well as


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

In patiently tracing the progress of the Piatco contracts from their


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

In the meantime, I shall take up specific, provisions or changes in the


contracts and highlight the more prominent objectionable features.

Government Directly Guarantees Piatco Debts

Certainly the most discussed provision in the parties' arguments is the


one creating an unauthorized, direct government guarantee of Piatco's
obligations in favor of the lenders.

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

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

"(iv) that if Concessionaire is in default under a payment obligation owed


to the Senior Lenders, and as a result thereof the Senior Lenders have
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become entitled to accelerate the Senior Loans, the Senior Lenders shall
have the right to notify GRP of the same . . .;

(v) . . . the Senior Lenders may after written notification to GRP,


transfer the Concessionaire's rights and obligations to a transferee . . .;

(vi) if the Senior Lenders . . . are unable to . . . effect a transfer . . ., then


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

In turn, the term Attendant Liabilities is defined in Section 1.06 of the


ARCA as follows:

"Attendant Liabilities refer to all amounts in each case supported by


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

Government's agreement to pay becomes effective in the event of a


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

It matters not that there is a roundabout procedure prescribed by Section


4.04(c)(iv), (v) and (vi) that would require, first, an attempt (albeit
unsuccessful) by the Senior Lenders to transfer Piatco's rights to a
transferee of their choice; and, second, an effort (equally unsuccessful) to
"enter into any other arrangement" with the government regarding the
Terminal III facility, before government is required to make good on its
guarantee. What is abundantly clear is the fact that, in the devious
labyrinthine process detailed in the aforesaid section, it is entirely within
the Senior Lenders' power, prerogative and control - exercisable via a

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mere refusal or inability to agree upon "a transferee" or "any other
arrangement" regarding the terminal facility - to push the process forward
to the ultimate contractual cul-de-sac, wherein government will be
compelled to abjectly surrender and make good on its guarantee of
payment.

Piatco also argues that there is no proviso requiring government to pay


the Senior Lenders in the event of Piatco's default. This is literally true, in
the sense that Section 4.04(c)(vi) of ARCA speaks of government making
the termination payment to Piatco, not to the lenders. However, it is
almost a certainty that the Senior Lenders will already have made Piatco
sign over to them, ahead of time, its right to receive such payments from
government; and/or they may already have had themselves appointed its
attorneys-in-fact for the purpose of collecting and receiving such
payments.

Nevertheless, as petitioners-in-intervention pointed out in their


Memorandum,61 the termination payment is to be made to Piatco, not to
the lenders; and there is no provision anywhere in the contract documents
to prevent it from diverting the proceeds to its own benefit and/or to
ensure that it will necessarily use the same to pay off the Senior Lenders
and other creditors, in order to avert the foreclosure of the mortgage and
other liens on the terminal facility. Such deficiency puts the interests of
government at great risk. Indeed, if the unthinkable were to happen,
government would be paying several hundreds of millions of dollars, but
the mortgage liens on the facility may still be foreclosed by the Senior
Lenders just the same.

Consequently, the Piatco contracts are also objectionable for grievously


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

While on this subject, it is well to recall the earlier discussion regarding a


particularly noticeable alteration of the concept of "Attendant Liabilities."
In Section 1.06 of the CA defining the term, the Piatco debts to be
assumed/paid by government were qualified by the phrases recorded and
from time to time outstanding in the books of the Concessionaire and
actually used for the project. These phrases were eliminated from the
ARCA's definition of Attendant Liabilities.

Since no explanation has been forthcoming from Piatco as to the possible


justification for such a drastic change, the only conclusion, possible is that
it intends to have all of its debts covered by the guarantee, regardless of
whether or not they are disclosed in its books. This has particular
reference to those borrowings which were obtained in violation of the loan
covenants requiring Piatco to maintain a minimum 70:30 debt-to-equity
ratio, and even if the loan proceeds were not actually used for the project
itself.

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

In the final analysis, Section 4.04(c)(iv) to (vi) of the ARCA is diametrically


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

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

Contract Termination Provisions in the Piatco Contracts Are Void

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

"Sec. 7. Contract Termination. - In the event that a project is revoked,


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

"In the event that the government defaults on certain major obligations in
the contract and such failure is not remediable or if remediable shall

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remain unremedied for an unreasonable length of time, the project
proponent/contractor may, by prior notice to the concerned national
government agency or local government unit specifying the turn-over
date, terminate the contract. The project proponent/contractor shall be
reasonably compensated by the Government for equivalent or
proportionate contract cost as defined in the contract."

The foregoing statutory provision in effect provides for the following


limited instances when termination compensation may be allowed:

1. Termination by the government through no fault of the project


proponent

2. Termination upon the parties' mutual agreement

3. Termination by the proponent due to government's default on


certain major contractual obligations

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

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

"(i) Failure of Concessionaire to finish the Works in all material respects


in accordance with the Tender Design and the Timetable;

(ii) Commission by Concessionaire of a material breach of this


Agreement . . .;

(iii) . . . a change in control of Concessionaire arising from the sale,


assignment, transfer or other disposition of capital stock which results in
an ownership structure violative of statutory or constitutional limitations;

(iv) A pattern of continuing or repeated non-compliance, willful violation,


or non-performance of other terms and conditions hereof which is hereby
deemed a material breach of this Agreement . . ."62

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

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

Furthermore, in those instances where such termination compensation is


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

In essence, the ARCA provisions on termination compensation result in


another unauthorized government guarantee, this time in favor of Piatco.

A Prohibited Direct Government Subsidy, Which at the Same Time


Is an Assault on the National Honor

Still another contractual provision offensive to law and public policy is


Section 8.01(d) of the ARCA, which is a "bolder and badder" version of
Section 8.04(d) of the CA.

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

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

"(d) The provisions of Section 8.01(a) notwithstanding, and for the


purpose of preventing a disruption of the operations in the Terminal and/or
Terminal Complex, in the event that at any time Concessionaire is of the
reasonable opinion that it shall be unable to meet a payment obligation
owed to the Senior Lenders, Concessionaire shall give prompt notice to
GRP, through DOTC/MIAA and to the Senior Lenders. In such
circumstances, the Senior Lenders (or the Senior Lenders' Representative)
may ensure that after making provision for administrative expenses and
depreciation, the cash resources of Concessionaire shall first be used and
applied to meet all payment obligations owed to the Senior Lenders. Any
excess cash, after meeting such payment obligations, shall be earmarked
for the payment of all sums payable by Concessionaire to GRP under this
Agreement. If by reason of the foregoing GRP should be unable to collect
in full all payments due to GRP under this Agreement, then the unpaid
balance shall be payable within a 90-day grace period counted from the
relevant due date, with interest per annum at the rate equal to the

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average 91-day Treasury Bill Rate as of the auction date immediately
preceding the relevant due date. If payment is not effected by
Concessionaire within the grace period, then a spread of five (5%) percent
over the applicable 91-day Treasury Bill Rate shall be added on the unpaid
amount commencing on the expiry of the grace period up to the day of
full payment. When the temporary illiquidity of Concessionaire shall have
been corrected and the cash position of Concessionaire should indicate its
ability to meet its maturing obligations, then the provisions set forth under
this Section 8.01(d) shall cease to apply. The foregoing remedial measures
shall be applicable only while there remains unpaid and outstanding
amounts owed to the Senior Lenders." (Emphasis supplied)

By any manner of interpretation or application, Section 8.01(d) of the


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

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

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

The aforesaid provision rouses mixed emotions - shame and


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

The Piatco Contracts Unarguably Violate Constitutional


Injunctions

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

The Exclusive Right Granted to Piatco to Operate a Public Utility Is


Prohibited by the Constitution

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

Section 11 of Article XII of the Constitution prohibits the grant of a


"franchise, certificate, or any other form of authorization for the operation
of a public utility" that is "exclusive in character."

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

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

"Section 3.02 on 'Exclusivity'

"This provision gives to PIATCO (the Concessionaire) the exclusive right to


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

"This is an onerous and disadvantageous provision. It effectively grants


PIATCO a monopoly in Luzon and ties the hands of government in the
matter of developing new airports which may be found expedient and

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necessary in carrying out any future plan for an inter-modal transportation
system in Luzon.

"Additionally, it imposes an unreasonable restriction on the operation of


the Clark International Airport which could adversely affect the operation
and development of the Clark Special Economic Zone to the economic
prejudice of the local constituencies that are being benefited by its
operation." (Emphasis supplied)

While it cannot be gainsaid that an enterprise that is a public utility may


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

Piatco's contention that the Constitution does not actually prohibit


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

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

The Piatco Contracts Violate the Time Limitation on Franchises

Section 11 of Article XII of the Constitution also provides that "no


franchise, certificate or any other form of authorization for the operation
of a public utility shall be . . . for a longer period than fifty years." After all,
a franchise held for an unreasonably long time would likely give rise to the
same evils as a monopoly.

The Piatco Contracts have come up with an innovative way to circumvent


the prohibition and obtain an extension. This fact can be gleaned from
Section 8.03(b) of the ARCA, which I quote thus:

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

a) x x x xxx xxx

b) In the event the Agreement is terminated pursuant to Section 8.01 (b)


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

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

The Contracts Create Two Monopolies for Piatco

By way of background, two monopolies were actually created by the


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

In furtherance of the first monopoly, the Piatco Contracts stipulate that


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

There was however another monopoly within the NAIA created by the
subject contracts for Piatco - in the business of providing international

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airlines with the following: groundhandling, in-flight catering, cargo
handling, and aircraft repair and maintenance services. These are lines of
business activity in which are engaged many service providers (including
the petitioners-in-intervention), who will be adversely affected upon full
implementation of the Piatco Contracts, particularly Sections 3.01(d)69 and
(e)70 of both the ARCA and the CA.

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

The aforementioned provisions vest in Piatco effective and exclusive


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

This intention is exceedingly clear in the declaration by Piatco that it is


"completely within its rights to exclude any party that it has not
contracted with from NAIA Terminal III."71

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

In the meantime, and not surprisingly, Piatco is first in line, ready to


exploit the unique business opportunity. It announced72 that it has
accredited three groundhandlers for Terminal III. Aside from the Philippine
Airlines, the other accredited entities are the Philippine Airport and Ground
Services Globeground, Inc. ("PAGSGlobeground") and the Orbit Air
Systems, Inc. ("Orbit"). PAGSGlobeground is a wholly-owned subsidiary of
the Philippine Airport and Ground Services, Inc. or PAGS, 73 while Orbit is a
wholly-owned subsidiary of Friendship Holdings, Inc.,74 which is in turn
owned 80 percent by PAGS.75 PAGS is a service provider owned 60 percent
by the Cheng Family;76 it is a stockholder of 35 percent of Piatco77 and is
the latter's designated contractor-operator for NAIA Terminal III.78

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

"11. The Shareholders shall ensure:

a. x x x xxx x x x.;

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

c. That PAIRCARGO and/or its designated Affiliate shall, during the


Concession Period, be the only entities authorized to construct and
operate a warehouse for all cargo handling and related services within the
Site."

Precisely, proscribed by our Constitution are the monopoly and the


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

". . . [S]ection 19 of Article XII of the Constitution . . . mandates: 'The State


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

"A monopoly is a privilege or peculiar advantage vested in one or more


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

"x x x xxx xxx

"Section 19, Article XII of our Constitution is anti-trust in history and in


spirit. It espouses competition. The desirability of competition is the
reason for the prohibition against restraint of trade, the reason for the
interdiction of unfair competition, and the reason for regulation of

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unmitigated monopolies. Competition is thus the underlying principle of
[S]ection 19, Article XII of our Constitution, . . ."81

Gokongwei Jr. v. Securities and Exchange Commission82 elucidates the


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

The Contracts Encourage Monopolistic Pricing, Too

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

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

"For fees, rentals and charges constituting Non-Public Utility Revenues,


Concessionaire may make any adjustments it deems appropriate without
need for the consent of GRP or any government agency subject to Sec.
6.03(c)."

Section 6.03(c) in turn provides:

"(c) Concessionaire shall at all times be judicious in fixing fees and


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

It will be noted that the above-quoted provision has no teeth, so the


concessionaire can defy the government without fear of any sanction.
Moreover, Section 6.06 - taken together with Section 6.03(c) of the ARCA -
falls short of the standard set by the BOT Law as amended, which
expressly requires in Section 2(b) that the project proponent is "allowed to
charge facility users appropriate tolls, fees, rentals and charges not
exceeding those proposed in its bid or as negotiated and
incorporated in the contract x x x."

The Piatco Contracts Violate Constitutional Prohibitions Against


Impairment of Contracts and Deprivation of Property Without Due
Process

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

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

Consequently, government through the DOTC/MIAA will be compelled to


cease honoring existing contracts with service providers after the In-
Service Date, as they cannot be allowed to operate in Terminal III.

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

Notably, government is not in a position to require Piatco to accommodate


the displaced service providers, and it would be unrealistic to think that
these service providers can perform their service contracts in some other
international airport outside Luzon. Obviously, then, these displaced
service providers are - to borrow a quaint expression - up the river without
a paddle. In plainer terms, they will have lost their businesses entirely, in
the blink of an eye.

What we have here is a set of contractual provisions that impair the


obligation of contracts and contravene the constitutional prohibition
against deprivation of property without due process of law.88

Moreover, since the displaced service providers, being unable to operate,


will be forced to close shop, their respective employees - among them
Messrs. Agan and Lopez et al. - have very grave cause for concern, as
they will find themselves out of employment and bereft of their means of
livelihood. This situation comprises still another violation of the
constitution prohibition against deprivation of property without due
process.

True, doing business at the NAIA may be viewed more as a privilege than
as a right. Nonetheless, where that privilege has been availed of by the
petitioners-in-intervention service providers for years on end, a situation
arises, similar to that in American Inter-fashion v. GTEB.89 We held therein
that a privilege enjoyed for seven years "evolved into some form of
property right which should not be removed x x x arbitrarily and without
due process." Said pronouncement is particularly relevant and applicable
to the situation at bar because the livelihood of the employees of
petitioners-intervenors are at stake.

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The Piatco Contracts Violate Constitutional Prohibition
Against Deprivation of Liberty Without Due Process

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

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

By Creating New Financial Obligations for Government,


Supplements to the ARCA Violate the Constitutional
Ban on Disbursement of Public Funds Without Valid Appropriation

Clearly prohibited by the Constitution is the disbursement of public funds


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

"Sec. 46. Appropriation Before Entering into Contract. - (1) No contract


involving the expenditure of public funds shall be entered into unless
there is an appropriation therefor, the unexpended balance of which, free
of other obligations, is sufficient to cover the proposed expenditure; and . .

"Sec. 47. Certificate Showing Appropriation to Meet Contract. - Except in


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

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

Notwithstanding the constitutional ban, statutory mandates and


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

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

• To construct, maintain and keep in good repair and operating


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

• To obligate the MIAA to provide funding for the upkeep, maintenance


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

• Section 4 of the FS imposed on government ten (10) "Additional


Special Obligations," including the following:

○ Providing thru MIAA the land required by Piatco for the


taxilane and one taxiway, at no cost to Piatco

○ Implementing the government's existing storm drainage


master plan

○ Coordinating with DPWH the financing, implementation and


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

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○ Dealing directly with BCDA and the Philippine Air Force in
acquiring additional land or right of way for the road upgrade
and improvement program

○ Requiring government to work for the immediate reversion to


MIAA of the Nayong Pilipino National Park, in order to permit
the building of the second west parallel taxiway

• Section 5 of the FS also provides that in lieu of the access tunnel, a


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

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

The foregoing contractual stipulations undeniably impose on government


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

To determine whether the additional obligations under the Supplements


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

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

Conversely, failure to deliver on any of these obligations may conceivably


result in substantial prejudice to the concessionaire, to such an extent as
to constitute a material breach of the Piatco Contracts. Whereupon, the
concessionaire may outrightly terminate the Contracts pursuant to Section
8.01(b)(i) and (ii) of the ARCA and seek payment of Liquidated Damages in

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accordance with Section 8.02(a) of the ARCA; or the concessionaire may
instead require government to pay the Incremental and Consequential
Losses under Section 1.23 of the ARCA.94 The logical conclusion then is
that the obligations in the Supplements are not to be performed on a best-
efforts basis only, but are unarguably mandatory in character.

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

"2.2.8. Reimburse all advance payments to MIAA including but not


limited to interest, fees, plus other costs of money within the periods
CY2004 and CY2006 with payment of no less than One Hundred Million
Pesos (PhP100M) every year.

"2.2.9. Perform all acts necessary to include in its CY2004 to CY2006


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

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

They also Infringe on the Legislative Prerogative and Power Over


the Public Purse

But the particularly sad thing about this transaction between MIAA and
DPWH is the fact that both agencies were maneuvered into (or allowed
themselves to be maneuvered into) an agreement that would ensure
delivery of upgraded roads for Piatco's benefit, using funds not allocated
for that purpose. The agreement would then be presented to Congress as
a done deal. Congress would thus be obliged to uphold the agreement and
support it with the necessary allocations and appropriations for three
years, in order to enable DPWH to deliver on its committed repayments to
MIAA. The net result is an infringement on the legislative power over the

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public purse and a diminution of Congress' control over expenditures of
public funds - a development that would not have come about, were it not
for the Supplements. Very clever but very illegal!

EPILOGUE
What Do We Do Now?

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

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

Neither is it possible to argue for the retention of the Draft Concession


Agreement (referred to in the various pleadings as the Contract Bidded
Out) as the contract that should be kept in force and effect to govern the
situation, inasmuch as it was never executed by the parties. What Piatco
and the government executed was the Concession Agreement which is
entirely different from the Draft Concession Agreement.

Ultimately, though, it would be tantamount to an outrageous, grievous


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

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

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

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

Should government pay at all for reasonable expenses incurred in the


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

In Melchor v. Commission on Audit,97 this Court held that even if the


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

One possible practical solution would be for government - in view of the


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

How the payment or series of payments to the builder, funders, investors


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

WHEREFORE, I vote to grant the Petitions and to declare the subject


contracts NULL and VOID.

G.R. No.148004 January 22, 2007


VINCENT E. OMICTIN, Petitioner,
vs.

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HON. COURT OF APPEALS (Special Twelfth Division) and GEORGE I.
LAGOS, Respondents.

This is a petition for certiorari1 with prayer for a writ of preliminary


injunction seeking the nullification of the decision rendered by the Court of
Appeals (CA) on June 30, 2000, and its resolution, dated March 5, 2001 in
CA-G.R. SP No. 55834 entitled "George I. Lagos v. Hon. Reinato G. Quilala,
Presiding Judge of RTC, Br. 57, Makati, Hon. Elizabeth Tayo Chua, Asst. City
Prosecutor, Makati City, and Vincent E. Omictin."

In its assailed decision, the CA declared the existence of a prejudicial


question and ordered the suspension of the criminal proceedings initiated
by petitioner Vincent E. Omictin on behalf of Saag Phils., Inc. against
private respondent George I. Lagos, in view of a pending case before the
Securities and Exchange Commission (SEC) filed by the latter against the
former, Saag Pte. (S) Ltd., Nicholas Ng, Janifer Yeo and Alex Y. Tan.

The facts are as follows:

Petitioner Vincent E. Omictin, Operations Manager Ad Interim of Saag


Phils., Inc., filed a complaint for two counts of estafa with the Office of the
City Prosecutor of Makati against private respondent George I. Lagos. He
alleged that private respondent, despite repeated demands, refused to
return the two company vehicles entrusted to him when he was still the
president of Saag Phils., Inc..

On February 26, 1999, public prosecutor Alex G. Bagaoisan recommended


the indictment of private respondent, and on the same day, respondent
was charged with the crime of estafa under Article 315, par. 1(b) of the
Revised Penal Code before the Regional Trial Court (RTC), Branch 57 of
Makati City. The case was docketed as Criminal Case No. 99-633, entitled
"People of the Philippines v. George I. Lagos."

On June 4, 1999, private respondent filed a motion to recuse praying that


Presiding Judge Reinato G. Quilala inhibit himself from hearing the case
based on the following grounds:

a) In an order, dated May 28, 1999, the presiding judge summarily denied
respondent’s motion: 1) to defer issuance of the warrant of arrest; and 2)
to order reinvestigation.

b) Immediately before the issuance of the above-mentioned order, the


presiding judge and Atty. Alex Y. Tan, SAAG Philippines, Inc.’s Ad Interim
President, were seen together.2

On June 24, 1999, private respondent filed a motion to suspend


proceedings on the basis of a prejudicial question because of a pending
petition with the Securities and Exchange Commission (SEC) involving the
same parties.

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It appears that on January 7, 1999, private respondent filed SEC Case No.
01-99-6185 for the declaration of nullity of the respective appointments of
Alex Y. Tan and petitioner as President Ad Interim and Operations Manager
Ad Interim of Saag Phils., Inc., declaration of dividends, recovery of share
in the profits, involuntary dissolution and the appointment of a receiver,
recovery of damages and an application for a temporary restraining order
(TRO) and injunction against Saag (S) Pte. Ltd., Nicholas Ng, Janifer Yeo,
Tan and petitioner. 3

In the action before the SEC, private respondent averred that Saag (S) Pte.
Ltd. is a foreign corporation organized and existing under the laws of
Singapore, and is fully owned by Saag Corporation (Bhd). On July 1, 1994,
he was appointed as Area Sales Manager in the Philippines by Thiang
Shiang Hiang, Manager of Saag (S) Pte. Ltd. Pursuant to his appointment,
respondent was authorized to organize a local joint venture corporation to
be known as Saag Philippines, Inc. for the wholesale trade and service of
industrial products for oil, gas and power industries in the Philippines.

On September 9, 1994, Saag Philippines, Inc. was incorporated with Saag


(S) Pte. Ltd. as the majority stockholder. Private respondent was appointed
to the board of directors, along with Rommel I. Lagos, Jose E. Geronimo,
Gan Ching Lai and Thiang Shiang Hiang, and was elected president of the
domestic corporation.

Later, due to intra-corporate disputes, Gan and Thiang resigned and


divested their shares in Saag Corporation (Bhd), thereby resulting in a
change in the controlling interest in Saag (S) Pte. Ltd.

Barely three months after, or on June 23, 1998, private respondent


resigned his post as president of Saag Phils., Inc. while still retaining his
position as a director of the company.4 According to private respondent,
the joint venture agreement (JVA) between him or Saag Phils., Inc. and
Saag (S) Pte. Ltd. provided that should the controlling interest in the latter
company, or its parent company Saag Corp. (Bhd), be acquired by any
other person or entity without his prior consent, he has the option either
to require the other stockholders to purchase his shares or to terminate
the JVA and dissolve Saag Phils., Inc. altogether. Thus, pursuant to this
provision, since private respondent did not give his consent as regards the
transfer of shares made by Gan and Thiang, he made several requests to
Nicholas Ng, who replaced Gan as director, and Janifer Yeo, Executive
Director of Saag (S) Pte. Ltd., to call for a board meeting in order to
discuss the following: a) implementation of the board resolution declaring
dividends; b) acquisition of private respondent’s shares by Saag (S) Pte.
Ltd.; c) dissolution of Saag Phils., Inc.; and d) the termination of the JVA.

Ng and Yeo failed to appear, however, in the scheduled board meetings.


Instead, on September 30, 1998 they issued a letter appointing Alex Y. Tan
as President Ad Interim of Saag Phils., Inc. Tan, in turn, appointed
petitioner Omictin as the company’s Operations Manager Ad Interim.

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Citing as a reason the absence of a board resolution authorizing the
continued operations of Saag Phils., Inc., private respondent retained his
possession of the office equipment of the company in a fiduciary capacity
as director of the corporation pending its dissolution and/or the resolution
of the intra-corporate dispute. He likewise changed the locks of the offices
of the company allegedly to prevent Tan and petitioner from seizing
company property.

Private respondent stressed that Tan’s appointment was invalid because it


was in derogation of the company by-laws requiring that the president
must be chosen from among the directors, and elected by the affirmative
vote of a majority of all the members of the board of directors.5 As Tan’s
appointment did not have the acquiescence of the board of directors,
petitioner’s appointment by the former is likewise allegedly invalid. Thus,
neither has the power or the authority to represent or act for Saag Phils.,
Inc. in any transaction or action before the SEC or any court of justice.

The trial court, in an order dated September 8, 1999, denied respondent’s


motion to suspend proceedings and motion to recuse.

His motion for reconsideration having been denied by the trial court in its
order issued on October 29, 1999, respondent filed with the CA the
petition for certiorari[6] assailing the aforesaid orders.

On June 30, 2000, the CA rendered its challenged decision. The pertinent
portion reads:

In a case for estafa, a valid demand made by an offended party is one of


the essential elements. It appears from the records that the delay of
delivery of the motor vehicles by petitioner to Saag Corporation is by
reason of petitioner’s contention that the demand made by Omictin and
Atty. Tan to him to return the subject vehicles is not a valid demand. As
earlier mentioned, petitioner filed a case with the SEC questioning therein
private respondents’ appointment.

If the SEC should rule that the dissolution of Saag Phils. is proper, or that
the appointments of private respondents are invalid, the criminal case will
eventually be dismissed due to the absence of one of the essential
elements of the crime of estafa.

Based on the foregoing, it is clear that a prejudicial question exists which


calls for the suspension of the criminal proceedings before the lower court.

WHEREFORE, in view of the foregoing, the assailed Order of September 8,


1999 and October 29, 1999, are hereby MODIFIED. The motion to suspend
proceedings is hereby GRANTED and respondent court is hereby enjoined
from hearing Criminal Case No. 99-633, entitled "People of the Philippines
v. George I. Lagos," until the termination of the case with the Securities
and Exchange Commission. The denial of the motion to recuse is hereby
AFFIRMED.

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SO ORDERED.7

Incidentally, on January 18, 2001, the SEC case8 was transferred to the
Regional Trial Court (RTC) of Mandaluyong City, Branch 214, pursuant to
A.M. No. 00-11-03-SC9 implementing the Securities and Regulation Code
(Republic Act No. 8799)10 enacted on July 19, 2000, vesting in the RTCs
jurisdiction over intra-corporate disputes.11

Meanwhile, on March 5, 2001, the CA, addressing petitioner’s motion for


reconsideration of the aforementioned decision, issued its assailed
resolution:

Considering that the petition for review on certiorari of the 30 June 2000
decision of this Court, filed by the Office of the Solicitor General before the
Supreme Court has already TERMINATED on November 20, 2000 and a
corresponding entry of judgment has already been issued by the High
Court, that the same is final and executory, the private respondent’s
motion for reconsideration of the decision 30 June 2000 before this Court
is NOTED for being moot and academic.

SO ORDERED.12

Hence, this petition raises the following issues:

RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF


DISCRETION AMOUNTING TO LACK OF JURISDICTION -

A) WHEN IT DECREED THAT A PREJUDICIAL QUESTION EXISTS IN THE SEC


CASE FILED BY PRIVATE RESPONDENT AGAINST SAAG (S) PTE. LTD., A
FOREIGN CORPORATION, ALTHOUGH THE PRIVATE COMPLAINANT IN THE
CRIMINAL CASE FOR ESTAFA (WHERE PRIVATE RESPONDENT IS THE
ACCUSED THEREIN) IS ACTUALLY SAAG PHILIPPINES, INC. A DOMESTIC
CORPORATION WITH A SEPARATE JURIDICAL PERSONALITY OF ITS OWN
AND WHICH IS NOT EVEN A PARTY IN THE SEC CASE; AND,

B) WHEN IT ORDERED THE SUSPENSION OF THE PROCEEDINGS IN


CRIMINAL CASE NO. 99-633 AGAINST PRIVATE RESPONDENT.

II

THIS PETITION FOR CERTIORARI IS THE ONLY PLAIN, SPEEDY AND


ADEQUATE REMEDY IN THE PREMISES.

In support of the above, petitioner argues, as follows:

1. The action before the SEC and the criminal case before the trial court
do not involve any prejudicial question.13 SEC Case No. 01-99-6185
mainly involves the dissolution of Saag (S) Pte. Ltd., the appointment of a
receiver, the distribution of profits, and the authority of petitioner and Tan

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to represent Saag Phils., Inc. The entity which is being sued is Saag (S)
Pte. Ltd., a foreign corporation over which the SEC has yet to acquire
jurisdiction. Hence, any decision that may be rendered in the SEC case will
neither be determinative of the innocence or guilt of the accused nor bind
Saag Phils., Inc. because the same was not made a party to the action
even if the former is its holding corporation;

2. Saag Phils., Inc. has a separate corporate existence and is to be treated


as a separate entity from its holding or parent company, Saag (S) Pte. Ltd.
The mere fact that one or more corporations are owned or controlled by
the same or single stockholder is not a sufficient ground for disregarding
separate corporate personalities;

3. Private respondent’s petition with the SEC seeks affirmative relief


against Saag (S) Pte. Ltd. for the enforcement or application of the alleged
terms of the joint venture agreement (JVA) that he purportedly entered
into with the foreign corporation while he was still its Area Sales Manager
in the Philippines. The foreign corporation is not licensed to do business in
the Philippines, thus, a party to a contract with a foreign corporation doing
business in the Philippines without a license is not entitled to relief from
the latter; and

4. There is no pending civil or administrative case in SEC against Saag


Phils., Inc. that warrants the application of a prejudicial question and the
consequent suspension of the criminal action it has instituted against
private respondent. If any, the action before the SEC was merely a ploy to
delay the resolution of the criminal case and eventually frustrate the
outcome of the estafa case.

In sum, the main issue is whether or not a prejudicial question exists to


warrant the suspension of the criminal proceedings pending the resolution
of the intra-corporate controversy that was originally filed with the SEC.

A prejudicial question is defined as that which arises in a case, the


resolution of which is a logical antecedent of the issue involved therein
and the cognizance of which pertains to another tribunal.14 Here, the
case which was lodged originally before the SEC and which is now pending
before the RTC of Mandaluyong City by virtue of Republic Act No. 8799
involves facts that are intimately related to those upon which the criminal
prosecution is based.

Ultimately, the resolution of the issues raised in the intra-corporate


dispute will determine the guilt or innocence of private respondent in the
crime of estafa filed against him by petitioner before the RTC of Makati. As
correctly stated by the CA, one of the elements of the crime of estafa with
abuse of confidence under Article 315, par. 1(b) of the Revised Penal Code
is a demand made by the offended party to the offender:

The elements of estafa with abuse of confidence under subdivision No. 1,


par. (b) of Art. 315 are as follows:

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1. That money, goods, or other personal property be received by the
offender in trust, or on commission, or for administration, or under any
other obligation involving the duty to make delivery of, or to return the
same;

2. That there be misrepresentation or conversion of such money or


property by the offender, or denial on his part of such receipt;

3. That such misappropriation or conversion or denial is to the prejudice of


another; and

4. That there is a demand made by the offended party to the offender.15

Logically, under the circumstances, since the alleged offended party is


Saag Phils., Inc., the validity of the demand for the delivery of the subject
vehicles rests upon the authority of the person making such a demand on
the company’s behalf. Private respondent is challenging petitioner’s
authority to act for Saag Phils., Inc. in the corporate case pending before
the RTC of Mandaluyong, Branch 214. Taken in this light, if the supposed
authority of petitioner is found to be defective, it is as if no demand was
ever made, hence, the prosecution for estafa cannot prosper. Moreover,
the mere failure to return the thing received for safekeeping or on
commission, or for administration, or under any other obligation involving
the duty to deliver or to return the same or deliver the value thereof to
the owner could only give rise to a civil action and does not constitute the
crime of estafa. This is because the crime is committed by
misappropriating or converting money or goods received by the offender
under a lawful transaction. As stated in the case of United States v.
Bleibel:16

The crime of estafa is not committed by the failure to return the things
received for sale on commission, or to deliver their value, but, as this class
of crime is defined by law, by misappropriating or converting the money
or goods received on commission. Delay in the fulfillment of a commission
or in the delivery of the sum on such account received only involves civil
liability. So long as the money that a person is under obligation to deliver
is not demanded of him, and he fails to deliver it for having wrongfully
disposed of it, there is no estafa, whatever be the cause of the debt.

Likewise, by analogy, the doctrine of primary jurisdiction may be applied


in this case. The issues raised by petitioner particularly the status of Saag
Phils., Inc. vis-à-vis Saag (S) Pte. Ltd., as well as the question regarding
the supposed authority of the latter to make a demand on behalf of the
company, are proper subjects for the determination of the tribunal hearing
the intra-corporate case which in this case is the RTC of Mandaluyong,
Branch 214. These issues would have been referred to the expertise of the
SEC in accordance with the doctrine of primary jurisdiction had the case
not been transferred to the RTC of Mandaluyong.

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Strictly speaking, the objective of the doctrine of primary jurisdiction is to
guide a court in determining whether it should refrain from exercising its
jurisdiction until after an administrative agency has determined some
question or some aspect of some question arising in the proceeding
before the court.17 The court cannot or will not determine a controversy
involving a question which is within the jurisdiction of the administrative
tribunal prior to resolving the same, where the question demands the
exercise of sound administrative discretion requiring special knowledge,
experience and services in determining technical and intricate matters of
fact.18

While the above doctrine refers specifically to an administrative tribunal,


the Court believes that the circumstances in the instant case do not
proscribe the application of the doctrine, as the role of an administrative
tribunal such as the SEC in determining technical and intricate matters of
special competence has been taken on by specially designated RTCs by
virtue of Republic Act No. 8799.19 Hence, the RTC of Mandaluyong where
the intra-corporate case is pending has the primary jurisdiction to
determine the issues under contention relating to the status of the
domestic corporation, Saag Phils., Inc., vis-à-vis Saag Pte. Ltd.; and the
authority of petitioner to act on behalf of the domestic corporation, the
determination of which will have a direct bearing on the criminal case. The
law recognizes that, in place of the SEC, the regular courts now have the
legal competence to decide intra-corporate disputes.20

In view of the foregoing, the Court finds no substantial basis in petitioner’s


contention that the CA committed grave abuse of discretion amounting to
lack or excess of jurisdiction. Absent a showing of a despotic, whimsical
and arbitrary exercise of power by the CA, the petition must fail.

WHEREFORE, the petition is DISMISSED. The decision and resolution of the


Court of Appeals in CA-G.R. SP No. 55834, dated June 30, 2000 and March
5, 2001, respectively, are AFFIRMED.

No costs.

SO ORDERED.

G.R. No. 154599 January 21, 2004


THE LIGA NG MGA BARANGAY NATIONAL, petitioner,
vs.
THE CITY MAYOR OF MANILA, HON. JOSE ATIENZA, JR., and THE
CITY COUNCIL OF MANILA, respondents.

This petition for certiorari under Rule 65 of the Rules of Court seeks the
nullification of Manila City Ordinance No. 8039, Series of 2002,1 and

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respondent City Mayor’s Executive Order No. 011, Series of 2002,2 dated
15 August 2002 , for being patently contrary to law.

The antecedents are as follows:

Petitioner Liga ng mga Barangay National (Liga for brevity) is the national
organization of all the barangays in the Philippines, which pursuant to
Section 492 of Republic Act No. 7160, otherwise known as The Local
Government Code of 1991, constitutes the duly elected presidents of
highly-urbanized cities, provincial chapters, the metropolitan Manila
Chapter, and metropolitan political subdivision chapters.

Section 493 of that law provides that "[t]he liga at the municipal, city,
provincial, metropolitan political subdivision, and national levels directly
elect a president, a vice-president, and five (5) members of the board of
directors." All other matters not provided for in the law affecting the
internal organization of the leagues of local government units shall be
governed by their respective constitution and by-laws, which must always
conform to the provisions of the Constitution and existing laws.3

On 16 March 2000, the Liga adopted and ratified its own Constitution and
By-laws to govern its internal organization.4 Section 1, third paragraph,
Article XI of said Constitution and By-Laws states:

All other election matters not covered in this Article shall be governed by
the "Liga Election Code" or such other rules as may be promulgated by
the National Liga Executive Board in conformity with the provisions of
existing laws.

By virtue of the above-cited provision, the Liga adopted and ratified its
own Election Code.5 Section 1.2, Article I of the Liga Election Code states:

1.2 Liga ng mga Barangay Provincial, Metropolitan, HUC/ICC Chapters.


There shall be nationwide synchronized elections for the provincial,
metropolitan, and HUC/ICC chapters to be held on the third Monday of the
month immediately after the month when the synchronized elections in
paragraph 1.1 above was held. The incumbent Liga chapter president
concerned duly assisted by the proper government agency, office or
department, e.g. Provincial/City/NCR/Regional Director, shall convene all
the duly elected Component City/Municipal Chapter Presidents and all the
current elected Punong Barangays (for HUC/ICC) of the respective
chapters in any public place within its area of jurisdiction for the purpose
of reorganizing and electing the officers and directors of the provincial,
metropolitan or HUC/ICC Liga chapters. Said president duly assisted by the
government officer aforementioned, shall notify, in writing, all the above
concerned at least fifteen (15) days before the scheduled election meeting
on the exact date, time, place and requirements of the said meeting.

The Liga thereafter came out with its Calendar of Activities and Guidelines
in the Implementation of the Liga Election Code of 2002,6 setting on 21

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October 2002 the synchronized elections for highly urbanized city
chapters, such as the Liga Chapter of Manila, together with independent
component city, provincial, and metropolitan chapters.lawphi1.net

On 28 June 2002, respondent City Council of Manila enacted Ordinance


No. 8039, Series of 2002, providing, among other things, for the election
of representatives of the District Chapters in the City Chapter of Manila
and setting the elections for both chapters thirty days after the barangay
elections. Section 3 (A) and (B) of the assailed ordinance read:

SEC. 3. Representation Chapters. — Every Barangay shall be represented


in the said Liga Chapters … by the Punong Barangay…or, in his absence
or incapacity, by the kagawad duly elected for the purpose among its
members….

A. District Chapter

All elected Barangay Chairman in each District shall elect from among
themselves the President, Vice-President and five (5) members of the
Board….

B. City Chapter

The District Chapter representatives shall automatically become members


of the Board and they shall elect from among themselves a President,
Vice-President, Secretary, Treasurer, Auditor and create other positions as
it may deem necessary for the management of the chapter.

The assailed ordinance was later transmitted to respondent City Mayor


Jose L. Atienza, Jr., for his signature and approval.

On 16 July 2002, upon being informed that the ordinance had been
forwarded to the Office of the City Mayor, still unnumbered and yet to be
officially released, the Liga sent respondent Mayor of Manila a letter
requesting him that said ordinance be vetoed considering that it
encroached upon, or even assumed, the functions of the Liga through
legislation, a function which was clearly beyond the ambit of the powers of
the City Council.7

Respondent Mayor, however, signed and approved the assailed city


ordinance and issued on 15 August 2002 Executive Order No. 011, Series
of 2002, to implement the ordinance.

Hence, on 27 August 2002, the Liga filed the instant petition raising the
following issues:

WHETHER OR NOT THE RESPONDENT CITY COUNCIL OF MANILA


COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF OR
IN EXCESS OF JURISDICTION, WHEN IT ENACTED CITY ORDINANCE NO.

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8039 S. 2002 PURPOSELY TO GOVERN THE ELECTIONS OF THE MANILA
CHAPTER OF THE LIGA NG MGA BARANGAYS AND WHICH PROVIDES A
DIFFERENT MANNER OF ELECTING ITS OFFICERS, DESPITE THE FACT THAT
SAID CHAPTER’S ELECTIONS, AND THE ELECTIONS OF ALL OTHER
CHAPTERS OF THE LIGA NG MGA BARANGAYS FOR THAT MATTER, ARE BY
LAW MANDATED TO BE GOVERNED BY THE LIGA CONSTITUTION AND BY-
LAWS AND THE LIGA ELECTION CODE.

II

WHETHER OR NOT THE RESPONDENT CITY MAYOR OF MANILA COMMITTED


GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF
JURISDICTION WHEN HE ISSUED EXECUTIVE ORDER NO. 011 TO
IMPLEMENT THE QUESTIONED CITY ORDINANCE NO. 8039 S. 2002.

In support of its petition, the Liga argues that City Ordinance No. 8039,
Series of 2002, and Executive Order No. 011, Series of 2002, contradict
the Liga Election Code and are therefore invalid. There exists neither
rhyme nor reason, not to mention the absence of legal basis, for the
Manila City Council to encroach upon, or even assume, the functions of
the Liga by prescribing, through legislation, the manner of conducting the
Liga elections other than what has been provided for by the Liga
Constitution and By-laws and the Liga Election Code. Accordingly, the
subject ordinance is an ultra vires act of the respondents and, as such,
should be declared null and void.

As for its prayer for the issuance of a temporary restraining order, the
petitioner cites as reason therefor the fact that under Section 5 of the
assailed city ordinance, the Manila District Chapter elections would be
held thirty days after the regular barangay elections. Hence, it argued that
the issuance of a temporary restraining order and/or preliminary
injunction would be imperative to prevent the implementation of the
ordinance and executive order.

On 12 September 2002, Barangay Chairman Arnel Peña, in his capacity as


a member of the Liga ng mga Barangay in the City Chapter of Manila, filed
a Complaint in Intervention with Urgent Motion for the Issuance of
Temporary Restraining Order and/or Preliminary Injunction.8 He supports
the position of the Liga and prays for the declaration of the questioned
ordinance and executive order, as well as the elections of the Liga ng mga
Barangay pursuant thereto, to be null and void. The assailed ordinance
prescribing for an "indirect manner of election" amended, in effect, the
provisions of the Local Government Code of 1991, which provides for the
election of the Liga officers at large. It also violated and curtailed the
rights of the petitioner and intervenor, as well as the other 896 Barangay
Chairmen in the City of Manila, to vote and be voted upon in a direct
election.

On 25 October 2002, the Office of the Solicitor General (OSG) filed a


Manifestation in lieu of Comment.9 It supports the petition of the Liga,

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arguing that the assailed city ordinance and executive order are clearly
inconsistent with the express public policy enunciated in R.A. No. 7160.
Local political subdivisions are able to legislate only by virtue of a valid
delegation of legislative power from the national legislature. They are
mere agents vested with what is called the power of subordinate
legislation. Thus, the enactments in question, which are local in origin,
cannot prevail against the decree, which has the force and effect of law.

On the issue of non-observance by the petitioners of the hierarchy-of-


courts rule, the OSG posits that technical rules of procedure should be
relaxed in the instant petition. While Batas Pambansa Blg. 129, as
amended, grants original jurisdiction over cases of this nature to the
Regional Trial Court (RTC), the exigency of the present petition, however,
calls for the relaxation of this rule. Section 496 (should be Section 491) of
the Local Government Code of 1991 primarily intended that the Liga ng
mga Barangay determine the representation of the Liga in the
sanggunians for the immediate ventilation, articulation, and crystallization
of issues affecting barangay government administration. Thus, the
immediate resolution of this petition is a must.

On the other hand, the respondents defend the validity of the assailed
ordinance and executive order and pray for the dismissal of the present
petition on the following grounds: (1) certiorari under Rule 65 of the Rules
of Court is unavailing; (2) the petition should not be entertained by this
Court in view of the pendency before the Regional Trial Court of Manila of
two actions or petitions questioning the subject ordinance and executive
order; (3) the petitioner is guilty of forum shopping; and (4) the act sought
to be enjoined is fait accompli.

The respondents maintain that certiorari is an extraordinary remedy


available to one aggrieved by the decision of a tribunal, officer, or board
exercising judicial or quasi-judicial functions. The City Council and City
Mayor of Manila are not the "board" and "officer" contemplated in Rule 65
of the Rules of Court because both do not exercise judicial functions. The
enactment of the subject ordinance and issuance of the questioned
executive order are legislative and executive functions, respectively, and
thus, do not fall within the ambit of "judicial functions." They are both
within the prerogatives, powers, and authority of the City Council and City
Mayor of Manila, respectively. Furthermore, the petition failed to show with
certainty that the respondents acted without or in excess of jurisdiction or
with grave abuse of discretion.

The respondents also asseverate that the petitioner cannot claim that it
has no other recourse in addressing its grievance other than this petition
for certiorari. As a matter of fact, there are two cases pending before
Branches 33 and 51 of the RTC of Manila (one is for mandamus; the other,
for declaratory relief) and three in the Court of Appeals (one is for
prohibition; the two other cases, for quo warranto), which are all akin to
the present petition in the sense that the relief being sought therein is the
declaration of the invalidity of the subject ordinance. Clearly, the

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petitioner may ask the RTC or the Court of Appeals the relief being prayed
for before this Court. Moreover, the petitioner failed to prove discernible
compelling reasons attending the present petition that would warrant
cognizance of the present petition by this Court.

Besides, according to the respondents, the petitioner has transgressed the


proscription against forum-shopping in filing the instant suit. Although the
parties in the other pending cases and in this petition are different
individuals or entities, they represent the same interest.

With regard to petitioner's prayer for temporary restraining order and/ or


preliminary injunction in its petition, the respondents maintain that the
same had become moot and academic in view of the elections of officers
of the City Liga ng mga Barangay on 15 September 2002 and their
subsequent assumption to their respective offices.10 Since the acts to be
enjoined are now fait accompli, this petition for certiorari with an
application for provisional remedies must necessarily fail. Thus, where the
records show that during the pendency of the case certain events or
circumstances had taken place that render the case moot and academic,
the petition for certiorari must be dismissed.

After due deliberation on the pleadings filed, we resolve to dismiss this


petition for certiorari.

First, the respondents neither acted in any judicial or quasi-judicial


capacity nor arrogated unto themselves any judicial or quasi-judicial
prerogatives. A petition for certiorari under Rule 65 of the 1997 Rules of
Civil Procedure is a special civil action that may be invoked only against a
tribunal, board, or officer exercising judicial or quasi-judicial functions.

Section 1, Rule 65 of the 1997 Rules of Civil Procedure provides:

SECTION 1. Petition for certiorari. — When any tribunal, board or officer


exercising judicial or quasi-judicial functions has acted without or in
excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal, or any
plain, speedy, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court,
alleging the facts with certainty and praying that judgment be rendered
annulling or modifying the proceedings of such tribunal, board or officer,
and granting such incidental reliefs as law and justice may require.

Elsewise stated, for a writ of certiorari to issue, the following requisites


must concur: (1) it must be directed against a tribunal, board, or officer
exercising judicial or quasi-judicial functions; (2) the tribunal, board, or
officer must have acted without or in excess of jurisdiction or with grave
abuse of discretion amounting lack or excess of jurisdiction; and (3) there
is no appeal or any plain, speedy, and adequate remedy in the ordinary
course of law.

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A respondent is said to be exercising judicial function where he has the
power to determine what the law is and what the legal rights of the
parties are, and then undertakes to determine these questions and
adjudicate upon the rights of the parties.11

Quasi-judicial function, on the other hand, is "a term which applies to the
actions, discretion, etc., of public administrative officers or bodies …
required to investigate facts or ascertain the existence of facts, hold
hearings, and draw conclusions from them as a basis for their official
action and to exercise discretion of a judicial nature."12

Before a tribunal, board, or officer may exercise judicial or quasi-judicial


acts, it is necessary that there be a law that gives rise to some specific
rights of persons or property under which adverse claims to such rights
are made, and the controversy ensuing therefrom is brought before a
tribunal, board, or officer clothed with power and authority to determine
the law and adjudicate the respective rights of the contending parties.13

The respondents do not fall within the ambit of tribunal, board, or officer
exercising judicial or quasi-judicial functions. As correctly pointed out by
the respondents, the enactment by the City Council of Manila of the
assailed ordinance and the issuance by respondent Mayor of the
questioned executive order were done in the exercise of legislative and
executive functions, respectively, and not of judicial or quasi-judicial
functions. On this score alone, certiorari will not lie.

Second, although the instant petition is styled as a petition for certiorari,


in essence, it seeks the declaration by this Court of the unconstitutionality
or illegality of the questioned ordinance and executive order. It, thus,
partakes of the nature of a petition for declaratory relief over which this
Court has only appellate, not original, jurisdiction.14 Section 5, Article VIII
of the Constitution provides:

Sec. 5. The Supreme Court shall have the following powers:

(1) Exercise original jurisdiction over cases affecting ambassadors, other


public ministers and consuls, and over petitions for certiorari, prohibition,
mandamus, quo warranto, and habeas corpus.

(2) Review, revise, reverse, modify, or affirm on appeal or certiorari as the


law or the Rules of Court may provide, final judgments and orders of lower
courts in:

(a) All cases in which the constitutionality or validity of any treaty,


international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in question.
(Italics supplied).

As such, this petition must necessary fail, as this Court does not have
original jurisdiction over a petition for declaratory relief even if only
questions of law are involved.15
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Third, even granting arguendo that the present petition is ripe for the
extraordinary writ of certiorari, there is here a clear disregard of the
hierarchy of courts. No special and important reason or exceptional and
compelling circumstance has been adduced by the petitioner or the
intervenor why direct recourse to this Court should be allowed.

We have held that this Court’s original jurisdiction to issue a writ of


certiorari (as well as of prohibition, mandamus, quo warranto, habeas
corpus and injunction) is not exclusive, but is concurrent with the Regional
Trial Courts and the Court of Appeals in certain cases. As aptly stated in
People v. Cuaresma:16

This concurrence of jurisdiction is not, however, to be taken as according


to parties seeking any of the writs an absolute, unrestrained freedom of
choice of the court to which application therefor0 will be directed. There is
after all a hierarchy of courts. That hierarchy is determinative of the venue
of appeals, and also serves as a general determinant of the appropriate
forum for petitions for the extraordinary writs. A becoming regard of that
judicial hierarchy most certainly indicates that petitions for the issuance of
extraordinary writs against first level ("inferior") courts should be filed
with the Regional Trial Court, and those against the latter, with the Court
of Appeals. A direct invocation of the Supreme Court’s original jurisdiction
to issue these writs should be allowed only when there are special and
important reasons therefor, clearly and specifically set out in the petition.
This is [an] established policy. It is a policy necessary to prevent
inordinate demands upon the Court’s time and attention which are better
devoted to those matters within its exclusive jurisdiction, and to prevent
further over-crowding of the Court’s docket.

As we have said in Santiago v. Vasquez,17 the propensity of litigants and


lawyers to disregard the hierarchy of courts in our judicial system by
seeking relief directly from this Court must be put to a halt for two
reasons: (1) it would be an imposition upon the precious time of this
Court; and (2) it would cause an inevitable and resultant delay, intended
or otherwise, in the adjudication of cases, which in some instances had to
be remanded or referred to the lower court as the proper forum under the
rules of procedure, or as better equipped to resolve the issues because
this Court is not a trier of facts.

Thus, we shall reaffirm the judicial policy that this Court will not entertain
direct resort to it unless the redress desired cannot be obtained in the
appropriate courts, and exceptional and compelling circumstances justify
the availment of the extraordinary remedy of writ of certiorari, calling for
the exercise of its primary jurisdiction.18

Petitioner’s reliance on Pimentel v. Aguirre19 is misplaced because the non-


observance of the hierarchy-of-courts rule was not an issue therein.
Besides, what was sought to be nullified in the petition for certiorari and
prohibition therein was an act of the President of the Philippines, which
would have greatly affected all local government units. We reiterated

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therein that when an act of the legislative department is seriously alleged
to have infringed the Constitution, settling the controversy becomes the
duty of this Court. The same is true when what is seriously alleged to be
unconstitutional is an act of the President, who in our constitutional
scheme is coequal with Congress.

We hesitate to rule that the petitioner and the intervenor are guilty of
forum-shopping. Forum-shopping exists where the elements of litis
pendentia are present or when a final judgment in one case will amount to
res judicata in the other. For litis pendentia to exist, the following
requisites must be present: (1) identity of parties, or at least such parties
as are representing the same interests in both actions; (2) identity of
rights asserted and reliefs prayed for, the reliefs being founded on the
same facts; and (3) identity with respect to the two preceding particulars
in the two cases, such that any judgment that may be rendered in the
pending case, regardless of which party is successful, would amount to
res judicata in the other case.20

In the instant petition, and as admitted by the respondents, the parties in


this case and in the alleged other pending cases are different individuals
or entities; thus, forum-shopping cannot be said to exist. Moreover, even
assuming that those five petitions are indeed pending before the RTC of
Manila and the Court of Appeals, we can only guess the causes of action
and issues raised before those courts, considering that the respondents
failed to furnish this Court with copies of the said petitions.

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

G.R. No. 139791. December 12, 2003


MANILA BANKERS LIFE INSURANCE CORPORATION, petitioner, vs.
EDDY NG KOK WEI, respondent.

Before us is a petition for review on certiorari assailing the Decision1 dated


March 26, 1999 and Resolution2 dated August 5, 1999 of the Court of
Appeals in CA-G.R. CV No. 40504, entitled “Eddy Ng Kok Wei vs. Manila
Bankers Life Insurance Corporation”.

The factual antecedents as borne by the records are:

Eddy Ng Kok Wei, respondent, is a Singaporean businessman who


ventured into investing in the Philippines. On November 29, 1988,
respondent, in a Letter of Intent addressed to Manila Bankers Life
Insurance Corporation, petitioner, expressed his intention to purchase a
condominium unit at Valle Verde Terraces.
1 Annex “A” of the Petition for Review, Rollo at 27-57.
2 Annex “C”, id. at 63-65.
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Subsequently or on December 5, 1988, respondent paid petitioner a
reservation fee of P50,000.00 for the purchase of a 46-square meter
condominium unit (Unit 703) valued at P860,922.00. On January 16, 1989,
respondent paid 90% of the purchase price in the sum of P729,830.00.

Consequently, petitioner, through its President, Mr. Antonio G. Puyat,


executed a Contract to Sell in favor of the respondent. The contract
expressly states that the subject condominium unit “shall substantially be
completed and delivered” to the respondent “within fifteen (15) months”
from February 8, 1989 or on May 8, 1990, and that “(S)hould there be no
substantial completion and fail(ure) to deliver the unit on the date
specified, a penalty of 1% of the total amount paid (by respondent) shall
be charged against (petitioner)”.

Considering that the stipulated 15-month period was at hand, respondent


returned to the Philippines sometime in April, 1990.

In a letter dated April 5, 1990, petitioner, through its Senior Assistant Vice-
President, Mr. Mario G. Zavalla, informed respondent of the substantial
completion of his condominium unit, however, due to various
uncontrollable forces (such as coup d‘ etat attempts, typhoon and steel
and cement shortage), the final turnover is reset to May 31, 1990.

Meanwhile, on July 5, 1990, upon receipt of petitioner’s notice of delivery


dated May 31, 1990, respondent again flew back to Manila. He found the
unit still uninhabitable for lack of water and electric facilities.

Once more, petitioner issued another notice to move-in addressed to its


building administrator advising the latter that respondent is scheduled to
move in on August 22, 1990.

On October 5, 1990, respondent returned to the Philippines only to find


that his condominium unit was still unlivable. Exasperated, he was
constrained to send petitioner a letter dated November 21, 1990
demanding payment for the damages he sustained. But petitioner
ignored such demand, prompting respondent to file with the Regional Trial
Court, Branch 150, Makati City, a complaint against the former for specific
performance and damages, docketed as Civil Case No. 90-3440.

Meanwhile, during the pendency of the case, respondent finally accepted


the condominium unit and on April 12, 1991, occupied the same. Thus,
respondent’s cause of action has been limited to his claim for damages.

On December 18, 1992, the trial court rendered a Decision3 finding the
petitioner liable for payment of damages due to the delay in the
performance of its obligation to the respondent. The dispositive portion
reads:

3 Annex “H”, id. at 83-89.


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“WHEREFORE, judgment is hereby rendered in favor of plaintiff and
against defendant, ordering Manila Bankers Life Insurance Corporation to
pay plaintiff Eddy Ng Kok Wei the following:

1. One percent (1%) of the total amount plaintiff paid defendant;

2. P100,000.00 as moral damages;

3. P50,000.00 as exemplary damages;

4. P25,000.00 by way of attorney’s fees; and

Cost of suit.

“SO ORDERED.”

On appeal, the Court of Appeals, in a Decision dated March 26, 1999,


affirmed in toto the trial court’s award of damages in favor of the
respondent.

Unsatisfied, petitioner filed a motion for reconsideration but was denied


by the Appellate Court in a Resolution dated August 5, 1999.

Hence, this petition for review on certiorari. Petitioner contends that the
trial court has no jurisdiction over the instant case; and that the Court of
Appeals erred in affirming the trial court’s finding that petitioner incurred
unreasonable delay in the delivery of the condominium unit to
respondent.

On petitioner’s contention that the trial court has no jurisdiction over the
instant case, Section 1 (c) of Presidential Decree No. 1344, as amended,
provides:

“SECTION 1. – In the exercise of its functions to regulate the real estate


trade and business and in addition to its powers provided for in
Presidential Decree No. 957, the National Housing Authority [now Housing
and Land Use Regulatory Board (HLURB)]4 shall have exclusive jurisdiction
to hear and decide cases of the following nature:

xxx

“C. Cases involving specific performance of contractual and statutory


obligations filed by buyers of subdivision lots or condominium units
against the owner, developer, dealer, broker or salesman.

4 Jurisdiction was originally vested in the National Housing Authority


(NHA) under P.D. No. 957, as amended by P.D. No. 1344. Under E.O. No.
648 of February 7, 1981, this jurisdiction was transferred to the Human
Settlements Regulatory Commission (HSRC) which, pursuant to E.O. No.
90 of December 17, 1986, was renamed as the Housing and Land Use
Regulatory Board (HLURB).
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x x x.”

Pursuant to the above provisions, it is the HLURB which has jurisdiction


over the instant case. We have consistently held that complaints for
specific performance with damages by a lot or condominium unit buyer
against the owner or developer falls under the exclusive jurisdiction of the
HLURB.5

While it may be true that the trial court is without jurisdiction over the
case, petitioner’s active participation in the proceedings estopped it from
assailing such lack of it. We have held that it is an undesirable practice of
a party participating in the proceedings and submitting its case for
decision and then accepting the judgment, only if favorable, and attacking
it for lack of jurisdiction, when adverse.6

Here, petitioner failed to raise the question of jurisdiction before the trial
court and the Appellate Court. In effect, petitioner confirmed and ratified
the trial court’s jurisdiction over this case. Certainly, it is now in estoppel
and can no longer question the trial court’s jurisdiction.

On petitioner’s claim that it did not incur delay, suffice it to say that this is
a factual issue. Time and again, we have ruled that “the factual findings
of the trial court are given weight when supported by substantial evidence
and carries more weight when affirmed by the Court of Appeals.” 7
Whether or not petitioner incurred delay and thus, liable to pay
damages as a result thereof, are indeed factual questions.

The jurisdiction of this Court in a petition for review on certiorari under


Rule 45 of the 1997 Rules of Civil Procedure, as amended, is limited to
reviewing only errors of law, not of fact, unless the factual findings being
assailed are not supported by evidence on record or the impugned
judgment is based on a misapprehension of facts.8 These exceptions are
not present here.

5 See Solid Homes, Inc. vs. Payawal, G.R. No. 84811, August 29, 1989, 177
SCRA 72; C.T. Torres Enterprises, Inc. vs. Hibionada, G.R. No. 80916,
November 9, 1990, 191 SCRA 268; Tejada vs. Homestead Property
Corporation, G.R. No. 79622, September 29, 1989, 178 SCRA 164; Alcasid
vs. Court of Appeals, G.R. No. 94927, January 22, 1993, 217 SCRA 437;
Fajardo vs. Bautista, G.R. Nos. 102193-97, May 10, 1994, 232 SCRA 291.
6 See Producers Bank of the Philippines vs. NLRC, et al, G.R. No. 118069,
November 16, 1998, 298 SCRA 517; TCL Sales Corporation vs. Court of Appeals,
G.R. No. 129777, January 5, 2001, 349 SCRA 35; Alday vs. FGU Insurance
Corporation, G.R. No. 138822, January 23, 2001, 350 SCRA 113.
7 Lim vs. Chan, G.R. No. 127227, February 28, 2001, 353 SCRA 55, 59, citing
Valgoson’s Realty, Inc. vs. Court of Appeals, 295 SCRA 449 (1998).
8 Cosmos Bottling Corporation vs. NLRC, G.R. No. 146397, July 1, 2003, citing De
Rama vs. Court of Appeals, 351 SCRA 94 (2001).
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WHEREFORE, the petition is DENIED. The assailed Decision dated March
26, 1999 and Resolution dated August 5, 1999 of the Court of Appeals are
hereby AFFIRMED IN TOTO.

Costs against the petitioner.

SO ORDERED.

G.R. No. 79578 March 13, 1991


RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI),
petitioner,
vs.
HON. COURT OF APPEALS, and SPOUSES MINERVA TIMAN and
FLORES TIMAN, respondents.

A social condolence telegram sent through the facilities of the petitioner


gave rise to the present petition for review on certiorari assailing the
decision 1 of the respondent Court of Appeals which affirmed in toto the
judgment 2 of the trial court, dated February 14, 1985, the dispositive
portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering the defendant RCPI to pay plaintiff the amount of P30,848.05


representing actual and compensatory damages; P10,000.00 as moral
damages and P5,000.00 as exemplary damages.

2. Awarding of attorney's fees in the sum of P5,000.00. Costs against the


defendant.

SO ORDERED. 3

The facts as gleaned from the records of the case are as follows:

On January 24, 1983, private respondents-spouses Minerva Timan and


Flores Timan sent a telegram of condolence to their cousins, Mr. and Mrs.
Hilario Midoranda, at Trinidad, Calbayog City, through petitioner Radio
Communications of the Philippines, Inc. (RCPI, hereinafter) at Cubao,
Quezon City, to convey their deepest sympathy for the recent death of the
mother-in-law of Hilario Midoranda 4 to wit:

MR. & MRS. HILARIO MIDORANDA

TRINIDAD, CALBAYOG CITY

MAY GOD GIVE YOU COURAGE AND STRENGTH TO BEAR YOUR LOSS. OUR
DEEPEST SYMPATHY TO YOU AND MEMBERS OF THE FAMILY.

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MINER & FLORY. 5

The condolence telegram was correctly transmitted as far as the written


text was concerned. However, the condolence message as communicated
and delivered to the addressees was typewritten on a "Happy Birthday"
card and placed inside a "Christmasgram" envelope. Believing that the
transmittal to the addressees of the aforesaid telegram in that nonsuch
manner was done intentionally and with gross breach of contract resulting
to ridicule, contempt, and humiliation of the private respondents and the
addressees, including their friends and relatives, the spouses Timan
demanded an explanation. Unsatisfied with RCPI's explanations in its
letters, dated March 9 and April 20, 1983, the Timans filed a complaint for
damages. 6

The parties stipulated at the pre-trial that the issue to be resolved by the
trial court was:

WHETHER or not the act of delivering the condolence message in a Happy


Birthday" card with a "Christmasgram" envelope constitutes a breach of
contract on the part of the defendant. If in the affirmative, whether or not
plaintiff is entitled to damages. 7

The trial court rendered judgment in favor of the respondents Timans


which was affirmed in toto by the Court of Appeals. RCPI now submits the
following assignment of errors:

THE RESPONDENT COURT ERRED IN CONDEMNING PETITIONER TO PAY


ACTUAL AND COMPENSATORY DAMAGES IN THE AMOUNT OF P30,848.05.

II

THE RESPONDENT COURT ERRED IN CONDEMNING PETITIONER TO PAY


MORAL DAMAGES IN THE AMOUNT OF P10,000.00.

III

THE RESPONDENT COURT ERRED IN CONDEMNING PETITIONER TO PAY


EXEMPLARY DAMAGES IN THE AMOUNT OF P5,000.00.

IV

THE RESPONDENT COURT ERRED IN CONDEMNING PETITIONER TO PAY


ATTORNEYS FEES IN THE AMOUNT OF P5,000.00 PLUS COSTS OF SUIT. 8

The four assigned errors are going to be discussed jointly because they
are all based on the same findings of fact.

We fully agree with the appellate court's endorsement of the trial court's
conclusion that RCPI, a corporation dealing in telecommunications and

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offering its services to the public, is engaged in a business affected with
public interest. As such, it is bound to exercise that degree of diligence
expected of it in the performance of its obligation. 9

One of RCPI's main arguments is that it still correctly transmitted the text
of the telegram and was received by the addressees on time despite the
fact that there was "error" in the social form and envelope used. 10 RCPI
asserts that there was no showing that it has any motive to cause harm or
damage on private respondents:

Petitioner humbly submits that the "error" in the social form used does not
come within the ambit of fraud, malice or bad faith as understood/defined
under the law. 11

We do not agree.

In a distinctly similar case, 12 and oddly also involving the herein petitioner
as the same culprit, we held:

Petitioner is a domestic corporation engaged in the business of receiving


and transmitting messages. Everytime a person transmits a message
through the facilities of the petitioner, a contract is entered into. Upon
receipt of the rate or fee fixed, the petitioner undertakes to transmit the
message accurately . . . As a corporation, the petitioner can act only
through its employees. Hence the acts of its employees in receiving and
transmitting messages are the acts of the petitioner. To hold that the
petitioner is not liable directly for the acts of its employees in the pursuit
of petitioner's business is to deprive the general public availing of the
services of the petitioner of an effective and adequate remedy. 13

Now, in the present case, it is self-evident that a telegram of condolence is


intended and meant to convey a message of sorrow and sympathy.
Precisely, it is denominated "telegram of condolence" because it tenders
sympathy and offers to share another's grief. It seems out of this world,
therefore, to place that message of condolence in a birthday card and
deliver the same in a Christmas envelope for such acts of carelessness
and incompetence not only render violence to good taste and common
sense, they depict a bizarre presentation of the sender's feelings. They
ridicule the deceased's loved ones and destroy the atmosphere of grief
and respect for the departed.

Anyone who avails of the facilities of a telegram company like RCPI can
choose to send his message in the ordinary form or in a social form. In the
ordinary form, the text of the message is typed on plain newsprint paper.
On the other hand, a social telegram is placed in a special form with the
proper decorations and embellishments to suit the occasion and the
message and delivered in an envelope matching the purpose of the
occasion and the words and intent of the message. The sender pays a
higher amount for the social telegram than for one in the ordinary form. It
is clear, therefore, that when RCPI typed the private respondents'

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message of condolence in a birthday card and delivered the same in a
colorful Christmasgram envelope, it committed a breach of contract as
well as gross negligence. Its excuse that it had run out of social
condolence cards and envelopes 14 is flimsy and unacceptable. It could not
have been faulted had it delivered the message in the ordinary form and
reimbursed the difference in the cost to the private respondents. But by
transmitting it unfittingly—through other special forms clearly, albeit
outwardly, portraying the opposite feelings of joy and happiness and
thanksgiving—RCPI only exacerbated the sorrowful situation of the
addressees and the senders. It bears stress that this botchery exposed not
only the petitioner's gross negligence but also its callousness and
disregard for the sentiments of its clientele, which tantamount to wanton
misconduct, for which it must be held liable for damages.

It is not surprising that when the Timans' telegraphic message reached


their cousin, it became the joke of the Midorandas' friends, relatives, and
associates who thought, and rightly so, that the unpardonable mix-up was
a mockery of the death of the mother-in-law of the senders' cousin. Thus it
was not unexpected that because of this unusual incident, which caused
much embarrassment and distress to respondent Minerva Timan, he
suffered nervousness and hypertension resulting in his confinement for
three days starting from April 4, 1983 at the Capitol Medical Center in
Quezon City. 15

The petitioner argues that "a court cannot rely on speculation, conjectures
or guess work as to the fact and amount of damages, but must depend on
the actual proof that damages had been suffered and evidence of the
actual
amount. 16 In other words, RCPI insists that there is no causal relation of
the illness suffered by Mr. Timan with the foul-up caused by the petitioner.
But that is a question of fact. The findings of fact of the trial court and the
respondent court concur in favor of the private respondents. We are
bound by such findings—that is the general rule well-established by a long
line of cases. Nothing has been shown to convince us to justify the
relaxation of this rule in the petitioner's favor. On the contrary, these
factual findings are supported by substantial evidence on record.

Anent the award of moral and exemplary damages assigned as errors, the
findings of the respondent court are persuasive.

. . . When plaintiffs placed an order for transmission of their social


condolence telegram, defendant did not inform the plaintiff of the
exhaustion of such social condolence forms. Defendant-appellant
accepted through its authorized agent or agency the order and received
the corresponding compensation therefor. Defendant did not comply with
its contract as intended by the parties and instead of transmitting the
condolence message in an ordinary form, in accordance with its
guidelines, placed the condolence message expressing sadness and
sorrow in forms conveying joy and happiness. Under the circumstances,
We cannot accept the defendant's plea of good faith predicated on such

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exhaustion of social condolence forms. Gross negligence or carelessness
can be attributed to defendant-appellant in not supplying its various
stations with such sufficient and adequate social condolence forms when
it held out to the public sometime in January, 1983, the availability of such
social condolence forms and accepted for a fee the transmission of
messages on said forms. Knowing that there are no such forms as testified
to by its Material Control Manager Mateo Atienza, and entering into a
contract for the transmission of messages in such forms, defendant-
appellant committed acts of bad faith, fraud or malice. . . . 17

RCPI's argument that it can not be held liable for exemplary damages,
being penal or punitive in character, 18 is without merit. We have so held
in many cases, and oddly, quite a number of them likewise involved the
herein petitioner as the transgressor.

xxx xxx xxx

. . . In contracts and quasi-contracts, exemplary damages may be awarded


if the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. There was gross negligence on the part of RCPI
personnel in transmitting the wrong telegram, of which RCPI must be held
liable. Gross carelessness or negligence constitutes wanton misconduct.

xxx xxx xxx

. . . punitive damages may be recovered for wilful or wantonly negligent


acts in respect of messages, even though those acts are neither
authorized nor ratified (Arkansas & L.R. Co. vs. Stroude 91 SW 18; West
vs. Western U. Tel. Co., 17 P807; Peterson vs. Western U. Tel. Co., 77 NW
985; Brown vs. Western U. Tel. Co., 6 SE 146). Thus, punitive damages
have been recovered for mistakes in the transmission of telegrams
(Pittman vs. Western Union Tel. Co., 66 SO 977; Painter vs. Western Union
Tel. Co., 84 SE 293) (emphasis supplied). 19

We wish to add a little footnote to this Decision. By merely reviewing the


number of cases that has reached this Court in which the petitioner was
time and again held liable for the same causes as in the present case
breach of contract and gross negligence—the ineluctable conclusion is
that it has not in any way reformed nor improved its services to the public.
It must do so now or else next time the Court may be constrained to
adjudge stricter sanctions.

WHEREFORE, premises considered, the decision appealed from is


AFFIRMED in toto.

Costs against the petitioner.

SO ORDERED.

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G.R. No. 151149 September 7, 2004
GEORGE KATON, petitioner,
vs.
MANUEL PALANCA JR., LORENZO AGUSTIN, JESUS GAPILANGO and
JUAN FRESNILLO, respondents.

Where prescription, lack of jurisdiction or failure to state a cause of action


clearly appear from the complaint filed with the trial court, the action may
be dismissed motu proprio by the Court of Appeals, even if the case has
been elevated for review on different grounds. Verily, the dismissal of such
cases appropriately ends useless litigations.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court,


assailing the December 8, 2000 Decision2 and the November 20, 2001
Resolution3 of the Court of Appeals in CA-GR SP No. 57496. The assailed
Decision disposed as follows:

"Assuming that petitioner is correct in saying that he has the exclusive


right in applying for the patent over the land in question, it appears that
his action is already barred by laches because he slept on his alleged right
for almost 23 years from the time the original certificate of title has been
issued to respondent Manuel Palanca, Jr., or after 35 years from the time
the land was certified as agricultural land. In addition, the proper party in
the annulment of patents or titles acquired through fraud is the State;
thus, the petitioner’s action is deemed misplaced as he really does not
have any right to assert or protect. What he had during the time he
requested for the re-classification of the land was the privilege of applying
for the patent over the same upon the land’s conversion from forest to
agricultural.

"WHEREFORE, the petition is hereby DISMISSED. No pronouncement as to


cost."4

The assailed Resolution, on the other hand, denied the Motion for
Reconsideration filed by petitioner. It affirmed the RTC’s dismissal of his
Complaint in Civil Case No. 3231, not on the grounds relied upon by the
trial court, but because of prescription and lack of jurisdiction.

The Antecedent Facts

The CA narrates the antecedent facts as follows:

"On August 2, 1963, herein [P]etitioner [George Katon] filed a request with
the District Office of the Bureau of Forestry in Puerto Princesa, Palawan,
for the re-classification of a piece of real property known as Sombrero
Island, located in Tagpait, Aborlan, Palawan, which consists of
approximately 18 hectares. Said property is within Timberland Block of LC
Project No. 10-C of Aborlan, Palawan, per BF Map LC No. 1582.
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"Thereafter, the Bureau of Forestry District Office, Puerto Princesa,
Palawan, ordered the inspection, investigation and survey of the land
subject of the petitioner’s request for eventual conversion or re-
classification from forest to agricultural land, and thereafter for George
Katon to apply for a homestead patent.

"Gabriel Mandocdoc (now retired Land Classification Investigator)


undertook the investigation, inspection and survey of the area in the
presence of the petitioner, his brother Rodolfo Katon (deceased) and his
cousin, [R]espondent Manuel Palanca, Jr. During said survey, there were
no actual occupants on the island but there were some coconut trees
claimed to have been planted by petitioner and [R]espondent Manuel
Palanca, Jr. (alleged overseer of petitioner) who went to the island from
time to time to undertake development work, like planting of additional
coconut trees.

"The application for conversion of the whole Sombrero Island was


favorably endorsed by the Forestry District Office of Puerto Princesa to its
main office in Manila for appropriate action. The names of Felicisimo
Corpuz, Clemente Magdayao and Jesus Gapilango and Juan Fresnillo were
included in the endorsement as co-applicants of the petitioner.

"In a letter dated September 23, 1965, then Asst. Director of Forestry
R.J.L. Utleg informed the Director of Lands, Manila, that since the subject
land was no longer needed for forest purposes, the same is therefore
certified and released as agricultural land for disposition under the Public
Land Act.

"Petitioner contends that the whole area known as Sombrero Island had
been classified from forest land to agricultural land and certified available
for disposition upon his request and at his instance. However, Mr. Lucio
Valera, then [l]and investigator of the District Land Office, Puerto Princesa,
Palawan, favorably endorsed the request of [R]espondents Manuel Palanca
Jr. and Lorenzo Agustin, for authority to survey on November 15, 1965. On
November 22, a second endorsement was issued by Palawan District
Officer Diomedes De Guzman with specific instruction to survey vacant
portions of Sombrero Island for the respondents consisting of five (5)
hectares each. On December 10, 1965, Survey Authority No. R III-342-65
was issued authorizing Deputy Public Land Surveyor Eduardo Salvador to
survey ten (10) hectares of Sombrero Island for the respondents. On
December 23, 1990, [R]espondent Lorenzo Agustin filed a homestead
patent application for a portion of the subject island consisting of an area
of 4.3 hectares.

"Records show that on November 8, 1996, [R]espondent Juan Fresnillo


filed a homestead patent application for a portion of the island comprising
8.5 hectares. Records also reveal that [R]espondent Jesus Gapilango filed
a homestead application on June 8, 1972. Respondent Manuel Palanca, Jr.
was issued Homestead Patent No. 145927 and OCT No. G-7089 on March
3, 19775 with an area of 6.84 hectares of Sombrero Island.

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"Petitioner assails the validity of the homestead patents and original
certificates of title covering certain portions of Sombrero Island issued in
favor of respondents on the ground that the same were obtained through
fraud. Petitioner prays for the reconveyance of the whole island in his
favor.

"On the other hand, [R]espondent Manuel Palanca, Jr. claims that he
himself requested for the reclassification of the island in dispute and that
on or about the time of such request, [R]espondents Fresnillo, Palanca and
Gapilango already occupied their respective areas and introduced
numerous improvements. In addition, Palanca said that petitioner never
filed any homestead application for the island. Respondents deny that
Gabriel Mandocdoc undertook the inspection and survey of the island.

"According to Mandocdoc, the island was uninhabited but the respondents


insist that they already had their respective occupancy and improvements
on the island. Palanca denies that he is a mere overseer of the petitioner
because he said he was acting for himself in developing his own area and
not as anybody’s caretaker.

"Respondents aver that they are all bona fide and lawful possessors of
their respective portions and have declared said portions for taxation
purposes and that they have been faithfully paying taxes thereon for
twenty years.

"Respondents contend that the petitioner has no legal capacity to sue


insofar as the island is concerned because an action for reconveyance can
only be brought by the owner and not a mere homestead applicant and
that petitioner is guilty of estoppel by laches for his failure to assert his
right over the land for an unreasonable and unexplained period of time.

"In the instant case, petitioner seeks to nullify the homestead patents and
original certificates of title issued in favor of the respondents covering
certain portions of the Sombrero Island as well as the reconveyance of the
whole island in his favor. The petitioner claims that he has the exclusive
right to file an application for homestead patent over the whole island
since it was he who requested for its conversion from forest land to
agricultural land."6

Respondents filed their Answer with Special and/or Affirmative Defenses


and Counterclaim in due time. On June 30, 1999, they also filed a Motion
to Dismiss on the ground of the alleged defiance by petitioner of the trial
court’s Order to amend his Complaint so he could thus effect a
substitution by the legal heirs of the deceased, Respondent Gapilango.
The Motion to Dismiss was granted by the RTC in its Order dated July 29,
1999.

Petitioner’s Motion for Reconsideration of the July 29, 1999 Order was
denied by the trial court in its Resolution dated December 17, 1999, for
being a third and prohibited motion. In his Petition for Certiorari before the

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CA, petitioner charged the trial court with grave abuse of discretion on the
ground that the denied Motion was his first and only Motion for
Reconsideration of the aforesaid Order.

Ruling of the Court of Appeals

Instead of limiting itself to the allegation of grave abuse of discretion, the


CA ruled on the merits. It held that while petitioner had caused the
reclassification of Sombrero Island from forest to agricultural land, he
never applied for a homestead patent under the Public Land Act. Hence,
he never acquired title to that land.

The CA added that the annulment and cancellation of a homestead patent


and the reversion of the property to the State were matters between the
latter and the homestead grantee. Unless and until the government takes
steps to annul the grant, the homesteader’s right thereto stands.

Finally, granting arguendo that petitioner had the exclusive right to apply
for a patent to the land in question, he was already barred by laches for
having slept on his right for almost 23 years from the time Respondent
Palanca’s title had been issued.

In the Assailed Resolution, the CA acknowledged that it had erred when it


ruled on the merits of the case. It agreed with petitioner that the trial
court had acted without jurisdiction in perfunctorily dismissing his
September 10, 1999 Motion for Reconsideration, on the erroneous ground
that it was a third and prohibited motion when it was actually only his first
motion.

Nonetheless, the Complaint was dismissed motu proprio by the challenged


Resolution of the CA Special Division of five members – with two justices
dissenting – pursuant to its "residual prerogative" under Section 1 of Rule
9 of the Rules of Court.

From the allegations of the Complaint, the appellate court opined that
petitioner clearly had no standing to seek reconveyance of the disputed
land, because he neither held title to it nor even applied for a homestead
patent. It reiterated that only the State could sue for cancellation of the
title issued upon a homestead patent, and for reversion of the land to the
public domain.

Finally, it ruled that prescription had already barred the action for
reconveyance. First, petitioner’s action was brought 24 years after the
issuance of Palanca’s homestead patent. Under the Public Land Act, such
action should have been taken within ten years from the issuance of the
homestead certificate of title. Second, it appears from the submission
(Annex "F" of the Complaint) of petitioner himself that Respondents
Fresnillo and Palanca had been occupying six hectares of the island since
1965, or 33 years before he took legal steps to assert his right to the

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property. His action was filed beyond the 30-year prescriptive period under
Articles 1141 and 1137 of the Civil Code.

Hence, this Petition.7

Issues

In his Memorandum, petitioner raises the following issues:

"1. Is the Court of Appeals correct in resolving the Petition for Certiorari
based on an issue not raised (the merits of the case) in the Petition?

"2. Is the Court of Appeals correct in invoking its alleged ‘residual


prerogative’ under Section 1, Rule 9 of the 1997 Rules of Civil Procedure in
resolving the Petition on an issue not raised in the Petition?"8

The Court’s Ruling

The Petition has no merit.

First Issue:

Propriety of Ruling on the Merits

This is not the first time that petitioner has taken issue with the propriety
of the CA’s ruling on the merits. He raised it with the appellate court when
he moved for reconsideration of its December 8, 2000 Decision. The CA
even corrected itself in its November 20, 2001 Resolution, as follows:

"Upon another review of the case, the Court concedes that it may indeed
have lost its way and been waylaid by the variety, complexity and
seeming importance of the interests and issues involved in the case
below, the apparent reluctance of the judges, five in all, to hear the case,
and the volume of the conflicting, often confusing, submissions bearing on
incidental matters. We stand corrected."9

That explanation should have been enough to settle the issue. The CA’s
Resolution on this point has rendered petitioner’s issue moot. Hence,
there is no need to discuss it further. Suffice it to say that the appellate
court indeed acted ultra jurisdictio in ruling on the merits of the case when
the only issue that could have been, and was in fact, raised was the
alleged grave abuse of discretion committed by the trial court in denying
petitioner’s Motion for Reconsideration. Settled is the doctrine that the
sole office of a writ of certiorari is the correction of errors of jurisdiction.
Such writ does not include a review of the evidence,10 more so when no
determination of the merits has yet been made by the trial court, as in
this case.

Second Issue:

Dismissal for Prescription and Lack of Jurisdiction

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Petitioner next submits that the CA erroneously invoked its "residual
prerogatives" under Section 1 of Rule 9 of the Rules of Court when it motu
proprio dismissed the Petition for lack of jurisdiction and prescription.
According to him, residual prerogative refers to the power that the trial
court, in the exercise of its original jurisdiction, may still validly exercise
even after perfection of an appeal. It follows that such powers are not
possessed by an appellate court.

Petitioner has confused what the CA adverted to as its "residual


prerogatives" under Section 1 of Rule 9 of the Rules of Court with the
"residual jurisdiction" of trial courts over cases appealed to the CA.

Under Section 1 of Rule 9 of the Rules of Court, defenses and objections


not pleaded either in a motion to dismiss or in the answer are deemed
waived, except when (1) lack of jurisdiction over the subject matter, (2)
litis pendentia, (3) res judicata and (4) prescription are evident from the
pleadings or the evidence on record. In the four excepted instances, the
court shall motu proprio dismiss the claim or action. In Gumabon v. Larin 11
we explained thus:

"x x x [T]he motu proprio dismissal of a case was traditionally limited to


instances when the court clearly had no jurisdiction over the subject
matter and when the plaintiff did not appear during trial, failed to
prosecute his action for an unreasonable length of time or neglected to
comply with the rules or with any order of the court. Outside of these
instances, any motu proprio dismissal would amount to a violation of the
right of the plaintiff to be heard. Except for qualifying and expanding
Section 2, Rule 9, and Section 3, Rule 17, of the Revised Rules of Court,
the amendatory 1997 Rules of Civil Procedure brought about no radical
change. Under the new rules, a court may motu proprio dismiss a claim
when it appears from the pleadings or evidence on record that it has no
jurisdiction over the subject matter; when there is another cause of action
pending between the same parties for the same cause, or where the
action is barred by a prior judgment or by statute of limitations. x x x." 12
(Italics supplied)

On the other hand, "residual jurisdiction" is embodied in Section 9 of Rule


41 of the Rules of Court, as follows:

"SEC. 9. Perfection of appeal; effect thereof. – A party’s appeal by notice of


appeal is deemed perfected as to him upon the filing of the notice of
appeal in due time.

"A party’s appeal by record on appeal is deemed perfected as to him with


respect to the subject matter thereof upon the approval of the record on
appeal filed in due time.

"In appeals by notice of appeal, the court loses jurisdiction over the case
upon the perfection of the appeals filed in due time and the expiration of
the time to appeal of the other parties.

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"In appeals by record on appeal, the court loses jurisdiction only over the
subject matter thereof upon the approval of the records on appeal filed in
due time and the expiration of the time to appeal of the other parties.

"In either case, prior to the transmittal of the original record or the record
on appeal, the court may issue orders for the protection and preservation
of the rights of the parties which do not involve any matter litigated by
the appeal, approve compromises, permit appeals of indigent litigants,
order execution pending appeal in accordance with Section 2 of Rule 39,
and allow withdrawal of the appeal." (Italics supplied)

The "residual jurisdiction" of trial courts is available at a stage in which the


court is normally deemed to have lost jurisdiction over the case or the
subject matter involved in the appeal. This stage is reached upon the
perfection of the appeals by the parties or upon the approval of the
records on appeal, but prior to the transmittal of the original records or
the records on appeal.13 In either instance, the trial court still retains its
so-called residual jurisdiction to issue protective orders, approve
compromises, permit appeals of indigent litigants, order execution
pending appeal, and allow the withdrawal of the appeal.

The CA’s motu proprio dismissal of petitioner’s Complaint could not have
been based, therefore, on residual jurisdiction under Rule 41. Undeniably,
such order of dismissal was not one for the protection and preservation of
the rights of the parties, pending the disposition of the case on appeal.
What the CA referred to as residual prerogatives were the general residual
powers of the courts to dismiss an action motu proprio upon the grounds
mentioned in Section 1 of Rule 9 of the Rules of Court and under authority
of Section 2 of Rule 114 of the same rules.

To be sure, the CA had the excepted instances in mind when it dismissed


the Complaint motu proprio "on more fundamental grounds directly
bearing on the lower court’s lack of jurisdiction"15 and for prescription of
the action. Indeed, when a court has no jurisdiction over the subject
matter, the only power it has is to dismiss the action.16

Jurisdiction over the subject matter is conferred by law and is determined


by the allegations in the complaint and the character of the relief sought.17
In his Complaint for "Nullification of Applications for Homestead and
Original Certificate of Title No. G-7089 and for Reconveyance of Title,"18
petitioner averred:

"2. That on November 10, 1965, without the knowledge of [petitioner,


Respondent] Manuel Palanca Jr., [petitioner’s] cousin, in connivance with
his co-[respondent], Lorenzo Agustin, x x x fraudulently and in bad faith:

2.1. x x x made the request for authority to survey as a pre-requisite to


the filing of an application for homestead patent in his name and that of
his Co-[Respondent] Agustin, [despite being] fully aware that [Petitioner]
KATON had previously applied or requested for re-classification and

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certification of the same land from forest land to agricultural land which
request was favorably acted upon and approved as mentioned earlier; a
clear case of intrinsic fraud and misrepresentation;

xxx xxx xxx

2.3. In stating in his application for homestead patent that he was


applying for the VACANT PORTION of Sombrero Island where there was
none, the same constituted another clear case of fraud and
misrepresentation;

"3. That the issuance of Homestead Patent No. 145927 and OCT No. G-
7089 in the name of [Respondent] Manuel Palanca Jr. and the filing of
Homestead Patent Applications in the names of [respondents], Lorenzo
Agustin, Jesus Gapilango and Juan Fresnillo[,] having been done
fraudulently and in bad faith, are ipso facto null and void and of no effect
whatsoever."19

xxx xxx xxx

"x x x. By a wrongful act or a willful omission and intending the effects


with natural necessity arise knowing from such act or omission,
[Respondent Palanca] on account of his blood relation, first degree
cousins, trust, interdependence and intimacy is guilty of intrinsic fraud
[sic]. x x x."20

Thereupon, petitioner prayed, among others, for a judgment (1) nullifying


the homestead patent applications of Respondents Agustin, Fresnillo and
Gapilango as well as Homestead Patent No. 145927 and OCT No. G-7089
in the name of Respondent Palanca; and (2) ordering the director of the
Land Management Bureau to reconvey the Sombrero Island to petitioner.21

The question is, did the Complaint sufficiently allege an action for
declaration of nullity of the free patent and certificate of title or,
alternatively, for reconveyance? Or did it plead merely for reversion?

The Complaint did not sufficiently make a case for any of such actions,
over which the trial court could have exercised jurisdiction.

In an action for nullification of title or declaration of its nullity, the


complaint must contain the following allegations: 1) that the contested
land was privately owned by the plaintiff prior to the issuance of the
assailed certificate of title to the defendant; and 2) that the defendant
perpetuated a fraud or committed a mistake in obtaining a document of
title over the parcel of land claimed by the plaintiff.22 In these cases, the
nullity arises not from fraud or deceit, but from the fact that the director of
the Land Management Bureau had no jurisdiction to bestow title; hence,
the issued patent or certificate of title was void ab initio.23

In an alternative action for reconveyance, the certificate of title is also


respected as incontrovertible, but the transfer of the property or title

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thereto is sought to be nullified on the ground that it was wrongfully or
erroneously registered in the defendant’s name.24 As with an annulment of
title, a complaint must allege two facts that, if admitted, would entitle the
plaintiff to recover title to the disputed land: (1) that the plaintiff was the
owner of the land, and (2) that the defendant illegally dispossessed the
plaintiff of the property.25 Therefore, the defendant who acquired the
property through mistake or fraud is bound to hold and reconvey to the
plaintiff the property or the title thereto.26

In the present case, nowhere in the Complaint did petitioner allege that he
had previously held title to the land in question. On the contrary, he
acknowledged that the disputed island was public land,27 that it had never
been privately titled in his name, and that he had not applied for a
homestead under the provisions of the Public Land Act.28 This Court has
held that a complaint by a private party who alleges that a homestead
patent was obtained by fraudulent means, and who consequently prays
for its annulment, does not state a cause of action; hence, such complaint
must be dismissed.29

Neither can petitioner’s case be one for reversion. Section 101 of the
Public Land Act categorically declares that only the solicitor general or the
officer in his stead may institute such an action. 30 A private person may
not bring an action for reversion or any other action that would have the
effect of canceling a free patent and its derivative title, with the result
that the land thereby covered would again form part of the public
domain.31

Thus, when the plaintiff admits in the complaint that the disputed land will
revert to the public domain even if the title is canceled or amended, the
action is for reversion; and the proper party who may bring action is the
government, to which the property will revert.32 A mere homestead
applicant, not being the real party in interest, has no cause of action in a
suit for reconveyance.33 As it is, vested rights over the land applied for
under a homestead may be validly claimed only by the applicant, after
approval by the director of the Land Management Bureau of the former’s
final proof of homestead patent.34

Consequently, the dismissal of the Complaint is proper not only because


of lack of jurisdiction, but also because of the utter absence of a cause of
action,35 a defense raised by respondents in their Answer.36 Section 2 of
Rule 3 of the Rules of Court37 ordains that every action must be
prosecuted or defended in the name of the real party in interest, who
stands to be benefited or injured by the judgment in the suit. Indeed, one
who has no right or interest to protect has no cause of action by which to
invoke, as a party-plaintiff, the jurisdiction of the court.38

Finally, assuming that petitioner is the proper party to bring the action for
annulment of title or its reconveyance, the case should still be dismissed
for being time-barred.39 It is not disputed that a homestead patent and an
Original Certificate of Title was issued to Palanca on February 21, 1977,40

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while the Complaint was filed only on October 6, 1998. Clearly, the suit
was brought way past ten years from the date of the issuance of the
Certificate, the prescriptive period for reconveyance of fraudulently
registered real property.41

It must likewise be stressed that Palanca’s title -- which attained the


status of indefeasibility one year from the issuance of the patent and the
Certificate of Title in February 1977 -- is no longer open to review on the
ground of actual fraud. Ybanez v. Intermediate Appellate Court42 ruled that
a certificate of title, issued under an administrative proceeding pursuant
to a homestead patent, is as indefeasible as one issued under a judicial
registration proceeding one year from its issuance; provided, however,
that the land covered by it is disposable public land, as in this case.

In Aldovino v. Alunan,43 the Court has held that when the plaintiff’s own
complaint shows clearly that the action has prescribed, such action may
be dismissed even if the defense of prescription has not been invoked by
the defendant. In Gicano v. Gegato,44 we also explained thus:

"x x x [T]rial courts have authority and discretion to dismiss an action on


the ground of prescription when the parties' pleadings or other facts on
record show it to be indeed time-barred; (Francisco v. Robles, Feb. 15,
1954; Sison v. McQuaid, 50 O.G. 97; Bambao v. Lednicky, Jan. 28, 1961;
Cordova v. Cordova, Jan. 14, 1958; Convets, Inc. v. NDC, Feb. 28, 1958; 32
SCRA 529; Sinaon v. Sorongan, 136 SCRA 408); and it may do so on the
basis of a motion to dismiss (Sec. 1,f, Rule 16, Rules of Court), or an
answer which sets up such ground as an affirmative defense (Sec. 5, Rule
16), or even if the ground is alleged after judgment on the merits, as in a
motion for reconsideration (Ferrer v. Ericta, 84 SCRA 705); or even if the
defense has not been asserted at all, as where no statement thereof is
found in the pleadings (Garcia v. Mathis, 100 SCRA 250; PNB v. Pacific
Commission House, 27 SCRA 766; Chua Lamco v. Dioso, et al., 97 Phil.
821); or where a defendant has been declared in default (PNB v. Perez, 16
SCRA 270). What is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive period be otherwise
sufficiently and satisfactorily apparent on the record; either in the
averments of the plaintiff's complaint, or otherwise established by the
evidence."45 (Italics supplied)

Clearly then, the CA did not err in dismissing the present case. After all, if
and when they are able to do so, courts must endeavor to settle entire
controversies before them to prevent future litigations.46

WHEREFORE, the Petition is hereby DENIED, and the assailed Resolution


AFFIRMED. The dismissal of the Complaint in Civil Case No. 3231 is
SUSTAINED on the grounds of lack of jurisdiction, failure to state a cause
of action and prescription. Costs against petitioner.

SO ORDERED.

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G.R. No. 151242 June 15, 2005


PROTON PILIPINAS CORPORATION, AUTOMOTIVE PHILIPPINES,
ASEA ONE CORPORATION and AUTOCORP, Petitioners,
vs.
BANQUE NATIONALE DE PARIS,1 Respondent.

It appears that sometime in 1995, petitioner Proton Pilipinas Corporation


(Proton) availed of the credit facilities of herein respondent, Banque
Nationale de Paris (BNP). To guarantee the payment of its obligation, its
co-petitioners Automotive Corporation Philippines (Automotive), Asea One
Corporation (Asea) and Autocorp Group (Autocorp) executed a corporate
guarantee2 to the extent of US$2,000,000.00. BNP and Proton
subsequently entered into three trust receipt agreements dated June 4,
1996,3 January 14, 1997,4 and April 24, 1997.5

Under the terms of the trust receipt agreements, Proton would receive
imported passenger motor vehicles and hold them in trust for BNP. Proton
would be free to sell the vehicles subject to the condition that it would
deliver the proceeds of the sale to BNP, to be applied to its obligations to
it. In case the vehicles are not sold, Proton would return them to BNP,
together with all the accompanying documents of title.

Allegedly, Proton failed to deliver the proceeds of the sale and return the
unsold motor vehicles.

Pursuant to the corporate guarantee, BNP demanded from Automotive,


Asea and Autocorp the payment of the amount of US$1,544,984.40 6
representing Proton's total outstanding obligations. These guarantors
refused to pay, however. Hence, BNP filed on September 7, 1998 before
the Makati Regional Trial Court (RTC) a complaint against petitioners
praying that they be ordered to pay (1) US$1,544,984.40 plus accrued
interest and other related charges thereon subsequent to August 15, 1998
until fully paid and (2) an amount equivalent to 5% of all sums due from
petitioners as attorney's fees.

The Makati RTC Clerk of Court assessed the docket fees which BNP paid at
P352,116.307 which was computed as follows:8

First Cause of Action


$ 844,674.07

Second Cause of
171,120.53
Action 

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Third Cause of
529,189.80
Action 

$1,544,984.4
0

5% as Attorney's
$ 77,249.22
Fees 

$1,622,233.6
TOTAL …………..
2

Conversion rate to
x 43_
peso

TOTAL ………….. P69,756,000.


00
(roundoff)

Computation based on Rule 141:

COURT JDF

P 69,756,000.00 P 69.606.000.00

- 150,000.00 x .003

69,606,000.00 208,818.00

x .002 + 450.00

139,212.00 P 209,268.00

+ 150.00

P 139,362.00

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LEGAL P139,362.0
: 0

+
209,268.00

P348,630.0
x 1% = P3,486.30
0

P
139,362.00

+
209,268.00

3,486.00

P - Total fees paid by the


352,116.30 plaintiff

To the complaint, the defendants-herein petitioners filed on October 12,


1998 a Motion to Dismiss9 on the ground that BNP failed to pay the correct
docket fees to thus prevent the trial court from acquiring jurisdiction over
the case.10 As additional ground, petitioners raised prematurity of the
complaint, BNP not having priorly sent any demand letter.11

By Order12 of August 3, 1999, Branch 148 of the Makati RTC denied


petitioners' Motion to Dismiss, viz:

Resolving the first ground relied upon by the defendant, this court
believes and so hold that the docket fees were properly paid. It is the
Office of the Clerk of Court of this station that computes the correct
docket fees, and it is their duty to assess the docket fees correctly, which
they did.1avvphi1.zw+

Even granting arguendo that the docket fees were not properly paid, the
court cannot just dismiss the case. The Court has not yet ordered (and it
will not in this case) to pay the correct docket fees, thus the Motion to
dismiss is premature, aside from being without any legal basis.

As held in the case of National Steel Corporation vs. CA, G.R. No. 123215,
February 2, 1999, the Supreme Court said:

xxx

Although the payment of the proper docket fees is a jurisdictional


requirement, the trial court may allow the plaintiff in an action to pay the

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same within a reasonable time within the expiration of applicable
prescription or reglementary period. If the plaintiff fails to comply with this
requirement, the defendant should timely raise the issue of jurisdiction or
else he would be considered in estoppel. In the latter case, the balance
between appropriate docket fees and the amount actually paid by the
plaintiff will be considered a lien or (sic) any award he may obtain in his
favor.

As to the second ground relied upon by the defendants, in that a review of


all annexes to the complaint of the plaintiff reveals that there is not a
single formal demand letter for defendants to fulfill the terms and
conditions of the three (3) trust agreements.

In this regard, the court cannot sustain the submission of defendant. As


correctly pointed out by the plaintiff, failure to make a formal demand for
the debtor to pay the plaintiff is not among the legal grounds for the
dismissal of the case. Anyway, in the appreciation of the court, this is
simply evidentiary.

xxx

WHEREFORE, for lack of merit, the Motion to Dismiss interposed by the


defendants is hereby DENIED.13 (Underscoring supplied)

Petitioners filed a motion for reconsideration14 of the denial of their Motion


to Dismiss, but it was denied by the trial court by Order15 of October 3,
2000.

Petitioners thereupon brought the case on certiorari and mandamus16 to


the Court of Appeals which, by Decision 17 of July 25, 2001, denied it in this
wise:

… Section 7(a) of Rule 141 of the Rules of Court excludes interest accruing
from the principal amount being claimed in the pleading in the
computation of the prescribed filing fees. The complaint was submitted for
the computation of the filing fee to the Office of the Clerk of Court of the
Regional Trial Court of Makati City which made an assessment that
respondent paid accordingly. What the Office of the Clerk of Court did and
the ruling of the respondent Judge find support in the decisions of the
Supreme Court in Ng Soon vs. Alday and Tacay vs. RTC of Tagum, Davao
del Norte. In the latter case, the Supreme Court explicitly ruled that
"where the action is purely for recovery of money or damages, the docket
fees are assessed on the basis of the aggregate amount claimed,
exclusive only of interests and costs."

Assuming arguendo that the correct filing fees was not made, the rule is
that the court may allow a reasonable time for the payment of the
prescribed fees, or the balance thereof, and upon such payment, the
defect is cured and the court may properly take cognizance of the action
unless in the meantime prescription has set in and consequently barred

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the right of action. Here respondent Judge did not make any finding, and
rightly so, that the filing fee paid by private respondent was insufficient.

On the issue of the correct dollar-peso rate of exchange, the Office of the
Clerk of Court of the RTC of Makati pegged it at P 43.21 to US$1. In the
absence of any office guide of the rate of exchange which said court
functionary was duty bound to follow, the rate he applied is presumptively
correct.

Respondent Judge correctly ruled that the matter of demand letter is


evidentiary and does not form part of the required allegations in a
complaint. Section 1, Rule 8 of the 1997 Rules of Civil Procedure
pertinently provides:

"Every pleading shall contain in a methodical and logical form, a plain,


concise and direct statement of the ultimate facts on which the party
pleading relies for his claim or defense, as the case may be, omitted the
statement of mere evidentiary facts."

Judging from the allegations of the complaint particularly paragraphs 6,


12, 18, and 23 where allegations of imputed demands were made upon
the defendants to fulfill their respective obligations, annexing the demand
letters for the purpose of putting up a sufficient cause of action is not
required.

In fine, respondent Judge committed no grave abuse of discretion


amounting to lack or excess of jurisdiction to warrant certiorari and
mandamus.18 (Underscoring supplied)

Their Motion for Reconsideration19 having been denied by the Court of


Appeals,20 petitioners filed the present petition for review on certiorari21
and pray for the following reliefs:

WHEREFORE, in view of all the foregoing, it is most respectfully prayed of


this Honorable Court to grant the instant petition by REVERSING and
SETTING ASIDE the questioned Decision of July 25, 2001 and the
Resolution of December 18, 2001 for being contrary to law, to
Administrative Circular No. 11-94 and Circular No. 7 and instead direct the
court a quo to require Private Respondent Banque to pay the correct
docket fee pursuant to the correct exchange rate of the dollar to the peso
on September 7, 1998 and to quantify its claims for interests on the
principal obligations in the first, second and third causes of actions in its
Complaint in Civil Case No. 98-2180.22 (Underscoring supplied)

Citing Administrative Circular No. 11-94,23 petitioners argue that BNP


failed to pay the correct docket fees as the said circular provides that in
the assessment thereof, interest claimed should be included. There being
an underpayment of the docket fees, petitioners conclude, the trial court
did not acquire jurisdiction over the case.

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Additionally, petitioners point out that the clerk of court, in converting
BNP's claims from US dollars to Philippine pesos, applied the wrong
exchange rate of US $1 = P43.00, the exchange rate on September 7,
1998 when the complaint was filed having been pegged at US $1 =
P43.21. Thus, by petitioners' computation, BNP's claim as of August 15,
1998 was actually P70,096,714.72,24 not P69,756,045.66.

Furthermore, petitioners submit that pursuant to Supreme Court Circular


No. 7,25 the complaint should have been dismissed for failure to specify
the amount of interest in the prayer.

Circular No. 7 reads:

TO: JUDGES AND CLERKS OF COURT OF THE COURT OF TAX APPEALS,


REGIONAL TRIAL COURTS, METROPOLITAN TRIAL COURTS IN CITIES,
MUNICIPAL TRIAL COURTS, MUNICIPAL CIRCUIT TRIAL COURTS, SHARI'A
DISTRICT COURTS;AND THE INTEGRATED BAR OF THE PHILIPPINES

SUBJECT: ALL COMPLAINTS MUST SPECIFY AMOUNT OF DAMAGES


SOUGHT NOT ONLY IN THE BODY OF THE PLEADING, BUT ALSO IN THE
PRAYER IN ORDER TO BE ACCEPTED AND ADMITTED FOR FILING.
THE AMOUNT OF DAMAGES SO SPECIFIED IN THE COMPLAINT SHALL BE
THE BASIS FOR ASSESSING THE AMOUNT OF THE FILING FEES.

In Manchester Development Corporation vs. Court of Appeals, No. L-


75919, May 7, 1987, 149 SCRA 562, this Court condemned the practice of
counsel who in filing the original complaint omitted from the prayer any
specification of the amount of damages although the amount of over P78
million is alleged in the body of the complaint. This Court observed that
"(T)his is clearly intended for no other purpose than to evade the payment
of the correct filing fees if not to mislead the docket clerk, in the
assessment of the filing fee. This fraudulent practice was compounded
when, even as this Court had taken cognizance of the anomaly and
ordered an investigation, petitioner through another counsel filed an
amended complaint, deleting all mention of the amount of damages being
asked for in the body of the complaint. xxx"

For the guidance of all concerned, the WARNING given by the court in the
afore-cited case is reproduced hereunder:

"The Court serves warning that it will take drastic action upon a repetition
of this unethical practice.

To put a stop to this irregularity, henceforth all complaints, petitions,


answers and other similar pleadings should specify the amount of
damages being prayed for not only in the body of the pleading
but also in the prayer, and said damages shall be considered in
the assessment of the filing fees in any case. Any pleading that
fails to comply with this requirement shall not be accepted nor
admitted, or shall otherwise be expunged from the record.

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The Court acquires jurisdiction over any case only upon the payment of
the prescribed docket fee. An amendment of the complaint or similar
pleading will not thereby vest jurisdiction in the Court, much less the
payment of the docket fee based on the amount sought in the amended
pleading. The ruling in the Magaspi case (115 SCRA 193) in so far as it is
inconsistent with this pronouncement is overturned and reversed."

Strict compliance with this Circular is hereby enjoined.

Let this be circularized to all the courts hereinabove named and to the
President and Board of Governors of the Integrated Bar of the Philippines,
which is hereby directed to disseminate this Circular to all its members.

March 24, 1988.

(Sgd). CLAUDIO TEEHANKEE

Chief Justice

(Emphasis and underscoring supplied)

On the other hand, respondent maintains that it had paid the filing fee
which was assessed by the clerk of court, and that there was no violation
of Supreme Court Circular No. 7 because the amount of damages was
clearly specified in the prayer, to wit:

2. On the FIRST CAUSE OF ACTION -

(c) Defendant PROTON be ordered to pay the sum of (i) US DOLLARS


EIGHT HUNDRED FORTY FOUR THOUSAND SIX HUNDRED SEVENTY FOUR
AND SEVEN CENTS (US$ 844,674.07), plus accrued interests and other
related charges thereon subsequent to August 15, 1998, until fully paid;
and (ii) an amount equivalent to 5% of all sums due from said Defendant,
as and for attorney's fees;

3. On the SECOND CAUSE OF ACTION -

(d) Defendant PROTON be ordered to pay the sum of (i) US DOLLARS ONE
HUNDRED TWENTY AND FIFTY THREE CENTS (US$171,120.53), plus
accrued interests and other related charges thereon subsequent to August
15, 1998 until fully paid; and (ii) an amount equivalent to 5% of all sums
due from said Defendant, as and for attorney's fees;

4. On the THIRD CAUSE OF ACTION -

(e) Defendant PROTON be ordered to pay the sum of (i) US DOLLARS FIVE
HUNDRED TWENTY NINE THOUSAND ONE HUNDRED EIGHTY NINE AND
EIGHTY CENTS (US$529,189.80), plus accrued interests and other related
charges thereon subsequent to August 15, 1998 until fully paid; and (ii) an
amount equivalent to 5% or all sums due from said Defendant, as and for
attorney's fees;

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5. On ALL THE CAUSES OF ACTION -

Defendants AUTOMOTIVE CORPORATION PHILIPPINES, ASEA ONE


CORPORATION and AUTOCORP GROUP to be ordered to pay Plaintiff BNP
the aggregate sum of (i) US DOLLARS ONE MILLION FIVE HUNDRED FORTY
FOUR THOUSAND NINE HUNDRED EIGHTY FOUR AND FORTY CENTS
(US$1,544,984.40) (First through Third Causes of Action), plus accrued
interest and other related charges thereon subsequent to August 15, 1998
until fully paid; and (ii) an amount equivalent to 5% of all sums due from
said Defendants, as and for attorney's fees.26

Moreover, respondent posits that the amount of US$1,544,984.40


represents not only the principal but also interest and other related
charges which had accrued as of August 15, 1998. Respondent goes even
further by suggesting that in light of Tacay v. Regional Trial Court of
Tagum, Davao del Norte27 where the Supreme Court held,

Where the action is purely for the recovery of money or damages, the
docket fees are assessed on the basis of the aggregate amount
claimed, exclusive only of interests and costs.28 (Emphasis and
underscoring supplied),

it made an overpayment.

When Tacay was decided in 1989, the pertinent rule applicable was
Section 5 (a) of Rule 141 which provided for the following:

SEC. 5. Clerks of Regional Trial Courts. - (a) For filing an action or


proceeding, or a permissive counter-claim or cross-claim not arising out of
the same transaction subject of the complaint, a third-party complaint and
a complaint in intervention and for all services in the same, if the sum
claimed, exclusive of interest, of the value of the property in
litigation, or the value of the estate, is:

Less than P 5,000.00 …. P


1.
……………………………… 32.00

P 5,000.00 or more but less than P 10,000.00


2. 48.00
…………

P 10,000.00 or more but less than P


3. 64.00
20,000.00 ………..

P 20,000.00 or more but less than P


4. 80.00
40,000.00 ………..

5. P 40,000.00 or more but less than P 120.0

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60,000.00 ……….. 0

P 60,000.00 or more but less than P 160.0


6.
80,000.00 ………. 0

P 80,000.00 or more but less than P 200.0


7.
150,000.00 ……… 0

And for each P 1,000.00 in excess of P


8. 4.00
150,000.00 .....

When the value of the case cannot be 400.0


9.
estimated ……… 0

10 When the case does not concern property


. (naturalization, adoption, legal separation,
etc.) ..……... 64.00

11 In forcible entry and illegal detainer cases


. appealed from inferior courts
…………………………………. 40.00

If the case concerns real estate, the assessed value thereof shall be
considered in computing the fees.

In case the value of the property or estate or the sum claim is less or more
in accordance with the appraisal of the court, the difference of fees shall
be refunded or paid as the case may be.

When the complaint in this case was filed in 1998, however, as correctly
pointed out by petitioners, Rule 141 had been amended by Administrative
Circular No. 11-9429 which provides:

BY RESOLUTION OF THE COURT, DATED JUNE 28, 1994, PURSUANT TO


SECTION 5 (5) OF ARTICLE VIII OF THE CONSTITUTION, RULE 141, SECTION
7 (a) AND (d), and SECTION 8 (a) and (b) OF THE RULES OF COURT ARE
HEREBY AMENDED TO READ AS FOLLOWS:

RULE 141

LEGAL FEES

xxx

Sec. 7. Clerks of Regional Trial Courts

(a) For filing an action or a permissive counterclaim or money claim


against an estate not based on judgment, or for filing with leave of court a

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third-party, fourth-party, etc. complaint, or a complaint in intervention,
and for all clerical services in the same, if the total sum claimed,
inclusive of interest, damages of whatever kind, attorney's fees,
litigation expenses, and costs, or the stated value of the property
in litigation, is:

1 Not more than P 100,000.00 P


. …………………………… 400.00

2 P 100,000.00, or more but not more than P


600.00
. 150,000.00 …

3 For each P 1,000.00 in excess of P 150,000.00


5.00
. ………….

xxx

Sec. 8. Clerks of Metropolitan and Municipal Trial Courts

(a) For each civil action or proceeding, where the value of the subject
matter involved, or the amount of the demand, inclusive of
interest, damages or whatever kind, attorney's fees, litigation
expenses, and costs, is:

1 Not more than P 20,000.00 …………………………… P


. ... 120.00

2 More than P 20,000.00 but not more than P


400.00
. 100,000.00 ….

3 More than P 100,000.00 but not more than P


850.00
. 200,000.00 …

(Emphasis and underscoring supplied)

The clerk of court should thus have assessed the filing fee by taking into
consideration "the total sum claimed, inclusive of interest, damages of
whatever kind, attorney's fees, litigation expenses, and costs, or the
stated value of the property in litigation." Respondent's and the Court of
Appeals' reliance then on Tacay was not in order.

Neither was, for the same reason, the Court of Appeals' reliance on the
1989 case of Ng Soon v. Alday,30 where this Court held:

…The failure to state the rate of interest demanded was not fatal
not only because it is the Courts which ultimately fix the same, but also
because Rule 141, Section 5(a) of the Rules of Court, itemizing
the filing fees, speaks of "the sum claimed, exclusive of interest."

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This clearly implies that the specification of the interest rate is
not that indispensable.

Factually, therefore, not everything was left to "guesswork" as respondent


Judge has opined. The sums claimed were ascertainable, sufficient enough
to allow a computation pursuant to Rule 141, section 5(a).

Furthermore, contrary to the position taken by respondent Judge, the


amounts claimed need not be initially stated with mathematical
precision. The same Rule 141, section 5(a) (3rd paragraph),
allows an appraisal "more or less."31 Thus:

"In case the value of the property or estate or the sum claimed is less or
more in accordance with the appraisal of the court, the difference of fee
shall be refunded or paid as the case may be."

In other words, a final determination is still to be made by the Court, and


the fees ultimately found to be payable will either be additionally paid by
the party concerned or refunded to him, as the case may be. The above
provision clearly allows an initial payment of the filing fees corresponding
to the estimated amount of the claim subject to adjustment as to what
later may be proved.

". . . there is merit in petitioner's claim that the third paragraph of Rule
141, Section 5(a) clearly contemplates a situation where an amount is
alleged or claimed in the complaint but is less or more than what is later
proved. If what is proved is less than what was claimed, then a refund will
be made; if more, additional fees will be exacted. Otherwise stated, what
is subject to adjustment is the difference in the fee and not the whole
amount" (Pilipinas Shell Petroleum Corp., et als., vs. Court of Appeals, et
als., G.R. No. 76119, April 10, 1989).32 (Emphasis and underscoring
supplied)

Respecting the Court of Appeals' conclusion that the clerk of court did not
err when he applied the exchange rate of US $1 = P43.00 "[i]n the
absence of any office guide of the rate of exchange which said court
functionary was duty bound to follow,[hence,] the rate he applied is
presumptively correct," the same does not lie. The presumption of
regularity of the clerk of court's application of the exchange rate is not
conclusive.33 It is disputable.34 As such, the presumption may be
overturned by the requisite rebutting evidence.35 In the case at bar,
petitioners have adequately proven with documentary evidence36 that
the exchange rate when the complaint was filed on September 7, 1998
was US $1 = P43.21.

In fine, the docket fees paid by respondent were insufficient.

With respect to petitioner's argument that the trial court did not acquire
jurisdiction over the case in light of the insufficient docket fees, the same
does not lie.

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True, in Manchester Development Corporation v. Court of Appeals,37 this
Court held that the court acquires jurisdiction over any case only upon the
payment of the prescribed docket fees,38 hence, it concluded that the
trial court did not acquire jurisdiction over the case.

It bears emphasis, however, that the ruling in Manchester was clarified in


Sun Insurance Office, Ltd. (SIOL) v. Asuncion39 when this Court held that
in the former there was clearly an effort to defraud the government in
avoiding to pay the correct docket fees, whereas in the latter the plaintiff
demonstrated his willingness to abide by paying the additional fees as
required.

The principle in Manchester could very well be applied in the present case.
The pattern and the intent to defraud the government of the docket fee
due it is obvious not only in the filing of the original complaint but also in
the filing of the second amended complaint.

However, in Manchester, petitioner did not pay any additional docket fee
until the case was decided by this Court on May 7, 1987. Thus, in
Manchester, due to the fraud committed on the government, this
Court held that the court a quo did not acquire jurisdiction over
the case and that the amended complaint could not have been
admitted inasmuch as the original complaint was null and void.

In the present case, a more liberal interpretation of the rules is


called for considering that, unlike Manchester, private
respondent demonstrated his willingness to abide by the rules by
paying the additional docket fees as required. The promulgation of
the decision in Manchester must have had that sobering influence on
private respondent who thus paid the additional docket fee as ordered by
the respondent court. It triggered his change of stance by manifesting his
willingness to pay such additional docket fee as may be ordered.

Nevertheless, petitioners contend that the docket fee that was paid is still
insufficient considering the total amount of the claim. This is a matter
which the clerk of court of the lower court and/or his duly authorized
docket clerk or clerk in charge should determine and, thereafter, if any
amount is found due, he must require the private respondent to pay the
same.

Thus, the Court rules as follows:

1. It is not simply the filing of the complaint or appropriate initiatory


pleading, but the payment of the prescribed docket fee, that vests a trial
court with jurisdiction over the subject-matter or nature of the action.
Where the filing of the initiatory pleading is not accompanied by payment
of the docket fee, the court may allow payment of the fee within a
reasonable time but in no case beyond the applicable prescriptive or
reglementary period.

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2. The same rule applies to permissive counterclaims, third-party claims
and similar pleadings, which shall not be considered filed until and unless
the filing fee prescribed therefor is paid. The court may also allow
payment of said fee within a reasonable time but also in no case beyond
its applicable prescriptive or reglementary period.

3. Where the trial court acquires jurisdiction over a claim by the filing of
the appropriate pleading and payment of the prescribed filing fee but,
subsequently, the judgment awards a claim not specified in the pleading,
or if specified the same has been left for determination by the court, the
additional filing fee therefor shall constitute a lien on the judgment. It
shall be the responsibility of the Clerk of Court or his duly authorized
deputy to enforce said lien and assess and collect the additional fee.40
(Emphasis and underscoring supplied)

The ruling in Sun Insurance Office was echoed in the 2005 case of Heirs of
Bertuldo Hinog v. Hon. Achilles Melicor:41

Plainly, while the payment of the prescribed docket fee is a jurisdictional


requirement, even its non-payment at the time of filing does not
automatically cause the dismissal of the case, as long as the fee is paid
within the applicable prescriptive or reglementary period, more so when
the party involved demonstrates a willingness to abide by the rules
prescribing such payment. Thus, when insufficient filing fees were
initially paid by the plaintiffs and there was no intention to
defraud the government, the Manchester rule does not apply.
(Emphasis and underscoring supplied; citations omitted)

In the case at bar, respondent merely relied on the assessment made by


the clerk of court which turned out to be incorrect. Under the
circumstances, the clerk of court has the responsibility of reassessing
what respondent must pay within the prescriptive period, failing which the
complaint merits dismissal.

Parenthetically, in the complaint, respondent prayed for "accrued


interest… subsequent to August 15, 1998 until fully paid." The complaint
having been filed on September 7, 1998, respondent's claim includes the
interest from August 16, 1998 until such date of filing.

Respondent did not, however, pay the filing fee corresponding to its claim
for interest from August 16, 1998 until the filing of the complaint on
September 7, 1998. As priorly discussed, this is required under Rule 141,
as amended by Administrative Circular No. 11-94, which was the rule
applicable at the time. Thus, as the complaint currently stands,
respondent cannot claim the interest from August 16, 1998 until
September 7, 1998, unless respondent is allowed by motion to amend its
complaint within a reasonable time and specify the precise amount of
interest petitioners owe from August 16, 1998 to September 7, 199842
and pay the corresponding docket fee therefor.

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With respect to the interest accruing after the filing of the complaint, the
same can only be determined after a final judgment has been handed
down. Respondent cannot thus be made to pay the corresponding docket
fee therefor. Pursuant, however, to Section 2, Rule 141, as amended by
Administrative Circular No. 11-94, respondent should be made to pay
additional fees which shall constitute a lien in the event the trial court
adjudges that it is entitled to interest accruing after the filing of the
complaint.

Sec. 2. Fees as lien. - Where the court in its final judgment awards a claim
not alleged, or a relief different or more than that claimed in the pleading,
the party concerned shall pay the additional fees which shall constitute a
lien on the judgment in satisfaction of said lien. The clerk of court shall
assess and collect the corresponding fees.

In Ayala Corporation v. Madayag,43 in interpreting the third rule laid down


in Sun Insurance regarding awards of claims not specified in the pleading,
this Court held that the same refers only to damages arising after
the filing of the complaint or similar pleading as to which the
additional filing fee therefor shall constitute a lien on the
judgment.

… The amount of any claim for damages, therefore, arising on or before


the filing of the complaint or any pleading should be specified. While it is
true that the determination of certain damages as exemplary or corrective
damages is left to the sound discretion of the court, it is the duty of the
parties claiming such damages to specify the amount sought on the basis
of which the court may make a proper determination, and for the proper
assessment of the appropriate docket fees. The exception
contemplated as to claims not specified or to claims although
specified are left for determination of the court is limited only to
any damages that may arise after the filing of the complaint or
similar pleading for then it will not be possible for the claimant to
specify nor speculate as to the amount thereof.44 (Emphasis and
underscoring supplied; citation omitted)1avvphi1.zw+

WHEREFORE, the petition is GRANTED in part. The July 25, 2001 Decision
and the December 18, 2001 Resolution of the Court Appeals are hereby
MODIFIED. The Clerk of Court of the Regional Trial Court of Makati City is
ordered to reassess and determine the docket fees that should be paid by
respondent, BNP, in accordance with the Decision of this Court, and direct
respondent to pay the same within fifteen (15) days, provided the
applicable prescriptive or reglementary period has not yet expired.
Thereafter, the trial court is ordered to proceed with the case with utmost
dispatch.

SO ORDERED.

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A.M. No. MTJ-02-1391 June 7, 2004
(Formerly A.M. OCA IPI No. 00-936-MTJ)
RODOLFO RAMA RIÑO, complainant,
vs.
JUDGE ALFONSO R. CAWALING, MUNICIPAL CIRCUIT TRIAL COURT,
CAJIDIOCAN, ROMBLON, respondent.

The instant administrative complaint arose when Rodolfo Rama Riño, in a


verified Letter-Complaint dated September 5, 2000, charged Judge Alfonso
R. Cawaling of the Municipal Circuit Trial Court, Cajidiocan, Romblon, with
bias and partiality, abuse of authority and gross ignorance of the law
relative to Criminal Case No. 4511 entitled "People of the Philippines v.
Rodolfo Rama Riño," for grave threats.1

The complainant alleged that he was the accused in the said case, and
that the respondent judge conducted a preliminary investigation2 on
October 27, 1999 without due notice to him. According to the
complainant, the respondent, prematurely and with undue haste, issued a
warrant3 for his arrest on October 28, 1999, considering that there was no
necessity in placing him (the complainant) in police custody.

In his comment,4 the respondent alleged that contrary to the allegations


of the complainant, the subpoena was served on him at his given address
and that of his witnesses, pursuant to Section 3, Rule 112 of the Revised
Rules of Criminal Procedure. Thereafter, he submitted his counter-affidavit,
and the case was set for preliminary investigation in the afternoon of
October 27, 1999. After the preliminary investigation, a warrant for the
arrest of the complainant was issued, and the latter forthwith posted his
bail bond and was released. The respondent also narrated that on the
scheduled arraignment of the complainant on August 16, 2000, the
complainant was present and was assisted by counsel, Atty. Cecilio R.
Dianco, who moved for the deferment of the arraignment and pre-trial of
the case, and asked for his inhibition on the ground that an administrative
case had already been filed against the respondent before the Court. The
respondent alleged that out of delicadeza, he inhibited himself, and that
the order of inhibition was thereafter approved by Judge Placido C.
Marquez.

The respondent also averred that Criminal Case No. 4511 was not covered
by the Rules on Summary Procedure, the imposable penalty being higher
than six months. As such, he had no alternative but to issue the warrant
of arrest against the complainant.

In its Report5 dated November 14, 2001, the Court Administrator


recommended that the instant administrative complaint be re-docketed as
an administrative matter and that the respondent judge be penalized to
pay a fine of P10,000 for gross ignorance of the law, considering that the
offense charged in Criminal Case No. 4511 is covered by the Rules on
Summary Procedure.6

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The case was then referred to Judge Vedasto B. Marco, Executive Judge,
Regional Trial Court, Romblon, for investigation, report and
recommendation.7 In his Report and Recommendation dated January 15,
2004, the Executive Judge made the following findings:

From the foregoing, and the evidence submitted specifically the records of
Criminal Case No. 4511, it appear (sic) that respondent judge did not
violate the Rules of Procedure when he conducted the preliminary
investigation of the case against Rodolfo Riño nor did he show biased (sic)
and partiality against the latter. The complainant was afforded all the
rights to preliminary investigation and the warrant was issued more than a
year after it was in Court.8

It was recommended that the respondent be absolved of any liability.

We do not agree.

Under the Revised Penal Code, grave threats is penalized with


imprisonment of one (1) month and one (1) day to six (6) months (arresto
mayor) and a fine not exceeding P500.00, if the threat is not subject to a
condition.9 Thus, the subject criminal cases should have been tried under
the Revised Rules on Summary Procedure, considering that such rules are
applicable to criminal cases where the penalty prescribed by law for the
offense charged is imprisonment not exceeding six (6) months or a fine
not exceeding P1,000.00 or both, irrespective of other imposable
penalties, accessory or otherwise or of the civil liability arising therefrom.10
The respondent applied the regular procedure; he issued a warrant of
arrest against the complainant after making a preliminary examination of
the affidavit against the latter. Hence, the complainant was constrained to
post bail, which was no longer necessary considering that the charge
against him was simply grave threats.

Section 2 of the Revised Rules on Summary Procedure provides that "upon


the filing of a civil or criminal action, the court shall issue an order
declaring whether or not the case shall be governed by (the) Rule." The
said provision further states that "patently erroneous determination to
avoid the application of the (Rules on Summary Procedure) is a ground for
disciplinary action." As we held in Agunday v. Tresvalles,11

… (The) provision cannot be read as applicable only where the failure to


apply the rule is deliberate or malicious. Otherwise, the policy of the law
to provide for the expeditious and summary disposition of cases covered
by it could be easily frustrated. Hence, requiring judges to make the
determination of the applicability of the rule on summary procedure upon
the filing of the case is the only guaranty that the policy of the law will be
fully realized. …12

It is clear then that the respondent judge ought to be sanctioned for his
failure to apply the proper procedure. A judge should be the epitome of
competence, integrity and independence to be able to render justice and

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uphold public confidence in the legal system.13 He must be conversant
with basic legal principles and well-settled doctrines. He should strive for
excellence and seek the truth with passion.14 The respondent failed in this
regard and, by his actuations, exhibited gross ignorance of the law.

WHEREFORE, for gross ignorance of the law, respondent Judge Alfonso R.


Cawaling of the Municipal Circuit Trial Court, Cajidiocan, Romblon, is
FINED Five Thousand Pesos (P5,000.00), and is STERNLY WARNED that
a repetition of the same or similar act shall be dealt with more severely.

SO ORDERED.

[159]
1 Under Rule 45, Revised Rules of Court.
2 In CA-G. R. CV No. 54413, promulgated on March 26, 1999, Petition, Annex
“A”, Rollo, pp. 25-30. Oswaldo D. Agcaoili, J., ponente, Corona Ibay-Somera and
Eloy R. Bello, Jr., JJ., concurring.
3 In Civil Case No. 94-19833, dated May 14, 1996, Petition, Annex “H”, Rollo,
pp. 63-64. Judge Demetrio B. Macapagal, Sr., presiding.
4 Dated July 29, 1999, Petition, Annex “B”, Rollo, p. 31.
5 Motion for Reconsideration, CA Rollo, pp. 134-139.
6 With editorial changes.
7 Petition, Annex “C”, Rollo, pp. 32-41.
8 Petition, Annex “A”, Rollo, pp. 25-30.
9 CA Rollo, pp. 134-139.
10 Petition, Annex “B”, Rollo, p. 31.
11 Filed on September 24, 1999. Rollo, pp. 8-21. On January 17, 2000, we
resolved to give due course to the petition (Rollo, pp. 94-95).
12 Uy v. Evangelista, G. R. No. 140365, July 11, 2001, citing Parañaque Kings
Enterprises, Inc. v. Court of Appeals, 268 SCRA 727 (1997).
13 Uy v. Evangelista, G. R. No. 140365, July 11, 2001, citing San Lorenzo Village
Association, Inc. v. Court of Appeals, 288 SCRA 115 (1998).
14 Petition, Annex “C”, Rollo, pp. 32-41.
15 Fil-Estate Golf and Development, Inc. v. Court of Appeals, 333 Phil. 465, 490-
491 (1996).
16 Saura v. Saura, Jr., 313 SCRA 465, 472 (1999).
17 Torres v. Court of Appeals, 363 Phil. 539, 547 (1999), citing Ganadin v.
Ramos, 99 SCRA, 613, 621-622 (1980).
18 National Steel Corporation v. Court of Appeals, 362 Phil. 150, 160 (1999),
citing Martinez v. De la Merced, 174 SCRA 182 (1989).
19 Peña, Narciso, et al., Registration of Land Titles and Deeds (1994 Revised
Edition), p. 439, citing Aguilar v. Chiu, 195 Phil. 613 (1981).
20 In CA-G. R. CV No. 54413.
21 In Civil Case No. 94-19833.