SPECIAL FIRST DIVISION

[G.R. No. 124293. September 24, 2003]

JG SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS, COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION TRUST and PHILYARDS HOLDINGS, INC., respondents.

R E S O L U T I O N

PUNO, J.:

The core issue posed by the Motions for Reconsideration is whether a shipyard is a public utility whose capitalization must be sixty percent (60%) owned by Filipinos. Our resolution of this issue will determine the fate of the shipbuilding and ship repair industry. It can either spell the industrys demise or breathe new life to the struggling but potentially healthy partner in the countrys bid for economic growth. It can either kill an initiative yet in its infancy, or harness creativity in the productive disposition of government assets.

The facts are undisputed and can be summarized briefly as follows:

On January 27, 1977, the National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic National Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute P330 million for the capitalization of PHILSECO in the proportion of 60%-40% respectively.[1] One of its salient features is the grant to the parties of the right of first refusal should either of them decide to sell, assign or transfer its interest in the joint venture, viz:

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third party without giving the other under the same terms the right of first refusal. This provision shall not apply if the transferee is a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate.[2]

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National Bank (PNB). Such interests were subsequently transferred to the National Government pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage and dispose of non-performing assets of the National Government. Thereafter, on February 27, 1987, a trust agreement was entered into between the National Government and the APT wherein the latter was named the trustee of the National Governments share in PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to settle its huge obligations to PNB, the National Governments shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKIs shareholdings to 2.59%.[3]

In the interest of the national economy and the government, the COP and the APT deemed it best to sell the National Governments share in PHILSECO to private entities. After a series of

negotiations between the APT and KAWASAKI, they agreed that the latters right of first refusal under the JVA be exchanged for the right to top by five percent (5%) the highest bid for the said shares. They further agreed that KAWASAKI would be entitled to name a company in which it was a stockholder, which could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) would exercise its right to top.[4]

At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for the National Governments 87.6% equity share in PHILSECO. [5] The provisions of the ASBR were explained to the interested bidders who were notified that the bidding would be held on December 2, 1993. A portion of the ASBR reads:

1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National Governments equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of PHILSECOs outstanding capital stock), which will be sold as a whole block in accordance with the rules herein enumerated.

. . .

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board of Trustees and the Committee on Privatization (COP).

2.1 APT reserves the right in its sole discretion, to reject any or all bids.

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the National Governments 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00).

. . .

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting following the bidding, for the purpose of determining whether or not it should be endorsed by the APT Board of Trustees to the COP, and the latter approves the same. The APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc., that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise their Option to Top the Highest Bid by offering a bid equivalent to the highest bid plus five (5%) percent thereof.

6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. exercise their Option to Top the Highest Bid, they shall so notify the APT about such exercise of their option and deposit with APT the amount equivalent to ten percent (10%) of the highest bid plus five percent (5%) thereof within the thirty (30)-day period mentioned in paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. declaring them as the preferred bidder and they shall have a period of ninety (90) days from the receipt of the APTs notice within which to pay the balance of their bid price.

6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. fail to exercise their Option to Top the Highest Bid within the thirty (30)-day period, APT will declare the highest bidder as the winning bidder.

. . .

12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official bid forms, including any addenda or amendments thereto issued during the bidding period. The bidder shall likewise be responsible for informing itself with respect to any and all conditions concerning the PHILSECO Shares which may, in any manner, affect the bidders proposal. Failure on the part of the bidder to so examine and inform itself shall be its sole risk and no relief for error or omission will be given by APT or COP. . ..[6]

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgement of KAWASAKI/Philyards right to top, viz:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APTs recommendation based on the result of this bidding. Should the COP approve the highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc. that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise their Option to Top the Highest Bid by offering a bid equivalent to the highest bid plus five (5%) percent thereof.[7]

As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993 subject to the right of Kawasaki Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as specified in the bidding rules.[8]

On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of Kawasaki, Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last four (4) companies were the losing bidders thereby circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same option to top to PHI constituted unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public bidding or auction sale; and (e) the JG Summit consortium was not estopped from questioning the proceedings.[9]

On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its option to top the highest bid and that the COP had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock Purchase Agreement.[10] Consequently, petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said petition was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that the petition for mandamus was not the proper remedy to question the constitutionality or legality of the right of first refusal and the right to top that was exercised by KAWASAKI/PHI, and that the matter must be brought by the proper party in the proper forum at the proper time and threshed out in a full blown trial. The Court of Appeals further ruled that the right of first refusal and the right to top are prima facie legal and that the petitioner, by participating in the public bidding, with full knowledge of the right to top granted to KASAWASAKI/Philyards is . . .estopped from

questioning the validity of the award given to Philyards after the latter exercised the right to top and had paid in full the purchase price of the subject shares, pursuant to the ASBR. Petitioner filed a Motion for Reconsideration of said Decision which was denied on March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of discretion on the part of the appellate court.[11]

On November 20, 2000, this Court rendered the now assailed Decision ruling among others that the Court of Appeals erred when it dismissed the petition on the sole ground of the impropriety of the special civil action of mandamus because the petition was also one of certiorari.[12] It further ruled that a shipyard like PHILSECO is a public utility whose capitalization must be sixty percent (60%) Filipino-owned.[13] Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in PHILSECO is illegal---not only because it violates the rules on competitive bidding--- but more so, because it allows foreign corporations to own more than 40% equity in the shipyard. [14] It also held that although the petitioner had the opportunity to examine the ASBR before it participated in the bidding, it cannot be estopped from questioning the unconstitutional, illegal and inequitable provisions thereof.[15] Thus, this Court voided the transfer of the national governments 87.67% share in PHILSECO to Philyard Holdings, Inc., and upheld the right of JG Summit, as the highest bidder, to take title to the said shares, viz:

WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00 ), less its bid deposit plus interests upon the finality of this Decision. In turn, APT is ordered to:

(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of PHILSECOs total capitalization;

(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five Hundred Thousand Pesos (P2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.[16]

In separate Motions for Reconsideration,[17] respondents submit three basic issues for our resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its right of first refusal only up to 40% of the total capitalization of PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the principles of competitive bidding.

I.

Whether PHILSECO is a Public Utility.

After carefully reviewing the applicable laws and jurisprudence, we hold that PHILSECO is not a public utility for the following reasons:

First. By nature, a shipyard is not a public utility.

A public utility is a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service.[18] To constitute a public utility, the facility must be necessary for the maintenance of life and occupation of the residents. However, the fact that a business offers services or goods that promote public good and serve the interest of the public does not automatically make it a public utility. Public use is not synonymous with public interest. As its name indicates, the term public utility implies public use and service to the public. The principal determinative characteristic of a public utility is that of service to, or readiness to serve, an indefinite public or portion of the public as such which has a legal right to demand and receive its services or commodities. Stated otherwise, the owner or person in control of a public utility must have devoted it to such use that the public generally or that part of the public which has been served and has accepted the service, has the right to demand that use or service so long as it is continued, with reasonable efficiency and under proper charges. [19] Unlike a private enterprise which independently determines whom it will serve, a public utility holds out generally and may not refuse legitimate demand for service. [20] Thus, in Iloilo Ice and Cold Storage Co. vs. Public Utility Board,[21] this Court defined public use, viz:

Public use means the same as use by the public. The essential feature of the public use is that it is not confined to privileged individuals, but is open to the indefinite public. It is this indefinite or unrestricted quality that gives it its public character. In determining whether a use is public, we must look not only to the character of the business to be done, but also to the proposed mode of doing it. If the use is merely optional with the owners, or the public benefit is merely incidental, it is not a public use, authorizing the exercise of jurisdiction of the public utility commission. There must be, in general, a right which the law compels the owner to give to the general public. It is not enough that the general prosperity of the public is promoted. Public use is not synonymous with public interest. The true criterion by which to judge the character of the use is whether the public may enjoy it by right or only by permission.[22] (emphasis supplied)

Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a shipyard cannot be considered a public utility.

A shipyard is a place or enclosure where ships are built or repaired. [23] Its nature dictates that it serves but a limited clientele whom it may choose to serve at its discretion. While it offers its facilities to whoever may wish to avail of its services, a shipyard is not legally obliged to render its services indiscriminately to the public. It has no legal obligation to render the services sought by each and every client. The fact that it publicly offers its services does not give the public a legal right to demand that such services be rendered.

There can be no disagreement that the shipbuilding and ship repair industry is imbued with public interest as it involves the maintenance of the seaworthiness of vessels dedicated to the transportation of either persons or goods. Nevertheless, the fact that a business is affected with public interest does not imply that it is under a duty to serve the public. While the business may

be regulated for public good, the regulation cannot justify the classification of a purely private enterprise as a public utility. The legislature cannot, by its mere declaration, make something a public utility which is not in fact such; and a private business operated under private contracts with selected customers and not devoted to public use cannot, by legislative fiat or by order of a public service commission, be declared a public utility, since that would be taking private property for public use without just compensation, which cannot be done consistently with the due process clause.[24]

It is worthy to note that automobile and aircraft manufacturers, which are of similar nature to shipyards, are not considered public utilities despite the fact that their operations greatly impact on land and air transportation. The reason is simple. Unlike commodities or services traditionally regarded as public utilities such as electricity, gas, water, transportation, telephone or telegraph service, automobile and aircraft manufacturing---and for that matter ship building and ship repair--- serve the public only incidentally.

Second. There is no law declaring a shipyard as a public utility.

History provides us hindsight and hindsight ought to give us a better view of the intent of any law. The succession of laws affecting the status of shipyards ought not to obliterate, but rather, give us full picture of the intent of the legislature. The totality of the circumstances, including the contemporaneous interpretation accorded by the administrative bodies tasked with the enforcement of the law all lead to a singular conclusion: that shipyards are not public utilities.

Since the enactment of Act No. 2307 which created the Public Utility Commission (PUC) until its repeal by Commonwealth Act No. 146, establishing the Public Service Commission (PSC), a shipyard, by legislative declaration, has been considered a public utility. [25] A Certificate of Public Convenience (CPC) from the PSC to the effect that the operation of the said service and the authorization to do business will promote the public interests in a proper and suitable manner is required before any person or corporation may operate a shipyard. [26] In addition, such persons or corporations should abide by the citizenship requirement provided in Article XIII, section 8 of the 1935 Constitution,[27] viz:

Sec. 8. No franchise, certificate, or any other form or authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines, sixty per centum of the capital of which is owned by citizens of the Philippines, nor shall such franchise, certificate or authorization be exclusive in character or for a longer period than fifty years. No franchise or right shall be granted to any individual, firm or corporation, except under the condition that it shall be subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires. (emphasis supplied)

To accelerate the development of shipbuilding and ship repair industry, former President Ferdinand E. Marcos issued P.D. No. 666 granting the following incentives:

SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime Industry Authority shall be entitled to the following incentive benefits:

(a) Exemption from import duties and taxes.- The importation of machinery, equipment and materials for shipbuilding, ship repair and/or alteration, including indirect import, as well as replacement and spare parts for the repair and overhaul of vessels such as steel plates, electrical machinery and electronic parts, shall be exempt from the payment of customs duty and compensating tax: Provided, however, That the Maritime Industry Authority certifies that the item or items imported are not produced locally in sufficient quantity and acceptable quality at reasonable prices, and that the importation is directly and actually needed and will be used exclusively for the construction, repair, alteration, or overhaul of merchant vessels, and other watercrafts; Provided, further, That if the above machinery, equipment, materials and spare parts are sold to non-tax exempt persons or entities, the corresponding duties and taxes shall be paid by the original importer; Provided, finally, That local dealers and/or agents who sell machinery, equipment, materials and accessories to shipyards for shipbuilding and ship repair are entitled to tax credits, subject to approval by the total tariff duties and compensating tax paid for said machinery, equipment, materials and accessories.

(b) Accelerated depreciation.- Industrial plant and equipment may, at the option of the shipbuilder and ship repairer, be depreciated for any number of years between five years and expected economic life.

(c) Exemption from contractors percentage tax.- The gross receipts derived by shipbuilders and ship repairers from shipbuilding and ship repairing activities shall be exempt from the Contractors Tax provided in Section 91 of the National Internal Revenue Code during the first ten years from registration with the Maritime Industry Authority, provided that such registration is effected not later than the year 1990; Provided, That any and all amounts which would otherwise have been paid as contractors tax shall be set aside as a separate fund, to be known as Shipyard Development Fund, by the contractor for the purpose of expansion, modernization and/or improvement of the contractors own shipbuilding or ship repairing facilities; Provided, That, for this purpose, the contractor shall submit an annual statement of its receipts to the Maritime Industry Authority; and Provided, further, That any disbursement from such fund for any of the purposes hereinabove stated shall be subject to approval by the Maritime Industry Authority.

In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from the list of public utilities, thereby freeing the industry from the 60% citizenship requirement under the Constitution and from the need to obtain Certificate of Public Convenience pursuant to section 15 of C.A No. 146. Section 1 (d) of P.D. 666 reads:

(d) Registration required but not as a Public Utility.- The business of constructing and repairing vessels or parts thereof shall not be considered a public utility and no Certificate of Public Convenience shall be required therefor. However, no shipyard, graving dock, marine railway or marine repair shop and no person or enterprise shall engage in construction and/or repair of any vessel, or any phase or part thereof, without a valid Certificate of Registration and license for this purpose from the Maritime Industry Authority, except those owned or operated by the Armed Forces of the Philippines or by foreign governments pursuant to a treaty or agreement. (emphasis supplied)

Any law, decree, executive order, or rules and regulations inconsistent with P.D. No. 666 were repealed or modified accordingly.[28] Consequently, sections 13 (b) and 15 of C.A. No. 146 were repealed in so far as the former law included shipyards in the list of public utilities and required the certificate of public convenience for their operation. Simply stated, the repeal was due to irreconcilable inconsistency, and by definition, this kind of repeal falls under the category of an implied repeal.[29]

On April 28, 1983, Batas Pambansa Blg. 391, also known as the Investment Incentive Policy Act of 1983, was enacted. It laid down the general policy of the government to encourage private domestic and foreign investments in the various sectors of the economy, to wit:

Sec. 2. Declaration of Investment Policy.- It is the policy of the State to encourage private domestic and foreign investments in industry, agriculture, mining and other sectors of the economy which shall: provide significant employment opportunities relative to the amount of the capital being invested; increase productivity of the land, minerals, forestry, aquatic and other resources of the country, and improve utilization of the products thereof; improve technical skills of the people employed in the enterprise; provide a foundation for the future development of the economy; accelerate development of less developed regions of the country; and result in increased volume and value of exports for the economy.

It is the policy of the State to extend to projects which will significantly contribute to the attainment of these objectives, fiscal incentives without which said projects may not be established in the locales, number and/or pace required for optimum national economic development. Fiscal incentive systems shall be devised to compensate for market imperfections, reward performance of making contributions to economic development, cost-efficient and be simple to administer.

The fiscal incentives shall be extended to stimulate establishment and assist initial operations of the enterprise, and shall terminate after a period of not more than 10 years from registration or start-up of operation unless a special period is otherwise stated.

The foregoing declaration shall apply to all investment incentive schemes and in particular will supersede article 2 of Presidential Decree No. 1789. (emphases supplied)

With the new investment incentive regime, Batas Pambansa Blg. 391 repealed the following laws, viz:

Sec. 20. The following provisions are hereby repealed:

1) Section 53, P.D. 463 (Mineral Resources Development Decree);

2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);

3) Section 6, P.D. 1101 (Radioactive Minerals);

4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and

5) The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30, 39, 49 (d), 62, and 77. Articles 45, 46 and 48 are hereby amended only with respect to domestic and export producers.

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

All other incentive systems which are not in any way affected by the provisions of this Act may be restructured by the President so as to render them cost-efficient and to make them conform with the other policy guidelines in the declaration of policy provided in Section 2 of this Act. (emphasis supplied)

From the language of the afore-quoted provision, the whole of P.D. No. 666, section 1 was expressly and categorically repealed. As a consequence, the provisions of C.A. No. 146, which were impliedly repealed by P.D. No. 666, section 1 were revived.[30] In other words, with the enactment of Batas Pambansa Blg. 391, a shipyard reverted back to its status as a public utility and as such, requires a CPC for its operation.

The crux of the present controversy is the effect of the express repeal of Batas Pambansa Blg. 391 by Executive Order No. 226 issued by former President Corazon C. Aquino under her emergency powers.

We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did not revive Section 1 of P.D. No. 666. But more importantly, it also put a period to the existence of sections 13 (b) and 15 of C.A. No. 146. It bears emphasis that sections 13 (b) and 15 of C.A. No. 146, as originally written, owed their continued existence to Batas Pambansa Blg. 391. Had the latter not repealed P.D. No. 666, the former should have been modified accordingly and shipyards effectively removed from the list of public utilities. Ergo, with the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226, the revival of sections 13 (b) and 15 of C.A. No. 146 had no more leg to stand on. A law that has been expressly repealed ceases to exist and becomes inoperative from the moment the repealing law becomes effective. [31] Hence, there is simply no basis in the conclusion that shipyards remain to be a public utility. A repealed statute cannot be the basis for classifying shipyards as public utilities.

In view of the foregoing, there can be no other conclusion than to hold that a shipyard is not a pubic utility. A shipyard has been considered a public utility merely by legislative declaration. Absent this declaration, there is no more reason why it should continuously be regarded as such. The fact that the legislature did not clearly and unambiguously express its intention to include shipyards in the list of public utilities indicates that that it did not intend to do so. Thus, a shipyard reverts back to its status as non-public utility prior to the enactment of the Public Service Law.

This interpretation is in accord with the uniform interpretation placed upon it by the Board of Investments (BOI), which was entrusted by the legislature with the preparation of annual Investment Priorities Plan (IPPs). The BOI has consistently classified shipyards as part of the manufacturing sector and not of the public utilities sector. The enactment of Batas Pambansa Blg. 391 did not alter the treatment of the BOI on shipyards. It has been, as at present, classified as part of the manufacturing and not of the public utilities sector.[32]

Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered with the MARINA,[33] none appears to have an existing franchise. If we continue to hold that a shipyard is

a pubic utility, it is a necessary consequence that all these entities should have obtained a franchise as was the rule prior to the enactment of P.D. No. 666. But MARINA remains without authority, pursuant to P.D. No. 474[34] to issue franchises for the operation of shipyards. Surely,

the legislature did not intend to create a vacuum by continuously treating a shipyard as a public utility without giving MARINA the power to issue a Certificate of Public Convenience (CPC) or a Certificate of Public Convenience and Necessity (CPCN) as required by section 15 of C.A. No. 146.

II.

Whether under the 1977 Joint Venture Agreement,

KAWASAKI can purchase only a maximum of 40%

of PHILSECOs total capitalization.

A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing that prevents KAWASAKI from acquiring more than 40% of PHILSECOs total capitalization. Section 1 of the 1977 JVA states:

1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall thereafter increase their subscription in Philseco as may be necessary and as called by the Board of Directors, maintaining a proportion of 60%-40% for NIDC and KAWASAKI respectively, up to a total subscribed and paid-up capital stock of P312 million.

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [renamed PHILSECO] to any third party without giving the other under the same terms the right of first refusal. This provision shall not apply if the transferee is a corporation owned and controlled by the GOVERMENT [of the Philippines] or by a Kawasaki affiliate.

1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights to unissued shares of SNS [PHILSECO].[35]

Under section 1.3, the parties agreed to the amount of P330 million as the total capitalization of their joint venture. There was no mention of the amount of their initial subscription. What is clear is that they are to infuse the needed capital from time to time until the total subscribed and paid-up capital reaches P312 million. The phrase maintaining a proportion of 60%-40% refers to their respective share of the burden each time the Board of Directors decides to increase the subscription to reach the target paid-up capital of P312 million. It does not bind the parties to maintain the sharing scheme all throughout the existence of their partnership.

The parties likewise agreed to arm themselves with protective mechanisms to preserve their respective interests in the partnership in the event that (a) one party decides to sell its shares to third parties; and (b) new Philseco shares are issued. Anent the first situation, the non-selling party is given the right of first refusal under section 1.4 to have a preferential right to buy or to refuse the selling partys shares. The right of first refusal is meant to protect the original or remaining joint venturer(s) or shareholder(s) from the entry of third persons who are not acceptable to it as co-venturer(s) or co-shareholder(s). The joint venture between the Philippine Government and KAWASAKI is in the nature of a partnership [36] which, unlike an

ordinary corporation, is based on delectus personae.[37] No one can become a member of the partnership association without the consent of all the other associates. The right of first refusal thus ensures that the parties are given control over who may become a new partner in substitution of or in addition to the original partners. Should the selling partner decide to dispose all its shares, the non-selling partner may acquire all these shares and terminate the partnership. No person or corporation can be compelled to remain or to continue the partnership. Of course, this presupposes that there are no other restrictions in the maximum allowable share that the non-selling partner may acquire such as the constitutional restriction on foreign ownership in public utility. The theory that KAWASAKI can acquire, as a maximum, only 40% of PHILSECOs shares is correct only if a shipyard is a public utility. In such instance, the non-selling partner who is an alien can acquire only a maximum of 40% of the total capitalization of a public utility despite the grant of first refusal. The partners cannot, by mere agreement, avoid the constitutional proscription. But as afore-discussed, PHILSECO is not a public utility and no other restriction is present that would limit the right of KAWASAKI to purchase the Governments share to 40% of Philsecos total capitalization.

Furthermore, the phrase under the same terms in section 1.4 cannot be given an interpretation that would limit the right of KAWASAKI to purchase PHILSECO shares only to the extent of its original proportionate contribution of 40% to the total capitalization of the PHILSECO. Taken together with the whole of section 1.4, the phrase under the same terms means that a partner to the joint venture that decides to sell its shares to a third party shall make a similar offer to the non-selling partner. The selling partner cannot make a different or a more onerous offer to the non-selling partner.

The exercise of first refusal presupposes that the non-selling partner is aware of the terms of the conditions attendant to the sale for it to have a guided choice. While the right of first refusal protects the non-selling partner from the entry of third persons, it cannot also deprive the other partner the right to sell its shares to third persons if, under the same offer, it does not buy the shares.

Apart from the right of first refusal, the parties also have preemptive rights under section 1.5 in the unissued shares of Philseco. Unlike the former, this situation does not contemplate transfer of a partners shares to third parties but the issuance of new Philseco shares. The grant of preemptive rights preserves the proportionate shares of the original partners so as not to dilute their respective interests with the issuance of the new shares. Unlike the right of first refusal, a preemptive right gives a partner a preferential right over the newly issued shares only to the extent that it retains its original proportionate share in the joint venture.

The case at bar does not concern the issuance of new shares but the transfer of a partners share in the joint venture. Verily, the operative protective mechanism is the right of first refusal which does not impose any limitation in the maximum shares that the non-selling partner may acquire.

III.

Whether the right to top granted to KAWASAKI

in exchange for its right of first refusal violates

the principles of competitive bidding.

We also hold that the right to top granted to KAWASAKI and exercised by private respondent did not violate the rules of competitive bidding.

The word bidding in its comprehensive sense means making an offer or an invitation to prospective contractors whereby the government manifests its intention to make proposals for the purpose of supplies, materials and equipment for official business or public use, or for public works or repair.[38] The three principles of public bidding are: (1) the offer to the public; (2) an opportunity for competition; and (3) a basis for comparison of bids. [39] As long as these three principles are complied with, the public bidding can be considered valid and legal. It is not necessary that the highest bid be automatically accepted. The bidding rules may specify other conditions or the bidding process be subjected to certain reservation or qualification such as when the owner reserves to himself openly at the time of the sale the right to bid upon the property, or openly announces a price below which the property will not be sold. Hence, where the seller reserves the right to refuse to accept any bid made, a binding sale is not consummated between the seller and the bidder until the seller accepts the bid. Furthermore, where a right is reserved in the seller to reject any and all bids received, the owner may exercise the right even after the auctioneer has accepted a bid, and this applies to the auction of public as well as private property. [40] Thus:

It is a settled rule that where the invitation to bid contains a reservation for the Government to reject any or all bids, the lowest or the highest bidder, as the case may be, is not entitled to an award as a matter of right for it does not become a ministerial duty of the Government to make such an award. Thus, it has been held that where the right to reject is so reserved, the lowest bid or any bid for that matter may be rejected on a mere technicality, that all bids may be rejected, even if arbitrarily and unwisely, or under a mistake, and that in the exercise of a sound discretion, the award may be made to another than the lowest bidder. And so, where the Government as advertiser, availing itself of that right, makes its choice in rejecting any or all bids, the losing bidder has no cause to complain nor right to dispute that choice, unless an unfairness or injustice is shown. Accordingly, he has no ground of action to compel the Government to award the contract in his favor, nor compel it to accept his bid.[41]

In the instant case, the sale of the Government shares in PHILSECO was publicly known. All interested bidders were welcomed. The basis for comparing the bids were laid down. All bids were accepted sealed and were opened and read in the presence of the COAs official representative and before all interested bidders. The only question that remains is whether or not the existence of KAWASAKIs right to top destroys the essence of competitive bidding so as to say that the bidders did not have an opportunity for competition. We hold that it does not.

The essence of competition in public bidding is that the bidders are placed on equal footing. This means that all qualified bidders have an equal chance of winning the auction through their bids. In the case at bar, all of the bidders were exposed to the same risk and were subjected to the same condition, i.e., the existence of KAWASAKIs right to top. Under the ASBR, the Government expressly reserved the right to reject any or all bids, and manifested its intention not to accept the highest bid should KAWASAKI decide to exercise its right to top under the ABSR. This reservation or qualification was made known to the bidders in a pre-

bidding conference held on September 28, 1993. They all expressly accepted this condition in writing without any qualification. Furthermore, when the Committee on Privatization notified petitioner of the approval of the sale of the National Government shares of stock in PHILSECO, it specifically stated that such approval was subject to the right of KAWASAKI Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as specified in the bidding rules. Clearly, the approval of the sale was a conditional one. Since Philyards eventually exercised its right to top petitioners bid by 5%, the sale was not consummated. Parenthetically, it cannot be argued that the existence of the right to top set for naught the entire public bidding. Had Philyards Holdings, Inc. failed or refused to exercise its right to top, the sale between the petitioner and the National Government would have been consummated. In like manner, the existence of the right to top cannot be likened to a second bidding, which is countenanced, except when there is failure to bid as when there is only one bidder or none at all. A prohibited second bidding presupposes that based on the terms and conditions of the sale, there is already a highest bidder with the right to demand that the seller accept its bid. In the instant case, the highest bidder was well aware that the acceptance of its bid was conditioned upon the non-exercise of the right to top.

To be sure, respondents did not circumvent the requirements for bidding by granting KAWASAKI, a non-bidder, the right to top the highest bidder. The fact that KAWASAKIs nominee to exercise the right to top has among its stockholders some losing bidders cannot also be deemed unfair.

It must be emphasized that none of the parties questions the existence of KAWASAKIs right of first refusal, which is concededly the basis for the grant of the right to top. Under KAWASAKIs right of first refusal, the National Government is under the obligation to give preferential right to KAWASAKI in the event it decides to sell its shares in PHILSECO. It has to offer to KAWASAKI the shares and give it the option to buy or refuse under the same terms for which it is willing to sell the said shares to third parties. KAWASAKI is not a mere non-bidder. It is a partner in the joint venture; the incidents of which are governed by the law on contracts and on partnership.

It is true that properties of the National Government, as a rule, may be sold only after a public bidding is held. Public bidding is the accepted method in arriving at a fair and reasonable price and ensures that overpricing, favoritism and other anomalous practices are eliminated or minimized.[42] But the requirement for public bidding does not negate the exercise of the right of first refusal. In fact, public bidding is an essential first step in the exercise of the right of first refusal because it is only after the public bidding that the terms upon which the Government may be said to be willing to sell its shares to third parties may be known. It is only after the public bidding that the Government will have a basis with which to offer KAWASAKI the option to buy or forego the shares.

Assuming that the parties did not swap KAWASAKIs right of first refusal with the right to top, KAWASAKI would have been able to buy the National Governments shares in PHILSECOunder the same terms as offered by the highest bidder. Stated otherwise, by exercising its right of first refusal, KAWASAKI could have bought the shares for only P2.03 billion and not the higher amount of P2.1315 billion. There is, thus, no basis in the submission that the right to top unfairly favored KAWASAKI. In fact, with the right to top, KAWASAKI stands to pay

higher than it should had it settled with its right of first refusal. The obvious beneficiary of the scheme is the National Government.

If at all, the obvious consideration for the exchange of the right of first refusal with the right to top is that KAWASAKI can name a nominee, which it is a shareholder, to exercise the right to top. This is a valid contractual stipulation; the right to top is an assignable right and both parties are aware of the full legal consequences of its exercise. As aforesaid, all bidders were aware of the existence of the right to top, and its possible effects on the result of the public bidding was fully disclosed to them. The petitioner, thus, cannot feign ignorance nor can it be allowed to repudiate its acts and question the proceedings it had fully adhered to.[43]

The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life Assurance, Mitsui and ICTSI), has joined Philyards in the latters effort to raise P2.131 billion necessary in exercising the right to top is not contrary to law, public policy or public morals. There is nothing in the ASBR that bars the losing bidders from joining either the winning bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase price. The petitioner did not allege, nor was it shown by competent evidence, that the participation of the losing bidders in the public bidding was done with fraudulent intent. Absent any proof of fraud, the formation by Philyards of a consortium is legitimate in a free enterprise system. The appellate court is thus correct in holding the petitioner estopped from questioning the validity of the transfer of the National Governments shares in PHILSECO to respondent.

Finally, no factual basis exists to support the view that the drafting of the ASBR was illegal because no prior approval was given by the COA for it, specifically the provision on the right to top the highest bidder and that the public auction on December 2, 1993 was not witnessed by a COA representative. No evidence was proffered to prove these allegations and the Court cannot make legal conclusions out of mere allegations. Regularity in the performance of official duties is presumed[44] and in the absence of competent evidence to rebut this presumption, this Court is duty bound to uphold this presumption.

IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby GRANTED. The impugned Decision and Resolution of the Court of Appeals are AFFIRMED.

SO ORDERED.

G.R. No. L-22545 November 28, 1969

BALDOMERO S. LUQUE AND OTHER PASSENGERS FROM THE PROVINCE OF CAVITE AND BATANGAS; AND PUBLIC SERVICE OPERATORS FILOMENA ABALOS, AND OTHERS, petitioners, vs.HON. ANTONIO J. VILLEGAS, MAYOR OF MANILA; MUNICIPAL BOARD OF MANILA; MANILA POLICE DEPARTMENT; HON. ENRIQUE MEDINA, PSC COMMISSIONER; PUBLIC SERVICE COMMISSION; SAULOG TRANSIT, INC.; AND BATANGAS TRANSPORTATION CO., INC., respondents.

Samuel Bautista, Arturo J. Clemente, Emigdio Arcilla, Delfin Villanueva and Baldomero S. Luque for petitioners.Generoso O. Almario and Paulino S. Gueco for respondents Enrique Medina and The Public Service Commission.Graciano C. Regala and Associates for respondents Saulog Transit, Inc. and Batangas Transportation Co., Inc.Gregorio A. Ejercito and Felix C. Chavez for respondents Antonio J. Villegas, et al.

SANCHEZ, J.:

Challenged as unconstitutional, illegal and unjust in these original proceedings for certiorari and mandamus are two substantially identical bus ban measures: (1) Ordinance No. 4986 of the City of Manila approved on July 13, 1964, entitled "An Ordinance Rerouting Traffic on Roads and Streets in the City of Manila, and for Other Purposes," and (2) Administrative Order No. 1, series of 1964, dated February 7, 1964, and Administrative Order No. 3, series of 1964, dated April 21, 1964, both issued by Commissioner Enrique Medina (hereinafter referred to as the Commissioner) of the Public Service Commission.

Original petitioners are passengers from the provinces of Cavite and Batangas who ride on buses plying along the routes between the said provinces and Manila. Other petitioners are public service operators operating PUB and PUJ public service vehicles from the provinces with terminals in Manila, while the rest are those allegedly operating PUB, PUJ or AC motor vehicles operating within Manila and suburbs.

Ordinance 4986, amongst others, provides that:

RULE II. ENTRY POINTS AND ROUTES OF PROVINCIAL PASSENGER BUSES AND JEEPNEYS

1. Provincial passenger buses and jeepneys (PUB and PUJ) shall be allowed to enter Manila, but only through the following entry points and routes, from 6:30 A.M. to 8:30 P.M. every day except Sundays and holidays:

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(m) Those coming from the south through F. B. Harrison shall proceed to Mabini; turn right to Harrison Boulevard; turn right to Taft Avenue and proceed towards Pasay City;

(n) Those coming from the south through Taft Avenue shall turn left at Vito Cruz; turn right to Dakota; turn right to Harrison Boulevard; turn right to Taft Avenue; thence proceed towards Pasay City;

Loading and unloading shall be allowed only at Harrison Boulevard, between A. Mabini and Taft Avenue;

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RULE III. FLEXIBLE SHUTTLE BUS SERVICE

1. In order that provincial commuters shall not be unduly inconvenienced as a result of the implementation of these essential traffic control regulations, operators of provincial passenger buses shall be allowed to provide buses to shuttle their passengers from their respective entry control points, under the following conditions:

(a) Each provincial bus company or firm shall be allowed such number of shuttle buses proportionate to the number of units authorized it, the ratio to be determined by the Chief, Traffic Control Bureau, based on his observations as to the actual needs of commuters and traffic volume; in no case shall the allocation be more than one shuttle bus for every 10 authorized units, or fraction thereof.

(b) No shuttle bus shall enter Manila unless the same shall have been provided with identification stickers as required under Rule IV hereof, which shall be furnished and allocated by the Chief, Traffic Control Bureau to each provincial bus company or firm.

(c) All such shuttle buses are not permitted to load or unload or to pick and/or drop passengers along the way but must do so only in the following places:

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(3) South

(a) Harrison Boulevard, between Dakota and Taft Avenue.

Administrative Order No. 1, series of 1964, issued by the Commissioner, in part, provides:

2. All public utilities including jeepneys heretofore authorized to operate from the City of Manila to any point in Luzon, beyond the perimeter of Greater Manila, shall carry the words "For Provincial Operation" in bold and clear types on both sides or on one side and at the back of the vehicle and must not be less than 12 inches in dimension. All such vehicles marked "For Provincial Operation" are authorized to operate outside the perimeter of Greater Manila in accordance with their respective certificates of public convenience, and are not authorized to enter or to operate beyond the boundary line fixed in our order of March 12, 1963 and July 22, 1963, with the exception of those vehicles authorized to carry their provincial passengers thru the boundary line up to their Manila terminal which shall be identified by a sticker signed and furnished by the PSC and by the Mayors of the affected Cities and municipalities, and which shall be carried on a prominent place of the vehicle about the upper middle part of the windshield.

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All such public utility vehicles authorized by this Order to enter the City of Manila and to carry their passengers thru the boundary line, are not permitted to load or unload or to pick and/or drop passengers along the way, but must do so only in the following places:

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c. Vehicles coming from the SOUTH may load or unload at the San Andres-Taft Rotonda; at Plaza Lawton or at the Corner of Harrison and Mabini Streets near the Manila Zoo.

On April 21, 1964, the Commissioner issued Administrative Order No. 3 which resolved motions for reconsideration (of the first administrative order — Administrative Order No. 1, series of 1964) filed by several affected operators. This order (No. 3), amongst others, states that only 10% of the provincial buses and jeepneys shall be allowed to enter Manila; however, provincial buses and jeepneys "operating within a radius of 50 kms. from Manila City Hall and whose business is more on the Manila end than on the provincial end are given fifteen per cent to prevent a dislocation of their business; provided that operators having less than five units are not permitted to cross the boundary and shall operate exclusively on the provincial end." This order also allocated the number of units each provincial bus operator is allowed to operate within the City of Manila.

1. On the main, nothing new there is in the present petition. For, the validity of Ordinance 4986 and the Commissioner's Administrative Order No. 1, series of 1964, here challenged, has separately passed judicial tests in two cases brought before this Court.

In Lagman vs. City of Manila (June 30, 1966), 17 SCRA 579, petitioner Lagman was an operator of PU auto trucks with fixed routes and regular terminals for the transportation of passengers and freight on the Bocaue (Bulacan) — Parañaque (Rizal) line via Rizal Avenue, Plaza Goiti, Sta. Cruz Bridge, Plaza Lawton, P. Burgos, Taft Avenue, and Taft Avenue Extension, Manila. He sought to prohibit the City of Manila, its officers and agents, from enforcing Ordinance 4986. His ground was that said ordinance was unconstitutional, illegal, ultra vires and null and void. He alleged, amongst others, that (1) "the power conferred upon respondent City of Manila, under said Section 18 (hh) of Republic Act No. 409, as amended, does not include the right to enact an ordinance such as the one in question, which has the effect of amending or modifying a certificate of public convenience granted by the Public Service Commission, because any amendment or modification of said certificate is solely vested by law in the latter governmental agency, and only after notice and hearing (Sec. 16 [m], Public Service Act); but since this procedure was not adopted or followed by respondents in enacting the disputed ordinance, the same is likewise illegal and null and void"; (2) "the enforcement of said ordinance is arbitrary, oppressive and unreasonable because the city streets from which he had been prevented to operate his buses are the cream of his business"; and (3) "even assuming that Ordinance No. 4986 is valid, it is only the Public Service Commission which can require compliance with its provisions (Sec. 17[j], Public Service Act), but since its implementation is without the sanction

or approval of the Commission, its enforcement is also unauthorized and illegal." This Court, in a decision impressive because of its unanimity, upheld the ordinance. Speaking through Mr. Justice J.B.L. Reyes, we ruled:

First, as correctly maintained by respondents, Republic Act No. 409, as amended, otherwise known as the Revised Charter of the City of Manila, is a special law and of later enactment than Commonwealth Act No. 548 and the Public Service Law (Commonwealth Act No. 146, as amended), so that even if conflict exists between the provisions of the former act and the latter acts, Republic Act No. 409 should prevail over both Commonwealth Acts Nos. 548 and 146. In Cassion vs. Banco Nacional Filipino, 89 Phil. 560, 561, this Court said:

". . . for with or without an express enactment it is a familiar rule of statutory construction that to the extent of any necessary repugnancy between a general and a special law or provision, the latter will control the former without regard to the respective dates of passage."

It is to be noted that Commonwealth Act No. 548 does not confer an exclusive power or authority upon the Director of Public Works, subject to the approval of the Secretary of Public Works and Communications, to promulgate rules and regulations relating to the use of and traffic on national roads or streets. This being the case, section 18 (hh) of the Manila Charter is deemed enacted as an exception to the provisions of Commonwealth Act No. 548.

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Second, the same situation holds true with respect to the provision of the Public Service Act. Although the Public Service Commission is empowered, under its Section 16(m), to amend, modify or revoke certificates of public convenience after notice and hearing, yet there is no provision, specific or otherwise, which can be found in this statute (Commonwealth Act No. 146) vesting power in the Public Service Commission to superintend, regulate, or control the streets of respondent City or suspend its power to license or prohibit the occupancy thereof. On the other hand, this right or authority, as hereinabove concluded is conferred upon respondent City of Manila. The power vested in the Public Service Commission under Section 16(m) is, therefore, subordinate to the authority granted to respondent City, under said section 18 (hh). . . .

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That the powers conferred by law upon the Public Service Commission were not designed to deny or supersede the regulatory power of local governments over motor traffic, in the streets subject to their control is made evident by section 17 (j) of the Public Service Act (Commonwealth Act No. 146) that provides as follows:

"SEC. 17. Proceedings of Commission without previous hearing. — The Commission shall have power, without previous hearing, subject to established limitations and exceptions, and saving provisions to the contrary:

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(j) To require any public service to comply with the laws of the Philippines, and with any provincial resolution or municipal ordinance relating thereto, and to conform to the duties imposed upon it thereby, or by the provisions of its own charter, whether obtained under any general or special law of the Philippines." (Emphasis supplied)

The petitioner's contention that, under this section, the respective ordinances of the City can only be enforced by the Commission alone is obviously unsound. Subsection (j) refers not only to ordinances but also to "the laws of the Philippines," and it is plainly absurd to assume that even laws relating to public services are to remain a dead letter without the placet of the Commission; and the section makes no distinction whatever between enforcement of laws and that of municipal ordinances.

The very fact, furthermore, that the Commission is empowered, but not required, to demand compliance with apposite laws and ordinances proves that the Commission's powers are merely supplementary to those of state organs, such as the police, upon which the enforcement of laws primarily rests.

Third, the implementation of the ordinance in question cannot be validly assailed as arbitrary, oppressive and unreasonable. Aside from the fact that there is no evidence to substantiate this charge it is not disputed that petitioner has not been totally banned or prohibited from operating all his buses, he having been allowed to operate two (2) "shuttle" buses within the city limits.1

The second case for certiorari and prohibition, filed by same petitioner in the first case just mentioned, is entitled "Lagman vs. Medina" (December 24, 1968), 26 SCRA 442. Put at issue there is the validity of the Commissioner's Administrative Order No. 1, series of 1964, also disputed herein. It was there alleged, inter alia, that "the provisions of the bus ban had not been incorporated into his certificate of public convenience"; "to be applicable to a grantee of such certificate subsequently to the issuance of the order establishing the ban, there should be a decision, not merely by the Commissioner, but, also, by the PSC, rendered after due notice and hearing, based upon material changes in the facts and circumstances under which the certificate had been granted"; and "the ban is unfair, unreasonable and oppressive." We dismissed this petition and upheld the validity of the questioned order of the Commissioner. On the aforequoted issues, Chief Justice Roberto Concepcion, speaking for an equally unanimous Court, said —

Petitioner's claim is devoid of merit, inasmuch as:

1. The terms and conditions of the bus ban established by the Commissioner are substantially identical to those contained in Ordinance No. 4986 of the City of Manila 'rerouting traffic on roads and streets' therein, approved on July 30, 1964. In G.R. No. L-23305, entitled "Lagman vs. City of Manila, petitioner herein assailed the validity of said ordinance," upon the ground, among others, that it tended to amend or modify certificates of public conveniences issued by the PSC; that the power therein exercised by the City of Manila belongs to the PSC; and that the ordinance is arbitrary, oppressive and unreasonable. In a decision promulgated on June 30, 1966, this Court rejected this pretense and dismissed Lagman's petition in said case.

2. Petitioner's certificate of public convenience, like all other similar certificates, was issued subject to the condition that operators shall observe and comply [with] . . . all the rules and regulations of the Commission relative to PUB service," and the contested orders — issued pursuant to Sections 13 (a), 16 (g) and 17 (a) of Commonwealth Act 146, as amended — partake of the nature of such rules and regulations.

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4. The purpose of the ban — to minimize the "traffic problem in the City of Manila" and the "traffic congestion, delays and even accidents" resulting from the free entry into the streets of said City and the operation "around said streets, loading and unloading or picking up passengers and cargoes" of PU buses in great "number and size" — and the letter and spirit of the contested orders are inconsistent with the exclusion of Lagman or of those granted certificates of public convenience subsequently to the issuance of said orders from the operation thereof.

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9. The theory to the effect that, to be valid, the aforementioned orders must be issued by the PSC, not merely by its Commissioner, and only after due notice and hearing, is predicated upon the premise that the bus ban operates as an amendment of petitioner's certificate of public convenience, which is false, and was not sustained by this Court in its decision in G.R. No. L-23305, which is binding upon Lagman, he being the petitioner in said case.2

The issues raised by Lagman in the two cases just mentioned were likewise relied upon by the petitioners in the case now before us. But for the fact that the present petitioners raised other issues, we could have perhaps written finis to the present case. The obvious reason is that we find no cause or reason why we should break away from our ruling in said cases. Petitioners herein, however, draw our attention to points which are not specifically ruled upon in the Lagman cases heretofore mentioned.

2. Petitioners' other gripe against Ordinance 4986 is that it destroys vested rights of petitioning public services to operate inside Manila and to proceed to their respective terminals located in

the City. They would want likewise to nullify said ordinance upon the averment that it impairs the vested rights of petitioning bus passengers to be transported directly to downtown Manila.

It has been said that a vested right is one which is "fixed, unalterable, or irrevocable."3 Another definition would give vested right the connotation that it is "absolute, complete, and unconditional, to the exercise of which no obstacle exists . . . ."4 Petitioners' citation from 16 C.J.S., pp. 642-643,5 correctly expresses the view that when the "right to enjoyment, present or prospective, has become the property of some particular person or persons as a present interest," that right is a vested right. Along the same lines is our jurisprudential concept. Thus, inBenguet Consolidated Mining Co. vs. Pineda,6 we put forth the thought that a vested right is "some right or interest in the property which has become fixed and established, and is no longer open to doubt or controversy"; it is an "immediate fixed right of present and future enjoyment"; it is to be contra-distinguished from a right that is "expectant or contingent." The Benguet case also quoted from 16 C.J.S., Sec. 215, pp. 642-643, as follows: "Rights are vested when the right to enjoyment, present or prospective, has become the property of some particular person or persons as a present interest. The right must be absolute, complete, and unconditional, independent of a contingency, and a mere expectancy of future benefit, or a contingent interest in property founded on anticipated continuance of existing laws, does not constitute a vested right. So, inchoate rights which have not been acted on are not vested."7

Of course, whether a right is vested or not, much depends upon the environmental facts.8

Contending that they possess valid and subsisting certificates of public convenience, the petitioning public services aver that they acquired a vested right to operate their public utility vehicles to and from Manila as appearing in their said respective certificates of public convenience.

Petitioner's argument pales on the face of the fact that the very nature of a certificate of public convenience is at cross purposes with the concept of vested rights. To this day, the accepted view, at least insofar as the State is concerned, is that "a certificate of public convenience constitutes neither a franchise nor a contract, confers no property right, and is a mere license or privilege."9 The holder of such certificate does not acquire a property right in the route covered thereby. Nor does it confer upon the holder any proprietary right or interest of franchise in the public highways.10 Revocation of this certificate deprives him of no vested right.11 Little reflection is necessary to show that the certificate of public convenience is granted with so many strings attached. New and additional burdens, alteration of the certificate, and even revocation or annulment thereof is reserved to the State.

We need but add that the Public Service Commission, a government agency vested by law with "jurisdiction, supervision, and control over all public services and their franchises, equipment, and other properties"12 is empowered, upon proper notice and hearing, amongst others: (1) "[t]o amend, modify or revoke at any time a certificate issued under the provisions of this Act [Commonwealth Act 146, as amended], whenever the facts and circumstances on the strength of which said certificate was issued have been misrepresented or materially changed";13 and (2)

"[t]o suspend or revoke any certificate issued under the provisions of this Act whenever the holder thereof has violated or wilfully and contumaciously refused to comply with any order, rule or regulation of the Commission or any provision of this Act: Provided, That the Commission, for good cause, may prior to the hearing suspend for a period not to exceed thirty days any certificate or the exercise of any right or authority issued or granted under this Act by order of the Commission, whenever such step shall in the judgment of the Commission be necessary to avoid serious and irreparable damage or inconvenience to the public or to private interests."14 Jurisprudence echoes the rule that the Commission is authorized to make reasonable rules and regulations for the operation of public services and to enforce them.15 In reality, all certificates of public convenience issued are subject to the condition that all public services "shall observe and comply [with] ... all the rules and regulations of the Commission relative to" the service.16 To further emphasize the control imposed on public services, before any public service can "adopt, maintain, or apply practices or measures, rules, or regulations to which the public shall be subject in its relation with the public service," the Commission's approval must first be had.17

And more. Public services must also reckon with provincial resolutions and municipal ordinances relating to the operation of public utilities within the province or municipality concerned. The Commission can require compliance with these provincial resolutions or municipal ordinances.18

Illustrative of the lack of "absolute, complete, and unconditional" right on the part of public services to operate because of the delimitations and restrictions which circumscribe the privilege afforded a certificate of public convenience is the following from the early (March 31, 1915) decision of this Court in Fisher vs. Yangco Steamship Company, 31 Phil. 1, 18-19:

Common carriers exercise a sort of public office, and have duties to perform in which the public is interested. Their business is, therefore, affected with a public interest, and is subject of public regulation. (New Jersey Steam Nav. Co. vs. Merchants Banks, 6 How. 344, 382; Munn vs. Illinois, 94 U.S. 113, 130.) Indeed, this right of regulation is so far beyond question that it is well settled that the power of the state to exercise legislative control over railroad companies and other carriers 'in all respects necessary to protect the public against danger, injustice and oppression' may be exercised through boards of commissioners. (New York, etc. R. Co. vs. Bristol, 151 U.S. 556, 571; Connecticut, etc. R. Co. vs. Woodruff, 153 U.S. 689.).

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. . . . The right to enter the public employment as a common carrier and to offer one's services to the public for hire does not carry with it the right to conduct that business as one pleases, without regard to the interests of the public and free from such reasonable and just regulations as may be prescribed for the protection of the public from the reckless or careless indifference of the carrier as to the public welfare and for the

prevention of unjust and unreasonable discrimination of any kind whatsoever in the performance of the carrier's duties as a servant of the public.

Business of certain kinds, including the business of a common carrier, holds such a peculiar relation to the public interest that there is superinduced upon it the right of public regulation. (Budd vs. New York, 143 U.S. 517, 533.) When private property is "affected with a public interest it ceases to be juris privati only." Property becomes clothed with a public interest when used in a manner to make it of public consequence and affect the community at large. "When, therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good, to the extent of the interest he has thus created. He may withdraw his grant by discontinuing the use, but so long as he maintains the use he must submit to control." (Munn vs. Illinois, 94 U.S. 113; Georgia R. & Bkg. Co. vs. Smith, 128 U.S. 174; Budd vs. New York, 143 U.S. 517; Louisville, etc. Ry. Co. vs. Kentucky, 161 U.S. 677, 695.).

The foregoing, without more, rejects the vested rights theory espoused by petitioning bus operators.

Very little need be added to show that neither do bus passengers have a vested right to be transported directly into the City of Manila. It would suffice if a statement be here made that the alleged right of bus passengers, to a great extent, is dependent upon the manner public services are allowed to operate within a given area. Because, regulations imposed upon public services directly affect the bus passengers. It is quite obvious that if buses were allowed to load or unload solely at specific or designated places, a passenger cannot legally demand or insist that the operator load or unload him at a place other than those specified or designated.

It is no argument to support the vested rights theory that petitioning passengers have enjoyed the privilege of having been continuously transported even before the outbreak of the war directly without transfer from the provinces to places inside Manila up to the respective bus terminals in said City. Times have changed. Vehicles have increased in number. Traffic congestion has moved from bad to worse, from tolerable to critical. The number of people who use the thoroughfares has multiplied.

3. It is because of all of these that it has become necessary for the police power of the State to step in, not for the benefit of the few, but for the benefit of the many. Reasonable restrictions have to be provided for the use of the thoroughfares.19 The operation of public services may be subjected to restraints and burdens, in order to secure the general comfort.20 No franchise or right can be availed of to defeat the proper exercise of police power21 — the authority "to enact rules and regulations for the promotion of the general welfare." 22 So it is, that by the exercise of the police power, which is a continuing one, a business lawful today may in the future, because of the changed situation, the growth of population or other causes, become a menace to the public health and welfare, and be required to yield to the public good."23 Public welfare, we have said, lies at the bottom of any regulatory measure designed "to relieve congestion of

traffic, which is, to say the least, a menace to public safety."24 As a corollary, measures calculated to promote the safety and convenience of the people using the thoroughfares by the regulation of vehicular traffic, present a proper subject for the exercise of police power.25

Both Ordinance 4986 and the Commissioner's administrative orders fit into the concept of promotion of the general welfare. Expressive of the purpose of Ordinance 4986 is Section 1 thereof, thus — "As a positive measure to relieve the critical traffic congestion in the City of Manila, which has grown to alarming and emergency proportions, and in the best interest of public welfare and convenience, the following traffic rules and regulations are hereby promulgated." Along the same lines, the bus ban instituted by the Commissioner has for its object "to minimize the 'traffic problem in the City of Manila' and the 'traffic congestion, delays and even accidents' resulting from the free entry into the streets of said City and the operation 'around said streets, loading and unloading or picking up passengers and cargoes' of PU buses in great 'number and size.'"26

Police power in both was properly exercised.

4. We find no difficulty in saying that, contrary to the assertion made by petitioners, Ordinance 4986 is not a class legislation.

It is true that inter-urban buses are allowed to enter the City of Manila, while provincial buses are not given the same privilege, although they are allowed shuttle service into the City of Manila. There is no point, however, in placing provincial buses on the same level as the inter-urban buses plying to and from Manila and its suburban towns and cities (Makati, Pasay, Mandaluyong, Caloocan, San Juan, Quezon City and Navotas). Inter-urban buses are used for transporting passengers only. Provincial buses are used for passengers and freight. Provincial buses, because of the freight or baggage which the passengers usually bring along with them, take longer time to load or unload than inter-urban buses. Provincial buses generally travel along national highways and provincial roads, cover long distances, have fixed trip schedules. Provincial buses are greater in size and weight than inter-urban buses. The routes of inter-urban buses are short, covering contiguous municipalities and cities only. Inter-urban buses mainly use city and municipal streets.

These distinctions generally hold true between provincial passenger jeepneys and inter-urban passenger jeepneys.

No unjustified discrimination there is under the law.

The obvious inequality in treatment is but the result flowing from the classification made by the ordinance and does not trench upon the equal protection clause.27 The least that can be said is that persons engaged in the same business "are subjected to different restrictions or are held entitled to different privileges under the same conditions."28

Neither is there merit to the charge that private vehicles are being unjustifiably favored over public vehicles. Private vehicles are not geared for profit, usually have but one destination. Public vehicles are operated primarily for profit and for this reason are continually operated to make the most of time. Public and private vehicles belong to different classes. Differences in class beget differences in privileges. And petitioners have no cause to complain.

The principles just enunciated have long been recognized. In Ichong vs. Hernandez,29 our ruling is that the equal protection of the law clause "does not demand absolute equality amongst residents; it merely requires that all persons shall be treated alike, under like circumstances and conditions both as to privileges conferred and liabilities enforced"; and, that the equal protection clause "is not infringed by legislation which applies only to those persons falling within a specified class, if it applies alike to all persons within such class, and reasonable grounds exist for making a distinction between those who fall within such class and those who do not."30

FOR THE REASONS GIVEN, the petition herein is denied.

Costs against petitioners. So ordered.

G.R. No. 115381 December 23, 1994

KILUSANG MAYO UNO LABOR CENTER, petitioner, vs.HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES, respondents.

KAPUNAN, J.:

Public utilities are privately owned and operated businesses whose service are essential to the general public. They are enterprises which specially cater to the needs of the public and conduce to their comfort and convenience. As such, public utility services are impressed with public interest and concern. The same is true with respect to the business of common carrier which holds such a peculiar relation to the public interest that there is superinduced upon it the right of public regulation when private properties are affected with public interest, hence, they cease to be juris privati only. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect grants to the public an interest in that use, and must submit to the control by the public for the common good, to the extent of the interest he has thus created. 1

An abdication of the licensing and regulatory government agencies of their functions as the instant petition seeks to show, is indeed lamentable. Not only is it an unsound administrative policy but it is inimical to public trust and public interest as well.

The instant petition for certiorari assails the constitutionality and validity of certain memoranda, circulars and/or orders of the Department of Transportation and Communications (DOTC) and the Land Transportation Franchising and Regulatory Board LTFRB) 2 which, among others, (a) authorize provincial bus and jeepney operators to increase or decrease the prescribed transportation fares without application therefor with the LTFRB and without hearing and approval thereof by said agency in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise known as the Public Service Act, and in derogation of LTFRB's duty to fix and determine just and reasonable fares by delegating that function to bus operators, and (b) establish a presumption of public need in favor of applicants for certificates of public convenience (CPC) and place on the oppositor the burden of proving that there is no need for the proposed service, in patent violation not only of Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just and reasonable." It is, likewise, violative of the Rules of Court which places upon each party the burden to prove his own affirmative allegations. 3 The offending provisions contained in the questioned issuances pointed out by petitioner, have resulted in the introduction into our highways and thoroughfares thousands of old and smoke-belching buses, many of which are right-hand driven, and have exposed our consumers to the burden of spiraling costs of public transportation without hearing and due process.

The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz: (a) DOTC Memorandum Order 90-395, dated June 26, 1990 relative to the implementation of a fare range scheme for provincial bus services in the country; (b) DOTC Department Order No.92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services; (c) DOTC Memorandum dated October 8, 1992, laying down rules and procedures to implement Department Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009, providing implementing guidelines on the DOTC Department Order No. 92-587; and (e) LTFRB Order dated March 24, 1994 in Case No. 94-3112.

The relevant antecedents are as follows:

On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge passengers rates within a range of 15% above and 15% below the LTFRB official rate for a period of one (1) year. The text of the memorandum order reads in full:

One of the policy reforms and measures that is in line with the thrusts and the priorities set out in the Medium-Term Philippine Development Plan (MTPDP) 1987 — 1992) is the liberalization of regulations in the transport sector. Along this line, the Government intends to move away gradually from regulatory policies and make progress towards greater reliance on free market forces.

Based on several surveys and observations, bus companies are already charging passenger rates above and below the official fare declared by LTFRB on many

provincial routes. It is in this context that some form of liberalization on public transport fares is to be tested on a pilot basis.

In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme for all provincial bus routes in country (except those operating within Metro Manila). Transport Operators shall be allowed to charge passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one year.

Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the DOTC Planning Service.

The implementation of the said fare range scheme shall start on 6 August 1990.

For compliance. (Emphasis ours.)

Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando submitted the following memorandum to Oscar M. Orbos on July 24, 1990, to wit:

With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the LTFRB received on 19 July 1990, directing the Board "to immediately publicize a fare range scheme for all provincial bus routes in the country (except those operating within Metro Manila)" that will allow operators "to charge passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one year" the undersigned is respectfully adverting the Secretary's attention to the following for his consideration:

1. Section 16(c) of the Public Service Act prescribes the following for the fixing and determination of rates — (a) the rates to be approved should be proposed by public service operators; (b) there should be a publication and notice to concerned or affected parties in the territory affected; (c) a public hearing should be held for the fixing of the rates; hence, implementation of the proposed fare range scheme on August 6 without complying with the requirements of the Public Service Act may not be legally feasible.

2. To allow bus operators in the country to charge fares fifteen (15%) above the present LTFRB fares in the wake of the devastation, death and suffering caused by the July 16 earthquake will not be socially warranted and will be politically unsound; most likely public criticism against the DOTC and the LTFRB will be triggered by the untimely motu propio implementation of the proposal by the mere expedient of publicizing the fare range

scheme without calling a public hearing, which scheme many as early as during the Secretary's predecessor know through newspaper reports and columnists' comments to be Asian Development Bank and World Bank inspired.

3. More than inducing a reduction in bus fares by fifteen percent (15%) the implementation of the proposal will instead trigger an upward adjustment in bus fares by fifteen percent (15%) at a time when hundreds of thousands of people in Central and Northern Luzon, particularly in Central Pangasinan, La Union, Baguio City, Nueva Ecija, and the Cagayan Valley are suffering from the devastation and havoc caused by the recent earthquake.

4. In lieu of the said proposal, the DOTC with its agencies involved in public transportation can consider measures and reforms in the industry that will be socially uplifting, especially for the people in the areas devastated by the recent earthquake.

In view of the foregoing considerations, the undersigned respectfully suggests that the implementation of the proposed fare range scheme this year be further studied and evaluated.

On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc. (PBOAP) filed an application for fare rate increase. An across-the-board increase of eight and a half centavos (P0.085) per kilometer for all types of provincial buses with a minimum-maximum fare range of fifteen (15%) percent over and below the proposed basic per kilometer fare rate, with the said minimum-maximum fare range applying only to ordinary, first class and premium class buses and a fifty-centavo (P0.50) minimum per kilometer fare for aircon buses, was sought.

On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-board increase of six and a half (P0.065) centavos per kilometer for ordinary buses. The decrease was due to the drop in the expected price of diesel.

The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging that the proposed rates were exorbitant and unreasonable and that the application contained no allegation on the rate of return of the proposed increase in rates.

On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in accordance with the following schedule of fares on a straight computation method, viz:

AUTHORIZED FARES

LUZONMIN. OF 5 KMS. SUCCEEDING KM.

REGULAR P1.50 P0.37STUDENT P1.15 P0.28

VISAYAS/MINDANAO

REGULAR P1.60 P0.375STUDENT P1.20 P0.285FIRST CLASS (PER KM.)LUZON P0.385VISAYAS/MINDANAO P0.395PREMIERE CLASS (PER KM.)LUZON P0.395VISAYAS/MINDANAO P0.405

AIRCON (PER KM.) P0.415. 4

On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete Nicomedes Prado issued Department Order No.92-587 defining the policy framework on the regulation of transport services. The full text of the said order is reproduced below in view of the importance of the provisions contained therein:

WHEREAS, Executive Order No. 125 as amended, designates the Department of Transportation and Communications (DOTC) as the primary policy, planning, regulating and implementing agency on transportation;

WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation system, the transportation regulatory agencies under or attached to the DOTC have to harmonize their decisions and adopt a common philosophy and direction;

WHEREAS, the government proposes to build on the successful liberalization measures pursued over the last five years and bring the transport sector nearer to a balanced longer term regulatory framework;

NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following policies and principles in the economic regulation of land, air, and water transportation services are hereby adopted:

1. Entry into and exit out of the industry. Following the Constitutional dictum against monopoly, no franchise holder shall be permitted to maintain a monopoly on any route. A minimum of two franchise holders shall be permitted to operate on any route.

The requirements to grant a certificate to operate, or certificate of public convenience, shall be: proof of Filipino citizenship, financial capability, public need, and sufficient insurance cover to protect the riding public.

In determining public need, the presumption of need for a service shall be deemed in favor of the applicant. The burden of proving that there is no need for a proposed service shall be with the oppositor(s).

In the interest of providing efficient public transport services, the use of the "prior operator" and the "priority of filing" rules shall be discontinued. The route measured capacity test or other similar tests of demand for vehicle/vessel fleet on any route shall be used only as a guide in weighing the merits of each franchise application and not as a limit to the services offered.

Where there are limitations in facilities, such as congested road space in urban areas, or at airports and ports, the use of demand management measures in conformity with market principles may be considered.

The right of an operator to leave the industry is recognized as a business decision, subject only to the filing of appropriate notice and following a phase-out period, to inform the public and to minimize disruption of services.

2. Rate and Fare Setting. Freight rates shall be freed gradually from government controls. Passenger fares shall also be deregulated, except for the lowest class of passenger service (normally third class passenger transport) for which the government will fix indicative or reference fares. Operators of particular services may fix their own fares within a range 15% above and below the indicative or reference rate.

Where there is lack of effective competition for services, or on specific routes, or for the transport of particular commodities, maximum mandatory freight rates or passenger fares shall be set temporarily by the government pending actions to increase the level of competition.

For unserved or single operator routes, the government shall contract such services in the most advantageous terms to the public and the government, following public bids for the services. The advisability of bidding out the services or using other kinds of incentives on such routes shall be studied by the government.

3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the government shall not engage in special financing and incentive programs, including direct subsidies for fleet acquisition and expansion. Only when the market situation warrants government intervention shall programs of this type be considered. Existing programs shall be phased out gradually.

The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the Maritime Industry Authority are hereby directed to submit to the Office of the Secretary, within forty-five (45) days of this Order, the detailed rules and procedures for the Implementation of the policies herein set forth. In the formulation of such rules, the concerned agencies shall be guided by the most recent studies on the subjects, such as the Provincial Road Passenger Transport Study, the Civil Aviation Master Plan, the Presidential Task Force on the Inter-island Shipping Industry, and the Inter-island Liner Shipping Rate Rationalization Study.

For the compliance of all concerned. (Emphasis ours)

On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB suggesting swift action on the adoption of rules and procedures to implement above-quoted Department Order No. 92-587 that laid down deregulation and other liberalization policies for the transport sector. Attached to the said memorandum was a revised draft of the required rules and procedures covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting, with comments and suggestions from the World Bank incorporated therein. Likewise, resplendent from the said memorandum is the statement of the DOTC Secretary that the adoption of the rules and procedures is a pre-requisite to the approval of the Economic Integration Loan from the World Bank. 5

On February 17, 1993, the LTFRB issued Memorandum CircularNo. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92-587. The Circular provides, among others, the following challenged portions:

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IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.

The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall be deemed in favor of the applicant, while burden of proving that there is no need for the proposed service shall be the oppositor'(s).

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V. Rate and Fare Setting

The control in pricing shall be liberalized to introduce price competition complementary with the quality of service, subject to prior notice and public hearing. Fares shall not be provisionally authorized without public hearing.

A. On the General Structure of Rates

1. The existing authorized fare range system of plus or minus 15 per cent for provincial buses and jeepneys shall be widened to 20% and -25% limit in 1994 with the authorized fare to be replaced by an indicative or reference rate as the basis for the expanded fare range.

2. Fare systems for aircon buses are liberalized to cover first class and premier services.

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(Emphasis ours).

Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare without first having filed a petition for the purpose and without the benefit of a public hearing, announced a fare increase of twenty (20%) percent of the existing fares. Said increased fares were to be made effective on March 16, 1994.

On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus fares.

On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit. The dispositive portion reads:

PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby DISMISSES FOR LACK OF MERIT the petition filed in the above-entitled case. This petition in this case was resolved with dispatch at the request of petitioner to enable it to immediately avail of the legal remedies or options it is entitled under existing laws.

SO ORDERED. 6

Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining order.

The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing respondents from implementing the bus fare rate increase as well as the questioned orders and memorandum circulars. This meant that provincial bus fares were rolled back to the levels duly authorized by the LTFRB prior to March 16, 1994. A moratorium was likewise enforced on the issuance of franchises for the operation of buses, jeepneys, and taxicabs.

Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to provincial bus operators to set a fare range of plus or minus fifteen (15%) percent, later increased to plus twenty (20%) and minus twenty-five (-25%) percent, over and above the existing authorized fare without having to file a petition for the purpose, is unconstitutional, invalid and illegal. Second, the establishment of a presumption of public need in favor of an applicant for a proposed transport service without having to prove public necessity, is illegal for being violative of the Public Service Act and the Rules of Court.

In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the petitioner, questions the wisdom and the manner by which the instant petition was filed. It asserts that the petitioner has no legal standing to sue or has no real interest in the case at bench and in obtaining the reliefs prayed for.

In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus B. Garcia, Jr. and the LTFRB asseverate that the petitioner does not have the standing to maintain the instant suit. They further claim that it is within DOTC and LTFRB's authority to set a fare range scheme and establish a presumption of public need in applications for certificates of public convenience.

We find the instant petition impressed with merit.

At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to sue.

The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the Constitution provides:

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Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.

In Lamb v. Phipps, 7 we ruled that judicial power is the power to hear and decide causes pending between parties who have the right to sue in the courts of law and equity. Corollary to this provision is the principle of locus standi of a party litigant. One who is directly affected by and

whose interest is immediate and substantial in the controversy has the standing to sue. The rule therefore requires that a party must show a personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision so as to warrant an invocation of the court's jurisdiction and to justify the exercise of the court's remedial powers in his behalf. 8

In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable injury and damage from the implementation of the questioned memoranda, circulars and/or orders, has shown that it has a clear legal right that was violated and continues to be violated with the enforcement of the challenged memoranda, circulars and/or orders. KMU members, who avail of the use of buses, trains and jeepneys everyday, are directly affected by the burdensome cost of arbitrary increase in passenger fares. They are part of the millions of commuters who comprise the riding public. Certainly, their rights must be protected, not neglected nor ignored.

Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush aside this barren procedural infirmity and recognize the legal standing of the petitioner in view of the transcendental importance of the issues raised. And this act of liberality is not without judicial precedent. As early as theEmergency Powers Cases, this Court had exercised its discretion and waived the requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et al., 9 we ruled in the same lines and enumerated some of the cases where the same policy was adopted, viz:

. . . A party's standing before this Court is a procedural technicality which it may, in the exercise of its discretion, set aside in view of the importance of the issues raised. In the landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Aranetav. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of Customs); and G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside this technicality because "the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as taxpayers' suits are concerned, this Court had declared that it "is not devoid of discretion as to whether or not it should be entertained," (Tan v. Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an open discretion to entertain the same or not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].

xxx xxx xxx

In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even association of planters, andnon-profit civic organizations were allowed to initiate and prosecute actions before this court to question the constitutionality or validity of laws, acts,

decisions, rulings, or orders of various government agencies or instrumentalities. Among such cases were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of vacation and sick leave to Senators and Representatives and to elective officials of both Houses of Congress (Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed members of the cabinet, their undersecretaries, and assistant secretaries to hold other government offices or positions (Civil Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in the General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056 on the holding of desynchronized elections (Osmeña v. Commission on Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the charter of the Philippine Amusement and Gaming Corporation) on the ground that it is contrary to morals, public policy, and order (Basco v. Philippine Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the Philippine National Police. (Carpio v. Executive Secretary, 206 SCRA 290 [1992]).

Other cases where we have followed a liberal policy regarding locus standi include those attacking the validity or legality of (a) an order allowing the importation of rice in the light of the prohibition imposed by R.A. No. 3452 (Iloilo Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and 1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031 insofar as it directed the COMELEC to supervise, control, hold, and conduct the referendum-plebiscite on 16 October 1976 (Sanidad v. Commission on Elections, supra); (c) the bidding for the sale of the 3,179 square meters of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the approval without hearing by the Board of Investments of the amended application of the Bataan Petrochemical Corporation to transfer the site of its plant from Bataan to Batangas and the validity of such transfer and the shift of feedstock from naphtha only to naphtha and/or liquefied petroleum gas (Garcia v. Board of Investments, 177 SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e) the decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal Incentives Review Board exempting the National Power Corporation from indirect tax and duties (Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the hearings conducted on the second provisional increase in oil prices did not allow the petitioner substantial cross-examination; (Maceda v. Energy Regulatory Board, 199 SCRA 454 [1991]); (g) Executive Order No. 478 which levied a special duty of P0.95 per liter of imported oil products (Garcia v. Executive Secretary, 211 SCRA 219 [1992]); (h) resolutions of the Commission on Elections concerning the apportionment, by district, of the number of elective members of

Sanggunians (De Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum orders issued by a Mayor affecting the Chief of Police of Pasay City (Pasay Law and Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).

In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this Court, despite its unequivocal ruling that the petitioners therein had no personality to file the petition, resolved nevertheless to pass upon the issues raised because of the far-reaching implications of the petition. We did no less in De Guia v. COMELEC (Supra) where, although we declared that De Guia "does not appear to have locus standi, a standing in law, a personal or substantial interest," we brushed aside the procedural infirmity "considering the importance of the issue involved, concerning as it does the political exercise of qualified voters affected by the apportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent."

Now on the merits of the case.

On the fare range scheme.

Section 16(c) of the Public Service Act, as amended, reads:

Sec. 16. Proceedings of the Commission, upon notice and hearing. — The Commission shall have power, upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the limitations and exceptions mentioned and saving provisions to the contrary:

xxx xxx xxx

(c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof, as well as commutation, mileage kilometrage, and other special rates which shall be imposed, observed, and followed thereafter by any public service: Provided, That the Commission may, in its discretion, approve rates proposed by public services provisionally and without necessity of any hearing; but it shall call a hearing thereon within thirty days thereafter, upon publication and notice to the concerns operating in the territory affected: Provided, further, That in case the public service equipment of an operator is used principally or secondarily for the promotion of a private business, the net profits of said private business shall be considered in relation with the public service of such operator for the purpose of fixing the rates. (Emphasis ours).

xxx xxx xxx

Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the power of fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is likewise vested with the same under Executive Order No. 202 dated June 19, 1987. Section 5(c) of the said executive order authorizes LTFRB "to determine, prescribe, approve and periodically review and adjust, reasonable fares, rates and other related charges, relative to the operation of public land transportation services provided by motorized vehicles."

Such delegation of legislative power to an administrative agency is permitted in order to adapt to the increasing complexity of modern life. As subjects for governmental regulation multiply, so does the difficulty of administering the laws. Hence, specialization even in legislation has become necessary. Given the task of determining sensitive and delicate matters asroute-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted with the power of subordinate legislation. With this authority, an administrative body and in this case, the LTFRB, may implement broad policies laid down in a statute by "filling in" the details which the Legislature may neither have time or competence to provide. However, nowhere under the aforesaid provisions of law are the regulatory bodies, the PSC and LTFRB alike, authorized to delegate that power to a common carrier, a transport operator, or other public service.

In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range over and above the authorized existing fare, is illegal and invalid as it is tantamount to an undue delegation of legislative authority. Potestas delegata non delegari potest. What has been delegated cannot be delegated. This doctrine is based on the ethical principle that such a delegated power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through the intervening mind of another. 10 A further delegation of such power would indeed constitute a negation of the duty in violation of the trust reposed in the delegate mandated to discharge it directly. 11 The policy of allowing the provincial bus operators to change and increase their fares at will would result not only to a chaotic situation but to an anarchic state of affairs. This would leave the riding public at the mercy of transport operators who may increase fares every hour, every day, every month or every year, whenever it pleases them or whenever they deem it "necessary" to do so. In Panay Autobus Co. v. Philippine Railway Co., 12 where respondent Philippine Railway Co. was granted by the Public Service Commission the authority to change its freight rates at will, this Court categorically declared that:

In our opinion, the Public Service Commission was not authorized by law to delegate to the Philippine Railway Co. the power of altering its freight rates whenever it should find it necessary to do so in order to meet the competition of road trucks and autobuses, or to change its freight rates at will, or to regard its present rates as maximum rates, and to fix lower rates whenever in the opinion of the Philippine Railway Co. it would be to its advantage to do so.

The mere recital of the language of the application of the Philippine Railway Co. is enough to show that it is untenable. The Legislature has delegated to the Public Service Commission the power of fixing the rates of public services, but it has not authorized the Public Service Commission to delegate that power to a common carrier or other public service. The rates of public services like the Philippine Railway Co. have been approved or fixed by the Public Service Commission, and any change in such rates must be authorized or approved by the Public Service Commission after they have been shown to be just and reasonable. The public service may, of course, propose new rates, as the Philippine Railway Co. did in case No. 31827, but it cannot lawfully make said new rates effective without the approval of the Public Service Commission, and the Public Service Commission itself cannot authorize a public service to enforce new rates without the prior approval of said rates by the commission. The commission must approve new rates when they are submitted to it, if the evidence shows them to be just and reasonable, otherwise it must disapprove them. Clearly, the commission cannot determine in advance whether or not the new rates of the Philippine Railway Co. will be just and reasonable, because it does not know what those rates will be.

In the present case the Philippine Railway Co. in effect asked for permission to change its freight rates at will. It may change them every day or every hour, whenever it deems it necessary to do so in order to meet competition or whenever in its opinion it would be to its advantage. Such a procedure would create a most unsatisfactory state of affairs and largely defeat the purposes of the public service law. 13 (Emphasis ours).

One veritable consequence of the deregulation of transport fares is a compounded fare. If transport operators will be authorized to impose and collect an additional amount equivalent to 20% over and above the authorized fare over a period of time, this will unduly prejudice a commuter who will be made to pay a fare that has been computed in a manner similar to those of compounded bank interest rates.

Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same time, they were allowed to impose and collect a fare range of plus or minus 15% over the authorized rate. Thus P0.37 centavo per kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos) is equivalent to P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB grants another five (P0.05) centavo increase per kilometer in 1994, then, the base or reference for computation would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators will exercise their authority to impose an additional 20% over and above the authorized fare, then the fare to be collected shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will be continuously subjected, not only to a double fare adjustment but to a compounding fare as well. On their part, transport operators shall enjoy a bigger chunk of the pie. Aside from fare increase applied

for, they can still collect an additional amount by virtue of the authorized fare range. Mathematically, the situation translates into the following:

Year** LTFRB authorized Fare Range Fare to berate*** collected perkilometer

1990 P0.37 15% (P0.05) P0.421994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.561998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.732002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94

Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government function that requires dexterity of judgment and sound discretion with the settled goal of arriving at a just and reasonable rate acceptable to both the public utility and the public. Several factors, in fact, have to be taken into consideration before a balance could be achieved. A rate should not be confiscatory as would place an operator in a situation where he will continue to operate at a loss. Hence, the rate should enable public utilities to generate revenues sufficient to cover operational costs and provide reasonable return on the investments. On the other hand, a rate which is too high becomes discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable and fair and must be affordable to the end user who will utilize the services.

Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions of commuters, government must not relinquish this important function in favor of those who would benefit and profit from the industry. Neither should the requisite notice and hearing be done away with. The people, represented by reputable oppositors, deserve to be given full opportunity to be heard in their opposition to any fare increase.

The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory arrangement for all parties involved. To do away with such a procedure and allow just one party, an interested party at that, to determine what the rate should be, will undermine the right of the other parties to due process. The purpose of a hearing is precisely to determine what a just and reasonable rate is. 15 Discarding such procedural and constitutional right is certainly inimical to our fundamental law and to public interest.

On the presumption of public need.

A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of land transportation services for public use as required by law. Pursuant to Section 16(a) of the Public Service Act, as amended, the following requirements must be met before a CPC may be granted, to wit: (i) the applicant must be a citizen of the Philippines, or a corporation or co-partnership, association or joint-stock company constituted and organized under the laws of the Philippines, at least 60 per centum of its stock or paid-up capital must

belong entirely to citizens of the Philippines; (ii) the applicant must be financially capable of undertaking the proposed service and meeting the responsibilities incident to its operation; and (iii) the applicant must prove that the operation of the public service proposed and the authorization to do business will promote the public interest in a proper and suitable manner. It is understood that there must be proper notice and hearing before the PSC can exercise its power to issue a CPC.

While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular No. 92-009, Part IV, provides for yet incongruous and contradictory policy guideline on the issuance of a CPC. The guidelines states:

The issuance of a Certificate of Public Convenience is determined by public need. The presumption of public need for a service shall be deemed in favor of the applicant, while the burden of proving that there is no need for the proposed service shall be the oppositor's. (Emphasis ours).

The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public Service Act which requires that before a CPC will be issued, the applicant must prove by proper notice and hearing that the operation of the public service proposed will promote public interest in a proper and suitable manner. On the contrary, the policy guideline states that the presumption of public need for a public service shall be deemed in favor of the applicant. In case of conflict between a statute and an administrative order, the former must prevail.

By its terms, public convenience or necessity generally means something fitting or suited to the public need. 16 As one of the basic requirements for the grant of a CPC, public convenience and necessity exists when the proposed facility or service meets a reasonable want of the public and supply a need which the existing facilities do not adequately supply. The existence ornon-existence of public convenience and necessity is therefore a question of fact that must be established by evidence, real and/or testimonial; empirical data; statistics and such other means necessary, in a public hearing conducted for that purpose. The object and purpose of such procedure, among other things, is to look out for, and protect, the interests of both the public and the existing transport operators.

Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress hearing and investigation, it shall find, as a fact, that the proposed operation is for the convenience of the public. 17 Basic convenience is the primary consideration for which a CPC is issued, and that fact alone must be consistently borne in mind. Also, existing operators in subject routes must be given an opportunity to offer proof and oppose the application. Therefore, an applicant must, at all times, be required to prove his capacity and capability to furnish the service which he has undertaken torender. 18 And all this will be possible only if a public hearing were conducted for that purpose.

Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and institutionalized judicial, quasi-judicial and administrative procedures. It allows the

party who initiates the proceedings to prove, by mere application, his affirmative allegations. Moreover, the offending provisions of the LTFRB memorandum circular in question would in effect amend the Rules of Court by adding another disputable presumption in the enumeration of 37 presumptions under Rule 131, Section 5 of the Rules of Court. Such usurpation of this Court's authority cannot be countenanced as only this Court is mandated by law to promulgate rules concerning pleading, practice and procedure. 19

Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the present circumstances. Advocacy of liberalized franchising and regulatory process is tantamount to an abdication by the government of its inherent right to exercise police power, that is, the right of government to regulate public utilities for protection of the public and the utilities themselves.

While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate the transport sector, we find that they committed grave abuse of discretion in issuing DOTC Department OrderNo. 92-587 defining the policy framework on the regulation of transport services and LTFRB Memorandum Circular No. 92-009 promulgating the implementing guidelines on DOTC Department Order No. 92-587, the said administrative issuances being amendatory and violative of the Public Service Act and the Rules of Court. Consequently, we rule that the twenty (20%) per centum fare increase imposed by respondent PBOAP on March 16, 1994 without the benefit of a petition and a public hearing is null and void and of no force and effect. No grave abuse of discretion however was committed in the issuance of DOTC Memorandum Order No. 90-395 and DOTC Memorandum dated October 8, 1992, the same being merely internal communications between administrative officers.

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

The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it enjoined the bus fare rate increase granted under the provisions of the aforementioned administrative circulars, memoranda and/or orders declared invalid.

No pronouncement as to costs.

SO ORDERED.

ERNESTO B. FRANCISCO, JR.and JOSE MA. O. HIZON,Petitioners,

- versus - TOLL REGULATORY BOARD, PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, MANILA NORTH TOLLWAYS CORPORATION, BENPRES HOLDINGS CORPORATION, FIRST PHILIPPINE INFRASTRUCTURE DEVELOPMENT CORPORATION, TOLLWAY MANAGEMENT CORPORATION, PNCC SKYWAY CORPORATION, CITRA METRO MANILA TOLLWAYS CORPORATION and HOPEWELL CROWN INFRASTRUCTURE, INC.,Respondents.x-------------------------------------------xHON. IMEE R. MARCOS, RONALDO B. ZAMORA, CONSUMERS UNION OF THE PHILIPPINES, INC., QUIRINO A. MARQUINEZ, HON. LUIS A. ASISTIO, HON. ERICO BASILIO A. FABIAN, HON. RENATO KA RENE B. MAGTUBO, HON. RODOLFO G. PLAZA, HON. ANTONIO M. SERAPIO, HON. EMMANUEL JOEL J. VILLANUEVA, HON. ANIBAN NG MGA MANGGAGAWA SA AGRIKULTURA (AMA), INC., ANIBAN NG MGA MAGSASAKA, MANGINGISDA AT MANGGAGAWA SA AGRIKULTURA-KATIPUNAN, INC., KAISAHAN NG MGA MAGSASAKA SA AGRIKULTURA, INC., KILUSAN NG MANGAGAWANG MAKABAYAN,Petitioners,

- versus - The REPUBLIC OF THE PHILIPPINES, acting by and through the TOLL REGULATORY BOARD, MANILA NORTH TOLLWAYS CORPORATION, PHILIPPINE NATIONAL

G.R. No. 166910 Present: CORONA, CJ,CARPIO,CARPIO-MORALES,*

VELASCO, JR.,NACHURA,LEONARDO-DE CASTRO,BRION,PERALTA,BERSAMIN,DEL CASTILLO,ABAD,*

VILLARAMA, JR.,PEREZ,MENDOZA, andSERENO, JJ. G.R. No. 169917

CONSTRUCTION CORPORATION, and FIRST PHILIPPINE INFRASTRUCTURE DEVELOPMENT CORP.,Respondents.x-------------------------------------------xGISING KABATAAN MOVEMENT, INC., BARANGAY COUNCIL OF SAN ANTONIO,MUNICIPALITY OF SANPEDRO, LAGUNA [as Represented by COUNCILOR CARLON G. AMBAYEC], and YOUNG PROFESSIONALS AND ENTREPRENEURS OF SAN PEDRO, LAGUNAPetitioners,

- versus - THE REPUBLIC OF THE PHILIPPINES, acting through the TOLL REGULATORY BOARD (TRB), PHILIPPINE NATIONAL CONSTRUCTION CORPORATION (PNCC),Respondents.x-------------------------------------------xTHE REPUBLIC OF THE PHILIPPINES, represented by the TOLL REGULATORY BOARD,Petitioner,

- versus - YOUNG PROFESSIONALS AND ENTREPRENEURS OF SAN PEDRO, LAGUNA,Respondent.

G.R. No. 173630

G.R. No. 183599 Promulgated: October 19, 2010

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

D E C I S I O N

VELASCO, JR., J.: Before us are four petitions; the first three are special civil actions under Rule 65,

assailing and seeking to nullify certain statutory provisions, presidential actions and implementing orders, toll operation-related contracts and issuances on the construction, maintenance and operation of the major tollway systems in Luzon. The petitions likewise seek to restrain and permanently prohibit the implementation of the allegedly illegal toll fee rate hikes for the use of the North Luzon Expressway (NLEX), South Luzon Expressway (SLEX) and the South Metro Manila Skyway (SMMS). The fourth, a petition for review under Rule 45, seeks to annul and set aside the decision dated June 23, 2008 of the Regional Trial Court (RTC) of Pasig, in SCA No. 3138-PSG, enjoining the original toll operating franchisee from collecting toll fees in the SLEX.

By Resolution of March 20, 2007, the Court ordered the consolidation of the first three

petitions, docketed as G.R. Nos. 166910, 169917 and 173630, respectively. The fourth petition, G.R. No. 183599, would later be ordered consolidated with the earlier three petitions.

THE FACTS

The antecedent facts are as followsOn March 31, 1977, then President Ferdinand E. Marcos issued Presidential Decree No.

(P.D.) 1112, authorizing the establishment of toll facilities on public improvements. [1] This issuance, in its preamble, explicitly acknowledged the huge financial requirements and the necessity of tapping the resources of the private sector to implement the governments infrastructure programs. In order to attract private sector involvement, P.D. 1112 allowed the collection of toll fees for the use of certain public improvements that would allow a reasonable rate of return on investments. The same decree created the Toll Regulatory Board (TRB) and invested it under Section 3 (a) (d) and (e) with the power to enter, for the Republic, into contracts for the construction, maintenance and operation of tollways, grant authority to

operate a toll facility, issue therefor the necessary Toll Operation Certificate (TOC) and fix initial toll rates, and, from time to time, adjust the same after due notice and hearing.

On the same date, P.D. 1113 was issued, granting to the Philippine National

Construction Corporation (PNCC), then known as the Construction and Development Corporation of the Philippines (CDCP), for a period of thirty years from May 1977 or up to May 2007 a franchise to construct, maintain and operate toll facilities in the North Luzon and South Luzon Expressways, with the right to collect toll fees at such rates as the TRB may fix and/or authorize. Particularly, Section 1 of P.D. 1113 delineates the coverage of the expressways from Balintawak, Caloocan City to Carmen, Rosales, Pangasinan and from Nichols, Pasay City to Lucena, Quezon. And because the franchise is not self-executing, as it was in fact made subject, under Section 3 of P.D. 1113, to such conditions as may be imposed by the Board in an appropriate contract to be executed for such purpose, TRB and PNCC signed in October 1977, a Toll Operation Agreement (TOA) on the North Luzon and South Luzon Tollways, providing for the detailed terms and conditions for the construction, maintenance and operation of the expressway.[2]

On December 22, 1983, P.D. 1894 was issued therein further granting PNCC a franchise

over the Metro Manila Expressway (MMEX), and the expanded and delineated NLEX and SLEX. Particularly, PNCC was granted the right, privilege and authority to construct, maintain and operate any and all such extensions, linkages or stretches, together with the toll facilities appurtenant thereto, from any part of the North Luzon Expressway, South Luzon Expressway and/or Metro Manila Expressway and/or to divert the original route and change the original end-points of the North Luzon Expressway and/or South Luzon Expressway as may be approved by the [TRB].[3] Under Section 2 of P.D. 1894, the franchise granted the [MMEX] and all extensions, linkages, stretches and diversions after the approval of the decree that may be constructed after the approval of this decree [on December 22, 1983] shall likewise have a term of thirty (30) years, commencing from the date of completion of the project.

As expressly set out in P.D. 1113 and reiterated in P.D. 1894, PNCC may sell or assign its

franchise thereunder granted or cede the usufruct [4] thereof upon the Presidents approval.[5] This same provision on franchise transfer and cession of usufruct is likewise found in P.D. 1112.[6]

Then came the 1987 Constitution with its franchise provision.[7]

In 1993, the Government Corporate Counsel (GCC), acting on PNCCs request, issued Opinion No. 224, s. 1993,[8] later affirmed by the Secretary of Justice,[9] holding that PNCC may, subject to certain clearance and approval requirements, enter into a joint venture (JV)

agreement (JVA) with private entities without going into public bidding in the selection of its JV partners. PNCCs query was evidently prompted by the need to seek out alternative sources of financing for expanding and improving existing expressways, and to link them to economic zones in the north and to the CALABARZON area in the south. MOU FOR THE CONSTRUCTION, REHABILITATIONAND EXPANSION OF EXPRESSWAYS

On February 8, 1994, the Department of Public Works and Highways (DPWH), TRB,

PNCC, Benpres Holdings Corporation (Benpres) and First Philippine Holdings Corporation (FPHC), among other private and government entities/agencies, executed a Memorandum of Understanding (MOU) envisaged to open the door for the entry of private capital in the rehabilitation, expansion (to Subic and Clark) and extension, as flagship projects, of the expressways north of Manila, over which PNCC has a franchise. To carry out their undertakings under the MOU, Benpres and FPHC formed, as their infrastructure holding arm, the First Philippine Infrastructure and Development Corporation (FPIDC).

Consequent to the MOU execution, PNCC entered into financial and/or technical JVAs

with private entities/investors for the toll operation of its franchised areas following what may be considered as a standard pattern, viz.: (a) after a JVA is concluded and the usual government approval of the assignment by PNCC of the usufruct in the franchise under P.D. 1113, as amended, secured, a new JV company is specifically formed to undertake a defined toll road project; (b) the Republic of the Philippines, through the TRB, as grantor, PNCC, as operator, and the new corporation, as investor/concessionaire, with its lender, as the case may be, then execute a Supplemental Toll Operation Agreement (STOA) to implement the TOA previously issued; and (c) once the requisite STOA approval is given, project prosecution starts and upon the completion of the toll road project or of a divisible phase thereof, the TRB fixes or approves the initial toll rate after which, it passes a board resolution prescribing the periodic toll rate adjustment.

The STOA defines the scope of the road project coverage, the terminal date of the

concession, and includes provisions on initial toll rate and a built-in formula for adjustment of toll rates, investment recovery clauses and contract termination in the event of the concessionaires, PNCCs or TRBs default, as the case may be.

The following events or transactions, involving the personalities as indicated, transpired with respect to the following projects:

THE SOUTH METRO MANILA SKYWAY (SMMS)(BUENDIA BICUTAN ELEVATED STRETCH) PROJECT

PNCC entered into a JV partnership arrangement with P.T. Citra, an Indonesian

company, and created, for the SMMS project, the Citra Metro Manila Tollways Corporation (CMMTC).

On November 27, 1995, TRB, PNCC and CMMTC executed a STOA for the SMMS project

(CITRA STOA). And on April 7, 1996, then President Fidel V. Ramos approved the CITRA STOA. Phase I of the SMMS project the Bicutan to Buendia elevated expressway stretch was

completed in December 1998, and the consequent initial toll rates for its use implemented a month after. On November 26, 2004, the TRB passed Resolution No. 2004-53, approving the periodic toll rate adjustment for the SMMS. THE NLEX EXPANSION PROJECT (REHABILITATED AND WIDENED NLEX, SUBIC EXPRESSWAY, CIRCUMFERENTIAL ROAD C-5)

In reply to the query of the then TRB Chairman, the Department of Justice (DOJ) issued DOJ Opinion No. 79, s. of 1994, echoing an earlier opinion of the GCC, that the TRB can implement the NLEX expansion project through a JV scheme with private investors possessing the requisite technical and financial capabilities.

On May 16, 1995, then President Ramos approved the assignment of PNCCs usufructuary rights as franchise holder to a JV company to be formed by PNCC and FPIDC.PNCC and FPIDC would later ink a JVA for the rehabilitation and modernization of the NLEX referred in certain pleadings as the North Luzon Tollway project. [10] The Manila North Tollways Corporation (MNTC) was formed for the purpose.

On April 30, 1998, the Republic, through the TRB, PNCC and MNTC, executed a STOA for the North Luzon Tollway project (MNTC STOA) in which MNTC was authorized, inter alia, to subcontract the operation and maintenance of the project, provided that the majority of the outstanding shares of the contractor shall be owned by MNTC. The MNTC STOA covers three phases comprising of ten segments, including the rehabilitated and widened NLEX, the Subic Expressway and the circumferential Road C-5.[11] The STOA is to be effective for thirty

years, reckoned from the issuance of the toll operation permit for the last completed phase or until December 31, 2030, whichever is earlier. The Office of the President (OP) approved the STOA on June 15, 1998.

On August 2, 2000, pursuant to the MNTC STOA, the Tollways Management Corporation (TMC)formerly known as the Manila North Tollways Operation and Maintenance Corporationwas created to undertake the operation and maintenance of the NLEX tollway facilities, interchanges and related works.

On January 27, 2005, the TRB issued Resolution No. 2005-04 approving the initial

authorized toll rates for the closed and flat toll systems applicable to the new NLEX.

THE SOUTH LUZON EXPRESSWAY PROJECT (NICHOLS TO LUCENA CITY) For the SLEX expansion project, PNCC and Hopewell Holdings Limited (HHL), as JV

partners, executed a Memorandum of Agreement (MOA),[12] which eventually led to the formation of a JV company Hopewell Crown Infrastructure, Inc. (HCII), now MTD Manila Expressways, Inc., (MTDME). And pursuant to the PNCC-MTDME JVA, the South Luzon Tollway Corporation (SLTC) and the Manila Toll Expressway Systems, Inc. (MATES) were incorporated to undertake the financing, construction, operation and maintenance of the resulting Project Toll Roads forming part of the SLEX. The toll road projects are divisible toll sections or segments, each segment defined as to its starting and end points and each with the corresponding distance coverage. The proposed JVA, as later amended, between PNCC and MTDME was approved by the OP on June 30, 2000.

Eventually, or on February 1, 2006, a STOA [13] for the financing, design, construction, lane expansion and maintenance of the Project Toll Roads (PTR) of the rehabilitated and improved SLEX was executed by and among the Republic, PNCC, SLTC, as investor, and MATES, as operator. To be precise, the PTRs, under the STOA, comprise and contemplated the full rehabilitation and/or roadway widening of the following existing toll roads or facilities: PTR 1 that portion of the tollway commencing at the end of South MM Skyway to the Filinvest exit at Alabang (1-242 km); PTR 2 the tollway from Alabang to Calamba, Laguna (27.28 km); PTR 3 the tollway from Calamba to Sto. Tomas, Batangas (7.6 km) and PTR 4 the tollway from Sto. Tomas to Lucena City (54.27 km).[14]

Under Clause 6.03 of the STOA, the Operator, after substantially completing a TPR, shall

file an application for a Toll Operation Permit over the relevant completed TPR or segment,

which shall include a request for a review and approval by the TRB of the calculation of the new current authorized toll rate.

G.R. NO. 166910

Petitioners Francisco and Hizon, as taxpayers and expressway users, seek to nullify the

various STOAs adverted to above and the corresponding TRB resolutions, i.e. Res. Nos. 2004-53 and 2005-04, fixing initial rates and/or approving periodic toll rate adjustments therefor. To the petitioners, the STOAs and the toll rate-fixing resolutions violate the Constitution in that they veritably impose on the public the burden of financing tollways by way of exorbitant fees and thus depriving the public of property without due process. These STOAs are also alleged to be infirm as they effectively awarded purported build-operate-transfer (BOT) projects without public bidding in violation of the BOT Law (R.A. 6957, as amended by R.A. 7718).

Petitioners likewise assail the constitutionality of Sections 3 (a) and (d) of P.D. 1112 in

relation to Section 8 (b) of P.D. 1894 insofar as they vested the TRB, on one hand, toll operation awarding power while, on the other hand, granting it also the power to issue, modify and promulgate toll rate charges. The TRB, so petitioners bemoan, cannot be an awarding party of a TOA and, at the same time, be the regulator of the tollway industry and an adjudicator of rate exactions disputes.

Additionally, petitioners also seek to nullify certain provisions of P.D. 1113 and P.D.

1894, which uniformly grant the President the power to approve the transfer or assignment of usufruct or the rights and privileges thereunder by the tollway operator to third parties, particularly the transfer effected by PNCC to MNTC. As argued, the authority to approve partakes of an exercise of legislative power under Article VI, Section 1 of the Constitution.[15]

In the meantime, or on April 8, 2010, the TRB issued a Certificate of Substantial

Completion[16] with respect to PTR 1 (Alabang-Filinvest stretch) and PTR 2 (Alabang-Calamba segments) of SLEX, signifying the completion of the full rehabilitation/expansion of both segments and the linkages/interchanges in between pursuant to the requirements of the corresponding STOA. TRB on even date issued a Toll Operation Permit in favor of MATES over said PTRs 1 and 2.[17] Accordingly, upon due application, the TRB approved the publication of the toll rate matrix for PTRs 1 and 2, the rate to take effect on June 30, 2010. [18] The implementation of the published rate would, however, be postponed to August 2010.

On July 5, 2010, petitioner Francisco filed a Supplemental Petition with prayer for the issuance of a temporary restraining order (TRO) and/or status quo order focused on the impending collection of what was perceived to be toll rate increases in the SLEX. The assailed adjustments were made public in a TRB notice of toll rate increases for the SLEX from Alabang to Calamba on June 6, 2010, and were supposed to have been implemented on June 30, 2010. On August 13, 2010, the Court granted the desired TRO, enjoining the respondents in the consolidated cases from implementing the toll rate increases in the SLEX.

In their Consolidated Comment/Opposition to the Supplemental Petition, respondents

SLTC et al., aver that the disputed rates are actually initial and opening rates, not an increase or adjustment of the prevailing rate, for the new expanded and rehabilitated SLEX. In fine, the new toll rates are, per SLTC, for a new and upgraded facility, i.e. the aforementioned Project Toll Roads 1 and 2 put up pursuant to the 2006 Republic-PNCC-SLTC-MATES STOA adverted to.

G.R. NO. 169917

While they raise, for the most part, the same issues articulated in G.R. No. 166910, such

as the public bidding requirement, the power of the President to approve the assignment of PNCCs usufructuary rights to cover (as petitioners Imee R. Marcos, et al., would stress) even the assignment of the expressway from Balintawak to Tabang, the virtual amendment and extension of a statutory franchise by way of administrative action (e.g., the execution of a STOA or issuance of a TOC), petitioners in G.R. No. 169917some of them then and still are members of the House of Representatives have, as their main focus, the North Luzon Tollway project and the agreements and devices entered in relation therewith.

Petitioners also assail the MNTC STOA on the ground that it granted the lenders (Asian

Development Bank/World Bank) of MNTC, as project concessionaire, the unrestricted rights to appoint a substitute entity to replace MNTC in case of an MNTC Default before prepayment of the loans, while also granting said lenders, in appropriate cases, the option to extend the concession or franchise for a period not exceeding fifty years coinciding with the full payment of the loans.

G.R. NO. 173630

Apart from those taken up in the other petitions for certiorari and prohibition,

petitioners, in G.R. No. 173630, whose members and constituents allegedly traverse SLEX daily, aver that TRB ought to have applied the provisions of R.A. 6957 [BOT Law] and R.A. 9184

[Government Procurement Reform Act], which require public bidding for the prosecution of the SLEX project. G.R. NO. 183599

CIVIL CASE SCA NO. 3138-PSG BEFORE THE RTC

On September 14, 2007, the Young Professionals and Entrepreneurs of San Pedro,

Laguna (YPES), one of the petitioners in G.R. No. 173630, filed before the RTC, Branch 155, in Pasig City, a special civil action for certiorari, etc., against the TRB, docketed as SCA No. 3138-PSG, containing practically identical issues raised in G.R. No. 173630. Like its petition in G.R. No. 173630, YPES, before the RTC, assailed and sought to nullify the April 27, 2007 TOC, which TRB issued to PNCC inasmuch as the TOC worked to extend PNCCs tollway operation franchise for the SLEX. As YPES argued, only the Congress can extend the term of PNCCs franchise which expired on May 1, 2007.

RULING OF THE RTC IN SCA NO. 3138-PSG

By Decision[19] dated June 23, 2008, the RTC, for the main stated reason that the

authority to grant or renew franchises belongs only to Congress, granted YPES petition, disposing as follows:

ACCORDINGLY, the instant Petition for Certiorari, Prohibition and Mandamus is hereby GRANTED and the questioned Toll Operation Certificate (TOC) covering the [SLEX] issued by respondent TRB in April, 2007, is hereby ordered ANNULLED and SET ASIDE.

FURTHER, respondent PNCC is hereby immediately PROHIBITED from

collecting toll fess along the SLEX facilities as it no longer has the power and authority to do so.

FINALLY, as mandated under Section 9 of PD No. 1113, respondent PNCC

is hereby COMMANDED to turn over without further delay the physical assets and facilities of the SLEX including improvements thereon, together with the equipment and appurtenances directly related to their operations, without any cost, to the Government through the Toll Regulatory Board x x x.[20]

Thus, the instant petition for review on certiorari under Rule 45, filed by the TRB on

pure questions of law, docketed as G.R. No. 183599.

In their separate comments, public and private respondents uniformly seek the

dismissal of the three special civil actions on the threshold issue of the absence of a justiciable case and lack of locus standi on the part of the petitioners therein. Other grounds raised range from the impropriety of certiorari to nullify toll operation agreements; the inapplicability of the public bidding rules in the selection by PNCC of its JV partners and the authority of the President to approve TOAs and the transfer of usufructuary rights. PNCC argues, in esse, that its continuous toll operations did not constitute an extension of its franchise, its authority to operate after the expiry date thereof in May 2007 being based on the valid authority of TRB to issue TOC.

THE ISSUES The principal consolidated but interrelated issues tendered before the Court, most of

which with constitutional undertones, may be reduced into six (6) and formulated in the following wise: first, whether or not an actual case or controversy exists and, relevantly, whether petitioners in the first three petitions have locus standi; second, whether the TRB is vested with the power and authority to grant what amounts to a franchise over tollway facilities; third, corollary to the second, whether the TRB can enter into TOAs and, at the same time, promulgate toll rates and rule on petitions for toll rate adjustments; fourth, whether the President is duly authorized to approve contracts, inclusive of assignment of contracts, entered into by the TRB relative to tollway operations; fifth, whether the subject STOAs covering the NLEX, SLEX and SMMS and their respective extensions, linkages, etc. are valid; sixth, whether a public bidding is required or mandatory for these tollway projects.

Expressly prayed, if not subsumed, in the first three petitions, is to prohibit TRB and its

concessionaires from collecting toll fees along the Skyway and Luzon Tollways.

PRELIMINARY ISSUESEXISTENCE OF AN ACTUAL CONTROVERSY, ITS RIPENESS AND

THE LOCUS STANDI TO SUE

The power of judicial review can only be exercised in connection with a bona

fide controversy involving a statute, its implementation or a government action.[21] Withal, courts will decline to pass upon constitutional issues through advisory opinions, bereft as they are of authority to resolve hypothetical or moot questions. [22] The limitation on the power of

judicial review to actual cases and controversies defines the role assigned to the judiciary in a tripartite allocation of power, to assure that the courts will not intrude into areas committed to the other branches of government.[23]

In The Province of North Cotabato v. The Government of the Republic of

the Philippines Peace Panel on Ancestral Domain (GRP), the Court has expounded anew on the concept of actual case or controversy and the requirement of ripeness for judicial review, thus:

An actual case or controversy involves a conflict of legal rights, an

assertion of opposite legal claims, susceptible of judicial resolution as distinguished from a hypothetical or abstract difference or dispute. There must be a contrariety of legal rights x x x. The Court can decide the constitutionality of an act x x x only when a proper case between opposing parties is submitted for judicial determination.

Related to the requirement of an actual case or controversy is the

requirement of ripeness. A question is ripe for adjudication when the act being challenged has had a direct adverse effect on the individual challenging it. x x x [I]t is a prerequisite that something had then been accomplished or performed by either branch before a court may come into the picture, and the petitioner must allege the existence of an immediate or threatened injury to itself as a result of the challenged action. He must show that he has sustained or is immediately in danger of sustaining some direct injury as a result of the act complained of.[24]

But even with the presence of an actual case or controversy, the Court may refuse

judicial review unless the constitutional question or the assailed illegal government act is brought before it by a party who possesses what in Latin is technically called locus standi or the standing to challenge it.[25] To have standing, one must establish that he has a personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement.[26] Particularly, he must show that (1) he has suffered some actual or threatened injury as a result of the allegedly illegal conduct of the government; (2) the injury is fairly traceable to the challenged action; and (3) the injury is likely to be redressed by a favorable action.[27]

Petitions for certiorari and prohibition are, as here, appropriate remedies to raise

constitutional issues and to review and/or prohibit or nullify, when proper, acts of legislative and executive officials.[28] The present petitions allege that then President Ramos had exercised vis--vis an assignment of franchise, a function legislative in character. As alleged, too, the TRB, in the guise of entering into contracts or agreements with PNCC and other juridical entities, virtually enlarged, modified to the core and/or extended the statutory franchise of PNCC,

thereby usurping a legislative prerogative. The usurpation came in the form of executing the assailed STOAs and the issuance of TOCs. Grave abuse of discretion is also laid on the doorstep of the TRB for its act of entering into these same contracts or agreements without the required public bidding mandated by law, specifically the BOT Law (R.A. 6957, as amended) and the Government Procurement Reform Act (R.A. 9184).

In fine, the certiorari petitions impute on then President Ramos and the TRB, the

commission of acts that translate inter alia into usurpation of the congressional authority to grant franchises and violation of extant statutes. The petitions make a prima facie case for certiorari and prohibition; an actual case or controversy ripe for judicial review exists. Verily, when an act of a branch of government is seriously alleged to have infringed the Constitution, it becomes not only the right but in fact the duty of the judiciary to settle the dispute. In doing so, the judiciary merely defends the sanctity of its duties and powers under the Constitution.[29]

In any case, the rule on standing is a matter of procedural technicality, which may be relaxed when the subject in issue or the legal question to be resolved is of transcendental importance to the public.[30] Hence, even absent any direct injury to the suitor, the Court can relax the application of legal standing or altogether set it aside for non-traditional plaintiffs, like ordinary citizens, when the public interest so requires.[31] There is no doubt that individual petitioners, Marcos, et al., in G.R. No. 169917, as then members of the House of Representatives, possess the requisite legal standing since they assail acts of the executive they perceive to injure the institution of Congress. On the other hand, petitioners Francisco, Hizon, and the other petitioning associations, as taxpayers and/or mere users of the tollways or representatives of such users, would ordinarily not be clothed with the requisite standing. While this is so, the Court is wont to presently relax the rule on locus standi owing primarily to the transcendental importance and the paramount public interest involved in the implementation of the laws on the Luzon tollways, a roadway complex used daily by hundreds of thousands of motorists. What we said a century ago in Severino v. Governor General is just as apropos today:

When the relief is sought merely for the protection of private rights, x x x [the relators] right must clearly appear. On the other hand, when the question is one of public right and the object of the mandamus is to procure the enforcement of a public duty, the people are regarded as the real party in interest, and the relator at whose instigation the proceedings are instituted need not show that he has any legal or special interest in the result , it being sufficient to show that he is a citizen and as such interested in the execution of the laws.[32] (Words in bracket and emphasis added.)

Accordingly, We take cognizance of the present case on account of its transcendental importance to the public.

SECOND ISSUE: TRB EMPOWERED TO GRANT AUTHORITY TO OPERATE

TOLL FACILITY /SYSTEM

It is abundantly clear that Sections 3 (a) and (e) of P.D. 1112 in relation to Section 4 of

P.D. 1894 have invested the TRB with sufficient power to grant a qualified person or entity with authority to construct, maintain, and operate a toll facility and to issue the corresponding toll operating permit or TOC.

Sections 3 (a) and (e) of P.D. 1112 and Section 4 of P.D. 1894 amply provide the power

to grant authority to operate toll facilities: Section 3. Powers and Duties of the Board. The Board shall have in addition to its general powers of administration the following powers and duties: (a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of the Republic of the Philippines with persons, natural or juridical, for the construction, operation and maintenance of toll facilities such as but not limited to national highways, roads, bridges, and public thoroughfares. Said contract shall be open to citizens of the Philippines and/or to corporations or associations qualified under the Constitution and authorized by law to engage in toll operations; x x x x (e) To grant authority to operate a toll facility and to issue therefore the necessary Toll Operation Certificate subject to such conditions as shall be imposed by the Board including inter alia the following:

(1) That the Operator shall desist from collecting toll upon the expiration of the Toll Operation Certificate.

(2) That the entire facility operated as a toll system including all operation and maintenance equipment directly related thereto shall be turned over to the government immediately upon the expiration of the Toll Operation Certificate.

(3) That the toll operator shall not lease, transfer, grant the usufruct of, sell or assign the rights or privileges acquired under the Toll Operation Certificate to any person, firm, company, corporation or other commercial or legal entity, nor merge with any other company or

corporation organized for the same purpose, without the prior approval of the President of the Philippines. In the event of any valid transfer of the Toll Operation Certificate, the Transferee shall be subject to all the conditions, terms, restrictions and limitations of this Decree as fully and completely and to the same extent as if the Toll Operation Certificate has been granted to the same person, firm, company, corporation or other commercial or legal entity.

(4) That in time of war, rebellion, public peril, emergency, calamity, disaster or disturbance of peace and order, the President of the Philippines may cause the total or partial closing of the toll facility or order to take over thereof by the Government without prejudice to the payment of just compensation.

(5) That no guarantee, Certificate of Indebtedness, collateral, securities, or bonds shall be issued by any government agency or government-owned or controlled corporation on any financing program of the toll operator in connection with his undertaking under the Toll Operation Certificate.

(6) The Toll Operation Certificate may be amended, modified or revoked whenever the public interest so requires.

(a) The Board shall promulgate rules and regulations governing the

procedures for the grant of Toll Certificates. The rights and privileges of a grantee under a Toll Operation Certificate shall be defined by the Board.

(b) To issue rules and regulations to carry out the purposes of this Decree.

SECTION 4. The Toll Regulatory Board is hereby given jurisdiction and supervision over the GRANTEE with respect to the Expressways, the toll facilities necessarily appurtenant thereto and, subject to the provisions of Section 8 and 9 hereof, the toll that the GRANTEE will charge the users thereof. By explicit provision of law, the TRB was given the power to grant administrative

franchise for toll facility projects. The concerned petitioners would argue, however, that PNCCs [then CDCPs] franchise, as

toll operator, was granted via P.D. 1113, on the same day P.D. 1112, creating the TRB, was issued. It is thus pointed out that P.D. 1112 could not have plausibly granted the TRB with the power and jurisdiction to issue a similar franchise. Pushing the point, they maintain that only

Congress has, under the 1987 Constitution, the exclusive prerogative to grant franchise to operate public utilities.

We are unable to agree with petitioners stance and their undue reliance on Article XII,

Section 11 of the Constitution, which states that:

SEC. 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires x x x. The limiting thrust of the foregoing constitutional provision on the grant of franchise or

other forms of authorization to operate public utilities may, in context, be stated as follows: (a) the grant shall be made only in favor of qualified Filipino citizens or corporations; (b) Congress can impair the obligation of franchises, as contracts; and (c) no such authorization shall be exclusive or exceed fifty years.

A franchise is basically a legislative grant of a special privilege to a person.[33] Particularly,

the term, franchise, includes not only authorizations issuing directly from Congress in the form of statute, but also those granted by administrative agencies to which the power to grant franchise has been delegated by Congress.[34] The power to authorize and control a public utility is admittedly a prerogative that stems from the Legislature. Any suggestion, however, that only Congress has the authority to grant a public utility franchise is less than accurate. As stressed in Albano v. Reyesa case decided under the aegis of the 1987 Constitutionthere is nothing in the Constitution remotely indicating the necessity of a congressional franchise before each and every public utility may operate, thus:

That the Constitution provides x x x that the issuance of a franchise,

certificate or other form of authorization for the operation of a public utility shall be subject to amendment, alteration or repeal by Congress does not necessarily imply x x x that only Congress has the power to grant such authorization. Our statute books are replete with laws granting specified agencies in the Executive Branch the power to issue such authorization for certain classes of public utilities.[35] (Emphasis ours.)

In such a case, therefore, a special franchise directly emanating from Congress is not necessary if the law already specifically authorizes an administrative body to grant a franchise or to award a contract.[36] This is the same view espoused by the Secretary of Justice in his opinion dated January 9, 2006, when he stated:

That the administrative agencies may be vested with the authority to

grant administrative franchises or concessions over the operation of public utilities under their respective jurisdiction and regulation, without need of the grant of a separate legislative franchise, has been upheld by the Supreme Court x x x.[37]

Under the 1987 Constitution, Congress has an explicit authority to grant a public utility

franchise. However, it may validly delegate its legislative authority, under the power of subordinate legislation,[38] to issue franchises of certain public utilities to some administrative agencies. In Kilusang Mayo Uno Labor Center v. Garcia, Jr., We explained the reason for the validity of subordinate legislation, thus:

Such delegation of legislative power to an administrative agency is

permitted in order to adapt to the increasing complexity of modern life. As subjects for governmental regulation multiply, so does the difficulty of administering the laws. Hence, specialization even in legislation has become necessary.[39] (Emphasis ours.) As aptly pointed out by the TRB and other private respondents, the Land Transportation

Franchising and Regulatory Board (LTFRB), the Civil Aeronautics Board (CAB), the National Telecommunications Commission (NTC), and the Philippine Ports Authority (PPA), to name a few, have been such delegates. The TRB may very well be added to the growing list, having been statutorily endowed, as earlier indicated, the power to grant to qualified persons, authority to construct road projects and operate thereon toll facilities. Such grant, as evidenced by the corresponding TOC or set out in a TOA, may be amended, modified, or revoked [by the TRB] whenever the public interest so requires.[40]

In Philippine Airlines, Inc. v. Civil Aeronautics Board,[41] the Court reiterated its holding

in Albano that the CAB, like the PPA, has sufficient statutory powers under R.A. 776 to issue a Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a domestic air transport operator who, although not possessing a legislative franchise, meets all the other requirements prescribed by law. We held therein that there is nothing in the law nor in the

Constitution which indicates that a legislative franchise is an indispensable requirement for an entity to operate as a domestic air transport operator.[42] We further explicated:

Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation of certain public utilities. With the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency towards the delegation of greater powers by the legislature, and towards the approval of the practice by the courts. It is generally recognized that a franchise may be derived indirectly from the state through a duly designated agency, and to this extent, even the power to grant franchises has frequently been delegated, even to agencies other than those of a legislative nature. In pursuance of this, it has been held that privileges conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the Legislature.[43] (Emphasis ours.) The validity of the delegation by Congress of its franchising prerogative is beyond cavil.

So it was that in Tatad v. Secretary of the Department of Energy,[44] We again ruled that the delegation of legislative power to administrative agencies is valid. In the instant case, the certiorari petitioners assume and harp on the lack of authority of PNCC to continue with its NLEX, SLEX, MMEX operations, in joint venture with private investors, after the lapse of its P.D. 1113 franchise. None of these petitioners seemed to have taken due stock of and appreciated the valid delegation of the appropriate power to TRB under P.D. 1112, as enlarged in P.D. 1894. To be sure, a franchise may be derived indirectly from the state through a duly designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to agencies other than those of a legislative nature. [45] Consequently, it has been held that privileges conferred by grant by administrative agencies as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the Legislature.[46]

While it may be, as held in Strategic Alliance Development Corporation v. Radstock

Securities Limited,[47] that PNCCs P.D. 1113 franchise had already expired effective May 1, 2007, this fact of expiration did not, however, carry with it the cancellation of PNCCs authority and that of its JV partners granted under P.D. 1112 in relation to Section 1 of P.D. 1894 to construct, operate and maintain any and all such extensions, linkages or stretches, together with the toll facilities appurtenant thereto, from any part of the North Luzon Expressway, South Luzon Expressway and/or Metro Manila Expressway and/or to divert the original route and change the original end-points of the [NLEX]and/or [SLEX] as may be approved by the [TRB]. And to

highlight the point, the succeeding Section 2 of P.D. 1894 specifically provides that the franchise for the extension and toll road projects constructed after the approval of P.D. 1894 shall be thirty years, counted from project completion. Indeed, prior to the expiration of PNCCs original franchise in May 2007, the TRB, in the exercise of its special powers under P.D. 1112, signed supplemental TOAs with PNCC and its JV partners. These STOAs covered the expansion and rehabilitation of NLEX and SLEX, as the case may be, and/or the construction, operation and maintenance of toll road projects contemplated in P.D.1894. And there can be no denying that the corresponding toll operation permits have been issued.

In fine, the STOAs[48] TRB entered with PNCC and its JV partners had the effect of

granting authorities to construct, operate and maintain toll facilities, but with the injection of additional private sector investments consistent with the intent of P.D. Nos. 1112, 1113 and 1894.[49] The execution of these STOAs came in 1995, 1998 and 2006, or before the expiration of PNCCs original franchise on May 1, 2007. In accordance with applicable laws, these transactions have actually been authorized and approved by the President of the Philippines.[50] And as a measure to ensure the legality of the said transactions and in line with due diligence requirements, a review thereof was secured from the GCC and the DOJ, prior to their execution.

Inasmuch as its charter empowered the TRB to authorize the PNCC and like entities to

maintain and operate toll facilities, it may be stated as a corollary that the TRB, subject to certain qualifications, infra, can alter the conditions of such authorization. Well settled is the rule that a legislative franchise cannot be modified or amended by an administrative body with general delegated powers to grant authorities or franchises. However, in the instant case, the law granting a direct franchise to PNCC[51] evidently and specifically conferred upon the TRB the power to impose conditions in an appropriate contract.[52] And to reiterate, Section 3 of P.D. 1113 provides that [t]his [PNCC] franchise is granted subject to such conditions as may be imposed by the [TRB] in an appropriate contract to be executed for this purpose, and with the understanding and upon the condition that it shall be subject to amendment, alteration or repeal when public interest so requires.[53] A similarly worded proviso is found in Section 6 of P.D. 1894. It is in this light that the TRB entered into the subject STOAs in order to allow the infusion of additional investments in the subject infrastructure projects. Prior to the expiration of PNCCs franchise on May 1, 2007, the STOAs merely imposed additional conditionalities, or as aptly pointed out by SLTC et al., obviously having in mind par. 16.06 of its STOA with TRB,[54] served as supplement, to the existing TOA of PNCC with TRB. We have carefully gone over the different STOAs and discovered that the tollway projects covered thereby were all undertaken under the P.D. 1113 franchise of PNCC. And it cannot be over-emphasized that the respective STOAs of MNTC and SLTC each contain provisions addressing the eventual expiration

of PNCCs P.D. 1113 franchise and authorizing, thru the issuance by the TRB of a TOC, the implementation of a given toll project even after May 1, 2007. Thus:

MNTC STOA

2.6 CONCESSION PERIOD. In order to sustain the financial viability and integrity of the Project, GRANTOR [TRB] hereby grants MNTC the CONCESSION for the PROJECT ROADS for a period commencing upon the date that this [STOA] comes into effect under Clause 4.1 until 31 December 2030 or thirty years after the issuance of the corresponding TOLL OPERATION PERMIT for the last completed phase. Accordingly, unless the PNCC FRANCHISE is further extended beyond its expiry on 01 May 2007, GRANTOR undertakes to issue the necessary [TOC] for the rehabilitated and refurbished [NLEX] six months prior to the expiry of the PNCC FRANCHISE on 01 May 2007.

SLTC STOA

2.03 Authority of Investor and Operator to Undertake the Project

(1) The GRANTOR [TRB] has determined that the Project Toll Roads are

within the existing SLEX and are thus covered by the PNCC Franchise that is due to expire on May 1, 2007. PNCC has committed to exert its best efforts to obtain an extension x x x It is understood and agreed that in the event the PNCC Franchise is not renewed beyond the said expiry date, this [STOA] and the Concession granted x x x will stand in place of the PNCC Franchise and serve as a new concession, or authority, pursuant to Section 3 (a) of the TRB Charter, for the Investor to undertake the Project and for the Operator to Operate and Maintain the Project Toll Roads immediately upon the expiration of the PNCC Franchise, without need of the execution x x x of any other document to effect the same.

(2) x x x in the event it is subsequently decreed by competent authority that the

issuance by the Grantor of a [TOC] is necessary x x x the Grantor shall x x x cause the TRB x x x to issue such [TOC] in favor of the Operator, embodying the terms and conditions of this Agreement.

The foregoing notwithstanding, there are to be sure certain aspects in PNCCs legislative

franchise beyond the altering reach of TRB. We refer to the coverage area of the tollways and the expiry date of PNCCs original franchise, which is May 1, 2007, as expressly stated under Sections 1 and 2 of P.D. 1894, respectively. The fact that these two items were specifically and expressly defined by law, i.e. P.D. 1113, indicates an intention that any alteration, modification

or repeal thereof should only be done through the same medium. We said as much in Radstock, thus: [T]he term of the x x x franchise, which is 30 years from 1 May 1977, shall remain the same, as expressly provided in the first sentence of x x x Section 2 of P.D. 1894. [55] It is likewise worth noting what We further held in that case:

The TRB does not have the power to give back to PNCC the toll assets

and facilities which were automatically turned over to the Government, by operation of law, upon the expiration of the franchise of the PNCC on 1 May 2007. Whatever power the TRB may have to grant authority to operate a toll facility or to issue a [TOC], such power does not obviously include the authority to transfer back to PNCC ownership of National Government assets, like the toll assets and facilities, which have become National Government property upon the expiry of PNCCs franchise x x x.[56] (Emphasis in the original.) Verily, upon the expiration of PNCCs legislative franchise on May 1, 2007, the new

authorities to construct, maintain and operate the subject tollways and toll facilities granted by the TRB pursuant to the validly executed STOAs and TOCs, shall begin to operate and be treated as administrative franchises or authorities. Pursuant to Section 3 (e) P.D. 1112, TRB possesses the power and duty, inter alia to:

x x x grant authority to operate a toll facility and to issue therefore the necessary Toll Operation Certificate subject to such conditions as shall be imposed by the [TRB] including inter alia x x x. This is likewise consistent with the position of the Secretary of Justice in Opinion No.

122 on November 24, 1995,[57] thus: TRB has no authority to extend the legislative franchise of PNCC over the existing NSLE (North and South Luzon Expressways). However, TRB is not precluded under Section 3 (e) of P.D. No. 1112 (TRB Charter) to grant PNCC and its joint venture partner the authority to operate the existing toll facility of the NSLE and to issue therefore the necessary Toll Operation Certificate x x x.It should be noted that the existing franchise of PNCC over the NSLE, which will expire on May 1, 2007, gives it the right, privilege and authority to construct, maintain and operate the NSLE.The Toll Operation Certificate which TRB may issue to the PNCC and its joint venture partner after the expiration of its franchise on May 1, 2007 is an entirely new authorization, this time for the operation and maintenance of the NSLE x x x. In other words, the right of PNCC and its joint venture partner, after May 7, 2007 [sic] to operate and maintain the existing NSLE will no longer be founded on its legislative franchise which is

not thereby extended, but on the new authorization to be granted by the TRB pursuant to Section 3 (e), above quoted, of P.D. No. 1112. (Emphasis ours.) The same opinion was thereafter made by the Secretary of Justice on January 9, 2006, in

Opinion No. 1,[58] stating that:

The existing franchise of PNCC over the NSLE, which will expire on May 1, 2007, gives it the right, privilege and authority to construct, maintain and operate the NSLE. The Toll Operation Certificate which the TRB may issue to the PNCC and its joint venture partner after the expiration of its franchise on May 1, 2007 is an entirely new authorization, this time for the operation and maintenance of the NSLE. [T]he right of PNCC and its joint venture partner, after May 1, 2007, to operate and maintain the existing NSLE will no longer be founded on its legislative franchise which is not thereby extended, but on the new authorization to be granted by the TRB pursuant to Section 3 (e) of PD No. 1112.

It appears therefore, that the effect of the STOA is not to extend the

Franchise of PNCC, but rather, to grant a new Concession over the SLEX Project and the OMCo., entities which are separate and distinct from PNCC. While initially, the authority of SLTC and OMCo. to enter into the STOA with the TRB and thereby become grantees of the Concession, will stem from and be based on the JVA and the assignment by PNCC to the OMCo. of the Usufruct in the Franchise, we submit that upon the execution by SLTC and the TRB of the STOA, the right to the Concession will emanate from the STOA itself and from the authority of the TRB under Section 3 (a) of the TRB Charter. Such being the case, the expiration of the Franchise on 1 May 2007, since such Concession is an entirely new and distinct concession from the Franchise and is, as stated, granted to entities other than PNCC.

Finally, with regards (sic) the authority of the TRB this Office in Secretary

of Justice Opinion No. 92, s. 2000, stated that:

Suffice it to say that official acts of the President enjoy full faith and confidence of the Government of the Republic of the Philippines which he represents. Furthermore, considering that the queries raised herein relates to the exercise by the TRB of its regulatory powers over toll road project, the same falls squarely within the exclusive jurisdiction of TRB pursuant to P.D. No. 1112. Consequently, it is, therefore, solely within TRBs prerogative and determination as to what rule shall govern and is made applicable to a specific toll road project proposal.

The STOA is an explicit grant of the Concession by the

Republic of the Philippines, through the TRB pursuant to P.D. (No.) 1112 and as approved by the President xxx. The foregoing grant is in full accord with the provisions of P.D. (No.) 1112 which authorizes TRB to enter into contracts on behalf of the Republic of the Philippines for the construction, operation and maintenance of toll facilities. Such being the case, we opine that no other legal requirement is necessary to make the STOA effective of to confirm MNTCs (In this case, SLTC and the OMCO) rights and privileges granted therein. (Emphasis in the original.)

Considering, however, that all toll assets and facilities pertaining to PNCC pursuant to its

P.D. 1113 franchise are deemed to have already been turned over to the National Government on May 1, 2007,[59] whatever participation that PNCC may have in the new authorities to construct, maintain and operate the subject tollways, shall be limited to doing the same in trust for the National Government. In Radstock, the Court held that [w]ith the expiration of PNCCs franchise, [its] assets and facilities were automatically turned over, by operation of law, to the government at no cost.[60] The Court went on further to state that the Governments ownership of PNCCs toll assets inevitably resulted in its owning too of the toll fees and the net income derived, after May 1, 2007, from the toll assets and facilities. [61] But as We have earlier discussed, the tollways and toll facilities should remain functioning in accordance with the validly executed STOAs and TOCs. However, PNCCs assets and facilities, or, in short, its very share/participation in the JVAs and the STOAs, inclusive of its percentage share in the toll fees collected by the JV companies currently operating the tollways shall likewise automatically accrue to the Government.

In fine, petitioners claim about PNCCs franchise being amenable to an amendment only

by an act of Congress, or, what practically amounts to the same thing, that the TRB is without authority at all to modify the terms and conditions of PNCCs franchise, i.e. by amending its TOA/TOC, has to be rejected. Their lament then that the TRB, through the instrumentality of mere contracts and an administrative operating certificate, or STOAs and TOC, to be precise, effectively, but invalidly amended PNCC legislative franchise, are untenable. For, the bottom line is, the TRB has, through the interplay of the pertinent provisions of P.D. Nos. 1112, 1113 and 1894, the power to grant the authority to construct and operate toll road projects and toll facilities by way of a TOA and the corresponding TOC. What is otherwise a legislative power to grant or renew a franchise is not usurped by the issuance by the TRB of a TOC. But to emphasize, the case of the TRB is quite peculiarly unique as the special law conferring the

legislative franchise likewise vested the TRB with the power to impose conditions on the franchise, albeit in a limited sense, by excluding from the investiture the power to amend or modify the stated lifetime of the franchise, its coverage and the ownership arrangement of the toll assets following the expiration of the legislative franchise.[62]

At this juncture, the Court wishes to express the observation that P.D. Nos. 1112, 1113

and 1894, as couched and considered as a package, very well endowed the TRB with extraordinary powers. For, subject to well-defined limitations and approval requirements, the TRB can, by way of STOAs, allow and authorize, as it has allowed and authorized, a legislative franchisee, PNCC, to share its concession with another entity or JV partners, the authorization effectively covering periods beyond May 2007. However, this unpalatable reality, a leftover of the martial law regime, presents issues on the merits and the wisdom of the economic programs, which properly belong to the legislature or the executive to address. The TRB is not precluded from granting PNCC and its joint venture partners authority, through a TOC for a period following the term of the proposed SMMS, with the said TOC serving as an entirely new authorization upon the expiration of PNCCs franchise on May 1, 2007. In short, after May 1, 2007, the operation and maintenance of the NLEX and the other subject tollways will no longer be founded on P.D. 1113 or portions of P.D. 1894 (PNCCs original franchise) but on an entirely new authorization, i.e. a TOC, granted by the TRB pursuant to its statutory authority under Sections 3 (a) and (e) of P.D. 1112.

Likewise needing no extended belaboring, in the light of the foregoing dispositions, is the untenable holding of the RTC in SCA No. 3138-PSG that the TRB is without power to issue a TOC to PNCC, amend or renew its authority over the SLEX tollways without separate legislative enactment. And lest it be overlooked, the TRB may validly issue an entirely new authorization to a JV company after the lapse of PNCCs franchise under P.D. 1113. Its thirty-year concession under P.D. 1894, however, does not have the quality of definiteness as to its start, as by the terms of the issuance, it commences and is to be counted from the date of approval of the project, the term project obviously referring to Metro Manila Expressways and all extensions, linkages, stretches and diversions refurbishing and rehabilitation of the existing NLEX and SLEX constructed after the approval of the decree in December 1983. The suggestion, therefore, of the petitioners in G.R. No. 169917, citing a 1989 Court of Appeals (CA) decision in CA-G.R. 13235 (Republic v. Guerrero, et al.), that the Balintawak to Tabang portion of the expressway no longer forms part of PNCCs franchise and, therefore, PNCC is without any right to assign the same to MNTC via a JVA, is specious. Firstly, in its Decision[63] in G.R. No. 89557, a certiorari proceeding commenced by PNCC to nullify the CA decision adverted to, the Court approved a compromise agreement, which referred to (1) the PNCCs authority to collect toll and

maintenance fees; and (2) the supervision, approval and control by the DPWH [64] of the construction of additional facilities, on the questioned portion of the NLEX. [65] And still in another Decision,[66] the Court ruled that the Balintawak to Tabang stretch was recognized as part of the franchise of, or otherwise restored as toll facilities to be operated by x x x PNCC.[67] Once stamped with judicial imprimatur, and unless amended, modified or revoked by the parties, a compromise agreement becomes more than a mere binding contract; as thus sanctioned, the agreement constitutes the courts determination of the controversy, enjoining the parties to faithfully comply thereto.[68] Verily, like any other judgment, it has the effect and authority of res judicata.[69]

At any rate, the PNCC was likewise granted temporary or interim authority by the TRB to

operate the SLEX,[70] to ensure the continued development, operations and progress of the projects. We have ruled in Oroport Cargohandling Services, Inc. v. Phividec Industrial Authority that an administrative agency vested by law with the power to grant franchises or authority to operate can validly grant the same in the interim when it is necessary, temporary and beneficial to the public.[71] The grant by the TRB to PNCC as interim operator of the SLEX was certainly intended to guarantee the continued operation of the said tollway facility, and to ensure the want of any delay and inconvenience to the motoring public.

All given, the cited CA holding is not a binding precedent. The time limitation on PNCCs

franchise under either P.D. 1113 or P.D. 1894 does not detract from or diminish the TRBs delegated authority under P.D. 1112 to enter into separate toll concessions apart and distinct from PNCCs original legislative franchise.

THIRD ISSUE: TRBS POWER TO ENTER INTO CONTRACTS; ISSUE,

MODIFY AND PROMULGATE TOLL RATES; AND TO RULE ON PETITIONS

RELATIVE TO TOLL RATES LEVEL AND INCREASES VALID

The petitioners in the special civil actions cases would have the Court declare as invalid

(a) Section 3 (a) and (d) of P.D. 1112 (which accord the TRB, on one hand, the power to enter into contracts for the construction, and operation of toll facilities, while, on the other hand, granting it the power to issue and promulgate toll rates) and (b) Section 8 (b) of P.D. 1894 (granting TRB adjudicatory jurisdiction over matters involving toll rate movements). As submitted, granting the TRB the power to award toll contracts is inconsistent with its quasi-judicial function of adjudicating petitions for initial toll and periodic toll rate adjustments. There cannot, so petitioners would postulate, be impartiality in such a situation.

The assailed provisions of P.D. 1112 and P.D. 1894 read:

P.D. 1112

Section 3. Powers and Duties of the Board. The Board shall have in addition to its general powers of administration the following powers and duties: (a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of the Republic of the Philippines with persons, natural or juridical, for the construction, operation and maintenance of toll facilities such as but not limited to national highways, roads, bridges, and public thoroughfares. Said contract shall be open to citizens of the Philippines and/or to corporations or associations qualified under the Constitution and authorized by law to engage in toll operations; (d) Issue, modify and promulgate from time to time the rates of toll that will be charged the direct users of toll facilities and upon notice and hearing , to approve or disapprove petitions for the increase thereof. Decisions of the Board on petitions for the increase of toll rate shall be appealable to the Office of the President within ten (10) days from the promulgation thereof. Such appeal shall not suspend the imposition of the new rates, provided however, that pending the resolution of the appeal, the petitioner for increased rates in such case shall deposit in a trust fund such amounts as may be necessary to reimburse toll payers affected in case a reversal of the decision. (Emphasis ours.)

P.D. 1894

SECTION 8. x x x

(b) For the Metro Manila Expressway and such extensions, linkages,

stretches and diversions of the Expressways which may henceforth be constructed, maintained and operated by the GRANTEE, the GRANTEE shall collect toll at such rates as shall initially be approved by the Toll Regulatory Board. The Toll Regulatory Board shall have the authority to approve such initial toll rates without the necessity of any notice and hearing, except as provided in the immediately succeeding paragraph of this Section. For such purpose, the GRANTEE shall submit for the approval of the Toll Regulatory Board the toll proposed to be charged the users. After approval of the toll rate(s) by the Toll Regulatory Board and publication thereof by the GRANTEE once in a newspaper of general circulation, the toll shall immediately be enforceable and collectible upon opening of the expressway to traffic use.

Any interested Expressways users shall have the right to file, within a period of ninety (90) days after the date of publication of the initial toll rate, a petition with the Toll Regulatory Board for a review of the initial toll rate; provided, however, that the filing of such petition and the pendency of the resolution thereof shall not suspend the enforceability and collection of the toll in question. The Toll Regulatory Board, at a public hearing called for the purpose after due notice, shall then conduct a review of the initial toll shall be appealable (sic) to the Office of the President within ten (10) days from the promulgation thereof. The GRANTEE may be required to post a bond in such amount and from such surety or sureties and under such terms and conditions as the Toll Regulatory Board shall fix in case of any petition for review of, or appeal from, decisions of the Toll Regulatory Board.

In case it is finally determined, after a review by the Toll Regulatory Board or appeal therefrom, that the GRANTEE is not entitled, in whole or in part, to the initial toll, the GRANTEE shall deposit in the escrow account the amount collected under the approved initial toll fee and such amount shall be refunded to Expressways users who had paid said toll in accordance with the procedure as may be prescribed or promulgated by the Toll Regulatory Board. (Emphasis ours.)

The petitioners are indulging in gratuitous, if not unfair, conclusion as to the capacity of

the TRB to act as a fair and objective tribunal on matters of toll fee fixing. Administrative bodies have expertise in specific matters within the purview of their

respective jurisdictions. Accordingly, the law concedes to them the power to promulgate implementing rules and regulations (IRR) to carry out declared statutory policies provided that the IRR conforms to the terms and standards prescribed by that statute.[72]

The Court does not perceive an irreconcilable clash in the enumerated TRBs statutory

powers, such that the exercise of one negates another. The ascription of impartiality on the part of the TRB cannot, under the premises, be accorded cogency. Petitioners have not shown that the TRB lacks the expertise, competence and capacity to implement its mandate of balancing the interests of the toll-paying motoring public and the imperative of allowing the concessionaires to recoup their investment with reasonable profits. As it were, Section 9 of P.D. 1894 provides a parametric formula for adjustment of toll rates that takes into account the Peso-US Dollar exchange rate, interest rate and construction materials price index, among other verifiable and quantifiable variables.

While not determinative of the issue immediately at hand, the grant to and the exercise by an administrative agency of regulating and allowing the operation of public utilities and, at the same time, fixing the fees that they may charge their customers is now commonplace. It must be presumed that the Congress, in creating said agencies and clothing them with both adjudicative powers and contract-making prerogatives, must have carefully studied such dual authority and found the same not breaching any constitutional principle or concept. [73] So must it be for P.D. Nos. 1112 and 1894.

The Court can take judicial cognizance of the exercise by the LTFRB and NTC both spin-

off agencies of the now defunct Public Service Commission of similar concurrent powers. The LTFRB, under Executive Order No. (E.O.) 202,[74] series of 1987, is empowered,[75] among others, to regulate the operation of public utilities or for hire vehicles and to grant franchises or certificates of public convenience (CPC); and to fix rates or fares, to approve petitions for fare rate increases and to resolve oppositions to such petitions.

The NTC, on the other hand, has been granted similar powers of granting franchises, allocating areas of operations, rate-fixing and to rule on petitions for rate increases under E.O. 546,[76] s. of 1979.

The Energy Regulatory Commission (ERC) likewise enjoys on the one hand, the power (a) to grant, modify or revoke an authority to operate facilities used in the generation of electricity, and on the other, (b) to determine, fix and approve rates and tariffs of transmission, and distribution retail wheeling charges and tariffs of franchise electric utilities and all electric power rates including that which is charged to end-users. [77] In Chamber of Real Estate and Builders Association, Inc. v. ERC, We even categorically stated that the ERC is a quasi-judicial and quasi-legislative regulatory body created under Section 38 of the EPIRA, [and] x x x an administrative agency vested with broad regulatory and monitoring functions over the Philippine electric industry to ensure its successful restructuring and modernization x x x.[78]

To summarize, the fact that an administrative agency is exercising its administrative or

executive functions (such as the granting of franchises or awarding of contracts) and at the same time exercising its quasi-legislative (e.g. rule-making) and/or quasi-judicial functions (e.g. rate-fixing), does not support a finding of a violation of due process or the Constitution. In C.T. Torres Enterprises, Inc. v. Hibionada,[79] We explained the rationale, thus:

It is by now commonplace learning that many administrative agencies exercise and perform adjudicatory powers and functions, though to a limited extent only. Limited delegation of judicial or quasi-judicial authority to administrative agencies (e.g. the Securities and Exchange Commission and the National Labor Relations Commission) is well recognized in our jurisdiction, basically because the need for special competence and experience has been recognized as essential in the resolution of questions of complex or specialized character and

because of a companion recognition that the dockets of our regular courts have remained crowded and clogged.

x x x x

As a result of the growing complexity of the modern society, it has become necessary to create more and more administrative bodies to help in the regulation of its ramified activities.Specialized in the particular fields assigned to them, they can deal with the problems thereof with more expertise and dispatch than can be expected from the legislature or the courts of justice. This is the reason for the increasing vesture of quasi-legislative and quasi-judicial powers in what is now not unquestionably called the fourth department of the government.

x x x x

There is no question that a statute may vest exclusive original jurisdiction in an administrative agency over certain disputes and controversies falling within the agency's special expertise. The very definition of an administrative agency includes its being vested with quasi-judicial powers. The ever increasing variety of powers and functions given to administrative agencies recognizes the need for the active intervention of administrative agencies in matters calling for technical knowledge and speed in countless controversies which cannot possibly be handled by regular courts. (Emphasis ours.)

FOURTH ISSUE: PRESIDENT AMPLY VESTED WITH STATUTORY

POWER TO APPROVE TRB CONTRACTS

Just like their parallel stance on the grant to TRB of the power to enter into toll

agreements, e.g., TOAs or STOAs, the petitioners in the first three petitions would assert that the grant to the President of the power to peremptorily authorize the assignment by PNCC, as franchise holder, of its franchise or the usufruct in its franchise is unconstitutional. It is unconstitutional, so petitioners would claim, for being an encroachment of legislative power.

As earlier indicated, Section 3 (a) of P.D. 1112 requires approval by the President of any

contract TRB may have entered into or effected for the construction and operation of toll facilities. Complementing Section 3 (a) is 3 (e) (3) of P.D. 1112 enjoining the transfer of the usufruct of PNCCs franchise without the Presidents prior approval. For perspective, Section 3 (e) (3) of P.D. 1112 provides:

That the toll operator shall not lease, transfer, grant the usufruct of, sell or assign the rights or privileges acquired under the [TOC] to any person x x x or legal entity nor merge with any other company or corporation organized for the same purpose without the prior approval of the President of the Philippines. In the event of any valid transfer of the TOC, the Transferee shall be subject to all the conditions, terms, restrictions and limitations of this Decree x x x.[80]

The Presidents approving authority is of statutory origin. To us, there is nothing illegal,

let alone unconstitutional, with the delegation to the President of the authority to approve the assignment by PNCC of its rights and interest in its franchise, the assignment and delegation being circumscribed by restrictions in the delegating law itself. As the Court stressed in Kilosbayan v. Guingona, Jr.,[81] the rights and privileges conferred under a franchise may be assigned if authorized by a statute, subject to such restrictions as may be provided by law, such as the prior approval of the grantor or a government agency.[82]

There can, therefore, be no serious challenge to this presidential- approving

prerogative. Should grave abuse of discretion in some way infect the exercise of the prerogative, then the approval action may be nullified for that reason, but not on the ground that the underlying authority is constitutionally doubtful. If the TRB may validly be empowered to grant private entities the authority to operate toll facilities, would a delegation of a lesser authority to approve the grant to the head of the administrative machinery of the government be objectionable?

The fact that P.D. 1112 partakes of a martial law issuance does not per se provide an

objectionable feature to the decree, albeit it may be argued with some plausibility that then President Marcos intended to have the final say as to who shall act as the toll operators of the Luzon expressways. Be that as it may, all proclamations, orders, decrees, instructions, and acts promulgated, issued, or done by the former President (Ferdinand E. Marcos) are part of the law of the land, and shall remain valid, legal, binding, and effective, unless modified, revoked or superseded by subsequent proclamations, orders, decrees, instructions, or other acts of the President.[83] To emphasize, Padua v. Ranadacited Association of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform, quoting that:

The Court wryly observes that during the past dictatorship, every

presidential issuance, by whatever name it was called, had the force and effect of law because it came from President Marcos. Such are the ways of despots. Hence, it is futile to argue that LOI 474 could not have repealed P.D. No.

27 because the former was only a letter of instruction. The important thing is that it was issued by President Marcos, whose word was law during that time.[84]

FIFTH ISSUE: ASSAILED STOAS VALIDLY ENTERED

This brings us to the issue of the validity of certain provisions of the STOAs and related

agreements entered into by the TRB, as duly approved by the President. Relying on Clause 17.4.1[85] of the MNTC STOA that the lenders have the unrestricted

right to appoint a substitute entity in case of default of MNTC or of the occurrence of an event of default in respect of the loans, petitioners argue that since MNTC is the assignee or transferee of PNCCs franchise, then it steps into the shoes of PNCC. They contend that the act of replacing MNTC as grantee is tantamount to an amendment or alteration of the PNCCs original franchise and hence unconstitutional, considering that the constitutional power to appoint a new franchise holder is reserved to Congress.[86]

This contention is bereft of merit. Petitioners presupposition that only Congress has the power to directly grant franchises

is misplaced. Time and again, We have held that administrative agencies may be empowered by the Legislature by means of a law to grant franchises or similar authorizations. [87] And this, We have sufficiently addressed in the present case.[88] To reiterate, We discussed in Albano that our statute books are replete with laws granting administrative agencies the power to issue authorizations.[89] This delegation of legislative power to administrative agencies is allowed in order to adapt to the increasing complexity of modern life. [90] Consequently, We have held that the privileges conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the Legislature.[91]

In this case, the TRBs charter itself, or Section 3 (e) of P.D. 1112, specifically empowers it

to grant authority to operate a toll facility and to issue therefore the necessary Toll Operation Certificate subject to such conditions as shall be imposed by the [TRB]x x x. [92] Section 3 (a) of the same law permits the TRB to enter into contracts for the construction, operation and maintenance of toll facilities. Clearly, there is no question that the TRB is vested by the Legislature, through P.D. 1112, with the power not only to grant an authority to operate a toll facility, but also to enter into contracts for the construction, operation and maintenance thereof.

Petitioners also contend that substituting MNTC as the grantee in case of its default with

respect to its loans is tantamount to an amendment of PNCCs original franchise and is hence, unconstitutional. We also find this assertion to be without merit. Besides holding that the Legislature may properly empower administrative agencies to grant franchises pursuant to a law, We have also earlier explained in this case that P.D. 1113 and the amendatory P.D. 1894 both vested the TRB with the power to impose conditions on PNCCs franchise in an appropriate contract and may therefore amend or alter the same when public interest so requires; [93] save for the conditions stated in Sections 1 and 2 of P.D. 1894, which relates to the coverage area of the tollways and the expiration of PNCCs original franchise.[94] P.D. 1112 provided further that the TRB has the power to amend or modify a Toll Operation Certificate that it issued when public interest so requires.[95] Accordingly, to Our mind, there is nothing infirm much less questionable about the provision in the STOA, allowing the substitution of MNTC in case it defaults in its loans.

Furthermore, in the subject provision (Clause 17.4.1[96]), the unrestricted right of the

lender to appoint a substituted entity is never intended to afford such lender a plenary power to do so. The subject clause states:

17.4.1 The PARTIES acknowledge that following a Notice of Substitution under clauses 17.2 or 17.3 the LENDERS have, subject to the provisions of Clause 17.4.3, the unrestricted right to appoint a SUBSTITUTED ENTITY in place of MNTC following the declaration of the occurrence of a MNTC DEFAULT prior to full repayment of the LOANS or of an event of default in respect of the LOANS. GRANTOR shall extend all reasonable assistance to the AGENT to put in place a SUBSTITUTED ENTITY. MNTC shall make available all necessary information to potential SUBSTITUTED ENTITY to enable such entity to evaluate the Project. (Emphasis ours.) It is clear from the above-quoted provision that Clause 17.4.1 should always be

construed and read in conjunction with Clauses 17.2, 17.3, 17.4.2, 17.4.3 and 20.12.Clauses 17.2 and 17.3 discuss the procedures that must be followed and undertaken in case of MNTCs default prior to the full repayment of the loans, and before the substitution under Clause 17.4.1 could take place. These clauses provide the following process:

Prior to Full Repayment of the LOANS:

17.2 Upon occurrence of an MNTC DEFAULT under Clause 17.1(a) and (e) prior to full repayment of the LOANS, GRANTOR shall serve a written Notice of Default to MNTC with copy to the AGENT giving a reasonable period of time to cure the MNTC DEFAULT, such period being three (3) months from receipt of the notice or such longer period as may be approved by GRANTOR, taking due consideration of the nature of the default and of the repair works required. If MNTC fails to remedy such default during such three (3) month or [sic] curing period, GRANTOR may issue a Notice of Substitution on MNTC, copy furnished to the AGENT, which shall take effect upon the assumption and take over by the SUBSTITUTED ENTITY pursuant to the provisions of Clause 17.4 hereof; Provided, However, that prior to such assumption and take over by the SUBSTITUTED ENTITY, MNTC shall continue toOPERATE AND MAINTAIN the PROJECT ROADS and shall place in an escrow account the TOLL revenues, save such amounts as may be needed to primarily cover the OPERATING COSTS and as may be owing and due to the lenders under the LOANS and, secondarily, to cover the PNCC Gross Toll Revenue Share, Provided, Further, that upon the assumption and take over by the SUBSTITUTED ENTITY, such assumption and take over shall have the effect of revoking the rights, privileges and obligations of MNTC under this AGREEMENT in favor of the SUBSTITUTED ENTITY and MNTC shall cease to be a PARTY to this AGREEMENT. 17.3 If prior to full repayment of the LOANS MNTC fails to remedy MNTC DEFAULT under Clause 17.1 (b) or an MNTC DEFAULT occurs under Clause 17.1 (c), (d) or (f) prior to full repayment of the LOANS, GRANTOR shall serve a Notice of Substitution on MNTC, copy furnished to the AGENT, as provided under Clause 17.4.[97] (Emphasis ours) It is apparent from the above-quoted provision that it is the TRB representing the

Republic of the Philippines as Grantor which has control over the situation before Clause 17.4.1 could come into place. To stress, following the condition under Clause 17.4.1, it is only when Clauses 17.2 and 17.3 have been complied with that the entire Clause 17.4 could begin to materialize.

Clauses 17.4.2 and 17.4.3 also provide for certain parameters as to when a substituted

entity could be considered acceptable, and enumerate the conditions that should be undertaken and complied with.[98] Particularly, the subject provisions state:

17.4.2 The SUBSTITUTED ENTITY shall be required to provide evidence to

GRANTOR that at the time of substitution:

(i) it is legally and validly nominated by the AGENT as MNTCs substitute to continue the implementation of the PROJECT.

(ii) it is legally and validly constituted and has the capability to enter into such agreement as may be required to give effect to the substitution;

17.4.3 The AGENT shall have one (1) year to effect a substitution under Clause

17.4; Provided, However, that during this time the AGENT shall not take any action which may jeopardize the continuity of the service and shall take the necessary action to ensure its continuation. To effect such substitution, the AGENT shall notify its intention to GRANTOR and shall, at the same time, give all necessary information to GRANTOR. GRANTOR shall, within one (1) month following such notification, inform the AGENT of its acceptance of the substitution, if the conditions set forth in Clause 17.4.2 have been satisfied. The SUBSTITUTED ENTITY shall be permitted a reasonable period to cure any MNTC DEFAULT under Clause 17.1 (a), (b) or (e).

From the foregoing, it is clear that the lenders do not actually have an absolute or

unrestricted right to appoint the SUBSTITUTED ENTITY in view of TRBs right to accept or reject the substitution within one (1) month from notice and such right to appoint comes into force only if and when the TRB decides to effectuate the substitution of MNTC as allowed in Clause 17.2 of the MNTC STOA.

At the same time, Clause 17.4.4 particularizes the conditions upon which the

substitution shall become effective, to wit: 17.4.4 The Substitution shall be effective upon:

(a) the appointment of a SUBSTITUTED ENTITY in accordance with the

provisions of this Clause 17.4; and,

(b) assumption by the SUBSTITUTED ENTITY of all of the rights and obligations of MNTC under this AGREEMENT, including the payment of PNCCs Gross Toll Revenue Share under the JOINT VENTURE AGREEMENT dated 29 August 1995 and all other agreements in connection with this agreement signed and executed by and between PNCC and MNTC.

The afore-quoted Section (a) of Clause 17.4.4 reiterates the necessity of compliance by the substituted entity with all the conditions provided under Clause 17.4.Furthermore, following the above-quoted conditions veritably protects the interests of the Government. As previously discussed supra, PNCCs assets with respect to its legislative franchise under P.D. 1113, as amended, has already been automatically turned over to the Government. And whatever share PNCC has in relation to the currently implemented administrative authority granted by the TRB is merely being held in trust by it in favor of the Government. Accordingly, the fact that Section b of Clause 17.4.4 ensures that the obligation to pay PNCCs Gross Toll Revenue Share is assumed by the substituted entity, necessarily means that the Governments Gross Toll Revenue Share is safeguarded and kept intact.

The MNTC STOA also states that only in case no substituted entity is established in

accordance with Clause 17.4 that Clause 17.5 shall be applied. Clause 17.5 grants the lenders the power to extend the concession in case the Grantor (Republic of the Philippines) takes over the same, for a period not exceeding fifty years, until full payment of the loans. [99] Petitioners contend that the option to extend the concession for that stated period is, however, unconstitutional.

This assertion is impressed with merit. At the outset, Clause 17.5 does not actually grant

the lenders of the defaulting concessionaire, the power to unilaterally extend the concession for a period not exceeding fifty years. For reference, the pertinent provision states:

17.5 Only if no SUBSTITUTE ENTITY is established shall the GRANTOR [TRB] be entitled to take-over the CONCESSION with no commitment on the LOANS in which case the OPERATION AND MAINTENANCE CONTRACT shall be assigned to any entity that the AGENT[100] may designate provided such entity has a sufficient legal and technical capacity to perform and assume the obligations of the OPERATION AND MAINTENANCE CONTRACT under this AGREEMENT. The LENDERS shall receive all TOLL, excepting PNCCs revenue share provided for under the JOINT INVESTMENT PROPOSAL (vide: Annex C hereof), for as long as required until full repayment of the LOANS including if necessary an extension of the CONCESSION PERIOD which in no case shall exceed fifty (50) years; Provided that the LENDERS support all amounts payable under the OPERATION AND MAINTENANCE CONTRACT. For avoidance of doubt, the GRANTOR will have no obligation in relation to liabilities incurred by MNTC prior to such take-over.[101] (Emphasis supplied)

The afore-quoted provision should be read in conjunction with Clause 20.12, which expressly provides that the MNTC STOA is made under and shall be governed by and construed in accordance with the laws of the Philippines, and particularly, by the provisions of P.D. Nos. 1112, 1113 and 1894. Under the applicable laws, the TRB may very well amend, modify, alter or revoke the authority/franchise whenever the public interest so requires. [102] In a word, the power to determine whether or not to continue or extend the authority granted to a concessionaire to operate and maintain a tollway is vested to the TRB by the applicable laws. The necessity of whether or not to extend the concession or the authority to construct, operate and maintain a tollway rests, by operation of law, with the TRB. As such, the lenders cannot unilaterally extend the concession period, or, with like effect, impose upon or demand that the TRB agree to extend such concession.

Be that as it may, it must be noted, however, that while the TRB is vested by law with

the power to extend the administrative franchise or authority that it granted, nevertheless, it cannot do so for an accumulated period exceeding fifty years. Otherwise, it would violate the proscription under Article XII, Section 11 of the 1987 Constitution, which states that:[103]

Sec. 11. No franchise, certificate, or any other form of authorization for

the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or associations must be citizens of the Philippines. (Emphasis Ours) In this case, the MNTC STOA already has an original stipulated period of thirty years.

[104] Clause 17.5 allows the extension of this period if necessary to fully repay the loans made by MNTC to the lenders, thus:

x x x The LENDERS shall receive all TOLL, excepting PNCCs revenue share

provided for under the JOINT INVESTMENT PROPOSAL (vide: Annex C hereof), for as long as required until full repayment of the LOANS including if necessary an

extension of the CONCESSION PERIOD which in no case shall exceed a maximum period of fifty (50) years; x x x (Emphasis ours.) If the maximum extension as provided for in Clause 17.5, i.e. fifty years, shall be utilized,

the accumulated concession period that would be granted in this case would effectively be eighty years. To Us, this is a clear violation of the fifty-year franchise threshold set by the Constitution. It is in this regard that we strike down the above-quoted clause, including if necessary an extension of the CONCESSION PERIOD which in no case shall exceed a maximum period of fifty (50) years in Clause 17.5 as void for being violative of the Constitution. [105] It must be made abundantly clear, however, that the nullity shall be limited to such extension beyond the 50-year constitutional limit.

All told, petitioners allegations that the TRB acted with grave abuse of discretion and with gross disadvantage to the Government with respect to Clauses 17.4.1 and 17.5 of the MNTC STOA are unfounded and speculative.

Petitioners also allege that the MNTC STOA is grossly disadvantageous to the Government since under Clause 11.7 thereof, the Government, through the TRB, guarantees the viability of the financing program of a toll operator. Under Clause 11.7 of the MNTC STOA, the TRB agreed to pay monthly, the difference in the toll fees actually collected by MNTC and that which it could have realized under the STOA. The pertinent provisions states:

11.7 To insure the viability and integrity of the Project, the Parties

recognize the necessity for adjustments of the AUTHORIZED TOLL RATE . In the event that said adjustment are not effected as provided under this Agreement for reasons not attributable to MNTC, the GRANTOR [TRB] warrants and so undertakes to compensate, on a monthly basis, the resulting loss of revenue due to the difference between the AUTHORIZED TOLL RATE actually collected and the AUTHORIZED TOLL RATE which MNTC would have been able to collect had the adjustments been implemented. (Emphasis ours) As set out in the preamble of P.D. 1112, the need to encourage the infusion of private

capital in tollway projects is the underlying rationale behind the enactment of said decree. Owing to the scarce capital available to bankroll a huge capital-intensive project, such as the North Luzon Tollway project, it is well-nigh inevitable that the financing of these types of projects is sourced from private investors. Quite naturally, the investors expect the regularity of the cash flow. It is perhaps in this broad context that the obligation of the Grantor under Clause 11.7 of the MNTC STOA was included in the STOA. To Us, Clause 11.7 is not only grossly disadvantageous to the Government but a manifest violation of the Constitution.

Section 3 (e) (5) of P.D. 1112 explicitly states:

[t]hat no guarantee, Certificate of Indebtedness, collateral securities, or bonds shall be issued by any government agency or government-owned or controlled corporation on any financing program of the toll operator in connection with his undertaking under the Toll Operation Certificate.

What the law seeks to prevent in this situation is the eventuality that the Government, through any of its agencies, could be obligated to pay or secure, whether directly or indirectly, the financing by the private investor of the project. In this case, under Clause 11.7 of the MNTC STOA, the Republic of the Philippines (through the TRB) guaranteed the security of the project against revenue losses that could result, in case the TRB, based on its determination of a just and reasonable toll fee, decides not to effect a toll fee adjustment under the STOAs periodic/interim adjustment formula. The OSG, in its Comment, admitted that the amounts the government undertook to pay in case of Clause 11.7 violation is an undertaking to pay compensatory damage for something akin to a breach of contract. [106] As P.D. 1112 itself expressly prohibits the guarantee of a security in the financing of the toll operator pursuant to its tollway project, Clause 11.7 cannot be a valid stipulation in the STOA.

This is more so for being in violation of the Constitution. Article VI, Section 29 (1) of the

Constitution mandates that [n]o money shall be paid out of the Treasury except in pursuance of an appropriation made by law.[107] We have held in Radstock that government funds or property shall be spent or used solely for public purposes, as expressly mandated by Section 4 (2) of PD 1445 or the Government Auditing Code.[108] Particularly, We held in Radstock case that:

[t]he power to appropriate money from the General Funds of the Government belongs exclusively to the Legislature. Any act in violation of this iron-clad rule is unconstitutional.

Reinforcing this Constitutional mandate, Sections 84 and 85 of PD 1445

require that before a government agency can enter into a contract involving the expenditure of government funds, there must be an appropriation law for such expenditure, thus:

Section 84. Disbursement of government funds.

1. Revenue funds shall not be paid out of any public treasury or depository except in pursuance of an appropriation law or other specific statutory authority.

x x x x Section 85. Appropriation before entering into contract. No contract involving the expenditure of public funds shall be entered

into unless there is an appropriation therefor, the unexpended balance of which, free of other obligations, is sufficient to cover the proposed expenditure.

x x x x Section 86 of PD 1445, on the other hand, requires that the proper

accounting official must certify that funds have been appropriated for the purpose. Section 87 of PD 1445 provides that any contract entered into contrary to the requirements of Sections 85 and 86 shall be void.[109] (Emphasis ours.) In the instant case, the TRB, by warranting to compensate MNTC with the loss of

revenue resulting from the non-implementation of the periodic and interim toll fee adjustments, violates the very constitutionally guaranteed power of the Legislature, to exclusively appropriate money for public purpose from the General Funds of the Government. The TRB veritably accorded unto itself the exclusive authority granted to Congress to appropriate money that comes from the General Funds, by making a warranty to compensate a revenue loss under Clause 11.7 of the MNTC STOA. There is not even a badge of indication that the aforementioned requisites under the Constitution and P.D. 1445 in respect of appropriation of money from the General Funds of the Government have been properly complied with. Worse, P.D. 1112 expressly prohibits the guarantee of security of the financing of a toll operator in connection with his undertaking under the Toll Operation Certificate. Accordingly, Clause 11.7 of the MNTC STOA, under which the TRB warrants and undertakes to compensate MNTCs loss of revenue resulting from the non-implementation of the periodic and interim toll fee adjustments, is illegal, unconstitutional and hence void.

Parenthetically, We also find a similar provision in the SLTC STOA under Clause 8.08

thereof, which states that:[110]

(2) In the event the Authorized Toll Rate and adjustments thereto are not

implemented or made effective in accordance with the provisions of this Agreement, for reasons not attributable to the fault of the Investor and/or the Operator, including the reversal by the TRB or by any competent court or authority of any such adjustment in the Authorized Toll Rate previously approved by the TRB, except where such reversal is by reason of a

determination of the misapplication of the Authorized Toll Rates, the Grantor shall compensate the Operator, on a monthly basis and within thirty (30) days of submission by the Operator of a notice thereof, without interest, for the resulting loss of revenue computed as the difference between: (a) the actual traffic volume for the month in question multiplied by the

Current Authorized Toll Rate as escalated and/or adjusted, that should be in effect; and

(b) the Gross Toll Revenue for the month in question.

(3) The obligation of the Grantor to compensate the Operator shall continue until the applicable Current Authorized Toll Rate is implemented.

Akin to what is contemplated in Clause 11.7 of the MNTC STOA, Clauses 8.08 (2) and (3)

of the SLTC STOA, under which the TRB warrants or is obligated to compensate the Operator for its loss of revenue resulting from the non-implementation of the calculation/formula of authorized toll price and toll rate adjustments found in Clause 8 thereof, are illegal, unconstitutional and, hence, void. This ruling is consistent with the TRBs power to determine, without any influence or compulsion direct or indirect as to whether a change in the toll fee rates is warranted. We will discuss the same below.

Petitioners argue that the CITRA, SLTC and MNTC STOAs tie the hands of the TRB as it is

bound by the stipulated periodic and interim toll rate adjustments provided therein. Petitioners contend that the SMMS (CITRA STOA), the SLTC and the MNTC STOAs provisions on initial toll rates and periodic/interim toll rate adjustments, by using a built-in automatic toll rate adjustment formula,[111] allegedly guaranteed fixed returns for the investors and negated the public hearing requirement.

This contention is erroneous. The requisite public hearings under Section 3 (d) of P.D. 1112 and Section 8 (b) of P.D. 1894 are not negated by the fixing of the initial toll rates and the periodic adjustments under the STOA.

Prefatorily, a clear distinction must be made between the statutory prescription on the

fixing of initial toll rates, on the one hand, and of periodic/interim or subsequent toll rates, on the other. First, the hearing required under the said provisos refers to notice and hearing for the approval or denial of petitions for toll rate adjustments or the subsequent toll rates, not to the fixing of initial toll rates. By express legal provision, the TRB is authorized to approve the initial toll rates without the necessity of a hearing. It is only when a challenge on the initial toll rates fixed ensues that public hearings are required. Section 8 of P.D. 1894 says so:

x x x the GRANTEE shall collect toll at such rates as shall initially be approved by the [TRB]. The [TRB] shall have the authority to approve such initial toll rates without the necessity of any notice and hearing, except as provided in the immediately succeeding paragraph of this Section. For such purpose, the GRANTEE shall submit for the approval of the [TRB] the toll proposed to be charged the users. After approval of the toll rate(s) by the [TRB] and publication thereof by the GRANTEE once in a newspaper of general circulation, the toll shall immediately be enforceable and collectible upon opening of the expressway to traffic use.

Any interested Expressways users shall have the right to file, within x x x

(90) days after the date of publication of the initial toll rate, a petition with the [TRB] for a review of the initial toll rate; provided, however, that the filing of such petition and the pendency of the resolution thereof shall not suspend the enforceability and collection of the toll in question. The [TRB], at a public hearing called for the purpose shall then conduct a review of the initial toll (sic) shall be appealable to the [OP] within ten (10) days from the promulgation thereof.(Emphasis ours.)

Of the same tenor is Section 3 (d) of P.D. 1112 stating that the TRB has the power and

duty to:

[i]ssue, modify and promulgate from time to time the rates of toll that will be charged the direct users of toll facilities and upon notice and hearing, to approve or disapprove petitions for the increase thereof. Decisions of the [TRB] on petitions for the increase of toll rate shall be appealable to the [OP] within ten (10) days from the promulgation thereof. Such appeal shall not suspend the imposition of the new rates, provided however, that pending the resolution of the appeal, the petitioner for increased rates in such case shall deposit in a trust fund such amounts as may be necessary to reimburse toll payers affected in case a (sic) reversal of the decision.[112] (Emphasis Ours.) Similarly in Padua v. Ranada, the fixing of provisional toll rates by the TRB without a

public hearing was held to be valid, such procedure being expressly provided by law. [113] To be very clear, it is only the fixing of the initial and the provisional toll rates where a public hearing is not a vitiating requirement. Accordingly, subsequent toll rate adjustments are mandated by law to undergo both the requirements of public hearing and publication.

In Manila International Airport Authority (MIAA) v. Blancaflor, the Court expounded on

the necessity of a public hearing in rate fixing/increases scenario. There, the Court ruled that

the MIAA, being an agency attached to the Department of Transportation and Communications (DOTC), is governed by Administrative Code of 1987,[114] Book VII, Section 9 of which specifically mandates the conduct of a public hearing.[115] Accordingly, the MIAAs resolutions, which increased the rates and charges for the use of its facilities without the required hearing, were struck down as void.[116] Similarly, as We do concede, the TRB, being likewise an agency attached to the DOTC,[117] is governed by the same Code and consequently requires public hearing in appropriate cases. It is, therefore, imperative that in implementing and imposing new, i.e. subsequent toll rates arrived at using the toll rate adjustment formula, the subject tollway operators and the TRB must necessarily comply not only with the requirement of publication but also with the equally important public hearing. Accordingly, any fixing of the toll rate, which did not or does not comply with the twin requirements of public hearing and publication, must therefore be struck down as void. In such case, the previously valid toll rate shall consequently apply, pending compliance with the twin requirements for the new toll rate.

In the instant consolidated cases, the fixing of the initial toll rates may have indeed

come to pass without any public hearing.[118] Unfortunately for petitioners, and notwithstanding its presumptive validity, they did not assail the initial toll rates within the timeframe provided in P.D. 1112 and P.D. 1894.[119] Besides, as earlier explicated, the STOA provisions on periodic rate adjustments are not a bar to a public hearing as the formula set forth therein remains constant, serving only as a guide in the determination of the level of toll rates that may be allowed.

It is apropos to state at this juncture that, in determining the reasonableness of the

subsequent toll rate increases, it behooves the TRB to seek out the Commission on Audit (COA) for assistance in examining and auditing the financial books of the public utilities concerned. Section 22, Chapter 4, Subtitle B, Title 1, Book V of the Administrative Code of 1987 expressly authorizes the COA to examine the aforementioned documents in connection with the fixing of rates of every nature, including as in this case, the fixing of toll fees. [120] We have on certain occasions applied this provision. Manila Electric Company, Inc. v. Lualhati easily comes to mind where this Court tasked the Energy Regulatory Commission to seek the assistance of the COA in determining the reasonableness of the rate increases that MERALCO intended to implement.[121] We have consistently held that the law is deemed written into every contract.[122] Being a provision of law, this authority of the COA under the Administrative Code should therefore be deemed written in the subject contracts i.e. the STOAs.

In this regard, during the examination and audit, the public utilities concerned are

mandated to produce all the reports, records, books of accounts and such other papers as may

be required, and the COA is empowered to examine under oath any official or employee of the said public utilit[ies].[123] Any public utility unreasonably denying COA access to the aforementioned documents, unnecessarily obstructs the examination and audit and may be adjudged liable of concealing any material information concerning its financial status, shall be subject to the penalties provided by law.[124] Finally, the TRB is further obliged to take the appropriate action on the COA Report with respect to its finding of reasonableness of the proposed rate increases.[125]

Furthermore, while the periodic, interim and other toll rate adjustment formulas are

indicated in the STOAs,[126] it does not necessarily mean that the TRB should accept a rate adjustment predicated on the economic data, references or assumptions adopted by the toll operator. At the end of the day, the final figures should be those of the TRB based on its appreciation of the relevant rate-influencing data. In fine, the TRB should exercise its rate-fixing powers vested to it by law within the context of the agreed formula, but always having in mind that the rates should be just and reasonable. Conversely, it is very well within the power of the TRB under the law to approve the change in the current toll fees.[127] Section 3 (d) of P.D. 1112 grants the TRB the power to [i]ssue, modify and promulgate from time to time the rates of toll that will be charged the direct users of toll facilities. But the reasonableness of a possible increase in the fees must first be clearly and convincingly established by the petitioning entities, i.e. the toll operators.Otherwise, the same should not be granted by the approving authority concerned. In Philippine Communications Satellite Corporation v. Alcuaz,[128] the Court had the opportunity to explain what is meant by a just and reasonable fixing of rates, thus:

Hence, the inherent power and authority of the State, or its authorized agent, to regulate the rates charged by public utilities should be subject always to the requirement that the rates so fixed shall be reasonable and just. A commission has no power to fix rates which are unreasonable or to regulate them arbitrarily. This basic requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or too high as to be oppressive.What is a just and reasonable rate is not a question of formula but of sound business judgment based upon the evidence it is a question of fact calling for the exercise of discretion, good sense, and a fair, enlightened and independent judgment. In determining whether a rate is confiscatory, it is essential also to consider the given situation, requirements and opportunities of the utility. A method often employed in determining reasonableness is the fair return upon the value of the property to the public utility x x x. (Emphasis ours.)

If in case the TRB finds the change in the rates to be reasonable and therefore merited, the increase shall then be implemented after the formalities of public hearing and publication are complied with. In this case, it is clear that the change in the toll fees is immediately effective and implementable. This is notwithstanding that, in case of anincrease in the toll fees, an appeal thereon is filed. The law is clear. Thus:

x x x Decisions of the [TRB] on petitions for the increase of toll rate shall be appealable to the Office of the President within ten (10) days from the promulgation thereof. Such appeal shall not suspend the imposition of the new rates, provided however, that pending the resolution of the appeal, the petitioner for increased rates in such case shall deposit in a trust fund such amounts as may be necessary to reimburse toll payers affected in case a reversal of the decision.[129] (Emphasis ours.)

Besides the settled rule under Section 3 (d) of P.D. 1112 that the power to issue, modify

and promulgate toll fees rests with the TRB, it must also be underscored that the periodic and the interim adjustments found in Clauses 11.4 to 11.6 of the MNTC STOA do not necessarily guarantee an increase in the toll fees. To stress, the formula is based on many variable factors that could mean either an increase or a decrease in the toll fees, depending, inter alia, on how well certain economies are doing; and on the projections and figures published by the Bangko Sentral ng Pilipinas (BSP).[130] It is therefore arduous to contemplate a grossness in a disadvantage that could only possibly arise in case of a non-implementation of a change particularly, an increase in the toll rates.

Petitioners have not incidentally shown that it is the traveling public, the users of the expressways, who shouldered or will shoulder the completion of the projects by way of exorbitant fees payment, with the investors ending up with a killing therefrom. This conclusion, for all its factual dimension, is too simplistic for acceptance. And it does not consider the reality that the Court is not a trier of facts. Neither does it take stock of the nature and function of toll roads and toll fees paid by motorists, as aptly elucidated inNorth Negros Sugar Co., Inc. v. Hidalgo,[131] thus:

Toll is the price of the privilege to travel over that particular highway,

and it is a quid pro quo. It rests on the principle that he who, receives the toll does or has done something as an equivalent to him who pays it. Every traveler has the right to use the turnpike as any other highway, but he must pay the toll.[132]

A toll road is a public highway, differing from the ordinary public highways chiefly in this: that the cost of its construction in the first instance is borne by individuals, or by a corporation, having authority from the state to build it, and, further, in the right of the public to use the road after completion, subject only to the payment of toll.[133]

Toll roads are in a limited sense public roads, and are highways for travel,

but we do not regard them as public roads in a just sense, since there is in them a private proprietary rightx x x.[134] (Emphasis ours.) Parenthetically, our review of Section 7 of the SMMS STOA readily yields the

information that the level of the initial toll rates hinges on a mix of factors. Tax holidays that may be granted and the tax treatment of dividends may be mentioned. On the other hand, the subsequent periodic adjustments are provided to address factors that usually weigh on the financial condition of any business endeavor, such as currency devaluation, inflation and the usual increases in maintenance and operational costs incorporated into the formula provided therefor. Even with the existence of an automatic toll rate adjustment formula, compliance by the TRB and the other respondents with the twin requirements of public hearing and publication is still mandatory. To reiterate, laws always occupy a plane higher than mere contract provisions. In case the minimum statutory requirements are stiffer than that of a contract, or when the contract does not expressly stipulate the minimum requirements of the law, then We rule that compliance with such minimum legal requirements should be done. To summarize, any toll fee increase should comply with the legal twin requirements of publication and public hearing, the absence of which will nullify the imposition and collection of the new toll fees.

In all, the initial toll rates and periodic adjustments appear to Us as simply predicated on

the basic rationale for investing in a toll project, which to repeat is: a reasonable rate of return for the investment. Section 2 (o) of the BOT Law, as amended, provides for a definition for a reasonable rate of return on investments and operating and maintenance cost. [135] Running through the gamut of our statutes providing for and encouraging partnership of the public and private sector is the paramount common good for infrastructure projects and the equally important factor of giving a reasonable rate of return to private sectors investments. The viability of any infrastructure project depends on the returns which should be reasonable of the investment coming from the private sector.

While the interests of the public are ideally to be accorded primacy in considering government contracts, the reality on the ground is that the tollway projects may not at all be possible or would be difficult to realize without the involvement of the investing private sector, which expects its usual share of profit. Thus, the Court is at a loss to understand how the level of the initial toll rates, which depended on several factors indicated above, and the subsequent adjustments resulted in the charging of exorbitant toll fees that, to petitioners, enabled the investors to shift the burden of financing the completion of the projects on the motoring public.

Neither does the alleged drasticif we may characterize it as suchsteep increase in the

level of toll rates for NLEX constitute a killing for PNCC and its partner MNTC.Petitioners make much of the amount of the toll fees vis--vis the then prevailing minimum wage. These plays of figures detract from the essential concern on the propriety of the level of the toll rates vis--vis the investments sunk in the NLEX project with a view, on the part of private investors, to a reasonable return on their investment. Where no substantial figures were provided on the investments, the projected operating and maintenance costs vis--vis the projected revenue from the toll fees, no substantial conclusions may reasonably be deduced therefrom. Besides, to be taken into account in relation to the costs of the construction and rehabilitation of the NLEX is the length of the tollway and for which motorists have to pay the corresponding toll. Certainly, the allegations and conclusions of petitioners as to the unreasonable increase of the toll rates are without adequate factual mooring.

The use of a tollway is a privilege that comes at a cost. The toll is a price paid for the use

of a privilege. There are to be sure alternative roads and routes, which motorists may fall back on if they are unwilling to pay the toll. The toll, as might be expected, is pegged at a level that makes the developmental projects and their maintenance viable; otherwise, no investment can be expected for the furtherance of the projects.

Petitioners Francisco and Hizon alleged that, per the minutes of the TRB meetings, the

Board deliberately refrained, particularly with respect to the Skyway project, from conducting public hearings for the grant of the initial toll rates and on the rate adjustment formula to be used in order to accelerate the implementation of the projects. The allegation is far from correct. A perusal of the pertinent minutes of the TRB meetings, particularly that held on August 17, 1995,[136] in fact would disclose a picture different from that depicted by said petitioners. Nothing in the minutes of said meeting tends to indicate that the TRB resolved to dispense with public hearings. We, therefore, find petitioners Francisco and Hizons attempt to mislead the Court by falsely citing supposed portions [137] of the August 17, 1995 TRB meeting

very unfortunate. They quoted a correction on the minutes of the Special Board Meeting No. 95-05 held on July 26, 1995, which was taken up in the August 17, 1995 meeting for the approval of the minutes of the previous meeting. In said special meeting of July 26, 1995,[138] the Board deliberated on the recommendation of ADG Santos for the conduct of a public hearing or soliciting the endorsement of the Metro Manila Development Authority (MMDA). [139] But the TRB did not resolve to omit a public hearing with respect to the toll rates. In fact, the deliberations used the words in the event the Board decides and if the Board conducts, clearly conveying the notion that the TRB had not decided or resolved the issue of public hearings. Be that as it may, We rule that the TRB is mandated to comply with the twin requirements of public hearing and publication.

Petitioners Francisco and Hizons lament about the TRB merely relying on, if not yielding

to, the recommendation and findings of the Technical Working Group (TWG) of the DPWH on matters relative to STOA stipulations and toll-rate fixing cannot be accorded cogency. In the area involving big finance and complex project planning, banking on the data supplied by technicians and experts is at once practical as it is inevitable. The Court cannot see its way clear to understand why petitioners would begrudge the TRB for tapping the technical know-how of others. And it cannot be overemphasized that a recommendation is no more than an exhortation or an urging as to what is advisable or expedient, not binding on the person to which it is being made.[140] To recommend involves the idea that another has the final decision.[141] The ultimate decision still rests with the TRB whether or not to accept the findings of the TWG. The minutes of the TRB meetings show that its members went through the tedious process of deliberating on the formula to be used in computing the toll rates. The fact that the TRB might have adopted the TWGs recommendation would not, on that ground alone, vitiate the bona fides of the formers decision nor stain the proceedings leading to such decision. In any case, as earlier held, the toll rate adjustment formula does not and cannot contravene the legal twin requirements of public hearing and publication.

In another bid to nullify the STOAs in question, petitioners would foist on the Court the

arguments that, firstly, President Ramos twisted the arms of the TRB towards entering into the agreements in question and, secondly, that the CITRA STOA contained restrictive confidentiality provisions barring the public from knowing their contents and the details of the negotiations related thereto.

We are not persuaded by the first ground, not necessarily because the pressure brought to bear on TRB rendered the STOAs infirm, but because the allegations on pressure-tactics allegedly employed by President Ramos are too speculative for acceptance.

On the second ground, We fail to see how the insertion of the alleged confidentiality

clause in the CITRA STOA translates into grave abuse of discretion or a violation of the Constitution, particularly Article III, Section 7[142] thereof. First off, the Court can take judicial notice that most commercial contracts, including finance-related project agreements carry the standard confidentiality clause to protect proprietary data and/or intellectual property rights. This protection angle appears to be the intent of Clause 14.04(l) [143] of the CITRA STOA. And as may be noted, the succeeding Clause 14.04 (2)[144] removes from the ambit of the confidentiality restriction the following: disclosure of any information: (a) not otherwise done by the parties; (b) which is required by law to be disclosed to any person who is authorized by law to receive the same; (c) to a tribunal hearing pertinent proceedings relative to the contract or agreement; and (d) to confidential entities and persons relative to the disclosing party like its banks, consultants, financiers and advisors. The second (item b) exception provides a reasonable dimension to the assailed confidentiality clause.

Needless to stress, the obligation of the government to make information available

cannot be exaggerated.[145] The constitutional right to information does not mean that every day and every hour is open house in government offices having custody of the desired documents.[146] Petitioners have not sufficiently shown, thus cannot really be heard to complain, that they had been unreasonably denied access to information with regard to the MNTC or SMMS STOA. Besides, the remedy for unreasonable denial of information that is a matter of public concern is by way of mandamus.[147]

Finally, as to petitioners catch-all claim that the STOAs are disadvantageous to the

government, as therein represented by the TRB, suffice it to state for the nonce that behind these agreements are the Boards expertise and policy determination on technical, financial and operational matters involving expressways and tollways. It is not for courts to look into the wisdom and practicalities behind the exercise by the TRB of its contract-making prerogatives under P.D. Nos. 1112, 1113 and 1894, absent proof of grave abuse of discretion which would justify judicial review. In this regard, the Court recalls what it wrote in G & S Transport Corporation v. Court of Appeals,[148] to wit:

x x x courts, as a rule, refuse to interfere with proceedings undertaken by administrative bodies or officials in the exercise of administrative functions. This is because such bodies are generally better equipped technically to decide administrative questions and that non-legal factors, such as government policy on the matter are usually involved in the decision.

SIXTH ISSUE: PUBLIC BIDDING NOT REQUIRED

Private petitioners would finally maintain that public bidding is required for the SMMS

and the North Luzon/South Luzon Tollways, partaking as these projects allegedly do of the nature of a BOT infrastructure undertaking under the BOT Law. Prescinding from this premise, they would conclude that the STOAs in question and related preliminary and post-STOA agreements are null and void for want of the necessary public bidding required for government infrastructure projects.

The contention is patently flawed. The BOT Law does not squarely apply to the peculiar case of PNCC, which exercised its

prerogatives and obligations under its franchise to pursue the construction, rehabilitation and expansion of the tollways with chosen partners. The tollway projects may very well qualify as a build-operate-transfer undertaking. However, given that the projects in the instant case have been undertaken by PNCC in the exercise of its franchise under P.D. Nos. 1113 and 1894, in joint partnership with its chosen partners at the time when it was held valid to do so by the OGCC and the DOJ, the public bidding provisions under the BOT Law do not strictly apply. For, as aptly noted by the OSG, the subject STOAs are not ordinary contracts for the construction of government infrastructure projects, which requires under the Government Procurement Reform Act or the now-repealed P.D. 1594,[149] public bidding as the preferred mode of contract award. Neither are they contracts where financing or financial guarantees for the project are obtained from the government. Rather, the STOAs actually constitute a statutorily-authorized transfer or assignment of usufruct of PNCCs existing franchise to construct, maintain and operate expressways.[150]

The conclusion would perhaps be different if the tollway projects were to be prosecuted

by an outfit completely different from, and not related to, PNCC. In such a scenario, the entity awarded the winning bid in a BOT-scheme infrastructure project will have to construct, operate

and maintain the tollways through an automatic grant of a franchise or TOC, in which case, public bidding is required under the law.

Where, in the instant case, a franchisee undertakes the tollway projects of construction,

rehabilitation and expansion of the tollways under its franchise, there is no need for a public bidding. In pursuing the projects with the vast resource requirements, the franchisee can partner with other investors, which it may choose in the exercise of its management prerogatives. In this case, no public bidding is required upon the franchisee in choosing its partners as such process was done in the exercise of management prerogatives and in pursuit of its right of delectus personae.[151] Thus, the subject tollway projects were undertaken by companies, which are the product of the joint ventures between PNCC and its chosen partners.

Petitioners Francisco and Hizons assertions about the TRB awarding the tollway projects

to favored companies, unsubstantiated as they are, need no belaboring. Suffice it to state that the discretion to choose who shall stand as critical JV partners remained all along with PNCC, at least theoretically. Needless to say, the records do not show that the TRB committed an oversight as an administrative body over any aspect of tollway operations with regard to PNCCs selection of partners.

The foregoing disquisitions considered, there is no more point in passing upon the

propriety of prohibiting or enjoining, on the ground of unconstitutionality or grave abuse of discretion, the implementation of the initial toll rates and/or the adjusted toll rates for the SMSS, expanded NLEX and SLEX, as authorized by the separate TRB resolutions, subject of and originally challenged in these proceedings.

These TRB resolutions and the STOAs upon which they are predicated have long been in

effect. The parties have acted on these issuances and contracts whose existence, as an operative fact, cannot be ignored, let alone erased, even if the charge of unconstitutionality is given currency.

While not exactly of governing applicability in this case, what the Court wrote

in De Agbayani v. Philippine National Bank,[152] on the operative fact doctrine is apropos:

x x x When the courts declare a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern. Administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws of the Constitution. .

Such a view has support in logic and possesses the merit of simplicity. It

may not however be sufficiently realistic. It does not admit of doubt that prior to the declaration of nullity such challenged legislative or executive act must have been in force and had to be complied with. This is so as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties may have acted under it and may have changed their positions. What could be more fitting than that in a subsequent litigation regard be had to what has been done while such legislative or executive act was in operation and presumed to be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its existence as a fact must be reckoned with. This is merely to reflect awareness that precisely because the judiciary is the governmental organ which has the final say on whether or not a legislative or executive measure is valid, a period of time may have elapsed before it can exercise the power of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its quality of fairness and justice then, if there be no recognition of what had transpired prior to such adjudication.

In the language of an American Supreme Court decision: The actual

existence of a statute, prior to such a determination [of constitutionality], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration x x x. (Emphasis in the original.) The petitioners in the first three (3) petitions and the respondent in the fourth have not

so said explicitly, but their brief is against the issuance of P.D. Nos. 1112, 1113 and 1894, which conferred a package of express and implied powers and discretion to the TRB and the President resulting in the execution of what is perceived to be offending STOAs and the runaway collection of illegal toll fees. And they have come to the Court to strike down all these issuances, agreements and exactions. While the Court is not insensitive to their concerns, the rule is that all reasonable doubts should be resolved in favor of the constitutionality of a statute,[153] and the validity of the acts taken in pursuant thereof. It follows, therefore, that the Court will not set aside a law as violative of the Constitution except in a clear case of breach[154] and only as a last resort.[155]And as the theory of separation of powers prescribes, the Court does not pass upon questions of wisdom, expediency and justice of legislation. To Us, petitioners and respondent YPES in the fourth petition have not discharged the heavy burden of demonstrating in a clear and convincing manner the unconstitutionality of the decrees challenged or the invalidity of assailed acts of the President and the TRB. Because they failed to

do so, the Court must uphold the presumptive constitutionality and validity of the provisions of the three decrees in question, and the subject contracts and TOCs.

Regarding petitioner Franciscos Supplemental Petition, the toll rates, the collection of which in the amount based on the formula and assumptions set forth in the law, and the adverted STOA dated February 1, 2006 and subject of the TRO issued on August 13, 2010, has been duly published[156] and approved by the TRB, as required by Section 5 of P.D. 1112. [157] And the party-concessionaires have adequately demonstrated, and the TRB has virtually acknowledged[158] that the said rates subject of the TRO partake of the nature of opening or initial toll rates, which have not yet been implemented since the time the SLTC STOA took effect.[159] To note, the toll rates subject of the TRO were approved and are to be implemented in connection with the new facility, such as Project Toll Roads 1 and 2 pursuant to the new SLTC STOA and the expanded and rehabilitated SLEX.[160] As earlier discussed, public hearing is not required in the fixing and implementation of initial toll rates. But an interested party aggrieved by the initial rates imposed is not without any resource as he may, within the time frame provided by Section 8 (b) of P.D. 1894, repair to the TRB for review and thereafter to the OP.[161] As expressly provided in the same section, however, the pendency of the petition for review, if there be any, shall not suspend the enforceability and collection of the toll in question. In net effect, the challenge before the Court of the SLEX toll rate imposition is premature. However, the Court treats this Supplemental Petition assailing the toll rates covered by the TRB Notice of Toll Rates published on June 6, 2010 as a petition for review filed under P.D. 1894, and hereby remands the same to the TRB for a review of the questioned rates to determine the propriety thereof.

WHEREFORE, the petitions in G.R. Nos. 166910 and 173630 are hereby DENIED for lack

of merit. Accordingly, We declare as VALID AND CONSTITUTIONALthe following: 1. the Supplemental Toll Operation Agreement dated April 30, 1998 covering

the North Luzon Tollway Project and the TRB Board Resolution No. 2005-4 issued pursuant thereto;

2. the Supplemental Toll Operation Agreement dated November 27, 1995

covering the South Metro Manila Skyway and the TRB Board Resolution No. 2004-53 and previous TRB resolutions issued pursuant thereto;

3. the Supplemental Toll Operation Agreement covering the South Luzon

Tollway Project or South Luzon Expressway and the TRB Board resolutions issued pursuant to the said agreement, particularly the TRB Board resolutions allowing the toll rate increases that are supposed to have been implemented on June 30, 2010;

4. Section 3, paragraph (a) of Presidential Decree No. 1112, otherwise known as the Toll Operation Decree, in relation to Section 3, paragraph (d) thereof and Section 8, paragraph (b) of Presidential Decree No. 1894; and

5. Section 3, paragraph (e) 3 of P.D. No. 1112 and Section 13 of P.D. No. 1894.

We however declare Clause 11.7 of the Supplemental Toll Operation Agreement

between the Republic of the Philippines, represented by respondent TRB, as grantor, the Philippine National Construction Corporation, as franchisee, and the Manila North Tollways Corporation (MNTC) dated April 30, 1998; and the clause including if necessary an extension of the CONCESSION PERIOD which in no case shall exceed a maximum period of fifty (50) years in Clause 17.5 of the same STOA, as VOID andUNCONSTITUTIONAL for being contrary to Section 2, Article XII of the 1987 Constitution. We likewise declare Clauses 8.08 (2) & (3) of the Supplemental Toll Operation Agreement between the Republic of the Philippines, represented by respondent TRB, as grantor, the Philippine National Construction Corporation as franchisee, the South Luzon Tollway Corporation as investor, and the Manila Toll Expressway Systems, Inc. as operator, dated February 1, 2006, as VOID and UNCONSTITUTIONAL.

The petition in G.R. No. 169917 is likewise hereby DENIED for lack of merit. We declare

as VALID and CONSTITUTIONAL the following: 1. Notice of Approval dated May 16, 1995 by former President Fidel V. Ramos

on the assignment of PNCCs usufructuary rights; 2. the Joint Venture Agreement dated August 29, 1995; 3. the Joint Investment Proposal, etc. dated June 16, 1996; 4. the Supplemental Toll Operation Agreement (STOA) dated April 30, 1998 and

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

5. the provisional toll rate increases published February 9, 2005, granted by the

TRB. The petition in G.R. No. 183599 is GRANTED. Accordingly, the Decision dated June 23,

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

In view of the foregoing dispositions in the petitions at bar, the TRO issued by the Court on August 13, 2010 is hereby ordered LIFTED, with respect to the petitions in G.R. Nos. 166910, 169917, 173630 and 183599.

The challenge contained in the Supplemental Petition in G.R. No. 166910 against the toll

rates subject of the TRB Notice of Toll Rates published on June 6, 2010, for the SLEX projects, Toll Road Projects 1 and 2 of the new SLTC STOA, and the expanded and rehabilitated SLEX, is REMANDED to the TRB for a review of the assailed toll rates to determine whether SLTC and MATES are entitled to the toll fees.

No Cost. SO ORDERED.

EN BANC

METROPOLITAN CEBU WATER DISTRICT (MCWD),Petitioner, - versus - MARGARITA A. ADALA,Respondent.

G.R. No. 168914 Present:

PUNO, C.J.,QUISUMBING,*

YNARES-SANTIAGO,SANDOVAL-GUTIERREZ,**

CARPIO,AUSTRIA-MARTINEZ,CORONA,CARPIO MORALES,AZCUNA,TINGA,CHICO-NAZARIO,GARCIA,VELASCO, JR., andNACHURA, JJ.

Promulgated:July 4, 2007

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

D E C I S I O N

CARPIO MORALES, J.:The Decision of the Regional Trial Court (RTC) of Cebu dated February 10, 2005, which affirmed in toto the Decision of the National Water Resources Board (NWRB) datedSeptember 22, 2003 in favor of Margarita A. Adala, respondent, is being challenged in the present petition for review on certiorari. Respondent filed on October 24, 2002 an application with the NWRB for the issuance of a Certificate of Public Convenience (CPC) to operate and maintain waterworks system in sitios San Vicente, Fatima, and Sambag in Barangay Bulacao, Cebu City. At the initial hearing of December 16, 2002 during which respondent submitted proof of compliance with jurisdictional requirements of notice and publication, herein petitioner Metropolitan Cebu Water District, a government-owned and controlled corporation created pursuant to P.D. 198[1] which took effect upon its issuance by then President Marcos on May 25, 1973, as amended, appeared through its lawyers to oppose the application. While petitioner filed a formal opposition by mail, a copy thereof had not, on December 16, 2002, yet been received by the NWRB, the day of the hearing. Counsel for respondent, who received a copy of petitioners Opposition dated December 12, 2002 earlier that morning, volunteered to give a copy thereof to the hearing officer.[2]

In its Opposition, petitioner prayed for the denial of respondents application on the following grounds: (1) petitioners Board of Directors had not consented to the issuance of the franchise applied for, such consent being a mandatory condition pursuant to P.D. 198, (2) the proposed waterworks would interfere with petitioners water supply which it has the right to protect, and (3) the water needs of the residents in the subject area was already being well served by petitioner. After hearing and an ocular inspection of the area, the NWRB, by Decision dated September 22, 2003, dismissed petitioners Opposition for lack of merit and/or failure to state the cause of action[3] and ruled in favor of respondent as follows:

PREMISES ALL CONSIDERED, and finding that Applicant is legally and financially qualified to operate and maintain the subject waterworks system, and that said operation shall redound to the benefit of the of the [sic] consumers of Sitios San Vicente, Fatima and Sambag at Bulacao Pardo, Cebu City, thereby promoting public service in a proper and suitable manner, the instant application for a

Certificate of Public Convenience (CPC) is, hereby, GRANTED for a period of five (5) years with authority to charge the proposed rates herein set effective upon approval as follows:

Consumption Blocks

Proposed Rates

0-10 cu. m. P125.00(min. charge)11-20 cu. m. 13.50 per cu. m.21-30 cu. m. 14.50 per cu. m.31-40 cu. m. 35.00 per cu. m.41-50 cu. m. 37.00 per cu. m.51-60 cu. m. 38.00 per cu. m.61-70 cu. m. 40.00 per cu. m.71-100 cu. m. 45.00 per cu. m.Over 100 cu. m. 50.00 per cu. m.

The Rules and Regulations, hereto, attached for the operation of the waterworks system should be strictly complied with. Since the average production is below average day demand, it is recommended to construct another well or increase the well horsepower from 1.5 - 3.00 Hp to satisfy the water requirement of the consumers. Moreover, the rates herein approved should be posted by GRANTEE at conspicuous places within the area serviced by it, within seven (7) calendar days from notice of this Decision. SO ORDERED.[4]

Its motion for reconsideration having been denied by the NWRB by Resolution of May 17, 2004, petitioner appealed the case to the RTC of Cebu City. As mentioned early on, the RTC denied the appeal and upheld the Decision of the NWRB by Decision dated February 10, 2005. And the RTC denied too petitioners motion for reconsideration by Order of May 13, 2005. Hence, the present petition for review raising the following questions of law:

i. WHETHER OR NOT THE CONSENT OF THE BOARD OF DIRECTORS OF THE WATER DISTRICT IS A CONDITION SINE QUA NON TO THE GRANT OF CERTIFICATE OF PUBLIC CONVENIENCE BY THE NATIONAL WATER RESOURCES BOARD UPON OPERATORS OF WATERWORKS WITHIN THE SERVICE AREA OF THE WATER DISTRICT?

ii. WHETHER THE TERM FRANCHISE AS USED IN SECTION 47 OF PRESIDENTIAL

DECREE 198, AS AMENDED MEANS A FRANCHISE GRANTED BY CONGRESS THROUGH LEGISLATION ONLY OR DOES IT ALSO INCLUDE IN ITS MEANING A CERTIFICATE OF PUBLIC CONVENIENCE ISSUED BY THE NATIONAL WATER RESOURCES BOARD FOR THE MAINTENANCE OF WATERWORKS SYSTEM OR WATER SUPPLY SERVICE?[5]

Before discussing these substantive issues, a resolution of the procedural grounds raised by respondent for the outright denial of the petition is in order. By respondents claim, petitioners General Manager, Engineer Armando H. Paredes, who filed the present petition and signed the accompanying verification and certification of non-forum shopping, was not specifically authorized for that purpose. Respondent cites Premium Marble Resources v. Court of Appeals[6] where this Court held that, in the absence of a board resolution authorizing a person to act for and in behalf of a corporation, the action filed in its behalf must fail since the power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. Respondent likewise cites ABS-CBN Broadcasting Corporation v. Court of Appeals[7] where this Court held that [f]or such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so. (Emphasis supplied by respondent) That there is a board resolution authorizing Engineer Paredes to file cases in behalf of petitioner is not disputed. Attached to the petition is petitioners Board of Directors Resolution No. 015-2004, the relevant portion of which states:

RESOLVE[D], AS IT IS HEREBY RESOLVED, to authorize the General Manager, ENGR. ARMANDO H. PAREDES, to file in behalf of the Metropolitan Cebu Water Districtexpropriation and other cases and to affirm and confirm above-stated authority with respect to previous cases filed by MCWD.

x x x x[8] (Emphasis and underscoring supplied)

To respondent, however, the board resolution is invalid and ineffective for being a roving authority and not a specific resolution pursuant to the ruling in ABS-CBN.

That the subject board resolution does not authorize Engineer Paredes to file the instant petition in particular but expropriation and other cases does not, by itself, render the authorization invalid or ineffective.

In BA Savings Bank v. Sia,[9] the therein board resolution, couched in words similar to the questioned resolution, authorized persons to represent the corporation, not for a specific case, but for a general class of cases. Significantly, the Court upheld its validity:

In the present case, the corporation's board of directors issued a Resolution specifically authorizing its lawyers "to act as their agents in any action or proceeding before the Supreme Court, the Court of Appeals, or any other tribunal or agency[;] and to sign, execute and deliver in connection therewith the necessary pleadings, motions, verification, affidavit of merit,certificate of non-forum shopping and other instruments necessary for such action and proceeding." The Resolution was sufficient to vest such persons with the authority to bind the corporation and was specific enough as to the acts they were empowered to do. (Emphasis and underscoring supplied, italics in the original)

Nonetheless, while the questioned resolution sufficiently identifies the kind of cases which Engineer Paredes may file in petitioners behalf, the same does not authorize him for the specific act of signing verifications and certifications against forum shopping. For it merely authorizes Engineer Paredes to file cases in behalf of the corporation. There is no mention of signing verifications and certifications against forum shopping, or, for that matter, any document of whatever nature.

A board resolution purporting to authorize a person to sign documents in behalf of the corporation must explicitly vest such authority. BPI Leasing Corporation v. Court of Appeals[10] so instructs:

Corporations have no powers except those expressly conferred upon them by the Corporation Code and those that are implied by or are incidental to its existence. These powers are exercised through their board of directors and/or duly authorized officers and agents. Hence, physical acts, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by specific act of the board of directors.

The records are bereft of the authority of BLC's [BPI Leasing Corporation] counsel to institute the present petition and to sign the certification of non- forum shopping. While said counsel may be the counsel of record for BLC, the representation does not vest upon him the authority to execute the certification on behalf of his client. There must be a resolution issued by the board of directors that specifically authorizes him to institute the petition and execute the certification, for it is only then that his actions can be legally binding upon BLC.(Emphasis, italics and underscoring supplied)

It bears noting, moreover, that Rule 13 Section 2 of the Rules of Court merely defines filing as the act of presenting the pleading or other paper to the clerk of court. Since the signing of verifications and certifications against forum shopping is not integral to the act of filing, this may not be deemed as necessarily included in an authorization merely to file cases. Engineer Paredes not having been specifically authorized to sign the verification and certification against forum shopping in petitioners behalf, the instant petition may be dismissed outright. Technicality aside, the petition just the same merits dismissal. In support of its contention that the consent of its Board of Directors is a condition sine qua non for the grant of the CPC applied for by respondent, petitioner cites Section 47 of P.D. 198[11] which states:

Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person or agency for domestic, industrial or commercial water service within the district or any portion thereofunless and except to the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution, however, shall be subject to review by the Administration.(Emphasis and underscoring supplied)

There being no such consent on the part of its board of directors, petitioner concludes that respondents application for CPC should be denied. Both parties arguments center, in the main, on the scope of the word franchise as used in the above-quoted provision.

Petitioner contends that franchise should be broadly interpreted, such that the prohibition against its grant to other entities without the consent of the districts board of directors extends to the issuance of CPCs. A contrary reading, petitioner adds, would result in absurd consequences, for it would mean that Congress power to grant franchises for the operation of waterworks systems cannot be exercised without the consent of water districts.

Respondent, on the other hand, proffers that the same prohibition only applies to

franchises in the strict sense those granted by Congress by means of statute and does not extend to CPCs granted by agencies such as the NWRB. Respondent quotes the NWRB Resolution dated May 17, 2004 which distinguished a franchise from a CPC, thus:

A CPC is formal written authority issued by quasi-judicial bodies for the operation and maintenance of a public utility for which a franchise is not required by law and a CPC issued by this Board is an authority to operate and maintain a waterworks system or water supply service. On the other hand, a franchise is privilege or authority to operate appropriate private property for public use vested by Congress through legislation. Clearly, therefore, a CPC is different from a franchise and Section 47 of Presidential Decree 198 refers only to franchise.Accordingly, the possession of franchise by a water district does not bar the issuance of a CPC for an area covered by the water district. (Emphasis and underscoring supplied by respondent)

Petitioners position that an overly strict construction of the term franchise as used in Section 47 of P.D. 198 would lead to an absurd result impresses. If franchises, in this context, were strictly understood to mean an authorization issuing directly from the legislature, it would follow that, while Congress cannot issue franchises for operating waterworks systems without the water districts consent, the NWRB may keep on issuing CPCs authorizing the very same act even without such consent. In effect, not only would the NWRB be subject to less constraints than Congress in issuing franchises. The exclusive character of the franchise provided for by Section 47 would be illusory.

Moreover, this Court, in Philippine Airlines, Inc. v. Civil Aeronautics Board,[12] has construed the term franchise broadly so as to include, not only authorizations issuing directly from Congress in the form of statute, but also those granted by administrative agencies to which the power to grant franchises has been delegated by Congress, to wit:

Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation of certain public utilities. With the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency towards the delegation of greater powers by the legislature, and towards the approval of the practice by the courts. It is generally recognized that a franchise may be derived indirectly from the state through a duly designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to agencies other than those of a legislative nature. In pursuance of this, it has been held that privileges conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the Legislature.[13]

That the legislative authority in this instance, then President Marcos [14] intended to delegate its power to issue franchises in the case of water districts is clear from the fact that, pursuant to the procedure outlined in P.D. 198, it no longer plays a direct role in authorizing the formation and maintenance of water districts, it having vested the same to local legislative bodies and the Local Water Utilities Administration (LWUA).

Sections 6 and 7 of P.D. 198, as amended, state:

SECTION 6. Formation of District. This Act is the source of authorization and power to form and maintain a district. Once formed, a district is subject to the provisions of this Act and not under the jurisdiction of any political subdivision. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public service and supplying public wants. As such, a district shall exercise the powers, rights and privileges given to private corporations under existing laws, in addition to the powers granted in, and subject to such restrictions imposed, under this Act. To form a district, the legislative body of any city, municipality or province shall enact a resolution containing the following: (a) The name of the local water district, which shall include the name of the city, municipality, or province, or region thereof, served by said system, followed by the words "Water District". (b) A description of the boundary of the district. In the case of a city or municipality, such boundary may include all lands within the city or municipality. A district may include one or more municipalities, cities or provinces, or portions thereof: Provided, That such municipalities, cities or provinces, or portions thereof, cover a contiguous area.

(c) A statement completely transferring any and all waterworks and/or sewerage facilities managed, operated by or under the control of such city, municipality or province to such district upon the filing of resolution forming the district. (d) A statement identifying the purpose for which the district is formed, which shall include those purposes outlined in Section 5 above. (e) The names of the initial directors of the district with the date of expiration of the term of office for each which shall be on the 31st of December of first, second, or third even-numbered year after assuming office, as set forth in Section 11 hereof. (f) A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 45 of this Title. (g) A statement acknowledging the powers, rights and obligations as set forth in Section 25 of this Title.Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve, alter or affect the district beyond that specifically provided for in this Act. If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single district, a similar resolution shall be adopted in each city, municipality and province; or the city, municipality or province in which 75% of the total active service connections are situated shall pass an initial resolution to be concurred in by the other cities, municipalities or provinces.

SECTION 7. Filing of Resolution. A certified copy of the resolution or resolutions forming a district shall be forwarded to the office of the Secretary of Administration. If found by the Administration to conform to the requirements of Section 6 and the policy objectives in Section 2, the resolution shall be duly filed. The district shall be deemed duly formed and existing upon the date of such filing. A certified copy of said resolution showing the stamp of the Administration shall be maintained in the office of the district. Upon such filing, the local government or governments concerned shall lose ownership, supervision and control or any right whatsoever over the district except as provided herein. (Emphasis and underscoring supplied)

It bears noting that once a district is duly formed and existing after following the above procedure, it acquires the exclusive franchise referred to in Section 47. Thus, P.D. 198 itself, in

harmony with Philippine Airlines, Inc. v. Civil Aeronautics Board,[15] gives the name franchise to an authorization that does not proceed directly from the legislature.

It would thus be incongruous to adopt in this instance the strict interpretation proffered by respondent and exclude from the scope of the term franchise the CPCs issued by the NWRB.[16]

Nonetheless, while the prohibition in Section 47 of P.D. 198 applies to the issuance of CPCs for the reasons discussed above, the same provision must be deemed void ab initio for being irreconcilable with Article XIV Section 5 of the 1973 Constitution which was ratified on January 17, 1973 the constitution in force when P.D. 198 was issued on May 25, 1973. Thus, Section 5 of Art. XIV of the 1973 Constitution reads:

SECTION 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens , nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Batasang Pambansa when the public interest so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis and underscoring supplied)

This provision has been substantially reproduced in Article XII Section 11 of the 1987 Constitution, including the prohibition against exclusive franchises.[17]

In view of the purposes for which they are established,[18] water districts fall under the term public utility as defined in the case of National Power Corporation v. Court of Appeals:[19]

A public utility is a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service. x x x (Emphasis and underscoring supplied)

It bears noting, moreover, that as early as 1933, the Court held that a particular water district the Metropolitan Water District is a public utility.[20]

The ruling in National Waterworks and Sewerage Authority v. NWSA Consolidated Unions [21] is also instructive:

We agree with petitioner that the NAWASA is a public utility because its primary function is to construct, maintain and operate water reservoirs and waterworks for the purpose ofsupplying

water to the inhabitants, as well as consolidate and centralize all water supplies and drainage systems in the Philippines. x x x (Emphasis supplied)

Since Section 47 of P.D. 198, which vests an exclusive franchise upon public utilities, is clearly repugnant to Article XIV, Section 5 of the 1973 Constitution,[22] it isunconstitutional and may not, therefore, be relied upon by petitioner in support of its opposition against respondents application for CPC and the subsequent grant thereof by the NWRB. WHEREFORE, Section 47 of P.D. 198 is unconstitutional. The Petition is thus, in light of the foregoing discussions, DISMISSED.

SO ORDERED.

G.R. No. 166471 March 22, 2011

TAWANG MULTI-PURPOSE COOPERATIVE Petitioner, vs.LA TRINIDAD WATER DISTRICT, Respondent.

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review on certiorari under Rule 45 of the Rules of Court. The petition1 challenges the 1 October 2004 Judgment2 and 6 November 2004 Order3 of the Regional Trial Court (RTC), Judicial Region 1, Branch 62, La Trinidad, Benguet, in Civil Case No. 03-CV-1878.

The Facts

Tawang Multi-Purpose Cooperative (TMPC) is a cooperative, registered with the Cooperative Development Authority, and organized to provide domestic water services in Barangay Tawang, La Trinidad, Benguet.

La Trinidad Water District (LTWD) is a local water utility created under Presidential Decree (PD) No. 198, as amended. It is authorized to supply water for domestic, industrial and commercial purposes within the municipality of La Trinidad, Benguet.

On 9 October 2000, TMPC filed with the National Water Resources Board (NWRB) an application for a certificate of public convenience (CPC) to operate and maintain a waterworks system in Barangay Tawang. LTWD opposed TMPC’s application. LTWD claimed that, under Section 47 of PD No. 198, as amended, its franchise is exclusive. Section 47 states that:

Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person or agency for domestic, industrial or commercial water service within the district or any portion thereof unless and except to the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution, however, shall be subject to review by the Administration.

In its Resolution No. 04-0702 dated 23 July 2002, the NWRB approved TMPC’s application for a CPC. In its 15 August 2002 Decision,4 the NWRB held that LTWD’s franchise cannot be exclusive since exclusive franchises are unconstitutional and found that TMPC is legally and financially qualified to operate and maintain a waterworks system. NWRB stated that:

With respect to LTWD’s opposition, this Board observes that:

1. It is a substantial reproduction of its opposition to the application for water permits previously filed by this same CPC applicant, under WUC No. 98-17 and 98-62 which was decided upon by this Board on April 27, 2000. The issues being raised by Oppositor had been already resolved when this Board said in pertinent portions of its decision:

"The authority granted to LTWD by virtue of P.D. 198 is not Exclusive. While Barangay Tawang is within their territorial jurisdiction, this does not mean that all others are excluded in engaging in such service, especially, if the district is not capable of supplying water within the area. This Board has time and again ruled that the "Exclusive Franchise" provision under P.D. 198 has misled most water districts to believe that it likewise extends to be [sic] the waters within their territorial boundaries. Such ideological adherence collides head on with the constitutional provision that "ALL WATERS AND NATURAL RESOURCES BELONG TO THE STATE". (Sec. 2, Art. XII) and that "No franchise, certificate or authorization for the operation of public [sic] shall be exclusive in character".

x x x x

All the foregoing premises all considered, and finding that Applicant is legally and financially qualified to operate and maintain a waterworks system; that the said operation shall redound to the benefit of the homeowners/residents of the subdivision, thereby, promoting public service in a proper and suitable manner, the instant application for a Certificate of Public Convenience is, hereby, GRANTED.5

LTWD filed a motion for reconsideration. In its 18 November 2002 Resolution,6 the NWRB denied the motion.

LTWD appealed to the RTC.

The RTC’s Ruling

In its 1 October 2004 Judgment, the RTC set aside the NWRB’s 23 July 2002 Resolution and 15 August 2002 Decision and cancelled TMPC’s CPC. The RTC held that Section 47 is valid. The RTC stated that:

The Constitution uses the term "exclusive in character". To give effect to this provision, a reasonable, practical and logical interpretation should be adopted without disregard to the ultimate purpose of the Constitution. What is this ultimate purpose? It is for the state, through its authorized agencies or instrumentalities, to be able to keep and maintain ultimate control and supervision over the operation of public utilities. Essential part of this control and supervision is the authority to grant a franchise for the operation of a public utility to any person or entity, and to amend or repeal an existing franchise to serve the requirements of public interest. Thus, what is repugnant to the Constitution is a grant of franchise "exclusive in character" so as to preclude the State itself from granting a franchise to any other person or entity than the present grantee when public interest so requires. In other words, no franchise of whatever nature can preclude the State, through its duly authorized agencies or instrumentalities, from granting franchise to any person or entity, or to repeal or amend a franchise already granted. Consequently, the Constitution does not necessarily prohibit a franchise that is exclusive on its face, meaning, that the grantee shall be allowed to exercise this present right or privilege to the exclusion of all others. Nonetheless, the grantee cannot set up its exclusive franchise against the ultimate authority of the State.7

TMPC filed a motion for reconsideration. In its 6 November 2004 Order, the RTC denied the motion. Hence, the present petition.

Issue

TMPC raises as issue that the RTC erred in holding that Section 47 of PD No. 198, as amended, is valid.

The Court’s Ruling

The petition is meritorious.

What cannot be legally done directly cannot be done indirectly. This rule is basic and, to a reasonable mind, does not need explanation. Indeed, if acts that cannot be legally done directly can be done indirectly, then all laws would be illusory.

In Alvarez v. PICOP Resources, Inc.,8 the Court held that, "What one cannot do directly, he cannot do indirectly."9In Akbayan Citizens Action Party v. Aquino,10 quoting Agan, Jr. v. Philippine International Air Terminals Co., Inc.,11 the Court held that, "This Court has long and

consistently adhered to the legal maxim that those that cannot be done directly cannot be done indirectly."12 In Central Bank Employees Association, Inc. v. Bangko Sentral ng Pilipinas,13 the Court held that, "No one is allowed to do indirectly what he is prohibited to do directly."14

The President, Congress and the Court cannot create directly franchises for the operation of a public utility that are exclusive in character. The 1935, 1973 and 1987 Constitutions expressly and clearly prohibit the creation of franchises that are exclusive in character. Section 8, Article XIII of the 1935 Constitution states that:

No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines, sixty per centum of the capital of which is owned by citizens of the Philippines, nor shall such franchise, certificate or authorization be exclusive in character or for a longer period than fifty years. (Empahsis supplied)

Section 5, Article XIV of the 1973 Constitution states that:

No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive in character or for a longer period than fifty years. (Emphasis supplied)

Section 11, Article XII of the 1987 Constitution states that:

No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive in character or for a longer period than fifty years. (Emphasis supplied)

Plain words do not require explanation. The 1935, 1973 and 1987 Constitutions are clear — franchises for the operation of a public utility cannot be exclusive in character. The 1935, 1973 and 1987 Constitutions expressly and clearly state that, "nor shall such franchise x x x be exclusive in character." There is no exception.

When the law is clear, there is nothing for the courts to do but to apply it. The duty of the Court is to apply the law the way it is worded. In Security Bank and Trust Company v. Regional Trial Court of Makati, Branch 61,15 the Court held that:

Basic is the rule of statutory construction that when the law is clear and unambiguous, the court is left with no alternative but to apply the same according to its clear language. As we have held in the case of Quijano v. Development Bank of the Philippines:

"x x x We cannot see any room for interpretation or construction in the clear and unambiguous language of the above-quoted provision of law. This Court had steadfastly adhered to the doctrine that its first and fundamental duty is the application of the law according to its express terms, interpretation being called for only when such literal application is impossible. No process of interpretation or construction need be resorted to where a provision of law peremptorily calls for application. Where a requirement or condition is made in explicit and unambiguous terms, no discretion is left to the judiciary. It must see to it that its mandate is obeyed."16 (Emphasis supplied)

In Republic of the Philippines v. Express Telecommunications Co., Inc.,17 the Court held that, "The Constitution is quite emphatic that the operation of a public utility shall not be exclusive."18 In Pilipino Telephone Corporation v. National Telecommunications Commission,19 the Court held that, "Neither Congress nor the NTC can grant an exclusive ‘franchise, certificate, or any other form of authorization’ to operate a public utility."20 In National Power Corp. v. Court of Appeals,21 the Court held that, "Exclusivity of any public franchise has not been favored by this Court such that in most, if not all, grants by the government to private corporations, the interpretation of rights, privileges or franchises is taken against the grantee."22 In Radio Communications of the Philippines, Inc. v. National Telecommunications Commission,23 the Court held that, "The Constitution mandates that a franchise cannot be exclusive in nature."24

Indeed, the President, Congress and the Court cannot create directly franchises that are exclusive in character. What the President, Congress and the Court cannot legally do directly they cannot do indirectly. Thus, the President, Congress and the Court cannot create indirectly franchises that are exclusive in character by allowing the Board of Directors (BOD) of a water district and the Local Water Utilities Administration (LWUA) to create franchises that are exclusive in character.

In PD No. 198, as amended, former President Ferdinand E. Marcos (President Marcos) created indirectly franchises that are exclusive in character by allowing the BOD of LTWD and the LWUA to create directly franchises that are exclusive in character. Section 47 of PD No. 198, as amended, allows the BOD and the LWUA to create directly franchises that are exclusive in character. Section 47 states:

Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person or agency for domestic, industrial or commercial water service within the district or any portion thereof unless and except to the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution, however, shall be subject to review by the Administration. (Emphasis supplied)

In case of conflict between the Constitution and a statute, the Constitution always prevails because the Constitution is the basic law to which all other laws must conform to. The duty of the Court is to uphold the Constitution and to declare void all laws that do not conform to it.

In Social Justice Society v. Dangerous Drugs Board,25 the Court held that, "It is basic that if a law or an administrative rule violates any norm of the Constitution, that issuance is null and void and has no effect. The Constitution is the basic law to which all laws must conform; no act shall be valid if it conflicts with the Constitution."26 In Sabio v. Gordon,27 the Court held that, "the Constitution is the highest law of the land. It is the ‘basic and paramount law to which all other laws must conform.’"28 In Atty. Macalintal v. Commission on Elections,29 the Court held that, "The Constitution is the fundamental and paramount law of the nation to which all other laws must conform and in accordance with which all private rights must be determined and all public authority administered. Laws that do not conform to the Constitution shall be stricken down for being unconstitutional."30 In Manila Prince Hotel v. Government Service Insurance System,31 the Court held that:

Under the doctrine of constitutional supremacy, if a law or contract violates any norm of the constitution that law or contract whether promulgated by the legislative or by the executive branch or entered into by private persons for private purposes is null and void and without any force and effect. Thus, since the Constitution is the fundamental, paramount and supreme law of the nation, it is deemed written in every statute and contract."32 (Emphasis supplied)

To reiterate, the 1935, 1973 and 1987 Constitutions expressly prohibit the creation of franchises that are exclusive in character. They uniformly command that "nor shall such franchise x x x be exclusive in character." This constitutional prohibition is absolute and accepts no exception. On the other hand, PD No. 198, as amended, allows the BOD of LTWD and LWUA to create franchises that are exclusive in character. Section 47 states that, "No franchise shall be granted to any other person or agency x x x unless and except to the extent that the board of directors consents thereto x x x subject to review by the Administration." Section 47 creates a glaring exception to the absolute prohibition in the Constitution. Clearly, it is patently unconstitutional.

Section 47 gives the BOD and the LWUA the authority to make an exception to the absolute prohibition in the Constitution. In short, the BOD and the LWUA are given the discretion to create franchises that are exclusive in character. The BOD and the LWUA are not even legislative bodies. The BOD is not a regulatory body but simply a management board of a water district. Indeed, neither the BOD nor the LWUA can be granted the power to create any exception to the absolute prohibition in the Constitution, a power that Congress itself cannot exercise.

In Metropolitan Cebu Water District v. Adala,33 the Court categorically declared Section 47 void. The Court held that:

Nonetheless, while the prohibition in Section 47 of P.D. 198 applies to the issuance of CPCs for the reasons discussed above, the same provision must be deemed void ab initio for being irreconcilable with Article XIV, Section 5 of the 1973 Constitution which was ratified on January 17, 1973 — the constitution in force when P.D. 198 was issued on May 25, 1973. Thus, Section 5 of Art. XIV of the 1973 Constitution reads:

"SECTION 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Batasang Pambansa when the public interest so requires. The State shall encourage equity participation in public utiltities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof."

This provision has been substantially reproduced in Article XII Section 11 of the 1987 Constitution, including the prohibition against exclusive franchises.

x x x x

Since Section 47 of P.D. 198, which vests an "exclusive franchise" upon public utilities, is clearly repugnant to Article XIV, Section 5 of the 1973 Constitution, it is unconstitutional and may not, therefore, be relied upon by petitioner in support of its opposition against respondent’s application for CPC and the subsequent grant thereof by the NWRB.

WHEREFORE, Section 47 of P.D. 198 is unconstitutional.34 (Emphasis supplied)

The dissenting opinion declares Section 47 valid and constitutional. In effect, the dissenting opinion holds that (1) President Marcos can create indirectly franchises that are exclusive in character; (2) the BOD can create directly franchises that are exclusive in character; (3) the LWUA can create directly franchises that are exclusive in character; and (4) the Court should allow the creation of franchises that are exclusive in character.

Stated differently, the dissenting opinion holds that (1) President Marcos can violate indirectly the Constitution; (2) the BOD can violate directly the Constitution; (3) the LWUA can violate directly the Constitution; and (4) the Court should allow the violation of the Constitution.

The dissenting opinion states that the BOD and the LWUA can create franchises that are exclusive in character "based on reasonable and legitimate grounds," and such creation "should not be construed as a violation of the constitutional mandate on the non-exclusivity of a franchise" because it "merely refers to regulation" which is part of "the government’s inherent right to exercise police power in regulating public utilities" and that their violation of the Constitution "would carry with it the legal presumption that public officers regularly perform their official functions." The dissenting opinion states that:

To begin with, a government agency’s refusal to grant a franchise to another entity, based on reasonable and legitimate grounds, should not be construed as a violation of the constitutional mandate on the non-exclusivity of a franchise; this merely refers to regulation, which the

Constitution does not prohibit. To say that a legal provision is unconstitutional simply because it enables a government instrumentality to determine the propriety of granting a franchise is contrary to the government’s inherent right to exercise police power in regulating public utilities for the protection of the public and the utilities themselves. The refusal of the local water district or the LWUA to consent to the grant of other franchises would carry with it the legal presumption that public officers regularly perform their official functions.

The dissenting opinion states two "reasonable and legitimate grounds" for the creation of exclusive franchise: (1) protection of "the government’s investment,"35 and (2) avoidance of "a situation where ruinous competition could compromise the supply of public utilities in poor and remote areas."36

There is no "reasonable and legitimate" ground to violate the Constitution. The Constitution should never be violated by anyone. Right or wrong, the President, Congress, the Court, the BOD and the LWUA have no choice but to follow the Constitution. Any act, however noble its intentions, is void if it violates the Constitution. This rule is basic.

In Social Justice Society,37 the Court held that, "In the discharge of their defined functions, the three departments of government have no choice but to yield obedience to the commands of the Constitution. Whatever limits it imposes must be observed."38 In Sabio,39 the Court held that, "the Constitution is the highest law of the land. It is ‘the basic and paramount law to which x x x all persons, including the highest officials of the land, must defer. No act shall be valid, however noble its intentions, if it conflicts with the Constitution.’"40 In Bengzon v. Drilon,41 the Court held that, "the three branches of government must discharge their respective functions within the limits of authority conferred by the Constitution."42 In Mutuc v. Commission on Elections,43 the Court held that, "The three departments of government in the discharge of the functions with which it is [sic] entrusted have no choice but to yield obedience to [the Constitution’s] commands. Whatever limits it imposes must be observed."44

Police power does not include the power to violate the Constitution. Police power is the plenary power vested in Congress to make laws not repugnant to the Constitution. This rule is basic.

In Metropolitan Manila Development Authority v. Viron Transportation Co., Inc.,45 the Court held that, "Police power is the plenary power vested in the legislature to make, ordain, and establish wholesome and reasonable laws, statutes and ordinances, not repugnant to the Constitution."46 In Carlos Superdrug Corp. v. Department of Social Welfare and Development,47 the Court held that, police power "is ‘the power vested in the legislature by the constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and ordinances x x x not repugnant to the constitution.’"48 In Metropolitan Manila Development Authority v. Garin,49 the Court held that, "police power, as an inherent attribute of sovereignty, is the power vested by the Constitution in the legislature to make, ordain, and establish all manner of wholesome and reasonable laws, statutes and ordinances x x x not repugnant to the Constitution."50

There is no question that the effect of Section 47 is the creation of franchises that are exclusive in character. Section 47 expressly allows the BOD and the LWUA to create franchises that are exclusive in character.

The dissenting opinion explains why the BOD and the LWUA should be allowed to create franchises that are exclusive in character — to protect "the government’s investment" and to avoid "a situation where ruinous competition could compromise the supply of public utilities in poor and remote areas." The dissenting opinion declares that these are "reasonable and legitimate grounds." The dissenting opinion also states that, "The refusal of the local water district or the LWUA to consent to the grant of other franchises would carry with it the legal presumption that public officers regularly perform their official functions."

When the effect of a law is unconstitutional, it is void. In Sabio,51 the Court held that, "A statute may be declared unconstitutional because it is not within the legislative power to enact; or it creates or establishes methods or forms that infringe constitutional principles; or its purpose or effect violates the Constitution or its basic principles."52 The effect of Section 47 violates the Constitution, thus, it is void.

In Strategic Alliance Development Corporation v. Radstock Securities Limited,53 the Court held that, "This Court must perform its duty to defend and uphold the Constitution."54 In Bengzon,55 the Court held that, "The Constitution expressly confers on the judiciary the power to maintain inviolate what it decrees."56 In Mutuc,57 the Court held that:

The concept of the Constitution as the fundamental law, setting forth the criterion for the validity of any public act whether proceeding from the highest official or the lowest functionary, is a postulate of our system of government. That is to manifest fealty to the rule of law, with priority accorded to that which occupies the topmost rung in the legal hierarchy. The three departments of government in the discharge of the functions with which it is [sic] entrusted have no choice but to yield obedience to its commands. Whatever limits it imposes must be observed. Congress in the enactment of statutes must ever be on guard lest the restrictions on its authority, whether substantive or formal, be transcended. The Presidency in the execution of the laws cannot ignore or disregard what it ordains. In its task of applying the law to the facts as found in deciding cases, the judiciary is called upon to maintain inviolate what is decreed by the fundamental law. Even its power of judicial review to pass upon the validity of the acts of the coordinate branches in the course of adjudication is a logical corollary of this basic principle that the Constitution is paramount. It overrides any governmental measure that fails to live up to its mandates. Thereby there is a recognition of its being the supreme law.58

Sustaining the RTC’s ruling would make a dangerous precedent. It will allow Congress to do indirectly what it cannot do directly. In order to circumvent the constitutional prohibition on franchises that are exclusive in character, all Congress has to do is to create a law allowing the BOD and the LWUA to create franchises that are exclusive in character, as in the present case.

WHEREFORE, we GRANT the petition. We DECLARE Section 47 of Presidential Decree No. 198UNCONSTITUTIONAL. We SET ASIDE the 1 October 2004 Judgment and 6 November 2004 Order of the Regional Trial Court, Judicial Region 1, Branch 62, La Trinidad, Benguet, in Civil Case No. 03-CV-1878 andREINSTATE the 23 July 2002 Resolution and 15 August 2002 Decision of the National Water Resources Board.

SO ORDERED.

G.R. No. 176579 October 9, 2012

HEIRS OF WILSON P. GAMBOA,* Petitioners, vs.FINANCE SECRETARYMARGARITO B. TEVES, FINANCE UNDERSECRETARYJOHN P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES AND EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.

PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.

R E S O L U T I O N

CARPIO, J.:

This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the Philippine Stock Exchange's (PSE) President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3) Napoleon L. Nazareno (Nazareno ),3and ( 4) the Securities and Exchange Commission (SEC)4 (collectively, movants ).

The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalfofthe SEC,5 assailing the 28 June 2011 Decision. However, it subsequently filed a Consolidated Comment on behalf of the State,6declaring expressly that it agrees with the Court's definition of the term "capital" in Section 11, Article XII of the Constitution. During the Oral Arguments on 26 June 2012, the OSG reiterated its position consistent with the Court's 28 June 2011 Decision.

We deny the motions for reconsideration.

I.Far-reaching implications of the legal issue justify

treatment of petition for declaratory relief as one for mandamus.

As we emphatically stated in the 28 June 2011 Decision, the interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-reaching implications to the national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second-class citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective control of the Philippine national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the threshold legal issue presented in this case.

Contrary to Pangilinan’s narrow view, the serious economic consequences resulting in the interpretation of the term "capital" in Section 11, Article XII of the Constitution undoubtedly demand an immediate adjudication of this issue. Simply put, the far-reaching implications of this issue justify the treatment of the petition as one for mandamus.7

In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court deemed it wise and expedient to resolve the case although the petition for declaratory relief could be outrightly dismissed for being procedurally defective. There, appellant admittedly had already committed a breach of the Public Service Act in relation to the Anti-Dummy Law since it had been employing non- American aliens long before the decision in a prior similar case. However, the main issue in Luzon Stevedoring was of transcendental importance, involving the exercise or enjoyment of rights, franchises, privileges, properties and businesses which only Filipinos and qualified corporations could exercise or enjoy under the Constitution and the statutes. Moreover, the same issue could be raised by appellant in an appropriate action. Thus, in Luzon Stevedoring the Court deemed it necessary to finally dispose of the case for the guidance of all concerned, despite the apparent procedural flaw in the petition.

The circumstances surrounding the present case, such as the supposed procedural defect of the petition and the pivotal legal issue involved, resemble those in Luzon Stevedoring. Consequently, in the interest of substantial justice and faithful adherence to the Constitution, we opted to resolve this case for the guidance of the public and all concerned parties.

II.No change of any long-standing rule;

thus, no redefinition of the term "capital."

Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long been settled and defined to refer to the total outstanding shares of stock, whether voting or non-voting. In fact, movants claim that the SEC, which is the administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in the Constitution and various statutes, has consistently adopted this particular definition in its numerous opinions.

Movants point out that with the 28 June 2011 Decision, the Court in effect introduced a "new" definition or "midstream redefinition"9 of the term "capital" in Section 11, Article XII of the Constitution.

This is egregious error.

For more than 75 years since the 1935 Constitution, the Court has not interpreted or defined the term "capital" found in various economic provisions of the 1935, 1973 and 1987 Constitutions. There has never been a judicial precedent interpreting the term "capital" in the 1935, 1973 and 1987 Constitutions, until now. Hence, it is patently wrong and utterly baseless to claim that the Court in defining the term "capital" in its 28 June 2011 Decision modified, reversed, or set aside the purported long-standing definition of the term "capital," which supposedly refers to the total outstanding shares of stock, whether voting or non-voting. To repeat, until the present case there has never been a Court ruling categorically defining the term "capital" found in the various economic provisions of the 1935, 1973 and 1987 Philippine Constitutions.

The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of the term "capital" as referring to both voting and non-voting shares (combined total of common and preferred shares) are, in the first place, conflicting and inconsistent. There is no basis whatsoever to the claim that the SEC and the DOJ have consistently and uniformly adopted a definition of the term "capital" contrary to the definition that this Court adopted in its 28 June 2011 Decision.

In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the term "capital" in Section 9, Article XIV of the 1973 Constitution was raised, that is, whether the term "capital" includes "both preferred and common stocks." The issue was raised in relation to a stock-swap transaction between a Filipino and a Japanese corporation, both stockholders of a domestic corporation that owned lands in the Philippines. Then Minister of Justice Estelito P. Mendoza ruled that the resulting ownership structure of the corporation would beunconstitutional because 60% of the voting stock would be owned by Japanese while Filipinos would own only 40% of the voting stock, although when the non-voting stock is added, Filipinos would own 60% of the combined voting and non-voting stock. This ownership structure is remarkably similar to the current ownership structure of PLDT. Minister Mendoza ruled:

x x x x

Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock (common and preferred) while the Japanese investors control sixty percent (60%) of the common (voting) shares.

It is your position that x x x since Section 9, Article XIV of the Constitution uses the word "capital," which is construed "to include both preferred and common shares" and "that where the law does not distinguish, the courts shall not distinguish."

x x x x

In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in question may not be constitutionally upheld. While it may be ordinary corporate practice to classify corporate shares into common voting shares and preferred non-voting shares, any arrangement which attempts to defeat the constitutional purpose should be eschewed. Thus, the resultant equity arrangement which would place ownership of 60%11 of the common (voting) shares in the Japanese group, while retaining 60% of the total percentage of common and preferred shares in Filipino hands would amount to circumvention of the principle of control by Philippine stockholders that is implicit in the 60% Philippine nationality requirement in the Constitution. (Emphasis supplied)

In short, Minister Mendoza categorically rejected the theory that the term "capital" in Section 9, Article XIV of the 1973 Constitution includes "both preferred and common stocks" treated as the same class of shares regardless of differences in voting rights and privileges. Minister Mendoza stressed that the 60-40 ownership requirement in favor of Filipino citizens in the Constitution is not complied with unless the corporation "satisfies the criterion of beneficial ownership" and that in applying the same "the primordial consideration is situs of control."

On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman Tan Pantaleon & San Jose, then SEC General Counsel Vernette G. Umali-Paco applied the Voting Control Test, that is, using only the voting stock to determine whether a corporation is a Philippine national. The Opinion states:

Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national because: (1) sixty percent (60%) of its outstanding capital stock entitled to vote is owned by a Philippine national, the Trustee; and (2) at least sixty percent (60%) of the ERF will accrue to the benefit of Philippine nationals. Still pursuant to the Control Test, MLRC’s investment in 60% of BFDC’s outstanding capital stock entitled to vote shall be deemed as of Philippine nationality, thereby qualifying BFDC to own private land.

Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine nationals, considering that: (1) sixty percent (60%) of their respective outstanding capital stock entitled to vote is owned by a Philippine national (i.e., by the Trustee, in the case of MLRC; and by MLRC, in the case of BFDC); and (2) at least 60% of their respective board of directors are Filipino citizens. (Boldfacing and italicization supplied)

Clearly, these DOJ and SEC opinions are compatible with the Court’s interpretation of the 60-40 ownership requirement in favor of Filipino citizens mandated by the Constitution for certain economic activities. At the same time, these opinions highlight the conflicting, contradictory,

and inconsistent positions taken by the DOJ and the SEC on the definition of the term "capital" found in the economic provisions of the Constitution.

The opinions issued by SEC legal officers do not have the force and effect of SEC rules and regulations because only the SEC en banc can adopt rules and regulations. As expressly provided in Section 4.6 of the Securities Regulation Code,12 the SEC cannot delegate to any of its individual Commissioner or staff the power to adopt any rule or regulation. Further, under Section 5.1 of the same Code, it is the SEC as a collegial body, and not any of its legal officers, that is empowered to issue opinions and approve rules and regulations. Thus:

4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department or office of the Commission, an individual Commissioner or staff member of the Commission exceptits review or appellate authority and its power to adopt, alter and supplement any rule or regulation.

The Commission may review upon its own initiative or upon the petition of any interested party any action of any department or office, individual Commissioner, or staff member of the Commission.

SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the following powers and functions:

x x x x

(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders;

x x x x (Emphasis supplied)

Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions that have the effect of SEC rules or regulations is ultra vires. Under Sections 4.6 and 5.1(g) of the Code, only the SEC en banc can "issue opinions" that have the force and effect of rules or regulations. Section 4.6 of the Code bars the SEC en banc from delegating to any individual Commissioner or staff the power to adopt rules or regulations. In short, any opinion of individual Commissioners or SEC legal officers does not constitute a rule or regulation of the SEC.

The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual commissioners or legal staff, is empowered to issue opinions which have the same binding effect as SEC rules and regulations, thus:

JUSTICE CARPIO:

So, under the law, it is the Commission En Banc that can issue an

SEC Opinion, correct?

COMMISSIONER GAITE:13

That’s correct, Your Honor.

JUSTICE CARPIO:

Can the Commission En Banc delegate this function to an SEC officer?

COMMISSIONER GAITE:

Yes, Your Honor, we have delegated it to the General Counsel.

JUSTICE CARPIO:

It can be delegated. What cannot be delegated by the Commission En Banc to a commissioner or an individual employee of the Commission?

COMMISSIONER GAITE:

Novel opinions that [have] to be decided by the En Banc...

JUSTICE CARPIO:

What cannot be delegated, among others, is the power to adopt or amend rules and regulations, correct?

COMMISSIONER GAITE:

That’s correct, Your Honor.

JUSTICE CARPIO:

So, you combine the two (2), the SEC officer, if delegated that power, can issue an opinion but that opinion does not constitute a rule or regulation, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

So, all of these opinions that you mentioned they are not rules and regulations, correct?

COMMISSIONER GAITE:

They are not rules and regulations.

JUSTICE CARPIO:

If they are not rules and regulations, they apply only to that particular situation and will not constitute a precedent, correct?

COMMISSIONER GAITE:

Yes, Your Honor.14 (Emphasis supplied)

Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and opinions on behalf of the SEC, has adopted even the Grandfather Rule in determining compliance with the 60-40 ownership requirement in favor of Filipino citizens mandated by the Constitution for certain economic activities. This prevailing SEC ruling, which the SEC correctly adopted to thwart any circumvention of the required Filipino "ownership and control," is laid down in the 25 March 2010 SEC en banc ruling in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et al.,15 to wit:

The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our natural resources. Necessarily, therefore, the Rule interpreting the constitutional provision should not diminish that right through the legal fiction of corporate ownership and control. But the constitutional provision, as interpreted and practiced via the 1967 SEC Rules, has favored foreigners contrary to the command of the Constitution. Hence, the Grandfather Rule must be applied to accurately determine the actual participation, both direct and indirect, of foreigners in a corporation engaged in a nationalized activity or business.

Compliance with the constitutional limitation(s) on engaging in nationalized activities must be determined by ascertaining if 60% of the investing corporation’s outstanding capital stock is owned by "Filipino citizens", or as interpreted, by natural or individual Filipino citizens. If such investing corporation is in turn owned to some extent by another investing corporation, the same process must be observed. One must not stop until the citizenships of the individual or natural stockholders of layer after layer of investing corporations have been established, the very essence of the Grandfather Rule.

Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather Rule. In one of the discussions on what is now Article XII of the present Constitution, the framers made the following exchange:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

MR. NOLLEDO. In teaching law, we are always faced with the question: ‘Where do we base the equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation’? Will the Committee please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who provided us a draft. The phrase that is contained here which we adopted from the UP draft is ‘60 percent of voting stock.’

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you. With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied; italicization in the original)

This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40 ownership requirement in favor of Filipino citizens in the Constitution to engage in certain economic activities applies not only to voting control of the corporation, but also to the beneficial ownership of the corporation. Thus, in our 28 June 2011 Decision we stated:

Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]." (Emphasis supplied)

Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a corporation is a "Philippine national."

The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions which respondents relied upon, is merely preliminary and an opinion only of such officers. To repeat, any such opinion does not constitute an SEC rule or regulation. In fact, many of these opinions contain a disclaimer which expressly states: "x x x the foregoing opinion is based solely on facts disclosed in your query and relevant only to the particular issue raised therein and shall not be used in the nature of a standing rule binding upon the Commission in other cases whether of similar or dissimilar circumstances."16 Thus, the opinions clearly make a caveat that they do not constitute binding precedents on any one, not even on the SEC itself.

Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the law are neither conclusive nor controlling and thus, do not bind the Court. It is hornbook doctrine that any interpretation of the law that administrative or quasi-judicial agencies make is only preliminary, never conclusive on the Court. The power to make a final interpretation of the law, in this case the term "capital" in Section 11, Article XII of the 1987 Constitution, lies with this Court, not with any other government entity.

In his motion for reconsideration, the PSE President cites the cases of National Telecommunications Commission v. Court of Appeals17 and Philippine Long Distance Telephone Company v. National Telecommunications Commission18 in arguing that the Court has already defined the term "capital" in Section 11, Article XII of the 1987 Constitution.19

The PSE President is grossly mistaken. In both cases of National Telecommunications v. Court of Appeals20 andPhilippine Long Distance Telephone Company v. National Telecommunications Commission,21 the Court did not define the term "capital" as found in Section 11, Article XII of the 1987 Constitution. In fact, these two cases never mentioned, discussed or cited Section 11, Article XII of the Constitution or any of its economic provisions, and thus cannot serve as precedent in the interpretation of Section 11, Article XII of the Constitution. These two cases dealt solely with the determination of the correct regulatory fees under Section 40(e) and (f) of the Public Service Act, to wit:

(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of other public services and/or in the regulation or fixing of their rates, twenty centavos for each one hundred pesos or fraction thereof, of the capital stock subscribed or paid, or if no shares have been issued, of the capital invested, or of the property and equipment whichever is higher.

(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or fraction thereof, of the increased capital. (Emphasis supplied)

The Court’s interpretation in these two cases of the terms "capital stock subscribed or paid," "capital stock" and "capital" does not pertain to, and cannot control, the definition of the term

"capital" as used in Section 11, Article XII of the Constitution, or any of the economic provisions of the Constitution where the term "capital" is found. The definition of the term "capital" found in the Constitution must not be taken out of context. A careful reading of these two cases reveals that the terms "capital stock subscribed or paid," "capital stock" and "capital" were defined solely to determine the basis for computing the supervision and regulation fees under Section 40(e) and (f) of the Public Service Act.

III.Filipinization of Public Utilities

The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land, embodies the ideals that the Constitution intends to achieve.22 The Preamble reads:

We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and humane society, and establish a Government that shall embody our ideals and aspirations, promote the common good, conserve and develop our patrimony, and secure to ourselves and our posterity, the blessings of independence and democracy under the rule of law and a regime of truth, justice, freedom, love, equality, and peace, do ordain and promulgate this Constitution. (Emphasis supplied)

Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State policy the development of a national economy "effectively controlled" by Filipinos:

Section 19. The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.

Fortifying the State policy of a Filipino-controlled economy, the Constitution decrees:

Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments. The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos.

The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in accordance with its national goals and priorities.23

Under Section 10, Article XII of the 1987 Constitution, Congress may "reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of

investments." Thus, in numerous laws Congress has reserved certain areas of investments to Filipino citizens or to corporations at least sixty percent of the "capital" of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521.

With respect to public utilities, the 1987 Constitution specifically ordains:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied)

This provision, which mandates the Filipinization of public utilities, requires that any form of authorization for the operation of public utilities shall be granted only to "citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens." "The provision is [an express] recognition of the sensitive and vital position of public utilities both in the national economy and for national security."24

The 1987 Constitution reserves the ownership and operation of public utilities exclusively to (1) Filipino citizens, or (2) corporations or associations at least 60 percent of whose "capital" is owned by Filipino citizens. Hence, in the case of individuals, only Filipino citizens can validly own and operate a public utility. In the case of corporations or associations, at least 60 percent of their "capital" must be owned by Filipino citizens. In other words, under Section 11, Article XII of the 1987 Constitution, to own and operate a public utility a corporation’s capital must at least be 60 percent owned by Philippine nationals.

IV.Definition of "Philippine National"

Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress enacted Republic Act No. 7042 or the Foreign Investments Act of 1991 (FIA), as amended, which defined a "Philippine national" as follows:

SEC. 3. Definitions. - As used in this Act:

a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of both corporations must be citizens of the Philippines, in order that the corporation, shall be considered a "Philippine national." (Boldfacing, italicization and underscoring supplied)

Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or a domestic corporation at least "60% of the capital stock outstanding and entitled to vote" is owned by Philippine citizens.

The definition of a "Philippine national" in the FIA reiterated the meaning of such term as provided in its predecessor statute, Executive Order No. 226 or the Omnibus Investments Code of 1987,25 which was issued by then President Corazon C. Aquino. Article 15 of this Code states:

Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic partnership or association wholly-owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of Directors of both corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine national. (Boldfacing, italicization and underscoring supplied)

Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no corporation x x x which is not a ‘Philippine national’ x x x shall do business

x x x in the Philippines x x x without first securing from the Board of Investments a written certificate to the effect that such business or economic activity x x x would not conflict with the Constitution or laws of the Philippines."27Thus, a "non-Philippine national" cannot own and operate a reserved economic activity like a public utility. This means, of course, that only a "Philippine national" can own and operate a public utility.

In turn, the definition of a "Philippine national" under Article 15 of the Omnibus Investments Code of 1987 was a reiteration of the meaning of such term as provided in Article 14 of the Omnibus Investments Code of 1981,28 to wit:

Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to vote of both corporations must be owned and held by the citizens of the Philippines and at least sixty per cent (60%) of the members of the Board of Directors of both corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine national. (Boldfacing, italicization and underscoring supplied)

Under Article 69(3) of the Omnibus Investments Code of 1981, "no corporation x x x which is not a ‘Philippine national’ x x x shall do business x x x in the Philippines x x x without first securing a written certificate from the Board of Investments to the effect that such business or economic activity x x x would not conflict with the Constitution or laws of the Philippines."29 Thus, a "non-Philippine national" cannot own and operate a reserved economic activity like a public utility. Again, this means that only a "Philippine national" can own and operate a public utility.

Prior to the Omnibus Investments Code of 1981, Republic Act No. 518630 or the Investment Incentives Act, which took effect on 16 September 1967, contained a similar definition of a "Philippine national," to wit:

(f) "Philippine National" shall mean a citizen of the Philippines; or a partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty per cent of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine National and at least sixty per cent of the fund will accrue to the benefit of Philippine Nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a registered enterprise, at least sixty per cent of the capital stock outstanding and entitled to vote of both corporations

must be owned and held by the citizens of the Philippines and at least sixty per cent of the members of the Board of Directors of both corporations must be citizens of the Philippines in order that the corporation shall be considered a Philippine National. (Boldfacing, italicization and underscoring supplied)

Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations Act, which took effect on 30 September 1968, if the investment in a domestic enterprise by non-Philippine nationals exceeds 30% of its outstanding capital stock, such enterprise must obtain prior approval from the Board of Investments before accepting such investment. Such approval shall not be granted if the investment "would conflict with existing constitutional provisions and laws regulating the degree of required ownership by Philippine nationals in the enterprise."31 A "non-Philippine national" cannot own and operate a reserved economic activity like a public utility. Again, this means that only a "Philippine national" can own and operate a public utility.

The FIA, like all its predecessor statutes, clearly defines a "Philippine national" as a Filipino citizen, or adomestic corporation "at least sixty percent (60%) of the capital stock outstanding and entitled to vote"is owned by Filipino citizens. A domestic corporation is a "Philippine national" only if at least 60% of its voting stock is owned by Filipino citizens. This definition of a "Philippine national" is crucial in the present case because the FIA reiterates and clarifies Section 11, Article XII of the 1987 Constitution, which limits the ownership and operation of public utilities to Filipino citizens or to corporations or associations at least 60% Filipino-owned.

The FIA is the basic law governing foreign investments in the Philippines, irrespective of the nature of business and area of investment. The FIA spells out the procedures by which non-Philippine nationals can invest in the Philippines. Among the key features of this law is the concept of a negative list or the Foreign Investments Negative List.32 Section 8 of the law states:

SEC. 8. List of Investment Areas Reserved to Philippine Nationals [Foreign Investment Negative List]. - The Foreign Investment Negative List shall have two 2 component lists: A and B:

a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws.

b. List B shall contain the areas of activities and enterprises regulated pursuant to law:

1. which are defense-related activities, requiring prior clearance and authorization from the Department of National Defense [DND] to engage in such activity, such as the manufacture, repair, storage and/or distribution of firearms, ammunition, lethal weapons, military ordinance, explosives, pyrotechnics and similar materials; unless such manufacturing or repair activity is specifically authorized, with a substantial export component, to a non-Philippine national by the Secretary of National Defense; or

2. which have implications on public health and morals, such as the manufacture and distribution of dangerous drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses and massage clinics. (Boldfacing, underscoring and italicization supplied)

Section 8 of the FIA enumerates the investment areas "reserved to Philippine nationals." Foreign Investment Negative List A consists of "areas of activities reserved to Philippine nationals by mandate of the Constitution and specific laws," where foreign equity participation in any enterprise shall be limited to the maximum percentage expressly prescribed by the Constitution and other specific laws. In short, to own and operate a public utility in the Philippines one must be a "Philippine national" as defined in the FIA. The FIA is abundant notice to foreign investors to what extent they can invest in public utilities in the Philippines.

To repeat, among the areas of investment covered by the Foreign Investment Negative List A is the ownership and operation of public utilities, which the Constitution expressly reserves to Filipino citizens and to corporations at least 60% owned by Filipino citizens. In other words, Negative List A of the FIA reserves the ownership and operation of public utilities only to "Philippine nationals," defined in Section 3(a) of the FIA as "(1) a citizen of the Philippines; x x x or (3) a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or (4) a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals."

Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of the Omnibus Investments Code of 1981, to the enactment of the Omnibus Investments Code of 1987, and to the passage of the present Foreign Investments Act of 1991, or for more than four decades, the statutory definition of the term "Philippine national" has been uniform and consistent: it means a Filipino citizen, or a domestic corporation at least 60% of the voting stock is owned by Filipinos. Likewise, these same statutes have uniformly and consistently required that only "Philippine nationals" could own and operate public utilities in the Philippines. The following exchange during the Oral Arguments is revealing:

JUSTICE CARPIO:

Counsel, I have some questions. You are aware of the Foreign Investments Act of 1991, x x x? And the FIA of 1991 took effect in 1991, correct? That’s over twenty (20) years ago, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And Section 8 of the Foreign Investments Act of 1991 states that []only Philippine nationals can own and operate public utilities[], correct?

COMMISSIONER GAITE:

Yes, Your Honor.

JUSTICE CARPIO:

And the same Foreign Investments Act of 1991 defines a "Philippine national" either as a citizen of the Philippines, or if it is a corporation at least sixty percent (60%) of the voting stock is owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And, you are also aware that under the predecessor law of the Foreign Investments Act of 1991, the Omnibus Investments Act of 1987, the same provisions apply: x x x only Philippine nationals can own and operate a public utility and the Philippine national, if it is a corporation, x x x sixty percent (60%) of the capital stock of that corporation must be owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And even prior to the Omnibus Investments Act of 1987, under the Omnibus Investments Act of 1981, the same rules apply: x x x only a Philippine national can own and operate a public utility and a Philippine national, if it is a corporation, sixty percent (60%) of its x x x voting stock, must be owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

And even prior to that, under [the]1967 Investments Incentives Act and the Foreign Company Act of 1968, the same rules applied, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

So, for the last four (4) decades, x x x, the law has been very consistent – only a Philippine national can own and operate a public utility, and a Philippine national, if it is a corporation, x x x at least sixty percent (60%) of the voting stock must be owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor.33 (Emphasis supplied)

Government agencies like the SEC cannot simply ignore Sections 3(a) and 8 of the FIA which categorically prescribe that certain economic activities, like the ownership and operation of public utilities, are reserved to corporations "at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines." Foreign Investment Negative List A refers to "activities reserved to Philippine nationals by mandate of the Constitution and specific laws." The FIA is the basic statute regulating foreign investments in the Philippines. Government agencies tasked with regulating or monitoring foreign investments, as well as counsels of foreign investors, should start with the FIA in determining to what extent a particular foreign investment is allowed in the Philippines. Foreign investors and their counsels who ignore the FIA do so at their own peril. Foreign investors and their counsels who rely on opinions of SEC legal officers that obviously contradict the FIA do so also at their own peril.

Occasional opinions of SEC legal officers that obviously contradict the FIA should immediately raise a red flag. There are already numerous opinions of SEC legal officers that cite the definition of a "Philippine national" in Section 3(a) of the FIA in determining whether a particular corporation is qualified to own and operate a nationalized or partially nationalized business in the Philippines. This shows that SEC legal officers are not only aware of, but also rely on and invoke, the provisions of the FIA in ascertaining the eligibility of a corporation to engage in partially nationalized industries. The following are some of such opinions:

1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;

2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine Overseas Employment Administration;

3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and Renato S. Calma;

4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos & Jardeleza;

5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De Los Angeles;

6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and

7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard S. Arbolado.

The SEC legal officers’ occasional but blatant disregard of the definition of the term "Philippine national" in the FIA signifies their lack of integrity and competence in resolving issues on the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution.

The PSE President argues that the term "Philippine national" defined in the FIA should be limited and interpreted to refer to corporations seeking to avail of tax and fiscal incentives under investment incentives laws and cannot be equated with the term "capital" in Section 11, Article XII of the 1987 Constitution. Pangilinan similarly contends that the FIA and its predecessor statutes do not apply to "companies which have not registered and obtained special incentives under the schemes established by those laws."

Both are desperately grasping at straws. The FIA does not grant tax or fiscal incentives to any enterprise. Tax and fiscal incentives to investments are granted separately under the Omnibus Investments Code of 1987, not under the FIA. In fact, the FIA expressly repealed Articles 44 to 56 of Book II of the Omnibus Investments Code of 1987, which articles previously regulated foreign investments in nationalized or partially nationalized industries.

The FIA is the applicable law regulating foreign investments in nationalized or partially nationalized industries. There is nothing in the FIA, or even in the Omnibus Investments Code of 1987 or its predecessor statutes, that states, expressly or impliedly, that the FIA or its predecessor statutes do not apply to enterprises not availing of tax and fiscal incentives under the Code. The FIA and its predecessor statutes apply to investments in all domestic enterprises, whether or not such enterprises enjoy tax and fiscal incentives under the Omnibus Investments Code of 1987 or its predecessor statutes. The reason is quite obvious – mere non-availment of tax and fiscal incentives by a non-Philippine national cannot exempt it from Section 11, Article XII of the Constitution regulating foreign investments in public utilities. In fact, the

Board of Investments’ Primer on Investment Policies in the Philippines,34 which is given out to foreign investors, provides:

PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES

Investors who do not seek incentives and/or whose chosen activities do not qualify for incentives, (i.e., the activity is not listed in the IPP, and they are not exporting at least 70% of their production) may go ahead and make the investments without seeking incentives. They only have to be guided by the Foreign Investments Negative List (FINL).

The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other areas outside of this list are fully open to foreign investors. (Emphasis supplied)

V.Right to elect directors, coupled with beneficial ownership,

translates to effective control.

The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the Constitution to engage in certain economic activities applies not only to voting control of the corporation, but also to the beneficial ownership of the corporation. To repeat, we held:

Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]." (Emphasis supplied)

This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is held by "a trustee of funds for pension or other employee retirement or separation benefits," the trustee is a Philippine national if "at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals." Likewise, Section 1(b) of the Implementing Rules of the FIA provides that "for stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights, is essential."

Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to voting control of the corporation but also to the beneficial ownership of the corporation, it is therefore imperative that such requirement apply uniformly and across the board to all classes of shares, regardless of nomenclature and category, comprising the capital of a corporation. Under the Corporation Code, capital stock35 consists of all classes of shares issued to stockholders, that is, common shares as well as preferred shares, which may have different rights, privileges or restrictions as stated in the articles of incorporation.36

The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but disallows denial of the right to vote in specific corporate matters. Thus, common shares have the right to vote in the election of directors, while preferred shares may be denied such right. Nonetheless, preferred shares, even if denied the right to vote in the election of directors, are entitled to vote on the following corporate matters: (1) amendment of articles of incorporation; (2) increase and decrease of capital stock; (3) incurring, creating or increasing bonded indebtedness; (4) sale, lease, mortgage or other disposition of substantially all corporate assets; (5) investment of funds in another business or corporation or for a purpose other than the primary purpose for which the corporation was organized; (6) adoption, amendment and repeal of by-laws; (7) merger and consolidation; and (8) dissolution of corporation.37

Since a specific class of shares may have rights and privileges or restrictions different from the rest of the shares in a corporation, the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution must apply not only to shares with voting rights but also to shares without voting rights. Preferred shares, denied the right to vote in the election of directors, are anyway still entitled to vote on the eight specific corporate matters mentioned above. Thus, if a corporation, engaged in a partially nationalized industry, issues a mixture of common and preferred non-voting shares, at least 60 percent of the common shares and at least 60 percent of the preferred non-voting shares must be owned by Filipinos. Of course, if a corporation issues only a single class of shares, at least 60 percent of such shares must necessarily be owned by Filipinos. In short, the 60-40 ownership requirement in favor of Filipino citizens must apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares. This uniform application of the 60-40 ownership requirement in favor of Filipino citizens clearly breathes life to the constitutional command that the ownership and operation of public utilities shall be reserved exclusively to corporations at least 60 percent of whose capital is Filipino-owned. Applying uniformly the 60-40 ownership requirement in favor of Filipino citizens to each class of shares, regardless of differences in voting rights, privileges and restrictions, guarantees effective Filipino control of public utilities, as mandated by the Constitution.

Moreover, such uniform application to each class of shares insures that the "controlling interest" in public utilities always lies in the hands of Filipino citizens. This addresses and extinguishes Pangilinan’s worry that foreigners, owning most of the non-voting shares, will exercise greater control over fundamental corporate matters requiring two-thirds or majority vote of all shareholders.

VI.Intent of the framers of the Constitution

While Justice Velasco quoted in his Dissenting Opinion38 a portion of the deliberations of the Constitutional Commission to support his claim that the term "capital" refers to the total outstanding shares of stock, whether voting or non-voting, the following excerpts of the

deliberations reveal otherwise. It is clear from the following exchange that the term "capital" refers to controlling interest of a corporation, thus:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation"? Will the Committee please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who provided us a draft. The phrase that is contained here which we adopted from the UP draft is "60 percent of voting stock."

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes.39

x x x x

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling interest."

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or associations at least sixty percent of whose CAPITAL is owned by such citizens."

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens.

MR. VILLEGAS. That is right.

MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares. So we can have a situation where the corporation is controlled by foreigners despite being the minority because they have the voting capital. That is the anomaly that would result here.

MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935 Constitutions is that according to Commissioner Rodrigo, there are associations that do not have stocks. That is why we say "CAPITAL."

MR. AZCUNA. We should not eliminate the phrase "controlling interest."

MR. BENGZON. In the case of stock corporations, it is assumed.40 (Boldfacing and underscoring supplied)

Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in the corporation.

The use of the term "capital" was intended to replace the word "stock" because associations without stocks can operate public utilities as long as they meet the 60-40 ownership requirement in favor of Filipino citizens prescribed in Section 11, Article XII of the Constitution. However, this did not change the intent of the framers of the Constitution to reserve exclusively to Philippine nationals the "controlling interest" in public utilities.

During the drafting of the 1935 Constitution, economic protectionism was "the battle-cry of the nationalists in the Convention."41 The same battle-cry resulted in the nationalization of the public utilities.42 This is also the same intent of the framers of the 1987 Constitution who adopted the exact formulation embodied in the 1935 and 1973 Constitutions on foreign equity limitations in partially nationalized industries.

The OSG, in its own behalf and as counsel for the State,43 agrees fully with the Court’s interpretation of the term "capital." In its Consolidated Comment, the OSG explains that the deletion of the phrase "controlling interest" and replacement of the word "stock" with the term "capital" were intended specifically to extend the scope of the entities qualified to operate public utilities to include associations without stocks. The framers’ omission of the phrase "controlling interest" did not mean the inclusion of all shares of stock, whether voting or non-voting. The OSG reiterated essentially the Court’s declaration that the Constitution reserved

exclusively to Philippine nationals the ownership and operation of public utilities consistent with the State’s policy to "develop a self-reliant and independent national economy effectively controlled by Filipinos."

As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total outstanding capital stock, treated as a single class regardless of the actual classification of shares, grossly contravenes the intent and letter of the Constitution that the "State shall develop a self-reliant and independent national economyeffectively controlled by Filipinos." We illustrated the glaring anomaly which would result in defining the term "capital" as the total outstanding capital stock of a corporation, treated as a single class of shares regardless of the actual classification of shares, to wit:

Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share having a par value of one peso (P 1.00) per share. Under the broad definition of the term "capital," such corporation would be considered compliant with the 40 percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no control over the public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, to place the control of public utilities in the hands of Filipinos. x x x

Further, even if foreigners who own more than forty percent of the voting shares elect an all-Filipino board of directors, this situation does not guarantee Filipino control and does not in any way cure the violation of the Constitution. The independence of the Filipino board members so elected by such foreign shareholders is highly doubtful. As the OSG pointed out, quoting Justice George Sutherland’s words in Humphrey’s Executor v. US,44 "x x x it is quite evident that one who holds his office only during the pleasure of another cannot be depended upon to maintain an attitude of independence against the latter’s will." Allowing foreign shareholders to elect a controlling majority of the board, even if all the directors are Filipinos, grossly circumvents the letter and intent of the Constitution and defeats the very purpose of our nationalization laws.

VII.Last sentence of Section 11, Article XII of the Constitution

The last sentence of Section 11, Article XII of the 1987 Constitution reads:

The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.

During the Oral Arguments, the OSG emphasized that there was never a question on the intent of the framers of the Constitution to limit foreign ownership, and assure majority Filipino ownership and control of public utilities. The OSG argued, "while the delegates disagreed as to the percentage threshold to adopt, x x x the records show they clearly understood that Filipino control of the public utility corporation can only be and is obtained only through the election of a majority of the members of the board."

Indeed, the only point of contention during the deliberations of the Constitutional Commission on 23 August 1986 was the extent of majority Filipino control of public utilities. This is evident from the following exchange:

THE PRESIDENT. Commissioner Jamir is recognized.

MR. JAMIR. Madam President, my proposed amendment on lines 20 and 21 is to delete the phrase "two thirds of whose voting stock or controlling interest," and instead substitute the words "SIXTY PERCENT OF WHOSE CAPITAL" so that the sentence will read: "No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least SIXTY PERCENT OF WHOSE CAPITAL is owned by such citizens."

x x x x

THE PRESIDENT: Will Commissioner Jamir first explain?

MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were two previous sections in which we fixed the Filipino equity to 60 percent as against 40 percent for foreigners. It is only in this Section 15 with respect to public utilities that the committee proposal was increased to two-thirds. I think it would be better to harmonize this provision by providing that even in the case of public utilities, the minimum equity for Filipino citizens should be 60 percent.

MR. ROMULO. Madam President.

THE PRESIDENT. Commissioner Romulo is recognized.

MR. ROMULO. My reason for supporting the amendment is based on the discussions I have had with representatives of the Filipino majority owners of the international record carriers, and the subsequent memoranda they submitted to me. x x x

Their second point is that under the Corporation Code, the management and control of a corporation is vested in the board of directors, not in the officers but in the board of directors. The officers are only agents of the board. And they believe that with 60 percent of the equity, the Filipino majority stockholders undeniably control the board. Only on important corporate acts can the 40-percent foreign equity exercise a veto, x x x.

x x x x45

MS. ROSARIO BRAID. Madam President.

THE PRESIDENT. Commissioner Rosario Braid is recognized.

MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also read from a memorandum by the spokesman of the Philippine Chamber of Communications on why they would like to maintain the present equity, I am referring to the 66 2/3. They would prefer to have a 75-25 ratio but would settle for 66 2/3. x x x

x x x x

THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the proposal of two-thirds rather than the 60 percent?

MS. ROSARIO BRAID. I have added a clause that will put management in the hands of Filipino citizens.

x x x x46

While they had differing views on the percentage of Filipino ownership of capital, it is clear that the framers of the Constitution intended public utilities to be majority Filipino-owned and controlled. To ensure that Filipinos control public utilities, the framers of the Constitution approved, as additional safeguard, the inclusion of the last sentence of Section 11, Article XII of the Constitution commanding that "[t]he participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines." In other words, the last sentence of Section 11, Article XII of the Constitution mandates that (1) the participation of foreign investors in the governing body of the corporation or association shall be limited to their proportionate share in the capital of such entity; and (2) all officers of the corporation or association must be Filipino citizens.

Commissioner Rosario Braid proposed the inclusion of the phrase requiring the managing officers of the corporation or association to be Filipino citizens specifically to prevent management contracts, which were designed primarily to circumvent the Filipinization of public utilities, and to assure Filipino control of public utilities, thus:

MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision by adding a phrase which states: "THE MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have with me their position paper.

THE PRESIDENT. The Commissioner may proceed.

MS. ROSARIO BRAID. The three major international record carriers in the Philippines, which Commissioner Romulo mentioned – Philippine Global Communications, Eastern Telecommunications, Globe Mackay Cable – are 40-percent owned by foreign multinational companies and 60-percent owned by their respective Filipino partners. All three, however, also have management contracts with these foreign companies – Philcom with RCA, ETPI with Cable and Wireless PLC, and GMCR with ITT. Up to the present time, the general managers of these carriers are foreigners. While the foreigners in these common carriers are only minority owners, the foreign multinationals are the ones managing and controlling their operations by virtue of their management contracts and by virtue of their strength in the governing bodies of these carriers.47

x x x x

MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose an amendment with respect to the operating management of public utilities, and in this amendment, we are associated with Fr. Bernas, Commissioners Nieva and Rodrigo. Commissioner Rosario Braid will state this amendment now.

Thank you.

MS. ROSARIO BRAID. Madam President.

THE PRESIDENT. This is still on Section 15.

MS. ROSARIO BRAID. Yes.

MR. VILLEGAS. Yes, Madam President.

x x x x

MS. ROSARIO BRAID. Madam President, I propose a new section to read: ‘THE MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES."

This will prevent management contracts and assure control by Filipino citizens. Will the committee assure us that this amendment will insure that past activities such as management contracts will no longer be possible under this amendment?

x x x x

FR. BERNAS. Madam President.

THE PRESIDENT. Commissioner Bernas is recognized.

FR. BERNAS. Will the committee accept a reformulation of the first part?

MR. BENGZON. Let us hear it.

FR. BERNAS. The reformulation will be essentially the formula of the 1973 Constitution which reads: "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF AND..."

MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS AND ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."

MR. BENGZON. Will Commissioner Bernas read the whole thing again?

FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF..." I do not have the rest of the copy.

MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES." Is that correct?

MR. VILLEGAS. Yes.

MR. BENGZON. Madam President, I think that was said in a more elegant language. We accept the amendment. Is that all right with Commissioner Rosario Braid?

MS. ROSARIO BRAID. Yes.

x x x x

MR. DE LOS REYES. The governing body refers to the board of directors and trustees.

MR. VILLEGAS. That is right.

MR. BENGZON. Yes, the governing body refers to the board of directors.

MR. REGALADO. It is accepted.

MR. RAMA. The body is now ready to vote, Madam President.

VOTING

x x x x

The results show 29 votes in favor and none against; so the proposed amendment is approved.

x x x x

THE PRESIDENT. All right. Can we proceed now to vote on Section 15?

MR. RAMA. Yes, Madam President.

THE PRESIDENT. Will the chairman of the committee please read Section 15?

MR. VILLEGAS. The entire Section 15, as amended, reads: "No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least 60 PERCENT OF WHOSE CAPITAL is owned by such citizens." May I request Commissioner Bengzon to please continue reading.

MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."

MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION BE EXCLUSIVE IN CHARACTER OR FOR A PERIOD LONGER THAN TWENTY-FIVE YEARS RENEWABLE FOR NOT MORE THAN TWENTY-FIVE YEARS. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public."

VOTING

x x x x

The results show 29 votes in favor and 4 against; Section 15, as amended, is approved.48 (Emphasis supplied)

The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the provision on the limited participation of foreign investors in the governing body of public utilities, is a reiteration of the last sentence of Section 5, Article XIV of the 1973 Constitution,49 signifying its importance in reserving ownership and control of public utilities to Filipino citizens.

VIII.The undisputed facts

There is no dispute, and respondents do not claim the contrary, that (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the election of directors, and thus foreigners control PLDT; (2) Filipinos own only 35.73% of PLDT’s common shares, constituting a minority of the voting stock, and thus Filipinos do not control PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn;50 (5) preferred shares have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%.

Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the question of whether PLDT violated the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the 1987 Constitution. Such question indisputably calls for a presentation and determination of evidence through a hearing, which is generally outside the province of the Court’s jurisdiction, but well within the SEC’s statutory powers. Thus, for obvious reasons, the Court limited its decision on the purely legal and threshold issue on the definition of the term "capital" in Section 11, Article XII of the Constitution and directed the SEC to apply such definition in determining the exact percentage of foreign ownership in PLDT.

IX.PLDT is not an indispensable party;

SEC is impleaded in this case.

In his petition, Gamboa prays, among others:

x x x x

5. For the Honorable Court to issue a declaratory relief that ownership of common or voting shares is the sole basis in determining foreign equity in a public utility and that any other government rulings, opinions, and regulations inconsistent with this declaratory relief be declared unconstitutional and a violation of the intent and spirit of the 1987 Constitution;

6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in excess of 40 percent of the total subscribed common shareholdings; and

7. For the Honorable Court to direct the Securities and Exchange Commission and Philippine Stock Exchange to require PLDT to make a public disclosure of all of its foreign shareholdings and their actual and real beneficial owners.

Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)

As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to perform its statutory duty to investigate whether "the required percentage of ownership of the capital stock to be owned by citizens of the Philippines has been complied with [by PLDT] as required by x x x the Constitution."51 Such plea clearly negates SEC’s argument that it was not impleaded.

Granting that only the SEC Chairman was impleaded in this case, the Court has ample powers to order the SEC’s compliance with its directive contained in the 28 June 2011 Decision in view of the far-reaching implications of this case. In Domingo v. Scheer,52 the Court dispensed with the amendment of the pleadings to implead the Bureau of Customs considering (1) the unique backdrop of the case; (2) the utmost need to avoid further delays; and (3) the issue of public interest involved. The Court held:

The Court may be curing the defect in this case by adding the BOC as party-petitioner. The petition should not be dismissed because the second action would only be a repetition of the first. InSalvador, et al., v. Court of Appeals, et al., we held that this Court has full powers, apart from that power and authority which is inherent, to amend the processes, pleadings, proceedings and decisions by substituting as party-plaintiff the real party-in-interest. The Court has the power to avoid delay in the disposition of this case, to order its amendment as to implead the BOC as party-respondent. Indeed, it may no longer be necessary to do so taking into account the unique backdrop in this case, involving as it does an issue of public interest. After all, the Office of the Solicitor General has represented the petitioner in the instant proceedings, as well as in the appellate court, and maintained the validity of the deportation order and of the BOC’s Omnibus Resolution. It cannot, thus, be claimed by the State that the BOC was not afforded its day in court, simply because only the petitioner, the Chairperson of the BOC, was the respondent in the CA, and the petitioner in the instant recourse. In Alonso v. Villamor, we had the occasion to state:

There is nothing sacred about processes or pleadings, their forms or contents. Their sole purpose is to facilitate the application of justice to the rival claims of contending parties. They were created, not to hinder and delay, but to facilitate and promote, the administration of justice. They do not constitute the thing itself, which courts are always striving to secure to litigants. They are designed as the means best adapted to obtain that thing. In other words, they are a means to an end. When they lose the character of the one and become the other, the administration of justice is at fault and courts are correspondingly remiss in the performance of their obvious duty.53(Emphasis supplied)

In any event, the SEC has expressly manifested54 that it will abide by the Court’s decision and defer to the Court’s definition of the term "capital" in Section 11, Article XII of the Constitution. Further, the SEC entered its special appearance in this case and argued during the Oral Arguments, indicating its submission to the Court’s jurisdiction. It is clear, therefore, that there exists no legal impediment against the proper and immediate implementation of the Court’s directive to the SEC.

PLDT is an indispensable party only insofar as the other issues, particularly the factual questions, are concerned. In other words, PLDT must be impleaded in order to fully resolve the issues on (1) whether the sale of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign ownership of PLDT; (2) whether the sale of common shares to foreigners exceeded the 40 percent limit on foreign equity in PLDT; and (3) whether the total percentage of the PLDT common shares with voting rights complies with the 60-40 ownership requirement in favor of Filipino citizens under the Constitution for the ownership and operation of PLDT. These issues indisputably call for an examination of the parties’ respective evidence, and thus are clearly within the jurisdiction of the SEC. In short, PLDT must be impleaded, and must necessarily be heard, in the proceedings before the SEC where the factual issues will be thoroughly threshed out and resolved.

Notably, the foregoing issues were left untouched by the Court. The Court did not rule on the factual issues raised by Gamboa, except the single and purely legal issue on the definition of the term "capital" in Section 11, Article XII of the Constitution. The Court confined the resolution of the instant case to this threshold legal issue in deference to the fact-finding power of the SEC.

Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal issue in this case even without the participation of PLDT since defining the term "capital" in Section 11, Article XII of the Constitution does not, in any way, depend on whether PLDT was impleaded. Simply put, PLDT is not indispensable for a complete resolution of the purely legal question in this case.55 In fact, the Court, by treating the petition as one for mandamus,56 merely directed the SEC to apply the Court’s definition of the term "capital" in Section 11, Article XII of the Constitution in determining whether PLDT committed any violation of the said constitutional provision. The dispositive portion of the Court’s ruling is addressed not to PLDT but solely to the SEC, which is the administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution.

Since the Court limited its resolution on the purely legal issue on the definition of the term "capital" in Section 11, Article XII of the 1987 Constitution, and directed the SEC to investigate any violation by PLDT of the 60-40 ownership requirement in favor of Filipino citizens under the Constitution,57 there is no deprivation of PLDT’s property or denial of PLDT’s right to due process, contrary to Pangilinan and Nazareno’s misimpression. Due process will be afforded to PLDT when it presents proof to the SEC that it complies, as it claims here, with Section 11, Article XII of the Constitution.

X.Foreign Investments in the Philippines

Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result in a sudden flight of existing foreign investors to "friendlier" countries and simultaneously deterring new foreign investors to our country. In particular, the PSE claims that the 28 June 2011 Decision may result in the following: (1) loss of more than P 630 billion in foreign

investments in PSE-listed shares; (2) massive decrease in foreign trading transactions; (3) lower PSE Composite Index; and (4) local investors not investing in PSE-listed shares.58

Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared movants’ apprehension. Without providing specific details, he pointed out the depressing state of the Philippine economy compared to our neighboring countries which boast of growing economies. Further, Dr. Villegas explained that the solution to our economic woes is for the government to "take-over" strategic industries, such as the public utilities sector, thus:

JUSTICE CARPIO:

I would like also to get from you Dr. Villegas if you have additional information on whether this high FDI59 countries in East Asia have allowed foreigners x x x control [of] their public utilities, so that we can compare apples with apples.

DR. VILLEGAS:

Correct, but let me just make a comment. When these neighbors of ours find an industry strategic, their solution is not to "Filipinize" or "Vietnamize" or "Singaporize." Their solution is to make sure that those industries are in the hands of state enterprises. So, in these countries, nationalization means the government takes over. And because their governments are competent and honest enough to the public, that is the solution. x x x 60 (Emphasis supplied)

If government ownership of public utilities is the solution, then foreign investments in our public utilities serve no purpose. Obviously, there can never be foreign investments in public utilities if, as Dr. Villegas claims, the "solution is to make sure that those industries are in the hands of state enterprises." Dr. Villegas’s argument that foreign investments in telecommunication companies like PLDT are badly needed to save our ailing economy contradicts his own theory that the solution is for government to take over these companies. Dr. Villegas is barking up the wrong tree since State ownership of public utilities and foreign investments in such industries are diametrically opposed concepts, which cannot possibly be reconciled.

In any event, the experience of our neighboring countries cannot be used as argument to decide the present case differently for two reasons. First, the governments of our neighboring countries have, as claimed by Dr. Villegas, taken over ownership and control of their strategic public utilities like the telecommunications industry. Second, our Constitution has specific provisions limiting foreign ownership in public utilities which the Court is sworn to uphold regardless of the experience of our neighboring countries.

In our jurisdiction, the Constitution expressly reserves the ownership and operation of public utilities to Filipino citizens, or corporations or associations at least 60 percent of whose capital belongs to Filipinos. Following Dr. Villegas’s claim, the Philippines appears to be more liberal in

allowing foreign investors to own 40 percent of public utilities, unlike in other Asian countries whose governments own and operate such industries.

XI.Prospective Application of Sanctions

In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the application and imposition of appropriate sanctions against PLDT if found violating Section 11, Article XII of the Constitution.1avvphi1

As discussed, the Court has directed the SEC to investigate and determine whether PLDT violated Section 11, Article XII of the Constitution. Thus, there is no dispute that it is only after the SEC has determined PLDT’s violation, if any exists at the time of the commencement of the administrative case or investigation, that the SEC may impose the statutory sanctions against PLDT. In other words, once the 28 June 2011 Decision becomes final, the SEC shall impose the appropriate sanctions only if it finds after due hearing that, at the start of the administrative case or investigation, there is an existing violation of Section 11, Article XII of the Constitution. Under prevailing jurisprudence, public utilities that fail to comply with the nationality requirement under Section 11, Article XII and the FIA can cure their deficiencies prior to the start of the administrative case or investigation.61

XII.Final Word

The Constitution expressly declares as State policy the development of an economy "effectively controlled" by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the ownership and operation of public utilities to Philippine nationals, who are defined in the Foreign Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of whose capital with voting rights belongs to Filipinos. The FIA’s implementing rules explain that "[f]or stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential." In effect, the FIA clarifies, reiterates and confirms the interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers toshares with voting rights, as well as with full beneficial ownership. This is precisely because the right to vote in the election of directors, coupled with full beneficial ownership of stocks, translates to effective control of a corporation.

Any other construction of the term "capital" in Section 11, Article XII of the Constitution contravenes the letter and intent of the Constitution. Any other meaning of the term "capital" openly invites alien domination of economic activities reserved exclusively to Philippine nationals. Therefore, respondents’ interpretation will ultimately result in handing over effective control of our national economy to foreigners in patent violation of the Constitution, making Filipinos second-class citizens in their own country.

Filipinos have only to remind themselves of how this country was exploited under the Parity Amendment, which gave Americans the same rights as Filipinos in the exploitation of natural resources, and in the ownership and control of public utilities, in the Philippines. To do this the 1935 Constitution, which contained the same 60 percent Filipino ownership and control requirement as the present 1987 Constitution, had to be amended to give Americans parity rights with Filipinos. There was bitter opposition to the Parity Amendment62 and many Filipinos eagerly awaited its expiration. In late 1968, PLDT was one of the American-controlled public utilities that became Filipino-controlled when the controlling American stockholders divested in anticipation of the expiration of the Parity Amendment on 3 July 1974.63 No economic suicide happened when control of public utilities and mining corporations passed to Filipinos’ hands upon expiration of the Parity Amendment.

Movants’ interpretation of the term "capital" would bring us back to the same evils spawned by the Parity Amendment, effectively giving foreigners parity rights with Filipinos, but this time even without any amendment to the present Constitution. Worse, movants’ interpretation opens up our national economy toeffective control not only by Americans but also by all foreigners, be they Indonesians, Malaysians or Chinese, even in the absence of reciprocal treaty arrangements. At least the Parity Amendment, as implemented by the Laurel-Langley Agreement, gave the capital-starved Filipinos theoretical parity – the same rights as Americans to exploit natural resources, and to own and control public utilities, in the United States of America. Here, movants’ interpretation would effectively mean a unilateral opening up of our national economy to all foreigners, without any reciprocal arrangements. That would mean that Indonesians, Malaysians and Chinese nationals could effectively control our mining companies and public utilities while Filipinos, even if they have the capital, could not control similar corporations in these countries.

The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership and control requirement for public utilities like PLOT. Any deviation from this requirement necessitates an amendment to the Constitution as exemplified by the Parity Amendment. This Court has no power to amend the Constitution for its power and duty is only to faithfully apply and interpret the Constitution.

WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall be entertained.

SO ORDERED.

EXECUTIVE ORDER NO. 712

DIRECTING THE IMMEDIATE REVIEW OF EXISTING ORDERS, RULES AND REGULATIONS ISSUED BY LOCAL GOVERNMENT UNITS CONCERNING PUBLIC TRANSPORTATION, INCLUDING THE GRANT OF FRANCHISES TO TRICYCLES, ESTABLISHMENT AND OPERATION OF TRANSPORT TERMINALS, AUTHORITY TO ISSUE TRAFFIC CITATION TICKETS, AND UNILATERAL REROUTING SCHEMES OF PUBLIC UTILITY VEHICLES, AND FOR OTHER PURPOSES

WHEREAS, numerous transport organizations have complained about the establishment of common transport terminals by the Local Government Units in their respective jurisdiction, the use of their own traffic citation tickets known as Ordinance Violation Receipts (OVR), rerouting schemes in violation of authorized routes as provided in their respective certificates of public convenience issued by the LTFRB, and the enactment of various ordinances which result in additional cost to operators and drivers, such as the mandatory purchase of stickers and driver’s identification cards;

WHEREAS, said transport organizations have also objected to the continuous issuance of new franchises for the operation of tricycles and pedicabs despite the existence of too many units already operating on the road and the unsynchronized truck ban resulting in the delay in the delivery of goods;

WHEREAS, the operations of public utility vehicles is imbued with paramount public interest, such that factors that increase the cost of operations of public utility vehicles have a direct impact on transport fares, hence local ordinances, programs and projects which require a fee should be coordinated with the DOTC to ensure that public interest is not prejudiced;

WHEREAS, Section 5 (d) of Executive Order No. 125 as amended grants the Department of Transportation and Communications (DOTC) the power and function to administer and enforce all laws, rules and regulations in the field of transportation while Republic Act No. 4136, otherwise known as the Land Transportation and Traffic Code grants unto the Land Transportation Office (LTO) the power and duty to enforce traffic laws and issue the appropriate traffic citation tickets to erring drivers as well as confiscate their driver’s license;

WHEREAS, the establishment and use of transport terminals by public utility vehicles with franchises issued by the national government as well as the determination of their routes fall within the jurisdiction of the DOTC/Land Transportation Franchising and Regulatory Board (LTFRB);

WHEREAS, pursuant to Article 458 of the Local Government Code, the power of the Local Government Units (LGUs) to regulate the operation of tricycles and to grant franchise is subject to the guidelines prescribed by the DOTC;

WHEREAS, under Section 17, Article VII of the Constitution, the President has control of all executive departments, bureaus and offices, and pursuant to Section 4, Article IX exercises general supervision over all local government units;

NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the Philippines, by virtue of the powers vested in me by Constitution, do hereby order:

SECTION 1. The Department of Transportation and Communications (DOTC) is hereby directed to immediately review all existing orders, rules and regulations issued by Local Government Units (LGUs) concerning public transportation within their jurisdiction, including the grant of

franchises to tricycles, establishment and operation of transport terminals, authority to issue traffic citation tickets, and unilateral rerouting schemes of public utility vehicles.

SECTION 2. Pending the review by the DOTC under Section 1 hereof of existing orders, rules and regulations issued by LGUs, the Department of Interior and Local Government (DILG) shall, subject to existing laws, advise LGUs to suspend (1) the establishment and operations of new and existing transport terminals that charge fees and require compulsory use by public utility vehicles, (2) the enforcement of re-routing schemes that violate the authorized routes as provided for in the PUV franchises, (3) the issuance of new tricycle franchises while respecting those that have been issued already, (4) the increase in local fees and charges applicable to public transportation, and (5) the implementation of local programs, projects and ordinances that have impact on the cost of operations of public utility vehicles without first coordinating and getting the approval of the DOTC to ensure that these programs, projects and ordinances do not prejudice public interest by way of higher transport fares.

SECTION 3. The DOTC shall establish a National Land Transport Policy Framework, which shall facilitate the modernization of the land transport industry through the promotion of utility services which are environment-friendly and shall provide assistance to the land transport sector through lease-to-own programs, technical assistance, subsidies, and the encouragement of the use of alternative fuels and/or renewable energy, among others.

SECTION 4. The Metropolitan Manila Development Authority (MMDA) shall implement a single ticketing system throughout Metro Manila in accordance with Republic Act 7924

SECTION 5. The DILG shall, subject to existing laws, establish and implement uniform truck ban hours that shall be applicable to LGUs located in a common area nationwide.

SECTION 6. If any section or part of this Executive Order shall be declared unconstitutional or illegal, the other sections or parts thereof shall not thereby be affected.

SECTION 7. All other orders, issuances or portions thereof, which are inconsistent with this Executive Order are hereby revoked, amended or modified accordingly.

SECTION 8. This Executive Order shall take effect immediately following its publication in a national newspaper of general circulation.

DONE in the City of Manila, this 11th day of March in the year of our Lord, Two Thousand Eight.

(Sgd.) GLORIA MACAPAGAL-ARROYOPresident of the Philippines