You are on page 1of 75

TRANSPORTATION LAW --- CASE LIST

1. Yanco vs. Lacerna (GR 47447-49. Oct 29, 1941) 2. Aboitiz vs. General Accident Fire and Life Assurance Corp (GR 100446. Jan 21, 1993) 3. Aboitiz vs. New India Assurance (GR 156978. May 2, 2006) 4. Negros Navigation vs. CA (GR 163156. Dec 10, 2008) 5. PNB vs. CA (GR 128661. Aug 8, 2000) 6. Tatad vs. Garcia (GR 114222. Apr 6, 1995) 7. Kilusang Mayo Uno vs. Garcia, Jr. (GR 1153881. Dec 23, 1994) 8. Manzanal vs. Ausejo (GR L-31056. Aug 4, 1988) 9. MCWD vs. Adala (GR 168914. July 4, 2007) 10. Lique vs. Villegas (GR L-22545. Nov 28, 1969)

G.R. No. L-47447-47449

October 29, 1941

TEODORO R. YANGCO, ETC., Petitioner, vs. MANUEL LASERNA, ET AL., Respondents. MORAN, J.:
chanrobles vi rtua l law lib ra ry

At about one o'clock in the afternoon of May 26, 1927, the steamer S.S. Negros, belonging to petitioner here, Teodoro R. Yangco, left the port of Romblon on its retun trip to Manila. Typhoon signal No. 2 was then up, of which fact the captain was duly advised and his attention thereto called by the passengers themselves before the vessel set sail. The boat was overloaded as indicated by the loadline which was 6 to 7 inches below the surface of the water. Baggage, trunks and other equipments were heaped on the upper deck, the hold being packed to capacity. In addition, the vessel carried thirty sacks of crushed marble and about one hundred sacks of copra and some lumber. The passengers, numbering about 180, were overcrowded, the vessel's capacity being limited to only 123 passengers. After two hours of sailing, the boat encountered strong winds and rough seas between the islands of Banton and Simara, and as the waves splashed the ladies' dresses, the awnings were lowered. As the sea became increasingly violent, the captain ordered the vessel to turn left, evidently to return to port, but in the manuever, the vessel was caught sidewise by a big wave which caused it to capsize and sink. Many of the passengers died in the mishap, among them being Antolin Aldaa and his son Victorioso, husband and son, respectively, of Emilia Bienvenida who, together with her other children and a brother-in-law, are respondents in G.R. No. 47447; Casiana Laserna, the daughter of respondents Manuel Laserna and P.A. de Laserna in G.R. 47448; and Genaro Basaa, son of Filomeno Basaa, respondent in G.R. No. 47449. These respondents instituted in the Court of First Instance of Capiz separate civil actions against petitioner here to recover damages for the death of the passengers aforementioned. The court awarded the heirs of Antolin and Victorioso Aldana the sum of P2,000; the heirs of Casiana Laserna, P590; and those of Genaro Basana, also P590. After the rendition of the

judgment to this effcet, petitioner, by a verified pleading, sought to abandon th evessel to the plainitffs in the three cases, together with all its equipments, without prejudice to his right to appeal. The abandonment having been denied, an appeal was taken to the Court of Appeals, wherein all the judgmnets were affirmed except that which sums was increased to P4,000. Petitioner, now deceased, appealed and is here represented by his legal representative.
chanrob lesvi rtualaw lib rary c han robles vi rt ual law li bra ry

Brushing aside the incidental issues, the fundamental question here raised is: May the shipowner or agent, notwithstanding the total loss of the vessel as a result of the negligence of its captain, be properly held liable in damages for the consequent death of its passengers? We are of the opinion and so hold that this question is controlled by the provisions of article 587 of the Code of Commerce. Said article reads: The agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her equipments and the freight he may have earned during the voyage. The provisions accords a shipowner or agent the right of abandonment; and by necessary implication, his liability is confined to that which he is entitled as of right to abandon - "the vessel with all her equipments and the freight it may have earned during the voyage." It is true that the article appears to deal only with the limited liability of shipowners or agents for damages arising from the misconduct of the captain in the care of the goods which the vessel carries, but this is a mere deficiency of language and in no way indicates the true extent of such liability. The consensus of authorities is to the effect that notwithstanding the language of the aforequoted provision, the benefit of limited liability therein provided for, applies in all cases wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of the captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco, commenting on said article, said: La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El derecho de abandono, si se atiende a lo escrito, solo se refiere a las indemnizaciones a que dierQe lugar la conducta del Capitan en la custodia de los efectos que cargo en el buque.
chan roble svirt ualawli bra ry chan rob les vi rtual law lib rary

Es ese el espiritu del legislador? No; habra derecho de abandono en las responsabilidades nacidas de obligaciones contraidas por el Capitan y de otros actos de este? Lo reputamos evidente y, para fortalecer nuestra opinion, basta copiar el siguiente parrafo de la Exposicion de motivos: "El proyecto, al aplicar estos principios, se inspira tambien en los intereses del comercio maritimo, que quedaran mas asegurados ofreciendo a todo el que contrata con el naviero o Capitan del buque, la garantia real del mismo, cualesquiera que sean las facultades o atribuciones de que se hallen investidos." (Echavarri, Codigo de Comercio, Tomo 4, 2. a ed., pags. 483-484.)
A cursory examination will disclose that the principle of liomited liability of a shipowner or agent is provided for in but three articles of the Code of Commerce - article 587 aforequoted and article 590 and 837. Article 590 merely reiterates the principle embodied in article 587, applies the same principle in cases of collision, and it has been observed that said article is but "a necessary consequences of the right to abandon the vessel given to the shipowner in article 587 of the Code, and it is one of the many superfluities contained in the Code." (Lorenzo Benito,Lecciones 352, quoted in Philippine Shipping Co. vs. Garcia, 6 Phil. 281, 282.) In effect, therefore, only articles 587 and 590 are the provisions conatined in our Code of Commerce on the matter, and the framers of said code had intended those provisions to embody the universal principle of limited liability in all cases. Thus, in the "Exposicon de Motivos" of the Code of Commerce, we read: The present code (1829) does not determine the juridical status of the agent where such agent is not himself the owner of the vessel. This omission is supplied by the proposed code, which provides in accordance with the principles of maritime law that by agent it is to be understood the person intrusted with the provisioning of the vessel, or the one who represents her in the port in which she happens to be. This person is the only one who represents the vessel - that is to say, the only one who represents the interests of the owner of the vessel. This provision has therefore cleared the doubt which existed as to the extent of the liability, both of the agent and of the owner of the vessel. Such liability is limited by the proposed code to the value of the vessel and other things appertaining thereto.

In Philippine Shipping Co. vs. Garcia (6 Phil., 281, 284-286), we have expressed ourselves in such a comprehensive manner as to leave no room for doubt on the applicability of our ratio decidendi not only to cases of collision but also to those of shipwrecks, etc. We said: This is the difference which exists between the lawful acts and lawful obligations of the captain and the liability which he incurs on account of any unlawful act committed by him. In the first case, the lawful acts and obligations of the captain beneficial to the vessel may be enforced as against the agent for the reason that such obligations arise from te the contract of agency (provided, however, that the captain does not exceed his authority), while as to any liability incurred by the captain through his unlawful acts, the ship agent is simply subsidiarily civilly liable. This liability of the agent is limited to the vessel and it does not extend further. For this reason the Code of Commerce makes the agent liable to the extent of the value of the vessel, as the codes of the principal maritime nations provide with the vessel, and not individually. Such is also the spirit of our Code.
chanroblesv irtualawli bra ry cha nrob les vi rtu al law lib rary

The spirit of our code s accurately set forth in a treatise on maritime law, from which we deem proper to quote the following as the basis of this decision: "That which distinguishes the maritime from the civil law and even from the mercantile law in general is the real and hypothecary nature of the former, and the many securities of a real nature that maritime customs from time immemorial, the laws, the codes, and the later jurisprudence, have provided for the protection of the various and conflicting interests which are ventured and risked in maritime expeditions, such as the interests of the vessel and of the agent, those of the owners of the cargo and consignees, those who salvage the ship, those who make loans upon the cargo, those of the sailors and members of the crew as to their wages, and those of a constructor as to repairs made to the vessel.
chanroblesv irt ualawli bra ry chan rob les vi rtual law lib rary

"As evidence of this real nature of the maritime law we have (1) the limitation of the liability of the agents to the actual value of the vessel and the freight money, and (2) the right to retain the cargo and the embargo and detention of the vessel even in cases where the ordinary civil law would not allow more than a personal action against the debtor or person liable. It will be observed that these rights are correlative, and naturally so, because if the agent can exempt himself from liability by abandoning the vessel and freight money, thus avoiding the possibility of risking his whole fortune in the business, it is also just that his maritime creditor may for any reason attach the vessel itself to secure his claim without waiting for a settlement of his rights by a final judgment, even to the prejudice of a third person.
chanrob lesvi rtua lawlib rary chan roble s virtual law l ibra ry

"This repeals the civil law to such an extent that, in certain cases, where the mortgaged property is lost no personal action lies against the owner or agent of the vessel. For instance, where the vessel is lost the sailors and members of the crew cannot recover their wages; in case of collision, the liability of the agent is limited as aforesaid, and in case of shipwreck, those who loan their money on the vessel and cargo lose all their rights and cannot claim reimbursement under the law.
chanroblesvi rtua lawlib rary c han robles v irt ual law li bra ry

"There are two reasons why it is impossible to do away with these privileges, to wit: (1) The risk to which the thing is exposed, and (2) the real nature of the maritime law, exclusively real, according to which the liability of the parties is limited to a thing which is at the mercy of the waves. If the agent is only liable with the vessel and freight money and both may be lost through the accidents of navigation it is only just that the maritime creditor have some means to obviating this precarious nature of his rights by detaining the ship, his only security, before it is lost.
chanroblesvi rtua lawlib rary chan roble s virt ual law l ibra ry

"The liens, tacit or legal, which may exist upon the vessel and which a purchaser of the same would be obliged to respect and recognize are - in addition to those existing in favor of the State by virtue of the privileges which are granted to it by all the laws - pilot, tonnate, and port dues and other similar charges, the wages of the crew earned during the last voyage as provided in article 646 of the Code of Commerce, salvage dues under article 842, the indemnification due to the captain of the vessel in case his contract is terminated on account of the voluntary sale of the ship and the insolvency of the owner as provided in article 608, and all other liabilities arising from collisions under articles 837 and 838." We are shared in this conclusion by the eminent commentators on the subject. Agustin Vicente y Gella, asserting, in his "Introduccion al Derecho Mercantil Comparado" 1929 (pages 374-375), the like principle of limited liability of shipowners or agent in cases of accidents, collisions, shipwrecks, etc., said: De las responsabilities que pueden resultar como consequencia del comercio maritimo, y no solo por hechos propios sino tambien por las que se ocasionen por los del capitan y la tripulacion, responde frente a tercero el naviero que representa el buque; pero el derecho maritimo es sobre todo tradicional y siguiendo un viejo principio de la Edad Media la responsabilidad del naviero se organiza de un modo especifico y particularisimo que no encuentra similar en el derecho general de las obligaciones.
chanroblesv irt ualawli bra ry chan rob l es virt ual law li bra ry

Una forma corrientisima de verificarse el comercio maritimo durante la epoca medieval, era prestar un propietario su navio para que cargase en el mercancias determinada persona, y se hiciese a la mar, yendo al frente de la expedicion un patron del buque, que llegado al puerto de destino se encargaba de venderlas y retornaba al de salida despues de adquirir en aquel otros efectos que igualmente revendia a su regreso, verificado lo cual los beneficios de la expedicion se repartian entre el dueo del buque, el cargador y el capitan y tripulantes en la proporcion estipulada. El derecho maritimo empezo a

considerar la asociacion asi formada como una verdadera sociedad mercantil, de responsabilidad limitada, y de acuerdo con los principios que gobiernan aquella en los casos de accidentes, abordajes, naufragios, etc., se resolvia que el dueo del buque perdia la nave, el cargador las mercancias embarcadas y el capitan y la tripulacion su trabajo, sin que en ningun caso el tercer acreedor pudiese reclamar mayor cantidad de ninguno de ellos, porque su responsabilidad quedaba limitada a lo que cada uno aporto a la sociedad. Recogidas estas ideas en el derecho comercial de tiempos posteriores, la responsabilidad del naviero se edifico sobre aquellos principios, y derogando la norma general civil de que del cumplimiento de sus obligaciones responde el deudor con todos sus bienes presentes y futuros, la responsabilidad maritima se considero siempre limitada ipso jure al patrimonio de mar. Y este es el origen de la regla trascendental de derecho maritimo segun la cual el naviero se libera de toda responsabilidad abandonando el buque y el flete a favor de los acreedores. From the Enciclopedia Juridica Espaola, Vol. 23, p. 347, we read: Ahora bien: hasta donde se extiende esta responsabilidad del naviero? sobre que bienes pueden los acreedores resarcirse? Esta es otra especialidad del Derecho maritimo; en el Derecho comun la responsabilidad es limitada; tambien lo era en el antiguo Derecho maritimo romano; es daba la actio exercitoria contra el exercitor navis sin ninguna restriccion, pero en la Edad Media una idea nueva se introdujo en los usos maritimos. Las cargas resultantes de las expediciones maritimas se consideraron limitadas por los propietarios de las naves a los valores comprometidos por ellos en cada expedicion; se separo ficticiamente el patrimonio de los navieros en dos partes que todavia se designan de una manera bastante exacta; fortuna de tierra y fortuna de mar o flotante; y se admitio la teoria de que esta era la que respondia solo de las deudas provinientes de los actos del capitan o de la tripulacion, es decir, que el conjunto del patrimonio del naviero escaparia a estas cargas desde el momento en que abandonara la nave y los fletes a los acreedores. . . . Escriche in his Diccionario de la Legislacion y Jurisprudencia, Vol. 1, p. 38, observes: La responsabilidad del naviero, en el caso expuesto, se funda en el principio de derecho comun de ser responsable todo el que pone al frente de un establecimiento a una persona, de los daos o perjuicios que ocasionare esta desempeando su cometido, y en que estando facultado el naviero para la eleccion de capitan de la nave, viene a tener indirectamente culpa en la negligencia o actos de este que o casionaron daos o perjuicios, puesto que no se aseguro de su pericia o buena fe. Limitase, sin embargo, la responsabilidad del naviero a la perdida de la nave, sus aparejos, y fletes devengados durante el viaje; porque no pudiendo vigilar de un modo directo e inmediato la conducta del capitan, hubiera sido duro hacerla extensiva a todos sus bienes que podria comprometer el capitan con sus faltas o delitos. The views of these learned commentators, including those of Estasen (Derecho Mercantil, Vol. 4, 259) and Supino (Derecho Mercantil, pp. 463-464), leave nothing to be desired and nothing to be doubted on the principle. It only remains to be noted that the rule of limited liability provided for in our Code of Commerce reflects merely, or is but a restatement, imperfect though it is, of the almost universal principle on the subject. While previously under the civil or common law, the owner of a vessel was liable to the full amount for damages caused by the misconduct of the master, by the general maritime law of modern Europe, the liability of the shipowner was subsequently limited to his interest in the vessel. (Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585.) A similar limitation was placed by the British Parliament upon the liability of Englosh shipowners through a series of statutes beginning in 1734 with the Act of 7 George II, chapter 15. The legislatures of Massachusetts and Maine followed suit in 1818 and 1821, and finally, Congress enacted the Limited Liability Act of March 3, 1851, embodying most of the provisions contained in the British Statutes (see 24 R. C. L. pp. 1387-1389). Section 4283 of the Revised Statutes (sec. 183, Tit. 46, Code of Laws of U. S. A.) reads: LIABILITY OF OWNER NOT TO EXCEED INTEREST. - The liability of the owner of any vessel, for any embezzlement, loss, or destruction, by any person, of any property, goods, or merchandise, shipped or put on board of such vessel, or for any loss, damage, or injury by collision, or for any act, matter or thing, loss, damage, or forfeiture, done, occasioned, or incurred without the privity, or knowledge of such owner or owners, shall in no case exceed the amount or value of the interest of such owner in such vessel, and her freight then pending. The policy which the rule is designed to promote is the encouragement of shipbuilding and investment in maritime commerce. (Vide: Norwich & N. Y. Trans. Co. v. Wright, supra; The Main v. Williams, 152 U. S. 122; 58 C. J. 634.) And it is in that spirit that the American courts construed the Limited Liability Act of Congress whereby the immunities of the Act were applied to claims not only for lost goods but also for injuries and "loss of life of passengers, whether arising under the general law of admiralty, or under Federal or State statutes." (The City of Columbus, 22 Fed. 460; The Longfellow, 104 Fed. 360; Butler v. Boston & Savannah Steamship Co., 32 Law. ed. 1017; Craig v. Continental Insurance Co., 35 Law. ed. 836.) The Supreme Court of the United States in Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585, 589-590, accounting for the history of the principle, clinches our exposition of the supporting authorities: The history of the limitation of liability of shipowners is matter of common knowledge. The learned opinion of Judge Ware in the case of The Rebecca, 1 Ware, 187-194, leaves little to be desired on the subject. He shows that it originated in the maritime law of modern Europe; that whilst the civil, as well as the common law, made the owner responsible to the whole extent of damage caused by the wrongful act or negligence of the matter or crew, the maritime law only made then liable (if personally free from blame) to the amount of their interest in the ship. So that, if they surrendered the ship, they were discharged.
chanroblesvi rtua lawlib rary chan roble s virtual law l ibra ry

Grotius, in his law of War and Peace, says that men would be deterred from investing in ships if they thereby incurred the apprehension of being rendered liable to an indefinite amount by the acts of the master and, therefore, in Holland, they had never observed the Roman Law on that subject, but had a regulation that the ship owners should be bound no farther than the value of their ship and freight. His words are: Navis et eorum quae in navi sunt," "the ship and goods therein." But he is speaking of the owner's interest; and this, as to the cargo, is the freight thereon, and in that sense he is understood by the commentators. Boulay Paty, Droit Maritime, tit. 3, sec. 1, p. 276; Book II, c. XI, sec. XIII. The maritime law, as codified in the celebrated FrenchOrdonance de la Marine, in 1681, expressed the rule thus: 'The proprietors of vessels shall be responsible for the acts of the master, but they shall be discharged by abandoning the ship and freight.' Valin, in his commentary on this passage, lib. 2, tit. 8, art. 2, after specifying certain engagements of the master which are binding on the owners, without any limit of responsibility, such as contracts for the benefit of the vessel, made during the voyage (except contracts of bottomry) says: "With these exceptions it is just that the owner should not be bound for the acts of the master, except to the amount of the ship and freight. Otherwise he would run the risk of being ruined by the bad faith or negligence of his captain, and the apprehension of this would be fatal to the interests of navigation. It is quite sufficient that he be exposed to the loss of his ship and of the freight, to make it his interest, independently of any goods he may have on board to select a reliable captain." Pardessus says: 'The owner is bound civilly for all delinquencies committed by the captain within the scope of his authority, but he may discharge himself therefrom by abandoning the ship and freight; and, if they are lost, it suffices for his discharge, to surrender all claims in respect of the ship and its freight," such as insurance, etc. Droit Commercial, part 3, tit. 2, c. 3, sec. 2.
chanroble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

The same general doctrine is laid down by many other writers on maritime law. So that it is evident that, by this law, the owner's liability was coextensive with his interest in the vessel and its freight, and ceased by his abandonment and surrender of these to the parties sustaining loss. In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way be held civilly liable at all for injury to or death of passengers arising from the negligence of the captain in cases of collisions or shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. In arriving at this conclusion, we have not been unmindful of the fact that the ill-fated steamship Negros, as a vessel engaged in interisland trade, is a common carrier (De Villata v. Stanely, 32 Phil., 541), and that the as a vessel engaged in interisland trade, is a common carrier (De Villata v. Stanely, 32 Phil., 541), and that the relationship between the petitioner and the passengers who died in the mishap rests on a contract of carriage. But assuming that petitioner is liable for a breach of contract of carriage, the exclusively "real and hypothecary nature" of maritime law operates to limit such liability to the value of the vessel, or to the insurance thereon, if any. In the instant case it does not appear that the vessel was insured.
chanroblesvi rtua lawlib rary c han robles v irt ual law l ibra ry

Whether the abandonment of the vessel sought by the petitioner in the instant case was in accordance with law of not, is immaterial. The vessel having totally perished, any act of abandonment would be an idle ceremony.
chanroblesv irt ualawli bra ry chan roble s vi rtual law lib rary

Judgement is reversed and petitioner is hereby absolved of all the complaints, without costs.

G.R. No. 100446 January 21, 1993 ABOITIZ SHIPPING CORPORATION, Petitioner, vs. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD.,Respondent. MELO, J.: This refers to a petition for review which seeks to annul and set aside the decision of the Court of Appeals dated June 21, 1991, in CA G.R. SP No. 24918. The appellate court dismissed the petition for certiorari filed by herein petitioner, Aboitiz Shipping Corporation, questioning the Order of April 30, 1991 issued by the Regional Trial Court of the National Capital Judicial Region (Manila, Branch IV) in its Civil Case No. 144425 granting private respondent's prayer for execution for the full amount of the judgment award. The trial court in so doing swept aside petitioner's opposition which was grounded on the real and hypothecary nature of petitioner's liability as ship owner. The application of this established principle of maritime law would necessarily result in a probable reduction of the amount to be recovered by private respondent, since it would have to share with a number of other parties similarly situated in the insurance proceeds on the vessel that sank.
c hanroblesv irt ualawli bra ry chan rob les vi rtual law lib rary

The basic facts are not disputed.

chanroble svi rtualawl ib rary c hanro bles vi rt ual law li bra ry

Petitioner is a corporation organized and operating under Philippine laws and engaged in the business of maritime trade as a carrier. As such, it owned and operated the ill-fated "M/V P. ABOITIZ," a common carrier which sank on a voyage from Hongkong to the Philippines on October 31, 1980.

Private respondent General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), on the other hand, is a foreign insurance company pursuing its remedies as a subrogee of several cargo consignees whose respective cargo sank with the said vessel and for which it has priorly paid.
chanrob lesvi rtua lawlib rary c han robles v irt ual law l ibra ry

The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost cargo either by the shippers, their successor-in-interest, or the cargo insurers like GAFLAC as subrogees. The sinking was initially investigated by the Board of Marine Inquiry (BMI Case No. 466, December 26, 1984), which found that such sinking was due to force majeure and that subject vessel, at the time of the sinking was seaworthy. This administrative finding notwithstanding, the trial court in said Civil Case No. 144425 found against the carrier on the basis that the loss subject matter therein did not occur as a result of force majeure. Thus, in said case, plaintiff GAFLAC was allowed to prove, and. was later awarded, its claim. This decision in favor of GAFLAC was elevated all the way up to this Court in G.R. No. 89757 (Aboitiz v. Court of Appeals, 188 SCRA 387 [1990]), with Aboitiz, like its ill-fated vessel, encountering rough sailing. The attempted execution of the judgment award in said case in the amount of P1,072,611.20 plus legal interest has given rise to the instant petition.
cha nrob lesvi rtua lawlib rary chan roble s virtual law l ibra ry

On the other hand, other cases have resulted in findings upholding the conclusion of the BMI that the vessel was seaworthy at the time of the sinking, and that such sinking was due to force majeure. One such ruling was likewise elevated to this Court in G.R. No. 100373, Country Bankers Insurance Corporation v. Court of Appeals, et al., August 28, 1991 and was sustained. Part of the task resting upon this Court, therefore, is to reconcile the resulting apparent contrary findings in cases originating out of a single set of facts.
cha nroble svirtualawl ibra ry cha nro bles vi rtua l law lib ra ry

It is in this factual milieu that the instant petition seeks a pronouncement as to the applicability of the doctrine of limited liability on the totality of the claims vis a vis the losses brought about by the sinking of the vessel M/V P. ABOITIZ, as based on the real and hypothecary nature of maritime law. This is an issue which begs to be resolved considering that a number of suits alleged in the petition number about 110 (p. 10 and pp. 175 to 183, Rollo) still pend and whose resolution shall well-nigh result in more confusion than presently attends the instant case.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

In support of the instant petition, the following arguments are submitted by the petitioner: 1. The Limited Liability Rule warrants immediate stay of execution of judgment to prevent impairment of other creditors' shares;
chanro bl es virt ual law li bra ry

2. The finding of unseaworthiness of a vessel is not necessarily attributable to the shipowner; and 3 The principle of "Law of the Case" is not applicable to the present petition. (pp. 2-26, Rollo.) On the other hand, private respondent opposes the foregoing contentions, arguing that:

c hanrobles vi rt ual law li bra ry

1. There is no limited liability to speak of or applicable real and hypothecary rule under Article 587, 590, and 837 of the Code of Commerce in the face of the facts found by the lower court (Civil Case No. 144425), upheld by the Appellate Court (CA G.R. No. 10609), and affirmed in toto by the Supreme Court in G.R. No. 89757 which cited G.R. No. 88159 as the Law of the Case; and
c han robles v irt ual law l ibra ry

2. Under the doctrine of the Law of the Case, cases involving the same incident, parties similarly situated and the same issues litigated should be decided in conformity therewith following the maximstare decisis et non quieta movere. (pp. 225 to 279, Rollo.) Before proceeding to the main bone of contention, it is important to determine first whether or not the Resolution of this Court in G.R. No. 88159, Aboitiz Shipping, Corporation vs. The Honorable Court of Appeals and Allied Guaranty Insurance Company, Inc., dated November 13, 1989 effectively bars and precludes the instant petition as argued by respondent GAFLAC.
cha nrob lesvi rtua lawlib rary c han robles v irt ual law l ibra ry

An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280 to 282, Rollo) shows that the same settles two principal matters, first of which is that the doctrine of primary administrative jurisdiction is not applicable therein; and second is that a limitation of liability in said case would render inefficacious the extraordinary diligence required by law of common carriers.
chanrob lesvi rtua lawlib rary c han robles v irt ual law l ibra ry

It should be pointed out, however, that the limited liability discussed in said case is not the same one now in issue at bar, but an altogether different aspect. The limited liability settled in G.R. No. 88159 is that which attaches to cargo by virtue of stipulations in the Bill of Lading, popularly known as package limitation clauses, which in that case was contained in Section 8 of the Bill of Lading and which limited the carrier's liability to US$500.00 for the cargo whose value was therein sought to be recovered. Said resolution did not tackle the matter of the Limited Liability Rule arising out of the real and hypothecary nature of maritime law, which was not raised therein, and which is the principal bone of contention in this case. While the matters threshed out in G.R. No. 88159, particularly those dealing with the issues on primary administrative jurisdiction and the package liability limitation provided in the Bill of Lading are now settled and should no longer be touched, the instant case raises a completely different issue. It appears, therefore, that the resolution in G.R. 88159 adverted to has no bearing other than factual to the instant case.
chanro blesvi rtua lawlib rary chan roble s virtual law l ibra ry

This brings us to the primary question herein which is whether or not respondent court erred in granting execution of the full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the application of the limited liability enunciated under the appropriate articles of the Code of Commerce. The articles may be ancient, but they are timeless and have remained to be good law. Collaterally, determination of the question of whether execution of judgments which have become final and executory may be stayed is also an issue.
chan rob lesvi rtualaw lib rary c hanrobles vi rt ual law li bra ry

We shall tackle the latter issue first. This Court has always been consistent in its stand that the very purpose for its existence is to see to the accomplishment of the ends of justice. Consistent with this view, a number of decisions have originated herefrom, the tenor of which is that no procedural consideration is sacrosanct if such shall result in the subverting of substantial justice. The right to an execution after finality of a decision is certainly no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1985]), this Court ruled that: . . . It is a truism that every court has the power "to control, in the furtherance of justice, the conduct of its ministerial officers, and of all other persons in any manner connected with a case before it, in every manner appertaining thereto. It has also been said that: . . . every court having jurisdiction to render a particular judgment has inherent power to enforce it, and to exercise equitable control over such enforcement. The court has authority to inquire whether its judgment has been executed, and will remove obstructions to the enforcement thereof. Such authority extends not only to such orders and such writs as may be necessary to carry out the judgment into effect and render it binding and operative, but also to such orders and such writs as may be necessary to prevent an improper enforcement of the judgment. If a judgment is sought to be perverted and made a medium of consummating a wrong the court on proper application can prevent it. (at p. 359) and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257 [1987]), this Court found that: The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order its execution, admits of certain exceptions as in cases of special and exceptional nature where it becomes the imperative in the higher interest of justice to direct the suspension of its execution (Vecine v. Geronimo, 59 OG 579); whenever it is necessary to accomplish the aims of justice (Pascual v Tan, 85 Phil. 164); or when certain facts and circumstances transpired after the judgment became final which would render the execution of the judgment unjust (Cabrias v. Adil, 135 SCRA 354). (at p. 201)

We now come to the determination of the principal issue as to whether the Limited Liability Rule arising out of the real and hypothecary nature of maritime law should apply in this and related cases. We rule in the affirmative.
chanro blesvi rtualaw lib rary c hanro bles vi rt ual law li bra ry

In deciding the instant case below, the Court of Appeals took refuge in this Court's decision in G.R. No. 89757 upholding private respondent's claims in that particular case, which the Court of Appeals took to mean that this Court has "considered, passed upon and resolved Aboitiz's contention that all claims for the losses should first be determined before GAFLAC's judgment may be satisfied," and that such ruling "in effect necessarily negated the application of the limited liability principle" (p. 175, Rollo). Such conclusion is not accurate. The decision in G.R. No. 89757 considered only the circumstances peculiar to that particular case, and was not meant to traverse the larger picture herein brought to fore, the circumstances of which heretofore were not relevant. We must stress that the matter of the Limited Liability Rule as discussed was never in issue in all prior cases, including those before the RTCs and the Court of Appeals. As discussed earlier, the "limited liability" in issue before the trial courts referred to the package limitation clauses in the bills of lading and not the limited liability doctrine arising from the real and hypothecary nature of maritime trade. The latter rule was never made a matter of defense in any of the cases a quo, as properly it could not have been made so since it was not relevant in said cases. The only time it could come into play is when any of the cases involving the mishap were to be executed, as in this case. Then, and only then, could the matter have been raised, as it has now been brought before the Court.
chanro blesvi rtua lawlib rary chan roble s virtual law l ibra ry

The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection with losses related to maritime contracts is confined to the vessel, which is hypothecated for such obligations or which stands as the guaranty for their settlement. It has its origin by reason of the conditions and risks attending maritime trade in its earliest years when such trade was replete with innumerable and unknown hazards since vessels had to go through largely uncharted waters to ply their trade. It was designed to offset such adverse conditions and to encourage people and entities to venture into maritime commerce despite the risks and the prohibitive cost of shipbuilding. Thus, the liability of the vessel owner and agent arising from the operation of such vessel were confined to the vessel itself, its equipment, freight, and insurance, if any, which limitation served to induce capitalists into effectively wagering their resources against the consideration of the large profits attainable in the trade.
chanroble svirtualawl ibra ry cha nro bles vi rtua l law lib ra ry

It might be noteworthy to add in passing that despite the modernization of the shipping industry and the development of high-technology safety devices designed to reduce the risks therein, the limitation has not only persisted, but is even practically absolute in well-developed maritime countries such as the United States and England where it covers almost all maritime casualties. Philippine maritime law is of Anglo-American extraction, and is governed by adherence to both international maritime conventions and generally accepted practices relative to maritime trade and travel. This is highlighted by the following excerpts on the limited liability of vessel owners and/or agents; Sec. 183. The liability of the owner of any vessel, whether American or foreign, for any embezzlement, loss, or destruction by any person of any person or any property, goods, or merchandise shipped or put on board such vessel, or for any loss, damage, or forfeiture, done, occasioned, or incurred, without the privity or knowledge of such owner or owners shall not exceed the amount or value of the interest of such owner in such vessel, and her freight then pending. (Section 183 of the US Federal Limitation of Liability Act). -andchan roble s virtual law l ibra ry

1. The owner of a sea-going ship may limit his liability in accordance with Article 3 of this Convention in respect of claims arising, from any of the following occurrences, unless the occurrence giving rise to the claim resulted from the actual fault or privity of the owner;
chan rob les vi rtual law lib rary

(a) loss of life of, or personal injury to, any person being carried in the ship, and loss of, or damage to, any property on board the ship.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

(b) loss of life of, or personal injury to, any other person, whether on land or on water, loss of or damage to any other property or infringement of any rights caused by the act, neglect or default the owner is responsible for, or any person not on board the ship for whose act, neglect or default the owner is responsible: Provided, however, that in regard to the act, neglect or default of this last class of person, the owner shall only be entitled to limit his liability when the act, neglect or default is one which occurs in the navigation or the management of the ship or in the loading, carriage or discharge of its cargo or in the embarkation, carriage or disembarkation of its passengers.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

(c) any obligation or liability imposed by any law relating to the removal of wreck and arising from or in connection with the raising, removal or destruction of any ship which is sunk, stranded or abandoned (including anything which may be on board such ship) and any obligation or liability arising out of damage caused to harbor works, basins and navigable waterways. (Section 1, Article I of the Brussels International Convention of 1957) In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute from which it originates. The Limited Liability Rule in the Philippines is taken up in Book III of the Code of Commerce, particularly in Articles 587, 590, and 837, hereunder quoted in toto: Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may have earned during the voyage.
chan rob lesvi rtualaw lib rary c han robles vi rt ual law li bra ry

Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Art. 587.
chan roblesv irt ualawl ibra ry chan roble s virtual law lib rary

Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him.
chanro blesvi rtua lawlib rary chan roble s virtual law l ibra ry

Art. 837. The civil liability incurred by shipowners in the case prescribed in this section (on collisions), shall be understood as limited to the value of the vessel with all its appurtenances and freightage served during the voyage. (Emphasis supplied) Taken together with related articles, the foregoing cover only liability for injuries to third parties (Art. 587), acts of the captain (Art. 590) and collisions (Art. 837).
chanrob lesvi rtua lawlib rary c han robles v irt ual law li bra ry

In view of the foregoing, this Court shall not take the application of such limited liability rule, which is a matter of near absolute application in other jurisdictions, so lightly as to merely "imply" its inapplicability, because as could be seen, the reasons for its being are still apparently much in existence and highly regarded.
chanroble svi rtualawl ib rary c hanro bles vi rtua l law li bra ry

We now come to its applicability in the instant case. In the few instances when the matter was considered by this Court, we have been consistent in this jurisdiction in holding that the only time the Limited Liability Rule does not apply is when there is an actual finding of negligence on the part of the vessel owner or agent (Yango v. Laserna, 73 Phil. 330 [1941]; Manila Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of Amparo delos Santos v. Court of Appeals, 186 SCRA 649 [1967]). The pivotal question, thus, is whether there is a finding of such negligence on the part of the owner in the instant case.
chan roble svirt ualawli bra ry chan rob les vi rtual law lib rary

A careful reading of the decision rendered by the trial court in Civil Case No. 144425 (pp. 2733, Rollo) as well as the entirety of the records in the instant case will show that there has been no actual finding of negligence on the part of petitioner. In its Decision, the trial court merely held that: . . . Considering the foregoing reasons, the Court holds that the vessel M/V "Aboitiz" and its cargo were not lost due to fortuitous event or force majeure." (p. 32, Rollo)

The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-86, Rollo) affirming the decision of the Court of Appeals in CA-G.R. CV No. 10609 (pp. 34-50, Rollo) since both decisions did not make any new and additional finding of fact. Both merely affirmed the factual findings of the trial court, adding that the cause of the sinking of the vessel was because of unseaworthiness due to the failure of the crew and the master to exercise extraordinary diligence. Indeed, there appears to have been no evidence presented sufficient to form a conclusion that petitioner shipowner itself was negligent, and no tribunal, including this Court will add or subtract to such evidence to justify a conclusion to the contrary.
ch anroble svirtualawl ibra ry cha nro bles vi rtua l law lib ra ry

The qualified nature of the meaning of "unseaworthiness," under the peculiar circumstances of this case is underscored by the fact that in the Country Banker's case, supra, arising from the same sinking, the Court sustained the decision of the Court of Appeals that the sinking of the M/V P. Aboitiz was due to force majeure.
chan ro blesvi rtualaw lib rary c hanro bles vi rt ual law li bra ry

On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on petitioner's lap, absent a factual basis for such a conclusion. The unseaworthiness found in some cases where the same has been ruled to exist is directly attributable to the vessel's crew and captain, more so on the part of the latter since Article 612 of the Code of Commerce provides that among the inherent duties of a captain is to examine a vessel before sailing and to comply with the laws of navigation. Such a construction would also put matters to rest relative to the decision of the Board of Marine Inquiry. While the conclusion therein exonerating the captain and crew of the vessel was not sustained for lack of basis, the finding therein contained to the effect that the vessel was seaworthy deserves merit. Despite appearances, it is not totally incompatible with the findings of the trial court and the Court of Appeals, whose finding of "unseaworthiness" clearly did not pertain to the structural condition of the vessel which is the basis of the BMI's findings, but to the condition it was in at the time of the sinking, which condition was a result of the acts of the captain and the crew.
chan roble svi rtualaw lib rary c hanrobles vi rt ual law li bra ry

The rights of a vessel owner or agent under the Limited Liability Rule are akin to those of the rights of shareholders to limited liability under our corporation law. Both are privileges granted by statute, and while not absolute, must be swept aside only in the established existence of the most compelling of reasons. In the absence of such reasons, this Court chooses to exercise prudence and shall not sweep such rights aside on mere whim or surmise, for even in the existence of cause to do so, such incursion is definitely punitive in nature and must never be taken lightly.
chanrob lesvi rtua lawlib rary chan robles v irt ual law l ibra ry

More to the point, the rights of parties to claim against an agent or owner of a vessel may be compared to those of creditors against an insolvent corporation whose assets are not enough to satisfy the totality of claims as against it. While each individual creditor may, and in fact shall, be allowed to prove the actual amounts of their respective claims, this does not mean that they shall all be allowed to recover fully thus favoring those who filed and proved their claims sooner to the prejudice of those who come later. In such an instance, such creditors too would not also be able to gain access to the assets of the individual shareholders, but must limit their recovery to what is left in the name of the corporation. Thus, in the case of Lipana v. Development Bank of Rizal earlier cited, We held that: In the instant case, the stay of execution of judgment is warranted by the fact that the respondent bank was placed under receivership. To execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank v. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or preference over another by an attachment, execution or otherwise. (at p. 261). In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in their recovery to the remaining value of accessible assets. In the case of an insolvent corporation, these are the residual assets of the corporation left over from its operations. In the case of a lost vessel, these are the insurance proceeds and pending freightage for the particular voyage.
chan roblesv irt ualawli bra ry chan rob les vi rtual law lib rary

In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant can be given precedence over the others by the simple expedience of having filed or completed its action earlier than the rest. Thus, execution of judgment in earlier completed cases, even those already final and executory, must be stayed pending completion of all cases occasioned by the subject sinking. Then and only then can all such claims be simultaneously settled, either completely or pro-rata should the insurance proceeds and freightage be not enough to satisfy all claims.
chanrob lesvi rtua lawlib rary c han robles v irt ual law li bra ry

Finally, the Court notes that petitioner has provided this Court with a list of all pending cases (pp. 175 to 183, Rollo), together with the corresponding claims and the pro-rated share of each. We likewise note that some of these cases are still with the Court of Appeals, and some still with the trial courts and which probably are still undergoing trial. It would not, therefore, be entirely correct to preclude the trial courts from making their own findings of fact in those cases and deciding the same by allotting shares for these claims, some of which, after all, might not prevail, depending on the evidence presented in each. We, therefore, rule that the pro-rated share of each claim can only be found after all the cases shall have been decided.
chanroble svi rtualawl ibrary c ha nroble s virtual law l ib rary

In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending freightage should now be deposited in trust. Moreover, petitioner should institute the necessary limitation and distribution action before the proper admiralty court within 15 days from the finality of this decision, and thereafter deposit with it the proceeds from the insurance company and pending freightage in order to safeguard the same pending final resolution of all incidents, for final pro-rating and settlement thereof.
chanrob lesvi rtualaw lib rary c han robles v irt ual law li bra ry

ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional Trial Court of Manila, Branch IV dated April 30, 1991 and the Court of Appeals dated June 21, 1991 are hereby set aside. The trial court is hereby directed to desist from proceeding with the execution of the judgment rendered in Civil Case No. 144425 pending determination of the totality of claims recoverable from the petitioner as the owner of the M/V P. Aboitiz. Petitioner is directed to institute the necessary action and to deposit the proceeds of the insurance of subject vessel as above-described within fifteen (15) days from finality of this decision. The temporary restraining order issued in this case dated August 7, 1991 is hereby made permanent.
chan roble svi rtualaw lib rary c hanrobles vi rt ual law li bra ry

SO ORDERED.

G..R. No. 156978 : May 2, 2006 ABOITIZ SHIPPING CORPORATION, Petitioner, v. NEW INDIA ASSURANCE COMPANY, LTD., Respondent. DECISION QUISUMBING, J.:

For review on certiorari are the Decision1 dated August 29, 2002 of the Court of Appeals in CA-G.R. CV No. 28770 and its Resolution2 dated January 23, 2003 denying reconsideration. The Court of Appeals affirmed the Decision3 dated November 20, 1989 of the Regional Trial Court of Manila in Civil Case No. 82-1475, in favor of respondent New India Assurance Company, Ltd. This petition stemmed from the action for damages against petitioner, Aboitiz Shipping Corporation, arising from the sinking of its vessel, M/V P. Aboitiz, on October 31, 1980. The pertinent facts are as follows:
cra:nad

Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from France on board a vessel owned by Franco-Belgian Services, Inc. The cargo was consigned to General Textile, Inc., in Manila and insured by respondent New India Assurance Company, Ltd. While in Hongkong, the cargo was transferred to M/V P. Aboitiz for transshipment to Manila.4
cra

Before departing, the vessel was advised by the Japanese Meteorological Center that it was safe to travel to its destination.5 But while at sea, the vessel received a report of a typhoon moving within its general path. To avoid the typhoon, the vessel changed its course. However, it was still at the fringe of the typhoon when its hull leaked. On October 31, 1980, the vessel sank, but the captain and his crew were saved. On November 3, 1980, the captain of M/V P. Aboitiz filed his "Marine Protest", stating that the wind force was at 10 to 15 knots at the time the ship foundered and described the weather as "moderate breeze, small waves, becoming longer, fairly frequent white horses."6
c ra

Thereafter, petitioner notified7 the consignee, General Textile, of the total loss of the vessel and all of its cargoes. General Textile, lodged a claim with respondent for the amount of its loss. Respondent paid General Textile and was subrogated to the rights of the latter.8
cra

Respondent hired a surveyor, Perfect, Lambert and Company, to investigate the cause of the sinking. In its report,9the surveyor concluded that the cause was the flooding of the holds brought about by the vessel's questionable seaworthiness. Consequently, respondent filed a complaint for damages against petitioner Aboitiz, Franco-Belgian Services and the latter's local agent, F.E. Zuellig, Inc. (Zuellig). Respondent alleged that the proximate cause of the loss of the shipment was the fault or negligence of the master and crew of the vessel, its unseaworthiness, and the failure of defendants therein to exercise extraordinary diligence in the transport of the goods. Hence, respondent added, defendants therein breached their contract of carriage.10
cra

Franco-Belgian Services and Zuellig responded, claiming that they exercised extraordinary diligence in handling the shipment while it was in their possession; its vessel was seaworthy; and the proximate cause of the loss of cargo was a fortuitous event. They also filed a cross-claim against petitioner alleging that the loss occurred during the transshipment with petitioner and so liability should rest with petitioner. For its part, petitioner also raised the same defense that the ship was seaworthy. It alleged that the sinking of M/V P. Aboitiz was due to an unforeseen event and without fault or negligence on its part. It also alleged that in accordance with the real and hypothecary nature of maritime law, the sinking of M/V P. Aboitiz extinguished its liability on the loss of the cargoes.11
cra

Meanwhile, the Board of Marine Inquiry (BMI) conducted its own investigation to determine whether the captain and crew were administratively liable. However, petitioner neither informed respondent nor the trial court of the investigation. The BMI exonerated the captain and crew of any administrative liability; and declared the vessel seaworthy and concluded that the sinking was due to the vessel's exposure to the approaching typhoon.

On November 20, 1989, the trial court, citing the Court of Appeals decision in General Accident Fire and Life Assurance Corporation v. Aboitiz Shipping Corporation12 involving the same incident, ruled in favor of respondent. It held petitioner liable for the total value of the lost cargo plus legal interest, thus:
c ra:nad

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of New India and against Aboitiz ordering the latter to pay unto the former the amount of P142,401.60, plus legal interest thereon until the same is fully paid, attorney's fees equivalent to fifteen [percent] (15%) of the total amount due and the costs of suit. The complaint with respect to Franco and Zuellig is dismissed and their counterclaim against New India is likewise dismissed SO ORDERED.13
c ra

Petitioner elevated the case to the Court of Appeals and presented the findings of the BMI. However, on August 29, 2002, the appellate court affirmed in toto the trial court's decision. It held that the proceedings before the BMI was only for the administrative liability of the captain and crew, and was unilateral in nature, hence not binding on the courts. Petitioner moved for reconsideration but the same was denied on January 23, 2003. Hence, this petition for review, alleging that the Court of Appeals gravely erred in: I. x x x DISREGARDING THE RULINGS OF THE HONORABLE SUPREME COURT ON THE APPLICATION OF THE RULE ON LIMITED LIABILITY UNDER ARTICLE 587, 590 AND 837 OF THE CODE OF COMMERCE TO CASES INVOLVING THE SINKING OF THE M/V "P. ABOITIZ; A. x x x NOT APPLYING THE RULINGS IN THE CASES OF MONARCH INSURANCE CO., INC. ET AL. V. COURT OF APPEALS ET AL. AND ABOITIZ SHIPPING CORPORATION V. GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD.; B. x x x RULING THAT THE ISSUE ON THE APPLICATION OF THE RULE ON LIMITED LIABILITY UNDER ARTICLES 587, 590 AND 837 OF THE CODE OF COMMERCE HAD BEEN CONSIDERED AND PASSED UPON IN ITS DECISION; II. x x x NOT LIMITING THE AWARD OF DAMAGES TO RESPONDENT TO ITS PRO-RATA SHARES IN THE INSURANCE PROCEEDS FROM THE SINKING OF THE M/V "P. ABOITIZ".14 Stated simply, we are asked to resolve whether the limited liability doctrine, which limits respondent's award of damages to its pro-rata share in the insurance proceeds, applies in this case. Petitioner, citing Monarch Insurance Co. Inc. v. Court of Appeals, 15 contends that respondent's claim for damages should only be against the insurance proceeds and limited to its pro-rata share in view of the doctrine of limited liability.

Respondent counters that the doctrine of real and hypothecary nature of maritime law is not applicable in the present case because petitioner was found to have been negligent. Hence, according to respondent, petitioner should be held liable for the total value of the lost cargo. It bears stressing that this Court has variedly applied the doctrine of limited liability to the same incident - the sinking of M/V P. Aboitiz on October 31, 1980. Monarch, the latest ruling, tried to settle the conflicting pronouncements of this Court relative to the sinking of M/V P. Aboitiz. In Monarch, we said that the sinking of the vessel was not due to force majeure, but to its unseaworthy condition.16 Therein, we found petitioner concurrently negligent with the captain and crew.17 But the Court stressed that the circumstances therein still made the doctrine of limited liability applicable. 18
cra

Our ruling in Monarch may appear inconsistent with the exception of the limited liability doctrine, as explicitly stated in the earlier part of the Monarch decision. An exception to the limited liability doctrine is when the damage is due to the fault of the shipowner or to the concurrent negligence of the shipowner and the captain. In which case, the shipowner shall be liable to the full-extent of the damage.19 We thus find it necessary to clarify now the applicability here of the decision in Monarch. From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence over the goods they transport according to all the circumstances of each case.20 In the event of loss, destruction or deterioration of the insured goods, common carriers are responsible, unless they can prove that the loss, destruction or deterioration was brought about by the causes specified in Article 1734 of the Civil Code.21 In all other cases, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.22 Moreover, where the vessel is found unseaworthy, the shipowner is also presumed to be negligent since it is tasked with the maintenance of its vessel. Though this duty can be delegated, still, the shipowner must exercise close supervision over its men.23
cra

In the present case, petitioner has the burden of showing that it exercised extraordinary diligence in the transport of the goods it had on board in order to invoke the limited liability doctrine. Differently put, to limit its liability to the amount of the insurance proceeds, petitioner has the burden of proving that the unseaworthiness of its vessel was not due to its fault or negligence. Considering the evidence presented and the circumstances obtaining in this case, we find that petitioner failed to discharge this burden. It initially attributed the sinking to the typhoon and relied on the BMI findings that it was not at fault. However, both the trial and the appellate courts, in this case, found that the sinking was not due to the typhoon but to its unseaworthiness. Evidence on record showed that the weather was moderate when the vessel sank. These factual findings of the Court of Appeals, affirming those of the trial court are not to be disturbed on appeal, but must be accorded great weight. These findings are conclusive not only on the parties but on this Court as well.24
cra

In contrast, the findings of the BMI are not deemed always binding on the courts.25 Besides, exoneration of the vessel's officers and crew by the BMI merely concerns their respective administrative liabilities.26 It does not in any way operate to absolve the common carrier from its civil liabilities arising from its failure to exercise extraordinary diligence, the determination of which properly belongs to the courts.27
cra

Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited liability cannot be applied.28 Therefore, we agree with the appellate court in sustaining the trial court's ruling that petitioner is liable for the total value of the lost cargo. WHEREFORE, the petition is DENIED for lack of merit. The Decision dated August 29, 2002 and Resolution dated January 23, 2003 of the Court of Appeals in CA-G.R. CV No. 28770 are AFFIRMED. Costs against petitioner. SO ORDERED.

G.R. No. 163156 : December 10, 2008 NEGROS NAVIGATION CO., INC., petitioner, v. COURT OF APPEALS, SPECIAL TWELFTH DIVISION AND TSUNEISHI HEAVY INDUSTRIES (CEBU), INC., Respondents.

G.R. No. 166845 : December 10, 2008 TSUNEISHI HEAVY INDUSTRIES (CEBU), INC., petitioner, v. NEGROS NAVIGATION CO., INC., SULFICIO O. TAGUD, JR., AND THE REHABILITATION RECEIVER FOR NEGROS NAVIGATION CO., INC., Respondents. DECISION NACHURA, J.: Before us are two consolidated cases, docketed as G.R. No. 163156 and G.R. No. 166845, which were filed by petitioners Negros Navigation Co., Inc. (NNC) and Tsuneishi Heavy Industries (Cebu), Inc. (THI), respectively. The first is a petition for certiorari and prohibition assailing the April 29, 2004 Resolution1 of the Court of Appeals (CA) in CA-G.R. SP No. 83526. The second is a petition for review on certiorari, contesting the October 6, 2004 Decision2 and January 24, 2005 Resolution3 of the CA in the same case. The Facts The undisputed facts are as follows:
cra:nad

NNC is a shipping company that is primarily engaged in the business of transporting through shipping vessels, passengers and cargoes at various ports of call in the country.4 THI, on the other hand, is engaged in the business of shipbuilding and repair.5 NNC engaged the services of THI for the repair of its vessels. On February 9, 2004, THI filed a case for sum of money and damages with prayer for issuance of writ of attachment against NNC before the Regional Trial Court of Cebu (Cebu RTC), docketed as Civil Case No. CEB-29899 entitled "Tsuneishi Heavy Industries (Cebu), Inc. v. Negros Navigation Co., Inc." The action is based on the unpaid services for the repair of NNC's vessels, otherwise known as repairman's lien. On March 5, 2004, the Cebu RTC issued an Order6 granting the issuance of a writ of preliminary attachment against the properties of NNC.7 It reasoned that based on the affidavit in support of the application for the writ, NNC committed fraud in contracting the debt or in incurring the obligation upon which the action was brought, thus, justifying the issuance of the writ 8 as mandated by Section 1(d) of Rule 57. It added that the repairman's lien of THI constituted a superior maritime lien that is enforceable by suit in rem, as decreed by Presidential Decree No. 1521 (PD 1521).9
cra

On March 12, 2004, by virtue of the writ of preliminary attachment, Sheriff Rogelio T. Pinar levied on one of the vessels of NNC, the M/V St. Peter the Apostle.10
cra

On March 29, 2004, NNC filed a Petition for Corporate Rehabilitation with Prayer for Suspension of Payments11 with the RTC of Manila (Manila RTC), Branch 46, which was docketed as Special Proceeding No. 0409532. The Manila RTC granted the NNC's petition and issued a Stay Order12 on April 1, 2004. The said Order reads: Petitioner Negros Navigation Co., Inc. filed a Petition alleging that it is a domestic corporation with principal place of business at Pier 2, North Harbor, Tondo, Manila; that since its incorporation, it had been very viable and financially profitable; that because of the Asian Currency Crisis and the devaluation of the Peso, it found itself in difficulty in paying its obligations with creditors; that as a consequence, petitioner foresees its inability to meet its obligations as they fall due; that since the obligations would not be met, complications and problems will arise that will impair and affect the operation of the corporation and its effort to rehabilitate its business; that one of its creditors, Tsuneishi Heavy Industries, Inc., already attached one shipping vessel of the corporation; and other creditors are threatening to sue; but despite the foregoing, petitioner still foresee the prospect of paying its debts if only given a "breathing spell." Hence, it is presenting a Rehabilitation Plan for approval of its creditors as well as this Court. Finding the Petition, together with its annexes, sufficient in form and substance, the Court hereby: 1. Appoints Mr. Sulficio O. Tagud, Jr. as Rehabilitation Receiver with a bond in the amount of PhP150,000.00; 2. Stays the enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the petitioner, its guarantors and sureties not solidarily liable with the debtor; 3. Prohibits petitioner from selling, encumbering, transferring, or disposing in any manner any of its properties, except in the ordinary course of business; 4. Prohibits petitioner from making any payment of its liabilities outstanding as of the date of filing of the petition; 5. Prohibits the debtor's suppliers of goods or services from withholding supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services and goods supplied after the issuance of the stay order; 6. Directs the payment in full of all administrative expenses incurred after the issuance of the stay order; 7. Fixes the initial hearing of the petition on May 7, 2004 at 8:30 A.M.; 8. Directs petitioner to publish this Order in a newspaper of general circulation throughout the Philippines once a week for two (2) consecutive weeks; 9. Directs all creditors and all interested parties (including the Securities and Exchange Commission) to file and serve with the court and on the petitioner a verified comment on or opposition to the petition, with supporting affidavits and documents, not later than ten (10) days before the date of the initial hearing and putting them on notice that their failure to do so will bar them from participating in the proceedings; and

10. Directing the creditors and interested parties to secure from the court copies of the petition and its annexes to enable them to file their comment on or opposition to the petition and to prepare for the initial hearing of the petition. The Rehabilitation Receiver, Mr. Sulficio O. Tagud, Jr., is requested to submit his oath of office within ten (10) days from receipt of this Order. IT IS SO ORDERED.13 Upon the issuance of the stay order by the Manila RTC, NNC filed a Manifestation and Motion to Suspend Proceedings and to Lift Preliminary Attachment with the Cebu RTC.14
c ra

On April 5, 2004, THI filed an Amended Complaint15 in the Cebu RTC. In the amended complaint, THI impleaded the following vessels of NNC as co-defendants in the suit: M/V San Sebastian, M/S Princess of Negros, M/V Nossa Senhora (Nuestra Seora) De Fatima, M/V St. Peter the Apostle, M/V Santa Ana and M/V San Paolo.16 THI prayed for the following in the amended complaint: WHEREFORE, it is respectfully prayed that:
cra:nad

1. An ex-parte writ of preliminary attachment/arrest order be issued directing the sheriff to attach defendant's properties not exempt from execution as security for the satisfaction of the judgment in this action, and/or arrest the defendant vessels, upon approval by the Court of an appropriate attachment/arrest bond in accordance with the Rules of Court. 2. It is further respectfully prayed that after trial, judgment be rendered in favor of the plaintiff and against the defendant, Negros Navigation ordering the latter to pay the amount of P104,464,000.00 plus interest and penalties, and in satisfaction thereof and/or to ensure the same: a. In the in personam action, attaching the assets of defendant Negros Navigation, including the vessel, M/V St. Joseph; and b. In the in rem action, an order/warrant of arrest of the Vessels based on plaintiff's lien which arose from repairs and dry docking furnished by plaintiff to the following:

a) San Sebastian b) Princess of Negros c) Nuestra Sra. De Fatima d) St. Peter the Apostle e) Sta. Ana f) San Paolo TOTAL

P2,212,925.00 21,389,575.00 3,743,250.00 43,483,000.00 264,000.00 33,371,250.00 P104,464,000.00

be issued ex-parte and, after hearing, judgment be rendered ordering the sale at public action of the Vessels, including all their accessories, equipments, riggings and appurtenances, and, under the manner provided for by law.

3. Attorney's fees in an amount not less than P2,000,000.00 plus refund of docket fees, bond premiums and litigation expenses of no less than P2,000,000.00. 4. Costs of suit. Plaintiff prays for such other reliefs, cumulative and/or alternative, as this Honorable Court may deem just and equitable under the premises.17 On April 6, 2004, the Cebu RTC issued two (2) Orders. The first was an Order18 admitting the amended complaint as a matter of right since NNC had not yet filed a responsive pleading when the same was filed. The second was an Order19 for the arrest of the vessels of NNC in the in rem aspect of the case. The fallo of the Order reads: WHEREFORE, in view of the foregoing, the sheriff, or other proper officers of this court and such other person(s) as they may deputize, is/are hereby directed to arrest and detain the following vessels: M/V San Sebastian, M/S Princess of Negros, M/V Nossa Senhora de Fatima (Nuestra Senora de Fatima), M/V St. Peter the Apostle, M/V Sta. Ana and M/V San Paolo. The Philippine Ports Authority, the Philippine Coast Guard, the Maritime Industry Authority (MARINA), the Philippine National Police, the National Bureau of Investigation and other law enforcement agencies and all other government agencies and instrumentalities are hereby ordered to assist. Assistance shall include but not be limited to preventing the vessel from sailing or trading except as this admiralty court shall direct. Keep the vessels in custody until further order of this court, sitting as an admiralty court. IT IS SO ORDERED. On April 12, 2004, NNC's Rehabilitation Receiver filed with the Manila RTC a Motion20 for the clarification of the stay order. It sought to confirm whether the claim sought to be enforced by THI against the vessels of NNC is covered by the stay order. On the same date, the Manila RTC issued an Order21 addressing the said motion. The pertinent portion of the Order reads: The Interim Rules of Procedure on Corporate Rehabilitation does not distinguish the kind of claims covered, whether in rem or in personam, due or not due. Hence, when the law does not distinguish, courts ought not to distinguish. So the stay order applies to all CLAIMS. SO ORDERED.22 On April 13, 2004, NNC filed a Motion to Suspend Proceedings and to Lift the Writ of Attachment and Arrest Orders23before the Cebu RTC by virtue of the April 12, 2004 Order of the Manila RTC. However, on April 29, 2004, the CA issued the Resolution24 assailed in what is before this Court as G.R. No. 163156, wherein the appellate court temporarily restrained the implementation of the Orders of the Manila RTC dated April 1, 2004 and April 12, 2004. The pertinent portion of the assailed Resolution reads: To preserve the status quo and so as not to render ineffectual and nugatory the judgment that will be rendered in this petition, a temporary restraining order valid for sixty (60) days is issued enjoining respondents and all persons acting for them and on their behalf or third persons from enforcing or implementing the Orders dated April 1, 2004 and April 12, 2004 of the public respondent. SO ORDERED.25 From this CA Resolution, NNC sought recourse before us. On May 4, 2004, this Court in G.R. No. 163156 issued a Temporary Restraining Order,26 the pertinent portion of which reads: NOW, THEREFORE, YOU, RESPONDENTS are REQUIRED to file comment on the petition within ten (10) days from notice, and RESTRAINED from implementing the Court of Appeals resolution dated 29 April

2004, which issued a temporary restraining order in CA-GR SP No. 83526 entitled "Tsuneishi Heavy Industries (CEBU), Inc. vs. Hon. Artemio S. Tipon, Presiding Judge, Regional Trial Court, Manila, Br. 46, Negros Navigation Co., Inc. and Sulficio O. Tagud, Jr." enjoining the implementation of the Orders dated 1 April 2004 and 12 April 2004 of the Regional Trial Court of Manila, Br. 46 in SP Proc. No. 04109532, effective immediately and continuing until further orders from this Court, and YOU, PETITIONER, are ordered to POST a BOND in the amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00) in cash or surety issued by a reputable bonding company of indubitable solvency with terms and conditions acceptable to this Court within five (5) days from notice hereof, otherwise this temporary restraining order shall be rendered of no force and effect. On October 6, 2004, the CA issued the Decision27 assailed in what is now G.R. No. 166845, denying the petition of THI that sought to annul and enjoin the enforcement and implementation of the Orders of the Manila RTC dated April 1, 2004 and April 12, 2004. The fallo of the Decision reads: WHEREFORE, in view of the foregoing, the instant petition is DENIED DUE COURSE and is DISMISSEDfor lack of merit. SO ORDERED.28 THI filed a motion for reconsideration. The same was denied in a Resolution29 dated January 24, 2005. Hence, this petition in G.R. No. 166845. The Issues NNC, in G.R. No. 163156, presented the sole issue of whether the CA committed grave abuse of discretion amounting to lack or excess of jurisdiction in issuing the Resolution dated April 29, 2004 embodying the temporary restraining order which enjoined the implementation of the Orders of the Manila RTC dated April 1, 2004 and April 12, 2004.30
cra

On the other hand, THI, in G.R. No. 166845, assigned the following errors in the decision and resolution of the CA: A. The CA Decision erred in ruling that neither THI's enforcement/the efficacy of its maritime liens against the Vessels nor the Admiralty Court's jurisdiction over those liens is impaired by the Stay Orders issued by the Manila RTC.31
cra

B. The CA Decision, it is respectfully submitted, gravely erred in ruling that THI's maritime liens are covered by, and are subject to the Manila RTC's jurisdiction in, [NNC's] rehabilitation proceedings.32 The Ruling of the Court In G.R. No. 163156 The issue presented by NNC in G.R. No. 163156 was rendered moot and academic by the promulgation of the CA Decision and Resolution dated October 6, 2004 and January 24, 2005, respectively. We find it unnecessary to discuss it extensively because the arguments presented by NNC and THI in support of their respective positions are, ultimately, the very same issues we now resolve in G.R. No. 166845. In G.R. No. 166845 On the first issue, THI maintains that its maritime liens against the vessels of NNC were impaired by the issuance of the stay order. THI argues that the issuance of the stay order by the Manila RTC, acting as rehabilitation court, was erroneous considering that maritime liens cannot be enforced, divested, and otherwise affected or dealt with except by an admiralty court in an admiralty

proceeding in rem. THI cited various foreign jurisprudence to the effect that maritime liens are enforceable only by a suit in rem. 33 It further averred that the mere suspension of the in rem proceedings in the admiralty case prejudiced its substantive rights under Presidential Decree (PD) 1521.34
cra

The argument of THI is misplaced. There is no conflict as to which law should apply to the case at bench. THI wishes to impress this Court that its claim for repairman's lien is a maritime lien and, accordingly, may be enforced only in a proceeding in rem. The Court agrees that PD 1521 is the governing law concerning its maritime lien for the services it rendered to NNC. However, when NNC filed a petition for corporate rehabilitation and suspension of payments, and the Manila RTC found that the petition was sufficient in form and in substance and appointed the rehabilitation receiver, the admiralty proceeding was appropriately suspended in accordance with Section 6 of the Interim Rules on Corporate Rehabilitation.35
c ra

Rehabilitation contemplates continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency.36 The purpose of rehabilitation proceedings is precisely to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings. The rehabilitation of a financially distressed corporation benefits its employees, creditors, stockholders and, in a larger sense, the general public.37
cra

The governing law concerning rehabilitation and suspension of actions for claims against corporations is PD 902-A, as amended. Republic Act No. 8799 (RA 8799), otherwise known as The Securities Regulation Code, amended Section 5 of PD 902-A, thereby transferring to the Regional Trial Courts the jurisdiction of the Securities and Exchange Commission (SEC) over cases, among others, involving petitions of corporations, partnerships or associations to be declared in the state of suspension of payments where the corporation, partnership or association possesses property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due, or where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a rehabilitation receiver or a management committee. The Court adopted the Interim Rules of Procedure on Corporate Rehabilitation on December 15, 2000, and these rules apply to petitions for rehabilitation filed by corporations, partnerships, and associations pursuant to PD 902-A. PD 902-A38 mandates that upon appointment of a management committee, rehabilitation receiver, board or body, all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended. PD 902-A does not make any distinction as to what claims are covered by the suspension of actions for claims against corporations under rehabilitation. No exception is made therein in favor of maritime claims. Thus, since the law does not make any exemptions or distinctions, neither should we. Ubi lex non distinguit nec nos distinguere debemos. The justification for the suspension of actions or claims, without distinction, pending rehabilitation proceedings is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that might unduly hinder or prevent the "rescue" of the debtor company. To allow such other actions to continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the corporation instead of being directed toward its restructuring and rehabilitation.39
cra

It is undisputed that THI holds a preferred maritime lien over NNC's assets by virtue of THI's unpaid services. The issuance of the stay order by the rehabilitation court does not impair or in any way diminish THI's preferred status as a creditor of NNC. The enforcement of its claim through court action was merely suspended to give way to the speedy and effective rehabilitation of the distressed shipping company. Upon termination of the rehabilitation proceedings or in the event of the bankruptcy and consequent dissolution of the company, THI can still enforce its preferred claim upon NNC.

PD 902-A was designed not only to salvage an ailing corporation but also to protect the interest of investors, creditors and the general public. Section 6 (d) of PD 902-A provides: "the management committee or rehabilitation receiver, board or body shall have the power to take custody of, and control over, all the existing assets and property of such entities under management; to evaluate the existing assets and liabilities, earnings and operations of such corporations, partnerships or other associations; to determine the best way to salvage and protect the interest of the investors and creditors; to study, review and evaluate the feasibility of continuing operations and restructure and rehabilitate such entities if determined to be feasible by the [court]. It shall report and be responsible to the [court] until dissolved by order of the [court]: Provided, however, That the [court] may, on the basis of the findings and recommendation of the management committee, or rehabilitation receiver, board or body, or on its own findings, determine that the continuance in business of such corporation or entity would not be feasible or profitable nor work to the best interest of the stockholders, partieslitigants, creditors, or the general public, order the dissolution of such corporation entity and its remaining assets liquidated accordingly. The management committee or rehabilitation receiver, board or body may overrule or revoke the actions of the previous management and board of directors of the entity or entities under management notwithstanding any provision of law, articles of incorporation or by-laws to the contrary." When a distressed company is placed under rehabilitation, the appointment of a management committee follows to avoid collusion between the previous management and creditors it might favor, to the prejudice of the other creditors. The stay order is effective on all creditors of the corporation without distinction, whether secured or unsecured. All assets of a corporation under rehabilitation receivership are held in trust for the equal benefit of all creditors to preclude one from obtaining an advantage or preference over another by the expediency of attachment, execution or otherwise. As between the creditors, the key phrase is equality in equity. Once the corporation threatened by bankruptcy is taken over by a receiver, all the creditors ought to stand on equal footing. Not any one of them should be paid ahead of the others. This is precisely the reason for suspending all pending claims against the corporation under receivership.40 Rizal Commercial Banking Corporation v. Intermediate Appellate Court,41 promulgated by the Court en banc before the effectivity of the Interim Rules on Corporate Rehabilitation, is still valid case law up to the present. It enumerates the guidelines in the treatment of claims involving corporations undergoing rehabilitation, viz.: 1. All claims against corporations, partnerships, or associations that are pending before any court, tribunal, or board, without distinction as to whether or not a creditor is secured or unsecured, shall be suspended effective upon the appointment of a management committee, rehabilitation receiver, board, or body in accordance with the provisions of Presidential Decree No. 902-A. 2. Secured creditors retain their preference over unsecured creditors, but enforcement of such preference is equally suspended upon the appointment of a management committee, rehabilitation receiver, board, or body. In the event that the assets of the corporation, partnership, or association are finally liquidated, however, secured and preferred credits under the applicable provisions of the Civil Code will definitely have preference over unsecured ones.42 On the second issue, THI argues that the Manila RTC, in granting the stay order, divested the Cebu RTC, which is acting as an admiralty court, of its jurisdiction over the maritime case of THI. It insists that its maritime liens over the vessels of NNC must be upheld, notwithstanding NNC's rehabilitation proceedings. It stresses that in in remproceedings to enforce maritime liens, the vessels alone may be impleaded as defendants. The vessels themselves answer for the liens, and lienholders like THI have the substantive statutory right under PD 1521 to insist on the vessels' responsibility because an action in rem is a proceeding against the ship itself. Furthermore, it emphasizes that a maritime lien is not affected by bankruptcy or reorganization, citing Gilmore and Black as reference.43
cra

True enough, a maritime lien is not affected by bankruptcy or reorganization. However, in the instant case, we are not dealing with bankruptcy or reorganization; rather, we are confronted with NNC's rehabilitation. If we follow the argument of THI and allow the continued enforcement of its claims

against NNC, we would, in effect, violate provisions of PD 902-A. To reiterate, the rationale behind PD 902-A is to effect a feasible and viable rehabilitation of an ailing corporation. There is no conflict between PD 1521 and PD 902-A. The Manila RTC acting as a rehabilitation court merely suspended the proceedings in the admiralty case in the Cebu RTC. It did not divest the Cebu RTC of its jurisdiction over the maritime claims of THI against NNC. The preferred maritime lien of THI can still be enforced upon the termination of the rehabilitation proceedings, or if it such be unsuccessful, upon the dissolution of the corporation. WHEREFORE, in view of the foregoing disquisitions, judgment is rendered as follows: (1) In G.R. No. 163156, the petition is DISMISSED for being moot and academic; and (2) In G.R. No. 166845, the petition is DENIED for lack of merit. SO ORDERED. [G.R. No. 128661. August 8, 2000] PHILIPPINE NATIONAL BANK/NATIONAL INVESTMENT DEVELOPMENT CORPORATION, Petitioners, v. THE COURT OF APPEALS, CHINA BANKING CORPORATION, Respondents. DECISION GONZAGA-REYES, J.: In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioners seek the reversal of the 21 March 1997 decision[1 of the Court of Appeals in C.A.-G.R. No. CV38131. The assailed decision set aside the Order2 dated 4 March 1992 of the Regional Trial Court of Makati City, Branch 146 in Civil Case No. 7119 insofar as it dismissed the complaint-in-intervention of private respondent China Banking Corporation. The facts of the case are as follows: To finance the acquisition of seven (7) ocean-going vessels, namely M/V Asean Liberty, M/V Asean Independence, M/V Asean Mission, M/V Asean Knowledge, M/V Asean Nations, M/V Asean Greatness, and M/V Asean Objectives, the Philippine International Shipping Corporation (hereinafter PISC) applied for and was granted by petitioner National Investment and Development Corporation (hereinafter NIDC) the following guaranty accommodations: a. US$9.44 Million in favor of Ultrafin A.G. of Zurich, Switzerland as Agent for the banks/financial institutions as evidenced by and subject to the terms and conditions of a Guaranty Agreement dated December 7, 1978 to partly finance the acquisition of two (2) ocean-going vessels; b. US$23.60 Million in favor of the Philippine National Bank (hereinafter PNB as evidenced by and subject to the terms and conditions of a Consolidated Amendatory Agreement dated January 25, 1979 to finance the acquisition cost of four (4) additional ocean-going vessels; and c. US$1.291 Million in favor of PNB as evidenced by and subject to the terms and conditions of that Second Consolidated Amendatory Agreement dated July 17, 1979 to finance the additional acquisition cost of one (1) ocean-going vessel.[3

As security for these guaranty accommodations, PISC executed in favor of petitioners the following mortgage documents: a. Deed of Chattel Mortgage dated September 14, 1979 constituted on M/V Asean Liberty and M/V Asean Nation and recorded on September 25, 1979 with the Philippine Coast Guard Headquarters; b. Supplemental Chattel Mortgage dated October 2, 1979 constituted on M/V Asean Independence, M/V Asean Mission, M/V Asean Knowledge, and M/V Asean Objectives and recorded with the Philippine Coast Guard Headquarters on February 13, 1980; and c. Supplemental Chattel Mortgage constituted on M/V Asean Greatness and recorded with the Philippine Coast Guard Headquarters on February 3, 1981. [4 Meanwhile, on March 12, 1979, PISC entered into a Contract Agreement with Hong Kong United Dockyards, Ltd. for the repair and conversion of the vessel M/V Asean Liberty at a contract price of HK$2,200,000.00 variable as provided therein.[5 On May 28, 1979, the Central Bank of the Philippines authorized PISC to open with private respondent China Banking Corporation (hereinafter CBC) a standby letter of credit for US$545,000.00 in favor of Citibank, N.A. (hereinafter Citibank) to cover the repair and partial conversion of the vessel M/V Asean Liberty. This was pursuant to the letter of the Central Bank of the Philippines dated May 28, 1979 as amended on June 20, 1979.[6 On June 15, 1979, PISC executed an Application and Agreement for Commercial Letter of Credit for $545,000.00 with private respondent CBC in favor of Citibank. Pursuant to this application and agreement, private respondent CBC issued on September 12, 1979 its Irrevocable Standby Letter of Credit No. 79/4174 for US$545,000.00 in favor of Citibank for account of PISC. On September 17, 1979, a Promissory note for US$545,000.00 was executed by PISC in favor of Citibank pursuant to the Loan Agreement for US$545,000.00 between PISC, as borrower, and Citibank, as lender.7 Upon failure of PISC to fulfill its obligations under the said promissory note, Citibank sent to private respondent CBC a letter dated March 25, 1983 drawing on Letter of Credit No. 79/4174. In this letter, Citibank certified that the draft attached thereto for US$242,225.00 represented the principal balance due to Citibank as of March 17, 1983 under the promissory note executed by PISC, the proceeds of which were used for the repair and conversion of M/V Asean Liberty. Thus, on March 30, 1983, CBC instructed its correspondent Irving Trust Co., by cable, to pay to Citibank the amount of US$242,225.00. On the same date, Irving Trust Co. advised private respondent CBC by mail that the amount of US$242,225.00 had been debited against CBCs Account No. 8033278269 and remitted to Citibank.[8 On May 10, 1983, for failure of PISC to settle its obligations in the amount of US$64,789,470.96, petitioner PNB conducted, thru the Sheriffs Office, an auction sale of the mortgaged vessels, except for the vessel M/V Asean Objective. Petitioner NIDC emerged as the highest bidder in these auctions.9 On May 27, 1983, claiming that the foreclosure sale of its mortgaged vessels was illegal, unjust, irregular, and oppressive, PISC instituted before the Regional Trial Court of Makati, a civil case10 against petitioners for the annulment of the foreclosure and auction sale of its vessels and damages.

As accurately narrated in the trial courts Order and adopted by the Court of Appeals in its Decision of March 21, 1997, the following proceedings transpired in the lower court: Records show that on May 27, 1983, PISC (Philippine International Shipping Corporation) filed suit against National Investment and Development Corporation (NIDC, for short) and Philippine National Bank (PNB, for short) for annulment of foreclosure of mortgage and auction sale with damages vis--vis the sale on foreclosure of vessels Asean Mission, Asean Knowledge, Asean Nations and Asean Greatness (as well as Asean Liberty and Asean Independence). NIDC answered the complaint, and in an amended answer impleaded additional counterclaim defendants. In an Order dated September 29, 1984, then Judge Jose L. Coscolluela, Jr. dismissed the complaint as against PNB and the counterclaimed defendants. And under date of November 3, 1986, the complaint itself against and the NIDC counterclaims were dismissed with prejudice. In the meantime, NIDC acquired the vessels as highest bidder in the foreclosure thereof initiated by PNB, NIDC having thereafter disposed of said vessels in favor of the National Steel Corporation (NSC). Complaints in intervention were filed by and for Unitor Ships Services PTE, Ltd., IMO Industries AB, UDDVALLARVARVET AB, Hyundai, Shipyard Co., Lloyds, China bank, Chiang Tung Enterprises Co., Ltd., Pan Asia, Inc., and HANMF Marine Service, Co., Ltd., for recovery upon maritime liens against the proceeds of the sale of the foreclosed vessels. The parties concerned, except for intervenors Lloyds and China Bank, eventually submitted a Compromise Agreement dated July 12, 1989, and made the basis for the Decision of August 23, 1989. As first stated, there now remain only Lloyds and China Bank claims in intervention, recovery upon which is covered by a PNB bank guarantee therefor if found matters of entitlement (sic) by said intervenors. Intervenor Lloyds claim is for the service of herein intervenor Lloyds Register of Shipping to class aforementioned vessels (M/V Asean Nations and Asean Greatness) during the period covering July 22, 1981 to July 14, 1983 and the cost for said maritime surveys in the sum of HK$65,930.00, UKC10,363.45 and P9,653.00 said to have been unpaid by PISC despite demands. NIDC traversed the Lloyds claim as not being preferred maritime liens and in any event inferior in nature. Intervenor China Banks claims are predicated on (i) a China Bank Standby Letter of Credit in favor of Citibank, N. A. purportedly to cover repair and partial conversion of M/V Asean Liberty, to the extent of US$242,225.00 paid by China Bank to Citibank, and said to be now owing by PISC together with stipulated interest; (ii) a China Bank loan of US$2,700,000.00 as evidenced by a promissory note, the loan proceeds said to have allowed PISC to reduce overhead expenses and afford it competitive advantage in overseas shipping, and to pay for bunker fuel, defray port expenses and storage, container rental and insurance, as well as salaries and wages of crew members; and (iii) a China bank commercial letter of credit to PISC in favor of Bank of America, particularly a BA Draft for US$648,002.54 said to have been applied towards vessel repair and conversion by the China Shipbuilding Corporation of Taiwan, together with stipulated interests due from PISC. China Banks claims are premised on the above as being preferred maritime liens. NIDC rejects said claims as not being maritime liens, much less preferred maritime liens. Shortly after the undersigned penning Judge assumed his duties in this Court, Lloyds and China Bank were enjoined to furnish opposite counsel with copies of the documentation of their respective claims, to obviate the necessity of adducing evidence in point on matters capable of stipulation. Thus, failing formulation of any amicable settlement in the manner arrived at by all other intervenors, pre-trial proceedings for the subject last remaining

claims in intervention by and for Lloyds and China Bank resulted in an August 9, 1991 PreTrial Order which set forthA. NATURE OF THE CASE Claimant-intervenor Lloyds Register of Shipping seeks recovery as unpaid creditor of HK$65,930., UK Pounds C10,363.45 and P9,653.00 as being in the nature of preferred maritime liens on the vessels M/V ASEAN NATIONS and ASEAN GREATNESS, representing costs for maritime services rendered for said vessels for the period July 22, 1981 to July 14, 1983. Intervenor-claimant China Banking Corporation seeks recovery, as being in the nature of a preferred maritime lien, of the sum of US$3,890,227.53, representing the totality of loans extended by said intervenor-claimant said to have been expended in financing repair and conversion costs, for expenses and storage container rentals and insurance premium paid out by it. Plaintiffs admit the recoverability of said claims as being in the nature of preferred maritime liens, whereas PNB-NIDC contests the said claims. B. STIPULATIONS AND ADMISSIONS. Plaintiffs, PNB-NIDC and intervenor-claimant Lloyds Register of Shipping stipulate and admit that the totality of its claims as fully supported by documentation already verified by the parties are in the sums of HK$65,930,00, UKC10,363.45 andP9,653.00. Plaintiffs, PNB-NIDC and intervenor-claimant China Banking Corporation stipulate and admit that the totality of its claim is in the sum of US$3,870,227.53 as fortified by documentation already verified in point. C. ISSUES. The parties have agreed to limit the resolution of the last two remaining claims in intervention aforementioned to the following legal questions: i. Whether or not said claims, in the context in which they sought to be recovered, are preferred maritime lien as would entitle said claims to recover, and ii. Whether or not assuming recoverability thereon as being in the nature of maritime liens, such recovery may be allowed in relation with PNBs being the mortgagee of the assets from which recovery is sought. Considering that the issues to be addressed are purely legal in nature, presentation of evidence and/or witnesses in point is unnecessary.11 After the parties submitted their respective memoranda, the trial court issued on March 4, 1992 an Order dismissing the complaint-in-intervention filed by private respondent CBC for lack of merit. In dismissing the complaint-in-intervention, the trial court ruled that the claim of private respondent CBC was not a preferred maritime lien but was merely a loan extended to PISC by CBC. Private respondent CBC appealed the Order of the trial court to the Court of Appeals. In its appeal, private respondent CBC imputed the following errors allegedly committed by the trial court:

a) the trial court erred in holding that the loans extended by China Banking Corporation to the Philippine International Shipping Corporation did not create maritime liens. b) assuming that the loans are not themselves maritime liens, the trial court erred in holding that the China Banking Corporation did not acquire the maritime liens of Philippine International Shipping Corporation's creditors by subrogation. For its part, herein petitioners PNB/NIDC raised as an issue in its Appellees Brief before the Court of Appeals the lack of jurisdiction of the appellate court to entertain and pass upon the appeal interposed by CBC on the ground that the issues raised therein were purely legal; and that the appeal of CBC should have been lodged with the Supreme Court by petition for review on certiorari.[12 On March 21, 1997, the Court of Appeals promulgated its questioned decision, the dispositive portion of which states: WHEREFORE, insofar as the appellant CBC is concerned, the appealed Order is hereby SET ASIDE and judgment is rendered: (a) Directing the appellee Philippine National Bank/National Investment and Development Corporation to pay the appellant China Banking Corporation from the proceeds of the foreclosure sale of M/V Asean Liberty the amount of US$242,225.00 or its Philippine Peso Equivalent at the time of payment, with interest thereon at the legal rate from November 7, 1984, the date of filing of CBCs complaint-in-intervention, until fully paid; and (b) Ordering the appellee Philippine International Shipping Corporation to pay the same CBC the amounts of US$648,002.54 and US$2.7 Million plus stipulated interests, arrangement fees, swap premiums, expenses, losses, taxes and penalties, xxx SO ORDERED.[13 In the said decision, the appellate court held petitioners PNB/NIDC liable to CBC only for the amount of US$242,225.00, which was used for the repair and conversion of the M/V Asean Liberty, as it was only this amount which CBC was able to prove as being a preferred maritime lien. Moreover, such amount was to be paid by petitioners PNB/NIDC from the proceeds of the foreclosure sale of the vessel M/V Asean Liberty. Private respondent CBCs other claims of US$648,000.54 and US$2.7 Million were found by the appellate court as not being in the nature of maritime liens and as such, recoverable only from PISC, not from herein petitioners PNB/NIDC. Not satisfied with the decision of the appellate court, petitioners PNB/NIDC institute the present petition for review oncertiorari where they raise the following issues: I. WHETHER OR NOT THE COURT OF APPEALS HAS APPELLATE JURISDICTION TO ENTERTAIN AND PASS UPON THE APPEAL INTERPOSED BY PRIVATE RESPONDENT CBC FROM THE ORDER OF THE TRIAL COURT OF MARCH 4, 1992 WHICH INVOLVED PURE QUESTIONS OF LAW. II.

WHETHER OR NOT PRIVATE RESPONDENT CBCS CLAIM FOR US$242,225.OO AS EVIDENCED BY ITS IRREVOCABLE LETTER OF CREDIT NO. 79/4174 OF SEPTEMBER 12, 1979 IS IN THE NATURE OF A MARITIME LIEN UNDER THE PROVISIONS OF P.D. NO. 1521; AND IF SO, WHETHER OR NOT SAID MARITIME LIEN IS PREFERRED OVER THE MORTGAGE LIEN OF PETITIONER PNB/NIDC ON THE FORECLOSED VESSEL M/V ASEAN LIBERTY. On the first issue, petitioners argue that the Court of Appeals committed grave error in law in taking cognizance of the appeal interposed by private respondent CBC from the Order of the trial court dated 4 March 1992 involving as it does pure questions of law. They claim that the Court of Appeals had no jurisdiction to entertain and pass upon the appeal interposed by private respondent CBC as the issues raised therein are purely legal. As such, petitioners continue, the appeal of CBC should have been lodged directly with the Supreme Court by way of petition for review on certiorari under Rule 45 of the Revised Rules of Court. Citing the pronouncement of this Court en banc in Anacleto Murillo vs. Rodolfo Consul[14, the petitioners conclude that the appeal made by private

respondent CBC to the Court of Appeals should have been dismissed by the respondent court for lack of jurisdiction.
It is true that the decisions of the Regional Trial Court may be directly reviewed by the Supreme Court on petition for review if pure questions of law are raised. Circular 290,[15 which petitioners cite and which outlined the applicable rules of procedure on this matter at that time, indirectly states that cases from the Regional Trial Court raising only questions of law should be taken to the Supreme Court. Paragraphs No. 4(c) and (d) of the said Circular provide as follows: 4. Erroneous Appeals. An appeal taken to either the Supreme Court of the Court of Appeals by the wrong or inappropriate mode shall be dismissed. xxx xxx xxx (c) Raising issues purely of law in the Court of Appeals or appeal by wrong mode. If an appeal under Rule 41 is taken from the Regional Trial Court to the Court of Appeals and therein the appellant raises only questions of law, the appeal shall be dismissed, issues purely of law not being reviewable by said court. xxx (d) No transfer of appeals erroneously taken. No transfers of appeals erroneously taken to the Supreme Court or to the Court of Appeals to whichever of these Tribunals has appropriate appellate jurisdiction will be allowed; continued ignorance or willful disregard of the law on appeals will not be tolerated. From the cited provisions, it is clear that the Court of Appeals does not have jurisdiction over appeals from the Regional Trial Court that raise purely questions of law. Appeals of this nature should be raised to the Supreme Court.16 Furthermore, transfer of erroneous appeals is not allowed and the tribunal which receives the erroneous appeal should perforce dismiss the same for lack of jurisdiction. Notwithstanding this legal rule, the appeal brought before the Court of Appeals by the private respondent CBC must first be analyzed as to whether the same raised questions or errors of law alone. If the petition raised only questions of law, then the Court of Appeals had no jurisdiction to take cognizance of the case and should have dismissed the case outright. On the other hand, if the petition raised only questions of fact or questions of both fact and law, then the Court of Appeals correctly exercised jurisdiction over the issue. [17 As such, even if, as in this case, the documentary evidence adduced by the parties was admitted without objection, a question of fact is still involved when the query necessarily

invites the calibration of the whole evidence including the relevancy of surrounding circumstances and their relation to each other. On this point, we note with approval the following justification made by the respondent court in assuming jurisdiction over the case: A question of fact has been distinguished from a question of law in this wise: At this point, the distinction between a question of fact and a question of law must be clear. As distinguished from a question of law which exists when the doubt or difference arises as to what the law is on certain state of facts there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts; or when the query necessarily invites calibration of the whole evidence considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstances, their relation to each other and to the whole and probabilities of the situation.(Bernardo vs. Court of Appeals, 216 SCRA 224) Stated differently, a question of law does not involve an examination of the probative value of the evidence presented by the litigants or any of them; otherwise, if such examination and re-evaluation of the evidence is called for, a question of fact is raised. In the decision from which the CBC appealed, the trial court primarily held that the former is a mere money lender and not a maritime lienor. In its appeal, the CBC argues that in so holding, the trial court disregarded the maritime purposes for which the loans it extended to the Philippine International Shipping Corporation (PISC) were availed of and used. The issue thus raised cannot be judiciously resolved without reviewing the probative weight of the evidence on record consisting in the main of the various documents, contracts and transactions attached to CBCs complaint-in-intervention. It is, therefore, indubitable that mixed questions of fact and of law are involved over which this Court has jurisdiction. [18 Thus, in resolving the issues raised by private respondent in the Court of Appeals, the appellate court had to make a factual inquiry, among others, on the nature and terms of the contracts among the different parties, the relationship of the different parties with one another and with respect to the vessels involved in the case, how the proceeds of the loans were used, and the correct dates when the maritime and mortgage liens were constituted on the vessels. The determination of these facts is crucial as it will resolve whether the amount advanced by respondent CBC is in the nature of a maritime lien and if so, whether the lien is superior to the mortgage lien of petitioners. If the appellate court, in the exercise of its review power, finds that the amount advanced by CBC was used for the repair of the vessels, then a mortgage lien was indubitably established over the shipping vessels. Moreover, a determination of the dates when the respective liens of the parties were constituted over the vessels will answer the question as to which lien is preferred over the other. In short, in order to address fully the issues raised by the parties in their pleadings, the appellate court necessarily had to make factual findings. Verily, the issues raised by private respondent in the appellate court were cognizable by the said court, the issues being mixed questions of fact and law. Respondent court was therefore acting within its jurisdiction when it promulgated its questioned decision. The next issue brought up by petitioners is whether or not private respondent CBCs claim for US$242,225.00 is in the nature of a maritime lien. It is the contention of petitioners that (t)he Court of Appeals gravely erred in law in holding that private respondent CBCs claim under its Standby Letter of Credit No. 79/4174 is a maritime lien, and that said maritime lien is preferred over the mortgage lien of petitioners PNB/NIDC on the foreclosed vessel M/V Asean Liberty.[19

The applicable law on the matter is Presidential Decree No. 1521, otherwise known as the Ship Mortgage Decree of 1978. Sections 17 and 21 of the said Presidential Decree provides as follows: Sec. 17. Preferred Maritime Liens, Priorities, Other Liens (a) Upon the sale of any mortgaged vessel in any extra-judicial sale or by order of a district court of the Philippines in any suit in rem in admiralty for the enforcement of a preferred mortgage lien thereon, all pre-existing claims on the vessel, including any possessory common-law lien of which a lienor is deprived under the provisions of Section 16 of this Decree, shall be held terminated and shall thereafter attach, in like amount and in accordance with the priorities established herein to the proceeds of the sale. The preferred mortgage lien shall have priority over all claims against the vessel, except the following claims in the order stated: (1) expenses and fees allowed and costs taxed by the court and taxes due to the government; (2) crews wages; (3) general average; (4) salvage; including contract salvage; (5) maritime liens arising prior in time to the recording of the preferred mortgage; and (6) damages arising out of tort; and (7) preferred mortgage registered prior in time. (b) If the proceeds of the sale should not be sufficient to pay all creditors included in one number or grade, the residue shall be divided among them pro rata. All credits not paid, whether fully or partially shall subsist as ordinary credits enforceable by personal action against the debtor. The record of judicial sale or sale by public auction shall be recorded in the Record of Transfers & Encumbrances of Vessels in the port of documentation. Sec. 21. Maritime Lien for Necessaries; persons entitled to such lien. Any person furnishing repairs, supplies, towage, use of dry dock or maritime railway, or other necessaries to any vessel, whether foreign or domestic, upon the order of the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall be necessary to allege or prove that credit was given to the vessel. Under these provisions, any person furnishing repairs, supplies, or other necessaries to a vessel on credit will have a maritime lien on the said vessel. Such maritime lien, if it arose prior to the recording of a preferred mortgage lien, shall have priority over the said mortgage lien. In the instant case, it was Hongkong United Dockyards, Ltd. which originally possessed a maritime lien over the vessel M/V Asean Liberty by virtue of its repair of the said vessel on credit. Under the Contract Agreement dated March 12, 1979 between Hongkong United Dockyards, Ltd. and PISC, the former, as contractor, obligated itself to repair and convert the vessel M/V Asean Liberty, which was owned by PISC. Section 7 of the said Agreement provides as follows: (7) a) The Owner will, before the commencement of work, provide an Irrevocable Documentary Credit for the Contract Price plus an estimate to cover the cost of extra work. The banks and wording of the Credit are to be agreed by the Contractor.

b) Payment will be:


(1) Before departure of vessel from Contractors yard: 20% of contract price; (2) 60 days from departure of vessel from Contractors yard: 40% of contract price; (3) 90 days from departure of vessel from Contractors yard: 40% of contract price.[20

The foregoing provision of the contract agreement indubitably shows that credit was given to the vessel M/V Asean Liberty by Hongkong United Dockyards, Ltd. and as a result, a maritime lien in favor of Hongkong United Dockyards, Ltd. was constituted on the said vessel by virtue of Section 21 of the Ship Mortgage Decree of 1978. It is the contention of private respondent CBC however, that it ultimately acquired the maritime lien of Hongkong United Dockyards, Ltd. over the vessel M/V Asean Liberty. As shown by the documentary evidence offered by private respondent CBC, its proof that it acquired said maritime lien is as follows: (a) On March 12, 1979, PISC entered into a Contract Agreement with Hongkong United Dockyards, Ltd., as contractor, for the repair and conversion of its vessel M/V Asean Liberty for a contract price of HK$2,200,000.00[21; (b) On May 28, 1979, the Central Bank of the Philippines approved PISCs request to open with private respondent China Banking Corporation a Standby Letter of Credit for US$545,000.00 in favor of Hongkong United Dockyards, Ltd. This May 28, 1979 letter stated that the credit for US$545,000 would be used to cover the partial conversion cost of the vessel Asean Liberty. On June 20, 1979, the Central Bank approved the request of PISC to change the beneficiary of the said Standby Letter of Credit from Hongkong United Dockyards, Ltd. to Citibank22; (c) On June 15, 1979, PISC executed an Application and Agreement with private respondent CBC for the opening of a Standby Letter of Credit for US$545,000.00 in favor of Citibank, N.A., Makati, Metro Manila as beneficiary. The agreement confirmed that the letter of credit would be used to guarantee the loan in the amount of US$545,000.00, the proceeds of which will be used to finance partially the conversion cost of the vessel MV ASIAN LIBERTY[23; (d) On September 12, 1979, private respondent CBC issued an Irrevocable Standby Letter of Credit in favor of Citibank for any sum or sums not exceeding a total of US$545,000.00. Per express terms of the Letter of Credit, its purpose was to guarantee (Citibanks) loan to Philippine International Shipping Corporation, the proceeds of which loan, according to accountee, are to finance partially the conversion cost of the vessel M/V ASIAN LIBERTY24; (e) Pursuant to its loan agreement with Citibank, PISC executed on September 17, 1979 a promissory note for US$545,000.00 in favor of Citibank, promising to pay the latter the principal sum of US$545,000.00 in nine (9) consecutive semi-annual installments of US$60,555.00 commencing one (1) year from date hereof or on September 17, 1980 until September 17, 1984[25; (f) On March 25, 1983, Citibank sent a letter to private respondent CBC calling and drawing on CBCs Letter of Credit No. 79/4174 and certifying that the draft attached thereto for US$242,225.00 represents the principal balance due to Citibank as of March 17, 1983 under PISCs Promissory Note of September 17, 197926. This March 25, 1983 letter likewise indicated that the loan due from PISC was used to finance partially the conversion cost of the vessel M/V Asian Liberty; (g) On March 30, 1983, private respondent CBC instructed by cable its correspondent, Irving Trust Co., to pay Citibank US$242,225.00. On the same date, Irving Trust Co., advised private respondent CBC by mail that the sum of US$242,225.00 was debited against CBCs Account No. 8033278269 and remitted to the Citibank Foreign Currency Deposit Unit, Makati[27; From the documentary evidence thus presented, it is clear that private respondents claim is predicated on the payment it made to Citibank by virtue of the Irrevocable Letter of Credit

it established in the latters favor. Per express provisions of the Letter of Credit, the same was established to guarantee your (Citibank) loan in the principal amount of US$545,000.00 to Philippine International Shipping Corporation, the proceeds of which loan, according to accountee, are to finance partially the conversion cost of the vessel M/V Asean Liberty.[28 In short, private respondent CBC was a guarantor of the loan extended by Citibank to PISC. It was Citibank, which advanced the money to PISC. It was only upon the failure of PISC to fulfill its obligations under its promissory note to Citibank that private respondent CBC was called upon by Citibank to exercise its duties under the Standby Letter of Credit. It is the holding of the appellate court, however, that private respondent stepped into the shoes of Hongkong United Dockyards, Ltd. by legal subrogation and thus acquired the maritime lien of the latter over the vessel M/V Asean Liberty. Thus: It is not disputed that CBCs claim for US$242,225.00 and US$648,002.54 refer to the repair and conversion of two (2) of PISCs vessels, namely M/V Asean Liberty and M/V Asean Mission, undertaken by Hongkong United Dockyards, Ltd. and the China Shipbuilding Corporation of Taiwan, respectively, upon the order of the owner, as deposed by George Lim, the President of the PISC. Such being the case, maritime liens on the vessels concerned arose conformably with the aforequoted provision of Section 21 of P.D. No. 1521. True it is that under the law the persons entitled to the lien are the Hongkong United Dockyards, Ltd. and the China Shipbuilding Corporation of Taiwan, they being the ones who furnished the repair works. However, since it was CBC who paid off these lienors, it stepped into the shoes of the latter by subrogation. This is the prevailing doctrine in American jurisprudence which holds that: A creditor who advances money specifically for the purpose of discharging a maritime lien is subrogated to the lienors rights. Significantly, the Federal Maritime Lien Act, like our Ship Mortgage Decree of 1978, provides that, any person furnishing repairs, supplies, towage, use of drydock or marine railway, or other necessaries, to any foreign or domestic vessel on the order of the owner of such vessel, or of a person authorized by the owner of such vessel, or of a person authorized by the owner has a maritime lien on the vessel which may be enforced by suit in rem. The only difference is that under the Federal Maritime Lien Act, it is not necessary to allege or prove that the credit was given to the vessel. Hence, insofar as the creation of the lien and the persons entitled to the lien are concerned, American jurisprudence is highly persuasive. Furthermore, Article 1302 (2) of our Civil Code explicitly provides: Art. 1302 (2). It is presumed that there is legal subrogation: xxx xxx xxx (2) When a third person not interested in the obligation pays with the express or tacit approval of the debtor; xxx xxx xxx. Accordingly, since CBCs payment to the lienors was with the express consent of the debtor owner of the vessels repaired, legal subrogation took place in CBCs favor. Petitioners do not question the abovequoted rationale of the Court of Appeals. It takes exception however to the appellate courts finding and conclusion that it was ultimately private respondent CBC which paid off the maritime lienor and that the US$545,000.00 advanced by Citibank was actually paid to the persons who furnished the repairs on the vessels. On this point, petitioners argue that the entirety of the documentary evidence of private respondent CBC does not show that the latter actually paid off the maritime lienholder for the repair of M/V Asean Liberty as required by Section 21 of the Ship

Mortgage Act of 1978.29 Furthermore, petitioners claim that the respondent court committed serious error in law when it considered and gave credence to the written deposition of Mr. George Lim, the President of PISC, as basis for the said finding considering that the same had earlier been denied admission by the trial court. There is no merit in the contentions of petitioners. The provisions of our Ship Mortgage Decree of 1978 were patterned quite closely after the U.S. Ship Mortgage Act of 1920.30 Significantly, the Federal Maritime Lien Act of the United States, like our Ship Mortgage Decree of 1978, provides that any person furnishing repairs, supplies, towage, use of drydock, or marine railway, or other necessaries, to any foreign or domestic vessel on the order of the owner of such vessel, or of a person authorized by the owner has a maritime lien on the vessel, which may be enforced by suit in rem.[31 Being of foreign origin, the provisions of the Ship Mortgage Decree of 1978 may thus be construed with the aid of foreign jurisprudence from which they are derived except insofar as they conflict with existing laws or are inconsistent with local customs and institutions. As held by the public respondent Court of Appeals, those who provide credit to a master of a vessel for the purpose of discharging a maritime lien also acquire a lien over the said vessel. Under American jurisprudence, (f)urnishing money to a master in good faith to obtain repairs or supplies or to remove liens, in order to forward the voyage of the vessel, raises a lien just as though the things (for which) money was obtained to pay for had been furnished by the lender.32 Likewise, (a)dvances to discharge maritime liens create a lien on the vessel, and one advancing money to discharge a valid lien gets a lien of equal dignity with the one discharged.[33 There is no reason why these doctrines cannot be given persuasive application in the instant case considering that they do not violate or contravene any of our existing laws. Moreover, as pointed out by the appellate court, these doctrines are in accord with our provisions on subrogation particularly Art. 1302, paragraph 2 of the New Civil Code which provides that there is legal subrogation when a third person, not interested in the fulfillment in the obligation, pays with the express or tacit approval of the debtor. Under these doctrines, a person who extends credit for the purpose of discharging a maritime lien is not entitled to the said lien where the funds were not furnished to the ship on the order of the master and there was no evidence that the money was actually used to pay debts secured by the lien.[34 As applied in the instant case, it becomes necessary to prove that the credit advanced by Citibank to PISC was actually utilized for the repair and conversion of the vessel M/V Asean Liberty. Otherwise, Citibank could not have acquired the maritime lien of Hongkong United Dockyards, Ltd. over the vessel M/V Asean Liberty. On this point, we agree with the position of private respondent that the question of whether or not the proceeds of the loans extended by Citibank were used for the repair and conversion of M/V Asean Liberty is a factual issue[35 which the Court cannot review absent a showing that it was arbitrarily resolved.[36 Contrary to the assertions of petitioners, the records are replete with documents that show that the proceeds of the loans were used for the repair and conversion of the vessel M/V Asean Liberty. Even without the written deposition of Mr. George Lim, there is still sufficient documentary evidence in the records supporting the appellate courts findings. The correspondences between PISC and the Central Bank, the Application and Agreement, and the Standby Letter of Credit itself explicitly state that the proceeds of the loan applied for by PISC are to be used to finance partially the conversion cost of the vessel M/V Asean Liberty. Moreover, the March 25, 1983 letter of Citibank to private respondent CBC drawing on the latters letter of credit, confirmed that the loan due from PISC was used to finance partially the conversion cost of the said vessel.

In the presence of such documentary evidence, which were admitted without objection from the petitioners, we cannot say that the Court of Appeals resolved the issue arbitrarily. The appellate courts finding that the amount sought to be recovered by petitioner was actually used for the repair and conversion of the vessel M/V Asean Liberty is based on substantial evidence. From the foregoing, it is clear that the amount used for the repair of the vessel M/V Asean Liberty was advanced by Citibank and was utilized for the purpose of paying off the original maritime lienor, Hongkong United Dockyards, Ltd. As a person not interested in the fulfillment of the obligation between PISC and Hongkong United Dockyards, Ltd., Citibank was subrogated to the rights of Hongkong United Dockyards, Ltd. as maritime lienor over the vessel, by virtue of Article 1302, par. 2 of the New Civil Code. By definition, subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights.37 Considering that Citibank paid off the debt of PISC to Hongkong United Dockyards, Ltd. it became the transferee of all the rights of Hongkong United Dockyards, Ltd. as against PISC, including the maritime lien over the vessel M/V Asean Liberty. Private respondent CBC, as guarantor, was itself subrogated to all the rights of Citibank as against PISC, the latters debtor. Article 2067 of the New Civil Code provides that (t)he guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor. Private respondent, having paid off the debt of PISC to Citibank, was therefore, subrogated to all the rights Citibank had against its debtor PISC. Considering that Citibank had a maritime lien over the vessel M/V Asean Liberty, private respondent was likewise subrogated to this right when it paid off Citibank under the contract of guarantee. Having thus established that private respondent CBC possessed a maritime lien over the vessel M/V Asean Liberty, the next issue is whether the said maritime lien is preferred over the mortgage lien of petitioners. In the case at bench, petitioners mortgage lien arose on September 25, 1979 when the said mortgage was registered with the Philippine Coast Guard Headquarters.[38 As such, in order for the maritime lien of private respondent CBC to be preferred over the mortgage lien of petitioners, the same must have arisen prior to the recording of the mortgage on September 25, 1979. On this point, petitioners argue that inasmuch as the Standby Letter of Credit was in the nature of a guarantee, the right of private respondent CBC to claim or to collect the maritime lien arose only at the time CBC actually paid off the said lien to Citibank on March 30, 1983. Otherwise stated, it is the contention of petitioners that private respondent CBCs maritime lien under its Standby Letter of Credit No. 79/4174 arose only on March 30, 1983 when CBC actually paid off the outstanding obligation of PISC to Citibank.39 Considering that its mortgage lien arose on September 25, 1979, petitioners thus conclude that its lien is preferred as against private respondent CBCs maritime lien. There is no merit in this contention. As stated by a noted commentator on the subject, a maritime lien constitutes a present right of property in the ship, a jus in re, to be afterward enforced in admiralty by process in rem. From the moment the claim or privilege attaches, it is inchoate, and when carried into effect by legal process, by a proceeding in rem, it relates back to the period when it first attached.[40 In the case at bench, the maritime lien over the vessel M/V Asean Liberty arose or was constituted at the time Hongkong United Drydocks, Ltd. made repairs on the said vessel on credit. As such, as early as March 12, 1979, the date of the contract for the repair and conversion of M/V Asean Liberty, a maritime lien had already attached to the said vessel.

When Citibank advanced the amount of US$242,225.00 for the purpose of paying off PISCs debt to Hongkong United Dockyards, Ltd., it acquired the existing maritime lien over the vessel. When private respondent honored its contract of guarantee with Citibank on March 30, 1983, it likewise acquired by subrogation the maritime lien that was already existing over the vessel M/V Asean Liberty. Thus, when private respondent CBC chose to exercise its right to the maritime lien during the proceedings in the trial court, it was actually enforcing a privilege that attached to the ship as early as March 12, 1979. The maritime lien of private respondent CBC thus arose prior in time to the recording of petitioners mortgage on September 25, 1979. As such, the said maritime lien has priority over the said mortgage lien. Pursuant to Section 17 of the Ship Mortgage Decree of 1978, a preferred mortgage lien shall have priority over all claims against the vessel except, among others, maritime liens arising prior in time to the recording of the preferred mortgage. The respondent court thus committed no reversible error when it ruled that the maritime lien of private respondent CBC is superior to the mortgage lien of petitioners. WHERFORE, in view of the foregoing, the petition is denied and the decision of the Court of Appeals dated March 21, 1997 in CA-G.R. CV. No. 38131 is hereby AFFIRMED. SO ORDERED. G.R. No. 114222 April 6, 1995 FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, Petitioners, vs. HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of Transportation and Communications, and EDSA LRT CORPORATION, LTD.,Respondents.
chanrobles vi rtual law lib rary

QUIASON, J.:

chanrobles vi rt ual law li bra ry

This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further implementing and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail Transit System for EDSA" dated May 6, 1993.
cha nroble svirtualawl ibra ry cha nro bles vi rtua l law lib ra ry

Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine Senate and are suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent Secretary of the Department of Transportation and Communications (DOTC), while private respondent EDSA LRT Corporation, Ltd. is a private corporation organized under the laws of Hongkong. I
chan roble s vi rtual law lib rary

In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a mass transit system along EDSA and alleviate the congestion and growing transportation problem in the metropolis.
chanroble svi rtualaw lib rary c hanrobles vi rt ual law li bra ry

On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu Levin to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-OperateTransfer (BOT) basis.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law li brary

On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with DOTC.
cha nrob lesvi rtua lawlib rary chan robles v irt ual law l ibra ry

On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes," was signed by President Corazon C. Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.
chanroble svirtualawl ibra ry cha nro bles vi rtua l law lib ra ry

Republic Act No. 6957 provides for two schemes for the financing, construction and operation of government projects through private initiative and investment: Build-Operate-Transfer (BOT) or BuildTransfer (BT).
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC, on January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-496, respectively creating the Prequalification Bids and Awards Committee (PBAC) and the Technical Committee.
chanroblesv irtualawli bra ry cha nrob les vi rtual law lib rary

After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing and implementation of the project The notice, advertising the prequalification of bidders, was published in three newspapers of general circulation once a week for three consecutive weeks starting February 21, 1991.
chanro blesvi rtua lawlib rary chan roble s virtual law l ibra ry

The deadline set for submission of prequalification documents was March 21, 1991, later extended to April 1, 1991. Five groups responded to the invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium, composed of ten foreign and domestic corporations: namely, Kaiser Engineers International, Inc., ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction Group, Inc, and F. F. Cruz & co., Inc.
cha nro blesvi rtua lawlib rary chan roble s virtual law l ibra ry

On the last day for submission of prequalification documents, the prequalification criteria proposed by the Technical Committee were adopted by the PBAC. The criteria totalling 100 percent, are as follows: (a) Legal aspects - 10 percent; (b) Management/Organizational capability - 30 percent; and (c) Financial capability - 30 percent; and (d) Technical capability - 30 percent (Rollo, p. 122).
chan roble svi rtualawl ib rary c hanro bles vi rtua l law li bra ry

On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementation Rules and Regulations thereof, approved the same.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring that of the five applicants, only the EDSA LRT Consortium "met the requirements of garnering at least 21 points per criteria [sic], except for Legal Aspects, and obtaining an over-all passing mark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT contractor-applicant meet the requirements specified in the Constitution and other pertinent laws (Rollo, p. 114).
chanro blesvi rtua lawlib rary chan roble s virtual law l ibra ry

Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines and was replaced by Secretary Pete Nicomedes Prado. The latter sent to President Aquino two letters dated May 31, 1991 and June 14, 1991, respectively recommending the award of the EDSA LRT III project to the sole complying bidder, the EDSA LRT Consortium, and requesting for authority to negotiate with the said firm for the contract pursuant to paragraph 14(b) of the Implementing Rules and Regulations of the BOT Law (Rollo, pp. 298-302).
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid proposal to DOTC.
chan roblesv irtualawli bra ry cha nrob les vi rtua l law libra ry

Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law (Rollo, pp. 147-177).
chanrob lesvi rtualaw lib rary c hanrobles vi rt ual law li bra ry

Secretary Prado, thereafter, requested presidential approval of the contract.

chanroble svirtualawl ibra ry cha n robles v irt ual law l ibra ry

In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary Orbos, informed Secretary Prado that the President could not grant the requested approval for the following reasons: (1) that DOTC failed to conduct actual public bidding in compliance with Section 5 of the BOT Law; (2) that the law authorized public bidding as the only mode to award BOT projects, and the prequalification proceedings was not the public bidding contemplated under the law; (3) that Item 14 of the Implementing Rules and Regulations of the BOT Law which authorized negotiated award of contract in addition to public bidding was of doubtful legality; and (4) that congressional approval of the list of priority projects under the BOT or BT Scheme provided in the law had not yet been granted at the time the contract was awarded (Rollo, pp. 178-179).
chanroble svi rtualawl ib raryc hanrobles vi rt ual law li bra ry

In view of the comments of Executive Secretary Drilon, the DOTC and private respondents renegotiated the agreement. On April 22, 1992, the parties entered into a "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the fact the DOTC has full authority to sign the Agreement without need of approval by the President pursuant to the provisions of Executive Order No. 380 and that certain events [had] supervened since November 7, 1991 which necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary Jesus Garcia vice Secretary Prado, and private respondent entered into a "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to "clarify their respective rights and responsibilities" and to submit [the] Supplemental Agreement to the President, of the Philippines for his approval" (Rollo, pp. 79-80).
chanroble svirtualawl ibra ry cha nrob les vi rtua l law libra ry

Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and approval. In a Memorandum to Secretary Garcia on May 6, 1993, approved the said Agreements, (Rollo, p. 194).
chanro blesvi rtua lawlib rary chan roble s virtual law l ib rary

According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak Federal Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150 million a year to be achieved-through 54 such vehicles operating simultaneously. The EDSA LRT III will run at grade, or street level, on the mid-section of EDSA for a distance of 17.8 kilometers from F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will have its own power facility (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger stations and one depot in 16-hectare government property at North Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
chanro blesvi rt ualawlib ra ry chan roble s virtual law lib rary

Private respondents shall undertake and finance the entire project required for a complete operational light rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date is 1,080 days or approximately three years from the implementation date of the contract inclusive of mobilization, site works, initial and final testing of the system (Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and viability thereof, private respondent shall deliver the use and possession of the completed portion to DOTC which shall operate the same (Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay private respondent rentals on a monthly basis through an Irrevocable Letter of Credit. The rentals shall be determined by an independent and internationally accredited inspection firm to be appointed by the parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's capital shall be recovered from the rentals to be paid by the DOTC which, in turn, shall come from the earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC shall have completed payment of the rentals, ownership of the project shall be transferred to the latter for a consideration of only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67).
chanro blesvi rtua lawlib rary chan roble s virtual law l ib rary

On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and for Other Purposes" was signed into law by the President. The law was published in two newspapers of general circulation on May 12, 1994, and took effect 15 days thereafter or on May 28, 1994. The law expressly recognizes BLT scheme and allows direct negotiation of BLT contracts. II In their petition, petitioners argued that: (1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
cha nrob les vi rtua l law lib rary c han robles v irt ual law li bra ry

(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS ILLEGAL;
cha nrob les vi rtua l law lib rary

(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A. NO. 6957 AND, HENCE, IS UNLAWFUL;
chan roble s vi rtual law lib rary

(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION, LTD. VIOLATES THE REQUIREMENTS PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND, HENCE, IS ILLEGAL;
cha nrob les vi rtua l law lib rary

(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND
c han robles v irt ual law libra ry

(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT (Rollo, pp. 15-16). Secretary Garcia and private respondent filed their comments separately and claimed that:
chanrobles vi rtua l law li bra ry

(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present petition;
chanrob les vi rtua l law lib rary

(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;
law libra ry

chanro bles vi rtua l

(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT Law;
chan robles v irt ual law l ibra ry

(4) The nationality requirement for public utilities mandated by the Constitution does not apply to private respondent;
chanroble s virtual law l ibra ry

(5) The Agreements executed by and between respondents have been approved by President Ramos and are not disadvantageous to the government;
chanro bles vi rtua l law lib ra ry

(6) The award of the contract to private respondent through negotiation and not public bidding is allowed by the BOT Law; and
chan robles v irt ual law l ibra ry

(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718 passed by the Legislature On May 12, 1994, which provides for direct negotiation as a mode of award of infrastructure projects.

III Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners, however, countered that the action was filed by them in their capacity as Senators and as taxpayers.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by the national government or government-owned or controlled corporations allegedly in contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only municipal contracts are involved (Bugnay Construction and Development Corporation v. Laron, 176 SCRA. 240 [1989]).
chanroblesv irt ualawli bra ry cha nrob les vi rtual law lib rary

For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it and uphold the legal standing of petitioners as taxpayers to institute the present action. IV
cha nrob les vi rtua l law lib rary

In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons: (1) the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by the Constitution to Filipino citizens and domestic corporations, not foreign corporations like private respondent;
chanrobles vi rtua l law li bra ry

(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or BT Scheme under the law;
cha nrob les vi rtua l law lib ra ry

(3) the contract to construct the EDSA LRT III was awarded to private respondent not through public bidding which is the only mode of awarding infrastructure projects under the BOT law; and
cha nrob les vi rtua l law lib rary

(4) the agreements are grossly disadvantageous to the government. 1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III was awarded by public respondent, is admittedly a foreign corporation "duly incorporated and existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the EDSA LRT III is constructed, private respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to operate the system and pay rentals for said use.
c han roblesv irt ualawli bra ry cha nrob les vi rtual la w libra ry

The question posed by petitioners is: Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public utility? (Rollo, p. 17). The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility. While a franchise is needed to operate these facilities to serve the public, they do not by themselves constitute a public utility. What constitutes a public utility is not their ownership but their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558 [1923]).
chanroble svirtualawl ibra ry cha nro bles vi rtua l law lib ra ry

The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it does not require a franchise before one can own the facilities needed to operate a public utility so long as it does not operate them to serve the public.
chanroble svi rtualaw lib rary c hanrobles vi rt ual law li bra ry

Section 11 of Article XII of the Constitution provides:

No franchise, certificate or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive character or for a longer period than fifty years . . . (Emphasis supplied). In law, there is a clear distinction between the "operation" of a public utility and the ownership of the facilities and equipment used to serve the public.
chanroblesvi rt ualawlib ra ry chan roble s virt ual law lib rary

Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely subjected to his will in everything not prohibited by law or the concurrence with the rights of another (Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45 [1992]).
chanroblesv irtualawl ibra ry cha nrob les vi rtua l law lib rary

The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated and used to serve the public as a public utility unless the operator has a franchise. The operation of a rail system as a public utility includes the transportation of passengers from one point to another point, their loading and unloading at designated places and the movement of the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]).
chanroble svi rtualaw lib rary chanro bles vi rtua l law li bra ry

The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility without owning the facilities used to serve the public. The devotion of property to serve the public may be done by the owner or by the person in control thereof who may not necessarily be the owner thereof.
chanrob lesvi rtua lawlib rary c han robles v irt ual law l ibra ry

This dichotomy between the operation of a public utility and the ownership of the facilities used to serve the public can be very well appreciated when we consider the transportation industry. Enfranchised airline and shipping companies may lease their aircraft and vessels instead of owning them themselves.
chanroble svi rtualawl ib rary c hanro bles vi rt ual law li bra ry

While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it admits that it is not enfranchised to operate a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC agreed that on completion date, private respondent will immediately deliver possession of the LRT system by way of lease for 25 years, during which period DOTC shall operate the same as a common carrier and private respondent shall provide technical maintenance and repair services to DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of providing (1) repair and maintenance facilities for the depot and rail lines, services for routine clearing and security; and (2) producing and distributing maintenance manuals and drawings for the entire system (Revised and Restated Agreement, Annex F).
c han roblesv irt ualawli bra ry chan rob les vi rtual law lib rary

Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance and repair of the rolling stock, power plant, substations, electrical, signaling, communications and all other equipment as supplied in the agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC operational personnel which includes actual driving of light rail vehicles under simulated operating conditions, control of operations, dealing with emergencies, collection, counting and securing cash from the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel of DOTC will work under the direction and control of private respondent only during training (Revised and Restated Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be such that upon completion of the EDSA LRT III and upon opening of normal revenue operation, DOTC shall have in their employ personnel capable of undertaking training of all new and replacement personnel (Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year construction

period and upon commencement of normal revenue operation, DOTC shall be able to operate the EDSA LRT III on its own and train all new personnel by itself.
chanrob lesvi rtua lawlib rary c han robles v irt ual law l ibra ry

Fees for private respondent' s services shall be included in the rent, which likewise includes the project cost, cost of replacement of plant equipment and spare parts, investment and financing cost, plus a reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).
chanroble svi rtualawl ib rary c hanro bles vi rtu al law li bra ry

Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from any losses, damages, injuries or death which may be claimed in the operation or implementation of the system, except losses, damages, injury or death due to defects in the EDSA LRT III on account of the defective condition of equipment or facilities or the defective maintenance of such equipment facilities (Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).
chanrob lesvi rtualawlib ra ry chan roble s virtual law lib rary

In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have no dealings with the public and the public will have no right to demand any services from it.
chanroble svirtualawl ibra ry c hanro bles vi rtua l law li bra ry

It is well to point out that the role of private respondent as lessor during the lease period must be distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease between PGMC and the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint venture agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the lessor obligated itself to build, at its own expense, all the facilities necessary to operate and maintain a nationwide on-line lottery system from whom PCSO was to lease the facilities and operate the same. Upon due examination of the contract, the Court found that PGMC's participation was not confined to the construction and setting up of the on-line lottery system. It spilled over to the actual operation thereof, becoming indispensable to the pursuit, conduct, administration and control of the highly technical and sophisticated lottery system. In effect, the PCSO leased out its franchise to PGMC which actually operated and managed the same.
chanrob lesvi rtua lawlib rary chan robles v irt ual law l ibra ry

Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to railroad companies considered as public utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d 984, 987 [1946]).
chanroblesv irtualawl ibra ry cha nrob les vi rtua l law lib rary

Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as one operating a public utility. The moment for determining the requisite Filipino nationality is when the entity applies for a franchise, certificate or any other form of authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]).
chanroble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized in the BOT Law and its Implementing Rules and Regulations.
chanrob lesvi rtua lawlib rary c han robles v irt ual law li bra ry

Section 2 of the BOT Law defines the BOT and BT schemes as follows: (a) Build-operate-and-transfer scheme - A contractual arrangement whereby the contractor undertakes the construction including financing, of a given infrastructure facility, and the operation and maintenance thereof. The contractor operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals and charges sufficient to enable the contractor to recover its operating and maintenance expenses and its investment in the project plus a reasonable rate of return thereon. The contractor transfers the facility to the government agency or local government unit concerned at the end of the fixed term which shall not exceed fifty (50) years.

For the construction stage, the contractor may obtain financing from foreign and/or domestic sources and/or engage the services of a foreign and/or Filipino constructor [sic]: Provided, That the ownership structure of the contractor of an infrastructure facility whose operation requires a public utility franchise must be in accordance with the Constitution: Provided, however, That in the case of corporate investors in the build-operate-and-transfer corporation, the citizenship of each stockholder in the corporate investors shall be the basis for the computation of Filipino equity in the said corporation: Provided, further, That, in the case of foreign constructors [sic], Filipino labor shall be employed or hired in the different phases of the construction where Filipino skills are available: Provided, furthermore, that the financing of a foreign or foreign-controlled contractor from Philippine government financing institutions shall not exceed twenty percent (20%) of the total cost of the infrastructure facility or project: Provided, finally, That financing from foreign sources shall not require a guarantee by the Government or by government-owned or controlled corporations. The buildoperate-and-transfer scheme shall include a supply-and-operate situation which is a contractual agreement whereby the supplier of equipment and machinery for a given infrastructure facility, if the interest of the Government so requires, operates the facility providing in the process technology transfer and training to Filipino nationals.
chanroble svirtualawl ibra ry cha nrob les vi rtua l law lib ra ry

(b) Build-and-transfer scheme - "A contractual arrangement whereby the contractor undertakes the construction including financing, of a given infrastructure facility, and its turnover after completion to the government agency or local government unit concerned which shall pay the contractor its total investment expended on the project, plus a reasonable rate of return thereon. This arrangement may be employed in the construction of any infrastructure project including critical facilities which for security or strategic reasons, must be operated directly by the government (Emphasis supplied). The BOT scheme is expressly defined as one where the contractor undertakes the construction and financing in infrastructure facility, and operates and maintains the same. The contractor operates the facility for a fixed period during which it may recover its expenses and investment in the project plus a reasonable rate of return thereon. After the expiration of the agreed term, the contractor transfers the ownership and operation of the project to the government.
chanro blesvi rt ualawlib ra ry chan roble s virtual law lib rary

In the BT scheme, the contractor undertakes the construction and financing of the facility, but after completion, the ownership and operation thereof are turned over to the government. The government, in turn, shall pay the contractor its total investment on the project in addition to a reasonable rate of return. If payment is to be effected through amortization payments by the government infrastructure agency or local government unit concerned, this shall be made in accordance with a scheme proposed in the bid and incorporated in the contract (R.A. No. 6957, Sec. 6).
chan roblesv irt ualawli bra ry chan rob les vi rtual law lib rary

Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply with the citizenship requirement of the Constitution on the operation of a public utility. No such a requirement is imposed in the BT scheme.
chan roblesv irt ualawli bra ry chan robles vi rtual law lib rary

There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the payment by the government of the project cost. The law must not be read in such a way as to rule out or unduly restrict any variation within the context of the two schemes. Indeed, no statute can be enacted to anticipate and provide all the fine points and details for the multifarious and complex situations that may be encountered in enforcing the law (Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119 [1914]).
chanroblesv irtualawl ibra ry cha nrob les vi rtua l law lib rary

The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.
libra ry

c han roblesv irt ualawli bra ry chan rob les vi rtual law

As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter by allowing it to amortize payments out of the income from the operation of the LRT System.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

In form and substance, the challenged agreements provide that rentals are to be paid on a monthly basis according to a schedule of rates through and under the terms of a confirmed Irrevocable Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and when full payment shall have been made to and received by private respondent, it shall transfer to DOTC, free from any lien or encumbrances, all its title to, rights and interest in, the project for only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87).
chanroblesv irt ualawli bra ry chan rob les vi rtual law lib rary

A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a thing for a certain price and for a period which may be definite or indefinite but not longer than 99 years (Civil Code of the Philippines, Art. 1643). There is no transfer of ownership at the end of the lease period. But if the parties stipulate that title to the leased premises shall be transferred to the lessee at the end of the lease period upon the payment of an agreed sum, the lease becomes a leasepurchase agreement.
chanroblesv irt ualawli bra ry chan roble s vi rtual law lib rary

Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine pesos. The EDSA LRT III Project is a high priority project certified by Congress and the National Economic and Development Authority as falling under the Investment Priorities Plan of Government (Rollo, pp. 310-311). It is, therefore, outside the application of the Uniform Currency Act (R.A. No. 529), which reads as follows: Sec. 1. - Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the Philippines which provisions purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null, void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred. The above prohibition shall not apply to (a) . . .; (b) transactions affecting high-priority economic projects for agricultural, industrial and power development as may be determined by the National Economic Council which are financed by or through foreign funds; . . . . 3. The fact that the contract for the construction of the EDSA LRT III was awarded through negotiation and before congressional approval on January 22 and 23, 1992 of the List of National Projects to be undertaken by the private sector pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice to invalidate the award.
chanrob lesvi rtua lawlib rary c han robles v irt ual law li bra ry

Subsequent congressional approval of the list including "rail-based projects packaged with commercial development opportunities" (Rollo, p. 310) under which the EDSA LRT III projects falls, amounts to a ratification of the prior award of the EDSA LRT III contract under the BOT Law.
chan roblesv irt ualawli bra ry chan rob les vi rtual law lib rary

Petitioners insist that the prequalifications process which led to the negotiated award of the contract appears to have been rigged from the very beginning to do away with the usual open international public bidding where qualified internationally known applicants could fairly participate.
chanroblesvi rt ualawlib ra ry chan roble s virtual law l ib rary

The records show that only one applicant passed the prequalification process. Since only one was left, to conduct a public bidding in accordance with Section 5 of the BOT Law for that lone participant will be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).
chanroble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to Presidential Decree No. 1594 allows the negotiated award of government infrastructure projects.

chanroblesvi rt ualawlib ra ry chan roble s virtual law lib rary

Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts," allows the negotiated award of government projects in exceptional cases. Sections 4 of the said law reads as follows:

Bidding. - Construction projects shall generally be undertaken by contract after competitive public bidding. Projects may be undertaken by administration or force account or by negotiated contract only in exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors, or where there is conclusive evidence that greater economy and efficiency would be achieved through this arrangement, and in accordance with provision of laws and acts on the matter, subject to the approval of the Minister of Public Works and Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be, if the project cost is less than P1 Million, and the President of the Philippines, upon recommendation of the Minister, if the project cost is P1 Million or more (Emphasis supplied). xxx xxx xxx Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure contracts may he made by negotiation. Presidential Decree No. 1594 is the general law on government infrastructure contracts while the BOT Law governs particular arrangements or schemes aimed at encouraging private sector participation in government infrastructure projects. The two laws are not inconsistent with each other but are in pari materia and should be read together accordingly.
chanroble svi rtualaw lib raryc han robles v irt ual law li bra ry

In the instant case, if the prequalification process was actually tainted by foul play, one wonders why none of the competing firms ever brought the matter before the PBAC, or intervened in this case before us (cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
chanrob lesvi rtua lawlib rary chan roble s virtual law l ibra ry

The challenged agreements have been approved by President Ramos himself. Although then Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA," there is nothing in our laws that prohibits parties to a contract from renegotiating and modifying in good faith the terms and conditions thereof so as to meet legal, statutory and constitutional requirements. Under the circumstances, to require the parties to go back to step one of the prequalification process would just be an idle ceremony. Useless bureaucratic "red tape" should be eschewed because it discourages private sector participation, the "main engine" for national growth and development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.
cha nrob lesvi rtua lawlib rary c han robles v irt ual law li bra ry

Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as: (e) Build-lease-and-transfer - A contractual arrangement whereby a project proponent is authorized to finance and construct an infrastructure or development facility and upon its completion turns it over to the government agency or local government unit concerned on a lease arrangement for a fixed period after which ownership of the facility is automatically transferred to the government unit concerned. Section 5-A of the law, which expressly allows direct negotiation of contracts, provides: Direct Negotiation of Contracts. - Direct negotiation shall be resorted to when there is only one complying bidder left as defined hereunder.
chan roble svirtualawl ibra ry cha nro bles vi rtua l law lib ra ry

(a) If, after advertisement, only one contractor applies for prequalification and it meets the prequalification requirements, after which it is required to submit a bid proposal which is subsequently found by the agency/local government unit (LGU) to be complying.
chanroblesv irt ualawli bra ry chan rob les vi rtual law lib rary

(b) If, after advertisement, more than one contractor applied for prequalification but only one meets the prequalification requirements, after which it submits bid/proposal which is found by the agency/local government unit (LGU) to be complying.
chanroblesv irt ualawli bra ry chan roble s vi rtual law lib rary

(c) If, after prequalification of more than one contractor only one submits a bid which is found by the agency/LGU to be complying.
chan roble svi rtualaw lib rary c hanro bles vi rt ual law li bra ry

(d) If, after prequalification, more than one contractor submit bids but only one is found by the agency/LGU to be complying. Provided, That, any of the disqualified prospective bidder [sic] may appeal the decision of the implementing agency, agency/LGUs prequalification bids and awards committee within fifteen (15) working days to the head of the agency, in case of national projects or to the Department of the Interior and Local Government, in case of local projects from the date the disqualification was made known to the disqualified bidder: Provided, furthermore, That the implementing agency/LGUs concerned should act on the appeal within forty-five (45) working days from receipt thereof. Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by the BOT Law has now been rendered moot and academic by R.A. No. 7718. Section 3 of this law authorizes all government infrastructure agencies, government-owned and controlled corporations and local government units to enter into contract with any duly prequalified proponent for the financing, construction, operation and maintenance of any financially viable infrastructure or development facility through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-add-operate), DOT (Developoperate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO (Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).
chan roble svirtualawl ibra ry c hanro bles vi rtua l law lib ra ry

From the law itself, once and applicant has prequalified, it can enter into any of the schemes enumerated in Section 2 thereof, including a BLT arrangement, enumerated and defined therein (Sec. 3).
chanroblesv irt ualawli bra ry chan rob les vi rtual law lib rary

Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate of minimum government regulations and procedures and specific government undertakings in support of the private sector" (Sec. 1). A curative statute makes valid that which before enactment of the statute was invalid. Thus, whatever doubts and alleged procedural lapses private respondent and DOTC may have engendered and committed in entering into the questioned contracts, these have now been cured by R.A. No. 7718 (cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].
chanroblesv irt ualawli bra ry cha nrob les vi rtual law lib rary

4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government because the rental rates are excessive and private respondent's development rights over the 13 stations and the depot will rob DOTC of the best terms during the most productive years of the project.
chanrob lesvi rtua lawlib rary chan robles v irt ual law l ibra ry

It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a period of 25 years, exclusive rights over the depot and the air space above the stations for development into commercial premises for lease, sublease, transfer, or advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of these development rights, private respondent shall pay DOTC in Philippine currency guaranteed revenues generated therefrom in the amounts set forth in the Supplemental Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC shall be unable to collect the guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the monthly rent due private respondent for the construction of the EDSA LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all contracts on the commercial spaces shall revert to DOTC upon expiration of the 25-year period. (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
chanro blesvi rt ualawlib ra ry chan roble s virtual law lib rary

The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by the proper administrative agencies and officials who have acquired expertise, specialized skills and knowledge in the performance of their functions should be accorded respect absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176 SCRA 304 [1989]).
chanrob lesvi rtua lawlib rary chan roble s virtual law l ibra ry

Government officials are presumed to perform their functions with regularity and strong evidence is necessary to rebut this presumption. Petitioners have not presented evidence on the reasonable

rentals to be paid by the parties to each other. The matter of valuation is an esoteric field which is better left to the experts and which this Court is not eager to undertake.
chanroble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

That the grantee of a government contract will profit therefrom and to that extent the government is deprived of the profits if it engages in the business itself, is not worthy of being raised as an issue. In all cases where a party enters into a contract with the government, he does so, not out of charity and not to lose money, but to gain pecuniarily.
chan roblesv irt ualawli bra ry chan rob les vi rtual law lib rary

5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its governmental function. DOTC is the primary policy, planning, programming, regulating and administrative entity of the Executive branch of government in the promotion, development and regulation of dependable and coordinated networks of transportation and communications systems as well as in the fast, safe, efficient and reliable postal, transportation and communications services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in particular that has the power, authority and technical expertise determine whether or not a specific transportation or communication project is necessary, viable and beneficial to the people. The discretion to award a contract is vested in the government agencies entrusted with that function (Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
chanrob lesvi rtua lawlib rary c han robles v irt ual law l ibra ry

WHEREFORE, the petition is DISMISSED. SO ORDERED

c hanro blesvi rt ualawlib ra ry chan roble s virtual law lib rary

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.:
chanrobles vi rtua l law lib rary

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
chanro bles vi rt ual law li bra ry

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.
chanroblesvi rt ualawlib ra rychan robl es virt ual law li bra ry

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.
chanroble svi rtualawl ib rary c hanro bles vi rt ual law li bra ry

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.
chanroble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

The relevant antecedents are as follows:

chanrob les vi rtual law lib rary

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.
chan roble svi rtualaw lib rary c hanrobles vi rt ual law lib rary

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.
chanro blesvi rtua lawlib rary chan roble s virtual law l ibra ry

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.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the DOTC Planning Service.
cha nrob lesvi rtua lawlib rary cha nroble s virtual law l ib rary

The implementation of the said fare range scheme shall start on 6 August 1990. For compliance. (Emphasis ours.)

chanroble svirtualawl ibra ry cha nro bles vi rtua l law lib ra ry

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.
chanroblesv irt ualawli bra ry chan roble s vi rtual law lib rary

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.
chanro blesvi rtua lawlib rary chan roble s virtual law l ibra ry

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.
chan roble svirtualawl ibra ry c hanro bles vi rtua l law lib ra ry

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.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-theboard 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.
chanroble svi rtualawl ib rary c hanro bles vi rtua l law li bra ry

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.
chanroblesv irt ualawli bra ry chan roble s vi rtual law lib rary

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 LUZON MIN. OF 5 KMS. SUCCEEDING KM. REGULAR P1.50 P0.37 STUDENT P1.15 P0.28 VISAYAS/MINDANAO

REGULAR P1.60 P0.375 STUDENT P1.20 P0.285 FIRST CLASS (PER KM.) LUZON P0.385 VISAYAS/ MINDANAO P0.395 PREMIERE CLASS (PER KM.) LUZON P0.395 VISAYAS/ MINDANAO P0.405 AIRCON (PER KM.) P0.415. 4
chanro bles vi rtua l law lib ra ry

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;
chanrobles v irt ual law l ibra ry

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;
chanroble s virtual law l ib rary

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;
chan roble s virtual law l ib rary

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:
chanrobles vi rt ual law li bra ry

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.
chan roblesv irtualawl ibrary chan roble s virtual law lib rary

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).
chanrob lesvi rtua lawlib rary chan roble s virtual law l ibra ry

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.
chanro blesvi rtua lawlib rary chan roble s virtual law l ibra ry

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.
chanroblesvi rtua lawlib rary chan roble s virtual law l ibra ry

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.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law libra ry

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.
chanro blesvi rtua lawlib rary chan roble s virtual law l ibra ry

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.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

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.
chanro blesvi rt ualawlib ra ry chan roble s virtual la w libra ry

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.
cha nro blesvi rtua lawlib rary chan roble s virtual law l ib rary

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
chan roble s virtual law l ibra ry

On February 17, 1993, the LTFRB issued Memorandum Circular No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92587. The Circular provides, among others, the following challenged portions: xxx xxx xxx
chan robles v irt ual law l ibra ry

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

c han roblesv irt ualawli bra ry chan rob les vi rtual law lib rary

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

xxx xxx xxx V. Rate and Fare Setting


chanroble s virtual la w libra ry

chan robles v irt ual law l ibra ry

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.
chanrob lesvi rtua lawlib rary chan roble s virt ual law li bra ry

A. On the General Structure of Rates

chanrob les vi rtua l law lib rary

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.
chan roble svirtualawl ibra ry cha nro bles vi rtua l law lib ra ry

2. Fare systems for aircon buses are liberalized to cover first class and premier services. xxx xxx xxx (Emphasis ours). Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare without first having filed a petition for the purpose and without the benefit of a public hearing, announced a fare increase of twenty (20%) percent of the existing fares. Said increased fares were to be made effective on March 16, 1994.
chanro blesvi rt ualawlib ra ry chan roble s virtual law l ib rary

On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus fares.
chan roble svirtualawl ibra ry cha nro bles vi rtua l law lib ra ry

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.
chanroblesv irt ualawli bra ry chan roble s virtual law lib rary

SO ORDERED. 6

chan roble s virtual law l ibra ry

Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining order.
chanroble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

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.
chanro blesvi rt ualawlib ra ry chan roble s virtual law l ib rary

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.
chan roble svi rtualaw lib rary c hanro bles virtual law lib rary

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.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

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.
chan roble svirtualawl ibra ry cha nro bles vi rtua l law lib ra ry

We find the instant petition impressed with merit.

chanroblesv irtualawli bra ry ch anroble s virtual law l ib rary

At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to sue.
chan roble svi rtualaw lib rary c hanrobles vi rt ual law li bra ry

The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the Constitution provides: xxx xxx xxx
chan robles v irt ual law l ibra ry

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
chan roble s virtual law l ibra ry

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.
chanrob lesvi rtua lawlib rary chan robles v irt ual law l ibra ry

Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush aside this barren procedural infirmity and recognize the legal standing of the petitioner in view of the transcendental importance of the issues raised. And this act of liberality is not without judicial precedent. As early as the Emergency Powers Cases, this Court had exercised its discretion and waived the requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et al., 9 we ruled in the same lines and enumerated some of the cases where the same policy was adopted, viz: . . . A party's standing before this Court is a procedural technicality which it may, in the exercise of its discretion, set aside in view of the importance of the issues raised. In the landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Araneta v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of Customs); and G.R. No. L-3056 (Barredo v. Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside this technicality because "the transcendental importance to the

public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as taxpayers' suits are concerned, this Court had declared that it "is not devoid of discretion as to whether or not it should be entertained," (Tan v. Macapagal, 43 SCRA 677, 680 [1972]) or that it "enjoys an open discretion to entertain the same or not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)]. xxx xxx xxx
chan robles v irt ual law l ibra ry

In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even association of planters, and non-profit civic organizations were allowed to initiate and prosecute actions before this court to question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or instrumentalities. Among such cases were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of vacation and sick leave to Senators and Representatives and to elective officials of both Houses of Congress (Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order No. 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed members of the cabinet, their undersecretaries, and assistant secretaries to hold other government offices or positions (Civil Liberties Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in the General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056 on the holding of desynchronized elections (Osmea 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]).
chanroble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

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 crossexamination; (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]).
chanrob lesvi rtua lawlib rary c han robles v irt ual law l ibra ry

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."
chan robles v irt ual law li bra ry

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
chan robles v irt ual law l ibra ry

(c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof, as well as commutation, mileage kilometrage, and other special rates which shall be imposed, observed, and followed thereafter by any public service: Provided, That the Commission may, in its discretion, approve rates proposed by public services provisionally and without necessity of any hearing; but it shall call a hearing thereon within thirty days thereafter, upon publication and notice to the concerns operating in the territory affected: Provided, further, That in case the public service equipment of an operator is used principally or secondarily for the promotion of a private business, the net profits of said private business shall be considered in relation with the public service of such operator for the purpose of fixing the rates. (Emphasis ours). xxx xxx xxx Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the power of fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is likewise vested with the same under Executive Order No. 202 dated June 19, 1987. Section 5(c) of the said executive order authorizes LTFRB "to determine, prescribe, approve and periodically review and adjust, reasonable fares, rates and other related charges, relative to the operation of public land transportation services provided by motorized vehicles." Such delegation of legislative power to an administrative agency is permitted in order to adapt to the increasing complexity of modern life. As subjects for governmental regulation multiply, so does the difficulty of administering the laws. Hence, specialization even in legislation has become necessary. Given the task of determining sensitive and delicate matters as route-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted with the power of subordinate legislation. With this authority, an administrative body and in this case, the LTFRB, may implement broad policies laid down in a statute by "filling in" the details which the Legislature may neither have time or competence to provide. However, nowhere under the aforesaid provisions of law are the regulatory bodies, the PSC and LTFRB alike, authorized to delegate that power to a common carrier, a transport operator, or other public service.
chanroblesvi rt ualawlib ra ry chan roble s virtual law lib rary

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.
chanroble svirtualawl ib rary c hanro bles vi rt ual law li bra ry

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.
chanrob lesvi rtua lawlib rary c han robles v irt ual law l ibra ry

Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same time, they were allowed to impose and collect a fare range of plus or minus 15% over the authorized rate. Thus P0.37 centavo per kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos) is equivalent to P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB grants another five (P0.05) centavo increase per kilometer in 1994, then, the base or reference for computation would have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators will exercise their authority to impose an additional 20% over and above the authorized fare, then the fare to be collected shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will be continuously subjected, not only to a double fare adjustment but to a compounding fare as well. On their part, transport operators shall enjoy a bigger chunk of the pie. Aside from fare increase applied for, they can still collect an additional amount by virtue of the authorized fare range. Mathematically, the situation translates into the following: Year** LTFRB authorized Fare Range Fare to be rate*** collected per kilometer 1990 P0.37 15% (P0.05) P0.42 1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56

1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73 2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94 Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government function that requires dexterity of judgment and sound discretion with the settled goal of arriving at a just and reasonable rate acceptable to both the public utility and the public. Several factors, in fact, have to be taken into consideration before a balance could be achieved. A rate should not be confiscatory as would place an operator in a situation where he will continue to operate at a loss. Hence, the rate should enable public utilities to generate revenues sufficient to cover operational costs and provide reasonable return on the investments. On the other hand, a rate which is too high becomes discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable and fair and must be affordable to the end user who will utilize the services.
chanro blesvi rt ualawlib ra ry chan roble s virtual law lib rary

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.
chan rob lesvi rtualaw lib rary c hanrobles vi rt ual law li bra ry

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.
cha nrob lesvi rtua lawlib rary chan roble s virtual law l ibra ry

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.
chanrob lesvi rtua lawlib rary chan robles v irt ual law l ibra ry

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

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

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
chanrobles vi rtual law lib rary

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.
chanrob lesvi rtualaw lib rary c han robles vi rt ual law li bra ry

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

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

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.
chanrob lesvirtualawl ibra ry cha nrob les vi rtua l law lib rary

No pronouncement as to costs. SO ORDERED.

chanrob lesvi rtualaw lib rary c hanrobles vi rt ual law li bra ry

G.R. No. L-31056 August 4, 1988 LUCILA O. MANZANAL, Petitioner, vs. MAURO A. AUSEJO and PUBLIC SERVICE COMMISSION, Respondents.

MEDIALDEA, J.: This is a petition for review on certiorari of the orders of the Public Service Commission dated June 30, 1967 and September 1, 1969 in PSC Case No. 66-20-OC, entitled "Mauro A. Ausejo, Complainant, vs. Lucila O. Manzanal, Respondent," wherein the certificate of public convenience to operate a taxicab service in Manila and suburbs of herein petitioner Lucila O. Manzanal was cancelled and revoked and her third motion for reconsideration was denied.
chanrob lesvi rtua lawlib rary chan rob les vi rtual law libra ry

The case stemmed from the affidavit of Mauro A. Ausejo, with the Complaint, Investigation and Enforcement Office (CIEO) of the Public Service Commission narrating a hold up incident on March 13, 1966. In this affidavit, he implicated a taxicab unit whose plate number was said to be "6100" and which was allegedly boarded by three (3) robbers as they escaped from Roxas Boulevard in front of the L & S Building at about 6:00 a.m. of March 13, 1966, after affiant and a companion, Mr. Jose Caballes were accosted and held-up. On the basis of this affidavit, respondent Commission issued a "Show-Cause Order" dated May 25, 1966 upon petitioner, to wit: ... respondent (Petitioner Manzanal) is hereby ordered to appeal before this Commission, on this 24th day of June, 1966, at 9:00 o'clock in the morning to show cause why her certificate of public convenience issued under Case No. 62-4503 should not be cancelled for not rendering safe, adequate and proper service by employing a driver with criminal tendencies, in violation of Section 19 (a) of the Public Service Law and Section 47 of the Revised Order No. 1 of this Commission.
chan roble svirtualawl ibra ry chan roble s virt ual law l ibra ry

Failure on the part of the respondent to appear at the hearing set will be considered as a waiver of her right to be heard and this Commission will decide the case on its merits. (Page 13, Rollo) From October 10, 1966 to March 20, 1967, trial was conducted by the respondent Public Service Commission. Mr. Ausejo and Mr. Caballes both narrated the alleged hold-up incident as follows: Both were strolling along the seasided embankment of Dewey or Roxas Boulevard at about 6:00 o'clock in the morning of March 13, 1966 towards the direction of Pasay City. As they were in front of the L & S Building, they noticed that the three (3) men alighted from a vehicle behind them. Immediately thereafter, these men accosted and held-up both of them. Since the two offered some resistance, they attracted the attention of other promenaders as well as the attention of about twelve passing motorists who stopped to watch the spectacle, Two of the hold-uppers went after Mr. Caballes and the other one took care of Mr. Ausejo who fought back and succeeded in disarming the hold-uppers of his knife. He then drew his pistol and tried to shoot him but it jammed. As the two other hold-uppers ran towards his direction, presumably to assist their companion, they were warned that Mr. Ausejo had a gun and so they stopped and rushed instead to a waiting taxi bearing Plate No. 6100.
chanroblesv irt ualawli bra ry c hanro bles vi rt ual law li bra ry

At the trial, Mr. Caballes testified that the taxi was red in the entire body while private respondent Ausejo said that the taxi was red and it had parts painted blue. Both however said that the plate color was orange.
cha nrob lesvi rtua lawlib rary chan rob les vi rtual law lib rary

On the part of petitioner, Manzanal, she submitted documents disputing the possibility that the taxicab in question was hers. She submitted the decision of the PSC in Case No. 65-2149 where it appears that the commercial name of the taxi is Crisman Taxi and that the color is "red top with emerald green body" and two certifications to the effect that the color of the plate in 1965 was white with maroon background.
chan roble svi rtualawl ib rary chan roble s virtual law lib rary

On June 30, 1967, the Public Service Commissioner Enrique Medina issued an order deploring the fact that the respondent did not file a formal answer or explanation. The Commission found that (a) there was no motive on the part of the said witnesses for the complainant to testify against the operator or against the driver of taxi with Plate No. 61 00; (b) the attention of the witnesses was concentrated on the number of the registration plate and it is understandable that they paid little or no attention at all to the colors; and (c) the conduct of the operator gave the impression that instead of applying a strong arm against the erring driver, she has tried to protect and shield him.
chanro blesvi rt ualawlib ra ry ch anroble s virtual law l ib rary

Accordingly, respondent Commission considered the charges proven since the hold-up incident was duly established and ordered the certificate of public convenience issued in Case No. 62-4503, for five units revoked and cancelled.
chanroblesv irt ualawli bra ry c hanro bles vi rt ual law li bra ry

Upon denial of her three motions for reconsideration, she filed this petition for review on certiorari assigning these errors: I. The Respondent Commission erred in cancelling and revoking the certificate of petitioner Manzanal on charges of failure to render safe, proper and adequate service under Section. 19 (a) of the Public Service Act as amended and for employing a driver with criminal record under Sec. 47 of the Revised Order No. 1, as there was absolutely no evidence whatever presented to prove such charges.
cha nro blesvi rtua lawlib rary cha nrob les vi rtua l law lib rary

II. The respondent Commission erred when it cancelled and revoked the certificate of petitioner Manzanal simply because one of her taxicab units allegedly got involved in a hold-up incident when some, hold-uppers allegedly boarded the same while escaping since this circumstance is not one of the grounds for cancellation.
cha nrob lesvi rtua lawlib rary cha nrob les vi rtua l law lib rary

III. The respondent Commission erred in finding petitioner Manzanal guilty of protecting and shielding the driver of the taxicab unit in question by not letting him testify and not taking disciplinary action against him, in the face of absolute absence of evidence to support such findings. Petitioner included in her petition a prayer for the issuance of a preliminary mandatory injunction to allow petitioner to resume operations during the pendency of this petition and to enjoin respondent Commission from snowing another to appropriate her certificate and/or line. She reiterated this prayer in a motion dated January 9, 1970. On February 16, 1970, this Court issued a writ of preliminary injunction upon petitioner posting a bond of P1,000.00 by allowing her to resume operations and at the same time enjoining the operations of Yolanda Escolin , whose application for "appropriation" was granted in PSC Case No. 68-9712. Upon motion of said Yolanda Escolin, this Court allowed her to intervene and lifted the preliminary injunction issued upon her filing a bond of P5,000.00. However, on June 23, 1970, this Court modified the order lifting the writ so that the first part thereof allowing petitioner to resume operation of her taxicab service is deemed excluded from said order of lifting.
chanroblesv irtualawli bra ry c han robles v irt ual law li bra ry

Respondent Public Service Commission filed an answer to the petition stating that the cancellation of petitioner's certificate was warranted by the evidence adduced during the hearing pointing to the fact that the petitioner's driver was conclusively involved in the hold-up.
cha nrob lesvi rtua lawlib rary cha nrob les vi rtua l law lib rary

Private respondent Mauro A. Ausejo on the other hand, manifested that he has chosen not to file an answer to the petition. He, however, filed his comment to petitioner's motion reiterating the prayer for the issuance of a writ of preliminary injunction. He affirmed therein the presence of Felicisimo M. Valdez the driver of taxicab No. 6100 during the hearings but stated, that he could not be sure then as to whether he was the driver of the vehicle used by the hold-uppers. He likewise stated that he executed an affidavit dated January 5, 1970 to the effect that the sole purpose of his complaint before the Public Service Commission was merely to verify the driver of the taxi then bearing Plate No. 6100 so said driver could help the police in the apprehension and prosecution of the hold-uppers and that in view of the death of said driver during the pendency of the investigation, he is wining to forget everything.
chan roble svirtualawl ibra ry chan robles v irt ual law l ibra ry

We find the petition impressed with merit and agree with petitioner that the charges lodged against her have not been duly proved. The respondent Public Service Commission anchors the charges against petitioner on the following provisions, to wit: Section 19. Unlawful acts. - It shall be unlawful for any public service:
chan roble s virtual law l ibra ry

(a) to provide or maintain any service that is unsafe, improper, or inadequate, or withhold or refine any service which can reasonably be demanded and furnished, as found and determined by the Commission in a final order which shall be conclusive and shall take effect in accordance with this Act upon appeal or otherwise. (The Public Service Act, as amended)
chan robles v irt ual law li bra ry

Section 47. Courtesy, character, record, etc. Each operator shag employ only such chauffeurs, conductors, agents, inspectors, auditors, and other employees who are courteous and of good moral character, and in no case shall he employ any person who has been convicted by competent court of homicide and/or serious physical injuries, theft, estafa, robbery, and crimes against chastity. Operators are prohibited from employing as chauffeurs persons who do not have professional drivers" license. (Revised Order No. 1) Section 19 (a) of the Public Service Act contemplates of failure to provide a service that is safe, proper or adequate and refusal to render any service which can reasonably be demanded and furnished. It refers specifically to the operator's inability to provide reliable vehicles to transport the riding public to their places of destination and to the failure to provide an adequate number of units authorized under his franchise at all times to secure the public of sustained service. While the words "unsafe, inadequate and improper" may be broad enough to cover a lot of things, they must be interpreted in consonance with the purpose of the Public Service Law, which was specifically enacted, among other things, to protect the public against unreasonable charges and poor inefficient service (Luzon Stevedoring Co., Inc. vs. PSC, 93 Phil. 735) and to secure adequate sustained service for the public at the least possible costs. (Batangas Transportation Co. vs. Orlanes, 52 Phil. 455). The facts of the case are bereft and wanting of any evidence to the effect that petitioner rendered a service that is unsafe, inadequate and improper. There was no testimony whatsoever that her vehicles are of such kind which may endanger the lives of the passengers or are not suitable for the peculiar characteristics of the area serviced. There is no proof that petitioner is not in a position to cope with the obligations and responsibilities of the service and to maintain a complete number of units as authorized. While we agree with respondent Commission that said provision does not necessarily require a "passengeroperator" relationship, We disagree that a single hold-up incident which does not clearly link petition's taxicab can be comprehended within its meaning.
chanrob lesvi rtua lawlib rary chanrobles vi rt ual law li bra ry

Section 47 of the Revised Order No. 1, on the other hand, refers to the kind of persons an operator must keep under his employ, namely: courteous, of good moral character and no record of criminal conviction. Contrary to the claim of petitioner, this restriction equally applies to those who are already employed as well as those merely seeking admission to the service. (Pangasinan Transportation Co. vs. CIR, L-9736, May 20, 1957, 101 Phil. 480) The reason behind this requirement of courtesy and good moral character cannot be assailed and is understandable. A public service operator deals directly with the patronizing community and the nature of such undertaking necessarily demands of the company the maintenance of a personnel with unquestionable record of good moral character for the public entrust their lives, properties and interests in said services and deserve utmost courtesy,

efficiency and safety in return. (Ibid.) But nowhere in the presentation of the facts of the case was there any proof that petitioner violated this provision. There is no proof that she has hired a driver with criminal record or bad moral character or has kept under her employ, such driver despite knowledge about his moral behavior, discourteous conduct or criminal record. Besides, the show cause order merely speaks of employing a driver with "criminal tendencies" while Section 47 is couched in unmistakable mandatory terms; it forbids the employment of persons "convicted" of offenses enumerated therein.
chanroble svirtualawl ibra ry chan roble s virtual law l ibrary

All that was proved during the investigation was the hold-up incident of March 13, 1966. But proof of the hold-up incident is not proof of the charges under Section 19 (a) of the Public Service Law and Sec. 47 of the Revised Order No. 17. Most importantly, even the precise Identity of the taxicab boarded by the hold-uppers as they escaped had not been established. The only testimony linking the taxicab of petitioner was that of the companion of private respondent Ausejo that he saw the malefactors scamper away and seize a taxi whose plate number was "6100". With respect to the description of the alleged taxi, he said that the taxi was red in the entire body while private respondent Ausejo said that the taxi was red and it had parts painted blue. Both confirmed each other that the plate color was orange.
chan roble svirtualawl ibra ry c han robles v irt ual law l ibra ry

We find that petitioner has successfully refuted the alleged participation of her taxi. The decision dated December 28, 1965 of respondent Commission granting her petition for approval of her color scheme which authorized all her five (5) units to be painted with emerald green; the certification of Mr. Pedro Morales of the Land Transportation Commission, Chief of the Plate Section, to the effect that the plates for taxis for 1965 have a maroon background; and the certification of Mr. Marcelo Vasquez of the Vasquez Bros. & Co., Inc., the makers of vehicle plates for the Land Transportation Commission that the orange colored plates are given to privately owned vehicles and that No. 6100 has been given to both taxis and privately owned vehicles all cast a cloud of doubt on the real Identity of the vehicle used by the malefactors.
chan roblesv irt ualawl ibra ry c hanro bles vi rtua l law lib ra ry

Even on the assumption that it was petitioner's taxicab that was used by the escaping hold-uppers, there is no evidence that the driver is a co-conspirator in the commission of the offense of robbery. Conspiracy must be proved by clear and convincing evidence. The mere claim that the taxicab was there and probably waiting is not proof of conspiracy in this case as it should be recalled that there were about twelve vehicles that stopped to view the spectacle. Further, it is possible that the driver did not act voluntarily as no person in his right senses would defy the wishes of armed passengers. Even on the assumption that the driver had participated voluntarily in the incident, his culpability should not be made a ground for the cancellation of the certificate of petitioner. While an employer may be subsidiarily liable for the employee's civil liability in a criminal action, subsidiary liability presupposes that there was a criminal action. Besides, in order that an employer may be subsidiarily liable, it should be shown that the employee committed the offense in the discharge of his duties. While it is true also that an employer may be primarily liable under Article 2180 of the Civil Code for the acts or omissions of persons for whom one is responsible, this liability extends only to damages caused by his employees acting within the scope of their assigned tasks. Clearly, the act in question is totally alien to the business of petitioner as an operator and hence, the driver's illicit act is not within the scope of the functions entrusted to him. Moreover, the action before respondent Commission is neither a criminal prosecution nor an action for quasi-delict. Hence, there is absolutely no ground to hold petitioner liable for the driver's act.
chanroblesv irt ualawli bra ry c hanro bles vi rt ual law li bra ry

Finally, under Section 16 (n) of the Public Service Act, the power of the Commission to suspend or revoke any certificate received under the provisions of the Act may only be exercised whenever the holder thereof has violated or willfully and contumaciously refused to comply with any order, rule or regulation of the Commission or any provision of the Act. In the absence of showing that there is willful and contumacious violation on the part of petitioner, no certificate of public convenience may be validly revoked.
chanroble svirtualawl ibra ry chan roble s virtual law l ibra ry

The following are some instances where the cancellation of a certificate of public convenience where held valid: (1) where the holder is a mere dummy (Pecson vs. Pecson, 78 Phil. 522); (2) where the operator ceased operation and placed his buses on storage (Parades vs. Public Service Commission, L-

7111, May 30, 1955); and (3) where the operator abandons, totally the service (Collector vs. Buan, L11438, July 31, 1958; Regodon vs. Public Service Commission, L-11899, Sept. 23, 1958; Paez vs. Marcelo, L-1530, March 30, 1962). None of the willful acts in patent violation of the Public Service Law can be attributed to petitioner herein.
cha nrob lesvi rtua lawlib rary cha nrob les vi rtual law lib rary

Apropos, We find the respondent Commission's finding that the circumstances surrounding the case, specially the conduct of petitioner, gave the impression that the petitioner instead of applying a strong arm against the erring driver has tried to protect and shield him has no basis in fact. While the rule is that the commission's findings of fact, if supported by substantial evidence, are conclusive upon this Court, We are authorized to modify or ignore them when it clearly appears that there is no evidence to support reasonably such conclusion. (Javellana vs. La Paz Ice Plant & Cold Storage Co., 63 Phil. 621; Philippine Shipowners Association vs. Public Utility Commissioner, 43 Phil. 328; San Miguel Brewery vs. Lapid, 53 Phil. 539; Ice & Cold Storage Industries of the Phil., Inc. vs. Valero, 85 Phil. 7; Halili vs. Daplas, 14 SCRA 14)
c hanro bles vi rtua l law li bra ry

In the case at bar, it has been duly established that the driver of the taxicab, Felicisimo M. Valdez, was always present during the initial hearings of this case before his death on September 18, 1966. This fact is indicative of his willingness to take the witness stand but death sealed his lips. For her part, petitioner explained that she did not testify because she was candid enough not to pretend to know the exact whereabouts of her taxi at the fateful time. Hence, the conclusion of respondent Commission that she tried to protect or shield her driver by her refusal to refute or deny the claim of respondent Ausejo and Mr. Caballes is not warranted by the facts of the case.
chan rob lesvi rtualaw lib rary chan roble s virtual law l ib rary

ACCORDINGLY, the instant petition for review is hereby GRANTED and the decision of respondent Public Service Commission (now Land Transportation Franchising and Regulatory Board [LTFRB]) dated June 30, 1967 cancelling and revoking the certificate of public convenience of petitioner to operate a taxicab service in Manila for five (5) units under Case No. 62-4503 as well as the order denying the motion for reconsideration are hereby REVERSED and SET ASIDE.
cha nrob l esvirt ualawli bra ry c hanro bles vi rt ual law li bra ry

SO ORDERED. G.R. No. 168914 : July 4, 2007 METROPOLITAN CEBU WATER DISTRICT (MCWD), Petitioner, v. MARGARITA A. ADALA, Respondent. DECISION 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) dated September 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 petitioner's 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 respondent's application on the following grounds: (1) petitioner's 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 petitioner's 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.
cra

After hearing and an ocular inspection of the area, the NWRB, by Decision dated September 22, 2003, dismissed petitioner's Opposition "for lack of merit and/or failure to state the cause of action" 3 and ruled in favor of respondent as follows:
cra:nad

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 Sitio's 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 0-10 cu. m. 11-20 cu. m. 21-30 cu. m. 31-40 cu. m. 41-50 cu. m. 51-60 cu. m. 61-70 cu. m. 71-100 cu. m. Over 100 cu. m.

Proposed Rates P125.00(min. charge) 13.50 per cu. m. 14.50 per cu. m. 35.00 per cu. m. 37.00 per cu. m. 38.00 per cu. m. 40.00 per cu. m. 45.00 per 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 petitioner's motion for reconsideration by Order of May 13, 2005.
c ra

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?
cralaw

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 respondent's claim, petitioner's 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 Appeals6 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 Appeals7 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 petitioner's Board of Director's Resolution No. 015-2004, the relevant portion of which states:
cra:nad

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 District expropriation and other cases and to affirm and confirm above-stated authority with respect to previous cases filed by MCWD. x x x x8 (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 petitioner's 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 Appeals10 so instructs:
cra:nad

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/orduly 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 petitionand 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 petitioner's 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 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 and underscoring supplied) There being no such consent on the part of its board of directors, petitioner concludes that respondent's 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 district's board of directors extends to the issuance of CPCs. A contrary reading, petitioner adds, would result in absurd consequences, for it would mean

cra:nad

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:
cra:nad

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) Petitioner's 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 district's 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 Marcos14 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).
cra

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

cra:nad

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
c ra

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)
cra cra

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 Unions21 is also instructive:
cra cra:nad

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 of supplying 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 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. The Petition is thus, in light of the foregoing discussions, DISMISSED. 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.

SANCHEZ, J.:

chanro bles vi rtua l law lib ra ry

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.
chanroble svirtualawl ibra ry c hanro bles vi rtua l law lib ra ry

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.
cha nro blesvi rtua lawlib rary chan roble s virtual law l ibra ry

Ordinance 4986, amongst others, provides that: RULE II. ENTRY POINTS AND ROUTES OF PROVINCIAL PASSENGER BUSES AND JEEPNEYS
chan roble s virtual law l ibra ry

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: xxx xxx xxx

(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;
chan roble s virt ual law lib rary

(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;
chanro bles vi rtua l law lib ra ry

Loading and unloading shall be allowed only at Harrison Boulevard, between A. Mabini and Taft Avenue; xxx RULE III. FLEXIBLE SHUTTLE BUS SERVICE
c hanro bles vi rtu al law li bra ry

xxx

xxx

cha nro bles vi rtua l law lib ra ry

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.
chan roble svirtualawl ibra ry c hanro bles vi rtua l law lib ra ry

(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.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

(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: xxx (3) South
chan roble s virtual law l ib rary

xxx

xxx

(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. xxx xxx xxx
cha nro bles vi rtua l law lib ra ry

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: xxx xxx xxx
cha nro bles vi rtua l law lib ra ry

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.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

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.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

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) - Paraaque (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. xxx xxx xxx
cha nro bles vi rtua l law lib ra ry

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). . . . xxx xxx xxx
cha nro bles vi rtua l law lib ra ry

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: xxx xxx xxx.

(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.
chanrob lesvi rtua lawlib rary chan robles v irt ual law l ibra ry

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.
chanroblesvi rt ualawlib ra ry chan roble s virtual law lib rary

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:
cha nrob les vi rtua l law lib rary

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.
chanro blesvi rt ualawlib ra ry chan roble s virtual law lib rary

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. xxx xxx xxx
cha nro bles vi rtua l law lib ra ry

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. xxx xxx xxx
cha nro bles vi rtua l law lib ra ry

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.
chanroblesvi rt ualawlib ra ry chan roble s virtual law lib rary

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.
chan roblesv irt ualawli bra rycha nrob les vi rtual law lib rary

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 . . . ."4Petitioners' citation from 16 C.J.S., pp. 642643,5 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, in Benguet 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. 642643, 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
chanroble s virtual law l ibra ry

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

chanroble s virtual law lib rary

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.
chanroblesv irt ualawli bra ry chan rob les vi rtual law lib rary

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.
chanroblesv irt ualawli bra ry cha nrob les vi rtual law lib rary

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.15In 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
chanrob les vi rtual law lib rary

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

chanrobles vi rt ual law li bra ry

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.). xxx xxx xxx
cha nro bles vi rtua l law lib ra ry

. . . . 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.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

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.
chanroble svi rtualawl ib rary c hanro bles vi rtu al law li bra ry

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.
chanroblesvi rtua lawlib rary chan roble s virtual law l ibra ry

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.
libra ry

chanroblesvi rtua lawlib rary chan roble s virtual law

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
chanroble s virtual law l ib rary

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
chanrob les vi rtua l law lib rary

Police power in both was properly exercised.

chanroble svi rtualaw lib rary c hanro bles vi rt ual law li bra ry

4. We find no difficulty in saying that, contrary to the assertion made by petitioners, Ordinance 4986 is not a class legislation.
chanroble svirtualawl ibrary chan roble s virtual law lib rary

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.
chanrob lesvi rtua lawlib rary c han robles v irt ual law li bra ry

These distinctions generally hold true between provincial passenger jeepneys and inter-urban passenger jeepneys.
chanrob lesvi rtua lawlib rary chan robles v irt ual law l ibra ry

No unjustified discrimination there is under the law.

chan roble s virtua lawlib rary chan robles v irt ual law l ibra ry

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
chanrobles vi rt ual law li bra ry

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.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

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
chanrob les vi rtua l law lib rary

FOR THE REASONS GIVEN, the petition herein is denied. Costs against petitioners. So ordered.
chanrob

chanrob lesvi rtua lawlib rary chan robles v irt ual law l ibra ry

You might also like