G.R. No.

161957 January 22, 2007

JORGE GONZALES and PANEL OF ARBITRATORS,
Petitioners,
vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING
CORP., and AUSTRALASIAN PHILIPPINES MINING
INC., Respondents.
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G.R. No. 167994 January 22, 2007
JORGE GONZALES, Petitioner,
vs.
HON. OSCAR B. PIMENTEL, in his capacity as
PRESIDING JUDGE of BR. 148 of the REGIONAL
TRIAL COURT of MAKATI CITY, and CLIMAX-ARIMCO
MINING CORPORATION, Respondents.
R E S O L U T I O N
TINGA, J.:
This is a consolidation of two petitions rooted in the
same disputed Addendum Contract entered into by
the parties. In G.R. No. 161957, the Court in its
Decision of 28 February 2005
1
denied the Rule 45
petition of petitioner Jorge Gonzales (Gonzales). It
held that the DENR Panel of Arbitrators had no
jurisdiction over the complaint for the annulment of
the Addendum Contract on grounds of fraud and
violation of the Constitution and that the action
should have been brought before the regular courts
as it involved judicial issues. Both parties filed
separate motions for reconsideration. Gonzales
avers in his Motion for Reconsideration
2
that the
Court erred in holding that the DENR Panel of
Arbitrators was bereft of jurisdiction, reiterating its
argument that the case involves a mining dispute
that properly falls within the ambit of the Panels
authority. Gonzales adds that the Court failed to rule
on other issues he raised relating to the sufficiency
of his complaint before the DENR Panel of
Arbitrators and the timeliness of its filing.
Respondents Climax Mining Ltd., et al.,
(respondents) filed their Motion for Partial
Reconsideration and/or Clarification
3
seeking
reconsideration of that part of the Decision holding
that the case should not be brought for arbitration
under Republic Act (R.A.) No. 876, also known as the
Arbitration Law.
4
Respondents, citing American
jurisprudence
5
and the UNCITRAL Model Law,
6
argue
that the arbitration clause in the Addendum
Contract should be treated as an agreement
independent of the other terms of the contract, and
that a claimed rescission of the main contract does
not avoid the duty to arbitrate. Respondents add
that Gonzaless argument relating to the alleged
invalidity of the Addendum Contract still has to be
proven and adjudicated on in a proper proceeding;
that is, an action separate from the motion to
compel arbitration. Pending judgment in such
separate action, the Addendum Contract remains
valid and binding and so does the arbitration clause
therein. Respondents add that the holding in the
Decision that "the case should not be brought under
the ambit of the Arbitration Law" appears to be
premised on Gonzaless having "impugn*ed+ the
existence or validity" of the addendum contract. If
so, it supposedly conveys the idea that Gonzaless
unilateral repudiation of the contract or mere
allegation of its invalidity is all it takes to avoid
arbitration. Hence, respondents submit that the
courts holding that "the case should not be brought
under the ambit of the Arbitration Law" be
understood or clarified as operative only where the
challenge to the arbitration agreement has been
sustained by final judgment.
Both parties were required to file their respective
comments to the other partys motion for
reconsideration/clarification.
7
Respondents filed
their Comment on 17 August 2005,
8
while Gonzales
filed his only on 25 July 2006.
9

On the other hand, G.R. No. 167994 is a Rule 65
petition filed on 6 May 2005, or while the motions
for reconsideration in G.R. No. 161957
10
were
pending, wherein Gonzales challenged the orders of
the Regional Trial Court (RTC) requiring him to
proceed with the arbitration proceedings as sought
by Climax-Arimco Mining Corporation (Climax-
Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and
167994, were consolidated upon the
recommendation of the Assistant Division Clerk of
Court since the cases are rooted in the same
Addendum Contract.
We first tackle the more recent case which is G.R.
No. 167994. It stemmed from the petition to compel
arbitration filed by respondent Climax-Arimco before
the RTC of Makati City on 31 March 2000 while the
complaint for the nullification of the Addendum
Contract was pending before the DENR Panel of
Arbitrators. On 23 March 2000, Climax-Arimco had
sent Gonzales a Demand for Arbitration pursuant to
Clause 19.1
11
of the Addendum Contract and also in
accordance with Sec. 5 of R.A. No. 876. The petition
for arbitration was subsequently filed and Climax-
Arimco sought an order to compel the parties to
arbitrate pursuant to the said arbitration clause. The
case, docketed as Civil Case No. 00-444, was initially
raffled to Br. 132 of the RTC of Makati City, with
Judge Herminio I. Benito as Presiding Judge.
Respondent Climax-Arimco filed on 5 April 2000 a
motion to set the application to compel arbitration
for hearing.
On 14 April 2000, Gonzales filed a motion to dismiss
which he however failed to set for hearing. On 15
May 2000, he filed an Answer with Counterclaim,
12

questioning the validity of the Addendum Contract
containing the arbitration clause. Gonzales alleged
that the Addendum Contract containing the
arbitration clause is void in view of Climax-Arimcos
acts of fraud, oppression and violation of the
Constitution. Thus, the arbitration clause, Clause
19.1, contained in the Addendum Contract is also
null and void ab initio and legally
inexistent.1awphi1.net
On 18 May 2000, the RTC issued an order declaring
Gonzaless motion to dismiss moot and academic in
view of the filing of his Answer with Counterclaim.
13

On 31 May 2000, Gonzales asked the RTC to set the
case for pre-trial.
14
This the RTC denied on 16 June
2000, holding that the petition for arbitration is a
special proceeding that is summary in nature.
15

However, on 7 July 2000, the RTC granted Gonzaless
motion for reconsideration of the 16 June 2000
Order and set the case for pre-trial on 10 August
2000, it being of the view that Gonzales had raised in
his answer the issue of the making of the arbitration
agreement.
16

Climax-Arimco then filed a motion to resolve its
pending motion to compel arbitration. The RTC
denied the same in its 24 July 2000 order.
On 28 July 2000, Climax-Arimco filed a Motion to
Inhibit Judge Herminio I. Benito for "not possessing
the cold neutrality of an impartial judge."
17
On 5
August 2000, Judge Benito issued an Order granting
the Motion to Inhibit and ordered the re-raffling of
the petition for arbitration.
18
The case was raffled to
the sala of public respondent Judge Oscar B.
Pimentel of Branch 148.
On 23 August 2000, Climax-Arimco filed a motion for
reconsideration of the 24 July 2000 Order.
19
Climax-
Arimco argued that R.A. No. 876 does not authorize
a pre-trial or trial for a motion to compel arbitration
but directs the court to hear the motion summarily
and resolve it within ten days from hearing. Judge
Pimentel granted the motion and directed the
parties to arbitration. On 13 February 2001, Judge
Pimentel issued the first assailed order requiring
Gonzales to proceed with arbitration proceedings
and appointing retired CA Justice Jorge Coquia as
sole arbitrator.
20

Gonzales moved for reconsideration on 20 March
2001 but this was denied in the Order dated 7 March
2005.
21

Gonzales thus filed the Rule 65 petition assailing the
Orders dated 13 February 2001 and 7 March 2005 of
Judge Pimentel. Gonzales contends that public
respondent Judge Pimentel acted with grave abuse
of discretion in immediately ordering the parties to
proceed with arbitration despite the proper, valid,
and timely raised argument in his Answer with
Counterclaim that the Addendum Contract,
containing the arbitration clause, is null and void.
Gonzales has also sought a temporary restraining
order to prevent the enforcement of the assailed
orders directing the parties to arbitrate, and to
direct Judge Pimentel to hold a pre-trial conference
and the necessary hearings on the determination of
the nullity of the Addendum Contract.
In support of his argument, Gonzales invokes Sec. 6
of R.A. No. 876:
Sec. 6. Hearing by court.A party aggrieved by the
failure, neglect or refusal of another to perform
under an agreement in writing providing for
arbitration may petition the court for an order
directing that such arbitration proceed in the
manner provided for in such agreement. Five days
notice in writing of the hearing of such application
shall be served either personally or by registered
mail upon the party in default. The court shall hear
the parties, and upon being satisfied that the making
of the agreement or such failure to comply
therewith is not in issue, shall make an order
directing the parties to proceed to arbitration in
accordance with the terms of the agreement. If the
making of the agreement or default be in issue the
court shall proceed to summarily hear such issue. If
the finding be that no agreement in writing
providing for arbitration was made, or that there is
no default in the proceeding thereunder, the
proceeding shall be dismissed. If the finding be that
a written provision for arbitration was made and
there is a default in proceeding thereunder, an order
shall be made summarily directing the parties to
proceed with the arbitration in accordance with the
terms thereof.
The court shall decide all motions, petitions or
applications filed under the provisions of this Act,
within ten (10) days after such motions, petitions, or
applications have been heard by it.
Gonzales also cites Sec. 24 of R.A. No. 9285 or the
"Alternative Dispute Resolution Act of 2004:"
Sec. 24. Referral to Arbitration.A court before
which an action is brought in a matter which is the
subject matter of an arbitration agreement shall, if
at least one party so requests not later than the pre-
trial conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it
finds that the arbitration agreement is null and void,
inoperative or incapable of being performed.
According to Gonzales, the above-quoted provisions
of law outline the procedure to be followed in
petitions to compel arbitration, which the RTC did
not follow. Thus, referral of the parties to arbitration
by Judge Pimentel despite the timely and properly
raised issue of nullity of the Addendum Contract was
misplaced and without legal basis. Both R.A. No. 876
and R.A. No. 9285 mandate that any issue as to the
nullity, inoperativeness, or incapability of
performance of the arbitration clause/agreement
raised by one of the parties to the alleged arbitration
agreement must be determined by the court prior to
referring them to arbitration. They require that the
trial court first determine or resolve the issue of
nullity, and there is no other venue for this
determination other than a pre-trial and hearing on
the issue by the trial court which has jurisdiction
over the case. Gonzales adds that the assailed 13
February 2001 Order also violated his right to
procedural due process when the trial court
erroneously ruled on the existence of the arbitration
agreement despite the absence of a hearing for the
presentation of evidence on the nullity of the
Addendum Contract.
Respondent Climax-Arimco, on the other hand,
assails the mode of review availed of by Gonzales.
Climax-Arimco cites Sec. 29 of R.A. No. 876:
Sec. 29. Appeals.An appeal may be taken from an
order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari
proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such an
appeal, including the judgment thereon shall be
governed by the Rules of Court in so far as they are
applicable.
Climax-Arimco mentions that the special civil action
for certiorari employed by Gonzales is available only
where there is no appeal or any plain, speedy, and
adequate remedy in the ordinary course of law
against the challenged orders or acts. Climax-Arimco
then points out that R.A. No. 876 provides for an
appeal from such orders, which, under the Rules of
Court, must be filed within 15 days from notice of
the final order or resolution appealed from or of the
denial of the motion for reconsideration filed in due
time. Gonzales has not denied that the relevant 15-
day period for an appeal had elapsed long before he
filed this petition for certiorari. He cannot use the
special civil action of certiorari as a remedy for a lost
appeal.
Climax-Arimco adds that an application to compel
arbitration under Sec. 6 of R.A. No. 876 confers on
the trial court only a limited and special jurisdiction,
i.e., a jurisdiction solely to determine (a) whether or
not the parties have a written contract to arbitrate,
and (b) if the defendant has failed to comply with
that contract. Respondent cites La Naval Drug
Corporation v. Court of Appeals,
22
which holds that in
a proceeding to compel arbitration, "[t]he
arbitration law explicitly confines the courts
authority only to pass upon the issue of whether
there is or there is no agreement in writing providing
for arbitration," and "[i]n the affirmative, the statute
ordains that the court shall issue an order
summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof."
23

Climax-Arimco argues that R.A. No. 876 gives no
room for any other issue to be dealt with in such a
proceeding, and that the court presented with an
application to compel arbitration may order
arbitration or dismiss the same, depending solely on
its finding as to those two limited issues. If either of
these matters is disputed, the court is required to
conduct a summary hearing on it. Gonzaless
proposition contradicts both the trial courts limited
jurisdiction and the summary nature of the
proceeding itself.
Climax-Arimco further notes that Gonzaless attack
on or repudiation of the Addendum Contract also is
not a ground to deny effect to the arbitration clause
in the Contract. The arbitration agreement is
separate and severable from the contract evidencing
the parties commercial or economic transaction, it
stresses. Hence, the alleged defect or failure of the
main contract is not a ground to deny enforcement
of the parties arbitration agreement. Even the party
who has repudiated the main contract is not
prevented from enforcing its arbitration provision.
R.A. No. 876 itself treats the arbitration clause or
agreement as a contract separate from the
commercial, economic or other transaction to be
arbitrated. The statute, in particular paragraph 1 of
Sec. 2 thereof, considers the arbitration stipulation
an independent contract in its own right whose
enforcement may be prevented only on grounds
which legally make the arbitration agreement itself
revocable, thus:
Sec. 2. Persons and matters subject to arbitration.
Two or more persons or parties may submit to the
arbitration of one or more arbitrators any
controversy existing, between them at the time of
the submission and which may be the subject of an
action, or the parties to any contract may in such
contract agree to settle by arbitration a controversy
thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable,
save upon such grounds as exist at law for the
revocation of any contract.
x x x x
The grounds Gonzales invokes for the revocation of
the Addendum Contractfraud and oppression in
the execution thereofare also not grounds for the
revocation of the arbitration clause in the Contract,
Climax-Arimco notes. Such grounds may only be
raised by way of defense in the arbitration itself and
cannot be used to frustrate or delay the conduct of
arbitration proceedings. Instead, these should be
raised in a separate action for rescission, it
continues.
Climax-Arimco emphasizes that the summary
proceeding to compel arbitration under Sec. 6 of
R.A. No. 876 should not be confused with the
procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A.
No. 876 refers to an application to compel
arbitration where the courts authority is limited to
resolving the issue of whether there is or there is no
agreement in writing providing for arbitration, while
Sec. 24 of R.A. No. 9285 refers to an ordinary action
which covers a matter that appears to be arbitrable
or subject to arbitration under the arbitration
agreement. In the latter case, the statute is clear
that the court, instead of trying the case, may, on
request of either or both parties, refer the parties to
arbitration, unless it finds that the arbitration
agreement is null and void, inoperative or incapable
of being performed. Arbitration may even be
ordered in the same suit brought upon a matter
covered by an arbitration agreement even without
waiting for the outcome of the issue of the validity of
the arbitration agreement. Art. 8 of the UNCITRAL
Model Law
24
states that where a court before which
an action is brought in a matter which is subject of
an arbitration agreement refers the parties to
arbitration, the arbitral proceedings may proceed
even while the action is pending.
Thus, the main issue raised in the Petition for
Certiorari is whether it was proper for the RTC, in the
proceeding to compel arbitration under R.A. No.
876, to order the parties to arbitrate even though
the defendant therein has raised the twin issues of
validity and nullity of the Addendum Contract and,
consequently, of the arbitration clause therein as
well. The resolution of both Climax-Arimcos Motion
for Partial Reconsideration and/or Clarification in
G.R. No. 161957 and Gonzaless Petition for
Certiorari in G.R. No. 167994 essentially turns on
whether the question of validity of the Addendum
Contract bears upon the applicability or
enforceability of the arbitration clause contained
therein. The two pending matters shall thus be
jointly resolved.
We address the Rule 65 petition in G.R. No. 167994
first from the remedial law perspective. It deserves
to be dismissed on procedural grounds, as it was
filed in lieu of appeal which is the prescribed remedy
and at that far beyond the reglementary period. It is
elementary in remedial law that the use of an
erroneous mode of appeal is cause for dismissal of
the petition for certiorari and it has been repeatedly
stressed that a petition for certiorari is not a
substitute for a lost appeal. As its nature, a petition
for certiorari lies only where there is "no appeal,"
and "no plain, speedy and adequate remedy in the
ordinary course of law."
25
The Arbitration Law
specifically provides for an appeal by certiorari, i.e., a
petition for review under certiorari under Rule 45 of
the Rules of Court that raises pure questions of
law.
26
There is no merit to Gonzaless argument that
the use of the permissive term "may" in Sec. 29, R.A.
No. 876 in the filing of appeals does not prohibit nor
discount the filing of a petition for certiorari under
Rule 65.
27
Proper interpretation of the aforesaid
provision of law shows that the term "may" refers
only to the filing of an appeal, not to the mode of
review to be employed. Indeed, the use of "may"
merely reiterates the principle that the right to
appeal is not part of due process of law but is a mere
statutory privilege to be exercised only in the
manner and in accordance with law.
Neither can BF Corporation v. Court of Appeals
28

cited by Gonzales support his theory. Gonzales
argues that said case recognized and allowed a
petition for certiorari under Rule 65 "appealing the
order of the Regional Trial Court disregarding the
arbitration agreement as an acceptable remedy."
29

The BF Corporation case had its origins in a
complaint for collection of sum of money filed by
therein petitioner BF Corporation against Shangri-la
Properties, Inc. (SPI). SPI moved to suspend the
proceedings alleging that the construction
agreement or the Articles of Agreement between
the parties contained a clause requiring prior resort
to arbitration before judicial intervention. The trial
court found that an arbitration clause was
incorporated in the Conditions of Contract appended
to and deemed an integral part of the Articles of
Agreement. Still, the trial court denied the motion to
suspend proceedings upon a finding that the
Conditions of Contract were not duly executed and
signed by the parties. The trial court also found that
SPI had failed to file any written notice of demand
for arbitration within the period specified in the
arbitration clause. The trial court denied SPI's
motion for reconsideration and ordered it to file its
responsive pleading. Instead of filing an answer, SPI
filed a petition for certiorari under Rule 65, which
the Court of Appeals, favorably acted upon. In a
petition for review before this Court, BF Corporation
alleged, among others, that the Court of Appeals
should have dismissed the petition for certiorari
since the order of the trial court denying the motion
to suspend proceedings "is a resolution of an
incident on the merits" and upon the continuation of
the proceedings, the trial court would eventually
render a decision on the merits, which decision
could then be elevated to a higher court "in an
ordinary appeal."
30

The Court did not uphold BF Corporations
argument. The issue raised before the Court was
whether SPI had taken the proper mode of appeal
before the Court of Appeals. The question before the
Court of Appeals was whether the trial court had
prematurely assumed jurisdiction over the
controversy. The question of jurisdiction in turn
depended on the question of existence of the
arbitration clause which is one of fact. While on its
face the question of existence of the arbitration
clause is a question of fact that is not proper in a
petition for certiorari, yet since the determination of
the question obliged the Court of Appeals as it did to
interpret the contract documents in accordance with
R.A. No. 876 and existing jurisprudence, the question
is likewise a question of law which may be properly
taken cognizance of in a petition for certiorari under
Rule 65, so the Court held.
31

The situation in B.F. Corporation is not availing in the
present petition. The disquisition in B.F. Corporation
led to the conclusion that in order that the question
of jurisdiction may be resolved, the appellate court
had to deal first with a question of law which could
be addressed in a certiorari proceeding. In the
present case, Gonzaless petition raises a question of
law, but not a question of jurisdiction. Judge
Pimentel acted in accordance with the procedure
prescribed in R.A. No. 876 when he ordered
Gonzales to proceed with arbitration and appointed
a sole arbitrator after making the determination that
there was indeed an arbitration agreement. It has
been held that as long as a court acts within its
jurisdiction and does not gravely abuse its discretion
in the exercise thereof, any supposed error
committed by it will amount to nothing more than
an error of judgment reviewable by a timely appeal
and not assailable by a special civil action of
certiorari.
32
Even if we overlook the employment of
the wrong remedy in the broader interests of justice,
the petition would nevertheless be dismissed for
failure of Gonzalez to show grave abuse of
discretion.
Arbitration, as an alternative mode of settling
disputes, has long been recognized and accepted in
our jurisdiction. The Civil Code is explicit on the
matter.
33
R.A. No. 876 also expressly authorizes
arbitration of domestic disputes. Foreign arbitration,
as a system of settling commercial disputes of an
international character, was likewise recognized
when the Philippines adhered to the United Nations
"Convention on the Recognition and the
Enforcement of Foreign Arbitral Awards of 1958,"
under the 10 May 1965 Resolution No. 71 of the
Philippine Senate, giving reciprocal recognition and
allowing enforcement of international arbitration
agreements between parties of different
nationalities within a contracting state.
34
The
enactment of R.A. No. 9285 on 2 April 2004 further
institutionalized the use of alternative dispute
resolution systems, including arbitration, in the
settlement of disputes.
Disputes do not go to arbitration unless and until the
parties have agreed to abide by the arbitrators
decision. Necessarily, a contract is required for
arbitration to take place and to be binding. R.A. No.
876 recognizes the contractual nature of the
arbitration agreement, thus:
Sec. 2. Persons and matters subject to arbitration.
Two or more persons or parties may submit to the
arbitration of one or more arbitrators any
controversy existing, between them at the time of
the submission and which may be the subject of an
action, or the parties to any contract may in such
contract agree to settle by arbitration a controversy
thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable,
save upon such grounds as exist at law for the
revocation of any contract.
Such submission or contract may include question
arising out of valuations, appraisals or other
controversies which may be collateral, incidental,
precedent or subsequent to any issue between the
parties.
A controversy cannot be arbitrated where one of the
parties to the controversy is an infant, or a person
judicially declared to be incompetent, unless the
appropriate court having jurisdiction approve a
petition for permission to submit such controversy
to arbitration made by the general guardian or
guardian ad litem of the infant or of the
incompetent. [Emphasis added.]
Thus, we held in Manila Electric Co. v. Pasay
Transportation Co.
35
that a submission to arbitration
is a contract. A clause in a contract providing that all
matters in dispute between the parties shall be
referred to arbitration is a contract,
36
and in Del
Monte Corporation-USA v. Court of Appeals
37
that
"[t]he provision to submit to arbitration any dispute
arising therefrom and the relationship of the parties
is part of that contract and is itself a contract. As a
rule, contracts are respected as the law between the
contracting parties and produce effect as between
them, their assigns and heirs."
38

The special proceeding under Sec. 6 of R.A. No. 876
recognizes the contractual nature of arbitration
clauses or agreements. It provides:
Sec. 6. Hearing by court.A party aggrieved by the
failure, neglect or refusal of another to perform
under an agreement in writing providing for
arbitration may petition the court for an order
directing that such arbitration proceed in the
manner provided for in such agreement. Five days
notice in writing of the hearing of such application
shall be served either personally or by registered
mail upon the party in default. The court shall hear
the parties, and upon being satisfied that the making
of the agreement or such failure to comply
therewith is not in issue, shall make an order
directing the parties to proceed to arbitration in
accordance with the terms of the agreement. If the
making of the agreement or default be in issue the
court shall proceed to summarily hear such issue. If
the finding be that no agreement in writing
providing for arbitration was made, or that there is
no default in the proceeding thereunder, the
proceeding shall be dismissed. If the finding be that
a written provision for arbitration was made and
there is a default in proceeding thereunder, an order
shall be made summarily directing the parties to
proceed with the arbitration in accordance with the
terms thereof.
The court shall decide all motions, petitions or
applications filed under the provisions of this Act,
within ten days after such motions, petitions, or
applications have been heard by it. [Emphasis
added.]
This special proceeding is the procedural mechanism
for the enforcement of the contract to arbitrate. The
jurisdiction of the courts in relation to Sec. 6 of R.A.
No. 876 as well as the nature of the proceedings
therein was expounded upon in La Naval Drug
Corporation v. Court of Appeals.
39
There it was held
that R.A. No. 876 explicitly confines the court's
authority only to the determination of whether or
not there is an agreement in writing providing for
arbitration. In the affirmative, the statute ordains
that the court shall issue an order "summarily
directing the parties to proceed with the arbitration
in accordance with the terms thereof." If the court,
upon the other hand, finds that no such agreement
exists, "the proceeding shall be dismissed."
40
The
cited case also stressed that the proceedings are
summary in nature.
41
The same thrust was made in
the earlier case of Mindanao Portland Cement Corp.
v. McDonough Construction Co. of Florida
42
which
held, thus:
Since there obtains herein a written provision for
arbitration as well as failure on respondent's part to
comply therewith, the court a quo rightly ordered
the parties to proceed to arbitration in accordance
with the terms of their agreement (Sec. 6, Republic
Act 876). Respondent's arguments touching upon
the merits of the dispute are improperly raised
herein. They should be addressed to the arbitrators.
This proceeding is merely a summary remedy to
enforce the agreement to arbitrate. The duty of the
court in this case is not to resolve the merits of the
parties' claims but only to determine if they should
proceed to arbitration or not. x x x x
43

Implicit in the summary nature of the judicial
proceedings is the separable or independent
character of the arbitration clause or agreement.
This was highlighted in the cases of Manila Electric
Co. v. Pasay Trans. Co.
44
and Del Monte Corporation-
USA v. Court of Appeals.
45

The doctrine of separability, or severability as other
writers call it, enunciates that an arbitration
agreement is independent of the main contract. The
arbitration agreement is to be treated as a separate
agreement and the arbitration agreement does not
automatically terminate when the contract of which
it is part comes to an end.
46

The separability of the arbitration agreement is
especially significant to the determination of
whether the invalidity of the main contract also
nullifies the arbitration clause. Indeed, the doctrine
denotes that the invalidity of the main contract, also
referred to as the "container" contract, does not
affect the validity of the arbitration agreement.
Irrespective of the fact that the main contract is
invalid, the arbitration clause/agreement still
remains valid and enforceable.
47

The separability of the arbitration clause is
confirmed in Art. 16(1) of the UNCITRAL Model Law
and Art. 21(2) of the UNCITRAL Arbitration Rules.
48

The separability doctrine was dwelt upon at length in
the U.S. case of Prima Paint Corp. v. Flood & Conklin
Manufacturing Co.
49
In that case, Prima Paint and
Flood and Conklin (F & C) entered into a consulting
agreement whereby F & C undertook to act as
consultant to Prima Paint for six years, sold to Prima
Paint a list of its customers and promised not to sell
paint to these customers during the same period.
The consulting agreement contained an arbitration
clause. Prima Paint did not make payments as
provided in the consulting agreement, contending
that F & C had fraudulently misrepresented that it
was solvent and able for perform its contract when
in fact it was not and had even intended to file for
bankruptcy after executing the consultancy
agreement. Thus, F & C served Prima Paint with a
notice of intention to arbitrate. Prima Paint sued in
court for rescission of the consulting agreement on
the ground of fraudulent misrepresentation and
asked for the issuance of an order enjoining F & C
from proceeding with arbitration. F & C moved to
stay the suit pending arbitration. The trial court
granted F & Cs motion, and the U.S. Supreme Court
affirmed.
The U.S. Supreme Court did not address Prima
Paints argument that it had been fraudulently
induced by F & C to sign the consulting agreement
and held that no court should address this argument.
Relying on Sec. 4 of the Federal Arbitration Act
which provides that "if a party [claims to be]
aggrieved by the alleged failure x x x of another to
arbitrate x x x, [t]he court shall hear the parties, and
upon being satisfied that the making of the
agreement for arbitration or the failure to comply
therewith is not in issue, the court shall make an
order directing the parties to proceed to arbitration
x x x. If the making of the arbitration agreement or
the failure, neglect, or refusal to perform the same
be in issue, the court shall proceed summarily to the
trial thereof"the U.S. High Court held that the
court should not order the parties to arbitrate if the
making of the arbitration agreement is in issue. The
parties should be ordered to arbitration if, and only
if, they have contracted to submit to arbitration.
Prima Paint was not entitled to trial on the question
of whether an arbitration agreement was made
because its allegations of fraudulent inducement
were not directed to the arbitration clause itself, but
only to the consulting agreement which contained
the arbitration agreement.
50
Prima Paint held that
"arbitration clauses are separable from the
contracts in which they are embedded, and that
where no claim is made that fraud was directed to
the arbitration clause itself, a broad arbitration
clause will be held to encompass arbitration of the
claim that the contract itself was induced by
fraud."
51

There is reason, therefore, to rule against Gonzales
when he alleges that Judge Pimentel acted with
grave abuse of discretion in ordering the parties to
proceed with arbitration. Gonzaless argument that
the Addendum Contract is null and void and,
therefore the arbitration clause therein is void as
well, is not tenable. First, the proceeding in a
petition for arbitration under R.A. No. 876 is limited
only to the resolution of the question of whether the
arbitration agreement exists. Second, the
separability of the arbitration clause from the
Addendum Contract means that validity or invalidity
of the Addendum Contract will not affect the
enforceability of the agreement to arbitrate. Thus,
Gonzaless petition for certiorari should be
dismissed.
This brings us back to G.R. No. 161957. The
adjudication of the petition in G.R. No. 167994
effectively modifies part of the Decision dated 28
February 2005 in G.R. No. 161957. Hence, we now
hold that the validity of the contract containing the
agreement to submit to arbitration does not affect
the applicability of the arbitration clause itself. A
contrary ruling would suggest that a partys mere
repudiation of the main contract is sufficient to
avoid arbitration. That is exactly the situation that
the separability doctrine, as well as jurisprudence
applying it, seeks to avoid. We add that when it was
declared in G.R. No. 161957 that the case should not
be brought for arbitration, it should be clarified that
the case referred to is the case actually filed by
Gonzales before the DENR Panel of Arbitrators,
which was for the nullification of the main contract
on the ground of fraud, as it had already been
determined that the case should have been brought
before the regular courts involving as it did judicial
issues.
The Motion for Reconsideration of Gonzales in G.R.
No. 161957 should also be denied. In the motion,
Gonzales raises the same question of jurisdiction,
more particularly that the complaint for nullification
of the Addendum Contract pertained to the DENR
Panel of Arbitrators, not the regular courts. He
insists that the subject of his complaint is a mining
dispute since it involves a dispute concerning rights
to mining areas, the Financial and Technical
Assistance Agreement (FTAA) between the parties,
and it also involves claimowners. He adds that the
Court failed to rule on other issues he raised, such as
whether he had ceded his claims over the mineral
deposits located within the Addendum Area of
Influence; whether the complaint filed before the
DENR Panel of Arbitrators alleged ultimate facts of
fraud; and whether the action to declare the nullity
of the Addendum Contract on the ground of fraud
has prescribed.1avvphi1.net
These are the same issues that Gonzales raised in his
Rule 45 petition in G.R. No. 161957 which were
resolved against him in the Decision of 28 February
2005. Gonzales does not raise any new argument
that would sway the Court even a bit to alter its
holding that the complaint filed before the DENR
Panel of Arbitrators involves judicial issues which
should properly be resolved by the regular courts.
He alleged fraud or misrepresentation in the
execution of the Addendum Contract which is a
ground for the annulment of a voidable contract.
Clearly, such allegations entail legal questions which
are within the jurisdiction of the courts.
The question of whether Gonzales had ceded his
claims over the mineral deposits in the Addendum
Area of Influence is a factual question which is not
proper for determination before this Court. At all
events, moreover, the question is irrelevant to the
issue of jurisdiction of the DENR Panel of Arbitrators.
It should be pointed out that the DENR Panel of
Arbitrators made a factual finding in its Order dated
18 October 2001, which it reiterated in its Order
dated 25 June 2002, that Gonzales had, "through the
various agreements, assigned his interest over the
mineral claims all in favor of [Climax-Arimco]" as well
as that without the complainant [Gonzales] assigning
his interest over the mineral claims in favor of
[Climax-Arimco], there would be no FTAA to speak
of."
52
This finding was affirmed by the Court of
Appeals in its Decision dated 30 July 2003 resolving
the petition for certiorari filed by Climax-Arimco in
regard to the 18 October 2001 Order of the DENR
Panel.
53

The Court of Appeals likewise found that Gonzaless
complaint alleged fraud but did not provide any
particulars to substantiate it. The complaint
repeatedly mentioned fraud, oppression, violation of
the Constitution and similar conclusions but
nowhere did it give any ultimate facts or particulars
relative to the allegations.
54

Sec. 5, Rule 8 of the Rules of Court specifically
provides that in all averments of fraud, the
circumstances constituting fraud must be stated
with particularity. This is to enable the opposing
party to controvert the particular facts allegedly
constituting the same. Perusal of the complaint
indeed shows that it failed to state with particularity
the ultimate facts and circumstances constituting
the alleged fraud. It does not state what particulars
about Climax-Arimcos financial or technical
capability were misrepresented, or how the
misrepresentation was done. Incorporated in the
body of the complaint are verbatim reproductions of
the contracts, correspondence and government
issuances that reportedly explain the allegations of
fraud and misrepresentation, but these are, at best,
evidentiary matters that should not be included in
the pleading.
As to the issue of prescription, Gonzaless claims of
fraud and misrepresentation attending the
execution of the Addendum Contract are grounds for
the annulment of a voidable contract under the Civil
Code.
55
Under Art. 1391 of the Code, an action for
annulment shall be brought within four years, in the
case of fraud, beginning from the time of the
discovery of the same. However, the time of the
discovery of the alleged fraud is not clear from the
allegations of Gonzaless complaint. That being the
situation coupled with the fact that this Court is not
a trier of facts, any ruling on the issue of prescription
would be uncalled for or even unnecessary.
WHEREFORE, the Petition for Certiorari in G.R. No.
167994 is DISMISSED. Such dismissal effectively
renders superfluous formal action on the Motion for
Partial Reconsideration and/or Clarification filed by
Climax Mining Ltd., et al. in G.R. No. 161957.
The Motion for Reconsideration filed by Jorge
Gonzales in G.R. No. 161957 is DENIED WITH
FINALITY.
SO ORDERED.





G.R. No. 155001 May 5, 2003
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN,
JOSE MARI B. REUNILLA, MANUEL ANTONIO B.
BOE, MAMERTO S. CLARA, REUEL E. DIMALANTA,
MORY V. DOMALAON, CONRADO G. DIMAANO,
LOLITA R. HIZON, REMEDIOS P. ADOLFO,
BIENVENIDO C. HILARIO, MIASCOR WORKERS
UNION - NATIONAL LABOR UNION (MWU-NLU),
and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION
(PALEA), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO.,
INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION
AND COMMUNICATIONS and SECRETARY LEANDRO
M. MENDOZA, in his capacity as Head of the
Department of Transportation and
Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION,
DNATA-WINGS AVIATION SYSTEMS CORPORATION,
MACROASIA-EUREST SERVICES, INC., MACROASIA-
MENZIES AIRPORT SERVICES CORPORATION,
MIASCOR CATERING SERVICES CORPORATION,
MIASCOR AIRCRAFT MAINTENANCE CORPORATION,
and MIASCOR LOGISTICS CORPORATION,
petitioners-in-intervention,
x---------------------------------------------------------x
G.R. No. 155547 May 5, 2003
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and
CONSTANTINO G. JARAULA, petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO.,
INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION
AND COMMUNICATIONS, DEPARTMENT OF PUBLIC
WORKS AND HIGHWAYS, SECRETARY LEANDRO M.
MENDOZA, in his capacity as Head of the
Department of Transportation and
Communications, and SECRETARY SIMEON A.
DATUMANONG, in his capacity as Head of the
Department of Public Works and Highways,
respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO
C. ZIALCITA, WILLY BUYSON VILLARAMA,
PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR.,
HARLIN CAST ABAYON, and BENASING O.
MACARANBON, respondents-intervenors,
x---------------------------------------------------------x
G.R. No. 155661 May 5, 2003
CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B.
VALENCIA, MA. TERESA V. GAERLAN, LEONARDO DE
LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN
RONALD SCHLOBOM, ANGELITO SANTOS, MA.
LUISA M. PALCON and SAMAHANG MANGGAGAWA
SA PALIPARAN NG PILIPINAS (SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO.,
INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION
AND COMMUNICATIONS, SECRETARY LEANDRO M.
MENDOZA, in his capacity as Head of the
Department of Transportation and
Communications, respondents.
PUNO, J.:
Petitioners and petitioners-in-intervention filed the
instant petitions for prohibition under Rule 65 of the
Revised Rules of Court seeking to prohibit the Manila
International Airport Authority (MIAA) and the
Department of Transportation and Communications
(DOTC) and its Secretary from implementing the
following agreements executed by the Philippine
Government through the DOTC and the MIAA and
the Philippine International Air Terminals Co., Inc.
(PIATCO): (1) the Concession Agreement signed on
July 12, 1997, (2) the Amended and Restated
Concession Agreement dated November 26, 1999,
(3) the First Supplement to the Amended and
Restated Concession Agreement dated August 27,
1999, (4) the Second Supplement to the Amended
and Restated Concession Agreement dated
September 4, 2000, and (5) the Third Supplement to
the Amended and Restated Concession Agreement
dated June 22, 2001 (collectively, the PIATCO
Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the
services of Aeroport de Paris (ADP) to
conduct a comprehensive study of the
Ninoy Aquino International Airport (NAIA)
and determine whether the present airport
can cope with the traffic development up to
the year 2010. The study consisted of two
parts: first, traffic forecasts, capacity of
existing facilities, NAIA future requirements,
proposed master plans and development
plans; and second, presentation of the
preliminary design of the passenger
terminal building. The ADP submitted a
Draft Final Report to the DOTC in December
1989.
Some time in 1993, six business leaders
consisting of John Gokongwei, Andrew
Gotianun, Henry Sy, Sr., Lucio Tan, George
Ty and Alfonso Yuchengco met with then
President Fidel V. Ramos to explore the
possibility of investing in the construction
and operation of a new international airport
terminal. To signify their commitment to
pursue the project, they formed the Asia's
Emerging Dragon Corp. (AEDC) which was
registered with the Securities and Exchange
Commission (SEC) on September 15, 1993.
On October 5, 1994, AEDC submitted an
unsolicited proposal to the Government
through the DOTC/MIAA for the
development of NAIA International
Passenger Terminal III (NAIA IPT III) under a
build-operate-and-transfer arrangement
pursuant to RA 6957 as amended by RA
7718 (BOT Law).
1

On December 2, 1994, the DOTC issued Dept. Order
No. 94-832 constituting the Prequalification Bids and
Awards Committee (PBAC) for the implementation
of the NAIA IPT III project.
On March 27, 1995, then DOTC Secretary Jose Garcia
endorsed the proposal of AEDC to the National
Economic and Development Authority (NEDA). A
revised proposal, however, was forwarded by the
DOTC to NEDA on December 13, 1995. On January 5,
1996, the NEDA Investment Coordinating Council
(NEDA ICC) Technical Board favorably endorsed the
project to the ICC Cabinet Committee which
approved the same, subject to certain conditions, on
January 19, 1996. On February 13, 1996, the NEDA
passed Board Resolution No. 2 which approved the
NAIA IPT III project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the
publication in two daily newspapers of an invitation
for competitive or comparative proposals on AEDC's
unsolicited proposal, in accordance with Sec. 4-A of
RA 6957, as amended. The alternative bidders were
required to submit three (3) sealed envelopes on or
before 5:00 p.m. of September 20, 1996. The first
envelope should contain the Prequalification
Documents, the second envelope the Technical
Proposal, and the third envelope the Financial
Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued,
postponing the availment of the Bid Documents and
the submission of the comparative bid proposals.
Interested firms were permitted to obtain the
Request for Proposal Documents beginning June 28,
1996, upon submission of a written application and
payment of a non-refundable fee of P50,000.00
(US$2,000).
The Bid Documents issued by the PBAC provided
among others that the proponent must have
adequate capability to sustain the financing
requirement for the detailed engineering, design,
construction, operation, and maintenance phases of
the project. The proponent would be evaluated
based on its ability to provide a minimum amount of
equity to the project, and its capacity to secure
external financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin No.
2 inviting all bidders to a pre-bid conference on July
29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin
No. 3 amending the Bid Documents. The following
amendments were made on the Bid Documents:
a. Aside from the fixed Annual Guaranteed
Payment, the proponent shall include in its
financial proposal an additional percentage
of gross revenue share of the Government,
as follows:
i. First 5 years 5.0%
ii. Next 10 years 7.5%
iii. Next 10 years 10.0%
b. The amount of the fixed Annual
Guaranteed Payment shall be subject of the
price challenge. Proponent may offer an
Annual Guaranteed Payment which need
not be of equal amount, but payment of
which shall start upon site possession.
c. The project proponent must have
adequate capability to sustain the financing
requirement for the detailed engineering,
design, construction, and/or operation and
maintenance phases of the project as the
case may be. For purposes of pre-
qualification, this capability shall be
measured in terms of:
i. Proof of the availability of the
project proponent and/or the
consortium to provide the
minimum amount of equity for the
project; and
ii. a letter testimonial from
reputable banks attesting that the
project proponent and/or the
members of the consortium are
banking with them, that the
project proponent and/or the
members are of good financial
standing, and have adequate
resources.
d. The basis for the prequalification shall be
the proponent's compliance with the
minimum technical and financial
requirements provided in the Bid
Documents and the IRR of the BOT Law. The
minimum amount of equity shall be 30% of
the Project Cost.
e. Amendments to the draft Concession
Agreement shall be issued from time to
time. Said amendments shall only cover
items that would not materially affect the
preparation of the proponent's proposal.
On August 29, 1996, the Second Pre-Bid Conference
was held where certain clarifications were made.
Upon the request of prospective bidder People's Air
Cargo & Warehousing Co., Inc (Paircargo), the PBAC
warranted that based on Sec. 11.6, Rule 11 of the
Implementing Rules and Regulations of the BOT Law,
only the proposed Annual Guaranteed Payment
submitted by the challengers would be revealed to
AEDC, and that the challengers' technical and
financial proposals would remain confidential. The
PBAC also clarified that the list of revenue sources
contained in Annex 4.2a of the Bid Documents was
merely indicative and that other revenue sources
may be included by the proponent, subject to
approval by DOTC/MIAA. Furthermore, the PBAC
clarified that only those fees and charges
denominated as Public Utility Fees would be subject
to regulation, and those charges which would be
actually deemed Public Utility Fees could still be
revised, depending on the outcome of PBAC's query
on the matter with the Department of Justice.
In September 1996, the PBAC issued Bid Bulletin No.
5, entitled "Answers to the Queries of PAIRCARGO as
Per Letter Dated September 3 and 10, 1996."
Paircargo's queries and the PBAC's responses were
as follows:
1. It is difficult for Paircargo and Associates
to meet the required minimum equity
requirement as prescribed in Section 8.3.4
of the Bid Documents considering that the
capitalization of each member company is
so structured to meet the requirements and
needs of their current respective business
undertaking/activities. In order to comply
with this equity requirement, Paircargo is
requesting PBAC to just allow each member
of (sic) corporation of the Joint Venture to
just execute an agreement that embodies a
commitment to infuse the required capital
in case the project is awarded to the Joint
Venture instead of increasing each
corporation's current authorized capital
stock just for prequalification purposes.
In prequalification, the agency is interested
in one's financial capability at the time of
prequalification, not future or potential
capability.
A commitment to put up equity once
awarded the project is not enough to
establish that "present" financial capability.
However, total financial capability of all
member companies of the Consortium, to
be established by submitting the respective
companies' audited financial statements,
shall be acceptable.
2. At present, Paircargo is negotiating with
banks and other institutions for the
extension of a Performance Security to the
joint venture in the event that the
Concessions Agreement (sic) is awarded to
them. However, Paircargo is being required
to submit a copy of the draft concession as
one of the documentary requirements.
Therefore, Paircargo is requesting that
they'd (sic) be furnished copy of the
approved negotiated agreement between
the PBAC and the AEDC at the soonest
possible time.
A copy of the draft Concession Agreement
is included in the Bid Documents. Any
material changes would be made known to
prospective challengers through bid
bulletins. However, a final version will be
issued before the award of contract.
The PBAC also stated that it would require AEDC to
sign Supplement C of the Bid Documents
(Acceptance of Criteria and Waiver of Rights to
Enjoin Project) and to submit the same with the
required Bid Security.
On September 20, 1996, the consortium composed
of People's Air Cargo and Warehousing Co., Inc.
(Paircargo), Phil. Air and Grounds Services, Inc.
(PAGS) and Security Bank Corp. (Security Bank)
(collectively, Paircargo Consortium) submitted their
competitive proposal to the PBAC. On September 23,
1996, the PBAC opened the first envelope containing
the prequalification documents of the Paircargo
Consortium. On the following day, September 24,
1996, the PBAC prequalified the Paircargo
Consortium.
On September 26, 1996, AEDC informed the PBAC in
writing of its reservations as regards the Paircargo
Consortium, which include:
a. The lack of corporate approvals and
financial capability of PAIRCARGO;
b. The lack of corporate approvals and
financial capability of PAGS;
c. The prohibition imposed by RA 337, as
amended (the General Banking Act) on the
amount that Security Bank could legally
invest in the project;
d. The inclusion of Siemens as a contractor
of the PAIRCARGO Joint Venture, for
prequalification purposes; and
e. The appointment of Lufthansa as the
facility operator, in view of the Philippine
requirement in the operation of a public
utility.
The PBAC gave its reply on October 2, 1996,
informing AEDC that it had considered the issues
raised by the latter, and that based on the
documents submitted by Paircargo and the
established prequalification criteria, the PBAC had
found that the challenger, Paircargo, had
prequalified to undertake the project. The Secretary
of the DOTC approved the finding of the PBAC.
The PBAC then proceeded with the opening of the
second envelope of the Paircargo Consortium which
contained its Technical Proposal.
On October 3, 1996, AEDC reiterated its objections,
particularly with respect to Paircargo's financial
capability, in view of the restrictions imposed by
Section 21-B of the General Banking Act and Sections
1380 and 1381 of the Manual Regulations for Banks
and Other Financial Intermediaries. On October 7,
1996, AEDC again manifested its objections and
requested that it be furnished with excerpts of the
PBAC meeting and the accompanying technical
evaluation report where each of the issues they
raised were addressed.
On October 16, 1996, the PBAC opened the third
envelope submitted by AEDC and the Paircargo
Consortium containing their respective financial
proposals. Both proponents offered to build the
NAIA Passenger Terminal III for at least $350 million
at no cost to the government and to pay the
government: 5% share in gross revenues for the first
five years of operation, 7.5% share in gross revenues
for the next ten years of operation, and 10% share in
gross revenues for the last ten years of operation, in
accordance with the Bid Documents. However, in
addition to the foregoing, AEDC offered to pay the
government a total of P135 million as guaranteed
payment for 27 years while Paircargo Consortium
offered to pay the government a total of P17.75
billion for the same period.
Thus, the PBAC formally informed AEDC that it had
accepted the price proposal submitted by the
Paircargo Consortium, and gave AEDC 30 working
days or until November 28, 1996 within which to
match the said bid, otherwise, the project would be
awarded to Paircargo.
As AEDC failed to match the proposal within the 30-
day period, then DOTC Secretary Amado Lagdameo,
on December 11, 1996, issued a notice to Paircargo
Consortium regarding AEDC's failure to match the
proposal.
On February 27, 1997, Paircargo Consortium
incorporated into Philippine International Airport
Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue
preference given to PIATCO and reiterated its
objections as regards the prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the
concession agreement for the second-pass approval
of the NEDA-ICC.
On April 16, 1997, AEDC filed with the Regional Trial
Court of Pasig a Petition for Declaration of Nullity of
the Proceedings, Mandamus and Injunction against
the Secretary of the DOTC, the Chairman of the
PBAC, the voting members of the PBAC and
Pantaleon D. Alvarez, in his capacity as Chairman of
the PBAC Technical Committee.
On April 17, 1997, the NEDA-ICC conducted an ad
referendum to facilitate the approval, on a no-
objection basis, of the BOT agreement between the
DOTC and PIATCO. As the ad referendum gathered
only four (4) of the required six (6) signatures, the
NEDA merely noted the agreement.
On July 9, 1997, the DOTC issued the notice of award
for the project to PIATCO.
On July 12, 1997, the Government, through then
DOTC Secretary Arturo T. Enrile, and PIATCO,
through its President, Henry T. Go, signed the
"Concession Agreement for the Build-Operate-and-
Transfer Arrangement of the Ninoy Aquino
International Airport Passenger Terminal III" (1997
Concession Agreement). The Government granted
PIATCO the franchise to operate and maintain the
said terminal during the concession period and to
collect the fees, rentals and other charges in
accordance with the rates or schedules stipulated in
the 1997 Concession Agreement. The Agreement
provided that the concession period shall be for
twenty-five (25) years commencing from the in-
service date, and may be renewed at the option of
the Government for a period not exceeding twenty-
five (25) years. At the end of the concession period,
PIATCO shall transfer the development facility to
MIAA.
On November 26, 1998, the Government and
PIATCO signed an Amended and Restated
Concession Agreement (ARCA). Among the
provisions of the 1997 Concession Agreement that
were amended by the ARCA were: Sec. 1.11
pertaining to the definition of "certificate of
completion"; Sec. 2.05 pertaining to the Special
Obligations of GRP; Sec. 3.02 (a) dealing with the
exclusivity of the franchise given to the
Concessionaire; Sec. 4.04 concerning the assignment
by Concessionaire of its interest in the Development
Facility; Sec. 5.08 (c) dealing with the proceeds of
Concessionaire's insurance; Sec. 5.10 with respect to
the temporary take-over of operations by GRP; Sec.
5.16 pertaining to the taxes, duties and other
imposts that may be levied on the Concessionaire;
Sec. 6.03 as regards the periodic adjustment of
public utility fees and charges; the entire Article VIII
concerning the provisions on the termination of the
contract; and Sec. 10.02 providing for the venue of
the arbitration proceedings in case a dispute or
controversy arises between the parties to the
agreement.
Subsequently, the Government and PIATCO signed
three Supplements to the ARCA. The First
Supplement was signed on August 27, 1999; the
Second Supplement on September 4, 2000; and the
Third Supplement on June 22, 2001 (collectively,
Supplements).
The First Supplement to the ARCA amended Sec.
1.36 of the ARCA defining "Revenues" or "Gross
Revenues"; Sec. 2.05 (d) of the ARCA referring to the
obligation of MIAA to provide sufficient funds for the
upkeep, maintenance, repair and/or replacement of
all airport facilities and equipment which are owned
or operated by MIAA; and further providing
additional special obligations on the part of GRP
aside from those already enumerated in Sec. 2.05 of
the ARCA. The First Supplement also provided a
stipulation as regards the construction of a surface
road to connect NAIA Terminal II and Terminal III in
lieu of the proposed access tunnel crossing Runway
13/31; the swapping of obligations between GRP and
PIATCO regarding the improvement of Sales Road;
and the changes in the timetable. It also amended
Sec. 6.01 (c) of the ARCA pertaining to the
Disposition of Terminal Fees; Sec. 6.02 of the ARCA
by inserting an introductory paragraph; and Sec.
6.02 (a) (iii) of the ARCA referring to the Payments of
Percentage Share in Gross Revenues.
The Second Supplement to the ARCA contained
provisions concerning the clearing, removal,
demolition or disposal of subterranean structures
uncovered or discovered at the site of the
construction of the terminal by the Concessionaire.
It defined the scope of works; it provided for the
procedure for the demolition of the said structures
and the consideration for the same which the GRP
shall pay PIATCO; it provided for time extensions,
incremental and consequential costs and losses
consequent to the existence of such structures; and
it provided for some additional obligations on the
part of PIATCO as regards the said structures.
Finally, the Third Supplement provided for the
obligations of the Concessionaire as regards the
construction of the surface road connecting
Terminals II and III.
Meanwhile, the MIAA which is charged with the
maintenance and operation of the NAIA Terminals I
and II, had existing concession contracts with various
service providers to offer international airline airport
services, such as in-flight catering, passenger
handling, ramp and ground support, aircraft
maintenance and provisions, cargo handling and
warehousing, and other services, to several
international airlines at the NAIA. Some of these
service providers are the Miascor Group, DNATA-
Wings Aviation Systems Corp., and the MacroAsia
Group. Miascor, DNATA and MacroAsia, together
with Philippine Airlines (PAL), are the dominant
players in the industry with an aggregate market
share of 70%.
On September 17, 2002, the workers of the
international airline service providers, claiming that
they stand to lose their employment upon the
implementation of the questioned agreements, filed
before this Court a petition for prohibition to enjoin
the enforcement of said agreements.
2

On October 15, 2002, the service providers, joining
the cause of the petitioning workers, filed a motion
for intervention and a petition-in-intervention.
On October 24, 2002, Congressmen Salacnib
Baterina, Clavel Martinez and Constantino Jaraula
filed a similar petition with this Court.
3

On November 6, 2002, several employees of the
MIAA likewise filed a petition assailing the legality of
the various agreements.
4

On December 11, 2002. another group of
Congressmen, Hon. Jacinto V. Paras, Rafael P.
Nantes, Eduardo C. Zialcita, Willie B. Villarama,
Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin
Cast Abayon and Benasing O. Macaranbon, moved to
intervene in the case as Respondents-Intervenors.
They filed their Comment-In-Intervention defending
the validity of the assailed agreements and praying
for the dismissal of the petitions.
During the pendency of the case before this Court,
President Gloria Macapagal Arroyo, on November
29, 2002, in her speech at the 2002 Golden Shell
Export Awards at Malacaang Palace, stated that she
will not "honor (PIATCO) contracts which the
Executive Branch's legal offices have concluded (as)
null and void."
5

Respondent PIATCO filed its Comments to the
present petitions on November 7 and 27, 2002. The
Office of the Solicitor General and the Office of the
Government Corporate Counsel filed their respective
Comments in behalf of the public respondents.
On December 10, 2002, the Court heard the case on
oral argument. After the oral argument, the Court
then resolved in open court to require the parties to
file simultaneously their respective Memoranda in
amplification of the issues heard in the oral
arguments within 30 days and to explore the
possibility of arbitration or mediation as provided in
the challenged contracts.
In their consolidated Memorandum, the Office of
the Solicitor General and the Office of the
Government Corporate Counsel prayed that the
present petitions be given due course and that
judgment be rendered declaring the 1997
Concession Agreement, the ARCA and the
Supplements thereto void for being contrary to the
Constitution, the BOT Law and its Implementing
Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the
Court that on March 4, 2003 PIATCO commenced
arbitration proceedings before the International
Chamber of Commerce, International Court of
Arbitration (ICC) by filing a Request for Arbitration
with the Secretariat of the ICC against the
Government of the Republic of the Philippines acting
through the DOTC and MIAA.
In the present cases, the Court is again faced with
the task of resolving complicated issues made
difficult by their intersecting legal and economic
implications. The Court is aware of the far reaching
fall out effects of the ruling which it makes today.
For more than a century and whenever the
exigencies of the times demand it, this Court has
never shirked from its solemn duty to dispense
justice and resolve "actual controversies involving
rights which are legally demandable and
enforceable, and to determine whether or not there
has been grave abuse of discretion amounting to
lack or excess of jurisdiction."
6
To be sure, this Court
will not begin to do otherwise today.
We shall first dispose of the procedural issues raised
by respondent PIATCO which they allege will bar the
resolution of the instant controversy.
Petitioners' Legal Standing to File
the present Petitions
a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are
employees of various service providers
7
having
separate concession contracts with MIAA and
continuing service agreements with various
international airlines to provide in-flight catering,
passenger handling, ramp and ground support,
aircraft maintenance and provisions, cargo handling
and warehousing and other services. Also included
as petitioners are labor unions MIASCOR Workers
Union-National Labor Union and Philippine Airlines
Employees Association. These petitioners filed the
instant action for prohibition as taxpayers and as
parties whose rights and interests stand to be
violated by the implementation of the PIATCO
Contracts.
Petitioners-Intervenors in the same case are all
corporations organized and existing under Philippine
laws engaged in the business of providing in-flight
catering, passenger handling, ramp and ground
support, aircraft maintenance and provisions, cargo
handling and warehousing and other services to
several international airlines at the Ninoy Aquino
International Airport. Petitioners-Intervenors allege
that as tax-paying international airline and airport-
related service operators, each one of them stands
to be irreparably injured by the implementation of
the PIATCO Contracts. Each of the petitioners-
intervenors have separate and subsisting concession
agreements with MIAA and with various
international airlines which they allege are being
interfered with and violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees
of MIAA and Samahang Manggagawa sa Paliparan ng
Pilipinas - a legitimate labor union and accredited as
the sole and exclusive bargaining agent of all the
employees in MIAA. Petitioners anchor their petition
for prohibition on the nullity of the contracts
entered into by the Government and PIATCO
regarding the build-operate-and-transfer of the NAIA
IPT III. They filed the petition as taxpayers and
persons who have a legitimate interest to protect in
the implementation of the PIATCO Contracts.
Petitioners in both cases raise the argument that the
PIATCO Contracts contain stipulations which directly
contravene numerous provisions of the Constitution,
specific provisions of the BOT Law and its
Implementing Rules and Regulations, and public
policy. Petitioners contend that the DOTC and the
MIAA, by entering into said contracts, have
committed grave abuse of discretion amounting to
lack or excess of jurisdiction which can be remedied
only by a writ of prohibition, there being no plain,
speedy or adequate remedy in the ordinary course
of law.
In particular, petitioners assail the provisions in the
1997 Concession Agreement and the ARCA which
grant PIATCO the exclusive right to operate a
commercial international passenger terminal within
the Island of Luzon, except those international
airports already existing at the time of the execution
of the agreement. The contracts further provide that
upon the commencement of operations at the NAIA
IPT III, the Government shall cause the closure of
Ninoy Aquino International Airport Passenger
Terminals I and II as international passenger
terminals. With respect to existing concession
agreements between MIAA and international airport
service providers regarding certain services or
operations, the 1997 Concession Agreement and the
ARCA uniformly provide that such services or
operations will not be carried over to the NAIA IPT III
and PIATCO is under no obligation to permit such
carry over except through a separate agreement
duly entered into with PIATCO.
8

With respect to the petitioning service providers and
their employees, upon the commencement of
operations of the NAIA IPT III, they allege that they
will be effectively barred from providing
international airline airport services at the NAIA
Terminals I and II as all international airlines and
passengers will be diverted to the NAIA IPT III. The
petitioning service providers will thus be compelled
to contract with PIATCO alone for such services, with
no assurance that subsisting contracts with MIAA
and other international airlines will be respected.
Petitioning service providers stress that despite the
very competitive market, the substantial capital
investments required and the high rate of fees, they
entered into their respective contracts with the
MIAA with the understanding that the said contracts
will be in force for the stipulated period, and
thereafter, renewed so as to allow each of the
petitioning service providers to recoup their
investments and obtain a reasonable return thereon.
Petitioning employees of various service providers at
the NAIA Terminals I and II and of MIAA on the other
hand allege that with the closure of the NAIA
Terminals I and II as international passenger
terminals under the PIATCO Contracts, they stand to
lose employment.
The question on legal standing is whether such
parties have "alleged such a personal stake in the
outcome of the controversy as to assure that
concrete adverseness which sharpens the
presentation of issues upon which the court so
largely depends for illumination of difficult
constitutional questions."
9
Accordingly, it has been
held that the interest of a person assailing the
constitutionality of a statute must be direct and
personal. He must be able to show, not only that the
law or any government act is invalid, but also that he
sustained or is in imminent danger of sustaining
some direct injury as a result of its enforcement, and
not merely that he suffers thereby in some indefinite
way. It must appear that the person complaining has
been or is about to be denied some right or privilege
to which he is lawfully entitled or that he is about to
be subjected to some burdens or penalties by reason
of the statute or act complained of.
10

We hold that petitioners have the requisite standing.
In the above-mentioned cases, petitioners have a
direct and substantial interest to protect by reason
of the implementation of the PIATCO Contracts.
They stand to lose their source of livelihood, a
property right which is zealously protected by the
Constitution. Moreover, subsisting concession
agreements between MIAA and petitioners-
intervenors and service contracts between
international airlines and petitioners-intervenors
stand to be nullified or terminated by the operation
of the NAIA IPT III under the PIATCO Contracts. The
financial prejudice brought about by the PIATCO
Contracts on petitioners and petitioners-intervenors
in these cases are legitimate interests sufficient to
confer on them the requisite standing to file the
instant petitions.
b. G.R. No. 155547
In G.R. No. 155547, petitioners filed the petition for
prohibition as members of the House of
Representatives, citizens and taxpayers. They allege
that as members of the House of Representatives,
they are especially interested in the PIATCO
Contracts, because the contracts compel the
Government and/or the House of Representatives to
appropriate funds necessary to comply with the
provisions therein.
11
They cite provisions of the
PIATCO Contracts which require disbursement of
unappropriated amounts in compliance with the
contractual obligations of the Government. They
allege that the Government obligations in the
PIATCO Contracts which compel government
expenditure without appropriation is a curtailment
of their prerogatives as legislators, contrary to the
mandate of the Constitution that "[n]o money shall
be paid out of the treasury except in pursuance of an
appropriation made by law."
12

Standing is a peculiar concept in constitutional law
because in some cases, suits are not brought by
parties who have been personally injured by the
operation of a law or any other government act but
by concerned citizens, taxpayers or voters who
actually sue in the public interest. Although we are
not unmindful of the cases of Imus Electric Co. v.
Municipality of Imus
13
and Gonzales v. Raquiza
14

wherein this Court held that appropriation must be
made only on amounts immediately demandable,
public interest demands that we take a more liberal
view in determining whether the petitioners suing
as legislators, taxpayers and citizens have locus
standi to file the instant petition. In Kilosbayan, Inc.
v. Guingona,
15
this Court held "[i]n line with the
liberal policy of this Court on locus standi, ordinary
taxpayers, members of Congress, and even
association of planters, and non-profit civic
organizations were allowed to initiate and prosecute
actions before this Court to question the
constitutionality or validity of laws, acts, decisions,
rulings, or orders of various government agencies or
instrumentalities."
16
Further, "insofar as taxpayers'
suits are concerned . . . (this Court) is not devoid of
discretion as to whether or not it should be
entertained."
17
As such ". . . even if, strictly speaking,
they [the petitioners] are not covered by the
definition, it is still within the wide discretion of the
Court to waive the requirement and so remove the
impediment to its addressing and resolving the
serious constitutional questions raised."
18
In view of
the serious legal questions involved and their impact
on public interest, we resolve to grant standing to
the petitioners.
Other Procedural Matters
Respondent PIATCO further alleges that this Court is
without jurisdiction to review the instant cases as
factual issues are involved which this Court is ill-
equipped to resolve. Moreover, PIATCO alleges that
submission of this controversy to this Court at the
first instance is a violation of the rule on hierarchy of
courts. They contend that trial courts have
concurrent jurisdiction with this Court with respect
to a special civil action for prohibition and hence,
following the rule on hierarchy of courts, resort must
first be had before the trial courts.
After a thorough study and careful evaluation of the
issues involved, this Court is of the view that the crux
of the instant controversy involves significant legal
questions. The facts necessary to resolve these legal
questions are well established and, hence, need not
be determined by a trial court.
The rule on hierarchy of courts will not also prevent
this Court from assuming jurisdiction over the cases
at bar. The said rule may be relaxed when the
redress desired cannot be obtained in the
appropriate courts or where exceptional and
compelling circumstances justify availment of a
remedy within and calling for the exercise of this
Court's primary jurisdiction.
19

It is easy to discern that exceptional circumstances
exist in the cases at bar that call for the relaxation of
the rule. Both petitioners and respondents agree
that these cases are of transcendental importance
as they involve the construction and operation of the
country's premier international airport. Moreover,
the crucial issues submitted for resolution are of first
impression and they entail the proper legal
interpretation of key provisions of the Constitution,
the BOT Law and its Implementing Rules and
Regulations. Thus, considering the nature of the
controversy before the Court, procedural bars may
be lowered to give way for the speedy disposition of
the instant cases.
Legal Effect of the Commencement
of Arbitration Proceedings by
PIATCO
There is one more procedural obstacle which must
be overcome. The Court is aware that arbitration
proceedings pursuant to Section 10.02 of the ARCA
have been filed at the instance of respondent
PIATCO. Again, we hold that the arbitration step
taken by PIATCO will not oust this Court of its
jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of Appeals,
20

even after finding that the arbitration clause in the
Distributorship Agreement in question is valid and
the dispute between the parties is arbitrable, this
Court affirmed the trial court's decision denying
petitioner's Motion to Suspend Proceedings
pursuant to the arbitration clause under the
contract. In so ruling, this Court held that as
contracts produce legal effect between the parties,
their assigns and heirs, only the parties to the
Distributorship Agreement are bound by its terms,
including the arbitration clause stipulated therein.
This Court ruled that arbitration proceedings could
be called for but only with respect to the parties to
the contract in question. Considering that there are
parties to the case who are neither parties to the
Distributorship Agreement nor heirs or assigns of the
parties thereto, this Court, citing its previous ruling
in Salas, Jr. v. Laperal Realty Corporation,
21
held that
to tolerate the splitting of proceedings by allowing
arbitration as to some of the parties on the one hand
and trial for the others on the other hand would, in
effect, result in multiplicity of suits, duplicitous
procedure and unnecessary delay.
22
Thus, we ruled
that the interest of justice would best be served if
the trial court hears and adjudicates the case in a
single and complete proceeding.
It is established that petitioners in the present cases
who have presented legitimate interests in the
resolution of the controversy are not parties to the
PIATCO Contracts. Accordingly, they cannot be
bound by the arbitration clause provided for in the
ARCA and hence, cannot be compelled to submit to
arbitration proceedings. A speedy and decisive
resolution of all the critical issues in the present
controversy, including those raised by petitioners,
cannot be made before an arbitral tribunal. The
object of arbitration is precisely to allow an
expeditious determination of a dispute. This
objective would not be met if this Court were to
allow the parties to settle the cases by arbitration as
there are certain issues involving non-parties to the
PIATCO Contracts which the arbitral tribunal will not
be equipped to resolve.
Now, to the merits of the instant controversy.
I
Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo
Consortium, PIATCO's predecessor, was not a duly
pre-qualified bidder on the unsolicited proposal
submitted by AEDC as the Paircargo Consortium
failed to meet the financial capability required under
the BOT Law and the Bid Documents. They allege
that in computing the ability of the Paircargo
Consortium to meet the minimum equity
requirements for the project, the entire net worth
of Security Bank, a member of the consortium,
should not be considered.
PIATCO relies, on the other hand, on the strength of
the Memorandum dated October 14, 1996 issued by
the DOTC Undersecretary Primitivo C. Cal stating
that the Paircargo Consortium is found to have a
combined net worth of P3,900,000,000.00, sufficient
to meet the equity requirements of the project. The
said Memorandum was in response to a letter from
Mr. Antonio Henson of AEDC to President Fidel V.
Ramos questioning the financial capability of the
Paircargo Consortium on the ground that it does not
have the financial resources to put up the required
minimum equity of P2,700,000,000.00. This
contention is based on the restriction under R.A. No.
337, as amended or the General Banking Act that a
commercial bank cannot invest in any single
enterprise in an amount more than 15% of its net
worth. In the said Memorandum, Undersecretary Cal
opined:
The Bid Documents, as clarified through Bid
Bulletin Nos. 3 and 5, require that financial
capability will be evaluated based on total
financial capability of all the member
companies of the [Paircargo] Consortium. In
this connection, the Challenger was found
to have a combined net worth of
P3,926,421,242.00 that could support a
project costing approximately P13 Billion.
It is not a requirement that the net worth
must be "unrestricted." To impose that as a
requirement now will be nothing less than
unfair.
The financial statement or the net worth is
not the sole basis in establishing financial
capability. As stated in Bid Bulletin No. 3,
financial capability may also be established
by testimonial letters issued by reputable
banks. The Challenger has complied with
this requirement.
To recap, net worth reflected in the
Financial Statement should not be taken as
the amount of the money to be used to
answer the required thirty percent (30%)
equity of the challenger but rather to be
used in establishing if there is enough basis
to believe that the challenger can comply
with the required 30% equity. In fact, proof
of sufficient equity is required as one of the
conditions for award of contract (Section
12.1 IRR of the BOT Law) but not for pre-
qualification (Section 5.4 of the same
document).
23

Under the BOT Law, in case of a build-
operate-and-transfer arrangement, the
contract shall be awarded to the bidder
"who, having satisfied the minimum
financial, technical, organizational and
legal standards" required by the law, has
submitted the lowest bid and most
favorable terms of the project.
24
Further,
the 1994 Implementing Rules and
Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
xxx xxx xxx
c. Financial Capability: The project
proponent must have adequate capability
to sustain the financing requirements for
the detailed engineering design,
construction and/or operation and
maintenance phases of the project, as the
case may be. For purposes of pre-
qualification, this capability shall be
measured in terms of (i) proof of the ability
of the project proponent and/or the
consortium to provide a minimum amount
of equity to the project, and (ii) a letter
testimonial from reputable banks attesting
that the project proponent and/or
members of the consortium are banking
with them, that they are in good financial
standing, and that they have adequate
resources. The government agency/LGU
concerned shall determine on a project-to-
project basis and before pre-qualification,
the minimum amount of equity needed.
(emphasis supplied)
Pursuant to this provision, the PBAC issued PBAC
Bulletin No. 3 dated August 16, 1996 amending the
financial capability requirements for pre-
qualification of the project proponent as follows:
6. Basis of Pre-qualification
The basis for the pre-qualification shall be
on the compliance of the proponent to the
minimum technical and financial
requirements provided in the Bid
Documents and in the IRR of the BOT Law,
R.A. No. 6957, as amended by R.A. 7718.
The minimum amount of equity to which
the proponent's financial capability will be
based shall be thirty percent (30%) of the
project cost instead of the twenty percent
(20%) specified in Section 3.6.4 of the Bid
Documents. This is to correlate with the
required debt-to-equity ratio of 70:30 in
Section 2.01a of the draft concession
agreement. The debt portion of the project
financing should not exceed 70% of the
actual project cost.
Accordingly, based on the above provisions of law,
the Paircargo Consortium or any challenger to the
unsolicited proposal of AEDC has to show that it
possesses the requisite financial capability to
undertake the project in the minimum amount of
30% of the project cost through (i) proof of the
ability to provide a minimum amount of equity to
the project, and (ii) a letter testimonial from
reputable banks attesting that the project proponent
or members of the consortium are banking with
them, that they are in good financial standing, and
that they have adequate resources.
As the minimum project cost was estimated to be
US$350,000,000.00 or roughly P9,183,650,000.00,
25

the Paircargo Consortium had to show to the
satisfaction of the PBAC that it had the ability to
provide the minimum equity for the project in the
amount of at least P2,755,095,000.00.
Paircargo's Audited Financial Statements as of 1993
and 1994 indicated that it had a net worth of
P2,783,592.00 and P3,123,515.00 respectively.
26

PAGS' Audited Financial Statements as of 1995
indicate that it has approximately P26,735,700.00 to
invest as its equity for the project.
27
Security Bank's
Audited Financial Statements as of 1995 show that it
has a net worth equivalent to its capital funds in the
amount of P3,523,504,377.00.
28

We agree with public respondents that with respect
to Security Bank, the entire amount of its net worth
could not be invested in a single undertaking or
enterprise, whether allied or non-allied in
accordance with the provisions of R.A. No. 337, as
amended or the General Banking Act:
Sec. 21-B. The provisions in this or in any
other Act to the contrary notwithstanding,
the Monetary Board, whenever it shall
deem appropriate and necessary to further
national development objectives or support
national priority projects, may authorize a
commercial bank, a bank authorized to
provide commercial banking services, as
well as a government-owned and
controlled bank, to operate under an
expanded commercial banking authority
and by virtue thereof exercise, in addition
to powers authorized for commercial
banks, the powers of an Investment House
as provided in Presidential Decree No. 129,
invest in the equity of a non-allied
undertaking, or own a majority or all of the
equity in a financial intermediary other than
a commercial bank or a bank authorized to
provide commercial banking services:
Provided, That (a) the total investment in
equities shall not exceed fifty percent (50%)
of the net worth of the bank; (b) the equity
investment in any one enterprise whether
allied or non-allied shall not exceed fifteen
percent (15%) of the net worth of the
bank; (c) the equity investment of the bank,
or of its wholly or majority-owned
subsidiary, in a single non-allied
undertaking shall not exceed thirty-five
percent (35%) of the total equity in the
enterprise nor shall it exceed thirty-five
percent (35%) of the voting stock in that
enterprise; and (d) the equity investment in
other banks shall be deducted from the
investing bank's net worth for purposes of
computing the prescribed ratio of net worth
to risk assets.
xxx xxx xxx
Further, the 1993 Manual of Regulations for Banks
provides:
SECTION X383. Other Limitations and
Restrictions. The following limitations
and restrictions shall also apply regarding
equity investments of banks.
a. In any single enterprise. The equity
investments of banks in any single
enterprise shall not exceed at any time
fifteen percent (15%) of the net worth of
the investing bank as defined in Sec. X106
and Subsec. X121.5.
Thus, the maximum amount that Security Bank could
validly invest in the Paircargo Consortium is only
P528,525,656.55, representing 15% of its entire net
worth. The total net worth therefore of the
Paircargo Consortium, after considering the
maximum amounts that may be validly invested by
each of its members is P558,384,871.55 or only
6.08% of the project cost,
29
an amount substantially
less than the prescribed minimum equity investment
required for the project in the amount of
P2,755,095,000.00 or 30% of the project cost.
The purpose of pre-qualification in any public
bidding is to determine, at the earliest opportunity,
the ability of the bidder to undertake the project.
Thus, with respect to the bidder's financial capacity
at the pre-qualification stage, the law requires the
government agency to examine and determine the
ability of the bidder to fund the entire cost of the
project by considering the maximum amounts that
each bidder may invest in the project at the time of
pre-qualification.
The PBAC has determined that any prospective
bidder for the construction, operation and
maintenance of the NAIA IPT III project should prove
that it has the ability to provide equity in the
minimum amount of 30% of the project cost, in
accordance with the 70:30 debt-to-equity ratio
prescribed in the Bid Documents. Thus, in the case of
Paircargo Consortium, the PBAC should determine
the maximum amounts that each member of the
consortium may commit for the construction,
operation and maintenance of the NAIA IPT III
project at the time of pre-qualification. With
respect to Security Bank, the maximum amount
which may be invested by it would only be 15% of its
net worth in view of the restrictions imposed by the
General Banking Act. Disregarding the investment
ceilings provided by applicable law would not result
in a proper evaluation of whether or not a bidder is
pre-qualified to undertake the project as for all
intents and purposes, such ceiling or legal restriction
determines the true maximum amount which a
bidder may invest in the project.
Further, the determination of whether or not a
bidder is pre-qualified to undertake the project
requires an evaluation of the financial capacity of
the said bidder at the time the bid is submitted
based on the required documents presented by the
bidder. The PBAC should not be allowed to speculate
on the future financial ability of the bidder to
undertake the project on the basis of documents
submitted. This would open doors to abuse and
defeat the very purpose of a public bidding. This is
especially true in the case at bar which involves the
investment of billions of pesos by the project
proponent. The relevant government authority is
duty-bound to ensure that the awardee of the
contract possesses the minimum required financial
capability to complete the project. To allow the
PBAC to estimate the bidder's future financial
capability would not secure the viability and integrity
of the project. A restrictive and conservative
application of the rules and procedures of public
bidding is necessary not only to protect the
impartiality and regularity of the proceedings but
also to ensure the financial and technical reliability
of the project. It has been held that:
The basic rule in public bidding is that bids
should be evaluated based on the required
documents submitted before and not after
the opening of bids. Otherwise, the
foundation of a fair and competitive public
bidding would be defeated. Strict
observance of the rules, regulations, and
guidelines of the bidding process is the
only safeguard to a fair, honest and
competitive public bidding.
30

Thus, if the maximum amount of equity that a
bidder may invest in the project at the time the bids
are submitted falls short of the minimum amounts
required to be put up by the bidder, said bidder
should be properly disqualified. Considering that at
the pre-qualification stage, the maximum amounts
which the Paircargo Consortium may invest in the
project fell short of the minimum amounts
prescribed by the PBAC, we hold that Paircargo
Consortium was not a qualified bidder. Thus the
award of the contract by the PBAC to the Paircargo
Consortium, a disqualified bidder, is null and void.
While it would be proper at this juncture to end the
resolution of the instant controversy, as the legal
effects of the disqualification of respondent
PIATCO's predecessor would come into play and
necessarily result in the nullity of all the subsequent
contracts entered by it in pursuance of the project,
the Court feels that it is necessary to discuss in full
the pressing issues of the present controversy for a
complete resolution thereof.
II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the
1997 Concession Agreement is invalid as it contains
provisions that substantially depart from the draft
Concession Agreement included in the Bid
Documents. They maintain that a substantial
departure from the draft Concession Agreement is a
violation of public policy and renders the 1997
Concession Agreement null and void.
PIATCO maintains, however, that the Concession
Agreement attached to the Bid Documents is
intended to be a draft, i.e., subject to change,
alteration or modification, and that this intention
was clear to all participants, including AEDC, and
DOTC/MIAA. It argued further that said intention is
expressed in Part C (6) of Bid Bulletin No. 3 issued by
the PBAC which states:
6. Amendments to the Draft Concessions
Agreement
Amendments to the Draft Concessions
Agreement shall be issued from time to
time. Said amendments shall only cover
items that would not materially affect the
preparation of the proponent's proposal.
By its very nature, public bidding aims to protect the
public interest by giving the public the best possible
advantages through open competition. Thus:
Competition must be legitimate, fair and
honest. In the field of government contract
law, competition requires, not only `bidding
upon a common standard, a common basis,
upon the same thing, the same subject
matter, the same undertaking,' but also
that it be legitimate, fair and honest; and
not designed to injure or defraud the
government.
31

An essential element of a publicly bidded contract is
that all bidders must be on equal footing. Not simply
in terms of application of the procedural rules and
regulations imposed by the relevant government
agency, but more importantly, on the contract
bidded upon. Each bidder must be able to bid on the
same thing. The rationale is obvious. If the winning
bidder is allowed to later include or modify certain
provisions in the contract awarded such that the
contract is altered in any material respect, then the
essence of fair competition in the public bidding is
destroyed. A public bidding would indeed be a farce
if after the contract is awarded, the winning bidder
may modify the contract and include provisions
which are favorable to it that were not previously
made available to the other bidders. Thus:
It is inherent in public biddings that there
shall be a fair competition among the
bidders. The specifications in such biddings
provide the common ground or basis for
the bidders. The specifications should,
accordingly, operate equally or
indiscriminately upon all bidders.
32

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

In fact, in the PBAC Bid Bulletin No. 3 cited by
PIATCO to support its argument that the draft
concession agreement is subject to amendment, the
pertinent portion of which was quoted above, the
PBAC also clarified that "[s]aid amendments shall
only cover items that would not materially affect
the preparation of the proponent's proposal."
While we concede that a winning bidder is not
precluded from modifying or amending certain
provisions of the contract bidded upon, such
changes must not constitute substantial or material
amendments that would alter the basic parameters
of the contract and would constitute a denial to the
other bidders of the opportunity to bid on the same
terms. Hence, the determination of whether or not a
modification or amendment of a contract bidded out
constitutes a substantial amendment rests on
whether the contract, when taken as a whole, would
contain substantially different terms and conditions
that would have the effect of altering the technical
and/or financial proposals previously submitted by
other bidders. The alterations and modifications in
the contract executed between the government and
the winning bidder must be such as to render such
executed contract to be an entirely different
contract from the one that was bidded upon.
In the case of Caltex (Philippines), Inc. v. Delgado
Brothers, Inc.,
34
this Court quoted with approval the
ruling of the trial court that an amendment to a
contract awarded through public bidding, when such
subsequent amendment was made without a new
public bidding, is null and void:
The Court agrees with the contention of
counsel for the plaintiffs that the due
execution of a contract after public bidding
is a limitation upon the right of the
contracting parties to alter or amend it
without another public bidding, for
otherwise what would a public bidding be
good for if after the execution of a contract
after public bidding, the contracting
parties may alter or amend the contract, or
even cancel it, at their will? Public biddings
are held for the protection of the public,
and to give the public the best possible
advantages by means of open competition
between the bidders. He who bids or offers
the best terms is awarded the contract
subject of the bid, and it is obvious that
such protection and best possible
advantages to the public will disappear if
the parties to a contract executed after
public bidding may alter or amend it
without another previous public bidding.
35

Hence, the question that comes to fore is this: is the
1997 Concession Agreement the same agreement
that was offered for public bidding, i.e., the draft
Concession Agreement attached to the Bid
Documents? A close comparison of the draft
Concession Agreement attached to the Bid
Documents and the 1997 Concession Agreement
reveals that the documents differ in at least two
material respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be imposed and collected by
PIATCO under the draft Concession Agreement and
the 1997 Concession Agreement may be classified
into three distinct categories: (1) fees which are
subject to periodic adjustment of once every two
years in accordance with a prescribed parametric
formula and adjustments are made effective only
upon written approval by MIAA; (2) fees other than
those included in the first category which maybe
adjusted by PIATCO whenever it deems necessary
without need for consent of DOTC/MIAA; and (3)
new fees and charges that may be imposed by
PIATCO which have not been previously imposed or
collected at the Ninoy Aquino International Airport
Passenger Terminal I, pursuant to Administrative
Order No. 1, Series of 1993, as amended. The glaring
distinctions between the draft Concession
Agreement and the 1997 Concession Agreement lie
in the types of fees included in each category and
the extent of the supervision and regulation which
MIAA is allowed to exercise in relation thereto.
For fees under the first category, i.e., those which
are subject to periodic adjustment in accordance
with a prescribed parametric formula and effective
only upon written approval by MIAA, the draft
Concession Agreement includes the following:
36

(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.
Under the 1997 Concession Agreement, fees which
are subject to adjustment and effective upon MIAA
approval are classified as "Public Utility Revenues"
and include:
37

(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
The implication of the reduced number of fees that
are subject to MIAA approval is best appreciated in
relation to fees included in the second category
identified above. Under the 1997 Concession
Agreement, fees which PIATCO may adjust
whenever it deems necessary without need for
consent of DOTC/MIAA are "Non-Public Utility
Revenues" and is defined as "all other income not
classified as Public Utility Revenues derived from
operations of the Terminal and the Terminal
Complex."
38
Thus, under the 1997 Concession
Agreement, ground handling fees, rentals from
airline offices and porterage fees are no longer
subject to MIAA regulation.
Further, under Section 6.03 of the draft Concession
Agreement, MIAA reserves the right to regulate (1)
lobby and vehicular parking fees and (2) other new
fees and charges that may be imposed by PIATCO.
Such regulation may be made by periodic
adjustment and is effective only upon written
approval of MIAA. The full text of said provision is
quoted below:
Section 6.03. Periodic Adjustment in Fees
and Charges. Adjustments in the aircraft
parking fees, aircraft tacking fees,
groundhandling fees, rentals and airline
offices, check-in-counter rentals and
porterage fees shall be allowed only once
every two years and in accordance with the
Parametric Formula attached hereto as
Annex F. Provided that adjustments shall be
made effective only after the written
express approval of the MIAA. Provided,
further, that such approval of the MIAA,
shall be contingent only on the conformity
of the adjustments with the above said
parametric formula. The first adjustment
shall be made prior to the In-Service Date of
the Terminal.
The MIAA reserves the right to regulate
under the foregoing terms and conditions
the lobby and vehicular parking fees and
other new fees and charges as
contemplated in paragraph 2 of Section
6.01 if in its judgment the users of the
airport shall be deprived of a free option
for the services they cover.
39

On the other hand, the equivalent provision under
the 1997 Concession Agreement reads:
Section 6.03 Periodic Adjustment in Fees
and Charges.
xxx xxx xxx
(c) Concessionaire shall at all times be
judicious in fixing fees and charges
constituting Non-Public Utility Revenues in
order to ensure that End Users are not
unreasonably deprived of services. While
the vehicular parking fee, porterage fee
and greeter/well wisher fee constitute
Non-Public Utility Revenues of
Concessionaire, GRP may intervene and
require Concessionaire to explain and
justify the fee it may set from time to time,
if in the reasonable opinion of GRP the said
fees have become exorbitant resulting in
the unreasonable deprivation of End Users
of such services.
40

Thus, under the 1997 Concession Agreement, with
respect to (1) vehicular parking fee, (2) porterage fee
and (3) greeter/well wisher fee, all that MIAA can do
is to require PIATCO to explain and justify the fees
set by PIATCO. In the draft Concession Agreement,
vehicular parking fee is subject to MIAA regulation
and approval under the second paragraph of Section
6.03 thereof while porterage fee is covered by the
first paragraph of the same provision. There is an
obvious relaxation of the extent of control and
regulation by MIAA with respect to the particular
fees that may be charged by PIATCO.
Moreover, with respect to the third category of fees
that may be imposed and collected by PIATCO, i.e.,
new fees and charges that may be imposed by
PIATCO which have not been previously imposed or
collected at the Ninoy Aquino International Airport
Passenger Terminal I, under Section 6.03 of the draft
Concession Agreement MIAA has reserved the right
to regulate the same under the same conditions that
MIAA may regulate fees under the first category, i.e.,
periodic adjustment of once every two years in
accordance with a prescribed parametric formula
and effective only upon written approval by MIAA.
However, under the 1997 Concession Agreement,
adjustment of fees under the third category is not
subject to MIAA regulation.
With respect to terminal fees that may be charged
by PIATCO,
41
as shown earlier, this was included
within the category of "Public Utility Revenues"
under the 1997 Concession Agreement. This
classification is significant because under the 1997
Concession Agreement, "Public Utility Revenues"
are subject to an "Interim Adjustment" of fees upon
the occurrence of certain extraordinary events
specified in the agreement.
42
However, under the
draft Concession Agreement, terminal fees are not
included in the types of fees that may be subject to
"Interim Adjustment."
43

Finally, under the 1997 Concession Agreement,
"Public Utility Revenues," except terminal fees, are
denominated in US Dollars
44
while payments to the
Government are in Philippine Pesos. In the draft
Concession Agreement, no such stipulation was
included. By stipulating that "Public Utility
Revenues" will be paid to PIATCO in US Dollars while
payments by PIATCO to the Government are in
Philippine currency under the 1997 Concession
Agreement, PIATCO is able to enjoy the benefits of
depreciations of the Philippine Peso, while being
effectively insulated from the detrimental effects of
exchange rate fluctuations.
When taken as a whole, the changes under the 1997
Concession Agreement with respect to reduction in
the types of fees that are subject to MIAA regulation
and the relaxation of such regulation with respect to
other fees are significant amendments that
substantially distinguish the draft Concession
Agreement from the 1997 Concession Agreement.
The 1997 Concession Agreement, in this respect,
clearly gives PIATCO more favorable terms than
what was available to other bidders at the time the
contract was bidded out. It is not very difficult to
see that the changes in the 1997 Concession
Agreement translate to direct and concrete financial
advantages for PIATCO which were not available at
the time the contract was offered for bidding. It
cannot be denied that under the 1997 Concession
Agreement only "Public Utility Revenues" are subject
to MIAA regulation. Adjustments of all other fees
imposed and collected by PIATCO are entirely within
its control. Moreover, with respect to terminal fees,
under the 1997 Concession Agreement, the same is
further subject to "Interim Adjustments" not
previously stipulated in the draft Concession
Agreement. Finally, the change in the currency
stipulated for "Public Utility Revenues" under the
1997 Concession Agreement, except terminal fees,
gives PIATCO an added benefit which was not
available at the time of bidding.
b. Assumption by the
Government of the liabilities of
PIATCO in the event of the latter's
default thereof
Under the draft Concession Agreement, default by
PIATCO of any of its obligations to creditors who
have provided, loaned or advanced funds for the
NAIA IPT III project does not result in the assumption
by the Government of these liabilities. In fact,
nowhere in the said contract does default of
PIATCO's loans figure in the agreement. Such default
does not directly result in any concomitant right or
obligation in favor of the Government.
However, the 1997 Concession Agreement provides:
Section 4.04 Assignment.
xxx xxx xxx
(b) In the event Concessionaire should
default in the payment of an Attendant
Liability, and the default has resulted in the
acceleration of the payment due date of the
Attendant Liability prior to its stated date of
maturity, the Unpaid Creditors and
Concessionaire shall immediately inform
GRP in writing of such default. GRP shall,
within one hundred eighty (180) Days from
receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either
(i) take over the Development Facility and
assume the Attendant Liabilities, or (ii)
allow the Unpaid Creditors, if qualified, to
be substituted as concessionaire and
operator of the Development Facility in
accordance with the terms and conditions
hereof, or designate a qualified operator
acceptable to GRP to operate the
Development Facility, likewise under the
terms and conditions of this Agreement;
Provided that if at the end of the 180-day
period GRP shall not have served the
Unpaid Creditors and Concessionaire
written notice of its choice, GRP shall be
deemed to have elected to take over the
Development Facility with the concomitant
assumption of Attendant Liabilities.
(c) If GRP should, by written notice, allow
the Unpaid Creditors to be substituted as
concessionaire, the latter shall form and
organize a concession company qualified to
take over the operation of the Development
Facility. If the concession company should
elect to designate an operator for the
Development Facility, the concession
company shall in good faith identify and
designate a qualified operator acceptable to
GRP within one hundred eighty (180) days
from receipt of GRP's written notice. If the
concession company, acting in good faith
and with due diligence, is unable to
designate a qualified operator within the
aforesaid period, then GRP shall at the end
of the 180-day period take over the
Development Facility and assume Attendant
Liabilities.
The term "Attendant Liabilities" under the 1997
Concession Agreement is defined as:
Attendant Liabilities refer to all amounts
recorded and from time to time
outstanding in the books of the
Concessionaire as owing to Unpaid
Creditors who have provided, loaned or
advanced funds actually used for the
Project, including all interests, penalties,
associated fees, charges, surcharges,
indemnities, reimbursements and other
related expenses, and further including
amounts owed by Concessionaire to its
suppliers, contractors and sub-contractors.
Under the above quoted portions of Section 4.04 in
relation to the definition of "Attendant Liabilities,"
default by PIATCO of its loans used to finance the
NAIA IPT III project triggers the occurrence of
certain events that leads to the assumption by the
Government of the liability for the loans. Only in
one instance may the Government escape the
assumption of PIATCO's liabilities, i.e., when the
Government so elects and allows a qualified
operator to take over as Concessionaire. However,
this circumstance is dependent on the existence
and availability of a qualified operator who is
willing to take over the rights and obligations of
PIATCO under the contract, a circumstance that is
not entirely within the control of the Government.
Without going into the validity of this provision at
this juncture, suffice it to state that Section 4.04 of
the 1997 Concession Agreement may be considered
a form of security for the loans PIATCO has obtained
to finance the project, an option that was not made
available in the draft Concession Agreement. Section
4.04 is an important amendment to the 1997
Concession Agreement because it grants PIATCO a
financial advantage or benefit which was not
previously made available during the bidding
process. This financial advantage is a significant
modification that translates to better terms and
conditions for PIATCO.
PIATCO, however, argues that the parties to the
bidding procedure acknowledge that the draft
Concession Agreement is subject to amendment
because the Bid Documents permit financing or
borrowing. They claim that it was the lenders who
proposed the amendments to the draft Concession
Agreement which resulted in the 1997 Concession
Agreement.
We agree that it is not inconsistent with the
rationale and purpose of the BOT Law to allow the
project proponent or the winning bidder to obtain
financing for the project, especially in this case
which involves the construction, operation and
maintenance of the NAIA IPT III. Expectedly,
compliance by the project proponent of its
undertakings therein would involve a substantial
amount of investment. It is therefore inevitable for
the awardee of the contract to seek alternate
sources of funds to support the project. Be that as it
may, this Court maintains that amendments to the
contract bidded upon should always conform to the
general policy on public bidding if such procedure is
to be faithful to its real nature and purpose. By its
very nature and characteristic, competitive public
bidding aims to protect the public interest by giving
the public the best possible advantages through
open competition.
45
It has been held that the three
principles in public bidding are (1) the offer to the
public; (2) opportunity for competition; and (3) a
basis for the exact comparison of bids. A regulation
of the matter which excludes any of these factors
destroys the distinctive character of the system and
thwarts the purpose of its adoption.
46
These are the
basic parameters which every awardee of a contract
bidded out must conform to, requirements of
financing and borrowing notwithstanding. Thus,
upon a concrete showing that, as in this case, the
contract signed by the government and the contract-
awardee is an entirely different contract from the
contract bidded, courts should not hesitate to strike
down said contract in its entirety for violation of
public policy on public bidding. A strict adherence on
the principles, rules and regulations on public
bidding must be sustained if only to preserve the
integrity and the faith of the general public on the
procedure.
Public bidding is a standard practice for procuring
government contracts for public service and for
furnishing supplies and other materials. It aims to
secure for the government the lowest possible price
under the most favorable terms and conditions, to
curtail favoritism in the award of government
contracts and avoid suspicion of anomalies and it
places all bidders in equal footing.
47
Any
government action which permits any substantial
variance between the conditions under which the
bids are invited and the contract executed after the
award thereof is a grave abuse of discretion
amounting to lack or excess of jurisdiction which
warrants proper judicial action.
In view of the above discussion, the fact that the
foregoing substantial amendments were made on
the 1997 Concession Agreement renders the same
null and void for being contrary to public policy.
These amendments convert the 1997 Concession
Agreement to an entirely different agreement from
the contract bidded out or the draft Concession
Agreement. It is not difficult to see that the
amendments on (1) the types of fees or charges that
are subject to MIAA regulation or control and the
extent thereof and (2) the assumption by the
Government, under certain conditions, of the
liabilities of PIATCO directly translates concrete
financial advantages to PIATCO that were
previously not available during the bidding process.
These amendments cannot be taken as merely
supplements to or implementing provisions of those
already existing in the draft Concession Agreement.
The amendments discussed above present new
terms and conditions which provide financial benefit
to PIATCO which may have altered the technical and
financial parameters of other bidders had they
known that such terms were available.
III
Direct Government Guarantee
Article IV, Section 4.04(b) and (c), in relation to
Article 1.06, of the 1997 Concession Agreement
provides:
Section 4.04 Assignment
xxx xxx xxx
(b) In the event Concessionaire should
default in the payment of an Attendant
Liability, and the default resulted in the
acceleration of the payment due date of the
Attendant Liability prior to its stated date of
maturity, the Unpaid Creditors and
Concessionaire shall immediately inform
GRP in writing of such default. GRP shall
within one hundred eighty (180) days from
receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either
(i) take over the Development Facility and
assume the Attendant Liabilities, or (ii)
allow the Unpaid Creditors, if qualified to be
substituted as concessionaire and operator
of the Development facility in accordance
with the terms and conditions hereof, or
designate a qualified operator acceptable to
GRP to operate the Development Facility,
likewise under the terms and conditions of
this Agreement; Provided, that if at the end
of the 180-day period GRP shall not have
served the Unpaid Creditors and
Concessionaire written notice of its choice,
GRP shall be deemed to have elected to
take over the Development Facility with
the concomitant assumption of Attendant
Liabilities.
(c) If GRP, by written notice, allow the
Unpaid Creditors to be substituted as
concessionaire, the latter shall form and
organize a concession company qualified to
takeover the operation of the Development
Facility. If the concession company should
elect to designate an operator for the
Development Facility, the concession
company shall in good faith identify and
designate a qualified operator acceptable to
GRP within one hundred eighty (180) days
from receipt of GRP's written notice. If the
concession company, acting in good faith
and with due diligence, is unable to
designate a qualified operator within the
aforesaid period, then GRP shall at the end
of the 180-day period take over the
Development Facility and assume
Attendant Liabilities.
.
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts
recorded and from time to time
outstanding in the books of the
Concessionaire as owing to Unpaid
Creditors who have provided, loaned or
advanced funds actually used for the
Project, including all interests, penalties,
associated fees, charges, surcharges,
indemnities, reimbursements and other
related expenses, and further including
amounts owed by Concessionaire to its
suppliers, contractors and sub-
contractors.
48

It is clear from the above-quoted provisions that
Government, in the event that PIATCO defaults in
its loan obligations, is obligated to pay "all amounts
recorded and from time to time outstanding from
the books" of PIATCO which the latter owes to its
creditors.
49
These amounts include "all interests,
penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related
expenses."
50
This obligation of the Government to
pay PIATCO's creditors upon PIATCO's default would
arise if the Government opts to take over NAIA IPT
III. It should be noted, however, that even if the
Government chooses the second option, which is to
allow PIATCO's unpaid creditors operate NAIA IPT III,
the Government is still at a risk of being liable to
PIATCO's creditors should the latter be unable to
designate a qualified operator within the prescribed
period.
51
In effect, whatever option the
Government chooses to take in the event of
PIATCO's failure to fulfill its loan obligations, the
Government is still at a risk of assuming PIATCO's
outstanding loans. This is due to the fact that the
Government would only be free from assuming
PIATCO's debts if the unpaid creditors would be able
to designate a qualified operator within the period
provided for in the contract. Thus, the Government's
assumption of liability is virtually out of its control.
The Government under the circumstances provided
for in the 1997 Concession Agreement is at the
mercy of the existence, availability and willingness of
a qualified operator. The above contractual
provisions constitute a direct government guarantee
which is prohibited by law.
One of the main impetus for the enactment of the
BOT Law is the lack of government funds to
construct the infrastructure and development
projects necessary for economic growth and
development. This is why private sector resources
are being tapped in order to finance these projects.
The BOT law allows the private sector to participate,
and is in fact encouraged to do so by way of
incentives, such as minimizing the unstable flow of
returns,
52
provided that the government would not
have to unnecessarily expend scarcely available
funds for the project itself. As such, direct
guarantee, subsidy and equity by the government in
these projects are strictly prohibited.
53
This is but
logical for if the government would in the end still
be at a risk of paying the debts incurred by the
private entity in the BOT projects, then the purpose
of the law is subverted.
Section 2(n) of the BOT Law defines direct guarantee
as follows:
(n) Direct government guarantee An
agreement whereby the government or any
of its agencies or local government units
assume responsibility for the repayment of
debt directly incurred by the project
proponent in implementing the project in
case of a loan default.
Clearly by providing that the Government "assumes"
the attendant liabilities, which consists of PIATCO's
unpaid debts, the 1997 Concession Agreement
provided for a direct government guarantee for the
debts incurred by PIATCO in the implementation of
the NAIA IPT III project. It is of no moment that the
relevant sections are subsumed under the title of
"assignment". The provisions providing for direct
government guarantee which is prohibited by law is
clear from the terms thereof.
The fact that the ARCA superseded the 1997
Concession Agreement did not cure this fatal defect.
Article IV, Section 4.04(c), in relation to Article I,
Section 1.06, of the ARCA provides:
Section 4.04 Security
xxx xxx xxx
(c) GRP agrees with Concessionaire
(PIATCO) that it shall negotiate in good
faith and enter into direct agreement with
the Senior Lenders, or with an agent of
such Senior Lenders (which agreement shall
be subject to the approval of the Bangko
Sentral ng Pilipinas), in such form as may be
reasonably acceptable to both GRP and
Senior Lenders, with regard, inter alia, to
the following parameters:
xxx xxx xxx
(iv) If the Concessionaire [PIATCO]
is in default under a payment
obligation owed to the Senior
Lenders, and as a result thereof
the Senior Lenders have become
entitled to accelerate the Senior
Loans, the Senior Lenders shall
have the right to notify GRP of the
same, and without prejudice to any
other rights of the Senior Lenders
or any Senior Lenders' agent may
have (including without limitation
under security interests granted in
favor of the Senior Lenders), to
either in good faith identify and
designate a nominee which is
qualified under sub-clause (viii)(y)
below to operate the Development
Facility [NAIA Terminal 3] or
transfer the Concessionaire's
[PIATCO] rights and obligations
under this Agreement to a
transferee which is qualified under
sub-clause (viii) below;
xxx xxx xxx
(vi) if the Senior Lenders, acting in
good faith and using reasonable
efforts, are unable to designate a
nominee or effect a transfer in
terms and conditions satisfactory
to the Senior Lenders within one
hundred eighty (180) days after
giving GRP notice as referred to
respectively in (iv) or (v) above,
then GRP and the Senior Lenders
shall endeavor in good faith to
enter into any other arrangement
relating to the Development
Facility [NAIA Terminal 3] (other
than a turnover of the
Development Facility [NAIA
Terminal 3] to GRP) within the
following one hundred eighty (180)
days. If no agreement relating to
the Development Facility [NAIA
Terminal 3] is arrived at by GRP
and the Senior Lenders within the
said 180-day period, then at the
end thereof the Development
Facility [NAIA Terminal 3] shall be
transferred by the Concessionaire
[PIATCO] to GRP or its designee
and GRP shall make a termination
payment to Concessionaire
[PIATCO] equal to the Appraised
Value (as hereinafter defined) of
the Development Facility [NAIA
Terminal 3] or the sum of the
Attendant Liabilities, if greater.
Notwithstanding Section 8.01(c)
hereof, this Agreement shall be
deemed terminated upon the
transfer of the Development
Facility [NAIA Terminal 3] to GRP
pursuant hereto;
xxx xxx xxx
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts in
each case supported by verifiable evidence
from time to time owed or which may
become owing by Concessionaire [PIATCO]
to Senior Lenders or any other persons or
entities who have provided, loaned, or
advanced funds or provided financial
facilities to Concessionaire [PIATCO] for
the Project [NAIA Terminal 3], including,
without limitation, all principal, interest,
associated fees, charges, reimbursements,
and other related expenses (including the
fees, charges and expenses of any agents or
trustees of such persons or entities),
whether payable at maturity, by
acceleration or otherwise, and further
including amounts owed by Concessionaire
[PIATCO] to its professional consultants and
advisers, suppliers, contractors and sub-
contractors.
54

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

It is clear from the foregoing that the ARCA
provides for a direct guarantee by the government
to pay PIATCO's loans not only to its Senior Lenders
but all other entities who provided PIATCO funds or
services upon PIATCO's default in its loan obligation
with its Senior Lenders. The fact that the
Government's obligation to pay PIATCO's lenders for
the latter's obligation would only arise after the
Senior Lenders fail to appoint a qualified nominee or
transferee does not detract from the fact that,
should the conditions as stated in the contract occur,
the ARCA still obligates the Government to pay any
and all amounts owed by PIATCO to its lenders in
connection with NAIA IPT III. Worse, the conditions
that would make the Government liable for PIATCO's
debts is triggered by PIATCO's own default of its loan
obligations to its Senior Lenders to which loan
contracts the Government was never a party to. The
Government was not even given an option as to
what course of action it should take in case PIATCO
defaulted in the payment of its senior loans. The
Government, upon PIATCO's default, would be
merely notified by the Senior Lenders of the same
and it is the Senior Lenders who are authorized to
appoint a qualified nominee or transferee. Should
the Senior Lenders fail to make such an
appointment, the Government is then automatically
obligated to "directly deal and negotiate" with the
Senior Lenders regarding NAIA IPT III. The only way
the Government would not be liable for PIATCO's
debt is for a qualified nominee or transferee to be
appointed in place of PIATCO to continue the
construction, operation and maintenance of NAIA
IPT III. This "pre-condition", however, will not take
the contract out of the ambit of a direct guarantee
by the government as the existence, availability and
willingness of a qualified nominee or transferee is
totally out of the government's control. As such the
Government is virtually at the mercy of PIATCO
(that it would not default on its loan obligations to
its Senior Lenders), the Senior Lenders (that they
would appoint a qualified nominee or transferee or
agree to some other arrangement with the
Government) and the existence of a qualified
nominee or transferee who is able and willing to
take the place of PIATCO in NAIA IPT III.
The proscription against government guarantee in
any form is one of the policy considerations behind
the BOT Law. Clearly, in the present case, the ARCA
obligates the Government to pay for all loans,
advances and obligations arising out of financial
facilities extended to PIATCO for the implementation
of the NAIA IPT III project should PIATCO default in
its loan obligations to its Senior Lenders and the
latter fails to appoint a qualified nominee or
transferee. This in effect would make the
Government liable for PIATCO's loans should the
conditions as set forth in the ARCA arise. This is a
form of direct government guarantee.
The BOT Law and its implementing rules provide that
in order for an unsolicited proposal for a BOT project
may be accepted, the following conditions must first
be met: (1) the project involves a new concept in
technology and/or is not part of the list of priority
projects, (2) no direct government guarantee,
subsidy or equity is required, and (3) the
government agency or local government unit has
invited by publication other interested parties to a
public bidding and conducted the same.
56
The failure
to meet any of the above conditions will result in the
denial of the proposal. It is further provided that the
presence of direct government guarantee, subsidy or
equity will "necessarily disqualify a proposal from
being treated and accepted as an unsolicited
proposal."
57
The BOT Law clearly and strictly
prohibits direct government guarantee, subsidy and
equity in unsolicited proposals that the mere
inclusion of a provision to that effect is fatal and is
sufficient to deny the proposal. It stands to reason
therefore that if a proposal can be denied by reason
of the existence of direct government guarantee,
then its inclusion in the contract executed after the
said proposal has been accepted is likewise sufficient
to invalidate the contract itself. A prohibited
provision, the inclusion of which would result in the
denial of a proposal cannot, and should not, be
allowed to later on be inserted in the contract
resulting from the said proposal. The basic rules of
justice and fair play alone militate against such an
occurrence and must not, therefore, be
countenanced particularly in this instance where the
government is exposed to the risk of shouldering
hundreds of million of dollars in debt.
This Court has long and consistently adhered to the
legal maxim that those that cannot be done directly
cannot be done indirectly.
58
To declare the PIATCO
contracts valid despite the clear statutory
prohibition against a direct government guarantee
would not only make a mockery of what the BOT
Law seeks to prevent -- which is to expose the
government to the risk of incurring a monetary
obligation resulting from a contract of loan
between the project proponent and its lenders and
to which the Government is not a party to -- but
would also render the BOT Law useless for what it
seeks to achieve - to make use of the resources of
the private sector in the "financing, operation and
maintenance of infrastructure and development
projects"
59
which are necessary for national growth
and development but which the government,
unfortunately, could ill-afford to finance at this
point in time.
IV
Temporary takeover of business affected with
public interest
Article XII, Section 17 of the 1987 Constitution
provides:
Section 17. In times of national emergency,
when the public interest so requires, the
State may, during the emergency and under
reasonable terms prescribed by it,
temporarily take over or direct the
operation of any privately owned public
utility or business affected with public
interest.
The above provision pertains to the right of the State
in times of national emergency, and in the exercise
of its police power, to temporarily take over the
operation of any business affected with public
interest. In the 1986 Constitutional Commission, the
term "national emergency" was defined to include
threat from external aggression, calamities or
national disasters, but not strikes "unless it is of such
proportion that would paralyze government
service."
60
The duration of the emergency itself is
the determining factor as to how long the temporary
takeover by the government would last.
61
The
temporary takeover by the government extends only
to the operation of the business and not to the
ownership thereof. As such the government is not
required to compensate the private entity-owner of
the said business as there is no transfer of
ownership, whether permanent or temporary. The
private entity-owner affected by the temporary
takeover cannot, likewise, claim just compensation
for the use of the said business and its properties as
the temporary takeover by the government is in
exercise of its police power and not of its power of
eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession
Agreement provides:
Section 5.10 Temporary Take-over of
operations by GRP.
.
(c) In the event the development Facility or
any part thereof and/or the operations of
Concessionaire or any part thereof, become
the subject matter of or be included in any
notice, notification, or declaration
concerning or relating to acquisition,
seizure or appropriation by GRP in times of
war or national emergency, GRP shall, by
written notice to Concessionaire,
immediately take over the operations of the
Terminal and/or the Terminal Complex.
During such take over by GRP, the
Concession Period shall be suspended;
provided, that upon termination of war,
hostilities or national emergency, the
operations shall be returned to
Concessionaire, at which time, the
Concession period shall commence to run
again. Concessionaire shall be entitled to
reasonable compensation for the duration
of the temporary take over by GRP, which
compensation shall take into account the
reasonable cost for the use of the Terminal
and/or Terminal Complex, (which is in the
amount at least equal to the debt service
requirements of Concessionaire, if the
temporary take over should occur at the
time when Concessionaire is still servicing
debts owed to project lenders), any loss or
damage to the Development Facility, and
other consequential damages. If the parties
cannot agree on the reasonable
compensation of Concessionaire, or on the
liability of GRP as aforesaid, the matter shall
be resolved in accordance with Section
10.01 [Arbitration]. Any amount
determined to be payable by GRP to
Concessionaire shall be offset from the
amount next payable by Concessionaire to
GRP.
62

PIATCO cannot, by mere contractual stipulation,
contravene the Constitutional provision on
temporary government takeover and obligate the
government to pay "reasonable cost for the use of
the Terminal and/or Terminal Complex."
63
Article
XII, section 17 of the 1987 Constitution envisions a
situation wherein the exigencies of the times
necessitate the government to "temporarily take
over or direct the operation of any privately owned
public utility or business affected with public
interest." It is the welfare and interest of the public
which is the paramount consideration in determining
whether or not to temporarily take over a particular
business. Clearly, the State in effecting the
temporary takeover is exercising its police power.
Police power is the "most essential, insistent, and
illimitable of powers."
64
Its exercise therefore must
not be unreasonably hampered nor its exercise be a
source of obligation by the government in the
absence of damage due to arbitrariness of its
exercise.
65
Thus, requiring the government to pay
reasonable compensation for the reasonable use of
the property pursuant to the operation of the
business contravenes the Constitution.
V
Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage
vested in one or more persons or companies,
consisting in the exclusive right (or power) to carry
on a particular business or trade, manufacture a
particular article, or control the sale of a particular
commodity."
66
The 1987 Constitution strictly
regulates monopolies, whether private or public,
and even provides for their prohibition if public
interest so requires. Article XII, Section 19 of the
1987 Constitution states:
Sec. 19. The state shall regulate or prohibit
monopolies when the public interest so
requires. No combinations in restraint of
trade or unfair competition shall be
allowed.
Clearly, monopolies are not per se prohibited by the
Constitution but may be permitted to exist to aid the
government in carrying on an enterprise or to aid in
the performance of various services and functions in
the interest of the public.
67
Nonetheless, a
determination must first be made as to whether
public interest requires a monopoly. As monopolies
are subject to abuses that can inflict severe
prejudice to the public, they are subject to a higher
level of State regulation than an ordinary business
undertaking.
In the cases at bar, PIATCO, under the 1997
Concession Agreement and the ARCA, is granted the
"exclusive right to operate a commercial
international passenger terminal within the Island of
Luzon" at the NAIA IPT III.
68
This is with the
exception of already existing international airports in
Luzon such as those located in the Subic Bay
Freeport Special Economic Zone ("SBFSEZ"), Clark
Special Economic Zone ("CSEZ") and in Laoag City.
69

As such, upon commencement of PIATCO's
operation of NAIA IPT III, Terminals 1 and 2 of NAIA
would cease to function as international passenger
terminals. This, however, does not prevent MIAA to
use Terminals 1 and 2 as domestic passenger
terminals or in any other manner as it may deem
appropriate except those activities that would
compete with NAIA IPT III in the latter's operation as
an international passenger terminal.
70
The right
granted to PIATCO to exclusively operate NAIA IPT
III would be for a period of twenty-five (25) years
from the In-Service Date
71
and renewable for
another twenty-five (25) years at the option of the
government.
72
Both the 1997 Concession
Agreement and the ARCA further provide that, in
view of the exclusive right granted to PIATCO, the
concession contracts of the service providers
currently servicing Terminals 1 and 2 would no
longer be renewed and those concession contracts
whose expiration are subsequent to the In-Service
Date would cease to be effective on the said date.
73

The operation of an international passenger airport
terminal is no doubt an undertaking imbued with
public interest. In entering into a BuildOperate-and-
Transfer contract for the construction, operation and
maintenance of NAIA IPT III, the government has
determined that public interest would be served
better if private sector resources were used in its
construction and an exclusive right to operate be
granted to the private entity undertaking the said
project, in this case PIATCO. Nonetheless, the
privilege given to PIATCO is subject to reasonable
regulation and supervision by the Government
through the MIAA, which is the government agency
authorized to operate the NAIA complex, as well as
DOTC, the department to which MIAA is attached.
74

This is in accord with the Constitutional mandate
that a monopoly which is not prohibited must be
regulated.
75
While it is the declared policy of the BOT
Law to encourage private sector participation by
"providing a climate of minimum government
regulations,"
76
the same does not mean that
Government must completely surrender its
sovereign power to protect public interest in the
operation of a public utility as a monopoly. The
operation of said public utility can not be done in an
arbitrary manner to the detriment of the public
which it seeks to serve. The right granted to the
public utility may be exclusive but the exercise of the
right cannot run riot. Thus, while PIATCO may be
authorized to exclusively operate NAIA IPT III as an
international passenger terminal, the Government,
through the MIAA, has the right and the duty to
ensure that it is done in accord with public interest.
PIATCO's right to operate NAIA IPT III cannot also
violate the rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement
and the ARCA provide:
3.01 Concession Period
xxx xxx xxx
(e) GRP confirms that certain concession
agreements relative to certain services and
operations currently being undertaken at
the Ninoy Aquino International Airport
passenger Terminal I have a validity period
extending beyond the In-Service Date. GRP
through DOTC/MIAA, confirms that these
services and operations shall not be carried
over to the Terminal and the
Concessionaire is under no legal obligation
to permit such carry-over except through a
separate agreement duly entered into with
Concessionaire. In the event Concessionaire
becomes involved in any litigation initiated
by any such concessionaire or operator,
GRP undertakes and hereby holds
Concessionaire free and harmless on full
indemnity basis from and against any loss
and/or any liability resulting from any such
litigation, including the cost of litigation and
the reasonable fees paid or payable to
Concessionaire's counsel of choice, all such
amounts shall be fully deductible by way of
an offset from any amount which the
Concessionaire is bound to pay GRP under
this Agreement.
During the oral arguments on December 10,
2002, the counsel for the petitioners-in-
intervention for G.R. No. 155001 stated that
there are two service providers whose
contracts are still existing and whose
validity extends beyond the In-Service Date.
One contract remains valid until 2008 and
the other until 2010.
77

We hold that while the service providers presently
operating at NAIA Terminal 1 do not have an
absolute right for the renewal or the extension of
their respective contracts, those contracts whose
duration extends beyond NAIA IPT III's In-Service-
Date should not be unduly prejudiced. These
contracts must be respected not just by the parties
thereto but also by third parties. PIATCO cannot, by
law and certainly not by contract, render a valid and
binding contract nugatory. PIATCO, by the mere
expedient of claiming an exclusive right to operate,
cannot require the Government to break its
contractual obligations to the service providers. In
contrast to the arrastre and stevedoring service
providers in the case of Anglo-Fil Trading
Corporation v. Lazaro
78
whose contracts consist of
temporary hold-over permits, the affected service
providers in the cases at bar, have a valid and
binding contract with the Government, through
MIAA, whose period of effectivity, as well as the
other terms and conditions thereof, cannot be
violated.
In fine, the efficient functioning of NAIA IPT III is
imbued with public interest. The provisions of the
1997 Concession Agreement and the ARCA did not
strip government, thru the MIAA, of its right to
supervise the operation of the whole NAIA complex,
including NAIA IPT III. As the primary government
agency tasked with the job,
79
it is MIAA's
responsibility to ensure that whoever by contract is
given the right to operate NAIA IPT III will do so
within the bounds of the law and with due regard to
the rights of third parties and above all, the interest
of the public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence
of the requisite financial capacity of the Paircargo
Consortium, predecessor of respondent PIATCO, the
award by the PBAC of the contract for the
construction, operation and maintenance of the
NAIA IPT III is null and void. Further, considering that
the 1997 Concession Agreement contains material
and substantial amendments, which amendments
had the effect of converting the 1997 Concession
Agreement into an entirely different agreement
from the contract bidded upon, the 1997 Concession
Agreement is similarly null and void for being
contrary to public policy. The provisions under
Sections 4.04(b) and (c) in relation to Section 1.06 of
the 1997 Concession Agreement and Section 4.04(c)
in relation to Section 1.06 of the ARCA, which
constitute a direct government guarantee expressly
prohibited by, among others, the BOT Law and its
Implementing Rules and Regulations are also null
and void. The Supplements, being accessory
contracts to the ARCA, are likewise null and void.
WHEREFORE, the 1997 Concession Agreement, the
Amended and Restated Concession Agreement and
the Supplements thereto are set aside for being null
and void.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Ynares-Santiago,
Sandoval-Gutierrez, Austria-Martinez, Corona, and
Carpio-Morales, JJ., concur.
Vitug, J., see separate (dissenting) opinion.
Panganiban, J., please see separate opinion.
Quisumbing, J., no jurisdiction, please see separate
opinion of J. Vitug in which he concurs.
Carpio, J., no part.
Callejo, Sr., J., also concur in the separate opinion of
J. Panganiban.
Azcuna, J., joins the separate opinion of J. Vitug.

SEPARATE OPINIONS
VITUG, J.:
This Court is bereft of jurisdiction to hear the
petitions at bar. The Constitution provides that the
Supreme Court shall exercise original jurisdiction
over, among other actual controversies, petitions for
certiorari, prohibition, mandamus, quo warranto,
and habeas corpus.
1
The cases in question, although
denominated to be petitions for prohibition, actually
pray for the nullification of the PIATCO contracts and
to restrain respondents from implementing said
agreements for being illegal and unconstitutional.
Section 2, Rule 65 of the Rules of Court states:
"When the proceedings of any tribunal,
corporation, board, officer or person,
whether exercising judicial, quasi-judicial or
ministerial functions, are without or in
excess of its or his jurisdiction, or with grave
abuse of discretion amounting to lack or
excess of jurisdiction, and there is no appeal
or any other plain, speedy and adequate
remedy in the ordinary course of law, a
person aggrieved thereby may file a verified
petition in the proper court, alleging the
facts with certainty and praying that
judgment be rendered commanding the
respondent to desist from further
proceedings in the action or matter
specified therein, or otherwise granting
such incidental reliefs as law and justice
may require."
The rule is explicit. A petition for prohibition may be
filed against a tribunal, corporation, board, officer or
person, exercising judicial, quasi-judicial or
ministerial functions. What the petitions seek from
respondents do not involve judicial, quasi-judicial or
ministerial functions. In prohibition, only legal issues
affecting the jurisdiction of the tribunal, board or
officer involved may be resolved on the basis of
undisputed facts.
2
The parties allege, respectively,
contentious evidentiary facts. It would be difficult, if
not anomalous, to decide the jurisdictional issue on
the basis of the contradictory factual submissions
made by the parties.
3
As the Court has so often
exhorted, it is not a trier of facts.
The petitions, in effect, are in the nature of actions
for declaratory relief under Rule 63 of the Rules of
Court. The Rules provide that any person interested
under a contract may, before breach or violation
thereof, bring an action in the appropriate Regional
Trial Court to determine any question of
construction or validity arising, and for a declaration
of his rights or duties thereunder.
4
The Supreme
Court assumes no jurisdiction over petitions for
declaratory relief which are cognizable by regional
trial courts.
5

As I have so expressed in Tolentino vs. Secretary of
Finance,
6
reiterated in Santiago vs. Guingona, Jr.
7
,
the Supreme Court should not be thought of as
having been tasked with the awesome responsibility
of overseeing the entire bureaucracy. Pervasive and
limitless, such as it may seem to be under the 1987
Constitution, judicial power still succumbs to the
paramount doctrine of separation of powers. The
Court may not at good liberty intrude, in the guise of
sovereign imprimatur, into every affair of
government. What significance can still then remain
of the time-honored and widely acclaimed principle
of separation of powers if, at every turn, the Court
allows itself to pass upon at will the disposition of a
co-equal, independent and coordinate branch in our
system of government. I dread to think of the so
varied uncertainties that such an undue interference
can lead to.
Accordingly, I vote for the dismissal of the petition.
Quisumbing, and Azcuna, JJ., concur.

PANGANIBAN, J.:
The five contracts for the construction and the
operation of Ninoy Aquino International Airport
(NAIA) Terminal III, the subject of the consolidated
Petitions before the Court, are replete with outright
violations of law, public policy and the Constitution.
The only proper thing to do is declare them all null
and void ab initio and let the chips fall where they
may. Fiat iustitia ruat coelum.
The facts leading to this controversy are already well
presented in the ponencia. I shall not burden the
readers with a retelling thereof. Instead, I will cut to
the chase and directly address the two sets of gut
issues:
1. The first issue is procedural: Does the Supreme
Court have original jurisdiction to hear and decide
the Petitions? Corollarily, do petitioners have locus
standi and should this Court decide the cases
without any mandatory referral to arbitration?
2. The second one is substantive in character: Did
the subject contracts violate the Constitution, the
laws, and public policy to such an extent as to render
all of them void and inexistent?
My answer to all the above questions is a firm "Yes."
The Procedural Issue:
Jurisdiction, Standing and Arbitration
Definitely and surely, the issues involved in these
Petitions are clearly of transcendental importance
and of national interest. The subject contracts
pertain to the construction and the operation of the
country's premiere international airport terminal -
an ultramodern world-class public utility that will
play a major role in the country's economic
development and serve to project a positive image
of our country abroad. The five build-operate-&-
transfer (BOT) contracts, while entailing the
investment of billions of pesos in capital and the
availment of several hundred millions of dollars in
loans, contain provisions that tend to establish a
monopoly, require the disbursements of public funds
sans appropriations, and provide government
guarantees in violation of statutory prohibitions, as
well as other provisions equally offensive to law,
public policy and the Constitution. Public interest will
inevitably be affected thereby.
Thus, objections to these Petitions, grounded upon
(a) the hierarchy of courts, (b) the need for
arbitration prior to court action, and (c) the alleged
lack of sufficient personality, standing or interest,
being in the main procedural matters, must now be
set aside, as they have been in past cases. This Court
must be permitted to perform its constitutional duty
of determining whether the other agencies of
government have acted within the limits of the
Constitution and the laws, or if they have gravely
abused the discretion entrusted to them.
1

Hierarchy of Courts
The Court has, in the past, held that questions
relating to gargantuan government contracts ought
to be settled without delay.
2
This holding applies
with greater force to the instant cases. Respondent
Piatco is partly correct in averring that petitioners
can obtain relief from the regional trial courts via an
action to annul the contracts.
Nevertheless, the unavoidable consequence of
having to await the rendition and the finality of any
such judgment would be a prolonged state of
uncertainty that would be prejudicial to the nation,
the parties and the general public. And, in light of
the feared loss of jobs of the petitioning workers,
consequent to the inevitable pretermination of
contracts of the petitioning service providers that
will follow upon the heels of the impending opening
of NAIA Terminal III, the need for relief is patently
urgent, and therefore, direct resort to this Court
through the special civil action of prohibition is thus
justified.
3

Contrary to Piatco's argument that the resolution of
the issues raised in the Petitions will require delving
into factual questions,
4
I submit that their
disposition ultimately turns on questions of law.
5

Further, many of the significant and relevant factual
questions can be easily addressed by an examination
of the documents submitted by the parties. In any
event, the Petitions raise some novel questions
involving the application of the amended BOT Law,
which this Court has seen fit to tackle.
Arbitration
Should the dispute be referred to arbitration prior to
judicial recourse? Respondent Piatco claims that
Section 10.02 of the Amended and Restated
Concession Agreement (ARCA) provides for
arbitration under the auspices of the International
Chamber of Commerce to settle any dispute or
controversy or claim arising in connection with the
Concession Agreement, its amendments and
supplements. The government disagrees, however,
insisting that there can be no arbitration based on
Section 10.02 of the ARCA, since all the Piatco
contracts are void ab initio. Therefore, all
contractual provisions, including Section 10.02 of the
ARCA, are likewise void, inexistent and inoperative.
To support its stand, the government cites Chavez v.
Presidential Commission on Good Government:
6
"The
void agreement will not be rendered operative by the
parties' alleged performance (partial or full) of their
respective prestations. A contract that violates the
Constitution and the law is null and void ab initio and
vests no rights and creates no obligations. It
produces no legal effect at all."
As will be discussed at length later, the Piatco
contracts are indeed void in their entirety; thus, a
resort to the aforesaid provision on arbitration is
unavailing. Besides, petitioners and petitioners-in-
intervention have pointed out that, even granting
arguendo that the arbitration clause remained a
valid provision, it still cannot bind them inasmuch as
they are not parties to the Piatco contracts. And in
the final analysis, it is unarguable that the arbitration
process provided for under Section 10.02 of the
ARCA, to be undertaken by a panel of three (3)
arbitrators appointed in accordance with the Rules
of Arbitration of the International Chamber of
Commerce, will not be able to address, determine
and definitively resolve the constitutional and legal
questions that have been raised in the Petitions
before us.
Locus Standi
Given this Court's previous decisions in cases of
similar import, no one will seriously doubt that,
being taxpayers and members of the House of
Representatives, Petitioners Baterina et al. have
locus standi to bring the Petition in GR No. 155547.
In Albano v. Reyes,
7
this Court held that the
petitioner therein, suing as a citizen, taxpayer and
member of the House of Representatives, was
sufficiently clothed with standing to bring the suit
questioning the validity of the assailed contract. The
Court cited the fact that public interest was involved,
in view of the important role of the Manila
International Container Terminal (MICT) in the
country's economic development and the magnitude
of the financial consideration. This, notwithstanding
the fact that expenditure of public funds was not
required under the assailed contract.
In the cases presently under consideration,
petitioners' personal and substantial interest in the
controversy is shown by the fact that certain
provisions in the Piatco contracts create obligations
on the part of government (through the DOTC and
the MIAA) to disburse public funds without prior
congressional appropriations.
Petitioners thus correctly assert that the injury to
them has a twofold aspect: (1) they are adversely
affected as taxpayers on account of the illegal
disbursement of public funds; and (2) they are
prejudiced qua legislators, since the contractual
provisions requiring the government to incur
expenditures without appropriations also operate as
limitations upon the exclusive power and
prerogative of Congress over the public purse. As
members of the House of Representatives, they are
actually deprived of discretion insofar as the
inclusion of those items of expenditure in the budget
is concerned. To prevent such encroachment upon
the legislative privilege and obviate injury to the
institution of which they are members, petitioners-
legislators have locus standi to bring suit.
Messrs. Agan et al. and Lopez et al., are likewise
taxpayers and thus possessed of standing to
challenge the illegal disbursement of public funds.
Messrs. Agan et al., in particular, are employees (or
representatives of employees) of various service
providers that have (1) existing concession
agreements with the MIAA to provide airport
services necessary to the operation of the NAIA and
(2) service agreements to furnish essential support
services to the international airlines operating at the
NAIA.
On the other hand, Messrs. Lopez et al. are
employees of the MIAA. These petitioners (Messrs.
Agan et al. and Messrs. Lopez et al.) are confronted
with the prospect of being laid off from their jobs
and losing their means of livelihood when their
employer-companies are forced to shut down or
otherwise retrench and cut back on manpower. Such
development would result from the imminent
implementation of certain provisions in the
contracts that tend toward the creation of a
monopoly in favor of Piatco, its subsidiaries and
related companies.
Petitioners-in-intervention are service providers in
the business of furnishing airport-related services to
international airlines and passengers in the NAIA and
are therefore competitors of Piatco as far as that line
of business is concerned. On account of provisions in
the Piatco contracts, petitioners-in-intervention have
to enter into a written contract with Piatco so as not
to be shut out of NAIA Terminal III and barred from
doing business there. Since there is no provision to
ensure or safeguard free and fair competition, they
are literally at its mercy. They claim injury on
account of their deprivation of property (business)
and of the liberty to contract, without due process of
law.
And even if petitioners and petitioners-in-
intervention were not sufficiently clothed with legal
standing, I have at the outset already established
that, given its impact on the public and on national
interest, this controversy is laden with
transcendental importance and constitutional
significance. Hence, I do not hesitate to adopt the
same position as was enunciated in Kilosbayan v.
Guingona Jr.
8
that "in cases of transcendental
importance, the Court may relax the standing
requirements and allow a suit to prosper even when
there is no direct injury to the party claiming the
right of judicial review."
9

The Substantive Issue:
Violations of the Constitution and the Laws
From the Outset, the Bidding Process Was Flawed
and Tainted
After studying the documents submitted and
arguments advanced by the parties, I have no doubt
that, right at the outset, Piatco was not qualified to
participate in the bidding process for the Terminal III
project, but was nevertheless permitted to do so. It
even won the bidding and was helped along by what
appears to be a series of collusive and corrosive acts.
The build-operate-and-transfer (BOT) project for the
NAIA Passenger Terminal III comes under the
category of an "unsolicited proposal," which is the
subject of Section 4-A of the BOT Law.
10
The
unsolicited proposal was originally submitted by the
Asia's Emerging Dragon Corporation (AEDC) to the
Department of Transportation and Communications
(DOTC) and the Manila International Airport
Authority (MIAA), which reviewed and approved the
proposal.
The draft of the concession agreement as negotiated
between AEDC and DOTC/MIAA was endorsed to the
National Economic Development Authority (NEDA-
ICC), which in turn reviewed it on the basis of its
scope, economic viability, financial indicators and
risks; and thereafter approved it for bidding.
The DOTC/MIAA then prepared the Bid Documents,
incorporating therein the negotiated Draft
Concession Agreement, and published invitations for
public bidding, i.e., for the submission of
comparative or competitive proposals. Piatco's
predecessor-in-interest, the Paircargo Consortium,
was the only company that submitted a competitive
bid or price challenge.
At this point, I must emphasize that the law requires
the award of a BOT project to the bidder that has
satisfied the minimum requirements; and met the
technical, financial, organizational and legal
standards provided in the BOT Law. Section 5 of this
statute states:
"Sec. 5. Public bidding of projects. - . . .
"In the case of a build-operate-and-transfer
arrangement, the contract shall be awarded
to the bidder who, having satisfied the
minimum financial, technical,
organizational and legal standards
required by this Act, has submitted the
lowest bid and most favorable terms for the
project, based on the present value of its
proposed tolls, fees, rentals and charges
over a fixed term for the facility to be
constructed, rehabilitated, operated and
maintained according to the prescribed
minimum design and performance
standards, plans and specifications. . . ."
(Emphasis supplied.)
The same provision requires that the price challenge
via public bidding "must be conducted under a two-
envelope/two-stage system: the first envelope to
contain the technical proposal and the second
envelope to contain the financial proposal."
Moreover, the 1994 Implementing Rules and
Regulations (IRR) provide that only those bidders
that have passed the prequalification stage are
permitted to have their two envelopes reviewed.
In other words, prospective bidders must prequalify
by submitting their prequalification documents for
evaluation; and only the pre-qualified bidders would
be entitled to have their bids opened, evaluated and
appreciated. On the other hand, disqualified bidders
are to be informed of the reason for their
disqualification. This procedure was confirmed and
reiterated in the Bid Documents, which I quote thus:
"Prequalified proponents will be considered eligible
to move to second stage technical proposal
evaluation. The second and third envelopes of pre-
disqualified proponents will be returned."
11

Aside from complying with the legal and technical
requirements (track record or experience of the firm
and its key personnel), a project proponent desiring
to prequalify must also demonstrate its financial
capacity to undertake the project. To establish such
capability, a proponent must prove that it is able to
raise the minimum amount of equity required for
the project and to procure the loans or financing
needed for it. Section 5.4(c) of the 1994 IRR
provides:
"Sec. 5.4. Prequalification Requirements. -
To pre-qualify, a project proponent must
comply with the following requirements:
x x x x x x x x x
"c. Financial Capability. The project
proponent must have adequate capability
to sustain the financing requirements for
the detailed engineering design,
construction, and/or operation and
maintenance phases of the project, as the
case may be. For purposes of
prequalification, this capability shall be
measured in terms of: (i) proof of the ability
of the project proponent and/or the
consortium to provide a minimum amount
of equity to the project, and (ii) a letter
testimonial from reputable banks attesting
that the project proponent and/or
members of the consortium are banking
with them, that they are in good financial
standing, and that they have adequate
resources. The government Agency/LGU
concerned shall determine on a project-to-
project basis, and before prequalification,
the minimum amount of equity needed. . . .
." (Italics supplied)
Since the minimum amount of equity for the project
was set at 30 percent
12
of the minimum project cost
of US$350 million, the minimum amount of equity
required of any proponent stood at US$105 million.
Converted to pesos at the exchange rate then of
P26.239 to US$1.00 (as quoted by the Bangko
Sentral ng Pilipinas), the peso equivalent of the
minimum equity was P2,755,095,000.
However, the combined equity or net worth of the
Paircargo consortium stood at only
P558,384,871.55.
13
This amount was only slightly
over 6 percent of the minimum project cost and very
much short of the required minimum equity, which
was equivalent to 30 percent of the project cost.
Such deficiency should have immediately caused the
disqualification of the Paircargo consortium. This
matter was brought to the attention of the
Prequalification and Bidding Committee (PBAC).
Notwithstanding the glaring deficiency, DOTC
Undersecretary Primitivo C. Cal, concurrent chair of
the PBAC, declared in a Memorandum dated 14
October 1996 that "the Challenger (Paircargo
consortium) was found to have a combined net
worth of P3,926,421,242.00 that could support a
project costing approximately P13 billion." To justify
his conclusion, he asserted: "It is not a requirement
that the networth must be `unrestricted'. To impose
this as a requirement now will be nothing less than
unfair."
He further opined, "(T)he networth reflected in the
Financial Statement should not be taken as the
amount of money to be used to answer the required
thirty (30%) percent equity of the challenger but
rather to be used in establishing if there is enough
basis to believe that the challenger can comply with
the required 30% equity. In fact, proof of sufficient
equity is required as one of the conditions for award
of contract (Sec. 12.1 of IRR of the BOT Law) but not
for prequalification (Sec. 5.4 of same document)."
On the basis of the foregoing dubious declaration,
the Paircargo consortium was deemed prequalified
and thus permitted to proceed to the other stages of
the bidding process.
By virtue of the prequalified status conferred upon
the Paircargo, Undersecretary Cal's findings in effect
relieved the consortium of the need to comply with
the financial capability requirement imposed by the
BOT Law and IRR. This position is unmistakably and
squarely at odds with the Supreme Court's
consistent doctrine emphasizing the strict
application of pertinent rules, regulations and
guidelines for the public bidding process, in order to
place each bidder - actual or potential - on the same
footing. Thus, it is unarguably irregular and contrary
to the very concept of public bidding to permit a
variance between the conditions under which bids
are invited and those under which proposals are
submitted and approved.
Republic v. Capulong,
14
teaches that if one bidder is
relieved from having to conform to the conditions
that impose some duty upon it, that bidder is not
contracting in fair competition with those bidders
that propose to be bound by all conditions. The
essence of public bidding is, after all, an opportunity
for fair competition and a basis for the precise
comparison of bids.
15
Thus, each bidder must bid
under the same conditions; and be subject to the
same guidelines, requirements and limitations. The
desired result is to be able to determine the best
offer or lowest bid, all things being equal.
Inasmuch as the Paircargo consortium did not
possess the minimum equity equivalent to 30
percent of the minimum project cost, it should not
have been prequalified or allowed to participate
further in the bidding. The Prequalification and
Bidding Committee (PBAC) should therefore not
have opened the two envelopes of the consortium
containing its technical and financial proposals;
required AEDC to match the consortium's bid; 16 or
awarded the Concession Agreement to the
consortium's successor-in-interest, Piatco.
As there was effectively no public bidding to speak
of, the entire bidding process having been flawed
and tainted from the very outset, therefore, the
award of the concession to Paircargo's successor
Piatco was void, and the Concession Agreement
executed with the latter was likewise void ab initio.
For this reason, Piatco cannot and should not be
allowed to benefit from that Agreement.
17

AEDC Was Deprived of the Right to Match PIATCO's
Price Challenge
In DOTC PBAC Bid Bulletin No. 4 (par. 3),
Undersecretary Cal declared that, for purposes of
matching the price challenge of Piatco, AEDC as
originator of the unsolicited proposal would be
permitted access only to the schedule of proposed
Annual Guaranteed Payments submitted by Piatco,
and not to the latter's financial and technical
proposals that constituted the basis for the price
challenge in the first place. This was supposedly in
keeping with Section 11.6 of the 1994 IRR, which
provides that proprietary information is to be
respected, protected and treated with utmost
confidentiality, and is therefore not to form part of
the bidding/tender and related documents.
This pronouncement, I believe, was a grievous
misapplication of the mentioned provision. The
"proprietary information" referred to in Section 11.6
of the IRR pertains only to the proprietary
information of the originator of an unsolicited
proposal, and not to those belonging to a challenger.
The reason for the protection accorded proprietary
information at all is the fact that, according to
Section 4-A of the BOT Law as amended, a proposal
qualifies as an "unsolicited proposal" when it
pertains to a project that involves "a new concept or
technology", and/or a project that is not on the
government's list of priority projects.
To be considered as utilizing a new concept or
technology, a project must involve the possession of
exclusive rights (worldwide or regional) over a
process; or possession of intellectual property rights
over a design, methodology or engineering
concept.
18
Patently, the intent of the BOT Law is to
encourage individuals and groups to come up with
creative innovations, fresh ideas and new
technology. Hence, the significance and necessity of
protecting proprietary information in connection
with unsolicited proposals. And to make the
encouragement real, the law also extends to such
individuals and groups what amounts to a "right of
first refusal" to undertake the project they
conceptualized, involving the use of new technology
or concepts, through the mechanism of matching a
price challenge.
A competing bid is never just any figure conjured
from out of the blue; it is arrived at after studying
economic, financial, technical and other, factors; it is
likewise based on certain assumptions as to the
nature of the business, the market potentials, the
probable demand for the product or service, the
future behavior of cost items, political and other
risks, and so on. It is thus self-evident that in order
to be able to intelligently match a bid or price
challenge, a bidder must be given access to the
assumptions and the calculations that went into
crafting the competing bid.
In this instance, the financial and technical proposals
of Piatco would have provided AEDC with the
necessary information to enable it to make a
reasonably informed matching bid. To put it more
simply, a bidder unable to access the competitor's
assumptions will never figure out how the
competing bid came about; requiring him to
"counter-propose" is like having him shoot at a
target in the dark while blindfolded.
By withholding from AEDC the challenger's financial
and technical proposals containing the critical
information it needed, Undersecretary Cal actually
and effectively deprived AEDC of the ability to match
the price challenge. One could say that AEDC did not
have the benefit of a "level playing field." It seems to
me, though, that AEDC was actually shut out of the
game altogether.
At the end of the day, the bottom line is that the
validity and the propriety of the award to Piatco had
been irreparably impaired.
Delayed Issuance of the Notice of Award Violated
the BOT Law and the IRR
Section 9.5 of the IRR requires that the Notice of
Award must indicate the time frame within which
the winner of the bidding (and therefore the
prospective awardee) shall submit the prescribed
performance security, proof of commitment of
equity contributions, and indications of sources of
financing (loans); and, in the case of joint ventures,
an agreement showing that the members are jointly
and severally responsible for the obligations of the
project proponent under the contract.
The purpose of having a definite and firm timetable
for the submission of the aforementioned
requirements is not only to prevent delays in the
project implementation, but also to expose and
weed out unqualified proponents, who might have
unceremoniously slipped through the earlier
prequalification process, by compelling them to put
their money where their mouths are, so to speak.
Nevertheless, this provision can be easily
circumvented by merely postponing the actual
issuance of the Notice of Award, in order to give the
favored proponent sufficient time to comply with
the requirements. Hence, to avert or minimize the
manipulation of the post-bidding process, the IRR
not only set out the precise sequence of events
occurring between the completion of the evaluation
of the technical bids and the issuance of the Notice
of Award, but also specified the timetables for each
such event. Definite allowable extensions of time
were provided for, as were the consequences of a
failure to meet a particular deadline.
In particular, Section 9.1 of the 1994 IRR prescribed
that within 30 calendar days from the time the
second-stage evaluation shall have been completed,
the Committee must come to a decision whether or
not to award the contract and, within 7 days
therefrom, the Notice of Award must be approved
by the head of agency or local government unit
(LGU) concerned, and its issuance must follow within
another 7 days thereafter.
Section 9.2 of the IRR set the procedure applicable
to projects involving substantial government
undertakings as follows: Within 7 days after the
decision to award is made, the draft contract shall be
submitted to the ICC for clearance on a no-objection
basis. If the draft contract includes government
undertakings already previously approved, then the
submission shall be for information only.
However, should there be additional or new
provisions different from the original government
undertakings, the draft shall have to be reviewed
and approved. The ICC has 15 working days to act
thereon, and unless otherwise specified, its failure to
act on the contract within the specified time frame
signifies that the agency or LGU may proceed with
the award. The head of agency or LGU shall approve
the Notice of Award within seven days of the
clearance by the ICC on a no-objection basis, and the
Notice itself has to be issued within seven days
thereafter.
The highly regulated time-frames within which the
agents of government were to act evinced the intent
to impose upon them the duty to act expeditiously
throughout the process, to the end that the project
be prosecuted and implemented without delay. This
regulated scenario was likewise intended to
discourage collusion and substantially reduce the
opportunity for agents of government to abuse their
discretion in the course of the award process.
Despite the clear timetables set out in the IRR,
several lengthy and still-unexplained delays occurred
in the award process, as can be observed from the
presentation made by the counsel for public
respondents,
19
quoted hereinbelow:
"11 Dec. 1996 - The Paircargo Joint Venture
was informed by the PBAC that AEDC failed
to match and that negotiations preparatory
to Notice of Award should be commenced.
This was the decision to award that should
have commenced the running of the 7-day
period to approve the Notice of Award, as
per Section 9.1 of the IRR, or to submit the
draft contract to the ICC for approval
conformably with Section 9.2.
"01 April 1997 - The PBAC resolved that a
copy of the final draft of the Concession
Agreement be submitted to the NEDA for
clearance on a no-objection basis. This
resolution came more than 3 months too
late as it should have been made on the
20th of December 1996 at the latest.
"16 April 1997 - The PBAC resolved that the
period of signing the Concession Agreement
be extended by 15 days.
"18 April 1997 - NEDA approved the
Concession Agreement. Again this is more
than 3 months too late as the NEDA's
decision should have been released on the
16th of January 1997 or fifteen days after it
should have been submitted to it for
review.
"09 July 1997 - The Notice of Award was
issued to PIATCO. Following the provisions
of the IRR, the Notice of Award should have
been issued fourteen days after NEDA's
approval, or the 28th of January 1997. In
any case, even if it were to be assumed that
the release of NEDA's approval on the 18th
of April was timely, the Notice of Award
should have been issued on the 9th of May
1997. In both cases, therefore, the release
of the Notice of Award occurred in a
decidedly less than timely fashion."
This chronology of events bespeaks an unmistakable
disregard, if not disdain, by the persons in charge of
the award process for the time limitations
prescribed by the IRR. Their attitude flies in the face
of this Court's solemn pronouncement in Republic v.
Capulong,
20
that "strict observance of the rules,
regulations and guidelines of the bidding process is
the only safeguard to a fair, honest and competitive
public bidding."
From the foregoing, the only conclusion that can
possibly be drawn is that the BOT law and its IRR
were repeatedly violated with unmitigated impunity
- and by agents of government, no less! On account
of such violation, the award of the contract to
Piatco, which undoubtedly gained time and
benefited from the delays, must be deemed null and
void from the beginning.
Further Amendments Resulted in a Substantially
Different Contract, Awarded Without Public Bidding
But the violations and desecrations did not stop
there. After the PBAC made its decision on
December 11, 1996 to award the contract to Piatco,
the latter negotiated changes to the Contract bidded
out and ended up with what amounts to a
substantially new contract without any public
bidding. This Contract was subsequently further
amended four more times through negotiation and
without any bidding. Thus, the contract actually
executed between Piatco and DOTC/MIAA on July
12, 1997 (the Concession Agreement or "CA")
differed from the contract bidded out (the draft
concession agreement or "DCA") in the following
very significant respects:
1. The CA inserted stipulations creating a
monopoly in favor of Piatco in the business
of providing airport-related services for
international airlines and passengers.
21

2. The CA provided that government is to
answer for Piatco's unpaid loans and debts
(lumped under the term Attendant
Liabilities) in the event Piatco fails to pay its
senior lenders.
22

3. The CA provided that in case of
termination of the contract due to the fault
of government, government shall pay all
expenses that Piatco incurred for the
project plus the appraised value of the
Terminal.
23

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

5. Where Section 3.02 of the DCA requires
government to refrain from competing with
the contractor with respect to the
operation of NAIA Terminal III, Section
3.02(b) of the CA excludes and prohibits
everyone, including government, from
directly or indirectly competing with Piatco,
with respect to the operation of, as well as
operations in, NAIA Terminal III. Operations
in is sufficiently broad to encompass all
retail and other commercial business
enterprises operating within Terminal III,
inclusive of the businesses of providing
various airport-related services to
international airlines, within the scope of
the prohibition.
6. Under Section 6.01 of the DCA, the
following fees are subject to the written
approval of MIAA: lease/rental charges,
concession privilege fees for passenger
services, food services, transportation utility
concessions, groundhandling, catering and
miscellaneous concession fees, porterage
fees, greeter/well-wisher fees, carpark fees,
advertising fees, VIP facilities fees and
others. Moreover, adjustments to the
groundhandling fees, rentals and porterage
fees are permitted only once every two
years and in accordance with a parametric
formula, per DCA Section 6.03. However,
the CA as executed with Piatco provides in
Section 6.06 that all the aforesaid fees,
rentals and charges may be adjusted
without MIAA's approval or intervention.
Neither are the adjustments to these fees
and charges subject to or limited by any
parametric formula.
25

7. Section 1.29 of the DCA provides that the
terminal fees, aircraft tacking fees, aircraft
parking fees, check-in counter fees and
other fees are to be quoted and paid in
Philippine pesos. But per Section 1.33 of the
CA, all the aforesaid fees save the terminal
fee are denominated in US Dollars.
8. Under Section 8.07 of the DCA, the term
attendant liabilities refers to liabilities
pertinent to NAIA Terminal III, such as
payment of lease rentals and performance
of other obligations under the Land Lease
Agreement; the obligations under the
Tenant Agreements; and payment of all
taxes, fees, charges and assessments of
whatever kind that may be imposed on
NAIA Terminal III or parts thereof. But in
Section 1.06 of the CA, Attendant Liabilities
refers to unpaid debts of Piatco: "All
amounts recorded and from time to time
outstanding in the books of (Piatco) as
owing to Unpaid Creditors who have
provided, loaned or advanced funds actually
used for the Project, including all interests,
penalties, associated fees, charges,
surcharges, indemnities, reimbursements
and other related expenses, and further
including amounts owed by [Piatco] to its
suppliers, contractors and subcontractors."
9. Per Sections 8.04 and 8.06 of the DCA,
government may, on account of the
contractors breach, rescind the contract
and select one of four options: (a) take over
the terminal and assume all its attendant
liabilities; (b) allow the contractor's
creditors to assign the Project to another
entity acceptable to DOTC/MIAA; (c) pay
the contractor rent for the facilities and
equipment the DOTC may utilize; or (d)
purchase the terminal at a price established
by independent appraisers. Depending on
the option selected, government may take
immediate possession and control of the
terminal and its operations. Government
will be obligated to compensate the
contractor for the "equivalent or
proportionate contract costs actually
disbursed," but only where government is
the one in breach of the contract. But under
Section 8.06(a) of the CA, whether on
account of Piatco's breach of contract or its
inability to pay its creditors, government is
obliged to either (a) take over Terminal III
and assume all of Piatco's debts or (b)
permit the qualified unpaid creditors to be
substituted in place of Piatco or to
designate a new operator. And in the event
of government's breach of contract, Piatco
may compel it to purchase the terminal at
fair market value, per Section 8.06(b) of the
CA.
10. Under the DCA, any delay by Piatco in
the payment of the amounts due the
government constitutes breach of contract.
However, under the CA, such delay does
not necessarily constitute breach of
contract, since Piatco is permitted to
suspend payments to the government in
order to first satisfy the claims of its
secured creditors, per Section 8.04(d) of the
CA.
It goes without saying that the amendment of the
Contract bidded out (the DCA or draft concession
agreement) - in such substantial manner, without
any public bidding, and after the bidding process had
been concluded on December 11, 1996 - is violative
of public policy on public biddings, as well as the
spirit and intent of the BOT Law. The whole point of
going through the public bidding exercise was
completely lost. Its very rationale was totally
subverted by permitting Piatco to amend the
contract for which public bidding had already been
concluded. Competitive bidding aims to obtain the
best deal possible by fostering transparency and
preventing favoritism, collusion and fraud in the
awarding of contracts. That is the reason why
procedural rules pertaining to public bidding
demand strict observance.
26

In a relatively early case, Caltex v. Delgado
Brothers,
27
this Court made it clear that substantive
amendments to a contract for which a public bidding
has already been finished should only be awarded
after another public bidding:
"The due execution of a contract after
public bidding is a limitation upon the right
of the contracting parties to alter or amend
it without another public bidding, for
otherwise what would a public bidding be
good for if after the execution of a contract
after public bidding, the contracting parties
may alter or amend the contract, or even
cancel it, at their will? Public biddings are
held for the protection of the public, and to
give the public the best possible advantages
by means of open competition between the
bidders. He who bids or offers the best
terms is awarded the contract subject of
the bid, and it is obvious that such
protection and best possible advantages to
the public will disappear if the parties to a
contract executed after public bidding may
alter or amend it without another previous
public bidding."
28

The aforementioned case dealt with the
unauthorized amendment of a contract executed
after public bidding; in the situation before us, the
amendments were made also after the bidding, but
prior to execution. Be that as it may, the same
rationale underlying Caltex applies to the present
situation with equal force. Allowing the winning
bidder to renegotiate the contract for which the
bidding process has ended is tantamount to
permitting it to put in anything it wants. Here, the
winning bidder (Piatco) did not even bother to wait
until after actual execution of the contract before
rushing to amend it. Perhaps it believed that if the
changes were made to a contract already won
through bidding (DCA) instead of waiting until it is
executed, the amendments would not be noticed or
discovered by the public.
In a later case, Mata v. San Diego,
29
this Court
reiterated its ruling as follows:
"It is true that modification of government
contracts, after the same had been
awarded after a public bidding, is not
allowed because such modification serves
to nullify the effects of the bidding and
whatever advantages the Government had
secured thereby and may also result in
manifest injustice to the other bidders. This
prohibition, however, refers to a change in
vital and essential particulars of the
agreement which results in a substantially
new contract."
Piatco's counter-argument may be summed up thus:
There was nothing in the 1994 IRR that prohibited
further negotiations and eventual amendments to
the DCA even after the bidding had been concluded.
In fact, PBAC Bid Bulletin No. 3 states:
"[A]mendments to the Draft Concession Agreement
shall be issued from time to time. Said amendments
will only cover items that would not materially affect
the preparation of the proponent's proposal."
I submit that accepting such warped argument will
result in perverting the policy underlying public
bidding. The BOT Law cannot be said to allow the
negotiation of contractual stipulations resulting in a
substantially new contract after the bidding process
and price challenge had been concluded. In fact, the
BOT Law, in recognition of the time, money and
effort invested in an unsolicited proposal, accords its
originator the privilege of matching the challenger's
bid.
Section 4-A of the BOT Law specifically refers to a
"lower price proposal" by a competing bidder; and to
the right of the original proponent "to match the
price" of the challenger. Thus, only the price
proposals are in play. The terms, conditions and
stipulations in the contract for which public bidding
has been concluded are understood to remain intact
and not be subject to further negotiation. Otherwise,
the very essence of public bidding will be destroyed -
there will be no basis for an exact comparison
between bids.
Moreover, Piatco misinterpreted the meaning
behind PBAC Bid Bulletin No. 3. The phrase
amendments . . . from time to time refers only to
those amendments to the draft concession
agreement issued by the PBAC prior to the
submission of the price challenge; it certainly does
not include or permit amendments negotiated for
and introduced after the bidding process, has been
terminated.
Piatco's Concession Agreement Was Further
Amended, (ARCA) Again Without Public Bidding
Not satisfied with the Concession Agreement, Piatco
- once more without bothering with public bidding -
negotiated with government for still more
substantial changes. The result was the Amended
and Restated Concession Agreement (ARCA)
executed on November 26, 1998. The following
changes were introduced:
1. The definition of Attendant Liabilities was
further amended with the result that the
unpaid loans of Piatco, for which
government may be required to answer, are
no longer limited to only those loans
recorded in Piatco's books or loans whose
proceeds were actually used in the Terminal
III project.
30

2. Although the contract may be terminated
due to breach by Piatco, it will not be liable
to pay the government any Liquidated
Damages if a new operator is designated to
take over the operation of the terminal.
31

3. The Liquidated Damages which
government becomes liable for in case of its
breach of contract were substantially
increased.
32

4. Government's right to appoint a
comptroller for Piatco in case the latter
encounters liquidity problems was
deleted.
33

5. Government is made liable for
Incremental and Consequential Costs and
Losses in case it fails to comply or cause any
third party under its direct or indirect
control to comply with the special
obligations imposed on government.
34

6. The insurance policies obtained by Piatco
covering the terminal are now required to
be assigned to the Senior Lenders as
security for the loans; previously, their
proceeds were to be used to repair and
rehabilitate the facility in case of damage.
35

7. Government bound itself to set the initial
rate of the terminal fee, to be charged
when Terminal III begins operations, at an
amount higher than US$20.
36

8. Government waived its defense of the
illegality of the contract and even agreed to
be liable to pay damages to Piatco in the
event the contract was declared illegal.
37

9. Even though government may be entitled
to terminate the ARCA on account of
breach by Piatco, government is still liable
to pay Piatco the appraised value of
Terminal III or the Attendant Liabilities, if
the termination occurs before the In-
Service Date.
38
This condition contravenes
the BOT Law provision on termination
compensation.
10. Government is obligated to take the
administrative action required for Piatco's
imposition, collection and application of all
Public Utility Revenues.
39
No such obligation
existed previously.
11. Government is now also obligated to
perform and cause other persons and
entities under its direct or indirect control
to perform all acts necessary to perfect the
security interests to be created in favor of
Piatco's Senior Lenders.
40
No such
obligation existed previously.
12. DOTC/MIAA's right of intervention in
instances where Piatco's Non-Public Utility
Revenues become exorbitant or excessive
has been removed.
41

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

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

15. The Parametric Formula in the contract,
which is utilized to compute for
adjustments/increases to the public utility
revenues (i.e., aircraft parking and tacking
fees, check-in counter fee and terminal fee),
was revised to permit Piatco to input its
more costly short-term borrowing rates
instead of the longer-terms rates in the
computations for adjustments, with the end
result that the changes will redound to its
greater financial benefit.
16. The Certificate of Completion simply
deleted the successful performance-testing
of the terminal facility in accordance with
defined performance standards as a pre-
condition for government's acceptance of
the terminal facility.
44

In sum, the foregoing revisions and amendments as
embodied in the ARCA constitute very material
alterations of the terms and conditions of the CA,
and give further manifestly undue advantage to
Piatco at the expense of government. Piatco claims
that the changes to the CA were necessitated by the
demands of its foreign lenders. However, no proof
whatsoever has been adduced to buttress this claim.
In any event, it is quite patent that the sum total of
the aforementioned changes resulted in drastically
weakening the position of government to a degree
that seems quite excessive, even from the
standpoint of a businessperson who regularly
transacts with banks and foreign lenders, is familiar
with their mind-set, and understands what
motivates them. On the other hand, whatever it was
that impelled government officials concerned to
accede to those grossly disadvantageous changes, I
can only hazard a guess.
There is no question in my mind that the ARCA was
unauthorized and illegal for lack of public bidding
and for being patently disadvantageous to
government.
The Three Supplements Imposed New Obligations
on Government, Also Without Prior Public Bidding
After Piatco had managed to breach the protective
rampart of public bidding, it recklessly went on a
rampage of further assaults on the ARCA.
The First Supplement Is as Void as the ARCA
In the First Supplement ("FS") executed on August
27, 1999, the following changes were made to the
ARCA:
1. The amounts payable by Piatco to
government were reduced by allowing
additional exceptions to the Gross
Revenues in which government is supposed
to participate.
45

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

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

4. The FS also imposed on government ten
(10) "Additional Special Obligations,"
including the following:
(a) Working for the removal of the
general aviation traffic from the
NAIA airport complex
48

(b) Providing through MIAA the
land required by Piatco for the
taxilane and one taxiway at no cost
to Piatco
49

(c) Implementing the government's
existing storm drainage master
plan
50

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

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

5. Government is required to work for the
immediate reversion to MIAA of the
Nayong Pilipino National Park.
54

6. Government's share in the terminal fees
collected was revised from a flat rate of
P180 to 36 percent thereof; together with
government's percentage share in the gross
revenues of Piatco, the amount will be
remitted to government in pesos instead of
US dollars.
55
This amendment enables
Piatco to benefit from the further erosion of
the peso-dollar exchange rate, while
preventing government from building up its
foreign exchange reserves.
7. All payments from Piatco to government
are now to be invoiced to MIAA, and
payments are to accrue to the latter's
exclusive benefit.
56
This move appears to be
in support of the funds MIAA advanced to
DPWH.
I must emphasize that the First Supplement is void in
two respects. First, it is merely an amendment to the
ARCA, upon which it is wholly dependent; therefore,
since the ARCA is void, inexistent and not capable of
being ratified or amended, it follows that the FS too
is void, inexistent and inoperative. Second, even
assuming arguendo that the ARCA is somehow
remotely valid, nonetheless the FS, in imposing
significant new obligations upon government,
altered the fundamental terms and stipulations of
the ARCA, thus necessitating a public bidding all over
again. That the FS was entered into sans public
bidding renders it utterly void and inoperative.
The Second Supplement Is Similarly Void and
Inexistent
The Second Supplement ("SS") was executed
between the government and Piatco on September
4, 2000. It calls for Piatco, acting not as
concessionaire of NAIA Terminal III but as a public
works contractor, to undertake - in the
government's stead - the clearing, removal,
demolition and disposal of improvements,
subterranean obstructions and waste materials at
the project site.
57

The scope of the works, the procedures involved,
and the obligations of the contractor are provided
for in Parts II and III of the SS. Section 4.1 sets out
the compensation to be paid, listing specific rates
per cubic meter of materials for each phase of the
work - excavation, leveling, removal and disposal,
backfilling and dewatering. The amounts collectible
by Piatco are to be offset against the Annual
Guaranteed Payments it must pay government.
Though denominated as Second Supplement, it was
nothing less than an entirely new public works
contract. Yet it, too, did not undergo any public
bidding, for which reason it is also void and
inoperative.
Not surprisingly, Piatco had to subcontract the works
to a certain Wintrack Builders, a firm reputedly
owned by a former high-ranking DOTC official. But
that is another story altogether.
The Third Supplement Is Likewise Void and
Inexistent
The Third Supplement ("TS"), executed between the
government and Piatco on June 22, 2001, passed on
to the government certain obligations of Piatco as
Terminal III concessionaire, with respect to the
surface road connecting Terminals II and III.
By way of background, at the inception of and
forming part of the NAIA Terminal III project was the
proposed construction of an access tunnel crossing
Runway 13/31, which. would connect Terminal III to
Terminal II. The Bid Documents in Section
4.1.2.3[B][i] declared that the said access tunnel was
subject to further negotiation; but for purposes of
the bidding, the proponent should submit a bid for it
as well. Therefore, the tunnel was supposed to be
part and parcel of the Terminal III project.
However, in Section 5 of the First Supplement, the
parties declared that the access tunnel was not
economically viable at that time. In lieu thereof, the
parties agreed that a surface access road (now called
the T2-T3 Road) was to be constructed by Piatco to
connect the two terminals. Since it was plainly in
substitution of the tunnel, the surface road
construction should likewise be considered part and
parcel of the same project, and therefore part of
Piatco's obligation as well. While the access tunnel
was estimated to cost about P800 million, the
surface road would have a price tag in the vicinity of
about P100 million, thus producing significant
savings for Piatco.
Yet, the Third Supplement, while confirming that
Piatco would construct the T2-T3 Road, nevertheless
shifted to government some of the obligations
pertaining to the former, as follows:
1. Government is now obliged to remove at
its own expense all tenants, squatters,
improvements and/or waste materials on
the site where the T2-T3 road is to be
constructed.
58
There was no similar
obligation on the part of government
insofar as the access tunnel was concerned.
2. Should government fail to carry out its
obligation as above described, Piatco may
undertake it on government's behalf,
subject to the terms and conditions
(including compensation payments)
contained in the Second Supplement.
59

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

The TS depends upon and is intended to supplement
the ARCA as well as the First Supplement, both of
which are void and inexistent and not capable of
being ratified or amended. It follows that the TS is
likewise void, inexistent and inoperative. And even
if, hypothetically speaking, both ARCA and FS are
valid, still, the Third Supplement - imposing as it
does significant new obligations upon government -
would in effect alter the terms and stipulations of
the ARCA in material respects, thus necessitating
another public bidding. Since the TS was not
subjected to public bidding, it is consequently utterly
void as well. At any rate, the TS created new
monetary obligations on the part of government, for
which there were no prior appropriations. Hence it
follows that the same is void ab initio.
In patiently tracing the progress of the Piatco
contracts from their inception up to the present, I
noted that the whole process was riddled with
significant lapses, if not outright irregularity and
wholesale violations of law and public policy. The
rationale of beginning at the beginning, so to speak,
will become evident when the question of what to
do with the five Piatco contracts is discussed later
on.
In the meantime, I shall take up specific, provisions
or changes in the contracts and highlight the more
prominent objectionable features.
Government Directly Guarantees Piatco Debts
Certainly the most discussed provision in the parties'
arguments is the one creating an unauthorized,
direct government guarantee of Piatco's obligations
in favor of the lenders.
Section 4-A of the BOT Law as amended states that
unsolicited proposals, such as the NAIA Terminal III
Project, may be accepted by government provided
inter alia that no direct government guarantee,
subsidy or equity is required. In short, such
guarantee is prohibited in unsolicited proposals.
Section 2(n) of the same legislation defines direct
government guarantee as "an agreement whereby
the government or any of its agencies or local
government units (will) assume responsibility for the
repayment of debt directly incurred by the project
proponent in implementing the project in case of a
loan default."
Both the CA and the ARCA have provisions that
undeniably create such prohibited government
guarantee. Section 4.04 (c)(iv) to (vi) of the ARCA,
which is similar to Section 4.04 of the CA, provides
thus:
"(iv) that if Concessionaire is in default
under a payment obligation owed to the
Senior Lenders, and as a result thereof the
Senior Lenders have become entitled to
accelerate the Senior Loans, the Senior
Lenders shall have the right to notify GRP of
the same . . .;
(v) . . . the Senior Lenders may after written
notification to GRP, transfer the
Concessionaire's rights and obligations to a
transferee . . .;
(vi) if the Senior Lenders . . . are unable to . .
. effect a transfer . . ., then GRP and the
Senior Lenders shall endeavor . . . to enter
into any other arrangement relating to the
Development Facility . . . If no agreement
relating to the Development Facility is
arrived at by GRP and the Senior Lenders
within the said 180-day period, then at the
end thereof the Development Facility shall
be transferred by the Concessionaire to GRP
or its designee and GRP shall make a
termination payment to Concessionaire
equal to the Appraised Value (as hereinafter
defined) of the Development Facility or the
sum of the Attendant Liabilities, if greater. .
. ."
In turn, the term Attendant Liabilities is defined in
Section 1.06 of the ARCA as follows:
"Attendant Liabilities refer to all amounts in
each case supported by verifiable evidence
from time to time owed or which may
become, owing by Concessionaire to Senior
Lenders or any other persons or entities
who have provided, loaned or advanced
funds or provided financial facilities to
Concessionaire for the Project, including,
without limitation, all principal, interest,
associated fees, charges, reimbursements,
and other related expenses (including the
fees, charges and expenses of any agents or
trustees of such persons or entities),
whether payable at maturity, by
acceleration or otherwise, and further
including amounts owed by Concessionaire
to its professional consultants and advisers,
suppliers, contractors and sub-contractors."
Government's agreement to pay becomes effective
in the event of a default by Piatco on any of its loan
obligations to the Senior Lenders, and the amount
to be paid by government is the greater of either the
Appraised Value of Terminal III or the aggregate
amount of the moneys owed by Piatco - whether to
the Senior Lenders or to other entities, including its
suppliers, contractors and subcontractors. In effect,
therefore, this agreement already constitutes the
prohibited assumption by government of
responsibility for repayment of Piatco's debts in case
of a loan default. In fine, a direct government
guarantee.
It matters not that there is a roundabout procedure
prescribed by Section 4.04(c)(iv), (v) and (vi) that
would require, first, an attempt (albeit unsuccessful)
by the Senior Lenders to transfer Piatco's rights to a
transferee of their choice; and, second, an effort
(equally unsuccessful) to "enter into any other
arrangement" with the government regarding the
Terminal III facility, before government is required to
make good on its guarantee. What is abundantly
clear is the fact that, in the devious labyrinthine
process detailed in the aforesaid section, it is
entirely within the Senior Lenders' power,
prerogative and control - exercisable via a mere
refusal or inability to agree upon "a transferee" or
"any other arrangement" regarding the terminal
facility - to push the process forward to the ultimate
contractual cul-de-sac, wherein government will be
compelled to abjectly surrender and make good on
its guarantee of payment.
Piatco also argues that there is no proviso requiring
government to pay the Senior Lenders in the event
of Piatco's default. This is literally true, in the sense
that Section 4.04(c)(vi) of ARCA speaks of
government making the termination payment to
Piatco, not to the lenders. However, it is almost a
certainty that the Senior Lenders will already have
made Piatco sign over to them, ahead of time, its
right to receive such payments from government;
and/or they may already have had themselves
appointed its attorneys-in-fact for the purpose of
collecting and receiving such payments.
Nevertheless, as petitioners-in-intervention pointed
out in their Memorandum,
61
the termination
payment is to be made to Piatco, not to the lenders;
and there is no provision anywhere in the contract
documents to prevent it from diverting the proceeds
to its own benefit and/or to ensure that it will
necessarily use the same to pay off the Senior
Lenders and other creditors, in order to avert the
foreclosure of the mortgage and other liens on the
terminal facility. Such deficiency puts the interests of
government at great risk. Indeed, if the unthinkable
were to happen, government would be paying
several hundreds of millions of dollars, but the
mortgage liens on the facility may still be foreclosed
by the Senior Lenders just the same.
Consequently, the Piatco contracts are also
objectionable for grievously failing to adequately
protect government's interests. More accurately, the
contracts would consistently weaken and do away
with protection of government interests. As such,
they are therefore grossly lopsided in favor of Piatco
and/or its Senior Lenders.
While on this subject, it is well to recall the earlier
discussion regarding a particularly noticeable
alteration of the concept of "Attendant Liabilities."
In Section 1.06 of the CA defining the term, the
Piatco debts to be assumed/paid by government
were qualified by the phrases recorded and from
time to time outstanding in the books of the
Concessionaire and actually used for the project.
These phrases were eliminated from the ARCA's
definition of Attendant Liabilities.
Since no explanation has been forthcoming from
Piatco as to the possible justification for such a
drastic change, the only conclusion, possible is that it
intends to have all of its debts covered by the
guarantee, regardless of whether or not they are
disclosed in its books. This has particular reference
to those borrowings which were obtained in
violation of the loan covenants requiring Piatco to
maintain a minimum 70:30 debt-to-equity ratio, and
even if the loan proceeds were not actually used for
the project itself.
This point brings us back to the guarantee itself. In
Section 4.04(c)(vi) of ARCA, the amount which
government has guaranteed to pay as termination
payment is the greater of either (i) the Appraised
Value of the terminal facility or (ii) the aggregate of
the Attendant Liabilities. Given that the Attendant
Liabilities may include practically any Piatco debt
under the sun, it is highly conceivable that their sum
may greatly exceed the appraised value of the
facility, and government may end up paying very
much more than the real worth of Terminal III. (So
why did government have to bother with public
bidding anyway?)
In the final analysis, Section 4.04(c)(iv) to (vi) of the
ARCA is diametrically at odds with the spirit and the
intent of the BOT Law. The law meant to mobilize
private resources (the private sector) to take on the
burden and the risks of financing the construction,
operation and maintenance of relevant
infrastructure and development projects for the
simple reason that government is not in a position to
do so. By the same token, government guarantee
was prohibited, since it would merely defeat the
purpose and raison d'tre of a build-operate-and-
transfer project to be undertaken by the private
sector.
To the extent that the project proponent is able to
obtain loans to fund the project, those risks are
shared between the project proponent on the one
hand, and its banks and other lenders on the other.
But where the proponent or its lenders manage to
cajol or coerce the government into extending a
guarantee of payment of the loan obligations, the
risks assumed by the lenders are passed right back to
government. I cannot understand why, in the instant
case, government cheerfully assented to re-
assuming the risks of the project when it gave the
prohibited guarantee and thus simply negated the
very purpose of the BOT Law and the protection it
gives the government.
Contract Termination Provisions in the Piatco
Contracts Are Void
The BOT Law as amended provides for contract
termination as follows:
"Sec. 7. Contract Termination. - In the event
that a project is revoked, cancelled or
terminated by the government through no
fault of the project proponent or by mutual
agreement, the Government shall
compensate the said project proponent for
its actual expenses incurred in the project
plus a reasonable rate of return thereon not
exceeding that stated in the contract as of
the date of such revocation, cancellation or
termination: Provided, That the interest of
the Government in this instances [sic] shall
be duly insured with the Government
Service Insurance System or any other
insurance entity duly accredited by the
Office of the Insurance Commissioner:
Provided, finally, That the cost of the
insurance coverage shall be included in the
terms and conditions of the bidding
referred to above.
"In the event that the government defaults
on certain major obligations in the contract
and such failure is not remediable or if
remediable shall remain unremedied for an
unreasonable length of time, the project
proponent/contractor may, by prior notice
to the concerned national government
agency or local government unit specifying
the turn-over date, terminate the contract.
The project proponent/contractor shall be
reasonably compensated by the
Government for equivalent or
proportionate contract cost as defined in
the contract."
The foregoing statutory provision in effect provides
for the following limited instances when termination
compensation may be allowed:
1. Termination by the government through
no fault of the project proponent
2. Termination upon the parties' mutual
agreement
3. Termination by the proponent due to
government's default on certain major
contractual obligations
To emphasize, the law does not permit
compensation for the project proponent when
contract termination is due to the proponent's own
fault or breach of contract.
This principle was clearly violated in the Piatco
Contracts. The ARCA stipulates that government is to
pay termination compensation to Piatco even when
termination is initiated by government for the
following causes:
"(i) Failure of Concessionaire to finish the
Works in all material respects in accordance
with the Tender Design and the Timetable;
(ii) Commission by Concessionaire of a
material breach of this Agreement . . .;
(iii) . . . a change in control of
Concessionaire arising from the sale,
assignment, transfer or other disposition of
capital stock which results in an ownership
structure violative of statutory or
constitutional limitations;
(iv) A pattern of continuing or repeated
non-compliance, willful violation, or non-
performance of other terms and conditions
hereof which is hereby deemed a material
breach of this Agreement . . ."
62

As if that were not bad enough, the ARCA also
inserted into Section 8.01 the phrase "Subject to
Section 4.04." The effect of this insertion is that in
those instances where government may terminate
the contract on account of Piatco's breach, and it is
nevertheless required under the ARCA to make
termination compensation to Piatco even though
unauthorized by law, such compensation is to be
equivalent to the payment amount guaranteed by
government - either a) the Appraised Value of the
terminal facility or (b) the aggregate of the
Attendant Liabilities, whichever amount is greater!
Clearly, this condition is not in line with Section 7 of
the BOT Law. That provision permits a project
proponent to recover the actual expenses it incurred
in the prosecution of the project plus a reasonable
rate of return not in excess of that provided in the
contract; or to be compensated for the equivalent or
proportionate contract cost as defined in the
contract, in case the government is in default on
certain major contractual obligations.
Furthermore, in those instances where such
termination compensation is authorized by the BOT
Law, it is indispensable that the interest of
government be duly insured. Section 5.08 the ARCA
mandates insurance coverage for the terminal
facility; but all insurance policies are to be assigned,
and all proceeds are payable, to the Senior Lenders.
In brief, the interest being secured by such coverage
is that of the Senior Lenders, not that of
government. This can hardly be considered
compliance with law.
In essence, the ARCA provisions on termination
compensation result in another unauthorized
government guarantee, this time in favor of Piatco.
A Prohibited Direct Government Subsidy, Which at
the Same Time Is an Assault on the National Honor
Still another contractual provision offensive to law
and public policy is Section 8.01(d) of the ARCA,
which is a "bolder and badder" version of Section
8.04(d) of the CA.
It will be recalled that Section 4-A of the BOT Law as
amended prohibits not only direct government
guarantees, but likewise a direct government subsidy
for unsolicited proposals. Section 13.2. b. iii. of the
1999 IRR defines a direct government subsidy as
encompassing "an agreement whereby the
Government . . . will . . . postpone any payments due
from the proponent."
Despite the statutory ban, Section 8.01 (d) of the
ARCA provides thus:
"(d) The provisions of Section 8.01(a)
notwithstanding, and for the purpose of
preventing a disruption of the operations in
the Terminal and/or Terminal Complex, in
the event that at any time Concessionaire is
of the reasonable opinion that it shall be
unable to meet a payment obligation owed
to the Senior Lenders, Concessionaire shall
give prompt notice to GRP, through
DOTC/MIAA and to the Senior Lenders. In
such circumstances, the Senior Lenders (or
the Senior Lenders' Representative) may
ensure that after making provision for
administrative expenses and depreciation,
the cash resources of Concessionaire shall
first be used and applied to meet all
payment obligations owed to the Senior
Lenders. Any excess cash, after meeting
such payment obligations, shall be
earmarked for the payment of all sums
payable by Concessionaire to GRP under this
Agreement. If by reason of the foregoing
GRP should be unable to collect in full all
payments due to GRP under this
Agreement, then the unpaid balance shall
be payable within a 90-day grace period
counted from the relevant due date, with
interest per annum at the rate equal to the
average 91-day Treasury Bill Rate as of the
auction date immediately preceding the
relevant due date. If payment is not
effected by Concessionaire within the grace
period, then a spread of five (5%) percent
over the applicable 91-day Treasury Bill
Rate shall be added on the unpaid amount
commencing on the expiry of the grace
period up to the day of full payment. When
the temporary illiquidity of Concessionaire
shall have been corrected and the cash
position of Concessionaire should indicate
its ability to meet its maturing obligations,
then the provisions set forth under this
Section 8.01(d) shall cease to apply. The
foregoing remedial measures shall be
applicable only while there remains unpaid
and outstanding amounts owed to the
Senior Lenders." (Emphasis supplied)
By any manner of interpretation or application,
Section 8.01(d) of the ARCA clearly mandates the
indefinite postponement of payment of all of Piatco's
obligations to the government, in order to ensure
that Piatco's obligations to the Senior Lenders are
paid in full first. That is nothing more or less than the
direct government subsidy prohibited by the BOT
Law and the IRR. The fact that Piatco will pay
interest on the unpaid amounts owed to
government does not change the situation or render
the prohibited subsidy any less unacceptable.
But beyond the clear violations of law, there are
larger issues involved in the ARCA. Earlier, I
mentioned that Section 8.01(d) of the ARCA
completely eliminated the proviso in Section 8.04(d)
of the CA which gave government the right to
appoint a financial controller to manage the cash
position of Piatco during situations of financial
distress. Not only has government been deprived of
any means of monitoring and managing the
situation; worse, as can be seen from Section 8.01(d)
above-quoted, the Senior Lenders have effectively
locked in on the right to exercise financial
controllership over Piatco and to allocate its cash
resources to the payment of all amounts owed to
the Senior Lenders before allowing any payment to
be made to government.
In brief, this particular provision of the ARCA has
placed in the hands of foreign lenders the power and
the authority to determine how much (if at all) and
when the Philippine government (as grantor of the
franchise) may be allowed to receive from Piatco. In
that situation, government will be at the mercy of
the foreign lenders. This is a situation completely
contrary to the rationale of the BOT Law and to
public policy.
The aforesaid provision rouses mixed emotions -
shame and disgust at the parties' (especially the
government officials') docile submission and abject
servitude and surrender to the imperious and
excessive demands of the foreign lenders, on the
one hand; and vehement outrage at the affront to
the sovereignty of the Republic and to the national
honor, on the other. It is indeed time to put an end
to such an unbearable, dishonorable situation.
The Piatco Contracts Unarguably Violate
Constitutional Injunctions
I will now discuss the manner in which the Piatco
Contracts offended the Constitution.
The Exclusive Right Granted to Piatco to Operate a
Public Utility Is Prohibited by the Constitution
While Section 2.02 of the ARCA spoke of granting to
Piatco "a franchise to operate and maintain the
Terminal Complex," Section 3.02(a) of the same
ARCA granted to Piatco, for the entire term of the
concession agreement, "the exclusive right to
operate a commercial international passenger
terminal within the Island of Luzon" with the
exception of those three terminals already existing
63

at the time of execution of the ARCA.
Section 11 of Article XII of the Constitution prohibits
the grant of a "franchise, certificate, or any other
form of authorization for the operation of a public
utility" that is "exclusive in character."
In its Opinion No. 078, Series of 1995, the
Department of justice held that "the NAIA Terminal
III which . . . is a 'terminal for public use' is a public
utility." Consequently, the constitutional prohibition
against the exclusivity of a franchise applies to the
franchise for the operation of NAIA Terminal III as
well.
What was granted to Piatco was not merely a
franchise, but an "exclusive right" to operate an
international passenger terminal within the "Island
of Luzon." What this grant effectively means is that
the government is now estopped from exercising its
inherent power to award any other person another
franchise or a right to operate such a public utility, in
the event public interest in Luzon requires it. This
restriction is highly detrimental to government and
to the public interest. Former Secretary of Justice
Hernando B. Perez expressed this point well in his
Memorandum for the President dated 21 May 2002:
"Section 3.02 on 'Exclusivity'
"This provision gives to PIATCO (the
Concessionaire) the exclusive right to
operate a commercial international airport
within the Island of Luzon with the
exception of those already existing at the
time of the execution of the Agreement,
such as the airports at Subic, Clark and
Laoag City. In the case of the Clark
International Airport, however, the
provision restricts its operation beyond its
design capacity of 850,000 passengers per
annum and the operation of new terminal
facilities therein until after the new NAIA
Terminal III shall have consistently reached
or exceeded its design capacity of ten (10)
million passenger capacity per year for
three (3) consecutive years during the
concession period.
"This is an onerous and disadvantageous
provision. It effectively grants PIATCO a
monopoly in Luzon and ties the hands of
government in the matter of developing
new airports which may be found expedient
and necessary in carrying out any future
plan for an inter-modal transportation
system in Luzon.
"Additionally, it imposes an unreasonable
restriction on the operation of the Clark
International Airport which could adversely
affect the operation and development of
the Clark Special Economic Zone to the
economic prejudice of the local
constituencies that are being benefited by
its operation." (Emphasis supplied)
While it cannot be gainsaid that an enterprise that is
a public utility may happen to constitute a monopoly
on account of the very nature of its business and the
absence of competition, such a situation does not
however constitute justification to violate the
constitutional prohibition and grant an exclusive
franchise or exclusive right to operate a public utility.
Piatco's contention that the Constitution does not
actually prohibit monopolies is beside the point. As
correctly argued,
64
the existence of a monopoly by a
public utility is a situation created by circumstances
that do not encourage competition. This situation is
different from the grant of a franchise to operate a
public utility, a privilege granted by government. Of
course, the grant of a franchise may result in a
monopoly. But making such franchise exclusive is
what is expressly proscribed by the Constitution.
Actually, the aforementioned Section 3.02 of the
ARCA more than just guaranteed exclusivity; it also
guaranteed that the government will not improve or
expand the facilities at Clark - and in fact is required
to put a cap on the latter's operations - until after
Terminal III shall have been operated at or beyond
its peak capacity for three consecutive years.
65
As
counsel for public respondents pointed out, in the
real world where the rate of influx of international
passengers can fluctuate substantially from year to
year, it may take many years before Terminal III sees
three consecutive years' operations at peak capacity.
The Diosdado Macapagal International Airport may
thus end up stagnating for a long time. Indeed, in
order to ensure greater profits for Piatco, the
economic progress of a region has had to be
sacrificed.
The Piatco Contracts Violate the Time Limitation on
Franchises
Section 11 of Article XII of the Constitution also
provides that "no franchise, certificate or any other
form of authorization for the operation of a public
utility shall be . . . for a longer period than fifty
years." After all, a franchise held for an unreasonably
long time would likely give rise to the same evils as a
monopoly.
The Piatco Contracts have come up with an
innovative way to circumvent the prohibition and
obtain an extension. This fact can be gleaned from
Section 8.03(b) of the ARCA, which I quote thus:
"Sec. 8.03. Termination Procedure and
Consequences of Termination. -
a) x x x x x x x x x
b) In the event the Agreement is
terminated pursuant to Section
8.01 (b) hereof, Concessionaire
shall be entitled to collect the
Liquidated Damages specified in
Annex 'G'. The full payment by GRP
to Concessionaire of the Liquidated
Damages shall be a condition
precedent to the transfer by
Concessionaire to GRP of the
Development Facility. Prior to the
full payment of the Liquidated
Damages, Concessionaire shall to
the extent practicable continue to
operate the Terminal and the
Terminal Complex and shall be
entitled to retain and withhold all
payments to GRP for the purpose
of offsetting the same against the
Liquidated Damages. Upon full
payment of the Liquidated
Damages, Concessionaire shall
immediately transfer the
Development Facility to GRP on
'as-is-where-is' basis."
The aforesaid easy payment scheme is less beneficial
than it first appears. Although it enables government
to avoid having to make outright payment of an
obligation that will likely run into billions of pesos,
this easy payment plan will nevertheless cost
government considerable loss of income, which it
would earn if it were to operate Terminal III by itself.
Inasmuch as payments to the concessionaire (Piatco)
will be on "installment basis," interest charges on
the remaining unpaid balance would undoubtedly
cause the total outstanding balance to swell. Piatco
would thus be entitled to remain in the driver's seat
and keep operating the terminal for an indefinite
length of time.
The Contracts Create Two Monopolies for Piatco
By way of background, two monopolies were
actually created by the Piatco contracts. The first
and more obvious one refers to the business of
operating an international passenger terminal in
Luzon, the business end of which involves providing
international airlines with parking space for their
aircraft, and airline passengers with the use of
departure and arrival areas, check-in counters,
information systems, conveyor systems, security
equipment and paraphernalia, immigrations and
customs processing areas; and amenities such as
comfort rooms, restaurants and shops.
In furtherance of the first monopoly, the Piatco
Contracts stipulate that the NAIA Terminal III will be
the only facility to be operated as an international
passenger terminal;
66
that NAIA Terminals I and II
will no longer be operated as such;
67
and that no one
(including the government) will be allowed to
compete with Piatco in the operation of an
international passenger terminal in the NAIA
Complex.
68
Given that, at this time, the government
and Piatco are the only ones engaged in the business
of operating an international passenger terminal, I
am not acutely concerned with this particular
monopolistic situation.
There was however another monopoly within the
NAIA created by the subject contracts for Piatco - in
the business of providing international airlines with
the following: groundhandling, in-flight catering,
cargo handling, and aircraft repair and maintenance
services. These are lines of business activity in which
are engaged many service providers (including the
petitioners-in-intervention), who will be adversely
affected upon full implementation of the Piatco
Contracts, particularly Sections 3.01(d)
69
and (e)
70
of
both the ARCA and the CA.
On the one hand, Section 3.02(a) of the ARCA makes
Terminal III the only international passenger
terminal at the NAIA, and therefore the only place
within the NAIA Complex where the business of
providing airport-related services to international
airlines may be conducted. On the other hand,
Section 3.01(d) of the ARCA requires government,
through the MIAA, not to allow service providers
with expired MIAA contracts to renew or extend
their contracts to render airport-related services to
airlines. Meanwhile, Section 3.01(e) of the ARCA
requires government, through the DOTC and MIAA,
not to allow service providers - those with subsisting
concession agreements for services and operations
being conducted at Terminal I - to carry over their
concession agreements, services and operations to
Terminal III, unless they first enter into a separate
agreement with Piatco.
The aforementioned provisions vest in Piatco
effective and exclusive control over which service
provider may and may not operate at Terminal III
and render the airport-related services needed by
international airlines. It thereby possesses the power
to exclude competition. By necessary implication, it
also has effective control over the fees and charges
that will be imposed and collected by these service
providers.
This intention is exceedingly clear in the declaration
by Piatco that it is "completely within its rights to
exclude any party that it has not contracted with
from NAIA Terminal III."
71

Worse, there is nothing whatsoever in the Piatco
Contracts that can serve to restrict, control or
regulate the concessionaire's discretion and power
to reject any service provider and/or impose any
term or condition it may see fit in any contract it
enters into with a service provider. In brief, there is
no safeguard whatsoever to ensure free and fair
competition in the service-provider sector.
In the meantime, and not surprisingly, Piatco is first
in line, ready to exploit the unique business
opportunity. It announced
72
that it has accredited
three groundhandlers for Terminal III. Aside from the
Philippine Airlines, the other accredited entities are
the Philippine Airport and Ground Services
Globeground, Inc. ("PAGSGlobeground") and the
Orbit Air Systems, Inc. ("Orbit"). PAGSGlobeground is
a wholly-owned subsidiary of the Philippine Airport
and Ground Services, Inc. or PAGS,
73
while Orbit is a
wholly-owned subsidiary of Friendship Holdings,
Inc.,
74
which is in turn owned 80 percent by PAGS.
75

PAGS is a service provider owned 60 percent by the
Cheng Family;
76
it is a stockholder of 35 percent of
Piatco
77
and is the latter's designated contractor-
operator for NAIA Terminal III.
78

Such entry into and domination of the airport-
related services sector appear to be very much in
line with the following provisions contained in the
First Addendum to the Piatco Shareholders
Agreement,
79
executed on July 6, 1999, which
appear to constitute a sort of master plan to create a
monopoly and combinations in restraint of trade:
"11. The Shareholders shall ensure:
a. x x x x x x x x x.;
b. That (Phil. Airport and Ground Services,
Inc.) PAGS and/or its designated Affiliates
shall, at all times during the Concession
Period, be exclusively authorized by
(PIATCO) to engage in the provision of
ground-handling, catering and fueling
services within the Terminal Complex.
c. That PAIRCARGO and/or its designated
Affiliate shall, during the Concession Period,
be the only entities authorized to construct
and operate a warehouse for all cargo
handling and related services within the
Site."
Precisely, proscribed by our Constitution are the
monopoly and the restraint of trade being fostered
by the Piatco Contracts through the erection of
barriers to the entry of other service providers into
Terminal III. In Tatad v. Secretary of the Department
of Energy,
80
the Court ruled:
". . . [S]ection 19 of Article XII of the
Constitution . . . mandates: 'The State shall
regulate or prohibit monopolies when the
public interest so requires. No combinations
in restraint of trade or unfair competition
shall be allowed.'
"A monopoly is a privilege or peculiar
advantage vested in one or more persons or
companies, consisting in the exclusive right
or power to carry on a particular business
or trade, manufacture a particular article, or
control the sale or the whole supply of a
particular commodity. It is a form of market
structure in which one or only a few firms
dominate the total sales of a product or
service. On the other hand, a combination
in restraint of trade is an agreement or
understanding between two or more
persons, in the form of a contract, trust,
pool, holding company, or other form of
association, for the purpose of unduly
restricting competition, monopolizing trade
and commerce in a certain commodity,
controlling its production, distribution and
price, or otherwise interfering with freedom
of trade without statutory authority.
Combination in restraint of trade refers to
the means while monopoly refers to the
end.
"x x x x x x x x x
"Section 19, Article XII of our Constitution is
anti-trust in history and in spirit. It espouses
competition. The desirability of competition
is the reason for the prohibition against
restraint of trade, the reason for the
interdiction of unfair competition, and the
reason for regulation of unmitigated
monopolies. Competition is thus the
underlying principle of [S]ection 19, Article
XII of our Constitution, . . ."
81

Gokongwei Jr. v. Securities and Exchange
Commission
82
elucidates the criteria to be employed:
"A 'monopoly' embraces any combination the
tendency of which is to prevent competition in the
broad and general sense, or to control prices to the
detriment of the public. In short, it is the
concentration of business in the hands of a few. The
material consideration in determining its existence is
not that prices are raised and competition actually
excluded, but that power exists to raise prices or
exclude competition when desired."
83
(Emphasis
supplied)
The Contracts Encourage Monopolistic Pricing, Too
Aside from creating a monopoly, the Piatco contracts
also give the concessionaire virtually limitless power
over the charging of fees, rentals and so forth. What
little "oversight function" the government might be
able and minded to exercise is less than sufficient to
protect the public interest, as can be gleaned from
the following provisions:
"Sec. 6.06. Adjustment of Non-Public Utility
Fees and Charges
"For fees, rentals and charges constituting
Non-Public Utility Revenues, Concessionaire
may make any adjustments it deems
appropriate without need for the consent
of GRP or any government agency subject
to Sec. 6.03(c)."
Section 6.03(c) in turn provides:
"(c) Concessionaire shall at all times be
judicious in fixing fees and charges
constituting Non-Public Utility Revenues in
order to ensure that End Users are not
unreasonably deprived of services. While
the vehicular parking fee, porterage fee and
greeter/wellwisher fee constitute Non-
Public Utility Revenues of Concessionaire,
GRP may require Concessionaire to explain
and justify the fee it may set from time to
time, if in the reasonable opinion of GRP
the said fees have become exorbitant
resulting in the unreasonable deprivation of
End Users of such services."
It will be noted that the above-quoted provision has
no teeth, so the concessionaire can defy the
government without fear of any sanction. Moreover,
Section 6.06 - taken together with Section 6.03(c) of
the ARCA - falls short of the standard set by the BOT
Law as amended, which expressly requires in Section
2(b) that the project proponent is "allowed to charge
facility users appropriate tolls, fees, rentals and
charges not exceeding those proposed in its bid or
as negotiated and incorporated in the contract x x
x."
The Piatco Contracts Violate Constitutional
Prohibitions Against
Impairment of Contracts and Deprivation of
Property Without Due Process
Earlier, I discussed how Section 3.01(e)
84
of both the
CA and the ARCA requires government, through
DOTC/MIAA, not to permit the carry-over to
Terminal III of the services and operations of certain
service providers currently operating at Terminal I
with subsisting contracts.
By the In-Service Date, Terminal III shall be the only
facility to be operated as an international passenger
terminal at the NAIA;
85
thus, Terminals I and II shall
no longer operate as such,
86
and no one shall be
allowed to compete with Piatco in the operation of
an international passenger terminal in the NAIA.
87

The bottom line is that, as of the In-Service Date,
Terminal III will be the only terminal where the
business of providing airport-related services to
international airlines and passengers may be
conducted at all.
Consequently, government through the DOTC/MIAA
will be compelled to cease honoring existing
contracts with service providers after the In-Service
Date, as they cannot be allowed to operate in
Terminal III.
In short, the CA and the ARCA obligate and constrain
government to break its existing contracts with
these service providers.
Notably, government is not in a position to require
Piatco to accommodate the displaced service
providers, and it would be unrealistic to think that
these service providers can perform their service
contracts in some other international airport outside
Luzon. Obviously, then, these displaced service
providers are - to borrow a quaint expression - up
the river without a paddle. In plainer terms, they will
have lost their businesses entirely, in the blink of an
eye.
What we have here is a set of contractual provisions
that impair the obligation of contracts and
contravene the constitutional prohibition against
deprivation of property without due process of
law.
88

Moreover, since the displaced service providers,
being unable to operate, will be forced to close shop,
their respective employees - among them Messrs.
Agan and Lopez et al. - have very grave cause for
concern, as they will find themselves out of
employment and bereft of their means of livelihood.
This situation comprises still another violation of the
constitution prohibition against deprivation of
property without due process.
True, doing business at the NAIA may be viewed
more as a privilege than as a right. Nonetheless,
where that privilege has been availed of by the
petitioners-in-intervention service providers for
years on end, a situation arises, similar to that in
American Inter-fashion v. GTEB.
89
We held therein
that a privilege enjoyed for seven years "evolved into
some form of property right which should not be
removed x x x arbitrarily and without due process."
Said pronouncement is particularly relevant and
applicable to the situation at bar because the
livelihood of the employees of petitioners-
intervenors are at stake.
The Piatco Contracts Violate Constitutional
Prohibition
Against Deprivation of Liberty Without Due Process
The Piatco Contracts by locking out existing service
providers from entry into Terminal III and restricting
entry of future service providers, thereby infringed
upon the freedom - guaranteed to and heretofore
enjoyed by international airlines - to contract with
local service providers of their choice, and vice versa.
Both the service providers and their client airlines
will be deprived of the right to liberty, which
includes the right to enter into all contracts,
90
and/or
the right to make a contract in relation to one's
business.
91

By Creating New Financial Obligations for
Government,
Supplements to the ARCA Violate the Constitutional
Ban on Disbursement of Public Funds Without Valid
Appropriation
Clearly prohibited by the Constitution is the
disbursement of public funds out of the treasury,
except in pursuance of an appropriation made by
law.
92
The immediate effect of this constitutional
ban is that all the various agencies of government
are constrained to limit their expenditures to the
amounts appropriated by law for each fiscal year;
and to carefully count their cash before taking on
contractual commitments. Giving flesh and form to
the injunction of the fundamental law, Sections 46
and 47 of Executive Order 292, otherwise known as
the Administrative Code of 1987, provide as follows:
"Sec. 46. Appropriation Before Entering into
Contract. - (1) No contract involving the
expenditure of public funds shall be entered
into unless there is an appropriation
therefor, the unexpended balance of which,
free of other obligations, is sufficient to
cover the proposed expenditure; and . .
"Sec. 47. Certificate Showing Appropriation
to Meet Contract. - Except in the case of a
contract for personal service, for supplies
for current consumption or to be carried in
stock not exceeding the estimated
consumption for three (3) months, or
banking transactions of government-owned
or controlled banks, no contract involving
the expenditure of public funds by any
government agency shall be entered into or
authorized unless the proper accounting
official of the agency concerned shall have
certified to the officer entering into the
obligation that funds have been duly
appropriated for the purpose and that the
amount necessary to cover the proposed
contract for the current calendar year is
available for expenditure on account
thereof, subject to verification by the
auditor concerned. The certificate signed by
the proper accounting official and the
auditor who verified it, shall be attached to
and become an integral part of the
proposed contract, and the sum so certified
shall not thereafter be available for
expenditure for any other purpose until the
obligation of the government agency
concerned under the contract is fully
extinguished."
Referring to the aforequoted provisions, this Court
has held that "(I)t is quite evident from the tenor of
the language of the law that the existence of
appropriations and the availability of funds are
indispensable pre-requisites to or conditions sine
qua non for the execution of government contracts.
The obvious intent is to impose such conditions as a
priori requisites to the validity of the proposed
contract."
93

Notwithstanding the constitutional ban, statutory
mandates and Jurisprudential precedents, the three
Supplements to the ARCA, which were not approved
by NEDA, imposed on government the additional
burden of spending public moneys without prior
appropriation.
In the First Supplement ("FS") dated August 27,
1999, the following requirements were imposed on
the government:
To construct, maintain and keep in good
repair and operating condition all airport
support services, facilities, equipment and
infrastructure owned and/or operated by
MIAA, which are not part of the Project or
which are located outside the Site, even
though constructed by Concessionaire -
including the access road connecting
Terminals II and III and the taxilane,
taxiways and runways
To obligate the MIAA to provide funding
for the upkeep, maintenance and repair of
the airports and facilities owned or
operated by it and by third persons under
its control in order to ensure compliance
with international standards; and holding
MIAA liable to Piatco for the latter's losses,
expenses and damages as well as for the
latter's liability to third persons, in case
MIAA fails to perform such obligations; in
addition, MIAA will also be liable for the
incremental and consequential costs of the
remedial work done by Piatco on account of
the former's default.
Section 4 of the FS imposed on
government ten (10) "Additional Special
Obligations," including the following:
o Providing thru MIAA the land
required by Piatco for the taxilane
and one taxiway, at no cost to
Piatco
o Implementing the government's
existing storm drainage master
plan
o Coordinating with DPWH the
financing, implementation and
completion of the following works
before the In-Service Date: three
left-turning overpasses (Edsa to
Tramo St., Tramo to Andrews Ave.,
and Manlunas Road to Sales Ave.)
and a road upgrade and
improvement program involving
widening, repair and resurfacing of
Sales Road, Andrews Avenue and
Manlunas Road; improvement of
Nichols Interchange; and removal
of squatters along Andrews
Avenue
o Dealing directly with BCDA and the
Philippine Air Force in acquiring
additional land or right of way for
the road upgrade and
improvement program
o Requiring government to work for
the immediate reversion to MIAA
of the Nayong Pilipino National
Park, in order to permit the
building of the second west
parallel taxiway
Section 5 of the FS also provides that in
lieu of the access tunnel, a surface access
road (T2-T3) will be constructed. This
provision requires government to expend
funds to purchase additional land from
Nayong Pilipino and to clear the same in
order to be able to deliver clean possession
of the site to Piatco, as required in Section
5(c) of the FS.
On the other hand, the Third Supplement ("TS")
obligates the government to deliver, within 120 days
from date thereof, clean possession of the land on
which the T2-T3 Road is to be constructed.
The foregoing contractual stipulations undeniably
impose on government the expenditures of public
funds not included in any congressional
appropriation or authorized by any other statute.
Piatco however attempts to take these stipulations
out of the ambit of Sections 46 and 47 of the
Administrative Code by characterizing them as
stipulations for compliance on a "best-efforts basis"
only.
To determine whether the additional obligations
under the Supplements may really be undertaken on
a best-efforts basis only, the nature of each of these
obligations must be examined in the context of its
relevance and significance to the Terminal III Project,
as well as of any adverse impact that may result if
such obligation is not performed or undertaken on
time. In short, the criteria for determining whether
the best-efforts basis will apply is whether the
obligations are critical to the success of the Project
and, accordingly, whether failure to perform them
(or to perform them on time) could result in a
material breach of the contract.
Viewed in this light, the "Additional Special
Obligations" set out in Section 4 of the FS take on a
different aspect. In particular, each of the following
may all be deemed to play a major role in the
successful and timely prosecution of the Terminal III
Project: the obtention of land required by PIATCO
for the taxilane and taxiway; the implementation of
government's existing storm drainage master plan;
and coordination with DPWH for the completion of
the three left-turning overpasses before the In-
Service Date, as well as acquisition and delivery of
additional land for the construction of the T2-T3
access road.
Conversely, failure to deliver on any of these
obligations may conceivably result in substantial
prejudice to the concessionaire, to such an extent as
to constitute a material breach of the Piatco
Contracts. Whereupon, the concessionaire may
outrightly terminate the Contracts pursuant to
Section 8.01(b)(i) and (ii) of the ARCA and seek
payment of Liquidated Damages in accordance with
Section 8.02(a) of the ARCA; or the concessionaire
may instead require government to pay the
Incremental and Consequential Losses under Section
1.23 of the ARCA.
94
The logical conclusion then is
that the obligations in the Supplements are not to be
performed on a best-efforts basis only, but are
unarguably mandatory in character.
Regarding MIAA's obligation to coordinate with the
DPWH for the complete implementation of the road
upgrading and improvement program for Sales,
Andrews and Manlunas Roads (which provide access
to the Terminal III site) prior to the In-Service Date, it
is essential to take note of the fact that there was a
pressing need to complete the program before the
opening of Terminal III.
95
For that reason, the MIAA
was compelled to enter into a memorandum of
agreement with the DPWH in order to ensure the
timely completion of the road widening and
improvement program. MIAA agreed to advance the
total amount of P410.11 million to DPWH for the
works, while the latter was committed to do the
following:
"2.2.8. Reimburse all advance payments to
MIAA including but not limited to interest,
fees, plus other costs of money within the
periods CY2004 and CY2006 with payment
of no less than One Hundred Million Pesos
(PhP100M) every year.
"2.2.9. Perform all acts necessary to include
in its CY2004 to CY2006 budget allocation
the repayments for the advances made by
MIAA, to ensure that the advances are fully
repaid by CY2006. For this purpose, DPWH
shall include the amounts to be
appropriated for reimbursement to MIAA in
the "Not Needing Clearance" column of
their Agency Budget Matrix (ABM)
submitted to the Department of Budget and
Management."
It can be easily inferred, then, that DPWH did not set
aside enough funds to be able to complete the
upgrading program for the crucially situated access
roads prior to the targeted opening date of Terminal
III; and that, had MIAA not agreed to lend the P410
Million, DPWH would not have been able to
complete the program on time. As a consequence,
government would have been in breach of a material
obligation. Hence, this particular undertaking of
government may likewise not be construed as being
for best-efforts compliance only.
They also Infringe on the Legislative Prerogative
and Power Over the Public Purse
But the particularly sad thing about this transaction
between MIAA and DPWH is the fact that both
agencies were maneuvered into (or allowed
themselves to be maneuvered into) an agreement
that would ensure delivery of upgraded roads for
Piatco's benefit, using funds not allocated for that
purpose. The agreement would then be presented to
Congress as a done deal. Congress would thus be
obliged to uphold the agreement and support it with
the necessary allocations and appropriations for
three years, in order to enable DPWH to deliver on
its committed repayments to MIAA. The net result is
an infringement on the legislative power over the
public purse and a diminution of Congress' control
over expenditures of public funds - a development
that would not have come about, were it not for the
Supplements. Very clever but very illegal!
EPILOGUE
What Do We Do Now?
In the final analysis, there remains but one ultimate
question, which I raised during the Oral Argument on
December 10, 2002: What do we do with the Piatco
Contracts and Terminal III?
96
(Feeding directly into
the resolution of the decisive question is the other
nagging issue: Why should we bother with
determining the legality and validity of these
contracts, when the Terminal itself has already been
built and is practically complete?)
Prescinding from all the foregoing disquisition, I find
that all the Piatco contracts, without exception, are
void ab initio, and therefore inoperative. Even the
very process by which the contracts came into being
- the bidding and the award - has been riddled with
irregularities galore and blatant violations of law and
public policy, far too many to ignore. There is thus
no conceivable way, as proposed by some, of saving
one (the original Concession Agreement) while
junking all the rest.
Neither is it possible to argue for the retention of the
Draft Concession Agreement (referred to in the
various pleadings as the Contract Bidded Out) as the
contract that should be kept in force and effect to
govern the situation, inasmuch as it was never
executed by the parties. What Piatco and the
government executed was the Concession
Agreement which is entirely different from the Draft
Concession Agreement.
Ultimately, though, it would be tantamount to an
outrageous, grievous and unforgivable mutilation of
public policy and an insult to ourselves if we opt to
keep in place a contract - any contract - for to do so
would assume that we agree to having Piatco
continue as the concessionaire for Terminal III.
Despite all the insidious contraventions of the
Constitution, law and public policy Piatco
perpetrated, keeping Piatco on as concessionaire
and even rewarding it by allowing it to operate and
profit from Terminal III - instead of imposing upon it
the stiffest sanctions permissible under the laws - is
unconscionable.
It is no exaggeration to say that Piatco may not really
mind which contract we decide to keep in place. For
all it may care, we can do just as well without one, if
we only let it continue and operate the facility. After
all, the real money will come not from building the
Terminal, but from actually operating it for fifty or
more years and charging whatever it feels like,
without any competition at all. This scenario must
not be allowed to happen.
If the Piatco contracts are junked altogether as I
think they should be, should not AEDC automatically
be considered the winning bidder and therefore
allowed to operate the facility? My answer is a
stone-cold 'No'. AEDC never won the bidding, never
signed any contract, and never built any facility. Why
should it be allowed to automatically step in and
benefit from the greed of another?
Should government pay at all for reasonable
expenses incurred in the construction of the
Terminal? Indeed it should, otherwise it will be
unjustly enriching itself at the expense of Piatco and,
in particular, its funders, contractors and investors -
both local and foreign. After all, there is no question
that the State needs and will make use of Terminal
III, it being part and parcel of the critical
infrastructure and transportation-related programs
of government.
In Melchor v. Commission on Audit,
97
this Court held
that even if the contract therein was void, the
principle of payment by quantum meruit was found
applicable, and the contractor was allowed to
recover the reasonable value of the thing or services
rendered (regardless of any agreement as to the
supposed value), in order to avoid unjust enrichment
on the part of government. The principle of quantum
meruit was likewise applied in Eslao v. Commission
on Audit,
98
because to deny payment for a building
almost completed and already occupied would be to
permit government to unjustly enrich itself at the
expense of the contractor. The same principle was
applied in Republic v. Court of Appeals.
99

One possible practical solution would be for
government - in view of the nullity of the Piatco
contracts and of the fact that Terminal III has already
been built and is almost finished - to bid out the
operation of the facility under the same or
analogous principles as build-operate-and-transfer
projects. To be imposed, however, is the condition
that the winning bidder must pay the builder of the
facility a price fixed by government based on
quantum meruit; on the real, reasonable - not
inflated - value of the built facility.
How the payment or series of payments to the
builder, funders, investors and contractors will be
staggered and scheduled, will have to be built into
the bids, along with the annual guaranteed
payments to government. In this manner, this whole
sordid mess could result in something truly
beneficial for all, especially for the Filipino people.
WHEREFORE, I vote to grant the Petitions and to
declare the subject contracts NULL and VOID.


Facts: In August 1989, the DOTC engaged the
services of Aeroport de Paris (ADP) to conduct a
comprehensive study of the Ninoy Aquino
International Airport (NAIA) and determine whether
the present airport can cope with the traffic
development up to the year 2010.

On March 27, 1995, then DOTC Secretary Jose
Garcia endorsed the proposal of Asia's Emerging
Dragon Corp. (unsolicited proposal dated Oct. 5,
1994) to the National Economic and Development
Authority (NEDA). A revised proposal, however, was
forwarded by the DOTC to NEDA on December 13,
1995. On January 5, 1996, the NEDA Investment
Coordinating Council (NEDA ICC) Technical Board
favorably endorsed the project to the ICC Cabinet
Committee which approved the same, subject to
certain conditions, on January 19, 1996. On February
13, 1996, the NEDA passed Board Resolution No. 2
which approved the NAIA IPT III Project.

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

On September 26, 1996, AEDC informed the PBAC
in writing of its reservations as regards the Paircargo
Consortium, which include:
a. The lack of corporate approvals and financial
capability of PAIRCARGO;
b. The lack of corporate approvals and financial
capability of PAGS;
c. The prohibition imposed by RA 337, as
amended (the General Banking Act) on the amount
that Security Bank could legally invest in the project;
d. The inclusion of Siemens as a contractor of
the PAIRCARGO Joint Venture, for prequalification
purposes; and
e. The appointment of Lufthansa as the facility
operator, in view of the Philippine requirement in
the operation of a public utility.

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

On October 16, 1996, the PBAC opened the third
envelope submitted by AEDC and the Paircargo
Consortium containing their respective financial
proposals. Both proponents offered to build the
NAIA Passenger Terminal III for at least $350 million
at no cost to the government and to pay the
government: 5% share in gross revenues for the first
five years of operation, 7.5% share in gross revenues
for the next ten years of operation, and 10% share in
gross revenues for the last ten years of operation, in
accordance with the Bid Documents.

As AEDC failed to match the proposal within the
30-day period, then DOTC Secretary Amado
Lagdameo, on December 11, 1996, issued a notice to
Paircargo Consortium regarding AEDC's failure to
match the proposal. AEDC subsequently protested
the alleged undue preference given to PIATCO and
reiterated its objections as regards the
prequalification of PIATCO.

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

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

Issue: Whether the petitioners and the petitioners-
in-intervention have standing;
Whether this Court has jurisdiction; and
Whether the BOT and contracts therein are
unconstitutional.

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

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

By way of background, two monopolies were
actually created by the Piatco contracts. The first
and more obvious one refers to the business of
operating an international passenger terminal in
Luzon, the business end of which involves providing
international airlines with parking space for their
aircraft, and airline passengers with the use of
departure and arrival areas, check-in counters,
information systems, conveyor systems, security
equipment and paraphernalia, immigrations and
customs processing areas; and amenities such as
comfort rooms, restaurants and shops.

In furtherance of the first monopoly, the Piatco
Contracts stipulate that the NAIA Terminal III will be
the only facility to be operated as an international
passenger terminal; that NAIA Terminals I and II will
no longer be operated as such; and that no one
(including the government) will be allowed to
compete with Piatco in the operation of an
international passenger terminal in the NAIA
Complex. Given that, at this time, the government
and Piatco are the only ones engaged in the business
of operating an international passenger terminal, I
am not acutely concerned with this particular
monopolistic situation.

There was however another monopoly within the
NAIA created by the subject contracts for Piatco
in the business of providing international airlines
with the following: groundhandling, in-flight
catering, cargo handling, and aircraft repair and
maintenance services. These are lines of business
activity in which are engaged many service providers
(including the petitioners-in-intervention), who will
be adversely affected upon full implementation of
the Piatco Contracts, particularly Sections 3.01(d)
and (e) of both the ARCA and the CA.

Should government pay at all for reasonable
expenses incurred in the construction of the
Terminal? Indeed it should, otherwise it will be
unjustly enriching itself at the expense of Piatco and,
in particular, its funders, contractors and investors
both local and foreign. After all, there is no
question that the State needs and will make use of
Terminal III, it being part and parcel of the critical
infrastructure and transportation-related programs
of government.

The rule on hierarchy of courts will not also
prevent this Court from assuming jurisdiction over
the cases at bar. The said rule may be relaxed when
the redress desired cannot be obtained in the
appropriate courts or where exceptional and
compelling circumstances justify availment of a
remedy within and calling for the exercise of this
Court's primary jurisdiction. Thus, considering the
nature of the controversy before the Court,
procedural bars may be lowered to give way for the
speedy disposition of the instant cases.

In sum, this Court rules that in view of the
absence of the requisite financial capacity of the
Paircargo Consortium, predecessor of respondent
PIATCO, the award by the PBAC of the contract for
the construction, operation and maintenance of the
NAIA IPT III is null and void.


Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo
Consortium, PIATCO's predecessor, was not a duly
pre-qualified bidder on the unsolicited proposal
submitted by AEDC as the Paircargo Consortium
failed to meet the financial capability required under
the BOT Law and the Bid Documents. They allege
that in computing the ability of the Paircargo
Consortium to meet the minimum equity
requirements for the project, the entire net worth of
Security Bank, a member of the consortium, should
not be considered. R.A. No. 337, as amended or the
General Banking Act that a commercial bank cannot
invest in any single enterprise in an amount more
than 15% of its net worth.

We agree with public respondents that with
respect to Security Bank, the entire amount of its net
worth could not be invested in a single undertaking
or enterprise, whether allied or non-allied in
accordance with the provisions of R.A. No. 337
The PBAC should not be allowed to speculate on
the future financial ability of the bidder to undertake
the project on the basis of documents submitted.
This would open doors to abuse and defeat the very
purpose of a public bidding.


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

If the winning bidder is allowed to later include or
modify certain provisions in the contract awarded
such that the contract is altered in any material
respect, then the essence of fair competition in the
public bidding is destroyed. A public bidding would
indeed be a farce if after the contract is awarded;
the winning bidder may modify the contract and
include provisions which are favorable to it that
were not previously made available to the other
bidders.

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

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

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

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

As such the Government is virtually at the mercy
of PIATCO (that it would not default on its loan
obligations to its Senior Lenders), the Senior Lenders
(that they would appoint a qualified nominee or
transferee or agree to some other arrangement with
the Government) and the existence of a qualified
nominee or transferee who is able and willing to
take the place of PIATCO in NAIA IPT III.


In view of regulation of monopolies
The operation of an international passenger
airport terminal is no doubt an undertaking imbued
with public interest. In entering into a Build-Operate-
and-Transfer contract for the construction,
operation and maintenance of NAIA IPT III, the
government has determined that public interest
would be served better if private sector resources
were used in its construction and an exclusive right
to operate be granted to the private entity
undertaking the said project, in this case PIATCO.
Nonetheless, the privilege given to PIATCO is subject
to reasonable regulation and supervision by the
Government through the MIAA, which is the
government agency authorized to operate the NAIA
complex, as well as DOTC, the department to which
MIAA is attached.

While it is the declared policy of the BOT Law to
encourage private sector participation by "providing
a climate of minimum government regulations," the
same does not mean that Government must
completely surrender its sovereign power to protect
public interest in the operation of a public utility as a
monopoly. The operation of said public utility cannot
be done in an arbitrary manner to the detriment of
the public which it seeks to serve.

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


Should the dispute be referred to arbitration prior
to judicial recourse?
Respondent Piatco claims that Section 10.02 of
the Amended and Restated Concession Agreement
(ARCA) provides for arbitration under the auspices of
the International Chamber of Commerce to settle
any dispute or controversy or claim arising in
connection with the Concession Agreement, its
amendments and supplements. The government
disagrees; however, insisting that there can be no
arbitration based on Section 10.02 of the ARCA,
since all the Piatco contracts are void ab initio.













G.R. No. 114323 July 23, 1998
OIL AND NATURAL GAS COMMISSION, petitioner,
vs.
COURT OF APPEALS and PACIFIC CEMENT
COMPANY, INC., respondents.

MARTINEZ, J.:
This proceeding involves the enforcement of a
foreign judgment rendered by the Civil Judge of
Dehra Dun, India in favor of the petitioner, OIL AND
NATURAL GAS COMMISSION and against the private
respondent, PACIFIC CEMENT COMPANY,
INCORPORATED.
The petitioner is a foreign corporation owned and
controlled by the Government of India while the
private respondent is a private corporation duly
organized and existing under the laws of the
Philippines. The present conflict between the
petitioner and the private respondent has its roots in
a contract entered into by and between both parties
on February 26, 1983 whereby the private
respondent undertook to supply the petitioner FOUR
THOUSAND THREE HUNDRED (4,300) metric tons of
oil well cement. In consideration therefor, the
petitioner bound itself to pay the private respondent
the amount of FOUR HUNDRED SEVENTY-SEVEN
THOUSAND THREE HUNDRED U.S. DOLLARS
($477,300.00) by opening an irrevocable, divisible,
and confirmed letter of credit in favor of the latter.
The oil well cement was loaded on board the ship
MV SURUTANA NAVA at the port of Surigao City,
Philippines for delivery at Bombay and Calcutta,
India. However, due to a dispute between the
shipowner and the private respondent, the cargo
was held up in Bangkok and did not reach its point
destination. Notwithstanding the fact that the
private respondent had already received payment
and despite several demands made by the
petitioner, the private respondent failed to deliver
the oil well cement. Thereafter, negotiations ensued
between the parties and they agreed that the
private respondent will replace the entire 4,300
metric tons of oil well cement with Class "G" cement
cost free at the petitioner's designated port.
However, upon inspection, the Class "G" cement did
not conform to the petitioner's specifications. The
petitioner then informed the private respondent
that it was referring its claim to an arbitrator
pursuant to Clause 16 of their contract which
stipulates:
Except where otherwise provided
in the supply order/contract all
questions and disputes, relating to
the meaning of the specification
designs, drawings and instructions
herein before mentioned and as to
quality of workmanship of the
items ordered or as to any other
question, claim, right or thing
whatsoever, in any way arising out
of or relating to the supply
order/contract design, drawing,
specification, instruction or these
conditions or otherwise concerning
the materials or the execution or
failure to execute the same during
stipulated/extended period or
after the
completion/abandonment thereof
shall be referred to the sole
arbitration of the persons
appointed by Member of the
Commission at the time of dispute.
It will be no objection to any such
appointment that the arbitrator so
appointed is a Commission
employer (sic) that he had to deal
with the matter to which the
supply or contract relates and that
in the course of his duties as
Commission's employee he had
expressed views on all or any of
the matter in dispute or difference.
The arbitrator to whom the matter
is originally referred being
transferred or vacating his office or
being unable to act for any reason
the Member of the Commission
shall appoint another person to act
as arbitrator in accordance with
the terms of the contract/supply
order. Such person shall be
entitled to proceed with reference
from the stage at which it was left
by his predecessor. Subject as
aforesaid the provisions of the
Arbitration Act, 1940, or any
Statutory modification or re-
enactment there of and the rules
made there under and for the time
being in force shall apply to the
arbitration proceedings under this
clause.
The arbitrator may with the
consent of parties enlarge the
time, from time to time, to make
and publish the award.
The venue for arbitration shall be
at Dehra dun.
1
*
On July 23, 1988, the chosen arbitrator, one Shri
N.N. Malhotra, resolved the dispute in petitioner's
favor setting forth the arbitral award as follows:
NOW THEREFORE after considering
all facts of the case, the evidence,
oral and documentarys adduced by
the claimant and carefully
examining the various written
statements, submissions, letters,
telexes, etc. sent by the
respondent, and the oral
arguments addressed by the
counsel for the claimants, I, N.N.
Malhotra, Sole Arbitrator,
appointed under clause 16 of the
supply order dated 26.2.1983,
according to which the parties, i.e.
M/S Oil and Natural Gas
Commission and the Pacific
Cement Co., Inc. can refer the
dispute to the sole arbitration
under the provision of the
Arbitration Act. 1940, do hereby
award and direct as follows:
The Respondent will pay the
following to the claimant:
1. Amount received by the
Respondent
against the letter
of credit No.
11/19
dated 28.2.1983
US $ 477,300.00
2. Re-imbursement of expenditure
incurred
by the claimant on the inspection
team's
visit to Philippines in August 1985
US $ 3,881.00
3. L.C. Establishment charges
incurred
by the claimant US $ 1,252.82
4. Loss of interest suffered by
claimant
from 21.6.83 to 23.7.88 US $
417,169.95
T
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In addition to the above, the
respondent would also be liable to
pay to the claimant the interest at
the rate of 6% on the above
amount, with effect from
24.7.1988 up to the actual date of
payment by the Respondent in full
settlement of the claim as awarded
or the date of the decree,
whichever is earlier.
I determine the cost at Rs. 70,000/-
equivalent to US $5,000 towards
the expenses on Arbitration, legal
expenses, stamps duly incurred by
the claimant. The cost will be
shared by the parties in equal
proportion.
Pronounced at Dehra Dun to-day,
the 23rd of July 1988.
2

To enable the petitioner to execute the
above award in its favor, it filed a Petition
before the Court of the Civil Judge in Dehra
Dun. India (hereinafter referred to as the
foreign court for brevity), praying that the
decision of the arbitrator be made "the Rule
of Court" in India. The foreign court issued
notices to the private respondent for filing
objections to the petition. The private
respondent complied and sent its
objections dated January 16, 1989.
Subsequently, the said court directed the
private respondent to pay the filing fees in
order that the latter's objections could be
given consideration. Instead of paying the
required filing fees, the private respondent
sent the following communication
addressed to the Civil judge of Dehra Dun:
The Civil Judge
Dehra Dun (U.P.) India
Re: Misc. Case No. 5 of 1989
M/S Pacific Cement Co.,
Inc. vs. ONGC Case
Sir:
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Thank you for your kind
consideration.
Pacific Cement Co., Inc.
By:
Jose Cortes, Jr.
President
3

Without responding to the above communication,
the foreign court refused to admit the private
respondent's objections for failure to pay the
required filing fees, and thereafter issued an Order
on February 7, 1990, to wit:
ORDER
Since objections filed by defendant
have been rejected through Misc.
Suit No. 5 on 7.2.90, therefore,
award should be made Rule of the
Court.
ORDER
Award dated 23.7.88, Paper No.
3/B-1 is made Rule of the Court.
On the basis of conditions of award
decree is passed. Award Paper No.
3/B-1 shall be a part of the decree.
The plaintiff shall also be entitled
to get from defendant (US$
899,603.77 (US$ Eight Lakhs ninety
nine thousand six hundred and
three point seventy seven only)
along with 9% interest per annum
till the last date of realisation.
4

Despite notice sent to the private respondent of the
foregoing order and several demands by the
petitioner for compliance therewith, the private
respondent refused to pay the amount adjudged by
the foreign court as owing to the petitioner.
Accordingly, the petitioner filed a complaint with
Branch 30 of the Regional Trial Court (RTC) of
Surigao City for the enforcement of the
aforementioned judgment of the foreign court. The
private respondent moved to dismiss the complaint
on the following grounds: (1) plaintiffs lack of legal
capacity to sue; (2) lack of cause of action; and (3)
plaintiffs claim or demand has been waived,
abandoned, or otherwise extinguished. The
petitioner filed its opposition to the said motion to
dismiss, and the private respondent, its rejoinder
thereto. On January 3, 1992, the RTC issued an order
upholding the petitioner's legal capacity to sue,
albeit dismissing the complaint for lack of a valid
cause of action. The RTC held that the rule
prohibiting foreign corporations transacting business
in the Philippines without a license from maintaining
a suit in Philippine courts admits of an exception,
that is, when the foreign corporation is suing on an
isolated transaction as in this case.
5
Anent the issue
of the sufficiency of the petitioner's cause of action,
however, the RTC found the referral of the dispute
between the parties to the arbitrator under Clause
16 of their contract erroneous. According to the RTC,
[a] perusal of the shove-quoted
clause (Clause 16) readily shows
that the matter covered by its
terms is limited to "ALL
QUESTIONS AND DISPUTES,
RELATING TO THE MEANING OF
THE SPECIFICATION, DESIGNS,
DRAWINGS AND INSTRUCTIONS
HEREIN BEFORE MENTIONED and
as to the QUALITY OF
WORKMANSHIP OF THE ITEMS
ORDERED or as to any other
questions, claim, right or thing
whatsoever, but qualified to "IN
ANY WAY ARISING OR RELATING
TO THE SUPPLY
ORDER/CONTRACT, DESIGN,
DRAWING, SPECIFICATION, etc.,"
repeating the enumeration in the
opening sentence of the clause.
The court is inclined to go along
with the observation of the
defendant that the breach,
consisting of the non-delivery of
the purchased materials, should
have been properly litigated before
a court of law, pursuant to Clause
No. 15 of the Contract/Supply
Order, herein quoted, to wit:
"JURISDICTION
All questions,
disputes and
differences,
arising under out
of or in
connection with
this supply order,
shall be subject
to the EXCLUSIVE
JURISDICTION OF
THE COURT,
within the local
limits of whose
jurisdiction and
the place from
which this supply
order is
situated."
6

The RTC characterized the erroneous
submission of the dispute to the arbitrator
as a "mistake of law or fact amounting to
want of jurisdiction". Consequently, the
proceedings had before the arbitrator were
null and void and the foreign court had
therefore, adopted no legal award which
could be the source of an enforceable right.
7

The petitioner then appealed to the respondent
Court of Appeals which affirmed the dismissal of the
complaint. In its decision, the appellate court
concurred with the RTC's ruling that the arbitrator
did not have jurisdiction over the dispute between
the parties, thus, the foreign court could not validly
adopt the arbitrator's award. In addition, the
appellate court observed that the full text of the
judgment of the foreign court contains the
dispositive portion only and indicates no findings of
fact and law as basis for the award. Hence, the said
judgment cannot be enforced by any Philippine
court as it would violate the constitutional provision
that no decision shall be rendered by any court
without expressing therein clearly and distinctly the
facts and the law on which it is based.
8
The
appellate court ruled further that the dismissal of
the private respondent's objections for non-payment
of the required legal fees, without the foreign court
first replying to the private respondent's query as to
the amount of legal fees to be paid, constituted
want of notice or violation of due process. Lastly, it
pointed out that the arbitration proceeding was
defective because the arbitrator was appointed
solely by the petitioner, and the fact that the
arbitrator was a former employee of the latter gives
rise to a presumed bias on his part in favor of the
petitioner.
9

A subsequent motion for reconsideration by the
petitioner of the appellate court's decision was
denied, thus, this petition for review on certiorari
citing the following as grounds in support thereof:
RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN AFFIRMING
THE LOWER COURT'S ORDER OF
DISMISSAL SINCE:
A. THE NON-DELIVERY OF THE
CARGO WAS A MATTER PROPERLY
COGNIZABLE BY THE PROVISIONS
OF CLAUSE 16 OF THE CONTRACT;
B. THE JUDGMENT OF THE CIVIL
COURT OF DEHRADUN, INDIA WAS
AN AFFIRMATION OF THE FACTUAL
AND LEGAL FINDINGS OF THE
ARBITRATOR AND THEREFORE
ENFORCEABLE IN THIS
JURISDICTION;
C. EVIDENCE MUST BE RECEIVED
TO REPEL THE EFFECT OF A
PRESUMPTIVE RIGHT UNDER A
FOREIGN JUDGMENT.
10

The threshold issue is whether or not the arbitrator
had jurisdiction over the dispute between the
petitioner and the private respondent under Clause
16 of the contract. To reiterate, Clause 16 provides
as follows:
Except where otherwise provided
in the supply order/contract all
questions and disputes, relating to
the meaning of the specification
designs, drawings and instructions
herein before mentioned and as to
quality of workmanship of the
items ordered or as to any other
question, claim, right or thing
whatsoever, in any way arising out
of or relating to the supply
order/contract design, drawing,
specification, instruction or these
conditions or otherwise concerning
the materials or the execution or
failure to execute the same during
stipulated/extended period or
after the
completion/abandonment thereof
shall be referred to the sole
arbitration of the persons
appointed by Member of the
Commission at the time of dispute.
It will be no objection to any such
appointment that the arbitrator so
appointed is a Commission
employer (sic) that he had to deal
with the matter to which the
supply or contract relates and that
in the course of his duties as
Commission's employee he had
expressed views on all or any of
the matter in dispute or difference.
11

The dispute between the parties had its origin in the
non-delivery of the 4,300 metric tons of oil well
cement to the petitioner. The primary question that
may be posed, therefore, is whether or not the non-
delivery of the said cargo is a proper subject for
arbitration under the above-quoted Clause 16. The
petitioner contends that the same was a matter
within the purview of Clause 16, particularly the
phrase, ". . . or as to any other questions, claim, right
or thing whatsoever, in any way arising or relating to
the supply order/contract, design, drawing,
specification, instruction . . .".
12
It is argued that the
foregoing phrase allows considerable latitude so as
to include non-delivery of the cargo which was a
"claim, right or thing relating to the supply
order/contract". The contention is bereft of merit.
First of all, the petitioner has misquoted the said
phrase, shrewdly inserting a comma between the
words "supply order/contract" and "design" where
none actually exists. An accurate reproduction of the
phrase reads, ". . . or as to any other question, claim,
right or thing whatsoever, in any way arising out of
or relating to the supply order/contract design,
drawing, specification, instruction or these
conditions . . .". The absence of a comma between
the words "supply order/contract" and "design"
indicates that the former cannot be taken separately
but should be viewed in conjunction with the words
"design, drawing, specification, instruction or these
conditions". It is thus clear that to fall within the
purview of this phrase, the "claim, right or thing
whatsoever" must arise out of or relate to the
design, drawing, specification, or instruction of the
supply order/contract. The petitioner also insists
that the non-delivery of the cargo is not only
covered by the foregoing phrase but also by the
phrase, ". . . or otherwise concerning the materials
or the execution or failure to execute the same
during the stipulated/extended period or after
completion/abandonment thereof . . .".
The doctrine of noscitur a sociis, although a rule in
the construction of statutes, is equally applicable in
the ascertainment of the meaning and scope of
vague contractual stipulations, such as the
aforementioned phrase. According to the maxim
noscitur a sociis, where a particular word or phrase is
ambiguous in itself or is equally susceptible of
various meanings, its correct construction may be
made clear and specific by considering the company
of the words in which it is found or with which it is
associated, or stated differently, its obscurity or
doubt may be reviewed by reference to associated
words.
13
A close examination of Clause 16 reveals
that it covers three matters which may be submitted
to arbitration namely,
(1) all questions and disputes, relating to the
meaning of the specification designs, drawings and
instructions herein before mentioned and as to
quality of workmanship of the items ordered; or
(2) any other question, claim, right or thing
whatsoever, in any way arising out of or relating to
the supply order/contract design, drawing,
specification, instruction or these conditions; or
(3) otherwise concerning the materials or the
execution or failure to execute the same during
stipulated/extended period or after the
completion/abandonment thereof.
The first and second categories unmistakably refer
to questions and disputes relating to the design,
drawing, instructions, specifications or quality of the
materials of the supply/order contract. In the third
category, the clause, "execution or failure to execute
the same", may be read as "execution or failure to
execute the supply order/contract". But in
accordance with the doctrine of noscitur a sociis, this
reference to the supply order/contract must be
construed in the light of the preceding words with
which it is associated, meaning to say, as being
limited only to the design, drawing, instructions,
specifications or quality of the materials of the
supply order/contract. The non-delivery of the oil
well cement is definitely not in the nature of a
dispute arising from the failure to execute the supply
order/contract design, drawing, instructions,
specifications or quality of the materials. That Clause
16 should pertain only to matters involving the
technical aspects of the contract is but a logical
inference considering that the underlying purpose of
a referral to arbitration is for such technical matters
to be deliberated upon by a person possessed with
the required skill and expertise which may be
otherwise absent in the regular courts.
This Court agrees with the appellate court in its
ruling that the non-delivery of the oil well cement is
a matter properly cognizable by the regular courts as
stipulated by the parties in Clause 15 of their
contract:
All questions, disputes and
differences, arising under out of or
in connection with this supply
order, shall be subject to the
exclusive jurisdiction of the court,
within the local limits of whose
jurisdiction and the place from
which this supply order is situated.
14

The following fundamental principles in the
interpretation of contracts and other
instruments served as our guide in arriving
at the foregoing conclusion:
Art. 1373. If some stipulation of
any contract should admit of
several meanings, it shall be
understood as bearing that import
which is most adequate to render
it effectual.
15

Art. 1374. The various stipulations
of a contract shall be interpreted
together, attributing the doubtful
ones that sense which may result
from all of them taken jointly.
16

Sec. 11. Instrument construed so as
to give effect to all provisions. In
the construction of an instrument,
where there are several provisions
or particulars, such a construction
is, if possible, to be adopted as will
give effect to all.
17

Thus, this Court has held that as in statutes, the
provisions of a contract should not be read in
isolation from the rest of the instrument but, on the
contrary, interpreted in the light of the other related
provisions.
18
The whole and every part of a contract
must be considered in fixing the meaning of any of
its harmonious whole. Equally applicable is the
canon of construction that in interpreting a statute
(or a contract as in this case), care should be taken
that every part thereof be given effect, on the theory
that it was enacted as an integrated measure and
not as a hodge-podge of conflicting provisions. The
rule is that a construction that would render a
provision inoperative should be avoided; instead,
apparently inconsistent provisions should be
reconciled whenever possible as parts of a
coordinated and harmonious whole.
19

The petitioner's interpretation that Clause 16 is of
such latitude as to contemplate even the non-
delivery of the oil well cement would in effect render
Clause 15 a mere superfluity. A perusal of Clause 16
shows that the parties did not intend arbitration to
be the sole means of settling disputes. This is
manifest from Clause 16 itself which is prefixed with
the proviso, "Except where otherwise provided in
the supply order/contract . . .", thus indicating that
the jurisdiction of the arbitrator is not all
encompassing, and admits of exceptions as may be
provided elsewhere in the supply order/contract.
We believe that the correct interpretation to give
effect to both stipulations in the contract is for
Clause 16 to be confined to all claims or disputes
arising from or relating to the design, drawing,
instructions, specifications or quality of the materials
of the supply order/contract, and for Clause 15 to
cover all other claims or disputes.
The petitioner then asseverates that granting, for
the sake of argument, that the non-delivery of the
oil well cement is not a proper subject for
arbitration, the failure of the replacement cement to
conform to the specifications of the contract is a
matter clearly falling within the ambit of Clause 16.
In this contention, we find merit. When the 4,300
metric tons of oil well cement were not delivered to
the petitioner, an agreement was forged between
the latter and the private respondent that Class "G"
cement would be delivered to the petitioner as
replacement. Upon inspection, however, the
replacement cement was rejected as it did not
conform to the specifications of the contract. Only
after this latter circumstance was the matter
brought before the arbitrator. Undoubtedly, what
was referred to arbitration was no longer the mere
non-delivery of the cargo at the first instance but
also the failure of the replacement cargo to conform
to the specifications of the contract, a matter clearly
within the coverage of Clause 16.
The private respondent posits that it was under no
legal obligation to make replacement and that it
undertook the latter only "in the spirit of liberality
and to foster good business relationship".
20
Hence,
the undertaking to deliver the replacement cement
and its subsequent failure to conform to
specifications are not anymore subject of the supply
order/contract or any of the provisions thereof. We
disagree.
As per Clause 7 of the supply order/contract, the
private respondent undertook to deliver the 4,300
metric tons of oil well cement at "BOMBAY (INDIA)
2181 MT and CALCUTTA 2119 MT".
21
The failure of
the private respondent to deliver the cargo to the
designated places remains undisputed. Likewise, the
fact that the petitioner had already paid for the cost
of the cement is not contested by the private
respondent. The private respondent claims,
however, that it never benefited from the
transaction as it was not able to recover the cargo
that was unloaded at the port of Bangkok.
22
First of
all, whether or not the private respondent was able
to recover the cargo is immaterial to its subsisting
duty to make good its promise to deliver the cargo at
the stipulated place of delivery. Secondly, we find it
difficult to believe this representation. In its
Memorandum filed before this Court, the private
respondent asserted that the Civil Court of Bangkok
had already ruled that the non-delivery of the cargo
was due solely to the fault of the carrier.
23
It is,
therefore, but logical to assume that the necessary
consequence of this finding is the eventual recovery
by the private respondent of the cargo or the value
thereof. What inspires credulity is not that the
replacement was done in the spirit of liberality but
that it was undertaken precisely because of the
private respondent's recognition of its duty to do so
under the supply order/contract, Clause 16 of which
remains in force and effect until the full execution
thereof.
We now go to the issue of whether or not the
judgment of the foreign court is enforceable in this
jurisdiction in view of the private respondent's
allegation that it is bereft of any statement of facts
and law upon which the award in favor of the
petitioner was based. The pertinent portion of the
judgment of the foreign court reads:
ORDER
Award dated 23.7.88, Paper No.
3/B-1 is made Rule of the Court. On
the basis of conditions of award
decree is passed. Award Paper No.
3/B-1 shall be a part of the decree.
The plaintiff shall also be entitled
to get from defendant (US$
899,603.77 (US$ Eight Lakhs ninety
nine thousand six hundred and
three point seventy seven only)
along with 9% interest per annum
till the last date of realisation.
24

As specified in the order of the Civil Judge of Dehra
Dun, "Award Paper No. 3/B-1 shall be a part of the
decree". This is a categorical declaration that the
foreign court adopted the findings of facts and law
of the arbitrator as contained in the latter's Award
Paper. Award Paper No. 3/B-1, contains an
exhaustive discussion of the respective claims and
defenses of the parties, and the arbitrator's
evaluation of the same. Inasmuch as the foregoing is
deemed to have been incorporated into the foreign
court's judgment the appellate court was in error
when it described the latter to be a "simplistic
decision containing literally, only the dispositive
portion".
25

The constitutional mandate that no decision shall be
rendered by any court without expressing therein
dearly and distinctly the facts and the law on which
it is based does not preclude the validity of
"memorandum decisions" which adopt by reference
the findings of fact and conclusions of law contained
in the decisions of inferior tribunals. In Francisco v.
Permskul,
26
this Court held that the following
memorandum decision of the Regional Trial Court of
Makati did not transgress the requirements of
Section 14, Article VIII of the Constitution:
MEMORANDUM DECISION
After a careful perusal, evaluation
and study of the records of this
case, this Court hereby adopts by
reference the findings of fact and
conclusions of law contained in the
decision of the Metropolitan Trial
Court of Makati, Metro Manila,
Branch 63 and finds that there is
no cogent reason to disturb the
same.
WHEREFORE, judgment appealed
from is hereby affirmed in toto.
27

(Emphasis supplied.)
This Court had occasion to make a similar
pronouncement in the earlier case of
Romero v. Court of Appeals,
28
where the
assailed decision of the Court of Appeals
adopted the findings and disposition of the
Court of Agrarian Relations in this wise:
We have, therefore, carefully
reviewed the evidence and made a
re-assessment of the same, and
We are persuaded, nay compelled,
to affirm the correctness of the
trial court's factual findings and the
soundness of its conclusion. For
judicial convenience and
expediency, therefore, We hereby
adopt by way of reference, the
findings of facts and conclusions of
the court a quo spread in its
decision, as integral part of this
Our decision.
29
(Emphasis
supplied)
Hence, even in this jurisdiction,
incorporation by reference is allowed if only
to avoid the cumbersome reproduction of
the decision of the lower courts, or portions
thereof, in the decision of the higher court.
30
This is particularly true when the decision
sought to be incorporated is a lengthy and
thorough discussion of the facts and
conclusions arrived at, as in this case, where
Award Paper No. 3/B-1 consists of eighteen
(18) single spaced pages.
Furthermore, the recognition to be accorded a
foreign judgment is not necessarily affected by the
fact that the procedure in the courts of the country
in which such judgment was rendered differs from
that of the courts of the country in which the
judgment is relied on.
31
This Court has held that
matters of remedy and procedure are governed by
the lex fori or the internal law of the forum.
32
Thus,
if under the procedural rules of the Civil Court of
Dehra Dun, India, a valid judgment may be rendered
by adopting the arbitrator's findings, then the same
must be accorded respect. In the same vein, if the
procedure in the foreign court mandates that an
Order of the Court becomes final and executory
upon failure to pay the necessary docket fees, then
the courts in this jurisdiction cannot invalidate the
order of the foreign court simply because our rules
provide otherwise.
The private respondent claims that its right to due
process had been blatantly violated, first by reason
of the fact that the foreign court never answered its
queries as to the amount of docket fees to be paid
then refused to admit its objections for failure to pay
the same, and second, because of the presumed bias
on the part of the arbitrator who was a former
employee of the petitioner.
Time and again this Court has held that the essence
of due process is to be found in the reasonable
opportunity to be heard and submit any evidence
one may have in support of one's defense
33
or
stated otherwise, what is repugnant to due process
is the denial of opportunity to be heard.
34
Thus,
there is no violation of due process even if no
hearing was conducted, where the party was given a
chance to explain his side of the controversy and he
waived his right to do so.
35

In the instant case, the private respondent does not
deny the fact that it was notified by the foreign court
to file its objections to the petition, and
subsequently, to pay legal fees in order for its
objections to be given consideration. Instead of
paying the legal fees, however, the private
respondent sent a communication to the foreign
court inquiring about the correct amount of fees to
be paid. On the pretext that it was yet awaiting the
foreign court's reply, almost a year passed without
the private respondent paying the legal fees. Thus,
on February 2, 1990, the foreign court rejected the
objections of the private respondent and proceeded
to adjudicate upon the petitioner's claims. We
cannot subscribe to the private respondent's claim
that the foreign court violated its right to due
process when it failed to reply to its queries nor
when the latter rejected its objections for a clearly
meritorious ground. The private respondent was
afforded sufficient opportunity to be heard. It was
not incumbent upon the foreign court to reply to the
private respondent's written communication. On the
contrary, a genuine concern for its cause should
have prompted the private respondent to ascertain
with all due diligence the correct amount of legal
fees to be paid. The private respondent did not act
with prudence and diligence thus its plea that they
were not accorded the right to procedural due
process cannot elicit either approval or sympathy
from this Court.
36

The private respondent bewails the presumed bias
on the part of the arbitrator who was a former
employee of the petitioner. This point deserves
scant consideration in view of the following
stipulation in the contract:
. . . . It will be no objection any such
appointment that the arbitrator so
appointed is a Commission employer (sic)
that he had to deal with the matter to
which the supply or contract relates and
that in the course of his duties as
Commission's employee he had expressed
views on all or any of the matter in dispute
or difference.
37
(Emphasis supplied.)
Finally, we reiterate hereunder our pronouncement
in the case of Northwest Orient Airlines, Inc. v. Court
of Appeals
38
that:
A foreign judgment is presumed to be valid
and binding in the country from which it
comes, until the contrary is shown. It is also
proper to presume the regularity of the
proceedings and the giving of due notice
therein.
Under Section 50, Rule 39 of the Rules of
Court, a judgment in an action in personam
of a tribunal of a foreign country having
jurisdiction to pronounce the same is
presumptive evidence of a right as between
the parties and their successors-in-interest
by a subsequent title. The judgment may,
however, be assailed by evidence of want of
jurisdiction, want of notice to the party,
collusion, fraud, or clear mistake of law or
fact. Also, under Section 3 of Rule 131, a
court, whether of the Philippines or
elsewhere, enjoys the presumption that it
was acting in the lawful exercise of
jurisdiction and has regularly performed its
official duty.
39

Consequently, the party attacking a foreign
judgment, the private respondent herein,
had the burden of overcoming the
presumption of its validity which it failed to
do in the instant case.
The foreign judgment being valid, there is nothing
else left to be done than to order its enforcement,
despite the fact that the petitioner merely prays for
the remand of the case to the RTC for further
proceedings. As this Court has ruled on the validity
and enforceability of the said foreign judgment in
this jurisdiction, further proceedings in the RTC for
the reception of evidence to prove otherwise are no
longer necessary.
WHEREFORE, the instant petition is GRANTED, and
the assailed decision of the Court of Appeals
sustaining the trial court's dismissal of the OIL AND
NATURAL GAS COMMISSION's complaint in Civil Case
No. 4006 before Branch 30 of the RTC of Surigao City
is REVERSED, and another in its stead is hereby
rendered ORDERING private respondent PACIFIC
CEMENT COMPANY, INC. to pay to petitioner the
amounts adjudged in the foreign judgment subject
of said case.
SO ORDERED.

OIL AND NATURAL GAS COMMISSION, petitioner,
vs. COURT OF APPEALS and PACIFIC CEMENT
COMPANY, INC., respondents. GR. No. 114323 July
23, 1998.
For those who did not take up arbitration: Big
commercial contracts, particularly international
commercial contracts now usually have a provision
to submit all disputes to arbitration. In arbitration,
the parties are free to choose who the arbitrators
who will render the award. An award in an
arbitration proceeding is equivalent to a ruling or
decision of a court. After parties present their
arguments and evidence, the arbitrators render the
award. The winning party goes to court to have the
award confirmed by a judge or magistrate. Once
confirmed by the court, the party can have it
enforced. In this case, the parties agreed on an
arbitrator and the arbitration proceedings were held
in India. The award of the arbitrator was then
confirmed or adopted by a court in India. It was the
Indian courts ruling which was being sought to be
enforced here in the Philippines. They did this by
filing a complaint for the enforcement of a foreign
judgment in the RTC of Pasig.
FACTS:
Oil and Natural Gas Commission is a foreign
corporation, owned and controlled by the
Government of India.
Pacific Cement Co is a Philippine
corporation.
Pacific was supposed to deliver more than
4,000 metric tons of oil well cement to
Bombay and Calcutta but because of a
dispute with the carrier, the shipment never
reached the destination. Despite payment
by Oil and Natural, as well as repeated
demands, Pacific does not deliver the oil
well cement.
During negotiations, the parties agreed that
the Pacific will replace the oil well cement
with Class G cement. Pacific did deliver
the Class G cement but they were not
according to specifications. Oil and Natural
informed Pacific that they will submit the
dispute to arbitration as provided for in
their contract.
The dispute was therefore submitted to
arbitration, the arbitrator was Shri
Malhotra, an employee of Oil and Natural
Gas. The decision of the arbitrator was in
favour of Oil and Natural Gas. The arbitral
decision was confirmed by an Indian court.
Oil and Natural Gas filed a complaint in
Pasig RTC for the enforcement of the
foreign judgment. This was opposed by
Pacific for being bereft of any statement of
facts and law upon which the award in favor
of the petitioner was based. The judgment
of the Indian court apparently simply
adopted the award of the arbitrator
without stating anything by way of support
for its judgment.
The Pasig RTC dismissed the complaint. The
RTC said that the contract provided for
some disputes to be settled by the regular
court and some to be submitted to
arbitration. This type, the RTC said, was for
the courts. Consequently, the proceedings
had before the arbitrator were null and
void and the foreign court had therefore,
adopted no legal award which could be the
source of an enforceable right.
The CA affirmed the dismissal by the RTC.
Aside from agreeing with the RTC that the
arbitral award was void, the CA also said
that the full text of the judgment of the
foreign court contains the dispositive
portion only and indicates no findings of
fact and law as basis for the award. Hence,
the said judgment cannot be enforced by
any Philippine court as it would violate the
constitutional provision that no decision
shall be rendered by any court without
expressing therein clearly and distinctly
the facts and the law on which it is based.
ISSUE: Whether or not the judgment of the foreign
court is enforceable in this jurisdiction in view of
the private respondent's allegation that it is bereft
of any statement of facts and law upon which the
award in favor of the petitioner was based.
HELD: Yes, it is enforceable in this jurisdiction. The
SC said that even in this jurisdiction, incorporation
by reference is allowed if only to avoid the
cumbersome reproduction of the decision of the
lower courts, or portions thereof, in the decision of
the higher court. This is particularly true when the
decision sought to be incorporated is a lengthy and
thorough discussion of the facts and conclusions
arrived at, as in this case, where Award Paper No.
3/B-1 consists of eighteen (18) single spaced pages..
In effect, the SC was saying that we also do in this
country what the Indian court did and it was okay for
as long as the award or decision adopted was
complete in terms of the discussion of the facts and
conclusions. The 18 pages of single spaced award by
the arbitrator was, according to the SC, complete
enough. The short decision of the Indian court which
merely adopted the award was acceptable in our
jurisdiction.
Furthermore, the recognition to be accorded a
foreign judgment is not necessarily affected by the
fact that the procedure in the courts of the country
in which such judgment was rendered differs from
that of the courts of the country in which the
judgment is relied on. This Court has held that
matters of remedy and procedure are governed by
the lex fori or the internal law of the forum. Thus, if
under the procedural rules of the Civil Court of
Dehra Dun, India, a valid judgment may be rendered
by adopting the arbitrators findings, then the same
must be accorded respect. In the same vein, if the
procedure in the foreign court mandates that an
Order of the Court becomes final and executory
upon failure to pay the necessary docket fees, then
the courts in this jurisdiction cannot invalidate the
order of the foreign court simply because our rules
provide otherwise.
Finally, we reiterate hereunder our pronouncement
in the case of Northwest Orient Airlines, Inc. v.
Court of Appeals that:
"A foreign judgment is presumed to be valid and
binding in the country from which it comes, until
the contrary is shown. It is also proper to presume
the regularity of the proceedings and the giving of
due notice therein.
"Under Section 50, Rule 39 of the Rules of Court, a
judgment in an action in personam of a tribunal of a
foreign country having jurisdiction to pronounce the
same is presumptive evidence of a right as between
the parties and their successors-in-interest by a
subsequent title. The judgment may, however, be
assailed by evidence of want of jurisdiction, want of
notice to the party, collusion, fraud, or clear mistake
of law or fact. Also, under Section 3 of Rule 131, a
court, whether of the Philippines or elsewhere,
enjoys the presumption that it was acting in the
lawful exercise of jurisdiction and has regularly
performed its official duty."
Consequently, the party attacking a foreign
judgment (Pacific Cement) had the burden of
overcoming the presumption of its validity which it
failed to do in the instant case.
The foreign judgment being valid, there is nothing
else left to be done than to order its enforcement,
despite the fact that Oil and Natural Gas merely
prays for, the remand of the case to the RTC for
further proceedings. As this Court has ruled on the
validity and enforceability of the said foreign
judgment in this jurisdiction, further proceedings in
the RTC for the reception of evidence to prove
otherwise are no longer necessary.
















G.R. No. 166429 December 19, 2005
REPUBLIC OF THE PHILIPPINES, Represented by
Executive Secretary Eduardo R. Ermita, the
DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS (DOTC), and the MANILA
INTERNATIONAL AIRPORT AUTHORITY (MIAA),
Petitioners,
vs.
HON. HENRICK F. GINGOYON, In his capacity as
Presiding Judge of the Regional Trial Court, Branch
117, Pasay City and PHILIPPINE INTERNATIONAL AIR
TERMINALS CO., INC., Respondents.
D E C I S I O N
TINGA, J.:
The Ninoy Aquino International Airport Passenger
Terminal III (NAIA 3) was conceived, designed and
constructed to serve as the countrys show window
to the world. Regrettably, it has spawned
controversies. Regrettably too, despite the apparent
completion of the terminal complex way back it has
not yet been operated. This has caused
immeasurable economic damage to the country, not
to mention its deplorable discredit in the
international community.
In the first case that reached this Court, Agan v.
PIATCO,
1
the contracts which the Government had
with the contractor were voided for being contrary
to law and public policy. The second case now
before the Court involves the matter of just
compensation due the contractor for the terminal
complex it built. We decide the case on the basis of
fairness, the same norm that pervades both the
Courts 2004 Resolution in the first case and the
latest expropriation law.
The present controversy has its roots with the
promulgation of the Courts decision in Agan v.
PIATCO,
2
promulgated in 2003 (2003 Decision). This
decision nullified the "Concession Agreement for the
Build-Operate-and-Transfer Arrangement of the
Ninoy Aquino International Airport Passenger
Terminal III" entered into between the Philippine
Government (Government) and the Philippine
International Air Terminals Co., Inc. (PIATCO), as well
as the amendments and supplements thereto. The
agreement had authorized PIATCO to build a new
international airport terminal (NAIA 3), as well as a
franchise to operate and maintain the said terminal
during the concession period of 25 years. The
contracts were nullified, among others, that
Paircargo Consortium, predecessor of PIATCO, did
not possess the requisite financial capacity when it
was awarded the NAIA 3 contract and that the
agreement was contrary to public policy.
3

At the time of the promulgation of the 2003
Decision, the NAIA 3 facilities had already been built
by PIATCO and were nearing completion.
4
However,
the ponencia was silent as to the legal status of the
NAIA 3 facilities following the nullification of the
contracts, as well as whatever rights of PIATCO for
reimbursement for its expenses in the construction
of the facilities. Still, in his Separate Opinion, Justice
Panganiban, joined by Justice Callejo, declared as
follows:
Should government pay at all for reasonable
expenses incurred in the construction of the
Terminal? Indeed it should, otherwise it will be
unjustly enriching itself at the expense of Piatco
and, in particular, its funders, contractors and
investors both local and foreign. After all, there is
no question that the State needs and will make use
of Terminal III, it being part and parcel of the critical
infrastructure and transportation-related programs
of government.
5

PIATCO and several respondents-intervenors filed
their respective motions for the reconsideration of
the 2003 Decision. These motions were denied by
the Court in its Resolution dated 21 January 2004
(2004 Resolution).
6
However, the Court this time
squarely addressed the issue of the rights of PIATCO
to refund, compensation or reimbursement for its
expenses in the construction of the NAIA 3 facilities.
The holding of the Court on this crucial point follows:
This Court, however, is not unmindful of the reality
that the structures comprising the NAIA IPT III
facility are almost complete and that funds have
been spent by PIATCO in their construction. For the
government to take over the said facility, it has to
compensate respondent PIATCO as builder of the
said structures. The compensation must be just and
in accordance with law and equity for the
government can not unjustly enrich itself at the
expense of PIATCO and its investors.
7


After the promulgation of the rulings in Agan, the
NAIA 3 facilities have remained in the possession of
PIATCO, despite the avowed intent of the
Government to put the airport terminal into
immediate operation. The Government and PIATCO
conducted several rounds of negotiation regarding
the NAIA 3 facilities.
8
It also appears that arbitral
proceedings were commenced before the
International Chamber of Commerce International
Court of Arbitration and the International Centre for
the Settlement of Investment Disputes,
9
although
the Government has raised jurisdictional questions
before those two bodies.
10

Then, on 21 December 2004, the Government
11
filed
a Complaint for expropriation with the Pasay City
Regional Trial Court (RTC), together with an
Application for Special Raffle seeking the immediate
holding of a special raffle. The Government sought
upon the filing of the complaint the issuance of a
writ of possession authorizing it to take immediate
possession and control over the NAIA 3 facilities.
The Government also declared that it had deposited
the amount of P3,002,125,000.00
12
(3 Billion)
13
in
Cash with the Land Bank of the Philippines,
representing the NAIA 3 terminals assessed value
for taxation purposes.
14

The case
15
was raffled to Branch 117 of the Pasay
City RTC, presided by respondent judge Hon. Henrick
F. Gingoyon (Hon. Gingoyon). On the same day that
the Complaint was filed, the RTC issued an Order
16

directing the issuance of a writ of possession to the
Government, authorizing it to "take or enter upon
the possession" of the NAIA 3 facilities. Citing the
case of City of Manila v. Serrano,
17
the RTC noted
that it had the ministerial duty to issue the writ of
possession upon the filing of a complaint for
expropriation sufficient in form and substance, and
upon deposit made by the government of the
amount equivalent to the assessed value of the
property subject to expropriation. The RTC found
these requisites present, particularly noting that
"[t]he case record shows that [the Government has]
deposited the assessed value of the [NAIA 3
facilities] in the Land Bank of the Philippines, an
authorized depositary, as shown by the certification
attached to their complaint." Also on the same day,
the RTC issued a Writ of Possession. According to
PIATCO, the Government was able to take
possession over the NAIA 3 facilities immediately
after the Writ of Possession was issued.
18

However, on 4 January 2005, the RTC issued another
Order designed to supplement its 21 December 2004
Order and the Writ of Possession. In the 4 January
2005 Order, now assailed in the present petition, the
RTC noted that its earlier issuance of its writ of
possession was pursuant to Section 2, Rule 67 of the
1997 Rules of Civil Procedure. However, it was
observed that Republic Act No. 8974 (Rep. Act No.
8974), otherwise known as "An Act to Facilitate the
Acquisition of Right-of-Way, Site or Location for
National Government Infrastructure Projects and For
Other Purposes" and its Implementing Rules and
Regulations (Implementing Rules) had amended Rule
67 in many respects.
There are at least two crucial differences between
the respective procedures under Rep. Act No. 8974
and Rule 67. Under the statute, the Government is
required to make immediate payment to the
property owner upon the filing of the complaint to
be entitled to a writ of possession, whereas in Rule
67, the Government is required only to make an
initial deposit with an authorized government
depositary. Moreover, Rule 67 prescribes that the
initial deposit be equivalent to the assessed value of
the property for purposes of taxation, unlike Rep.
Act No. 8974 which provides, as the relevant
standard for initial compensation, the market value
of the property as stated in the tax declaration or
the current relevant zonal valuation of the Bureau of
Internal Revenue (BIR), whichever is higher, and the
value of the improvements and/or structures using
the replacement cost method.
Accordingly, on the basis of Sections 4 and 7 of Rep.
Act No. 8974 and Section 10 of the Implementing
Rules, the RTC made key qualifications to its earlier
issuances. First, it directed the Land Bank of the
Philippines, Baclaran Branch (LBP-Baclaran), to
immediately release the amount of
US$62,343,175.77 to PIATCO, an amount which the
RTC characterized as that which the Government
"specifically made available for the purpose of this
expropriation;" and such amount to be deducted
from the amount of just compensation due PIATCO
as eventually determined by the RTC. Second, the
Government was directed to submit to the RTC a
Certificate of Availability of Funds signed by
authorized officials to cover the payment of just
compensation. Third, the Government was directed
"to maintain, preserve and safeguard" the NAIA 3
facilities or "perform such as acts or activities in
preparation for their direct operation" of the airport
terminal, pending expropriation proceedings and full
payment of just compensation. However, the
Government was prohibited "from performing acts
of ownership like awarding concessions or leasing
any part of [NAIA 3] to other parties."
19

The very next day after the issuance of the assailed 4
January 2005 Order, the Government filed an Urgent
Motion for Reconsideration, which was set for
hearing on 10 January 2005. On 7 January 2005, the
RTC issued another Order, the second now assailed
before this Court, which appointed three (3)
Commissioners to ascertain the amount of just
compensation for the NAIA 3 Complex. That same
day, the Government filed a Motion for Inhibition of
Hon. Gingoyon.
The RTC heard the Urgent Motion for
Reconsideration and Motion for Inhibition on 10
January 2005. On the same day, it denied these
motions in an Omnibus Order dated 10 January
2005. This is the third Order now assailed before this
Court. Nonetheless, while the Omnibus Order
affirmed the earlier dispositions in the 4 January
2005 Order, it excepted from affirmance "the
superfluous part of the Order prohibiting the
plaintiffs from awarding concessions or leasing any
part of [NAIA 3] to other parties."
20

Thus, the present Petition for Certiorari and
Prohibition under Rule 65 was filed on 13 January
2005. The petition prayed for the nullification of the
RTC orders dated 4 January 2005, 7 January 2005,
and 10 January 2005, and for the inhibition of Hon.
Gingoyon from taking further action on the
expropriation case. A concurrent prayer for the
issuance of a temporary restraining order and
preliminary injunction was granted by this Court in a
Resolution dated 14 January 2005.
21

The Government, in imputing grave abuse of
discretion to the acts of Hon. Gingoyon, raises five
general arguments, to wit:
(i) that Rule 67, not Rep. Act No. 8974, governs the
present expropriation proceedings;
(ii) that Hon. Gingoyon erred when he ordered the
immediate release of the amount of US$62.3 Million
to PIATCO considering that the assessed value as
alleged in the complaint was only P3 Billion;
(iii) that the RTC could not have prohibited the
Government from enjoining the performance of acts
of ownership;
(iv) that the appointment of the three
commissioners was erroneous; and
(v) that Hon. Gingoyon should be compelled to
inhibit himself from the expropriation case.
22

Before we delve into the merits of the issues raised
by the Government, it is essential to consider the
crucial holding of the Court in its 2004 Resolution in
Agan, which we repeat below:
This Court, however, is not unmindful of the reality
that the structures comprising the NAIA IPT III facility
are almost complete and that funds have been spent
by PIATCO in their construction. For the government
to take over the said facility, it has to compensate
respondent PIATCO as builder of the said
structures. The compensation must be just and in
accordance with law and equity for the government
can not unjustly enrich itself at the expense of
PIATCO and its investors.
23

This pronouncement contains the fundamental
premises which permeate this decision of the Court.
Indeed, Agan, final and executory as it is, stands as
governing law in this case, and any disposition of the
present petition must conform to the conditions laid
down by the Court in its 2004 Resolution.
The 2004 Resolution Which Is
Law of This Case Generally
Permits Expropriation
The pronouncement in the 2004 Resolution is
especially significant to this case in two aspects,
namely: (i) that PIATCO must receive payment of
just compensation determined in accordance with
law and equity; and (ii) that the government is
barred from taking over NAIA 3 until such just
compensation is paid. The parties cannot be allowed
to evade the directives laid down by this Court
through any mode of judicial action, such as the
complaint for eminent domain.
It cannot be denied though that the Court in the
2004 Resolution prescribed mandatory guidelines
which the Government must observe before it could
acquire the NAIA 3 facilities. Thus, the actions of
respondent judge under review, as well as the
arguments of the parties must, to merit affirmation,
pass the threshold test of whether such propositions
are in accord with the 2004 Resolution.
The Government does not contest the efficacy of
this pronouncement in the 2004 Resolution,
24
thus
its application
to the case at bar is not a matter of controversy. Of
course, questions such as what is the standard of
"just compensation" and which particular laws and
equitable principles are applicable, remain in dispute
and shall be resolved forthwith.
The Government has chosen to resort to
expropriation, a remedy available under the law,
which has the added benefit of an integrated
process for the determination of just compensation
and the payment thereof to PIATCO. We appreciate
that the case at bar is a highly unusual case, whereby
the Government seeks to expropriate a building
complex constructed on land which the State already
owns.
25
There is an inherent illogic in the resort to
eminent domain on property already owned by the
State. At first blush, since the State already owns the
property on which NAIA 3 stands, the proper remedy
should be akin to an action for ejectment.
However, the reason for the resort by the
Government to expropriation proceedings is
understandable in this case. The 2004 Resolution, in
requiring the payment of just compensation prior to
the takeover by the Government of
NAIA 3, effectively precluded it from acquiring
possession or ownership of the NAIA 3 through the
unilateral exercise of its rights as the owner of the
ground on which the facilities stood. Thus, as things
stood after the 2004 Resolution, the right of the
Government to take over the NAIA 3 terminal was
preconditioned by lawful order on the payment of
just compensation to PIATCO as builder of the
structures.
The determination of just compensation could very
well be agreed upon by the parties without judicial
intervention, and it appears that steps towards that
direction had been engaged in. Still, ultimately, the
Government resorted to its inherent power of
eminent domain through expropriation proceedings.
Is eminent domain appropriate in the first place,
with due regard not only to the law on expropriation
but also to the Courts 2004 Resolution in Agan?
The right of eminent domain extends to personal
and real property, and the NAIA 3 structures,
adhered as they are to the soil, are considered as
real property.
26
The public purpose for the
expropriation is also beyond dispute. It should also
be noted that Section 1 of Rule 67 (on Expropriation)
recognizes the possibility that the property sought to
be expropriated may be titled in the name of the
Republic of the Philippines, although occupied by
private individuals, and in such case an averment to
that effect should be made in the complaint. The
instant expropriation complaint did aver that the
NAIA 3 complex "stands on a parcel of land owned
by the Bases Conversion Development Authority,
another agency of [the Republic of the
Philippines]."
27

Admittedly, eminent domain is not the sole judicial
recourse by which the Government may have
acquired the NAIA 3 facilities while satisfying the
requisites in the 2004 Resolution. Eminent domain
though may be the most effective, as well as the
speediest means by which such goals may be
accomplished. Not only does it enable immediate
possession after satisfaction of the requisites under
the law, it also has a built-in procedure through
which just compensation may be ascertained. Thus,
there should be no question as to the propriety of
eminent domain proceedings in this case.
Still, in applying the laws and rules on expropriation
in the case at bar, we are impelled to apply or
construe these rules in accordance with the Courts
prescriptions in the 2004 Resolution to achieve the
end effect that the Government may validly take
over the NAIA 3 facilities. Insofar as this case is
concerned, the 2004 Resolution is effective not only
as a legal precedent, but as the source of rights and
prescriptions that must be guaranteed, if not
enforced, in the resolution of this petition.
Otherwise, the integrity and efficacy of the rulings of
this Court will be severely diminished.
It is from these premises that we resolve the first
question, whether Rule 67 of the Rules of Court or
Rep. Act No. 8974 governs the expropriation
proceedings in this case.
Application of Rule 67 Violates
the 2004 Agan Resolution
The Government insists that Rule 67 of the Rules of
Court governs the expropriation proceedings in this
case to the exclusion of all other laws. On the other
hand, PIATCO claims that it is Rep. Act No. 8974
which does apply. Earlier, we had adverted to the
basic differences between the statute and the
procedural rule. Further elaboration is in order.
Rule 67 outlines the procedure under which eminent
domain may be exercised by the Government. Yet by
no means does it serve at present as the solitary
guideline through which the State may expropriate
private property. For example, Section 19 of the
Local Government Code governs as to the exercise
by local government units of the power of eminent
domain through an enabling ordinance. And then
there is Rep. Act No. 8974, which covers
expropriation proceedings intended for national
government infrastructure projects.
Rep. Act No. 8974, which provides for a procedure
eminently more favorable to the property owner
than Rule 67, inescapably applies in instances when
the national government expropriates property "for
national government infrastructure projects."
28

Thus, if expropriation is engaged in by the national
government for purposes other than national
infrastructure projects, the assessed value standard
and the deposit mode prescribed in Rule 67
continues to apply.
Under both Rule 67 and Rep. Act No. 8974, the
Government commences expropriation proceedings
through the filing of a complaint. Unlike in the case
of local governments which necessitate an
authorizing ordinance before expropriation may be
accomplished, there is no need under Rule 67 or
Rep. Act No. 8974 for legislative authorization before
the Government may proceed with a particular
exercise of eminent domain. The most crucial
difference between Rule 67 and Rep. Act No. 8974
concerns the particular essential step the
Government has to undertake to be entitled to a
writ of possession.
The first paragraph of Section 2 of Rule 67 provides:
SEC. 2. Entry of plaintiff upon depositing value with
authorized government depository. Upon the
filing of the complaint or at any time thereafter and
after due notice to the defendant, the plaintiff shall
have the right to take or enter upon the possession
of the real property involved if he deposits with the
authorized government depositary an amount
equivalent to the assessed value of the property for
purposes of taxation to be held by such bank
subject to the orders of the court. Such deposit
shall be in money, unless in lieu thereof the court
authorizes the deposit of a certificate of deposit of
a government bank of the Republic of the
Philippines payable on demand to the authorized
government depositary.
In contrast, Section 4 of Rep. Act No. 8974 relevantly
states:
SEC. 4. Guidelines for Expropriation Proceedings.
Whenever it is necessary to acquire real property for
the right-of-way, site or location for any national
government infrastructure project through
expropriation, the appropriate proceedings before
the proper court under the following guidelines:
a) Upon the filing of the complaint, and after due
notice to the defendant, the implementing agency
shall immediately pay the owner of the property the
amount equivalent to the sum of (1) one hundred
percent (100%) of the value of the property based
on the current relevant zonal valuation of the
Bureau of Internal Revenue (BIR); and (2) the value
of the improvements and/or structures as
determined under Section 7 hereof;
. . .
c) In case the completion of a government
infrastructure project is of utmost urgency and
importance, and there is no existing valuation of the
area concerned, the implementing agency shall
immediately pay the owner of the property its
proffered value taking into consideration the
standards prescribed in Section 5 hereof.
Upon completion with the guidelines
abovementioned, the court shall immediately issue
to the implementing agency an order to take
possession of the property and start the
implementation of the project.
Before the court can issue a Writ of Possession, the
implementing agency shall present to the court a
certificate of availability of funds from the proper
official concerned.
. . .
As can be gleaned from the above-quoted texts, Rule
67 merely requires the Government to deposit with
an authorized government depositary the assessed
value of the property for expropriation for it to be
entitled to a writ of possession. On the other hand,
Rep. Act No. 8974 requires that the Government
make a direct payment to the property owner before
the writ may issue. Moreover, such payment is
based on the zonal valuation of the BIR in the case of
land, the value of the improvements or structures
under the replacement cost method,
29
or if no such
valuation is available and in cases of utmost urgency,
the proffered value of the property to be seized.
It is quite apparent why the Government would
prefer to apply Rule 67 in lieu of Rep. Act No. 8974.
Under Rule 67, it would not be obliged to
immediately pay any amount to PIATCO before it can
obtain the writ of possession since all it need do is
deposit the amount equivalent to the assessed value
with an authorized government depositary. Hence, it
devotes considerable effort to point out that Rep.
Act No. 8974 does not apply in this case,
notwithstanding the undeniable reality that NAIA 3
is a national government project. Yet, these efforts
fail, especially considering the controlling effect of
the 2004 Resolution in Agan on the adjudication of
this case.
It is the finding of this Court that the staging of
expropriation proceedings in this case with the
exclusive use of Rule 67 would allow for the
Government to take over the NAIA 3 facilities in a
fashion that directly rebukes our 2004 Resolution in
Agan. This Court cannot sanction deviation from its
own final and executory orders.
Section 2 of Rule 67 provides that the State "shall
have the right to take or enter upon the possession
of the real property involved if [the plaintiff]
deposits with the authorized government depositary
an amount equivalent to the assessed value of the
property for purposes of taxation to be held by such
bank subject to the orders of the court."
30
It is thus
apparent that under the provision, all the
Government need do to obtain a writ of possession
is to deposit the amount equivalent to the assessed
value with an authorized government depositary.
Would the deposit under Section 2 of Rule 67 satisfy
the requirement laid down in the 2004 Resolution
that "[f]or the government to take over the said
facility, it has to compensate respondent PIATCO as
builder of the said structures"? Evidently not.
If Section 2 of Rule 67 were to apply, PIATCO would
be enjoined from receiving a single centavo as just
compensation before the Government takes over
the NAIA 3 facility by virtue of a writ of possession.
Such an injunction squarely contradicts the letter
and intent of the 2004 Resolution. Hence, the
position of the Government sanctions its own
disregard or violation the prescription laid down by
this Court that there must first be just compensation
paid to PIATCO before the Government may take
over the NAIA 3 facilities.
Thus, at the very least, Rule 67 cannot apply in this
case without violating the 2004 Resolution. Even
assuming that Rep. Act No. 8974 does not govern in
this case, it does not necessarily follow that Rule 67
should then apply. After all, adherence to the letter
of Section 2, Rule 67 would in turn violate the
Courts requirement in the 2004 Resolution that
there must first be payment of just compensation to
PIATCO before the Government may take over the
property.
It is the plain intent of Rep. Act No. 8974 to
supersede the system of deposit under Rule 67 with
the scheme of "immediate payment" in cases
involving national government infrastructure
projects. The following portion of the Senate
deliberations, cited by PIATCO in its Memorandum,
is worth quoting to cogitate on the purpose behind
the plain meaning of the law:
THE CHAIRMAN (SEN. CAYETANO). "x x x Because
the Senate believes that, you know, we have to pay
the landowners immediately not by treasury bills
but by cash.
Since we are depriving them, you know, upon
payment, no, of possession, we might as well pay
them as much, no, hindi lang 50 percent.
x x x
THE CHAIRMAN (REP. VERGARA). Accepted.
x x x
THE CHAIRMAN (SEN. CAYETANO). Oo. Because this
is really in favor of the landowners, e.
THE CHAIRMAN (REP. VERGARA). Thats why we
need to really secure the availability of funds.
x x x
THE CHAIRMAN (SEN. CAYETANO). No, no. Its the
same. It says here: iyong first paragraph, diba?
Iyong zonal talagang magbabayad muna. In other
words, you know, there must be a payment kaagad.
(TSN, Bicameral Conference on the Disagreeing
Provisions of House Bill 1422 and Senate Bill 2117,
August 29, 2000, pp. 14-20)
x x x
THE CHAIRMAN (SEN. CAYETANO). Okay, okay, no.
Unang-una, it is not deposit, no. Its payment."
REP. BATERINA. Its payment, ho, payment." (Id., p.
63)
31

It likewise bears noting that the appropriate
standard of just compensation is a substantive
matter. It is well within the province of the
legislature to fix the standard, which it did through
the enactment of Rep. Act No. 8974. Specifically, this
prescribes the new standards in determining the
amount of just compensation in expropriation cases
relating to national government infrastructure
projects, as well as the manner of payment thereof.
At the same time, Section 14 of the Implementing
Rules recognizes the continued applicability of Rule
67 on procedural aspects when it provides "all
matters regarding defenses and objections to the
complaint, issues on uncertain ownership and
conflicting claims, effects of appeal on the rights of
the parties, and such other incidents affecting the
complaint shall be resolved under the provisions on
expropriation of Rule 67 of the Rules of Court."
32

Given that the 2004 Resolution militates against the
continued use of the norm under Section 2, Rule 67,
is it then possible to apply Rep. Act No. 8974? We
find that it is, and moreover, its application in this
case complements rather than contravenes the
prescriptions laid down in the 2004 Resolution.
Rep. Act No. 8974 Fits
to the Situation at Bar
and Complements the
2004 Agan Resolution
Rep. Act No. 8974 is entitled "An Act To Facilitate
The Acquisition Of Right-Of-Way, Site Or Location
For National Government Infrastructure Projects
And For Other Purposes." Obviously, the law is
intended to cover expropriation proceedings
intended for national government infrastructure
projects. Section 2 of Rep. Act No. 8974 explains
what are considered as "national government
projects."
Sec. 2. National Government Projects. The term
"national government projects" shall refer to all
national government infrastructure, engineering
works and service contracts, including projects
undertaken by government-owned and controlled
corporations, all projects covered by Republic Act
No. 6957, as amended by Republic Act No. 7718,
otherwise known as the Build-Operate-and-Transfer
Law, and other related and necessary activities, such
as site acquisition, supply and/or installation of
equipment and materials, implementation,
construction, completion, operation, maintenance,
improvement, repair and rehabilitation, regardless
of the source of funding.
As acknowledged in the 2003 Decision, the
development of NAIA 3 was made pursuant to a
build-operate-and-transfer arrangement pursuant to
Republic Act No. 6957, as amended,
33
which pertains
to infrastructure or development projects normally
financed by the public sector but which are now
wholly or partly implemented by the private
sector.
34
Under the build-operate-and-transfer
scheme, it is the project proponent which
undertakes the construction, including the financing,
of a given infrastructure facility.
35
In Tatad v.
Garcia,
36
the Court acknowledged that the operator
of the EDSA Light Rail Transit project under a BOT
scheme was the owner of the facilities such as "the
rail tracks, rolling stocks like the coaches, rail
stations, terminals and the power plant."
37

There can be no doubt that PIATCO has ownership
rights over the facilities which it had financed and
constructed. The 2004 Resolution squarely
recognized that right when it mandated the payment
of just compensation to PIATCO prior to the takeover
by the Government of NAIA 3. The fact that the
Government resorted to eminent domain
proceedings in the first place is a concession on its
part of PIATCOs ownership. Indeed, if no such right
is recognized, then there should be no impediment
for the Government to seize control of NAIA 3
through ordinary ejectment proceedings.
Since the rights of PIATCO over the NAIA 3 facilities
are established, the nature of these facilities should
now be determined. Under Section 415(1) of the
Civil Code, these facilities are ineluctably immovable
or real property, as they constitute buildings, roads
and constructions of all kinds adhered to the soil.
38

Certainly, the NAIA 3 facilities are of such nature that
they cannot just be packed up and transported by
PIATCO like a traveling circus caravan.
Thus, the property subject of expropriation, the
NAIA 3 facilities, are real property owned by PIATCO.
This point is critical, considering the Governments
insistence that the NAIA 3 facilities cannot be
deemed as the "right-of-way", "site" or "location" of
a national government infrastructure project, within
the coverage of Rep. Act No. 8974.
There is no doubt that the NAIA 3 is not, under any
sensible contemplation, a "right-of-way." Yet we
cannot agree with the Governments insistence that
neither could NAIA 3 be a "site" or "location". The
petition quotes the definitions provided in Blacks
Law Dictionary of "location" as the specific place or
position of a person or thing and site as pertaining
to a place or location or a piece of property set aside
for specific use."
39
Yet even Blacks Law Dictionary
provides that "[t]he term [site] does not of itself
necessarily mean a place or tract of land fixed by
definite boundaries."
40
One would assume that the
Government, to back up its contention, would be
able to point to a clear-cut rule that a "site" or
"location" exclusively refers to soil, grass, pebbles
and weeds. There is none.
Indeed, we cannot accept the Governments
proposition that the only properties that may be
expropriated under Rep. Act No. 8974 are parcels of
land. Rep. Act No. 8974 contemplates within its
coverage such real property constituting land,
buildings, roads and constructions of all kinds
adhered to the soil. Section 1 of Rep. Act No. 8974,
which sets the declaration of the laws policy, refers
to "real property acquired for national government
infrastructure projects are promptly paid just
compensation."
41
Section 4 is quite explicit in stating
that the scope of the law relates to the acquisition of
"real property," which under civil law includes
buildings, roads and constructions adhered to the
soil.
It is moreover apparent that the law and its
implementing rules commonly provide for a rule for
the valuation of improvements and/or structures
thereupon separate from that of the land on which
such are constructed. Section 2 of Rep. Act No. 8974
itself recognizes that the improvements or
structures on the land may very well be the subject
of expropriation proceedings. Section 4(a), in
relation to Section 7 of the law provides for the
guidelines for the valuation of the improvements or
structures to be expropriated. Indeed, nothing in the
law would prohibit the application of Section 7,
which provides for the valuation method of the
improvements and or structures in the instances
wherein it is necessary for the Government to
expropriate only the improvements or structures, as
in this case.
The law classifies the NAIA 3 facilities as real
properties just like the soil to which they are
adhered. Any sub-classifications of real property and
divergent treatment based thereupon for purposes
of expropriation must be based on substantial
distinctions, otherwise the equal protection clause
of the Constitution is violated. There may be perhaps
a molecular distinction between soil and the
inorganic improvements adhered thereto, yet there
are no purposive distinctions that would justify a
variant treatment for purposes of expropriation.
Both the land itself and the improvements
thereupon are susceptible to private ownership
independent of each other, capable of pecuniary
estimation, and if taken from the owner, considered
as a deprivation of property. The owner of
improvements seized through expropriation suffers
the same degree of loss as the owner of land seized
through similar means. Equal protection demands
that all persons or things similarly situated should be
treated alike, both as to rights conferred and
responsibilities imposed. For purposes of
expropriation, parcels of land are similarly situated
as the buildings or improvements constructed
thereon, and a disparate treatment between those
two classes of real property infringes the equal
protection clause.
Even as the provisions of Rep. Act No. 8974 call for
that laws application in this case, the threshold test
must still be met whether its implementation would
conform to the dictates of the Court in the 2004
Resolution. Unlike in the case of Rule 67, the
application of Rep. Act No. 8974 will not contravene
the 2004 Resolution, which requires the payment of
just compensation before any takeover of the NAIA 3
facilities by the Government. The 2004 Resolution
does not particularize the extent such payment must
be effected before the takeover, but it
unquestionably requires at least some degree of
payment to the private property owner before a writ
of possession may issue. The utilization of Rep. Act
No. 8974 guarantees compliance with this bare
minimum requirement, as it assures the private
property owner the payment of, at the very least,
the proffered value of the property to be seized.
Such payment of the proffered value to the owner,
followed by the issuance of the writ of possession in
favor of the Government, is precisely the schematic
under Rep. Act No. 8974, one which facially complies
with the prescription laid down in the 2004
Resolution.
Clearly then, we see no error on the part of the RTC
when it ruled that Rep. Act No. 8974 governs the
instant expropriation proceedings.
The Proper Amount to be Paid
under Rep. Act No. 8974
Then, there is the matter of the proper amount
which should be paid to PIATCO by the Government
before the writ of possession may issue, consonant
to Rep. Act No. 8974.
At this juncture, we must address the observation
made by the Office of the Solicitor General in behalf
of the Government that there could be no "BIR zonal
valuations" on the NAIA 3 facility, as provided in Rep.
Act No. 8974, since zonal valuations are only for
parcels of land, not for airport terminals. The Court
agrees with this point, yet does not see it as an
impediment for the application of Rep. Act No. 8974.
It must be clarified that PIATCO cannot be
reimbursed or justly compensated for the value of
the parcel of land on which NAIA 3 stands. PIATCO is
not the owner of the land on which the NAIA 3
facility is constructed, and it should not be entitled
to just compensation that is inclusive of the value of
the land itself. It would be highly disingenuous to
compensate PIATCO for the value of land it does not
own. Its entitlement to just compensation should be
limited to the value of the improvements and/or
structures themselves. Thus, the determination of
just compensation cannot include the BIR zonal
valuation under Section 4 of Rep. Act No. 8974.
Under Rep. Act No. 8974, the Government is
required to "immediately pay" the owner of the
property the amount equivalent to the sum of (1)
one hundred percent (100%) of the value of the
property based on the current relevant zonal
valuation of the [BIR]; and (2) the value of the
improvements and/or structures as determined
under Section 7. As stated above, the BIR zonal
valuation cannot apply in this case, thus the amount
subject to immediate payment should be limited to
"the value of the improvements and/or structures as
determined under Section 7," with Section 7
referring to the "implementing rules and regulations
for the equitable valuation of the improvements
and/or structures on the land." Under the present
implementing rules in place, the valuation of the
improvements/structures are to be based using "the
replacement cost method."
42
However, the
replacement cost is only one of the factors to be
considered in determining the just compensation.
In addition to Rep. Act No. 8974, the 2004 Resolution
in Agan also mandated that the payment of just
compensation should be in accordance with equity
as well. Thus, in ascertaining the ultimate amount of
just compensation, the duty of the trial court is to
ensure that such amount conforms not only to the
law, such as Rep. Act No. 8974, but to principles of
equity as well.
Admittedly, there is no way, at least for the present,
to immediately ascertain the value of the
improvements and structures since such valuation is
a matter for factual determination.
43
Yet Rep. Act
No. 8974 permits an expedited means by which the
Government can immediately take possession of the
property without having to await precise
determination of the valuation. Section 4(c) of Rep.
Act No. 8974 states that "in case the completion of a
government infrastructure project is of utmost
urgency and importance, and there is no existing
valuation of the area concerned, the implementing
agency shall immediately pay the owner of the
property its proferred value, taking into
consideration the standards prescribed in Section 5
[of the law]."
44
The "proffered value" may strike as a
highly subjective standard based solely on the
intuition of the government, but Rep. Act No. 8974
does provide relevant standards by which "proffered
value" should be based,
45
as well as the certainty
of judicial determination of the propriety of the
proffered value.
46

In filing the complaint for expropriation, the
Government alleged to have deposited the amount
of P3 Billion earmarked for expropriation,
representing the assessed value of the property. The
making of the deposit, including the determination
of the amount of the deposit, was undertaken under
the erroneous notion that Rule 67, and not Rep. Act
No. 8974, is the applicable law. Still, as regards the
amount, the Court sees no impediment to recognize
this sum of P3 Billion as the proffered value under
Section 4(b) of Rep. Act No. 8974. After all, in the
initial determination of the proffered value, the
Government is not strictly required to adhere to any
predetermined standards, although its proffered
value may later be subjected to judicial review using
the standards enumerated under Section 5 of Rep.
Act No. 8974.
How should we appreciate the questioned order of
Hon. Gingoyon, which pegged the amount to be
immediately paid to PIATCO at around $62.3
Million? The Order dated 4 January 2005, which
mandated such amount, proves problematic in that
regard. While the initial sum of P3 Billion may have
been based on the assessed value, a standard which
should not however apply in this case, the RTC cites
without qualification Section 4(a) of Rep. Act No.
8974 as the basis for the amount of $62.3 Million,
thus leaving the impression that the BIR zonal
valuation may form part of the basis for just
compensation, which should not be the case.
Moreover, respondent judge made no attempt to
apply the enumerated guidelines for determination
of just compensation under Section 5 of Rep. Act No.
8974, as required for judicial review of the proffered
value.
The Court notes that in the 10 January 2005
Omnibus Order, the RTC noted that the concessions
agreement entered into between the Government
and PIATCO stated that the actual cost of building
NAIA 3 was "not less than" US$350 Million.
47
The
RTC then proceeded to observe that while Rep. Act
No. 8974 required the immediate payment to
PIATCO the amount equivalent to 100% of the value
of NAIA 3, the amount deposited by the Government
constituted only 18% of this value. At this point, no
binding import should be given to this observation
that the actual cost of building NAIA 3 was "not less
than" US$350 Million, as the final conclusions on the
amount of just compensation can come only after
due ascertainment in accordance with the standards
set under Rep. Act No. 8974, not the declarations of
the parties. At the same time, the expressed linkage
between the BIR zonal valuation and the amount of
just compensation in this case, is revelatory of
erroneous thought on the part of the RTC.
We have already pointed out the irrelevance of the
BIR zonal valuation as an appropriate basis for
valuation in this case, PIATCO not being the owner of
the land on which the NAIA 3 facilities stand. The
subject order is flawed insofar as it fails to qualify
that such standard is inappropriate.
It does appear that the amount of US$62.3 Million
was based on the certification issued by the LBP-
Baclaran that the Republic of the Philippines
maintained a total balance in that branch amounting
to such amount. Yet the actual representation of the
$62.3 Million is not clear. The Land Bank
Certification expressing such amount does state that
it was issued upon request of the Manila
International Airport Authority "purportedly as
guaranty deposit for the expropriation complaint."
48

The Government claims in its Memorandum that the
entire amount was made available as a guaranty
fund for the final and executory judgment of the trial
court, and not merely for the issuance of the writ of
possession.
49
One could readily conclude that the
entire amount of US$62.3 Million was intended by
the Government to answer for whatever guaranties
may be required for the purpose of the
expropriation complaint.
Still, such intention the Government may have had
as to the entire US$62.3 Million is only inferentially
established. In ascertaining the proffered value
adduced by the Government, the amount of P3
Billion as the amount deposited characterized in the
complaint as "to be held by [Land Bank] subject to
the *RTCs+ orders,"
50
should be deemed as
controlling. There is no clear evidence that the
Government intended to offer US$62.3 Million as
the initial payment of just compensation, the
wording of the Land Bank Certification
notwithstanding, and credence should be given to
the consistent position of the Government on that
aspect.
In any event, for the RTC to be able to justify the
payment of US$62.3 Million to PIATCO and not P3
Billion Pesos, he would have to establish that the
higher amount represents the valuation of the
structures/improvements, and not the BIR zonal
valuation on the land wherein NAIA 3 is built. The
Order dated 5 January 2005 fails to establish such
integral fact, and in the absence of contravening
proof, the proffered value of P3 Billion, as presented
by the Government, should prevail.
Strikingly, the Government submits that assuming
that Rep. Act No. 8974 is applicable, the deposited
amount of P3 Billion should be considered as the
proffered value, since the amount was based on
comparative values made by the City Assessor.
51

Accordingly, it should be deemed as having faithfully
complied with the requirements of the statute.
52

While the Court agrees that P3 Billion should be
considered as the correct proffered value, still we
cannot deem the Government as having faithfully
complied with Rep. Act No. 8974. For the law plainly
requires direct payment to the property owner, and
not a mere deposit with the authorized government
depositary. Without such direct payment, no writ of
possession may be obtained.
Writ of Possession May Not
Be Implemented Until Actual
Receipt by PIATCO of Proferred
Value
The Court thus finds another error on the part of the
RTC. The RTC authorized the issuance of the writ of
possession to the Government notwithstanding the
fact that no payment of any amount had yet been
made to PIATCO, despite the clear command of Rep.
Act No. 8974 that there must first be payment
before the writ of possession can issue. While the
RTC did direct the LBP-Baclaran to immediately
release the amount of US$62 Million to PIATCO, it
should have likewise suspended the writ of
possession, nay, withdrawn it altogether, until the
Government shall have actually paid PIATCO. This is
the inevitable consequence of the clear command of
Rep. Act No. 8974 that requires immediate payment
of the initially determined amount of just
compensation should be effected. Otherwise, the
overpowering intention of Rep. Act No. 8974 of
ensuring payment first before transfer of
repossession would be eviscerated.
Rep. Act No. 8974 represents a significant change
from previous expropriation laws such as Rule 67, or
even Section 19 of the Local Government Code. Rule
67 and the Local Government Code merely provided
that the Government deposit the initial amounts
53

antecedent to acquiring possession of the property
with, respectively, an authorized
Government depositary
54
or the proper court.
55
In
both cases, the private owner does not receive
compensation prior to the deprivation of property.
On the other hand, Rep. Act No. 8974 mandates
immediate payment of the initial just compensation
prior to the issuance of the writ of possession in
favor of the Government.
Rep. Act No. 8974 is plainly clear in imposing the
requirement of immediate prepayment, and no
amount of statutory deconstruction can evade such
requisite. It enshrines a new approach towards
eminent domain that reconciles the inherent unease
attending expropriation proceedings with a position
of fundamental equity. While expropriation
proceedings have always demanded just
compensation in exchange for private property, the
previous deposit requirement impeded immediate
compensation to the private owner, especially in
cases wherein the determination
of the final amount of compensation would prove
highly disputed. Under the new modality prescribed
by Rep. Act No. 8974, the private owner sees
immediate monetary recompense with the same
degree of speed as the taking of his/her property.
While eminent domain lies as one of the inherent
powers of the State, there is no requirement that it
undertake a prolonged procedure, or that the
payment of the private owner be protracted as far as
practicable. In fact, the expedited procedure of
payment, as highlighted under Rep. Act No. 8974, is
inherently more fair, especially to the layperson who
would be hard-pressed to fully comprehend the
social value of expropriation in the first place.
Immediate payment placates to some degree
whatever ill-will that arises from expropriation, as
well as satisfies the demand of basic fairness.
The Court has the duty to implement Rep. Act No.
8974 and to direct compliance with the requirement
of immediate payment in this case. Accordingly, the
Writ of Possession dated 21 December 2004 should
be held in abeyance, pending proof of actual
payment by the Government to PIATCO of the
proffered value of the NAIA 3 facilities, which totals
P3,002,125,000.00.
Rights of the Government
upon Issuance of the Writ
of Possession
Once the Government pays PIATCO the amount of
the proffered value of P3 Billion, it will be entitled to
the Writ of Possession. However, the Government
questions the qualification imposed by the RTC in its
4 January 2005 Order consisting of the prohibition
on the Government from performing acts of
ownership such as awarding concessions or leasing
any part of NAIA 3 to other parties. To be certain,
the RTC, in its 10 January 2005 Omnibus Order,
expressly stated that it was not affirming "the
superfluous part of the Order [of 4 January 2005]
prohibiting the plaintiffs from awarding concessions
or leasing any part of NAIA [3] to other parties."
56

Still, such statement was predicated on the notion
that since the Government was not yet the owner of
NAIA 3 until final payment of just compensation, it
was obviously incapacitated to perform such acts of
ownership.
In deciding this question, the 2004 Resolution in
Agan cannot be ignored, particularly the declaration
that "[f]or the government to take over the said
facility, it has to compensate respondent PIATCO as
builder of the said structures." The obvious import of
this holding is that unless PIATCO is paid just
compensation, the Government is barred from
"taking over," a phrase which in the strictest sense
could encompass even a bar of physical possession
of NAIA 3, much less operation of the facilities.
There are critical reasons for the Court to view the
2004 Resolution less stringently, and thus allow the
operation by the Government of NAIA 3 upon the
effectivity of the Writ of Possession. For one, the
national prestige is diminished every day that passes
with the NAIA 3 remaining mothballed. For another,
the continued non-use of the facilities contributes to
its physical deterioration, if it has not already. And
still for another, the economic benefits to the
Government and the country at large are beyond
dispute once the NAIA 3 is put in operation.
Rep. Act No. 8974 provides the appropriate answer
for the standard that governs the extent of the acts
the Government may be authorized to perform upon
the issuance of the writ of possession. Section 4
states that "the court shall immediately issue to the
implementing agency an order to take possession of
the property and start the implementation of the
project." We hold that accordingly, once the Writ of
Possession is effective, the Government itself is
authorized to perform the acts that are essential to
the operation of the NAIA 3 as an international
airport terminal upon the effectivity of the Writ of
Possession. These would include the repair,
reconditioning and improvement of the complex,
maintenance of the existing facilities and equipment,
installation of new facilities and equipment,
provision of services and facilities pertaining to the
facilitation of air traffic and transport, and other
services that are integral to a modern-day
international airport.
The Governments position is more expansive than
that adopted by the Court. It argues that with the
writ of possession, it is enabled to perform acts de
jure on the expropriated property. It cites Republic v.
Tagle,
57
as well as the statement therein that "the
expropriation of real property does not include mere
physical entry or occupation of land," and from them
concludes that "its mere physical entry and
occupation of the property fall short of the taking of
title, which includes all the rights that may be
exercised by an owner over the subject property."
This conclusion is indeed lifted directly from
statements in Tagle,
58
but not from the ratio
decidendi of that case. Tagle concerned whether a
writ of possession in favor of the Government was
still necessary in light of the fact that it was already
in actual possession of the property. In ruling that
the Government was entitled to the writ of
possession, the Court in Tagle explains that such writ
vested not only physical possession, but also the
legal right to possess the property. Continues the
Court, such legal right to possess was particularly
important in the case, as there was a pending suit
against the Republic for unlawful detainer, and the
writ of possession would serve to safeguard the
Government from eviction.
59

At the same time, Tagle conforms to the obvious,
that there is no transfer of ownership as of yet by
virtue of the writ of possession. Tagle may concede
that the Government is entitled to exercise more
than just the right of possession by virtue of the writ
of possession, yet it cannot be construed to grant
the Government the entire panoply of rights that are
available to the owner. Certainly, neither Tagle nor
any other case or law, lends support to the
Governments proposition that it acquires beneficial
or equitable ownership of the expropriated property
merely through the writ of possession.
Indeed, this Court has been vigilant in defense of the
rights of the property owner who has been validly
deprived of possession, yet retains legal title over
the expropriated property pending payment of just
compensation. We reiterated the various doctrines
of such import in our recent holding in Republic v.
Lim:
60

The recognized rule is that title to the property
expropriated shall pass from the owner to the
expropriator only upon full payment of the just
compensation. Jurisprudence on this settled
principle is consistent both here and in other
democratic jurisdictions. In Association of Small
Landowners in the Philippines, Inc. et al., vs.
Secretary of Agrarian Reform[
61
], thus:
"Title to property which is the subject of
condemnation proceedings does not vest the
condemnor until the judgment fixing just
compensation is entered and paid, but the
condemnors title relates back to the date on which
the petition under the Eminent Domain Act, or the
commissioners report under the Local Improvement
Act, is filed.
x x x Although the right to appropriate and use land
taken for a canal is complete at the time of entry,
title to the property taken remains in the owner
until payment is actually made. (Emphasis
supplied.)
In Kennedy v. Indianapolis, the US Supreme Court
cited several cases holding that title to property does
not pass to the condemnor until just compensation
had actually been made. In fact, the decisions
appear to be uniform to this effect. As early as 1838,
in Rubottom v. McLure, it was held that actual
payment to the owner of the condemned property
was a condition precedent to the investment of the
title to the property in the State albeit not to the
appropriation of it to public use. In Rexford v.
Knight, the Court of Appeals of New York said that
the construction upon the statutes was that the fee
did not vest in the State until the payment of the
compensation although the authority to enter upon
and appropriate the land was complete prior to the
payment. Kennedy further said that both on
principle and authority the rule is . . . that the right
to enter on and use the property is complete, as
soon as the property is actually appropriated under
the authority of law for a public use, but that the
title does not pass from the owner without his
consent, until just compensation has been made to
him."
Our own Supreme Court has held in Visayan Refining
Co. v. Camus and Paredes, that:
If the laws which we have exhibited or cited in the
preceding discussion are attentively examined it
will be apparent that the method of expropriation
adopted in this jurisdiction is such as to afford
absolute reassurance that no piece of land can be
finally and irrevocably taken from an unwilling
owner until compensation is paid...."(Emphasis
supplied.)
Clearly, without full payment of just compensation,
there can be no transfer of title from the landowner
to the expropriator. Otherwise stated, the Republics
acquisition of ownership is conditioned upon the full
payment of just compensation within a reasonable
time.
Significantly, in Municipality of Bian v. Garcia[
62
]
this Court ruled that the expropriation of lands
consists of two stages, to wit:
"x x x The first is concerned with the determination
of the authority of the plaintiff to exercise the power
of eminent domain and the propriety of its exercise
in the context of the facts involved in the suit. It
ends with an order, if not of dismissal of the action,
"of condemnation declaring that the plaintiff has a
lawful right to take the property sought to be
condemned, for the public use or purpose described
in the complaint, upon the payment of just
compensation to be determined as of the date of the
filing of the complaint" x x x.
The second phase of the eminent domain action is
concerned with the determination by the court of
"the just compensation for the property sought to
be taken." This is done by the court with the
assistance of not more than three (3)
commissioners. x x x.
It is only upon the completion of these two stages
that expropriation is said to have been completed. In
Republic v. Salem Investment Corporation[
63
] , we
ruled that, "the process is not completed until
payment of just compensation." Thus, here, the
failure of the Republic to pay respondent and his
predecessors-in-interest for a period of 57 years
rendered the expropriation process incomplete.
Lim serves fair warning to the Government and its
agencies who consistently refuse to pay just
compensation due to the private property owner
whose property had been
expropriated. At the same time, Lim emphasizes the
fragility of the rights of the Government as possessor
pending the final payment of just compensation,
without diminishing the potency of such rights.
Indeed, the public policy, enshrined foremost in the
Constitution, mandates that the Government must
pay for the private property it expropriates.
Consequently, the proper judicial attitude is to
guarantee compliance with this primordial right to
just compensation.
Final Determination of Just
Compensation Within 60 Days
The issuance of the writ of possession does not write
finis to the expropriation proceedings. As earlier
pointed out, expropriation is not completed until
payment to the property owner of just
compensation. The proffered value stands as merely
a provisional determination of the amount of just
compensation, the payment of which is sufficient to
transfer possession of the property to the
Government. However, to effectuate the transfer of
ownership, it is necessary for the Government to pay
the property owner the final just compensation.
In Lim, the Court went as far as to countenance,
given the exceptional circumstances of that case, the
reversion of the validly expropriated property to
private ownership due to the failure of the
Government to pay just compensation in that case.
64

It was noted in that case that the Government
deliberately refused to pay just compensation. The
Court went on to rule that "in cases where the
government failed to pay just compensation within
five (5) years from the finality of the judgment in the
expropriation proceedings, the owners concerned
shall have the right to recover possession of their
property."
65

Rep. Act No. 8974 mandates a speedy method by
which the final determination of just compensation
may be had. Section 4 provides:
In the event that the owner of the property contests
the implementing agencys proffered value, the
court shall determine the just compensation to be
paid the owner within sixty (60) days from the date
of filing of the expropriation case. When the decision
of the court becomes final and executory, the
implementing agency shall pay the owner the
difference between the amount already paid and the
just compensation as determined by the court.
We hold that this provision should apply in this case.
The sixty (60)-day period prescribed in Rep. Act No.
8974 gives teeth to the laws avowed policy "to
ensure that owners of real property acquired for
national government infrastructure projects are
promptly paid just compensation."
66
In this case,
there already has been irreversible delay in the
prompt payment of PIATCO of just compensation,
and it is no longer possible for the RTC to determine
the just compensation due PIATCO within sixty (60)
days from the filing of the complaint last 21
December 2004, as contemplated by the law. Still, it
is feasible to effectuate the spirit of the law by
requiring the trial court to make such determination
within sixty (60) days from finality of this decision, in
accordance with the guidelines laid down in Rep. Act
No. 8974 and its Implementing Rules.
Of course, once the amount of just compensation
has been finally determined, the Government is
obliged to pay PIATCO the said amount. As shown in
Lim and other like-minded cases, the Governments
refusal to make such payment is indubitably
actionable in court.
Appointment of Commissioners
The next argument for consideration is the claim of
the Government that the RTC erred in appointing
the three commissioners in its 7 January 2005 Order
without prior consultation with either the
Government or PIATCO, or without affording the
Government the opportunity to object to the
appointment of these commissioners. We can
dispose of this argument without complication.
It must be noted that Rep. Act No. 8974 is silent on
the appointment of commissioners tasked with the
ascertainment of just compensation.
67
This protocol
though is sanctioned under Rule 67. We rule that the
appointment of commissioners under Rule 67 may
be resorted to, even in expropriation proceedings
under Rep. Act No. 8974, since the application of the
provisions of Rule 67 in that regard do not conflict
with the statute. As earlier stated, Section 14 of the
Implementing Rules does allow such other incidents
affecting the complaint to be resolved under the
provisions on expropriation of Rule 67 of the Rules
of Court. Even without Rule 67, reference during trial
to a commissioner of the examination of an issue of
fact is sanctioned under Rule 32 of the Rules of
Court.
But while the appointment of commissioners under
the aegis of Rule 67 may be sanctioned in
expropriation proceedings under Rep. Act No. 8974,
the standards to be observed for the determination
of just compensation are provided not in Rule 67 but
in the statute. In particular, the governing standards
for the determination of just compensation for the
NAIA 3 facilities are found in Section 10 of the
Implementing Rules for Rep. Act No. 8974, which
provides for the replacement cost method in the
valuation of improvements and structures.
68

Nothing in Rule 67 or Rep. Act No. 8974 requires
that the RTC consult with the parties in the
expropriation case on who should be appointed as
commissioners. Neither does the Court feel that
such a requirement should be imposed in this case.
We did rule in Municipality of Talisay v. Ramirez
69

that "there is nothing to prevent [the trial court]
from seeking the recommendations of the parties on
[the] matter [of appointment of commissioners], the
better to ensure their fair representation."
70
At the
same time, such solicitation of recommendations is
not obligatory on the part of the court, hence we
cannot impute error on the part of the RTC in its
exercise of solitary discretion in the appointment of
the commissioners.
What Rule 67 does allow though is for the parties to
protest the appointment of any of these
commissioners, as provided under Section 5 of the
Rule. These objections though must be made filed
within ten (10) days from service of the order of
appointment of the commissioners.
71
In this case,
the proper recourse of the Government to challenge
the choice of the commissioners is to file an
objection with the trial court, conformably with
Section 5, Rule 67, and not as it has done, assail the
same through a special civil action for certiorari.
Considering that the expropriation proceedings in
this case were effectively halted seven (7) days after
the Order appointing the commissioners,
72
it is
permissible to allow the parties to file their
objections with the RTC within five (5) days from
finality of this decision.
Insufficient Ground for Inhibition
of Respondent Judge
The final argument for disposition is the claim of the
Government is that Hon. Gingoyon has prejudged
the expropriation case against the Governments
cause and, thus, should be required to inhibit
himself. This grave charge is predicated on facts
which the Government characterizes as
"undeniable." In particular, the Government notes
that the 4 January 2005 Order was issued motu
proprio, without any preceding motion, notice or
hearing. Further, such order, which directed the
payment of US$62 Million to PIATCO, was attended
with error in the computation of just compensation.
The Government also notes that the said Order was
issued even before summons had been served on
PIATCO.
The disqualification of a judge is a deprivation of
his/her judicial power
73
and should not be allowed
on the basis of mere speculations and surmises. It
certainly cannot be predicated on the adverse
nature of the judges rulings towards the movant for
inhibition, especially if these rulings are in accord
with law. Neither could inhibition be justified merely
on the erroneous nature of the rulings of the judge.
We emphasized in Webb v. People:
74

To prove bias and prejudice on the part of
respondent judge, petitioners harp on the alleged
adverse and erroneous rulings of respondent judge
on their various motions. By themselves, however,
they do not sufficiently prove bias and prejudice to
disqualify respondent judge. To be disqualifying,
the bias and prejudice must be shown to have
stemmed from an extrajudicial source and result in
an opinion on the merits on some basis other than
what the judge learned from his participation in the
case. Opinions formed in the course of judicial
proceedings, although erroneous, as long as they are
based on the evidence presented and conduct
observed by the judge, do not prove personal bias or
prejudice on the part of the judge. As a general rule,
repeated rulings against a litigant, no matter how
erroneous and vigorously and consistently
expressed, are not a basis for disqualification of a
judge on grounds of bias and prejudice. Extrinsic
evidence is required to establish bias, bad faith,
malice or corrupt purpose, in addition to the
palpable error which may be inferred from the
decision or order itself. Although the decision may
seem so erroneous as to raise doubts concerning a
judge's integrity, absent extrinsic evidence, the
decision itself would be insufficient to establish a
case against the judge. The only exception to the
rule is when the error is so gross and patent as to
produce an ineluctable inference of bad faith or
malice.
75

The Governments contentions against Hon.
Gingoyon are severely undercut by the fact that the
21 December 2004 Order, which the 4 January 2005
Order sought to rectify, was indeed severely flawed
as it erroneously applied the provisions of Rule 67 of
the Rules of Court, instead of Rep. Act No. 8974, in
ascertaining compliance with the requisites for the
issuance of the writ of possession. The 4 January
2005 Order, which according to the Government
establishes Hon. Gingoyons bias, was promulgated
precisely to correct the previous error by applying
the correct provisions of law. It would not speak well
of the Court if it sanctions a judge for wanting or
even attempting to correct a previous erroneous
order which precisely is the right move to take.
Neither are we convinced that the motu proprio
issuance of the 4 January 2005 Order, without the
benefit of notice or hearing, sufficiently evinces bias
on the part of Hon. Gingoyon. The motu proprio
amendment by a court of an erroneous order
previously issued may be sanctioned depending on
the circumstances, in line with the long-recognized
principle that every court has inherent power to do
all things reasonably necessary for the
administration of justice within the scope of its
jurisdiction.
76
Section 5(g), Rule 135 of the Rules of
Court further recognizes the inherent power of
courts "to amend and control its process and orders
so as to make them conformable to law and
justice,"
77
a power which Hon. Gingoyon noted in his
10 January 2005 Omnibus Order.
78
This inherent
power includes the right of the court to reverse
itself, especially when in its honest opinion it has
committed an error or mistake in judgment, and that
to adhere to its decision will cause injustice to a
party litigant.
79

Certainly, the 4 January 2005 Order was designed to
make the RTCs previous order conformable to law
and justice, particularly to apply the correct law of
the case. Of course, as earlier established, this effort
proved incomplete, as the 4 January 2005 Order did
not correctly apply Rep. Act No. 8974 in several
respects. Still, at least, the 4 January 2005 Order
correctly reformed the most basic premise of the
case that Rep. Act No. 8974 governs the
expropriation proceedings.
Nonetheless, the Government belittles Hon.
Gingoyons invocation of Section 5(g), Rule 135 as
"patently without merit". Certainly merit can be
seen by the fact that the 4 January 2005 Order
reoriented the expropriation proceedings towards
the correct governing law. Still, the Government
claims that the unilateral act of the RTC did not
conform to law or justice, as it was not afforded the
right to be heard.
The Court would be more charitably disposed
towards this argument if not for the fact that the
earlier order with the 4 January 2005 Order sought
to correct was itself issued without the benefit of
any hearing. In fact, nothing either in Rule 67 or Rep.
Act No. 8975 requires the conduct of a hearing prior
to the issuance of the writ of possession, which by
design is available immediately upon the filing of the
complaint provided that the requisites attaching
thereto are present. Indeed, this expedited process
for the obtention of a writ of possession in
expropriation cases comes at the expense of the
rights of the property owner to be heard or to be
deprived of possession. Considering these
predicates, it would be highly awry to demand that
an order modifying the earlier issuance of a writ of
possession in an expropriation case be barred until
the staging of a hearing, when the issuance of the
writ of possession itself is not subject to hearing.
Perhaps the conduct of a hearing under these
circumstances would be prudent. However, hearing
is not mandatory, and the failure to conduct one
does not establish the manifest bias required for the
inhibition of the judge.
The Government likewise faults Hon. Gingoyon for
using the amount of US$350 Million as the basis for
the 100% deposit under Rep. Act No. 8974. The
Court has noted that this statement was predicated
on the erroneous belief that the BIR zonal valuation
applies as a standard for determination of just
compensation in this case. Yet this is manifest not of
bias, but merely of error on the part of the judge.
Indeed, the Government was not the only victim of
the errors of the RTC in the assailed orders. PIATCO
itself was injured by the issuance by the RTC of the
writ of possession, even though the former had yet
to be paid any amount of just compensation. At the
same time, the Government was also prejudiced by
the erroneous ruling of the RTC that the amount of
US$62.3 Million, and not P3 Billion, should be
released to PIATCO.
The Court has not been remiss in pointing out the
multiple errors committed by the RTC in its assailed
orders, to the prejudice of both parties. This attitude
of error towards all does not ipso facto negate the
charge of bias. Still, great care should be had in
requiring the inhibition of judges simply because the
magistrate did err. Incompetence may be a ground
for administrative sanction, but not for inhibition,
which requires lack of objectivity or impartiality to
sit on a case.
The Court should necessarily guard against adopting
a standard that a judge should be inhibited from
hearing the case if one litigant loses trust in the
judge. Such loss of trust on the part of the
Government may be palpable, yet inhibition cannot
be grounded merely on the feelings of the party-
litigants. Indeed, every losing litigant in any case can
resort to claiming that the judge was biased, and
he/she will gain a sympathetic ear from friends,
family, and people who do not understand the
judicial process. The test in believing such a
proposition should not be the vehemence of the
litigants claim of bias, but the Courts judicious
estimation, as people who know better than to
believe any old cry of "wolf!", whether such bias has
been irrefutably exhibited.
The Court acknowledges that it had been previously
held that "at the very first sign of lack of faith and
trust in his actions, whether well-grounded or not,
the judge has no other alternative but to inhibit
himself from the case."
80
But this doctrine is
qualified by the entrenched rule that "a judge may
not be legally prohibited from sitting in a litigation,
but when circumstances appear that will induce
doubt to his honest actuations and probity in favor
of either party, or incite such state of mind, he
should conduct a careful self-
examination. He should exercise his discretion in a
way that the people's faith in the Courts of Justice is
not impaired."
81
And a self-assessment by the judge
that he/she is not impaired to hear the case will be
respected by the Court absent any evidence to the
contrary. As held in Chin v. Court of Appeals:
An allegation of prejudgment, without more,
constitutes mere conjecture and is not one of the
"just and valid reasons" contemplated in the second
paragraph of Rule 137 of the Rules of Court for
which a judge may inhibit himself from hearing the
case. We have repeatedly held that mere suspicion
that a judge is partial to a party is not enough. Bare
allegations of partiality and prejudgment will not
suffice in the absence of clear and convincing
evidence to overcome the presumption that the
judge will undertake his noble role to dispense
justice according to law and evidence and without
fear or favor. There should be adequate evidence to
prove the allegations, and there must be showing
that the judge had an interest, personal or
otherwise, in the prosecution of the case. To be a
disqualifying circumstance, the bias and prejudice
must be shown to have stemmed from an
extrajudicial source and result in an opinion on the
merits on some basis other than what the judge
learned from his participation in the case.
82

The mere vehemence of the Governments claim of
bias does not translate to clear and convincing
evidence of impairing bias. There is no sufficient
ground to direct the inhibition of Hon. Gingoyon
from hearing the expropriation case.
In conclusion, the Court summarizes its rulings as
follows:
(1) The 2004 Resolution in Agan sets the base
requirement that has to be observed before the
Government may take over the NAIA 3, that there
must be payment to PIATCO of just compensation in
accordance with law and equity. Any ruling in the
present expropriation case must be conformable to
the dictates of the Court as pronounced in the Agan
cases.
(2) Rep. Act No. 8974 applies in this case, particularly
insofar as it requires the immediate payment by the
Government of at least the proffered value of the
NAIA 3 facilities to PIATCO and provides certain
valuation standards or methods for the
determination of just compensation.
(3) Applying Rep. Act No. 8974, the implementation
of Writ of Possession in favor of the Government
over NAIA 3 is held in abeyance until PIATCO is
directly paid the amount of P3 Billion, representing
the proffered value of NAIA 3 under Section 4(c) of
the law.
(4) Applying Rep. Act No. 8974, the Government is
authorized to start the implementation of the NAIA 3
Airport terminal project by performing the acts that
are essential to the operation of the NAIA 3 as an
international airport terminal upon the effectivity of
the Writ of Possession, subject to the conditions
above-stated. As prescribed by the Court, such
authority encompasses "the repair, reconditioning
and improvement of the complex, maintenance of
the existing facilities and equipment, installation of
new facilities and equipment, provision of services
and facilities pertaining to the facilitation of air
traffic and transport, and other services that are
integral to a modern-day international airport."
83

(5) The RTC is mandated to complete its
determination of the just compensation within sixty
(60) days from finality of this Decision. In doing so,
the RTC is obliged to comply with "law and equity"
as ordained in Again and the standard set under
Implementing Rules of Rep. Act No. 8974 which is
the "replacement cost method" as the standard of
valuation of structures and improvements.
(6) There was no grave abuse of discretion attending
the RTC Order appointing the commissioners for the
purpose of determining just compensation. The
provisions on commissioners under Rule 67 shall
apply insofar as they are not inconsistent with Rep.
Act No. 8974, its Implementing Rules, or the rulings
of the Court in Agan.
(7) The Government shall pay the just compensation
fixed in the decision of the trial court to PIATCO
immediately upon the finality of the said decision.
(8) There is no basis for the Court to direct the
inhibition of Hon. Gingoyon.
All told, the Court finds no grave abuse of discretion
on the part of the RTC to warrant the nullification of
the questioned orders. Nonetheless, portions of
these orders should be modified to conform with
law and the pronouncements made by the Court
herein.
WHEREFORE, the Petition is GRANTED in PART with
respect to the orders dated 4 January 2005 and 10
January 2005 of the lower court. Said orders are
AFFIRMED with the following MODIFICATIONS:
1) The implementation of the Writ of Possession
dated 21 December 2005 is HELD IN ABEYANCE,
pending payment by petitioners to PIATCO of the
amount of Three Billion Two Million One Hundred
Twenty Five Thousand Pesos (P3,002,125,000.00),
representing the proffered value of the NAIA 3
facilities;
2) Petitioners, upon the effectivity of the Writ of
Possession, are authorized start the implementation
of the Ninoy Aquino International Airport Pasenger
Terminal III project by performing the acts that are
essential to the operation of the said International
Airport Passenger Terminal project;
3) RTC Branch 117 is hereby directed, within sixty
(60) days from finality of this Decision, to determine
the just compensation to be paid to PIATCO by the
Government.
The Order dated 7 January 2005 is AFFIRMED in all
respects subject to the qualification that the parties
are given ten (10) days from finality of this Decision
to file, if they so choose, objections to the
appointment of the commissioners decreed therein.
The Temporary Restraining Order dated 14 January
2005 is hereby LIFTED.
No pronouncement as to costs.
SO ORDERED.
FACTS: NAIA 3, a project between the Government
and the Philippine International Air Terminals Co.,
Inc (PIATCO) was nullified.
Planning to put NAIA 3 facilities into immediate
operation, the Government, through expropriation
filed a petition to be entitled of a writ of possession
contending that a mere deposit of the assessed
value of the property with an authorized
government depository is enough for the
entitlement to said writ (Rule 67 of the Rules of
Court).
However, respondents avers that before an
entitlement of the writ of possession is issued, direct
payment of just compensation must be made to the
builders of the facilities, citing RA No. 8974 and a
related jurisprudence (2004 Resolution).
ISSUE: WON expropriation can be conducted by
mere deposit of the assessed value of the property.
HELD: No, in expropriation proceedings, entitlement
of writ of possession is issued only after direct
payment of just compensation is given to property
owner on the basis of fairness. The same principle
applied in the 2004 Jurisprudence Resolution and
the latest expropriation law (RA No. 8974).