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THIRD DIVISION

[G.R. No. 141833. March 26, 2003.]

LM POWER ENGINEERING CORPORATION, petitioner, vs.


CAPITOL INDUSTRIAL CONSTRUCTION GROUPS,
INC., respondent.

E.G. Ferry Law Offices for petitioner.

Catindig Tiongko & Nibungco for private respondent.


SYNOPSIS
Petitioner LM Power Engineering Corporation and respondent Capitol
Industrial Construction Groups, Inc. entered into a subcontract agreement
involving electrical work at the Third Port of Zamboanga.
Due to petitioner's failure to complete the work on schedule, respondent
took over some of petitioner's work items. Thus, when petitioner completed its
task under the contract, respondent refused to pay petitioner's billings, and
contested the billable accomplishments. The petitioner sued the respondent
for collection of sum of money with the RTC. The RTC subsequently ordered
the respondent to give full payment for the work completed by petitioner. The
CA, however, reversed the decision, and ordered the parties to present their
dispute to arbitration in accordance with the arbitral clause provided in their
subcontract agreement.
The Supreme Court affirmed the CA decision, ruling: that any doubt
should be resolved in favor of arbitration because aside from unclogging
judicial dockets, arbitration also hastens the resolution of disputes; that the
instant case involves technical discrepancies in the application of their
agreement that are better left to an arbitral body that has expertise in those
areas; that under Sec. 1 Art. III of the new Rules of Procedure, there is no
more need to file a request with the Construction Industry Arbitration
Commission (CIAC) in order to vest it with jurisdiction to decide a construction
dispute. As long as the parties agree to submit to voluntary arbitration,
regardless of what forum they may choose, they may invoke the CIAC
jurisdiction; that parties are expected to abide by the arbitral clause in the
agreement in good faith; and that since petitioner has already filed a complaint
with the RTC without prior recourse to arbitration, the proper procedure is to
request the suspension of such action as provided under RA 876 (the
Arbitration Law) to enable the CIAC to decide on the dispute.

SYLLABUS

1.LABOR AND SOCIAL LEGISLATION; LABOR RELATIONS; VOLUNTARY


ARBITRATION; ARBITRATION CLAUSES SHOULD BE LIBERALLY
CONSTRUED. Being an inexpensive, speedy and amicable method of settling
disputes, arbitration along with mediation, conciliation and negotiation is
encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the commercial
kind. It is thus regarded as the "wave of the future" in international civil and
commercial disputes. Brushing aside a contractual agreement calling for
arbitration between the parties would be a step backward. Consistent with the
above-mentioned policy of encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to
arbitrate should be granted. Any doubt should be resolved in favor of
arbitration.
AHcCDI

2.ID.; ID.; ID.; ID.; RESOLUTION OF TECHNICAL DISCREPANCIES ARE


BETTER LEFT TO AN ARBITRAL BODY; CASE AT BAR. Clearly, the
resolution of the dispute between the parties herein requires a referral to the
provisions of their Agreement. Within the scope of the arbitration clause are
discrepancies as to the amount of advances and billable accomplishments, the
application of the provision on termination, and the consequent set-off of
expenses. A review of the factual allegations of the parties reveals that they differ
on the following questions: (1) Did a take-over/termination occur? (2) May the
expenses incurred by respondent in the take-over be set off against the amounts
it owed petitioner? (3) How much were the advances and billable
accomplishments? The resolution of the foregoing issues lies in the interpretation
of the provisions of the Agreement. . . . The instant case involves technical
discrepancies that are better left to an arbitral body that has expertise in those
areas.

3.ID.; ID.; ID.; CONSTRUCTION INDUSTRY ARBITRATION COMMISSION


(CIAC); HAS JURISDICTION TO DECIDE A CONSTRUCTION DISPUTE WHEN
CONSTRUCTION CONTRACT HAS AN ARBITRAL CLAUSE; CASE AT BAR.
Section 1 of Article II of the old Rules of Procedure Governing Construction
Arbitration indeed required the submission of a request for arbitration. . . On the
other hand, Section 1 of Article III of the new Rules of Procedure Governing
Construction Arbitration has dispensed with this requirement and recourse to the
CIAC may now be availed of whenever a contract "contains a clause for the
submission of a future controversy to arbitration,". . . Clearly, there is no more
need to file a request with the CIAC in order to vest it with jurisdiction to decide a
construction dispute.

4.ID.; ID.; ID.; PARTIES ARE EXPECTED TO ABIDE BY THE ARBITRAL


CLAUSE IN GOOD FAITH; CASE AT BAR. The arbitral clause in the
Agreement is a commitment on the part of the parties to submit to arbitration the
disputes covered therein. Because that clause is binding, they are expected to
abide by it in good faith. And because it covers the dispute between the parties in
the present case, either of them may compel the other to arbitrate. Since
petitioner has already filed a Complaint with the RTC without prior recourse to
arbitration, the proper procedure to enable the CIAC to decide on the dispute is to
request the stay or suspension of such action, as provided under RA 876 [the
Arbitration Law].

DECISION

PANGANIBAN, J : p

Alternative dispute resolution methods or ADRs like arbitration, mediation,


negotiation and conciliation are encouraged by the Supreme Court. By
enabling parties to resolve their disputes amicably, they provide solutions that are
less time-consuming, less tedious, less confrontational, and more productive of
goodwill and lasting relationships. 1
The Case
Before us is a Petition for Review on Certiorari 2 under Rule 45 of the Rules of
Court, seeking to set aside the January 28, 2000 Decision of the Court of
Appeals 3 (CA) in CA-GR CV No. 54232. The dispositive portion of the Decision
reads as follows:
"WHEREFORE, the judgment appealed from is REVERSED and SET
ASIDE. The parties are ORDERED to present their dispute to arbitration
in accordance with their Sub-contract Agreement. The surety bond
posted by [respondent] is [d]ischarged." 4

The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and
Respondent Capitol Industrial Construction Groups Inc. entered into a
"Subcontract Agreement" involving electrical work at the Third Port of
Zamboanga. 5

On April 25, 1985, respondent took over some of the work contracted to
petitioner. 6 Allegedly, the latter had failed to finish it because of its inability to
procure materials. 7

Upon completing its task under the Contract, petitioner billed respondent in the
amount of P6,711,813.90. 8 Contesting the accuracy of the amount of advances
and billable accomplishments listed by the former, the latter refused to pay.
Respondent also took refuge in the termination clause of the Agreement. 9 That
clause allowed it to set off the cost of the work that petitioner had failed to
undertake due to termination or take-over against the amount it owed the
latter.

Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of
Makati (Branch 141) a Complaint 10 for the collection of the amount representing
the alleged balance due it under the Subcontract. Instead of submitting an
Answer, respondent filed a Motion to Dismiss, 11 alleging that the Complaint was
premature, because there was no prior recourse to arbitration.
In its Order 12 dated September 15, 1987, the RTC denied the Motion on the
ground that the dispute did not involve the interpretation or the implementation of
the Agreement and was, therefore, not covered by the arbitral clause. 13

After trial on the merits, the RTC 14 ruled that the take-over of some work items by
respondent was not equivalent to a termination, but a mere modification, of the
Subcontract. The latter was ordered to give full payment for the work completed
by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of the case to
arbitration. The appellate court held as arbitrable the issue of whether
respondent's take-over of some work items had been intended to be a
termination of the original contract under Letter "K" of the Subcontract. It ruled
likewise on two other issues: whether petitioner was liable under the warranty
clause of the Agreement, and whether it should reimburse respondent for the
work the latter had taken over. 15

Hence, this Petition. 16


The Issues
In its Memorandum, petitioner raises the following issues for the Court's
consideration:
"A

Whether or not there exist[s] a controversy/dispute between petitioner


and respondent regarding the interpretation and implementation of the
Sub-Contract Agreement dated February 22, 1983 that requires prior
recourse to voluntary arbitration;

"B

In the affirmative, whether or not the requirements provided in Article III


[1] of CIAC Arbitration Rules regarding request for arbitration ha[ve] been
complied with[.]" 17

The Court's Ruling


The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the
implementation of the Agreement. Thus, without having to resort to prior
arbitration, it is entitled to collect the value of the services it rendered through an
ordinary action for the collection of a sum of money from respondent. On the
other hand, the latter contends that there is a need for prior arbitration as
provided in the Agreement. This is because there are some disparities between
the parties' positions regarding the extent of the work done, the amount of
advances and billable accomplishments, and the set off of expenses incurred by
respondent in its take-over of petitioner's work. TAIDHa

We side with respondent. Essentially, the dispute arose from the parties'
incongruent positions on whether certain provisions of their Agreement could be
applied to the facts. The instant case involves technical discrepancies that are
better left to an arbitral body that has expertise in those areas. In any event, the
inclusion of an arbitration clause in a contract does not ipso facto divest the
courts of jurisdiction to pass upon the findings of arbitral bodies, because the
awards are still judicially reviewable under certain conditions. 18

In the case before us, the Subcontract has the following arbitral clause:
"6.The Parties hereto agree that any dispute or conflict as regards to
interpretation and implementation of this Agreement which cannot be
settled between [respondent] and [petitioner] amicably shall be settled
by means of arbitration . . ." 19

Clearly, the resolution of the dispute between the parties herein requires a
referral to the provisions of their Agreement. Within the scope of the arbitration
clause are discrepancies as to the amount of advances and billable
accomplishments, the application of the provision on termination, and the
consequent set-off of expenses.

A review of the factual allegations of the parties reveals that they differ on the
following questions: (1) Did a take-over/termination occur? (2) May the expenses
incurred by respondent in the take-over be set off against the amounts it owed
petitioner? (3) How much were the advances and billable accomplishments?

The resolution of the foregoing issues lies in the interpretation of the provisions of
the Agreement. According to respondent, the take-over was caused by
petitioner's delay in completing the work. Such delay was in violation of the
provision in the Agreement as to time schedule:
"G.TIME SCHEDULE

"[Petitioner] shall adhere strictly to the schedule related to the WORK


and complete the WORK within the period set forth in Annex C hereof.
NO time extension shall be granted by [respondent] to [petitioner] unless
a corresponding time extension is granted by [the Ministry of Public
Works and Highways] to the CONSORTIUM." 20

Because of the delay, respondent alleges that it took over some of the work
contracted to petitioner, pursuant to the following provision in the Agreement:
"K.TERMINATION OF AGREEMENT

"[Respondent] has the right to terminate and/or take over this Agreement
for any of the following causes:

xxx xxx xxx

'6.If despite previous warnings by [respondent], [petitioner] does


not execute the WORK in accordance with this Agreement,
or persistently or flagrantly neglects to carry out [its] obligations
under this Agreement." 21

Supposedly, as a result of the "take-over," respondent incurred expenses in


excess of the contracted price. It sought to set off those expenses against the
amount claimed by petitioner for the work the latter accomplished, pursuant to the
following provision:
"If the total direct and indirect cost of completing the remaining part of
the WORK exceed the sum which would have been payable to
[petitioner] had it completed the WORK, the amount of such excess [may
be] claimed by [respondent] from either of the following:
'1.Any amount due [petitioner] from [respondent] at the time of the
termination of this Agreement." 22

The issue as to the correct amount of petitioner's advances and billable


accomplishments involves an evaluation of the manner in which the parties
completed the work, the extent to which they did it, and the expenses each of
them incurred in connection therewith. Arbitrators also need to look into the
computation of foreign and local costs of materials, foreign and local advances,
retention fees and letters of credit, and taxes and duties as set forth in the
Agreement. These data can be gathered from a review of the Agreement,
pertinent portions of which are reproduced hereunder:
"C.CONTRACT PRICE AND TERMS OF PAYMENT

xxx xxx xxx

"All progress payments to be made by [respondent] to [petitioner] shall


be subject to a retention sum of ten percent (10%) of the value of the
approved quantities. Any claims by [respondent] on [petitioner] may be
deducted by [respondent] from the progress payments and/or retained
amount. Any excess from the retained amount after deducting
[respondent's] claims shall be released by [respondent] to [petitioner]
after the issuance of [the Ministry of Public Works and Highways] of the
Certificate of Completion and final acceptance of the WORK by [the
Ministry of Public Works and Highways].

xxx xxx xxx

"D.IMPORTED MATERIALS AND EQUIPMENT

"[Respondent shall open the letters of credit for the importation of


equipment and materials listed in Annex E hereof after the drawings,
brochures, and other technical data of each items in the list have been
formally approved by [the Ministry of Public Works and Highways].
However, petitioner will still be fully responsible for all imported materials
and equipment.

"All expenses incurred by [respondent], both in foreign and local


currencies in connection with the opening of the letters of credit shall be
deducted from the Contract Prices.

xxx xxx xxx


"N.OTHER CONDITIONS

xxx xxx xxx

"2.All customs duties, import duties, contractor's taxes, income taxes,


and other taxes that may be required by any government agencies in
connection with this Agreement shall be for the sole account of
[petitioner]." 23

Being an inexpensive, speedy and amicable method of settling


disputes, 24 arbitration along with mediation, conciliation and negotiation is
encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the commercial
kind. 25 It is thus regarded as the "wave of the future" in international civil and
commercial disputes. 26 Brushing aside a contractual agreement calling for
arbitration between the parties would be a step backward. 27

Consistent with the above-mentioned policy of encouraging alternative dispute


resolution methods, courts should liberally construe arbitration clauses. Provided
such clause is susceptible of an interpretation that covers the asserted dispute,
an order to arbitrate should be granted. 28 Any doubt should be resolved in favor
of arbitration. 29

Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is arbitrable, the
failure to file a formal request for arbitration with the Construction Industry
Arbitration Commission (CIAC) precluded the latter from acquiring jurisdiction
over the question. To bolster its position, petitioner even cites our ruling in Tesco
Services Incorporated v. Vera. 30 We are not persuaded.

Section 1 of Article II of the old Rules of Procedure Governing Construction


Arbitration indeed required the submission of a request for arbitration, as follows:
"SECTION 1.Submission to Arbitration Any party to a construction
contract wishing to have recourse to arbitration by the Construction
Industry Arbitration Commission (CIAC) shall submit its Request for
Arbitration in sufficient copies to the Secretariat of the CIAC; PROVIDED,
that in the case of government construction contracts, all administrative
remedies available to the parties must have been exhausted within 90
days from the time the dispute arose."

Tesco was promulgated by this Court, using the foregoing provision as reference.

On the other hand, Section 1 of Article III of the new Rules of Procedure
Governing Construction Arbitration has dispensed with this requirement and
recourse to the CIAC may now be availed of whenever a contract "contains a
clause for the submission of a future controversy to arbitration," in this wise:
"SECTION 1.Submission to CIAC Jurisdiction An arbitration clause in
a construction contract or a submission to arbitration of a construction
dispute shall be deemed an agreement to submit an existing or future
controversy to CIAC jurisdiction, notwithstanding the reference to a
different arbitration institution or arbitral body in such contract or
submission. When a contract contains a clause for the submission of a
future controversy to arbitration, it is not necessary for the parties to
enter into a submission agreement before the claimant may invoke the
jurisdiction of CIAC."

The foregoing amendments in the Rules were formalized by CIAC Resolution


Nos. 2-91 and 3-93. 31

The difference in the two provisions was clearly explained in China Chang Jiang
Energy Corporation (Philippines) v. Rosal Infrastructure Builders et al. 32 (an
extended unsigned Resolution) and reiterated in National Irrigation Administration
v. Court of Appeals, 33 from which we quote thus:
"Under the present Rules of Procedure, for a particular construction
contract to fall within the jurisdiction of CIAC, it is merely required that
the parties agree to submit the same to voluntary arbitration Unlike in the
original version of Section 1, as applied in the Tesco case, the law as it
now stands does not provide that the parties should agree to submit
disputes arising from their agreement specifically to the CIAC for the
latter to acquire jurisdiction over the same. Rather, it is plain and clear
that as long as the parties agree to submit to voluntary arbitration,
regardless of what forum they may choose, their agreement will fall
within the jurisdiction of the CIAC, such that, even if they specifically
choose another forum, the parties will not be precluded from electing to
submit their dispute before the CIAC because this right has been vested
upon each party by law, i.e., E.O. No. 1008." 34

Clearly, there is no more need to file a request with the CIAC in order to vest it
with jurisdiction to decide a construction dispute.

The arbitral clause in the Agreement is a commitment on the part of the parties to
submit to arbitration the disputes covered therein. Because that clause is binding,
they are expected to abide by it in good faith. 35 And because it covers the dispute
between the parties in the present case, either of them may compel the other to
arbitrate. 36

Since petitioner has already filed a Complaint with the RTC without prior recourse
to arbitration, the proper procedure to enable the CIAC to decide on the dispute is
to request the stay or suspension of such action, as provided under RA 876 [the
Arbitration Law]. 37

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.


Costs against petitioner. cEISAD

SO ORDERED.
||| (LM Power Engineering Corp. v. Capitol Industrial Construction Groups Inc.,
G.R. No. 141833, [March 26, 2003], 447 PHIL 705-717)

SECOND DIVISION

[G.R. No. 152878. May 5, 2003.]

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs.


MAGWIN MARKETING CORPORATION, NELSON TIU, BENITO
SY and ANDERSON UY,respondents.
Siguion Reyna Montecillo & Ongsiako for petitioner.

Sycip Salazar Hernandez & Gatmaitan for respondent A. Uy.

Ernest S. Ang, Jr. for private respondents.

SYNOPSIS

In a complaint for recovery of sum of money filed by petitioner against the


respondents, the trial court, on its own initiative, dismissed the complaint without
prejudice for failure of petitioner to prosecute. However, upon motion of petitioner,
the trial court issued an Order dated 8 September 2000 reconsidering the
dismissal. It further directed the petitioner to submit the compromise agreement
within 15 days from receipt thereof and warned that for failure on its part to
submit the said agreement shall cause the imposition of payment of the required
docket fees for re-filing of the case. On 27 July 2000, petitioner filed a Motion to
Set Case for Pre-Trial Conference, but then it was denied by the trial court
because of its failure to submit a compromise agreement. Petitioner filed a
Petition for Certiorari before the Court of Appeals. It argued that the trial court
had no authority to compel the parties to enter into an amicable settlement nor to
deny the holding of a pre-trial conference on the ground that no compromise
agreement was turned over to the court a quo: The appellate court affirmed the
orders of the trial court. Hence, this petition.

The Court saw no reason why the trial court should stop short of hearing the civil
case on the merits. There was no substantial policy worth pursuing by requiring
petitioner to pay again the docket fees when it had already discharged this
obligation simultaneously with the filing of the complaint for collection of a sum of
money. The procedure for dismissed cases when re-filed is the same as though it
was initially lodged, i.e., the filing of answer, reply, answer to counterclaim,
including other foot-dragging maneuvers, except for the rigmarole of raffling
cases which is dispensed with since the re-filed complaint is automatically
assigned to the branch to which the original case pertained. A complaint that is
re-filed leads to the re-enactment of the past proceedings with the concomitant
full attention of the same trial court exercising an immaculate slew of jurisdiction
and control over the case that was previously dismissed, which in the context of
the instant case is a waste of judicial time, capital and energy. Accordingly, the
instant petition was granted.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; PROCEDURE FOR REFILING OF


DISMISSED CASES. There is no substantial policy worth pursuing by
requiring petitioner to pay again the docket fees when it has already discharged
this obligation simultaneously with the filing of the complaint for collection of a
sum of money. The procedure for dismissed cases when re-filed is the same as
though it was initially lodged, i.e., the filing of answer, reply, answer to counter-
claim, including other foot-dragging maneuvers, except for the rigmarole of
raffling cases which is dispensed with since the re-filed complaint is automatically
assigned to the branch to which the original case pertained. A complaint that is
re-filed leads to the re-enactment of past proceedings with the concomitant full
attention of the same trial court exercising an immaculate slew of jurisdiction and
control over the case that was previously dismissed, which in the context of the
instant case is a waste of judicial time, capital and energy.

2. ID.; ID.; DISMISSAL OF ACTION; FAILURE TO SUBMIT A COMPROMISE


AGREEMENT WITHIN THE STIPULATED NUMBER OF DAYS DOES NOT
MEAN THAT THE CASE WOULD BE DISMISSED. Contrary to respondent
Uy's asseverations, the impact of the second paragraph upon the first is simply to
illustrate what the trial court would do after setting aside the dismissal without
prejudice: submission of the compromise agreement for the consideration of the
trial court. Nothing in the second paragraph do we read that the reconsideration
is subject to two (2) qualifications. Certainly far from it, for in Goldloop Properties,
Inc. v. Court of Appeals a similar directive, i.e., "[t]he parties are given a period of
fifteen (15) days from today within which to submit a Compromise Agreement,"
was held to mean that "should the parties fail in their negotiations the
proceedings would continue from where they left off." Goldloop Properties,
Inc. further said that its order, or a specie of it, did not constitute an agreement or
even an expectation of the parties that should they fail to settle their differences
within the stipulated number of days their case would be dismissed.
3. ID.; ID.; ID.; DOCKET FEES ARE DEFRAYED ONLY AFTER THE DISMISSAL
BECOMES FINAL AND EXECUTORY AND WHEN THE CIVIL CASE IS RE-
FILED. It must be emphasized however that once the dismissal attains the
attribute of finality, the trial court cannot impose legal fees anew because a final
and executory dismissal although without prejudice divests the trial court of
jurisdiction over the civil case as well as any residual power to order anything
relative to the dismissed case; it would have to wait until the complaint is
docketed once again. On the other hand, if we are to concede that the trial court
retains jurisdiction over Civil Case No. 99-518 for it to issue the assailed Orders,
a continuation of the hearing thereon would not trigger a disbursement for docket
fees on the part of petitioner as this would obviously imply the setting aside of the
order of dismissal and the reinstatement of the complaint.

4. ID.; ID.; ID.; ID.; CASE AT BAR. The addition of the second sentence in the
second paragraph does not change the absolute nullification of the dismissal
without prejudice decreed in the first paragraph. The sentence "[f]ailure on the
part of plaintiff to submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case" is not a directive to
pay docket fees but only a statement of the event that may result in its imposition.
The reason for this is that the trial court could not have possibly made such
payment obligatory in the same civil case, i.e., Civil Case No. 99-518, since
docket fees are defrayed only after the dismissal becomes final and executory
and when the civil case is re-filed.

5. ID.; ID.; ID.; SUBSEQUENT ACTIONS OF THE TRIAL COURT BELIE AN


INTENTION TO REVIVE THE ORDER OF DISMISSAL WITHOUT PREJUDICE
IN THE EVENT THAT PETITIONER FAILS TO SUBMIT A COMPROMISE
AGREEMENT; CASE AT BAR. The subsequent actions of the trial court also
belie an intention to revive the Order of dismissal without prejudice in the event
that petitioner fails to submit a compromise agreement. The Orders of 6 and 16
November 2000 plainly manifest that it was retaining jurisdiction over the civil
case, a fact which would not have been possible had the dismissal without
prejudice been resuscitated. Surely, the court a quo could not have denied on 6
November 2000 petitioner's motion to calendar Civil Case No. 99-518 for pre-trial
if the dismissal had been restored to life in the meantime. By then the dismissal
without prejudice would have already become final and executory so as to
effectively remove the civil case from the docket of the trial court. The same is
true with the Order of 16 November 2000 denying due course to
petitioner's Notice of Appeal. There would have been no basis for such exercise
of discretion because the jurisdiction of the court a quo over the civil case would
have been discharged and terminated by the presumed dismissal thereof.
Moreover, we note the ground for denying due course to the appeal: the "Orders
dated 8 September 2000 and 6 November 2000 are interlocutory orders and
therefore, no appeal may be taken from . . . ." This declaration strongly suggests
that something more was to be accomplished in the civil case, thus negating the
claim that the Order of dismissal without prejudice was resurrected upon the
parties' failure to yield a compromise agreement.

6. ID.; ID.; "FINAL ORDER" DIFFERENTIATED FROM "INTERLOCUTORY


ORDER." A "final order" issued by a court has been defined as one which
disposes of the subject matter in its entirety or terminates a particular proceeding
or action, leaving nothing else to be done but to enforce by execution what has
been determined by the court, while an "interlocutory order" is one which does
not dispose of a case completely but leaves something more to be decided upon.

7. ID.; ID.; DISMISSAL OF ACTION; GOLD LOOP PROPERTIES, INC. vs.


COURT OF APPEALS; APPLICABLE IN CASE AT BAR. Besides the semantic
and consequential improbabilities of respondent Uy's argument, our ruling
in Goldloop Properties, Inc., is decisive of the instant case. In Goldloop
Properties, Inc., we reversed the action of the trial court in dismissing the
complaint for failure of the plaintiff to prosecute its case, which was in turn based
on its inability to forge a compromise with the other parties within fifteen (15)
days from notice of the order to do so and held "Since there is nothing in the
Rules that imposes the sanction of dismissal for failing to submit a compromise
agreement, then it is obvious that the dismissal of the complaint on the basis
thereof amounts no less to a gross procedural infirmity assailable by certiorari.
For such submission could at most be directory and could not result in throwing
out the case for failure to effect a compromise. While a compromise is
encouraged, very strongly in fact, failure to consummate one does not warrant
any procedural sanction, much less an authority to jettison a civil complaint worth
P4,000,000.00 . . . Plainly, submission of a compromise agreement is never
mandatory, nor is it required by any rule."

8. ID.; ID.; PROPER COURSE OF ACTION TO BE TAKEN BY THE COURT A


QUO, UPON MANIFESTATION OF THE PARTIES OF THEIR WILLINGNESS TO
DISCUSS A SETTLEMENT. The proper course of action that should have
been taken by the court a quo, upon manifestation of the parties of their
willingness to discuss a settlement, was to suspend the proceedings and allow
them reasonable time to come to terms (a) If willingness to discuss a possible
compromise is expressed by one or both parties; or (b) If it appears that one of
the parties, before the commencement of the action or proceeding, offered to
discuss a possible compromise but the other party refused the offer, pursuant to
Art. 2030 of the Civil Code. If despite efforts exerted by the trial court and the
parties the negotiations still fail, only then should the action continue as if no
suspension had taken place.

9. ID.; ID.; RULES ALLOW THE TRIAL COURT TO SUSPEND ITS


PROCEEDINGS TO ENCOURAGE THE USE OF ALTERNATIVE MECHANISMS
OF DISPUTE RESOLUTION. Ostensibly, while the rules allow the trial court to
suspend its proceedings consistent with the policy to encourage the use of
alternative mechanisms of dispute resolution, in the instant case, the trial court
only gave the parties fifteen (15) days to conclude a deal. This was, to say the
least, a passive and paltry attempt of the court a quo in its task of persuading
litigants to agree upon a reasonable concession. Hence, if only to inspire
confidence in the pursuit of a middle ground between petitioner and respondents,
we must not interpret the trial court's Orders as dismissing the action on its own
motion because the parties, specifically petitioner, were anxious to litigate their
case as exhibited in their several manifestations and motions.

10. ID.; ID.; DISMISSAL OF ACTION; GOLDLOOP PROPERTIES, INC. vs.


COURT OF APPEALS; COURT DOES NOT TOLERATE A WRONGFUL
DISMISSAL JUST BECAUSE THE PARTIES FAILED TO SUBMIT
COMPROMISE AGREEMENT; APPLIED IN CASE AT BAR. To begin with,
whether the dismissal is with or without prejudice if grievously erroneous is
detrimental to the cause of the affected party; Goldloop Properties, Inc. does not
tolerate a wrongful dismissal just because it was without prejudice. More
importantly, the facts in Goldloop Properties, Inc. involve, as in the instant case, a
dismissal for failure to prosecute on the ground of the parties' inability to come up
with a compromise agreement within fifteen (15) days from notice of the court's
order therein. All told, the parallelism between them is unmistakable. Even if we
are to accept on face value respondent's understanding of Goldloop Properties,
Inc. as solely about the failure to submit a compromise agreement, it is apparent
that the present case confronts a similar problem. Perhaps initially the issue was
one of failure to prosecute, as can be observed from the Order dated 20 July
2000, although later reversed and set aside. But thereafter, in the Order of 6
November 2000, the trial court refused to proceed to pre-trial owing to the "failure
of the plaintiff to submit a compromise agreement pursuant to the Order dated 8
September 2000." When the civil case was stalled on account of the trial court's
refusal to call the parties to a pre-trial conference, the reason or basis therefor
was the absence of a negotiated settlement a circumstance that takes the
case at bar within the plain ambit of Goldloop Properties, Inc. In any event, given
that the instant case merely revolves around the search for a reasonable
interpretation of the several Orders of the trial court, i.e., as to whether the
dismissal without prejudice was revived upon petitioner's helplessness to perfect
an out-of-court arrangement, with more reason must we employ the ruling
in Goldloop Properties, Inc. to resolve the parties' differences of opinion.

11. ID.; ID.; ID.; GROUNDS FOR DISMISSAL DUE TO PLAINTIFF'S FAULT.
A complaint may be dismissed due to plaintiff's fault: (a) if he fails to appear
during a scheduled trial, especially on the date for the presentation of his
evidence in chief, or when so required at the pre-trial; (b) if he neglects to
prosecute his action for an unreasonable length of time; or (c) if he does not
comply with the rules or any order of the court.

12. ID.; ID.; ID.; ID.; FAILURE TO PROSECUTE; NOT PRESENT IN CASE AT
BAR. To constitute a sufficient ground for dismissal, the inattention of plaintiff
to pursue his cause must not only be prolonged but also be unnecessary and
dilatory resulting in the trifling of judicial processes. In the instant case, the
adjournment was not only fleeting as it lasted less than six (6) months but was
also done in good faith to accommodate respondents' incessant pleas to
negotiate. Although the dismissal of a case for failure to prosecute is a matter
addressed to the sound discretion of the court, that judgment however must not
be abused. The availability of this recourse must be determined according to the
procedural history of each case, the situation at the time of the dismissal, and the
diligence of plaintiff to proceed therein. Stress must also be laid upon the official
directive that courts must endeavor to convince parties in a civil case to
consummate a fair settlement, and to mitigate damages to be paid by the losing
party who has shown a sincere desire for such give-and-take. All things
considered, we see no compelling circumstances to uphold the dismissal of
petitioner's complaint regardless of its characterization as being without
prejudice.

13. ID.; ID.; ID.; COURTS SHOULD DECIDE TO DISPENSE RATHER THAN
WIELD THEIR AUTHORITY TO DISMISS. A court may dismiss a case on the
ground of non prosequitur but the real test of the judicious exercise of such power
is whether under the circumstances plaintiff is chargeable with want of fitting
assiduousness in not acting on his complaint with reasonable promptitude.
Unless a party's conduct is so indifferent, irresponsible, contumacious or slothful
as to provide substantial grounds for dismissal, i.e., equivalent to default or non-
appearance in the case, the courts should consider lesser sanctions which would
still amount to achieving the desired end. In the absence of a pattern or scheme
to delay the disposition of the case or of a wanton failure to observe the
mandatory requirement of the rules on the part of the plaintiff, as in the case at
bar, courts should decide to dispense rather than wield their authority to dismiss.

14. ID.; ID.; PRE-TRIAL CONFERENCE; BEST-SUITED SOLUTION FOR


FAILURE OF THE PARTIES TO SUBMIT A COMPROMISE AGREEMENT;
CASE AT BAR. Clearly, another creative remedy was available to the court a
quo to attain a speedy disposition of Civil Case No. 99-518 without sacrificing the
course of justice. Since the failure of petitioner to submit a compromise
agreement was the refusal of just one of herein respondents, i.e., Benito Sy, to
sign his name on the conforme of the loan restructure documents, and the
common concern of the courts a quo was dispatch in the proceedings, the
holding of a pre-trial conference was the best-suited solution to the problem as
this stage in a civil action is where issues are simplified and the dispute quickly
and genuinely reconciled. By means of pre-trial, the trial court is fully empowered
to sway the litigants to agree upon some fair compromise. EACIaT

15. ID.; ID.; DISMISSAL OF ACTION; INCONSIDERATE DISMISSALS, EVEN IF


WITHOUT PREJUDICE, DO NOT CONSTITUTE A SOLUTION TO THE
CONGESTION OF COURT DOCKETS. Dismissing the civil case and
compelling petitioner to re-file its complaint is a dangerous, costly and circuitous
route that may end up aggravating, not resolving, the disagreement. This case
management strategy is frighteningly deceptive because it does so at the
expense of petitioner whose cause of action, perhaps, may have already been
admitted by its adverse parties as shown by three (3) of four (4) defendants not
willing to contest petitioner's allegations, and more critically, since this approach
promotes the useless and thankless duplication of hard work already undertaken
by the trial court. As we have aptly observed, "[i]nconsiderate dismissals, even if
without prejudice, do not constitute a panacea nor a solution to the congestion of
court dockets. While they lend a deceptive aura of efficiency to records of
individual judges, they merely postpone the ultimate reckoning between the
parties. In the absence of clear lack of merit or intention to delay, justice is better
served by a brief continuance, trial on the merits, and final disposition of the
cases before the court." HIAcCD

DECISION

BELLOSILLO, J : p

WE ARE PERTURBED that this case should drag this Court in the banal
attempts to decipher the hazy and confused intent of the trial court in proceeding
with what would have been a simple, straightforward and hardly arguable
collection case. Whether the dismissal without prejudice for failure to prosecute
was unconditionally reconsidered, reversed and set aside to reinstate the civil
case and have it ready for pre-trial are matters which should have been clarified
and resolved in the first instance by the court a quo. Unfortunately, this feckless
imprecision of the trial court became the soup stock of the parties and their
lawyers to further delay the case below when they could have otherwise put
things in proper order efficiently and effectively.

On 4 March 1999 petitioner Rizal Commercial Banking Corporation (RCBC) filed


a complaint for recovery of a sum of money with prayer for a writ of preliminary
attachment against respondents Magwin Marketing Corporation, Nelson Tiu,
Benito Sy and Anderson Uy. 1 On 26 April 1999, the trial court issued a writ of
attachment. 2On 4 June 1999 the writ was returned partially satisfied since only a
parcel of land purportedly owned by defendant Benito Sy was attached. 3 In the
meantime, summons was served on each of the defendants, respondents herein,
who filed their respective answers, except for defendant Gabriel Cheng who was
dropped without prejudice as party-defendant as his whereabouts could not be
located. 4 On 21 September 1999 petitioner moved for an alias writ of attachment
which on 18 January 2000 the court a quo denied. 5

Petitioner did not cause the case to be set for pre-trial. 6 For about six (6) months
thereafter, discussions between petitioner and respondents Magwin Marketing
Corporation, Nelson Tiu, Benito Sy and Anderson Uy, as parties in Civil Case No.
99-518, were undertaken to restructure the indebtedness of respondent Magwin
Marketing Corporation. 7 On 9 May 2000 petitioner approved a debt payment
scheme for the corporation which on 15 May 2000 was communicated to the
latter by means of a letter dated 10 May 2000 for the conformity of its
officers, i.e., respondent Nelson Tiu as President/General Manager of Magwin
Marketing Corporation and respondent Benito Sy as Director thereof. 8 Only
respondent Nelson Tiu affixed his signature on the letter to signify his agreement
to the terms and conditions of the restructuring. 9

On 20 July 2000 the RTC of Makati City, on its own initiative, issued
an Order dismissing without prejudice Civil Case No. 99-518 for failure of
petitioner as plaintiff therein to "prosecute its action for an unreasonable length of
time . . ." 10 On 31 July 2000 petitioner moved for reconsideration of the Order by
informing the trial court of respondents' unremitting desire to settle the case
amicably through a loan restructuring program. 11 On 22 August 2000 petitioner
notified the trial court of the acquiescence thereto of respondent Nelson Tiu as an
officer of Magwin Marketing Corporation and defendant in the civil case. 12
On 8 September 2000 the court a quo issued an Order reconsidering the
dismissal without prejudice of Civil Case No. 99-518
Acting on plaintiff's "Motion for Reconsideration" of the Order dated 20
July 2000 dismissing this case for failure to prosecute, it appearing that
there was already conformity to the restructuring of defendants'
indebtedness with plaintiff by defendant Nelson Tiu, President of
defendant corporation per "Manifestation and Motion" filed by plaintiff on
22 August 2000, there being probability of settlement among the parties,
as prayed for, the Order dated 20 July 2000 is hereby set aside.

Plaintiff is directed to submit the compromise agreement within 15 days


from receipt hereof. Failure on the part of plaintiff to submit the said
agreement shall cause the imposition of payment of the required docket
fees for re-filing of this case. 13

On 27 July 2000 petitioner filed in Civil Case No. 99-518 a Manifestation and
Motion to Set Case for Pre-Trial Conference alleging that "[t]o date, only
defendant Nelson Tiu had affixed his signature on the May 10, 2000 letter which
informed the defendants that plaintiff [herein petitioner] already approved
defendant Magwin Marketing Corporations request for restructuring of its loan
obligations to plaintiff but subject to the terms and conditions specified in said
letter." 14 This motion was followed on 5 October 2000 by
petitioner's Supplemental Motion to Plaintiffs Manifestation and Motion to Set
Case for Pre-Trial Conference affirming that petitioner "could not submit a
compromise agreement because only defendant Nelson Tiu had affixed his
signature on the May 10, 2000 letter. . . ." 15 Respondent Anderson Uy opposed
the foregoing submissions of petitioner while respondents Magwin Marketing
Corporation, Nelson Tiu and Benito Sy neither contested nor supported them. 16

The trial court, in an undated Order (although a date was later inserted in
the Order), denied petitioner's motion to calendar Civil Case No. 99-518 for pre-
trial stating that
Acting on plaintiff's [herein petitioner] "Manifestation and Motion to Set
Case for Pre-Trial Conference," the "Opposition" filed by defendant Uy
and the subsequent "Supplemental Motion" filed by plaintiff; defendant
Uy's "Opposition," and plaintiff's "Reply"; for failure of the plaintiff to
submit a compromise agreement pursuant to the Order dated 8
September 2000 plaintiff's motion to set case for pre-trial conference is
hereby denied. 17

On 15 November 2000 petitioner filed its Notice of Appeal from the 8 September
2000 Order of the trial court as well as its undated Order in Civil Case No. 99-
518. On 16 November 2000 the trial court issued two (2) Orders, one of which
inserted the date "6 November 2000" in the undated Order rejecting petitioner's
motion for pre-trial in the civil case, and the other denying due course to
the Notice of Appeal on the ground that the "Orders dated 8 September 2000 and
6 November 2000 are interlocutory orders and therefore, no appeal may be
taken. . . ." 18

On 7 December 2000 petitioner elevated the Orders dated 8 September 2000, 6


November 2000 and 16 November 2000 of the trial court to the Court of Appeals
in a petition for certiorari under Rule 65 of the Rules of Civil Procedure. 19 In the
main, petitioner argued that the court a quo had no authority to compel the
parties in Civil Case No. 99-518 to enter into an amicable settlement nor to deny
the holding of a pre-trial conference on the ground that no compromise
agreement was turned over to the court a quo. 20

On 28 September 2001 the appellate court promulgated its Decision dismissing


the petition for lack of merit and affirming the assailed Orders of the trial
court 21holding that EDHCSI

. . . although the language of the September 8, 2000 Order may not be


clear, yet, a careful reading of the same would clearly show that the
setting aside of the Order dated July 20, 2000 which dismissed
petitioner's complaint . . . for failure to prosecute its action for an
unreasonable length of time is dependent on the following conditions, to
wit: a) The submission of the compromise agreement by petitioner within
fifteen (15) days from notice; and b) Failure of petitioner to submit the
said compromise agreement shall cause the imposition of the payment
of the required docket fees for the re-filing of the case; so much so that
the non-compliance by petitioner of condition no. 1 would make condition
no. 2 effective, especially that petitioner's manifestation and motion to
set case for pre-trial conference and supplemental motion . . . [were]
denied by the respondent judge in his Order dated November 6, 2000,
which in effect means that the Order dated July 20, 2000 was ultimately
not set aside considering that a party need not pay docket fees for the
re-filing of a case if the original case has been revived and reinstated. 22

On 2 April 2002 reconsideration of the Decision was denied; hence, this petition.

In the instant case, petitioner maintains that the trial court cannot coerce the
parties in Civil Case No. 99-518 to execute a compromise agreement and
penalize their failure to do so by refusing to go forward with the pre-trial
conference. To hold otherwise, so petitioner avers, would violate Art. 2029 of
the Civil Code which provides that "[t]he court shall endeavor to persuade the
litigants in a civil case to agree upon some fair compromise," and this Court's
ruling in Goldloop Properties, Inc. v. Court of Appeals 23 where it was held that
the trial court cannot dismiss a complaint for failure of the parties to submit a
compromise agreement.

On the other hand, respondent Anderson Uy filed his comment after several
extensions asserting that there are no special and important reasons for
undertaking this review. He also alleges that petitioner's attack is limited to
the Order dated 8 September 2000 as to whether it is conditional as the Court of
Appeals so found and the applicability to this case of the ruling in Goldloop
Properties, Inc. v. Court of Appeals. Respondent Uy claims that
the Order reconsidering the dismissal of Civil Case No. 99-518 without prejudice
is on its face contingent upon the submission of the compromise agreement
which in the first place was the principal reason of petitioner to justify the
withdrawal of the Order declaring his failure to prosecute the civil case. He further
contends that the trial court did not force the parties in the civil case to execute a
compromise agreement, the truth being that it dismissed the complaint therein for
petitioner's dereliction.

Finally, respondent Uy contests the relevance of Goldloop Properties,


Inc. v. Court of Appeals, and refers to its incongruence with the instant case, i.e.,
that the complaint of petitioner was dismissed for failure to prosecute and not for
its reckless disregard to present an amicable settlement as was the situation
in Goldloop Properties, Inc., and that the dismissal was without prejudice, in
contrast with the dismissal with prejudice ordered in the cited case. For their part,
respondents Magwin Marketing Corporation, Nelson Tiu and Benito Sy waived
their right to file a comment on the instant petition and submitted the same for
resolution of this Court. 24

The petition of Rizal Commercial Banking Corporation is meritorious. It directs


our attention to questions of substance decided by the courts a quo plainly in a
way not in accord with applicable precedents as well as the accepted and usual
course of judicial proceedings; it offers special and important reasons that
demand the exercise of our power of supervision and review. Furthermore,
petitioner's objections to the proceedings below encompass not only the Order of
8 September 2000 but include the cognate Orders of the trial court of 6 and 16
November 2000. This is evident from the prayer of the instant petition which
seeks to reverse and set aside theDecision of the appellate court and to direct
the trial court to proceed with the pre-trial conference in Civil Case No. 99-518.
Evidently, the substantive issue involved herein is whether the proceedings in the
civil case should progress, a question which at bottom embroils all
the Orders affirmed by the Court of Appeals.

On the task at hand, we see no reason why RTC-Br. 135 of Makati City should
stop short of hearing the civil case on the merits. There is no substantial policy
worth pursuing by requiring petitioner to pay again the docket fees when it has
already discharged this obligation simultaneously with the filing of the complaint
for collection of a sum of money. The procedure for dismissed cases when re-
filed is the same as though it was initially lodged, i.e., the filing of answer, reply,
answer to counter-claim, including other foot-dragging maneuvers, except for the
rigmarole of raffling cases which is dispensed with since the re-filed complaint is
automatically assigned to the branch to which the original case pertained. 25 A
complaint that is re-filed leads to the re-enactment of past proceedings with the
concomitant full attention of the same trial court exercising an immaculate slew of
jurisdiction and control over the case that was previously dismissed, 26 which in
the context of the instant case is a waste of judicial time, capital and energy.

What judicial benefit do we derive from starting the civil case all over again,
especially where three (3) of the four (4) defendants, i.e., Magwin Marketing
Corporation, Nelson Tiu and Benito Sy, have not contested petitioner's plea
before this Court and the courts a quo to advance to pre-trial conference?
Indeed, to continue hereafter with the resolution of petitioner's complaint without
the usual procedure for the re-filing thereof, we will save the court a
quo invaluable time and other resources far outweighing the docket fees that
petitioner would be forfeiting should we rule otherwise.

Going over the specifics of this petition and the arguments of respondent
Anderson Uy, we rule that the Order of 8 September 2000 did not reserve
conditions on the reconsideration and reversal of the Order dismissing without
prejudice Civil Case No. 99-518. This is quite evident from its text which does not
use words to signal an intent to impose riders on the dispositive portion
Acting on plaintiff's "Motion for Reconsideration" of the Order dated 20
July 2000 dismissing this case for failure to prosecute, it appearing that
there was already conformity to the restructuring of defendants'
indebtedness with plaintiff by defendant Nelson Tiu, President of
defendant corporation per "Manifestation and Motion" filed by plaintiff on
22 August 2000, there being probability of settlement among the parties,
as prayed for, the Order dated 20 July 2000 is hereby set aside.

Plaintiff is directed to submit the compromise agreement within 15 days


from receipt hereof. Failure on the part of plaintiff to submit the said
agreement shall cause the imposition of payment of the required docket
fees for re-filing of this case. 27

Contrary to respondent Uy's asseverations, the impact of the second paragraph


upon the first is simply to illustrate what the trial court would do after setting aside
the dismissal without prejudice: submission of the compromise agreement for the
consideration of the trial court. Nothing in the second paragraph do we read that
the reconsideration is subject to two (2) qualifications. Certainly far from it, for
in Goldloop Properties, Inc. v. Court of Appeals 28 a similar directive, i.e., "[t]he
parties are given a period of fifteen (15) days from today within which to submit a
Compromise Agreement," was held to mean that "should the parties fail in their
negotiations the proceedings would continue from where they left off." Goldloop
Properties, Inc. further said that its order, or a specie of it, did not constitute an
agreement or even an expectation of the parties that should they fail to settle
their differences within the stipulated number of days their case would be
dismissed.
The addition of the second sentence in the second paragraph does not change
the absolute nullification of the dismissal without prejudice decreed in the first
paragraph. The sentence "[f]ailure on the part of plaintiff to submit the said
agreement shall cause the imposition of payment of the required docket fees for
re-filing of this case" is not a directive to pay docket fees but only a statement of
the event that may result in its imposition. The reason for this is that the trial court
could not have possibly made such payment obligatory in the same civil case,
i.e., Civil Case No. 99-518, since docket fees are defrayed only after the
dismissal becomes final and executory and when the civil case is re-filed.

It must be emphasized however that once the dismissal attains the attribute of
finality, the trial court cannot impose legal fees anew because a final and
executory dismissal although without prejudice divests the trial court of
jurisdiction over the civil case as well as any residual power to order anything
relative to the dismissed case; it would have to wait until the complaint is
docketed once again. 29 On the other hand, if we are to concede that the trial
court retains jurisdiction over Civil Case No. 99-518 for it to issue the
assailed Orders, a continuation of the hearing thereon would not trigger a
disbursement for docket fees on the part of petitioner as this would obviously
imply the setting aside of the order of dismissal and the reinstatement of the
complaint.

Indubitably, it is speculative to reckon the effectivity of the Order of dismissal


without prejudice to the presentation of the compromise agreement. If we are to
admit that the efficacy of the invalidation of the Order of dismissal is dependent
upon this condition, then we must inquire: from what date do we count the fifteen
(15)-day reglementary period within which the alleged revival of the order of
dismissal began to run? Did it commence from the lapse of the fifteen (15) days
provided for in theOrder of 8 September 2000? Or do we count it from the 6
November 2000 Orderwhen the trial court denied the holding of a pre-trial
conference? Or must it be upon petitioner's receipt of the 16 November
2000 Order denying due course to its Notice of Appeal? The court a quo could
not have instituted an Order that marked the proceedings before it with a shadow
of instability and chaos rather than a semblance of constancy and firmness.
The subsequent actions of the trial court also belie an intention to revive
the Order of dismissal without prejudice in the event that petitioner fails to submit
a compromise agreement. The Orders of 6 and 16 November 2000 plainly
manifest that it was retaining jurisdiction over the civil case, a fact which would
not have been possible had the dismissal without prejudice been resuscitated.
Surely, the court a quo could not have denied on 6 November 2000 petitioner's
motion to calendar Civil Case No. 99-518 for pre-trial if the dismissal had been
restored to life in the meantime. By then the dismissal without prejudice would
have already become final and executory so as to effectively remove the civil
case from the docket of the trial court.

The same is true with the Order of 16 November 2000 denying due course to
petitioner's Notice of Appeal. There would have been no basis for such exercise
of discretion because the jurisdiction of the court a quo over the civil case would
have been discharged and terminated by the presumed dismissal thereof.
Moreover, we note the ground for denying due course to the appeal: the "Orders
dated 8 September 2000 and 6 November 2000 are interlocutory orders and
therefore, no appeal may be taken from . . ." 30 This declaration strongly suggests
that something more was to be accomplished in the civil case, thus negating the
claim that the Order of dismissal without prejudice was resurrected upon the
parties' failure to yield a compromise agreement. A "final order" issued by a court
has been defined as one which disposes of the subject matter in its entirety or
terminates a particular proceeding or action, leaving nothing else to be done but
to enforce by execution what has been determined by the court, while an
"interlocutory order" is one which does not dispose of a case completely but
leaves something more to be decided upon. 31

Besides the semantic and consequential improbabilities of respondent Uy's


argument, our ruling in Goldloop Properties, Inc., is decisive of the instant case.
In Goldloop Properties, Inc., we reversed the action of the trial court in dismissing
the complaint for failure of the plaintiff to prosecute its case, which was in turn
based on its inability to forge a compromise with the other parties within fifteen
(15) days from notice of the order to do so and held
Since there is nothing in the Rules that imposes the sanction of dismissal
for failing to submit a compromise agreement, then it is obvious that the
dismissal of the complaint on the basis thereof amounts no less to a
gross procedural infirmity assailable by certiorari. For such submission
could at most be directory and could not result in throwing out the case
for failure to effect a compromise. While a compromise is encouraged,
very strongly in fact, failure to consummate one does not warrant any
procedural sanction, much less an authority to jettison a civil complaint
worth P4,000,000.00 . . . Plainly, submission of a compromise
agreement is never mandatory, nor is it required by any rule. 32

As also explained therein, the proper course of action that should have been
taken by the court a quo, upon manifestation of the parties of their willingness to
discuss a settlement, was to suspend the proceedings and allow them
reasonable time to come to terms (a) If willingness to discuss a possible
compromise is expressed by one or both parties; or (b) If it appears that one of
the parties, before the commencement of the action or proceeding, offered to
discuss a possible compromise but the other party refused the offer, pursuant to
Art. 2030 of the Civil Code. If despite efforts exerted by the trial court and the
parties the negotiations still fail, only then should the action continue as if no
suspension had taken place. 33

Ostensibly, while the rules allow the trial court to suspend its proceedings
consistent with the policy to encourage the use of alternative mechanisms of
dispute resolution, in the instant case, the trial court only gave the parties fifteen
(15) days to conclude a deal. This was, to say the least, a passive and paltry
attempt of the court a quo in its task of persuading litigants to agree upon a
reasonable concession. 34 Hence, if only to inspire confidence in the pursuit of a
middle ground between petitioner and respondents, we must not interpret the trial
court's Orders as dismissing the action on its own motion because the parties,
specifically petitioner, were anxious to litigate their case as exhibited in their
several manifestations and motions.

We reject respondent Uy's contention that Goldloop Properties, Inc. v. Court of


Appeals is irrelevant to the case at bar on the dubious reasoning that the
complaint of petitioner was dismissed for failure to prosecute and not for the non-
submission of a compromise agreement which was the bone of contention in that
case, and that the dismissal imposed in the instant case was without prejudice, in
contrast to the dismissal with prejudice decreed in the cited case. To begin with,
whether the dismissal is with or without prejudice if grievously erroneous is
detrimental to the cause of the affected party; Goldloop Properties, Inc. does not
tolerate a wrongful dismissal just because it was without prejudice. More
importantly, the facts in Goldloop Properties, Inc. involve, as in the instant case, a
dismissal for failure to prosecute on the ground of the parties' inability to come up
with a compromise agreement within fifteen (15) days from notice of the court's
order therein. All told, the parallelism between them is unmistakable.

Even if we are to accept on face value respondent's understanding of Goldloop


Properties, Inc. as solely about the failure to submit a compromise agreement, it
is apparent that the present case confronts a similar problem. Perhaps initially the
issue was one of failure to prosecute, as can be observed from the Order dated
20 July 2000, although later reversed and set aside. But thereafter, in
the Order of 6 November 2000, the trial court refused to proceed to pre-trial
owing to the "failure of the plaintiff to submit a compromise agreement pursuant
to the Order dated 8 September 2000." When the civil case was stalled on
account of the trial court's refusal to call the parties to a pre-trial conference, the
reason or basis therefor was the absence of a negotiated settlement a
circumstance that takes the case at bar within the plain ambit of Goldloop
Properties, Inc. In any event, given that the instant case merely revolves around
the search for a reasonable interpretation of the several Orders of the trial court,
i.e., as to whether the dismissal without prejudice was revived upon petitioner's
helplessness to perfect an out-of-court arrangement, with more reason must we
employ the ruling in Goldloop Properties, Inc. to resolve the parties' differences of
opinion.

We also find nothing in the record to support respondent Uy's conclusion that
petitioner has been mercilessly delaying the prosecution of Civil Case No. 99-518
to warrant its dismissal. A complaint may be dismissed due to plaintiff's fault: (a) if
he fails to appear during a scheduled trial, especially on the date for the
presentation of his evidence in chief, or when so required at the pre-trial; (b) if he
neglects to prosecute his action for an unreasonable length of time; or (c) if he
does not comply with the rules or any order of the court. None of these was
obtaining in the civil case.
While there was a lull of about six (6) months in the prosecution of Civil Case No.
99-518, it must be remembered that respondents themselves contributed largely
to this delay. They repeatedly asked petitioner to consider re-structuring the debt
of respondent Magwin Marketing Corporation to which petitioner graciously
acceded. Petitioner approved a new debt payment scheme that was sought by
respondents, which it then communicated to respondent Corporation through a
letter for the conformity of the latter's officers, i.e., respondent Nelson Tiu as
President/General Manager and respondent Benito Sy as Director thereof.
Regrettably, only respondent Nelson Tiu affixed his signature on the letter to
signify his concurrence with the terms and conditions of the arrangement. The
momentary lag in the civil case was aggravated when respondent Benito Sy for
unknown and unexplained reasons paid no heed to the adjustments in the
indebtedness although curiously he has not opposed before this Court or the
courts a quo petitioner's desire to go ahead with the pre-trial conference. CSaITD

Admittedly, delay took place in this case but it was not an interruption that should
have entailed the dismissal of the complaint even if such was designated as
without prejudice. To constitute a sufficient ground for dismissal, the inattention of
plaintiff to pursue his cause must not only be prolonged but also be unnecessary
and dilatory resulting in the trifling of judicial processes. In the instant case, the
adjournment was not only fleeting as it lasted less than six (6) months but was
also done in good faith to accommodate respondents' incessant pleas to
negotiate. Although the dismissal of a case for failure to prosecute is a matter
addressed to the sound discretion of the court, that judgment however must not
be abused. The availability of this recourse must be determined according to the
procedural history of each case, the situation at the time of the dismissal, and the
diligence of plaintiff to proceed therein. 35 Stress must also be laid upon the
official directive that courts must endeavor to convince parties in a civil case to
consummate a fair settlement 36 and to mitigate damages to be paid by the losing
party who has shown a sincere desire for such give-and-take. 37 All things
considered, we see no compelling circumstances to uphold the dismissal of
petitioner's complaint regardless of its characterization as being without
prejudice.
In fine, petitioner cannot be said to have lost interest in fighting the civil case to
the end. A court may dismiss a case on the ground of non prosequitur but the
real test of the judicious exercise of such power is whether under the
circumstances plaintiff is chargeable with want of fitting assiduousness in not
acting on his complaint with reasonable promptitude. Unless a party's conduct is
so indifferent, irresponsible, contumacious or slothful as to provide substantial
grounds for dismissal, i.e., equivalent to default or non-appearance in the case,
the courts should consider lesser sanctions which would still amount to achieving
the desired end. 38 In the absence of a pattern or scheme to delay the disposition
of the case or of a wanton failure to observe the mandatory requirement of the
rules on the part of the plaintiff, as in the case at bar, courts should decide to
dispense rather than wield their authority to dismiss. 39

Clearly, another creative remedy was available to the court a quo to attain a
speedy disposition of Civil Case No. 99-518 without sacrificing the course of
justice. Since the failure of petitioner to submit a compromise agreement was the
refusal of just one of herein respondents, i.e., Benito Sy, to sign his name on
the conforme of the loan restructure documents, and the common concern of the
courts a quo was dispatch in the proceedings, the holding of a pre-trial
conference was the best-suited solution to the problem as this stage in a civil
action is where issues are simplified and the dispute quickly and genuinely
reconciled. By means of pre-trial, the trial court is fully empowered to sway the
litigants to agree upon some fair compromise.

Dismissing the civil case and compelling petitioner to re-file its complaint is a
dangerous, costly and circuitous route that may end up aggravating, not
resolving, the disagreement. This case management strategy is frighteningly
deceptive because it does so at the expense of petitioner whose cause of action,
perhaps, may have already been admitted by its adverse parties as shown by
three (3) of four (4) defendants not willing to contest petitioner's allegations, and
more critically, since this approach promotes the useless and thankless
duplication of hard work already undertaken by the trial court. As we have aptly
observed, "[i]nconsiderate dismissals, even if without prejudice, do not constitute
a panacea nor a solution to the congestion of court dockets. While they lend a
deceptive aura of efficiency to records of individual judges, they merely postpone
the ultimate reckoning between the parties. In the absence of clear lack of merit
or intention to delay, justice is better served by a brief continuance, trial on the
merits, and final disposition of the cases before the court." 40

WHEREFORE, the Petition for Review is GRANTED. The Decision dated 28


September 2001 and Resolution dated 2 April 2002 of the Court of Appeals in
CA-G.R. SP No. 62102 are REVERSED and SET ASIDE.

The Orders dated 8 September 2000, 6 November 2000 and 16 November 2000
of the Regional Trial Court, Branch 135, of Makati City, docketed as Civil Case
No. 99-518, are also REVERSED and SET ASIDE insofar as these Orders are
interpreted to impose upon and collect anew from petitioner RIZAL
COMMERCIAL BANKING CORPORATION docket or legal fees for its complaint,
or to dismiss without prejudice Civil Case No. 99-518, or to preclude the trial
court from calling the parties therein to pre-trial conference, or from proceeding
thereafter with dispatch to resolve the civil case.

Civil Case No. 99-518 is deemed REINSTATED in, as it was never taken out
from, the dockets of the Regional Trial Court, Branch 135, of Makati City. The trial
court is ORDERED to exercise its jurisdiction over Civil Case No. 99-518, to
CONDUCT the pre-trial conference therein with dispatch, and to UNDERTAKE
thereafter such other proceedings as may be relevant, without petitioner being
charged anew docket or other legal fees in connection with its reinstatement.
Costs against respondents.

SO ORDERED.
||| (Rizal Commercial Banking Corp. v. Magwin Marketing Corp., G.R. No. 152878,
[May 5, 2003], 450 PHIL 720-743)

EN BANC

[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,

[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,

[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.

Salonga Hernandez & Mendoza for petitioners in G.R. No. 155001.

Jose A. Bernas for petitioners in G.R. No. 155547.

Erwin P. Erfe for petitioners in G.R. No. 155661.

Jose Espinas for MWU-NLU.

Jose E. Marigondon for PALEA.

Angara Abello Concepcion Regala and Cruz for petitioners-in-intervention.

Arthur D. Lim Law Office for Asia's Emerging Dragon etc.


Romulo Mabanta Buenaventura Sayoc & Delos Angeles, Chavez & Laureta &
Associate and Moises Tolentino, Jr. for PIATCO.

The Office of the Government Corporate Counsel for MIAA.


The Solicitor General for public respondents.
Mario E. Ongkiko, Fernando F. Manas, Jr. Raymund C. de Castro & Angelito S.
Lazaro, Jr. for respondents-intervenors.

SYNOPSIS

On October 5, 1994, Asia's Emerging Dragon Corp. (AEDC) submitted an


unsolicited proposal to the Government for the development of Ninoy Aquino
International Airport International Passenger Terminal III (NAIA IPT III) under a
build-operate-and-transfer arrangement pursuant to RA 6957, as amended. It
was endorsed to the National Economic Development Authority (NEDA), which,
in turn, reviewed and approved it for bidding. The Paircargo Consortium was the
only company that submitted a competitive proposal. AEDC questioned, among
others, the financial capability of Paircargo Consortium. However, the Pre-
Qualification Bids and Awards Committee (PBAC) had prequalified the Paircargo
Consortium to undertake the project. Later, Paircargo Consortium incorporated
into Philippine International Airport Terminals Co., (PIATCO). And for failure of
AEDC to match the price proposal submitted by PIATCO, the project was
awarded to PIATCO. On July 12, 1997, the Government signed the 1997
Concession Agreement. Thereafter, the Amended and Restated Concession
Agreement (ARCA) and three Supplements thereto were signed by the
Government and PIATCO. Consequently, the workers of the international airline
service providers, claiming that they stand to lose their employment upon the
implementation of the said agreements, filed before this Court a petition for
prohibition docketed as G.R. No. 155001. Later, the service providers joined their
cause. Congressmen Salacnib Baterina, Clavel Martinez and Constantino
Jaraula, alleging that the said contracts compelled government expenditure
without appropriation, filed a similar petition docketed as G.R. No. 155547. And
several employees of the MIAA likewise filed a petition docketed as G.R. No.
155661 assailing the legality of these agreements.

The Court ruled that in accordance with the provisions of R.A. No. 337, as
amended, the maximum amount that Security Bank, as one of the members of
the Paircargo Consortium could validly invest, is only 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 only
6.08% of the project cost, which substantially less than the prescribed minimum
equity investment which is 30% of the project cost. Thus, the award of the
contract by the PBAC to the Paircargo Consortium, a disqualified bidder, is null
and void.

As to the validity of the agreements, 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 set forth in the ARCA arise. This is a
form of direct government guarantee and to declare the PIATCO contracts valid
despite the clear statutory prohibitions against a direct government guarantee
would only make a mockery of that the BOT Law seeks to prevent. The Court
also ruled that the operation of an international passenger airport terminal is no
doubt an undertaking imbued with public interest. Thus, the privilege given to
PIATCO is subject to reasonable regulation and supervision by the Government
through the MIAA. Another thing, 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. Accordingly, the 1997 Concession
Agreement, the Amended and Restated Concession Agreement and the
Supplements thereto were set aside for being null and void. TCEaDI

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; PARTIES; INTEREST OF PERSON


ASSAILING THE CONSTITUTIONALITY OF A STATUTE MUST BE DIRECT
AND PERSONAL. 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." 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.

2. ID.; ID.; ID.; ID.; FINANCIAL PREJUDICE IS A LEGITIMATE INTEREST


SUFFICIENT TO CONFER THE REQUISITE STANDING. [P]etitioners 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.

3. ID.; ID.; ID.; ID.; COURT MUST BE MORE LIBERAL IN DETERMINING


WHETHER THE PETITIONERS HAVE LOCUS STANDI TO FILE A PETITION.
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 and Gonzales
v. Raquiza 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, 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,"
Further, "insofar as taxpayers' suits are concerned . . . (this Court) is not devoid
of discretion as to whether or not it should be entertained." 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." In view of the serious legal questions involved and their impact
on public interest, we resolve to grant standing to the petitioners.

4. ID.; ID.; JURISDICTION; HIERARCHY OF COURTS MAY BE RELAXED


WHEN THE REDRESS DESIRED CANNOT BE OBTAINED IN THE
APPROPRIATE COURTS. 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.ATaDHC

5. ID.; ID.; ID.; PROCEDURAL BARS MAY BE LOWERED TO GIVE WAY FOR
THE SPEEDY DISPOSITION OF CASES OF TRANSCENDENTAL
IMPORTANCE. 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 oftranscendental 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.

6. CIVIL LAW; OBLIGATIONS AND CONTRACTS; ARBITRATION CLAUSE;


NOT BINDING TO PERSONS NOT PARTIES TO THE CONTRACT. It is
established thatpetitioners 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.

7. POLITICAL LAW; ADMINISTRATIVE LAW; REPUBLIC ACT NO. 6957 (BUILD-


OPERATE-AND-TRANSFER or BOT LAW); CONTRACT SHALL BE AWARDED
TO THE BIDDER WHO SATISFIED THE. MINIMUM FINANCIAL, TECHNICAL,
ORGANIZATIONAL AND LEGAL STANDARDS REQUIRED BY LAW.
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 leg standards" required by the law, has
submitted the lowest bid and most favorable terms of the project. . . . Accordingly,
. . . 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.

8. ID.; ID.; ID.; ID.; TOTAL NET WORTH OF THE PAIRCARGO CONSORTIUM
IS LESS THAT THE PRESCRIBED MINIMUM EQUITY INVESTMENT
REQUIRED FOR THE PROJECT. 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[.] . . . 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, 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. cHaADC

9. ID.; ID.; PUBLIC BIDDING; PRE-QUALIFICATION STAGE; GOVERNMENT


AGENCY MUST DETERMINE THE BIDDER'S FINANCIAL CAPACITY. 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.

10. ID.; ID.; ID.; ID.; ID.; SHOULD DETERMINE THE MAXIMUM AMOUNT THAT
EACH MEMBER OF THE CONSORTIUM MAY COMMIT WITHOUT
DISREGARDING THE INVESTMENT CEILINGS PROVIDED BY APPLICABLE
LAW. 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.

11. ID.; ID.; ID.; ID.; ID.; EVALUATION OF THE FINANCIAL CAPACITY OF THE
BIDDER MUST BE AT THE TIME THE BID IS SUBMITTED. [T]he
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.

12. ID.; ID.; ID.; ID.; ID.; IF THE BIDDER FALLS SHORT OF THE MINIMUM
AMOUNTS REQUIRED, THE SAID BIDDER SHOULD BE DISQUALIFIED.
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.

13. ID.; ID.; ID.; RESTRICTIVE AND CONSERVATIVE APPLICATION OF THE


RULES AND PROCEDURE IS NECESSARY. 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." ACIDSc

14. ID.; ID.; ID.; PURPOSE. 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."

15. ID.; ID.; ID.; ALL BIDDERS MUST BE ON EQUAL FOOTING ON THE
CONTRACT RIDDED UPON. 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.

16. ID.; ID.; ID.; AMENDMENTS TO CONTRACT BIDDED; WINNING BIDDER


IS NOT PRECLUDED FROM MODIFYING OR AMENDING CERTAIN
PROVISIONS OF THE CONTRACT THAT DOES NOT CONSTITUTE
SUBSTANTIAL OR MATERIAL AMENDMENTS. 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.

17. ID.; ID.; ID.; ID.; SIGNIFICANT AMENDMENTS IN THE PIATCO'S DRAFT
CONCESSION AGREEMENT; TYPES OF FEES THAT MAY BE IMPOSED AND
COLLECTED BY PIATCO. 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. acHCSD

18. ID.; ID.; ID.; ID.; ID.; ASSUMPTION BY THE GOVERNMENT OF THE
LIABILITIES OF PIATCO IN THE EVENT OF THE LATTER'S DEFAULT
TRANSLATES BETTER TERMS AND CONDITION FOR PIATCO. 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 . . . [u]nder . . . 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.

19. ID.; ID.; ID.; ID.; SHOULD ALWAYS CONFORM TO THE GENERAL PUBLIC
POLICY. [T]his 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. 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. 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.

20. ID.; ID.; ID.; ID.; ANY GOVERNMENT ACTION WHICH PERMITS ANY
SUBSTANTIAL VARIANCE THEREOF IS A GRAVE ABUSE OF DISCRETION.
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. 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.CaHcET

21. ID.; ID.; ID.; ID.; DIRECTLY TRANSLATES CONCRETE FINANCIAL


ADVANTAGES TO PIATCO THAT WERE PREVIOUSLY NOT AVAILABLE
DURING THE BIDDING PROCESS. The fact that the . . . 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.

22. ID.; ID.; BOT LAW; PURPOSE. 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, 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. 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.

23. ID.; ID.; ID.; CONDITIONS FOR THE ACCEPTANCE OF THE


UNSOLICITED PROPOSAL FOR A BOT PROJECT. 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.
The failure to meet any of the above conditions will result in the denial of the
proposal.

24. ID.; ID.; ID.; STRICTLY PROHIBITS DIRECT GOVERNMENT GUARANTEE,


SUBSIDY AND EQUITY IN UNSOLICITED 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." 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. CSDcTA

25. ID.; ID.; ID.; ID.; VIOLATED IN CASE AT BAR. 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. . . . This Court has
long and consistently adhered to the legal maxim that those that cannot be done
directly cannot be done indirectly. 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" which are necessary for national growth and development
but which the government, unfortunately, could ill-afford to finance at this point in
time.

26. ID.; CONSTITUTIONAL LAW; POLICE POWER; TEMPORARY TAKEOVER


OF BUSINESS AFFECTED WITH PUBLIC INTEREST; GOVERNMENT IS NOT
REQUIRED TO COMPENSATE THE PRIVATE ENTITY-OWNER. Article XII,
Section 17 of the 1987 Constitution . . . 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." The
duration of the emergency itself is the determining factor as to how long the
temporary takeover by the government would last. 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.

27. ID.; ID.; ID.; ID.; ID.; CANNOT BE CONTRAVENED BY MERE


CONTRACTUAL STIPULATION. 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." 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." 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. 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.

28. ID.; ID.; NATIONAL ECONOMY AND


PATRIMONY; CONSTITUTION STRICTLY REGULATES 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." The 1987 Constitution strictly regulates monopolies,
whether private or public, and even provides for their prohibition if public interest
so requires. . . . 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. 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. ETHIDa
29. ID.; ID.; ID.; ID.; PRIVILEGE GIVEN TO PIATCO SHOULD BE SUBJECT TO
REASONABLE REGULATION AND SUPERVISION BY THE GOVERNMENT.
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. This is in accord with the
Constitutional mandate that a monopoly which is not prohibited must be
regulated.

30. ID.; ID.; ID.; ID.; OPERATION OF PUBLIC UTILITY CANNOT BE DONE IN
AN ARBITRARY MANNER TO THE DETRIMENT OF THE PUBLIC. 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 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.

31. ID.; ID.; BILL OF RIGHTS NON-IMPAIRMENT OF OBLIGATIONS OF


CONTRACT; PIATCO, BY CLAIMING AN EXCLUSIVE RIGHT TO OPERATE,
CANNOT REQUIRE THE GOVERNMENT TO BREAK ITS CONTRACTUAL
OBLIGATIONS TO THE SERVICE PROVIDERS. 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 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.

32. ID.; ID.; ID.; ID.; MIAA SHOULD ENSURE THAT WHOEVER BY CONTRACT
IS GIVEN THE RIGHT TO OPERATE NAIA IPT III WILL DO SO WITHIN THE
BOUNDS OF THE LAW. 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, 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.
TSHIDa

PANGANIBAN, J., separate opinion:

1. REMEDIAL LAW; SPECIAL CIVIL ACTION; PROHIBITION; DIRECT RESORT


TO THE SUPREME COURT BY THE EMPLOYEES WHO FEARED LOSS OF
THEIR JOBS IS JUSTIFIED. The Court has, in the past, held that questions
relating to gargantuan government contracts ought to be settled without delay.
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.

2. ID.; ID.; ID.; DISPOSITION THEREOF ULTIMATELY RUNS ON QUESTIONS


OF LAW; CASE AT BAR. Contrary to Piatco's argument that the resolution of
the issues raised in the Petitions will require delving into factual questions, I
submit that their disposition ultimately turns on questions of law. 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.

3. ID.; CIVIL PROCEDURE; ARBITRATION PROCEEDINGS; CANNOT


ADDRESS, DETERMINE AND DEFINITIVELY RESOLVE THE
CONSTITUTIONAL AND LEGAL QUESTIONS. 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
Amended and Restated Concession Agreement (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.

4. ID.; ID.; LOCUS STANDI; CITIZEN, TAXPAYER AND MEMBERS OF THE


HOUSE OF REPRESENTATIVES ARE SUFFICIENTLY CLOTHED WITH
STANDING TO BRING SUIT QUESTIONING THE VALIDITY OF CONTRACT
AFFECTING PUBLIC INTEREST. 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, 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. CcEHaI

5. ID.; ID.; ID.; MEMBERS OF HOUSE OF REPRESENTATIVES ARE


DEPRIVED OF DISCRETION; CASE AT BAR. 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.

6. ID.; ID.; ID.; EMPLOYEES ARE CONFRONTED WITH THE PROSPECT OF


BEING LAID OFF FROM THEIR JOBS. 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.
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.

7. ID.; ID.; ID.; SERVICE PROVIDERS CLAIM TO BE DEPRIVED OF THEIR


PROPERTY AND OF THE LIBERTY TO CONTRACT WITHOUT DUE
PROCESS OF LAW. 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.

8. ID.; ID.; ID.; IN CASES OF TRANSCENDENTAL IMPORTANCE, THE


SUPREME COURT MAY RELAX THE STANDING REQUIREMENTS AND
ALLOW A SUIT TO PROSPER. 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. 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. POLITICAL LAW; ADMINISTRATIVE LAW; REPUBLIC ACT NO. 6957 (BUILD-


OPERATE-AND TRANSFER or BOT LAW); PUBLIC BIDDING; BIDDER MUST
SATISFY THE MINIMUM REQUIREMENTS AND MEET THE TECHNICAL,
FINANCIAL, ORGANIZATIONAL AND LEGAL STANDARDS. 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. DAHaTc

10. ID.; ID.; ID.; ID.; MUST BE CONDUCTED UNDER A TWO-STAGE SYSTEM.
Section 5 of this statute 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. ID.; ID.; ID.; ID.; PROPONENT MUST PROVE THAT IT IS ABLE TO RAISE
THE MINIMUM AMOUNT REQUIRED FOR THE PROJECT. 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 projects. 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. Since the minimum amount of equity for the project was set at 30
percent 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.

12. ID.; ID.; ID.; ID.; ID.; NOT COMPLIED WITH IN CASE AT BAR. However,
the combined equity or net worth of the Paircargo consortium stood at only
P558,384,871.55. 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.

13. ID.; ID.; ID.; ID.; RULES, REGULATIONS AND GUIDELINES MUST BE
STRICTLY APPLIED; VIOLATED IN CASE AT BAR. 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.

14. ID.; ID.; ID.; ID.; ESSENCE. Republic v. Capulong 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.
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.

15. ID.; ID.; ID.; ID.; SINCE THE ENTIRE BIDDING PROCESS WAS FLAWED.
AND TAINTED FROM THE VERY OUTSET, THE AWARD OF CONCESSION
WAS VOID. 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; 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. ICDcEA

16. ID.; ID.; ID.; ID.; PROTECTION OF THE PROPRIETARY INFORMATION IS


APPLICABLE TO THE ORIGINATOR OF THE UNSOLICITED PROPOSAL
ONLY. 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.

17. ID.; ID.; ID.; ID.; ID.; RATIONALE. 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. 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.

18. ID.; ID.; ID.; ID.; BIDDER MUST BE GIVEN ACCESS TO THE
ASSUMPTION AND THE CALCULATIONS THAT WENT INTO CRAFTING THE
COMPETING BID. 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.

19. ID.; ID.; ID.; DEFINITE AND FIRM TIMETABLE FOR THE SUBMISSION OF
THE REQUIREMENTS TO EXPOSE AND WEED OUT UNQUALIFIED
PROPONENTS. The purpose of having a definite and firm timetable for the
submission of the 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.

20. ID.; ID.; ID.; ID.; EASILY CIRCUMVENTED BY MERELY POSTPONING THE
ACTUAL ISSUANCE OF THE NOTICE OF AWARD. 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 aver 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.

21. ID.; ID.; ID.; ID.; TO DISCOURAGE COLLUSION AND REDUCE THE
OPPORTUNITY FOR AGENTS OF GOVERNMENT TO ABUSE THEIR
DISCRETION. 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.
DcTSHa

22. ID.; ID.; ID.; PROCEDURE FOR THE AWARD OF THE PROJECTS. 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.

23. ID.; ID.; ID.; VIOLATED IN CASE AT BAR. 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. [T]he 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 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.

24. ID.; ID.; ID.; CHANGES TO THE CONTRACT BIDDED OUT RESULTED IN A
SUBSTANTIALLY DIFFERENT CONTRACT. 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 contractwithout 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[.] 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.

25. ID.; ID.; ID.; SUBSTANTIVE AMENDMENTS TO A CONTRACT FOR WHICH


A PUBLIC BIDDING HAS ALREADY BEEN FINISHED SHOULD ONLY BE
AWARDED AFTER ANOTHER PUBLIC BIDDING. In a relatively early
case, Caltex v. Delgado Brothers, 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." EaIcAS
26. ID.; ID.; ID.; TERMS, CONDITIONS AND STIPULATIONS OF THE
CONTRACTS MUST REMAIN INTACT AND NOT BE SUBJECT TO FURTHER
NEGOTIATION. 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 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.

27. ID.; ID.; ID.; REVISIONS AND AMENDMENTS IN THE CONTRACTS THAT
GIVE UNDUE ADVANTAGE TO THE GOVERNMENT IS ILLEGAL. In sum,
the 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 Piatcoat 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.

28. ID.; ID.; ID.; FIRST SUPPLEMENT TO VOID AND INEXISTENT ORIGINAL
CONCESSION AGREEMENT IS ALSO VOID AND INOPERATIVE; CASE AT
BAR. I must emphasize that the First Supplement [FS] 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.

29. ID.; ID.; ID.; SECOND SUPPLEMENT IS ALSO VOID AND INOPERATIVE
AS IT DID NOT UNDERGO ANY PUBLIC BIDDING. 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. 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.AaSHED

30. ID.; ID.; ID.; THIRD SUPPLEMENT IS VOID AB INITIO AS IT CREATED A


NEW MONETARY OBLIGATION ON THE PART OF THE GOVERNMENT
WITHOUT PRIOR APPROPRIATIONS. The Third Supplement (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.

31. ID.; ID.; ID.; DIRECT GOVERNMENT GUARANTEE IS PROHIBITED IN


UNSOLICITED PROPOSALS. 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."

32. ID.; ID.; ID.; ID.; REASON. 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.

33. ID.; ID.; ID.; ID.; THE AMOUNT TO BE PAID BY GOVERNMENT IS


GREATER OF EITHER THE APPRAISED VALUE OF THE PROJECT OR THE
AGGREGATE AMOUNT OF THE MONEYS OWED BY PIATCO; CASE AT BAR.
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.

34. ID.; ID.; ID.; ID.; PIATCO CONTRACTS ARE GROSSLY LOPSIDED IN
FAVOR OF PIATCO AND/OR ITS SENIOR LENDERS. Piatco also argues that
there is no provisorequiring 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 tenders 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, 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. IAEcaH

35. ID.; ID.; ID.; ID.; AMENDED AND RESTATED CONCESSION AGREEMENT
(ARCA) INTENDS TO HAVE ALL PIATCO'S DEBTS COVERED BY THE
GUARANTEE. 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?)

36. ID.; ID.; ID.; INSTANCES WHEN TERMINATION COMPENSATION MAY BE


ALLOWED. Section 7 of the BOT Law as amended 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 and 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.

37. ID.; ID.; ID.; ID.; VIOLATED IN CASE AT BAR. 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. 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.

38. ID.; ID.; ID.; ID.; IN TERMINATION COMPENSATION, IT IS


INDISPENSABLE THAT THE INTEREST OF GOVERNMENT BE DULY
INSURED; NOT PRESENT IN CASE AT BAR. [I]n 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.

39. ID.; ID.; ID.; PROHIBITS A DIRECT GOVERNMENT SUBSIDY FOR


UNSOLICITED PROPOSALS. 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." By any manner of interpretation or application, however, 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. DTAIaH

40. ID.; ID.; ID.; GOVERNMENT WILL BE AT THE MERCY OF THE FOREIGN
LENDERS; CASE AT BAR. 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.

41. ID.; CONSTITUTIONAL LAW; NATIONAL ECONOMY AND


PATRIMONY; CONSTITUTION EXPRESSLY PROSCRIBES MAKING A
FRANCHISE EXCLUSIVE; VIOLATED IN CASE AT BAR. 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. 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, 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.

42. ID.; ID.; ID.; EASY PAYMENT PLAN OF PIATCO CONTRACTS VIOLATES
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 [.] The easy payment
scheme therein 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.

43. ID.; ID.; ID.; MONOPOLY; ELUCIDATED: Gokongwei Jr. v. Securities and
Exchange Commission 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."

44. ID.; ID.; ID.; ID.; PIATCO CONTRACTS GIVE THE CONCESSIONAIRE
LIMITLESS POWER OVER THE CHARGING OF FEES, RENTALS AND SO
FORTH. 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[.] It will be noted that
Sec. 6.06 (Adjustment of Non-Public Utility Fees and Charges) 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 . . ."

45. ID.; ID.; BILL OF RIGHTS; PROHIBITION AGAINST IMPAIRMENT OF


CONTRACTS; VIOLATED IN CASE AT BAR. By the In-Service Date, Terminal
III shall be the only facility to be operated as an international passenger terminal
at the NAIA; thus, Terminal I and II shall no longer operate as such, and no one
shall be allowed to compete with Piatco in the operation of an international
passenger terminal in the NAIA. 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.

46. ID.; ID.; ID.; PROHIBITION AGAINST DEPRIVATION OF PROPERTY


WITHOUT DUE PROCESS; VIOLATED IN CASE AT BAR. 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. 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. We held therein that a privilege enjoyed for
seven years "evolved into some form of property right which should not be
removed . . . 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. DaIACS
47. ID.; ID.; ID.; PROHIBITION AGAINST DEPRIVATION OF LIBERTY
WITHOUT DUE PROCESS; VIOLATED IN CASE AT BAR. 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, and/or the right to make a contract in relation to
one's business.

48. ID.; LEGISLATIVE DEPARTMENT; PROHIBITION AGAINST


DISBURSEMENT OF PUBLIC FUNDS WITHOUT VALID APPROPRIATION;
EFFECT. Clearly prohibited bythe Constitution is the disbursement of public
funds out of the treasury, except in pursuance of an appropriation made by law.
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.

49. ID.; ID.; ID.; EXISTENCE OF APPROPRIATIONS AND THE AVAILABILITY


OF FUNDS ARE INDISPENSABLE TO THE EXECUTION OF GOVERNMENT
CONTRACTS. [T]his 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."

50. ID.; ID.; LEGISLATIVE POWER OVER THE PUBLIC PURSE; VIOLATED IN
CASE AT BAR. 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!

51. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CRITERIA FOR


DETERMINING WHETHER THE BEST-EFFORTS BASIS WILL APPLY. 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.

52. ID.; ID.; ID.; OBLIGATIONS IN THE SUPPLEMENTS ARE MANDATORY IN


CHARACTER AND NOT FOR BEST-EFFORTS COMPLIANCE ONLY. 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. 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.
53. ID.; ID.; PIATCO CONTRACTS ARE VOID AB INITIO AND INOPERATIVE.
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.

54. ID.; ID.; ID.; KEEPING PIATCO ON AS CONCESSIONAIRE IS


UNCONSCIONABLE. 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 fromactually
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. EAHDac

55. ID.; ID.; ID.; AEDC SHOULD NOT BE ALLOWED TO OPERATE THE
TERMINAL III. 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?

56. ID.; ID.; ID.; GOVERNMENT SHOULD PAY ALL REASONABLE EXPENSES
INCURRED IN THE CONSTRUCTION OF TERMINAL III. 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, 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 ofquantum meruit was
likewise applied in Eslao v. Commission on Audit, 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.

57. ID.; ID.; ID.; POSSIBLE PRACTICAL SOLUTION IS TO BID OUT THE
OPERATION OF TERMINAL III. 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.

VITUG, J., separate dissenting opinion:


1. REMEDIAL LAW; CIVIL PROCEDURE; JURISDICTION; SUPREME COURT
IS BEREFT OF JURISDICTION OVER CASES INVOLVING NULLIFICATION OF
CONTRACTS. 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. 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.

2. ID.; ID.; ID.; SUPREME COURT IS NOT A TRIER OF FACTS. 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. 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. As the Court has so often
exhorted, it is not a trier of facts.

3. ID.; ID.; ID.; PETITIONS FOR DECLARATORY RELIEF ARE COGNIZABLE


BY THE REGIONAL TRIAL COURT. 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. The Supreme Court assumes no jurisdiction over
petitions for declaratory relief which are cognizable by regional trial courts.

4. POLITICAL LAW; SEPARATION OF POWERS; COURT MAY NOT INTRUDE


INTO EVERY AFFAIR OF GOVERNMENT. As I have so expressed
in Tolentino vs. Secretary of Finance, reiterated in Santiago vs. Guingona, Jr., 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.

DECISION

PUNO, J : p

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. CSaITD

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. CSaITD

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.SECAHa

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 theGeneral 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. CSaITD

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. CSaITD

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. CSaITD

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 abovementioned


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.CSaITD

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.CSaITD

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.
(Italics 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. CSaITD

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 thetrue 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. CSaITD

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 may be 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, groundhandling 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. CSaITD
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 AgreementMIAA 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. aSTAIH

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 andassume 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.

xxx xxx xxx


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 subcontractors. 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 therepayment 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 1, 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.

xxx xxx xxx

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

This is in accord with the Constitutional mandate that a monopoly which is not
prohibited must be regulated. 75 While it is the declared policy of the 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. TcEaAS

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., please see separate (dissenting) opinion

Panganiban, J., please see separate opinion


Quisumbing and Azcuna, JJ., concur with separate (dissenting) opinion of J.
Vitug.

Callejo, Sr., J., concurs with separate opinion of J. Panganiban.

Carpio, J., took no part.

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.CSTDIE

Accordingly, I vote for the dismissal of the petition.

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. . . ." (Italics 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:

xxx xxx xxx

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


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

Since the minimum amount of equity for the project was set at 30 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: IcaEDC

"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 thatno 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 haveall 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
thegreater 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." (Italics 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." (Italics 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) . . .

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.ACaTIc

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. . . .

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.

"xxx xxx xxx

"Section 19, Article XII of our Constitution is anti-trust in history and in


spirit. It espouses competition. The desirability of competition is the
reason for the prohibition against restraint of trade, the reason for the
interdiction of unfair competition, and the reason for regulation of
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 (Italics 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 . . . ."
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 . . . 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:

Providing thru MIAA the land required by Piatco for the


taxilane and one taxiway, at no cost to Piatco

Implementing the government's existing storm drainage


master plan

Coordinating with DPWH the financing, implementation


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

Dealing directly with BCDA and the Philippine Air Force


in acquiring additional land or right of way for the road
upgrade and improvement program
Requiring government to work for the immediate
reversion to MIAA of the Nayong Pilipino National
Park, in order to permit the building of the second west
parallel taxiway

Section 5 of the FS also provides that in lieu of the access tunnel,


a surface access road (T2-T3) will be constructed. This
provision requires government to expend funds to purchase
additional land from Nayong Pilipino and to clear the same in
order to be able to deliver clean possession of the site to
Piatco, as required in Section 5(c) of the FS.

On the other hand, the Third Supplement ("TS") obligates the government to
deliver, within 120 days from date thereof, clean possession of the land on which
the T2-T3 Road is to be constructed.

The foregoing contractual stipulations undeniably impose on government the


expenditures of public funds not included in any congressional appropriation or
authorized by any other statute. Piatco however attempts to take these
stipulations out of the ambit of Sections 46 and 47 of the Administrative Code by
characterizing them as stipulations for compliance on a "best-efforts basis" only.

To determine whether the additional obligations under the Supplements may


really be undertaken on a best-efforts basis only, the nature of each of these
obligations must be examined in the context of its relevance and significance to
the Terminal III Project, as well as of any adverse impact that may result if such
obligation is not performed or undertaken on time. In short, the criteria for
determining whether the best-efforts basis will apply is whether the obligations
are critical to the success of the Project and, accordingly, whether failure to
perform them (or to perform them on time) could result in a material breach of the
contract.

Viewed in this light, the "Additional Special Obligations" set out in Section 4 of the
FS take on a different aspect. In particular, each of the following may all be
deemed to play a major role in the successful and timely prosecution of the
Terminal III Project: the obtention of land required by PIATCO for the taxilane and
taxiway; the implementation of government's existing storm drainage master plan;
and coordination with DPWH for the completion of the three left-turning
overpasses before the In-Service Date, as well as acquisition and delivery of
additional land for the construction of the T2-T3 access road.

Conversely, failure to deliver on any of these obligations may conceivably result in


substantial prejudice to the concessionaire, to such an extent as to constitute a
material breach of the Piatco Contracts. Whereupon, the concessionaire may
outrightly terminate the Contracts pursuant to Section 8.01(b)(i) and (ii) of the
ARCA and seek payment of Liquidated Damages in 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. aATESD

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
toautomatically 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.
||| (Agan, Jr. v. Philippine International Air Terminals Co., Inc., G.R. No. 155001,
155547, 155661, [May 5, 2003], 450 PHIL 744-902)