Agan, Jr. vs. Philippine International Air Terminals Co., Inc PDF

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SUPREME COURT REPORTS ANNOTATED VOLUME 402
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Case Title:
DEMOSTHENES P. AGAN, JR.,
JOSEPH B. CATAHAN, JOSE MARI B.
REUNILLA, MANUEL ANTONIO B. 612 SUPREME COURT REPORTS ANNOTATED
BOÑE, MAMERTO S. CLARA, REUEL
Agan, Jr. vs. Philippine International Air Terminals Co.,
E. DIMALANTA, MORY V. DOMALAON, Inc.
CONRADO G. DIMAANO, LOLITA R.
HIZON, REMEDIOS P. ADOLFO, *
G.R. No. 155001. May 5, 2003.
BIENVENIDO C. HILARIO, MIASCOR
WORKERS UNION-NATIONAL LABOR
UNION (MWU-NLU), and PHILIPPINE DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN,
JOSE MARI B. REUNILLA, MANUEL ANTONIO B.
AIRLINES EMPLOYEES ASSOCIATION
BOÑE, MAMERTO S. CLARA, REUEL E. DIMALANTA,
(PALEA), petitioners, vs. PHILIPPINE
MORY V. DOMALAON, CONRADO G. DIMAANO,
INTERNATIONAL AIR TERMINALS LOLITA R. HIZON, REMEDIOS P. ADOLFO,
CO., INC., MANILA INTERNATIONAL BIENVENIDO C. HILARIO, MIASCOR WORKERS
AIRPORT AUTHORITY, DEPARTMENT UNION-NATIONAL LABOR UNION (MWU-NLU), and
OF TRANSPORTATION AND PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION
COMMUNICATIONS and SECRETARY (PALEA), petitioners, vs. PHILIPPINE INTERNATIONAL
LEANDRO M. MENDOZA, in his AIR TERMINALS CO., INC., MANILA INTERNATIONAL
capacity as Head of the Department AIRPORT AUTHORITY, DEPARTMENT OF
of Transportation and TRANSPORTATION AND COMMUNICATIONS and
Communications, respondents., SECRETARY LEANDRO M. MENDOZA, in his capacity as
SALACNIB F. BATERINA, CLAVEL A. Head of the Department of Transportation and
MARTINEZ and CONSTANTINO G. Communications, respondents.
JARAULA, petitioners, vs.
PHILIPPINE INTERNATIONAL AIR
TERMINALS CO., INC., MANILA MIASCOR GROUNDHANDLING CORPORATION,
DNATAWINGS AVIATION SYSTEMS CORPORATION,
INTERNATIONAL AIRPORT
MACROASIAEUREST SERVICES, INC., MACROASIA-
AUTHORITY, DEPARTMENT OF
MENZIES AIRPORT SERVICES CORPORATION,
TRANSPORTATION AND MIASCOR CATERING SERVICES CORPORATION,
COMMUNICATIONS, DEPARTMENT MIASCOR AIRCRAFT MAINTENANCE CORPORATION,
OF PUBLIC WORKS AND HIGHWAYS, and MIASCOR LOGISTICS CORPORATION, petitioners-
SECRETARY LEANDRO M. MENDOZA, in-intervention.
in his capacity as Head of the
Department of Transportation and G.R. No. 155547. May 5, 2003.
*
Communications, and SECRETARY

SIMEON A. DATUMANONG, in his SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and
capacity as Head of the Department CONSTANTINO G. JARAULA, petitioners, vs.
of Public Works and Highways, PHILIPPINE INTERNATIONAL AIR TERMINALS CO.,
respondents., CEFERINO C. LOPEZ, INC., MANILA INTERNATIONAL AIRPORT
RAMON M. SALES, ALFREDO B. AUTHORITY, DEPARTMENT OF TRANSPORTATION
VALENCIA, MA. TERESA V. GAERLAN, AND COMMUNICATIONS, DEPARTMENT OF PUBLIC
LEONARDO DE LA ROSA, DINA C. DE WORKS AND HIGHWAYS, SECRETARY LEANDRO M.
LEON, VIRGIE CATAMIN RONALD MENDOZA, in his capacity as Head of the Department of
SCHLOBOM, ANGELITO SANTOS, MA. Transportation and Communications, and SECRETARY
LUISA M. PALCON and SAMAHANG SIMEON A. DATUMANONG, in his capacity as Head of
MANGGAGAWA SA PALIPARAN NG the Department of Public Works and Highways,
PILIPINAS (SMPP), petitioners, vs. respondents.
PHILIPPINE INTERNATIONAL AIR
TERMINALS CO., INC., MANILA
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C.
INTERNATIONAL AIRPORT
ZIALCITA, WILLY BUYSON VILLARAMA, PROSPERO
AUTHORITY, DEPARTMENT OF C. NOGRA
TRANSPORTATION AND
COMMUNICATIONS, SECRETARY
LEANDRO M. MENDOZA, in his _______________
capacity as Head of the Department * EN BANC.
of Transportation and
Communications, respondents. 613
Citation: 402 SCRA 612
More... VOL. 402, MAY 5, 2003 613
Search Result Inc.
LES, 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.
Judicial Review; Parties; Locus Standi; 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.·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.
Same; Same; Same; Petitioners who stand to lose their
sources of livelihood, a property right which is zealously protected
by the Constitution, have a direct and substantial interest in a
controversy which confers on them the requisite standing.·We
hold that petitioners have the requisite standing. In the above-
mentioned cases, petitioners have a direct and substantial
interest to protect by reason of the implementation of the
PIATCO Contracts. They stand to lose their source of livelihood,
a property right which is zealously protected by the Constitution.
Moreover,
614
614 SUPREME COURT REPORTS ANNOTATED
Agan, Jr. vs. Philippine International Air Terminals Co., Inc.
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.
Same; Same; Same; 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; In
view of the serious legal questions involved and their impact on
public interest, the Court resolves to grant standing to the
petitioners.· 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 taxpayersÊ 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.
Courts; Supreme Court; Hierarchy of Courts; Where a
controversy involves significant legal questions and the facts
necessary to resolve such legal questions are well established and,
hence, need not be determined by a trial court, the Supreme Court
may assume jurisdiction over such controversy.·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 viola-
615
VOL. 402, MAY 5, 2003 615
tion 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.
Same; Same; Same; The rule on hierarchy of courts 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 the Supreme CourtÊs primary jurisdiction.·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 CourtÊs primary jurisdiction. 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
countryÊs 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.
Actions; Alternative Dispute Resolution; Arbitration; Where
petitioners are not parties to a contract with an arbitration
clause, they 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.·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.
616

Bids and Bidding; 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, with the government
agency examining and determining the ability of the bidder to
fund the entire cost for the project by considering the maximum
amounts that each bidder may invest in the project at the time of
pre-qualification.·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
bidderÊs financial capacity at the pre-qualification stage, the law
requires the government agency to examine and determine the
ability of the bidder to fund the entire cost of the project by
considering the maximum amounts that each bidder may invest
in the project at the time of pre-qualification. The PBAC has
determined that any prospective bidder for the construction,
operation and maintenance of the NAIA IPT III project should
prove that it has the ability to provide equity in the minimum
amount of 30% of the project cost, in accordance with the 70:30
debt-to-equity ratio prescribed in the Bid Documents. Thus, in
the case of Paircargo Consortium, the PBAC should determine
the maximum amounts that each member of the consortium may
commit for the construction, operation and maintenance of the
NAIA IPT III project at the time of pre-qualification. With
respect to Security Bank, the maximum amount which may be
invested by it would only be 15% of its net worth in view of the
restrictions imposed by the General Banking Act. Disregarding
the investment ceilings provided by applicable law would not
result in a proper evaluation of whether or not a bidder is pre-
qualified to undertake the project as for all intents and purposes,
such ceiling or legal restriction determines the true maximum
amount which a bidder may invest in the project.
Same; 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 by the bidder and the
Pre-Qualification, Bid and Awards Committee (PBAC) should not
be allowed to speculate on the future financial ability of the
bidder to undertake the project on the basis of the documents
submitted; Strict observance for the rules, regulations, and
guidelines of the bidding process is the only safeguard to a fair,
honest and competitive public bidding.·The determination of
whether or not a bidder is prequalified 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
617
VOL. 402, MAY 5, 2003 617
minimum required financial capability to complete the project.

To allow the PBAC to estimate the bidderÊs 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.
Same; 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, the Court holds that Paircargo Consortium was not a
qualified bidder.·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 PIATCOÊs 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.
Same; By its very nature, public bidding aims to protect the
public interest by giving the public the best possible advantages
through open competition.·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 Âbidding
upon a common standard, a common basis, upon the same thing,
the same subject matter, the same undertaking,Ê but also that it
be legitimate, fair and honest; and not designed to injure or
defraud the government.
Same; 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·if the winning
618
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.·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.
Same; While 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; The determination of
whether or not a modification or amendment 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.·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.
Same; The 1997 Concession Agreement clearly gives PIATCO
more favorable terms than what was available to other bidders at
the time the contract was bidded out.·When taken as a whole,
the changes under the
619
VOL. 402, MAY 5, 2003 619
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.
Same; Section 4.04 of the 1997 Concession Agreement is an
important amendment because it grants PIATCO a financial
advantage or benefit which was not previously made available
during the bidding process.· 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.
Same; 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.·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, com-
620
petitive 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.
Same; 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.·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.
Same; The fact that substantial amendments were made on
the 1997 Concession Agreement renders the same null and void
for being contrary to public policy.·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
621
VOL. 402, MAY 5, 2003 621
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.
Same; Build-Operate-and-Transfer (BOT) Projects; Direct
government guarantee is prohibited by the law on BOT projects.
·It is clear from the above-quoted provisions that Government,
in the event that PIATCO defaults in its loan obligations, is
obligated to pay „all amounts recorded and from time to time
outstanding from the books‰ of PIATCO which the latter owes to
its creditors. These amounts include „all interests, penalties,
associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses.‰ This obligation of
the Government to pay PIATCOÊs creditors upon PIATCOÊs
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 PIATCOÊs unpaid
creditors operate NAIA IPT III, the Government is still at a risk
of being liable to PIATCOÊs creditors should the latter be unable
to designate a qualified operator within the prescribed period. In
effect, whatever option the Government chooses to take in the
event of PIATCOÊs failure to fulfill its loan obligations, the
Government is still at a risk of assuming PIATCOÊs outstanding
loans. This is due to the fact that the Government would only be
free from assuming PIATCOÊs debts if the unpaid creditors would
be able to designate a qualified operator within the period
provided for in the contract. Thus, the GovernmentÊs 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.
Same; Same; If the government would in the end still be at a
risk of paying the debts incurred by the private entity in the BOT
project, then the purpose of the law is subverted.·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.
622
Same; Same; The proscription against government guarantee

in any form is one of the policy considerations behind the BOT
Law.·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 PIATCOÊs loans should the conditions as
set forth in the ARCA arise. This is a form of direct government
guarantee.
Same; Same; 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
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.·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. 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.
Same; Same; The Supreme Court has long and consistently
adhered to the legal maxim that those that cannot be done
directly cannot be done indirectly.·This Court has long and
consistently adhered to the legal
623
VOL. 402, MAY 5, 2003 623
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.
Public Utilities; Police Power; Temporary Takeover of
Business Affected with Public Interest; When the government
temporarily takes over a business affected with public interest
pursuant to Article XII, Section 17 of the Constitution, it is not
required to compensate the private entity-owner of the said
business as there is no transfer of ownership, whether permanent
or temporary, and 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.·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.‰ 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.
Same; Same; Same; 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‰; Clearly, the State in
effecting the temporary takeover is exercising its police power and
its exercise therefore must not be unreasonably hampered nor its
exercise be a source of obligation by the government in the absence
of dam-
624
age due to arbitrariness of its exercise, and requiring the

government to pay reasonable compensation for the reasonable
use of the property pursuant to the operation of the business
contravenes the Constitution.·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.
Same; Monopolies; Words and Phrases; 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; 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; 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.·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. 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. 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.
625
VOL. 402, MAY 5, 2003 625
Same; Same; Air Transportation; Airport Terminals; The

operation of an international passenger airport terminal is no
doubt an undertaking imbued with public interest; 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 right
granted to the public utility may be exclusive but the exercise of
the right cannot run riot; The privilege granted 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.·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. 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. PIATCOÊs right to operate NAIA IPT
III cannot also violate the rights of third parties.
Same; Same; Same; Same; Contracts; While the service
providers presently operating at NAIA Terminal I do not have an
absolute right for the renewal or the extension of their respective
contracts, those contracts whose duration extends beyond NAIA
IPT IIIÊs In-Service-Date should not be unduly prejudiced·
PIATCO cannot, by law and certainly not by contract, render a
valid and binding contract nugatory.·We hold that while the
service providers presently operating at NAIA Terminal I do not
have an absolute right for the renewal or the extension of their
respective contracts, those contracts whose duration extends
beyond NAIA IPT IIIÊs In-
626
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.
Same; Same; Same; Same; The provisions of the 1997
Concession Agreement and the Amended and Restated Concession
Agreement (ARCA) did not strip government, thru the MIAA, of
its right to supervise the operation of the whole NAIA complex,
including NAIA IPT III.·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
MIAAÊs 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.
VITUG, J., Separate Opinion:
Supreme Court; Jurisdiction; The Supreme Court is bereft of

jurisdiction to hear the petition at bar.·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.
Same; Same; Declaratory Relief; The petitions, in effect, are
in the nature of actions for declaratory relief which are cognizable
by regional trial courts.·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
627
VOL. 402, MAY 5, 2003 627
over petitions for declaratory relief which are cognizable by

regional trial courts.
Same; Same; Separation of Powers; The Supreme Court
should not be thought of as having been tasked with the awesome
responsibility of overseeing the entire bureaucracy·the Court
may not at good liberty intrude, in the guise of sovereign
imprimatur, 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.
PANGANIBAN, J., Separate Opinion:
Courts; Judicial Review; The Court has, in the past, held

that questions relating to gargantuan government contracts ought
to be settled without delay.·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.
Same; Same; Alternative Dispute Resolution; Arbitration;
Public Utilities; Build-Operate-and-Transfer (BOT) Projects;
International Airport Terminal; The Piatco contracts are void in
their entirety·resort to arbitration is unavailing.·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
628
definitively resolve the constitutional and legal questions that

have been raised in the Petitions before us.
Same; Same; Parties; Locus Standi; 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.
·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.‰
Bids and Bidding; It is unarguably 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.·By virtue of the
prequalified status conferred upon the Paircargo,
Undersecretary CalÊs 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 CourtÊs 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.
Same; Public Utilities; Build-Operate-and-Transfer (BOT)
Projects; The „propriety 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; 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 propriety information in
connection with unsolicited proposals.·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 governmentÊs list of priority projects. To
be considered as utilizing a new concept or technology, a project
must involve the possession of exclusive
629
VOL. 402, MAY 5, 2003 629
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.
Same; Same; Same; 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.·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.
Same; Same; Same; Franchises;The constitutional
prohibition against the exclusivity of a franchise applies to the
franchise for the operation of NAIA Terminal III.·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 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 x x x is a Âterminal for public useÊ 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.
Same; Same; Same; Unjust Enrichment; The government
should pay for reasonable expenses incurred in the construction of
the NAIA Terminal III, otherwise it will be unjustly enriching
itself at the expense of Piatco
630
and, in particular, its finders, contractors and investors·both

local and foreign.·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
transportationrelated 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 of
quantum 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.
SPECIAL CIVIL ACTION in the Supreme Court.

Prohibition.
The facts are stated in the opinion of the Court.

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 & Cruz for
petitioners-in-intervention.
Arthur D. Lim Law Office for AsiaÊs Emerging
Dragon, etc.
Romulo, Mabanta, Buenaventura, Sayoc & Delos
Angeles; Chavez & Laureta & Associates; and Moises
Tolentino, Jr. for PIATCO.
Office of the Government Corporate Counsel for
MIAA.
Mario E. Ongkiko, Fernando F. Manas, Jr., Raymund
C. De Castro and Angelito S. Lazaro, Jr. for respondents-
intervenors.
631
VOL. 402, MAY 5, 2003 631

Inc.
PUNO, J.:
Petitioners and petitioners-in-intervention filed the instant

petitions for prohibition under Rule 65 of the Revised
Rules of Court seeking to prohibit the Manila International
Airport Authority (MIAA) and the Department of
Transportation and Communications (DOTC) and its
Secretary from implementing the following agreements
executed by the Philippine Government through the DOTC
and the MIAA and the Philippine International Air
Terminals Co., Inc. (PIATCO): (1) the Concession
Agreement signed on July 12, 1997, (2) the Amended and
Restated Concession Agreement dated November 26, 1999,
(3) the First Supplement to the Amended and Restated
Concession Agreement dated August 27, 1999, (4) the
Second Supplement to the Amended and Restated
Concession Agreement dated September 4, 2000, and (5)
the Third Supplement to the Amended and Restated
Concession Agreement dated June 22, 2001 (collectively,
the PIATCO Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the services of
Aeroport de Paris (ADP) to conduct a comprehensive study
of the Ninoy Aquino International Airport (NAIA) and
determine whether the present airport can cope with the
traffic development up to the year 2010. The study
consisted of two parts: first, traffic forecasts, capacity of
existing facilities, NAIA future requirements, proposed
master plans and development plans; and second,
presentation of the preliminary design of the passenger
terminal building. The ADP submitted a Draft Final
Report to the DOTC in December 1989.
Some time in 1993, six business leaders consisting of
John Gokongwei, Andrew Gotianun, Henry Sy, Sr., Lucio
Tan, George Ty and Alfonso Yuchengco met with then
President Fidel V. Ramos to explore the possibility of
investing in the construction and operation of a new
international airport terminal. To signify their
commitment to pursue the project, they formed the AsiaÊs
Emerging Dragon Corp. (AEDC) which was registered with
the Securities and Exchange Commission (SEC) on
September 15, 1993.
On October 5, 1994, AEDC submitted an unsolicited
proposal to the Government through the DOTC/MIAA for
the development of NAIA International Passenger
Terminal III (NAIA IPT III) under
632

Inc.
a build-operate-and-transfer arrangement1 pursuant to RA

6957 as amended by RA 7718 (BOT Law).
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 AEDCÊs
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.
_______________
1 An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector.
633
VOL. 402, MAY 5, 2003 633

Inc.
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

proponentÊs compliance with the minimum
technical and financial requirements provided in
the Bid Documents and the IRR of the BOT Law.
The minimum amount of equity shall be 30% of the
Project Cost.
e. Amendments to the draft Concession Agreement
shall be issued from time to time. Said
amendments shall only cover items that would not
materially affect the preparation of the proponentÊs
proposal.
On August 29, 1996, the Second Pre-Bid Conference was

held where certain clarifications were made. Upon the
request of prospective bidder PeopleÊs 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
634

Inc.
proposed Annual Guaranteed Payment submitted by the

challengers would be revealed to AEDC, and that the
challengersÊ 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 PBACs 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.‰ PaircargoÊs
queries and the PBACÊs 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 corporationÊs
current authorized capital stock just for
prequalification purposes.
In prequalification, the agency is interested in oneÊs
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 companiesÊ 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 theyÊd (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
635
VOL. 402, MAY 5, 2003 635

challengers through bid bulletins. However, a final version will

be issued before the award of contract.
The PBAC also stated that it would require AEDC to sign

Supplement C of the Bid Documents (Acceptance of
Criteria and Waiver of Rights to Enjoin Project) and to
submit the same with the required Bid Security.
On September 20, 1996, the consortium composed of
PeopleÊs 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.
636

Inc.
On October 3, 1996, AEDC reiterated its objections,

particularly with respect to PaircargoÊs financial capability,
in view of the restrictions imposed by Section 21-B of the
General Banking Act and Sections 1380 and 1381 of the
Manual Regulations for Banks and Other Financial
Intermediaries. On October 7, 1996, AEDC again
manifested its objections and requested that it be
furnished with excerpts of the PBAC meeting and the
accompanying technical evaluation report where each of
the issues they raised were addressed.
On October 16, 1996, the PBAC opened the third
envelope submitted by AEDC and the Paircargo
Consortium containing their respective financial proposals.
Both proponents offered to build the NAIA Passenger
Terminal III for at least $350 million at no cost to the
government and to pay the government: 5% share in gross
revenues for the first five years of operation, 7.5% share in
gross revenues for the next ten years of operation, and 10%
share in gross revenues for the last ten years of operation,
in accordance with the Bid Documents. However, in
addition to the foregoing, AEDC offered to pay the
government a total of P135 million as guaranteed payment
for 27 years while Paircargo Consortium offered to pay the
government a total of P17.75 billion for the same period.
Thus, the PBAC formally informed AEDC that it had
accepted the price proposal submitted by the Paircargo
Consortium, and gave AEDC 30 working days or until
November 28, 1996 within which to match the said bid,
otherwise, the project would be awarded to Paircargo.
As AEDC failed to match the proposal within the 30-day
period, then DOTC Secretary Amado Lagdameo, on
December 11, 1996, issued a notice to Paircargo
Consortium regarding AEDCÊs 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.
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VOL. 402, MAY 5, 2003 637

Inc.
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 ConcessionaireÊs 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
638

Inc.
Article VIII concerning the provisions on the termination

of the contract; and Sec. 10.02 providing for the venue of
the arbitration proceedings in case a dispute or controversy
arises between the parties to the agreement.
Subsequently, the Government and PIATCO signed
three Supplements to the ARCA. The First Supplement
was signed on August 27, 1999; the Second Supplement on
September 4, 2000; and the Third Supplement on June 22,
2001 (collectively, Supplements).
The First Supplement to the ARCA amended Sec. 1.36
of the ARCA defining „Revenues‰ or „Gross Revenues‰; Sec.
2.05 (d) of the ARCA referring to the obligation of MIAA to
provide sufficient funds for the upkeep, maintenance,
repair and/or replacement of all airport facilities and
equipment which are owned or operated by MIAA; and
further providing additional special obligations on the part
of GRP aside from those already enumerated in Sec. 2.05 of
the ARCA. The First Supplement also provided a
stipulation as regards the construction of a surface road to
connect NAIA Terminal II and Terminal III in lieu of the
proposed access tunnel crossing Runway 13/31; the
swapping of obligations between GRP and PIATCO
regarding the improvement of Sales Road; and the changes
in the timetable. It also amended Sec. 6.01 (c) of the ARCA
pertaining to the Disposition of Terminal Fees; Sec. 6.02 of
the ARCA by inserting an introductory paragraph; and
Sec. 6.02 (a) (iii) of the ARCA referring to the Payments of
Percentage Share in Gross Revenues.
The Second Supplement to the ARCA contained
provisions concerning the clearing, removal, demolition or
disposal of subterranean structures uncovered or
discovered at the site of the construction of the terminal by
the Concessionaire. It defined the scope of works; it
provided for the procedure for the demolition of the said
structures and the consideration for the same which the
GRP shall pay PIATCO; it provided for time extensions,
incremental and consequential costs and losses consequent
to the existence of such structures; and it provided for
some additional obligations on the part of PIATCO as
regards the said structures.
Finally, the Third Supplement provided for the
obligations of the Concessionaire as regards the
construction of the surface road connecting Terminals II
and III.
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VOL. 402, MAY 5, 2003 639

Inc.
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 Macro-Asia, 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
2
to enjoin the enforcement of said
agreements.
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
3
Jaraula filed a similar
petition with this Court.
On November 6, 2002, several employees of the MIAA
likewise filed4 a petition assailing the legality of the various
agreements. On December 11, 2002, another group of
Congressmen, Hon. Jacinto V. Paras, Rafael P. Nantes,
Eduardo C. Zialcita, Willie B. Villarama, Prospero C.
Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon and
Benasing O. Macaranbon, moved to intervene in the case
as Respondents-Intervenors. They filed their Comment-In-
Intervention defending the validity of the assailed
agreements and praying for the dismissal of the petitions.
During the pendency of the case before this Court,
President Gloria Macapagal Arroyo, on November 29,
2002, in her speech at the 2002 Golden Shell Export
Awards at Malacañang Palace,
_______________
2 G.R. No. 155001.

3 G.R. No. 155547.
4 G.R. No. 155661.
640

Inc.
stated that she will not „honor (PIATCO) contracts which

the Executive 5 BranchÊs legal offices have concluded (as)
null and void.‰
Respondent PIATCO filed its Comments to the present
petitions on November 7 and 27, 2002. The Office of the
Solicitor General and the Office of the Government
Corporate Counsel filed their respective Comments in
behalf of the public respondents.
On December 10, 2002, the Court heard the case on oral
argument. After the oral argument, the Court then
resolved in open court to require the parties to file
simultaneously their respective Memoranda in
amplification of the issues heard in the oral arguments
within 30 days and to explore the possibility of arbitration
or mediation as provided in the challenged contracts.
In their consolidated Memorandum, the Office of the
Solicitor General and the Office of the Government
Corporate Counsel prayed that the present petitions be
given due course and that judgment be rendered declaring
the 1997 Concession Agreement,
_______________
5 An international airport is any nationÊs gateway to the world, the
first contact of foreigners with the Philippine Republic, especially those

foreigners who have not been in contact with the wonderful exports of
the Philippine economy, those foreigners who have not had the benefit of
enjoying Philippine export products. Because for them, when they see
your products, that is the face of the Philippines they see. But if they
are not exposed to your products, then itÊs the airport thatÊs the first face
of the Philippines they see. Therefore, itÊs not only a matter of opening
yet, but making sure that it is a world class airport that operates
without any hitches at all and without the slightest risk to travelers.
But itÊs also emerging as a test case of my administrationÊs commitment
to fight corruption to rid our state from the hold of any vested interest,
the Solicitor General, and the Justice Department have determined that
all five agreements covering the NAIA Terminal 3, most of which were
contracted in the previous administration, are null and void. I cannot
honor contracts which the Executive BranchÊs legal offices have
concluded (as) null and void.
I am, therefore, ordering the Department of Justice and the
Presidential Anti-Graft Commission to investigate any anomalies and
prosecute all those found culpable in connection with the NAIA contract.
But despite all of the problems involving the PIATCO contracts, I am
assuring our people, our travelers, our exporters, my administration will
open the terminal even if it requires invoking the whole powers of the
Presidency under the Constitution and we will open a safe, secure and
smoothly functioning airport, a world class airport, as world class as the
exporters we are honoring today. (Speech of President Arroyo, emphasis
supplied)
641
VOL. 402, MAY 5, 2003 641

Inc.
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 6of discretion
amounting to lack or excess of jurisdiction.‰ 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.
PetitionersÊ Legal Standing to File the present

Petitions
a. G.R. Nos. 155001 and 155661

In G.R. No. 155001 individual
7
petitioners are employees of
various service providers 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
_______________
6 Art. VIII, Sec. 1, Philippine Constitution.

7 MIASCOR, MACROASIA-EUREST, MACROASIA OGDEN and
Philippine Airlines.
642

Inc.
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
opera-
643
VOL. 402, MAY 5, 2003 643

Inc.
tions 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 8
a separate
agreement duly entered into with PIATCO.
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 illumina-
_______________
8 Sections 3.01 (a) and 3.02, 1997 Concession Agreement; Sections
3.01 (d) and (e) and 3.02, ARCA.
644

Inc.
9
tion 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 burdens10 or penalties by
reason of the statute or act complained of.
We hold that petitioners have the requisite standing. In
the above-mentioned cases, petitioners have a direct and
substantial interest to protect by reason of the
implementation of the PIATCO Contracts. They stand to
lose their source of livelihood, a property right which is
zealously protected by the Constitution. Moreover,
subsisting concession agreements between MIAA and
petitioners-intervenors and service contracts between
international airlines and petitioners-intervenors stand to
be nullified or terminated by the operation of the NAIA
IPT III under the PIATCO Contracts. The financial
prejudice brought about by the PIATCO Contracts on
petitioners and petitioners-intervenors in these cases are
legitimate interests sufficient to confer on them the
requisite standing to file the instant petitions.
b. G.R. No. 155547

In G.R. No. 155547, petitioners filed the petition for
prohibition as members of the House of Representatives,
citizens and taxpayers. They allege that as members of the
House of Representatives, they are especially interested in
the PIATCO Contracts, because the contracts compel the
Government and/or the House of Representatives to
appropriate
11
funds necessary to comply with the provisions
therein. They cite provisions of the PIATCO Contracts
which require disbursement of unappropriated amounts in
compli-
_______________
9 Kilosbayan, Inc. v. Morato, G.R. No. 118910, July 17, 1995, 246
SCRA 540, 562-563, citing Baker v. Carr, 369 U.S. 186, 7 L. Ed. 633
(1962).
10 Id.; Bayan v. Zamora, G.R. No. 138570, October 10, 2000, 342
SCRA 449, 478.
11 Rollo, G.R. No. 155547, p. 12.
645
VOL. 402, MAY 5, 2003 645

Inc.
ance 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
12
except in pursuance of an appropriation made by
law.‰
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
13
Electric Co. v. Municipality of Imus and Gonzales v.
14
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
15
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 16
of various government
agencies or instrumentalities.‰ Further, „insofar as
taxpayersÊ suits are concerned . . . (this Court) is not devoid
of discretion as to whether or not it should be
17
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 18 resolving the serious constitutional
questions raised.‰ In view of the serious legal ques-
_______________
12 Article VI, Section 29(1).

13 G.R. No. 39842, March 28, 1934, 59 Phil. 823.
14 G.R. No. 29627, December 19, 198, 180 SCRA 254, 260-261.
15 G.R. No. 113375, May 5, 1994, 232 SCRA 110.
16 Id.
17 Id., citing Tan vs. Macapagal, 43 SCRA 677, 680 [1972].
18 Association of Small Landowners in the Philippines, Inc. vs.
Secretary of Agrarian Reform, G.R. No. 78742, July 14, 1989, 175 SCRA
343, 364-365 [1989].
646

Inc.
tions 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 CourtÊs
19
primary jurisdiction.
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 countryÊs 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.
_______________
19 Santiago v. Vasquez, G.R. Nos. 99289-90, January 27, 1993, 217
SCRA 633, 652.
647
VOL. 402, MAY 5, 2003 647

Inc.
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. 20
In Del Monte Corporation-USA v. Court of Appeals,
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 courtÊs decision denying petitionerÊs
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
21
Corporation, 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,
22
duplicitous procedure and unnecessary delay. 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
_______________
20 G.R. No. 136154, February 7, 2001, 351 SCRA 373, 381.

21 G.R. No. 135362, December 13, 1999, 320 SCRA 610.
22 Del Monte Corporation-USA v. Court of Appeals, G.R. No. 136154,
February 7, 2001, 351 SCRA 373, 382.
648

Inc.
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,

PIATCOÊs 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
649
VOL. 402, MAY 5, 2003 649

P3,926,421,242.00 that could support a project costing

approximately P13 Billion.
It is not a requirement that the net worth must be
„unrestricted.‰ To impose that as a requirement now will be
nothing less than unfair.
The financial statement or the net worth is not the sole basis
in establishing financial capability. As stated in Bid Bulletin No.
3, financial capability may also be established by testimonial
letters issued by reputable banks. The Challenger has complied
with this requirement.
To recap, net worth reflected in the Financial Statement
should not be taken as the amount of the money to be used to
answer the required thirty percent (30%) equity of the challenger
but rather to be used in establishing if there is enough basis to
believe that the challenger can comply with the required 30%
equity. In fact, proof of sufficient equity is required as one of the
conditions for award of contract (Section 12.1 IRR of the BOT
Law) but 23not for pre-qualification (Section 5.4 of the same
document).
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 24
the lowest bid and most favorable
terms of the project. Further, the 1994 Implementing
Rules and Regulations of the BOT Law provide:
Section 5.4. Pre-qualification Requirements.
....
c. Financial Capability: The project proponent must have
adequate capability to sustain the financing requirements for the
detailed engineering design, construction and/or operation and
maintenance phases of the project, as the case may be. For
purposes of pre-qualification, this capability shall be measured
in terms of (i) proof of the ability of the project proponent and/or
the consortium to provide a minimum amount of equity to the
project, and (ii) a letter testimonial from reputable banks
attesting that the project proponent and/or members of the
consortium are banking with them, that they are in good
financial standing, and that they have adequate resources. The
government agency/LGU concerned shall determine on a project-
to-project basis and before pre-qualification, the minimum
amount of equity needed. (emphasis supplied)
_______________
23 Rollo, G.R. No. 155001, pp. 2487-2488.

24 Section 5, R.A. No. 7718.
650

Inc.
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 proponentÊs
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 25to be
US$350,000,000.00 or roughly P9,183,650,000.00, 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.
PaircargoÊs Audited Financial Statements as of 1993
and 1994 indicated that it had a net worth 26
of
P2,783,592.00 and P3,123,515.00 respectively. PAGSÊ
Audited Financial Statements as of 1995 indicate that it
has approximately
27
P26,735,700.00 to invest as its equity
for the project. Security BankÊs Audited Finan-
_______________
25 At the United States Dollar-Philippine Peso exchange rate of
US$1:P26.239 quoted by the Bangko Sentral ng Pilipinas at that time.

26 Rollo, G.R. No. 155001, pp. 2471-2474.
27 Id., at pp. 2475-2477. Derived from the figures on the authorized
capital stock and the shares of stock that are subscribed and paid-up.
651
VOL. 402, MAY 5, 2003 651

Inc.
cial Statements as of 1995 show that it has a net worth

equivalent to its28 capital funds in the amount of
P3,523,504,377.00.
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 nonallied 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 bankÊs net worth for
purposes of computing the prescribed ratio of net worth to risk
assets.
....
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.
_______________
28 Id., at pp. 2478-2484.
652

Inc.
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
29
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.
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
bidderÊs financial capacity at the pre-qualification stage,
the law requires the government agency to examine and
determine the ability of the bidder to fund the entire cost
of the project by considering the maximum amounts that
each bidder may invest in the project at the time of pre-
qualification.
The PBAC has determined that any prospective bidder
for the construction, operation and maintenance of the
NAIA IPT III project should prove that it has the ability to
provide equity in the minimum amount of 30% of the
project cost, in accordance with the 70:30 debt-to-equity
ratio prescribed in the Bid Documents. Thus, in the case of
Paircargo Consortium, the PBAC should determine the
maximum amounts that each member of the consortium
may commit for the construction, operation and
maintenance of the NAIA IPT III project at the time of pre-
qualification. With respect to Security Bank, the maximum
amount which may be invested by it would only be 15% of
its net worth in view of the restrictions imposed by the
General Banking Act. Disregarding the investment ceilings
provided by applicable law would not result in a proper
evaluation of whether or not a bidder is pre-qualified to
undertake the project as for all intents and purposes, such
ceiling or legal restriction determines the true maximum
amount which a bidder may invest in the project.
_______________
29
Member Maximum Amount of Equity

Security Bank P528,525,656.55
PAGS 26,735,700.00
Paircargo 3,123,515.00
TOTAL P558,384,871.55
653
VOL. 402, MAY 5, 2003 653
Inc.
Further, the determination of whether or not a bidder is

prequalified 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 dutybound 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 bidderÊs 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 only30 safeguard to a fair, honest and competitive public
bidding.
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 prequalification 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 PIATCOÊs predecessor
would come into play and
_______________
30 Republic of the Philippines vs. Hon. Ignacio C. Capulong, G.R. No.
93359, July 12, 1991, 199 SCRA 134, 146-147. Emphasis supplied.
654

Inc.
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
proponentÊs 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 Âbidding
upon a common standard, a common basis, upon the same thing,
the same subject matter, the same undertaking,Ê but also that it
be legitimate, fair and 31honest; and not designed to injure or
defraud the government.
An essential element of a publicly bidded contract is that

all bidders must be on equal footing. Not simply in terms of
applica-
_______________
31 Danville Maritime, Inc. v. Commission on Audit, G.R. No. 85285,
July 28, 1989, 175 SCRA 701, 713. Citations omitted.
655
VOL. 402, MAY 5, 2003 655

Inc.
tion 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
32
indiscriminately upon all bidders.
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
contemplated33in the terms and specifications upon which the bids
were invited.
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
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
_______________
32 A. Cobacha & D. Lucenario, LAW ON PUBLIC BIDDING AND
GOVERNMENT CONTRACTS 13 (1960).

33 Diamond v. City of Mankato, et al., 93 N.W. 912.
656

Inc.
and would constitute a denial to the other bidders of the

opportunity to bid on the same terms. Hence, the
determination of whether or not a modification or
amendment of a contract bidded out constitutes a
substantial amendment rests on whether the contract,
when taken as a whole, would contain substantially
different terms and conditions that would have the effect of
altering the technical and/or financial proposals previously
submitted by other bidders. The alterations and
modifications in the contract executed between the
government and the winning bidder must be such as to
render such executed contract to be an entirely different
contract from the one that was bidded upon.
In the case of Caltex (Philippines), Inc. v. Delgado
34
Brothers, Inc., 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 35may alter or amend it without another previous public
bidding.
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:
_______________
34 G.R. No. L-5439, December 29, 1954, 96 Phil. 368.

35 Id., at p. 375.
657
VOL. 402, MAY 5, 2003 657

Inc.
a. Modification on the Public Utility Revenues and Non-

Public Utility Revenues that may be collected by PIATCO
The fees that may be imposed and collected by PIATCO
under the draft Concession Agreement and the 1997
Concession Agreement may be classified into three distinct
categories: (1) fees which are subject to periodic
adjustment of once every two years in accordance with a
prescribed parametric formula and adjustments are made
effective only upon written approval by MIAA; (2) fees
other than those included in the first category which
maybe adjusted by PIATCO whenever it deems necessary
without need for consent of DOTC/MIAA; and (3) new fees
and charges that may be imposed by PIATCO which have
not been previously imposed or collected at the Ninoy
Aquino International Airport Passenger Terminal I,
pursuant to Administrative Order No. 1, Series of 1993, as
amended. The glaring distinctions between the draft
Concession Agreement and the 1997 Concession
Agreement lie in the types of fees included in each category
and the extent of the supervision and regulation which
MIAA is allowed to exercise in relation thereto.
For fees under the first category, i.e., those which are
subject to periodic adjustment in accordance with a
prescribed parametric formula and effective only upon
written approval by MIAA, the draft Concession Agreement
36
includes the following:
(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 37
are classified as „Public Utility Revenues‰ and include:
_______________
36 Section 6.03, draft Concession Agreement.

37 Sections 1.33 and 6.03(b), 1997 Concession Agreement.
658

Inc.
(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 38operations of the Terminal
and the Terminal Complex.‰ 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 InService 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
39
deprived of a free option for the services they cover.
_______________
38 Sections 1.27 and 6.06, 1997 Concession Agreement.

39 Emphasis supplied.
659
VOL. 402, MAY 5, 2003 659

Inc.
On the other hand, the equivalent provision under the

1997 Concession Agreement reads:
Section 6.03. Periodic Adjustment in Fees and Charges.

....
(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
resulting40 in the unreasonable deprivation of End Users of such
services.
Thus, under the 1997 Concession Agreement, with respect

to (1) vehicular parking fee, (2) porterage fee and (3)
greeter/well wisher fee, all that MIAA can do is to require
PIATCO to explain and justify the fees set by PIATCO. In
the draft Concession Agreement, vehicular parking fee is
subject to MIAA regulation and approval under the second
paragraph of Section 6.03 thereof while porterage fee is
covered by the first paragraph of the same provision. There
is an obvious relaxation of the extent of control and
regulation by MIAA with respect to the particular fees that
may be charged by PIATCO.
Moreover, with respect to the third category of fees that
may be imposed and collected by PIATCO, i.e., new fees
and charges that may be imposed by PIATCO which have
not been previously imposed or collected at the Ninoy
Aquino International Airport Passenger Terminal I, under
Section 6.03 of the draft Concession Agreement MIAA has
reserved the right to regulate the same under the same
conditions that MIAA may regulate fees under the first
category, i.e., periodic adjustment of once every two years
in accordance with a prescribed parametric formula and
effective only upon written approval by MIAA. However,
under the 1997 Concession Agreement, adjustment of fees
under the third category is not subject to MIAA regulation.
_______________
660
Inc.
With respect to terminal fees that may be charged by

41
PIATCO, as shown earlier, this was included within the
category of „Public Utility Revenues‰ under the 1997
Concession Agreement. This classification is significant
because under the 1997 Concession Agreement, „Public
Utility Revenues‰ are subject to an „Interim Adjustment‰
of fees upon the occurrence of42 certain extraordinary events
specified in the agreement. However, under the draft
Concession Agreement, terminal fees are not included in
the types of43 fees that may be subject to „Interim
Adjustment.‰
Finally, under the 1997 Concession Agreement, „Public
Utility Revenues,‰
44
except terminal fees, are denominated
in US Dollars while payments to the Government are in
Philippine Pesos. In the draft Concession Agreement, no
such stipulation was included. By stipulating that „Public
Utility Revenues‰ will be paid to PIATCO in US Dollars
while payments by PIATCO to the Government are in
Philippine currency under the 1997 Concession
Agreement, PIATCO is able to enjoy the benefits of
depreciations of the Philippine Peso, while being effectively
insulated from the detrimental effects of exchange rate
fluctuations.
_______________
41 Referred to as „Passenger Service Fee‰ under the draft Concession
Agreement.
42 Section 6.05 Interim Adjustment
(a) Concessionaire may apply for and, if warranted, may be granted

an interim adjustment of the fees and charges constituting
Public Utility Revenues upon the occurrence of extraordinary
events resulting from any of the following:
i. a depreciation since the last adjustment by at least fifteen

percent (15%) of the value of the Philippine Peso relative to the
US Dollar using the exchange rates published by the Philippine
Dealing System as reference;
ii. an increase since the last adjustment by at least fifteen percent
(15%) in the Metro Manila Consumer Price Index based on
National Census and Statistics Office publications;
iii. an increase since the last adjustment in MERALCO power rates
billing by at least fifteen percent (15%); iv. an increase since the
last adjustment in the 180-day Treasury Bill interest rates by at
least thirty (30%).
....
43 Section 6.05, draft Concession Agreement.

44 Section 1.33, 1997 Concession Agreement.
661
VOL. 402, MAY 5, 2003 661

Inc.
When taken as a whole, the changes under the 1997

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

PIATCO in the event of the latterÊs 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 PIATCOÊs 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.

....
(b) In the event Concessionaire should default in the

payment of an Attendant Liability, and the default has
resulted in the acceleration of
662

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 GRPÊs 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 PIATCOÊs liabilities, i.e., when the
Government so elects and allows a qualified operator to
663
VOL. 402, MAY 5, 2003 663

Inc.
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 45 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
_______________
45 Supra note 31.
664

Inc.
excludes any of these factors destroys the distinctive

character46 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.
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 47
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.
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 exist-
_______________
46 Malaga v. Penachos, Jr., G.R No. 86695, September 3, 1992, 213
SCRA 516, 526.

47 A. Cobacha & D. Lucenario, LAW ON PUBLIC BIDDING AND
GOVERNMENT CONTRACTS 6-7 (1960).
665
VOL. 402, MAY 5, 2003 665

Inc.
ing 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

....
(b) In the event Concessionaire should default in the

payment of an Attendant Liability, and the default
resulted in the acceleration of the payment due date of
the Attendant Liability prior to its stated date of
maturity, the Unpaid Creditors and Concessionaire shall
immediately inform GRP in writing of such default. GRP
shall within one hundred eighty (180) days from receipt
of the joint written notice of the Unpaid Creditors and
Concessionaire, either (i) take over the Development
Facility and assume the Attendant Liabilities, or (ii) allow
the Unpaid Creditors, if qualified to be substituted as
concessionaire and operator of the Development facility
in accordance with the terms and conditions hereof, or
designate a qualified operator acceptable to GRP to
operate the Development Facility, likewise under the
terms and conditions of this Agreement; Provided, that if
at the end of the 180-day period GRP shall not have
served the Unpaid Creditors and Concessionaire written
notice of its choice, GRP shall be deemed to have elected
to take over the Development Facility with the
concomitant assumption of Attendant Liabilities.
(c) If GRP, by written notice, allow the Unpaid Creditors to
be substituted as concessionaire, the latter shall form
and organize a concession company qualified to takeover
the operation of the Development Facility. If the
concession company should elect to designate an operator
for the Development Facility, the concession company
shall in good faith identify and designate a qualified
operator acceptable to GRP within one hundred eighty
(180) days from receipt of GRPÊs 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.
....
666

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 48Concessionaire to its
suppliers, contractors and subcontractors.
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‰49
of PIATCO
which the latter owes to its creditors. These amounts
include „all interests, penalties, associated fees, charges,
surcharges, indemnities,
50
reimbursements and other
related expenses.‰ This obligation of the Government to
pay PIATCOÊs creditors upon PIATCOÊs 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 PIATCOÊs
unpaid creditors operate NAIA IPT III, the Government is
still at a risk of being liable to PIATCOÊs creditors should
the latter be unable to designate 51
a qualified operator
within the prescribed period. In effect, whatever option
the Government chooses to take in the event of PIATCOÊs
failure to fulfill its loan obligations, the Government is still
at a risk of assuming PIATCOÊs outstanding loans. This is
due to the fact that the Government would only be free
from assuming PIATCOÊs debts if the unpaid creditors
would be able to designate a qualified operator within the
period provided for in the contract. Thus, the GovernmentÊs
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.
_______________
49 Concession Agreement, Art. 4, Sec. 4.04 (b) and (c), Art. 1, Sec.
1.06, July 12, 1997.
50 Ibid.
51 Id., at Art. 4, Sec. 4.04 (c).
667
VOL. 402, MAY 5, 2003 667

Inc.
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,
52
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
53
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.
Section 2(n) of the BOT Law defines direct guarantee as follows:

(n) Direct government guarantee·An agreement whereby the
government or any of its agencies or local government units
assume responsibility for the repayment of debt directly incurred
by the project proponent in implementing the project in case of a
loan default.
Clearly by providing that the Government „assumes‰ the

attendant liabilities, which consists of PIATCOÊs unpaid
debts, the 1997 Concession Agreement provided for a direct
government guarantee for the debts incurred by PIATCO
in the implementation of the NAIA IPT III project. It is of
no moment that the relevant sections are subsumed under
the title of „assignment‰. The provisions providing for
direct government guarantee which is prohibited by law is
clear from the terms thereof.
The fact that the ARCA superseded the 1997 Concession
Agreement did not cure this fatal defect. Article IV, Section
4.04(c), in relation to Article I, Section 1.06, of the ARCA
provides:
Section 4.04. Security

....
_______________
52 Record of the Senate Second Regular Session 1993-1994, vol. III, no. 42, p.
362.
53 Republic Act No. 7718, Secs. 2 and 4-A, Implementing Rules and
Regulations, Rule 11, Secs. 11.1 and 11.3.
668

(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:
....
(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 LendersÊ 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 ConcessionaireÊs [PIATCO]
rights and obligations under this Agreement to a
transferee which is qualified under sub-clause (viii)
below;
....
(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;
....
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
669
VOL. 402, MAY 5, 2003 669

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
54
sub-contractors.
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 PIATCOÊs debt that the
Government would have to pay as a result of PIATCOÊs
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
55
payable at maturity, by
acceleration or otherwise.‰
It is clear from the foregoing that the ARCA provides for
a direct guarantee by the government to pay PIATCOÊs
loans not only to its Senior Lenders but all other entities
who provided PIATCO funds or services upon PIATCOÊs
default in its loan obligation with its Senior Lenders. The
fact that the GovernmentÊs obligation to pay
_______________
54 Emphasis and caption supplied.

55 Sec. 1.06, ARCA.
670

Inc.
PIATCOÊs lenders for the latterÊs 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 PIATCOÊs debts is triggered by
PIATCOÊs 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 PIATCOÊs 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 PIATCOÊs 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 governmentÊs 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 PIATCOÊs loans should the conditions as set forth
in the ARCA arise. This is a form of direct government
guarantee.
671
VOL. 402, MAY 5, 2003 671

Inc.
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
56
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. It is
further provided that the presence of direct government
guarantee, subsidy or equity will „necessarily disqualify a
proposal from
57
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.
This Court has long and consistently adhered to the
legal maxim that those
58
that cannot be done directly cannot
be done indirectly.
_______________
56 Republic Act No. 7718, as amended, Sec. 4-A, May 5, 1994;
Implementing Rules and Regulations, Rule 10, Sec. 10.1.

57 Implementing Rules and Regulations, Rule 10, Sec. 10.4.
58 North Negros Sugar Co., Inc. v. Hidalgo, G.R. No. 42334, October
31, 1936; Intestate estate of the deceased Florentino San Gil. Josefa R.
Oppus v. Bonifacio San Gil, G.R. No. 48115, October 12, 1942; San
Diego v. Municipality of Naujan, G.R. No. L-9920, February 29, 1960;
Favis vs. Municipality of Sabañgan, G.R. No. L-26522, 27 February
1969, 27 SCRA 92; City of Manila vs. Tarlac Development Corporation,
L-24557, L-24469 & L-24481, 31 July 1968, 24 SCRA 466; In the matter
of the Petition for Declaratory Judgment on Title to Real Property
(Quieting of Title) Pechueco Sons Company v. Provincial Board of
Antique, G.R. No. L-27038, January 30, 1970, 31 SCRA 320; Fornilda v.
The Branch 164, Regional
672

Inc.
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
59
infrastructure and development projects‰ which are
necessary for national growth and development but which
the government, unfortunately, could illafford 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
60
proportion that would paralyze government
service.‰ The duration of the emergency itself is the
determining factor as to how long
61
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
_______________
Trial Court IVth Judicial Region, Pasig, G.R. No. L-72306, October 5,
1988, 166 SCRA 281; Laurel v. Civil Service Commission, G.R. No.
71562, October 28, 1991, 203 SCRA 195; Davac v. Court of Appeals, G.R.
No. 106105, April 21, 1994, 231 SCRA 665.
59 Republic Act No. 7718, Sec. 1.
60 III Record of the Constitutional Commission, pp. 266-267 (1986).
61 Id.
673
VOL. 402, MAY 5, 2003 673

Inc.
the government is not required to compensate the private

entityowner of the said business as there is no transfer of
ownership, whether permanent or temporary. The private
entity-owner affected by the temporary takeover cannot,
likewise, claim just compensation for the use of the said
business and its properties as the temporary takeover by
the government is in exercise of its police power and not of
its power of eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession
Agreement provides:
Section 5.10. Temporary Take-over of operations by GRP.

....
(c) In the event the development Facility or any part thereof
and/or the operations of Concessionaire or any part thereof,
become the subject matter of or be included in any notice,
notification, or declaration concerning or relating to acquisition,
seizure or appropriation by GRP in times of war or national
emergency, GRP shall, by written notice to Concessionaire,
immediately take over the operations of the Terminal and/or the
Terminal Complex. During such take over by GRP, the
Concession Period shall be suspended; provided, that upon
termination of war, hostilities or national emergency, the
operations shall be returned to Concessionaire, at which time,
the Concession period shall commence to run again.
Concessionaire shall be entitled to reasonable compensation for
the duration of the temporary take over by GRP, which
compensation shall take into account the reasonable cost for the
use of the Terminal and/or Terminal Complex, (which is in the
amount at least equal to the debt service requirements of
Concessionaire, if the temporary take over should occur at the
time when Concessionaire is still servicing debts owed to project
lenders), any loss or damage to the Development Facility, and
other consequential damages. If the parties cannot agree on the
reasonable compensation of Concessionaire, or on the liability of
GRP as aforesaid, the matter shall be resolved in accordance
with Section 10.01 [Arbitration]. Any amount determined to be
payable by GRP to Concessionaire shall be offset from the
62
amount next payable by Concessionaire to GRP.
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
_______________
62 Except for providing for the suspension of all payments due to the
Government for the duration of the takeover, Article V, Section 5.10(b) of

the ARCA contains the same provision. Emphasis and caption supplied.
674

Inc.
63
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 is64 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 65
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.
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 66
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. 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 carry-
_______________
63 Id.
64 Bataan Shipyard and Engineering Co., Inc. v. Presidential
Commission on Good Government, G.R. No. 75885, May 27, 1987, 150
SCRA 181; citing Freund, The Police Power (Chicago, 1904).
65 Genuino v. Court of Agrarian Relations, G.R. No. L-25035,
February 26, 1968, 22 SCRA 792.

66 BlackÊs Law Dictionary, 4th Ed., p. 1158.
675
VOL. 402, MAY 5, 2003 675

Inc.
ing on an enterprise or to aid in the performance of various 67

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.
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 68terminal
within the Island of Luzon‰ at the NAIA IPT III. 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‰), 69
Clark Special
Economic Zone („CSEZ‰) and in Laoag City. As such, upon
commencement of PIATCOÊs 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 70latterÊs operation as an
international passenger terminal. The right granted to
PIATCO to exclusively operate NAIA IPT III would be for a
71
period of twenty-five (25) years from the In-Service Date
and renewable for another 72twenty-five (25) years at the
option of the government. 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
_______________
67 36 Am Jur 480 citing Slaughter-House Cases, 16 Wall. (US) 36, 21
L ed 394.
68 Concession Agreement („CA‰) dated July 12, 1997, Art. III, Sec.
3.02(a); Amended and Restated Concession Agreement („ARCA‰) dated

November 26, 1998, Art. III, Sec. 3.02(a).
69 Ibid.
70 Id., at CA, Art. III, Sec. 3.02(b); ARCA, Art. III, Sec. 3.02(b).
71 The day immediately following the day on which the Certificate of

Completion is issued or deemed to be issued.
72 Id., at CA, Art. III, Sec. 3.01(a) and (b); ARCA, Art. III, Sec. 3.01 (a)
and (b).
676

Inc.
are subsequent to the In-Service Date would cease to be

73
effective on the said date.
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 74
as DOTC, the
department to which MIAA is attached.
This is in accord with the Constitutional mandate that a75
monopoly which is not prohibited must be regulated.
While it is the declared policy of the BOT Law to encourage
private sector participation by „providing
76
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. PIATCOÊs
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

....
_______________
73 Id., at CA, Art. Ill, Sec. 3.01(d) and (e); ARCA, Art. III, Sec. 3.01(d) and (e).
74 Executive Order No. 903, as amended, Sec. 4 (b) and (c).
75 Art. XII, Sec. 19, Philippine Constitution.
76 Republic Act No. 7718, Sec. 1.
677
VOL. 402, MAY 5, 2003 677

(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 carryover 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
ConcessionaireÊs 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
77
remains valid
until 2008 and the other until 2010.
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 IIIÊs 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
78
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.
In fine, the efficient functioning of NAIA IPT III is
imbued with public interest. The provisions of the 1997
Concession Agreement
_______________
77 Transcript of Oral Arguments, p. 157, December 10, 2002.

78 G.R. No. L-54958, September 2, 1983, 124 SCRA 494.
678

Inc.
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
79
government agency tasked with the job, it is MIAAÊs
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 Sup-
_______________
79 Executive Order No. 903, July 21, 1983, provides:
Section 5. Functions, Powers, and Duties.·The Authority shall have the

following functions, powers and duties:
...
(b) To control, supervise, construct, maintain, operate and provide such

facilities or services as shall be necessary for the efficient functioning of
the Airport;
(c) To promulgate rules and regulations governing the planning,
development, maintenance, operation and improvement of the Airport
and to control and/or supervise as may be necessary the construction of
any structure or the rendition of any service within the Airport;
...
679
VOL. 402, MAY 5, 2003 679

Inc.
plements, being accessory contracts to the ARCA, are

likewise null and void.
WHEREFORE, the 1997 Concession Agreement, the
Amended and Restated Concession Agreement and the
Supplements thereto are set aside for being null and void.
SO ORDERED.
Davide, Jr. (C.J.), Bellosillo, Ynares-Santiago,

Sandoval-Gutierrez, Austria-Martinez, Corona and Carpio-
Morales, JJ., concur.
Vitug, J., Please see Separate (Dissenting) Opinion.
Panganiban, J., Please see Separate Opinion.
Quisumbing, J., No Jurisdiction. Please see
separate opinion of Justice Vitug in which I concur.
Carpio, J., No part.
Callejo, Sr., J., Also concur with the separate
opinion of Justice Panganiban.
Azcuna, J., I join the Separate Opinion of Justice
Vitug.
SEPARATE OPINION
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,
1
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.
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
_______________
1 Article VIII, Section 5(1), 1987 Constitution.
680

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
2
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 of3 the contradictory factual submissions made
by the parties. 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 4 for a
declaration of his rights or duties thereunder. The
Supreme Court assumes no jurisdiction over petitions for
declaratory
5
relief which are cognizable by regional trial
courts.
As I have so expressed in Tolentino vs. Secretary of
6 7
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
_______________
2 Matuguina Integrated Products, Inc. vs. Court of Appeals, 263 SCRA
490 (1996); Mafinco Trading Corporation vs. Ople, 70 SCRA 139 (1976).
3 Mafinco Trading Corporation vs. Ople, supra.
4 Section 1, Rule 63, Rules of Court.
5 In re: Bermudez, 145 SCRA 160 (1988).
6 235 SCRA 630, 720 (1994).
7 298 SCRA 795 (1998).
681
VOL. 402, MAY 5, 2003 681

Inc.
of powers. The Court may not at good liberty intrude, in

the guise of sovereign imprimatur, into every affair of
government. What significance can still then remain of the
time-honored and widely acclaimed principle of separation
of powers if, at every turn, the Court allows itself to pass
upon at will the disposition of a co-equal, independent and
coordinate branch in our system of government. I dread to
think of the so varied uncertainties that such an undue
interference can lead to.
Accordingly, I vote for the dismissal of the petition.
SEPARATE OPINION
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 countryÊs premiere international
airport terminal·an ultra-
682

Inc.
modern world-class public utility that will play a major

role in the countryÊs 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 1they have gravely
abused the discretion entrusted to them.
Hierarchy of Courts
The Court has, in the past, held that questions relating to
gargantuan government
2
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
_______________
1 See Kilosbayan, Inc. v. Guingona, Jr., 232 SCRA 110, May 5, 1994;
and Basco v. Phil. Amusements and Gaming Corporation, 197 SCRA 52,
May 14, 1991.
2 Commission on Elections v. Quijano-Padilla, G.R. No. 151992,
September 18, 2002, 389 SCRA 353.
683
VOL. 402, MAY 5, 2003 683

Inc.
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 3 the special civil action of prohibition is thus
justified.
Contrary to PiatcoÊs argument that the resolution of the
issues raised in the4
Petitions will require delving into
factual questions, I submit that 5
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.
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.
6
Presidential Commission on Good Government: „The void
agreement will not be rendered operative by the partiesÊ
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
_______________
3 Vide: ABS-CBS Broadcasting Corp. v. Commission on Elections, 323
SCRA 811, January 28, 2000; likewise, Commission on Elections v.

Quijano-Padilla, supra.
4 See Respondent PIATCOÊs Memorandum, pp. 25-26.
5 See public respondentsÊ Memorandum, p. 24.
6 307 SCRA 394, 399, May 19, 1999, per Panganiban, J.
684
Inc.
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 CourtÊs 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
7
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 countryÊs 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, petitionersÊ
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
_______________
7 175 SCRA 264, July 11, 1989.
685
VOL. 402, MAY 5, 2003 685

Inc.
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. Guin-
686

Inc.
8
gona, 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
9
party claiming the right of judicial review.‰
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,‰
10
which is the subject of Section 4-
A of the BOT Law. The unsolicited proposal was originally
submitted by the AsiaÊs 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. PiatcoÊs predecessor-in-
_______________
8 Supra, Paras, J.
9 As reiterated in Bayan (Bagong Alyansang Makabayan) v. Zamora,
342 SCRA 449, 480-481, October 10, 2000.
10 RA No. 6957 as amended by RA No. 7718.
687
VOL. 402, MAY 5, 2003 687

Inc.
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.·x x x

„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. x x x.‰
(Emphasis supplied.)
The same provision requires that the price challenge via

public bidding „must be conducted under a two-
envelope/two-stage system: the first envelope to contain the
technical proposal and the second envelope to contain the
financial proposal.‰ Moreover, the 1994 Implementing
Rules and Regulations (IRR) provide that only those
bidders that have passed the prequalification stage are
permitted to have their two envelopes reviewed.
In other words, prospective bidders must prequalify by
submitting their prequalification documents for
evaluation; and only the pre-qualified bidders would be
entitled to have their bids opened, evaluated and
appreciated. On the other hand, disqualified bidders are to
be informed of the reason for their disqualification. This
procedure was confirmed and reiterated in the Bid
Documents, which I quote thus: „Prequalified proponents
will be considered eligible to move to second stage technical
proposal evaluation. The second and third envelopes of pre-
11
disqualified proponents will be returned.‰
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 capa-
_______________
11 Par. 3.6.1 on page 8 of the Bid Documents.
688

Inc.
bility, 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. x x x.‰ (Italics supplied)
Since the minimum12

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.
However, the combined equity or net worth of 13
the
Paircargo consortium stood at only P558,384,871.55. This
amount was only
_______________
12 Initially the minimum equity was set at 20%, per Sec. 3.6.4 of the
Bid Documents. However, this was later clarified in Bid Bulletin No.
3(B)(6) to read 30% of Project Cost, to bring the same in line with the
draft concession agreementÊs Art. II Sec. 2.01 (a), which specifically set
the projectÊs debt-to-equity ratio at 70:30, thereby requiring a minimum
equity of 30% of project cost.
13 The consortium was composed of Paircargo, PAGS and Security
Bank. PaircargoÊs audited financial statements as of 1993 and 1994

showed a net worth of P2,783,592 and P3,123,515 respectively. PAGSÊ
audited financial statements as of 1995 showed a paid-up capital of
P5,000,000 and deposits on future subscriptions of P21,735,700, or an
aggregate of P26,735,700 of equity available to invest in the project.
Security BankÊs audited statements for 1995 showed a net worth of
689
VOL. 402, MAY 5, 2003 689

Inc.
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 ÂunrestrictedÊ. 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 CalÊs 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 CourtÊs consistent
_______________
P3,523,504,377. However, the bankÊs entire net worth was not

available for investment in the project since Sec. 21-B of the General
Banking Act provides inter alia that a commercial bankÊs equity
investment in any one enterprise, whether allied or non-allied, should
not exceed 15% of the net worth of the investing bank. This limitation is
reiterated in Sec. 1381.1.a. of the Manual for Banks and Other
Financial Intermediaries. Thus, the maximum amount which Security
Bank could have legally invested in the project was only
P528,525,656.55. And consequently, the maximum amount of equity
which the consortium could have put up was only P558,384,871.55.
690

Inc.
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
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
15
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.
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 16
proposals; required AEDC to match the consortiumÊs bid;
or awarded the Concession Agreement to the consortiumÊs
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 PaircargoÊs successor Piatco was void, and the
Concession Agreement executed with the latter was
likewise void ab initio. For this reason, Piatco cannot17 and
should not be allowed to benefit from that Agreement.
_______________
14 199 SCRA 134, July 12, 1991.

15 Malaga v. Penachos, Jr., 213 SCRA 516, September 3, 1992.
16 Part of the bid process under the BOT Law is the right of the
originator of an unsolicited proposal to match a price challenge.

Pursuant to Sec. 4-A, „in the event another proponent submits a lower
price proposal, the original proponent shall have the right to match that
price within thirty (30) working days.‰
17 Cf. Malaga v. Penachos, Jr., supra.
691
VOL. 402, MAY 5, 2003 691
Inc.
AEDC Was Deprived of the Right to Match PIATCOÊs 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 latterÊs 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
governmentÊs 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
18
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 §11.2, 1994 IRR.
692

Inc.
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 competitorÊs 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 challengerÊs 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
693
VOL. 402, MAY 5, 2003 693

Inc.
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
694

Inc.
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
19
presentation made by
the counsel for public respondents, 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 NEDAÊs 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 NEDAÊs approval, or the
28th of January 1997. In any case, even if it were to be assumed
that the release of NEDAÊs 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 CourtÊs
20
solemn
pronouncement in Republic v. Capulong that „strict
observance of the rules, regulations and guidelines
_______________
19 Public respondentsÊ Memorandum, pp. 86-87; prepared jointly by
the Solicitor General, the acting Government Corporate Counsel, and

their respective deputies and assistants.
20 Supra, note 14, per Medialdea, J.
695
VOL. 402, MAY 5, 2003 695

Inc.
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 21services for international airlines
and passengers.
2. The CA provided that government is to answer for
PiatcoÊs unpaid loans and debts (lumped under the
term Attendant Liabilities) in the event Piatco fails
22
to pay its senior lenders.
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
23
project plus the appraised value of
the Terminal.
_______________
21 §§3.01(d), 3.01(e), 3.02(a), 3.02(b) and 5.15 of the CA.

22 See §1.06 of the CA.
23 §3.02 of the CA.
696

Inc.
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 governmentÊs expense for construction
of road networks required by PiatcoÊs approved
plans and specifications; and assistance to Piatco in
securing site utilities, as well as 24all necessary
permits, licenses and authorizations.
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 MIAAÊs approval or intervention.
Neither are the adjustments to these fees and
charges 25subject to or limited by any parametric
formula.
7. Section 1.29 of the DCA provides that the terminal
fees, aircraft tacking fees, aircraft parking fees,
check-in
_______________
24 §2.05 of the CA.

25 The parametric formula referred to in the CA applies only to the
following so-called public utility fees: aircraft parking and tacking fees,
check-in counter fees and terminal fees.
697
VOL. 402, MAY 5, 2003 697

Inc.
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 contractorÊs breach, rescind
the contract and select one of four options: (a) take
over the terminal and assume all its attendant
liabilities; (b) allow the contractorÊs 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 PiatcoÊs breach of contract or
its inability to pay its creditors, government is
obliged to either (a) take over Terminal III and
assume all of PiatcoÊs 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 governmentÊs breach of contract, Piatco
may compel it to purchase the terminal at fair
market value, per Section 8.06(b) of the CA.
698

Inc.
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
26
pertaining to public bidding demand strict
observance. 27
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
28
bidding.‰
_______________
26 Fernandez, A Treatise on Government Contracts under Philippine
Law, 2001 ed., p. 70.

27 96 Phil. 368, December 29, 1954.
28 Id., p. 375, per Paras, CJ.
699
VOL. 402, MAY 5, 2003 699

Inc.
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. 29
In a later case, Mata v. San Diego, this Court
reiterated its ruling as follows:
„It is true that modification of government contracts, after the

same had been awarded after a public bidding, is not allowed
because such modification serves to nullify the effects of the
bidding and whatever advantages the Government had secured
thereby and may also result in manifest injustice to the other
bidders. This prohibition, however, refers to a change in vital and
essential particulars of the agreement which results in a
substantially new contract.‰
PiatcoÊs 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
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
challengerÊs bid.
_______________
29 63 SCRA 170, 177-178, March 21, 1975, per Antonio, J.
700

Inc.
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.
PiatcoÊs 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 PiatcoÊs books or loans whose proceeds
30
were actually used in the Terminal III project.
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
31
to take over the operation of
the terminal.
_______________
30 Cf §1.06 of the ARCA vis-à-vis §1.06 of the CA.

31 §4.04 and 8.01 of the ARCA vis-à-vis §8.04 of the CA.
701
VOL. 402, MAY 5, 2003 701

Inc.
3. The Liquidated Damages which government

becomes liable for in case of 32its breach of contract
were substantially increased.
4. GovernmentÊs right to appoint a comptroller for
Piatco in case the 33latter encounters liquidity
problems was deleted.
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 34
the special
obligations imposed on government.
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 35
and
rehabilitate the facility in case of damage.
7. Government bound itself to set the initial rate of
the terminal fee, to be charged when Terminal III
begins 36operations, at an amount higher than
US$20.
8. Government waived its defense of the illegality of
the contract and even agreed to be liable to pay
damages to Piatco 37
in the event the contract was
declared illegal.
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 38the termination occurs before the In-
Service Date. This condition contravenes the BOT
Law provision on termination compensation.
10. Government is obligated to take the administrative
action required for PiatcoÊs imposition, collection
and applica
_______________
32 As cf. Annex „G‰ of the ARCA vis-à-vis Annex „G‰ of the CA.
33 Cf. §8.04(d) of the ARCA vis-à-vis §9.01 (d) of the CA.
34 Cf §2.05 of the ARCA vis-à-vis §2.05 of the CA.
35 Cf §5.08(a) of the ARCA vis-à-vis §5.08(a) of the CA
36 Cf. §6.03(a) (i) of the ARCA vis-à-vis §6.03(a) of the CA.
37 Cf §8.01(b) and §12.09 of the ARCA vis-à-vis §8.04(b) and 12.09 of
the CA.
38 Cf §8.03(a) (i) of the ARCA vis-à-vis §8.06(a) (i) of the CA.
702

Inc.
39
tion of all Public Utility Revenues. 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 interests40to be created in favor
of PiatcoÊs Senior Lenders. No such obligation
existed previously.
12. DOTC/MIAAÊs right of intervention in instances
where PiatcoÊs Non-Public Utility Revenues 41
become
exorbitant or excessive has been removed.
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
42
a ground for Piatco to terminate the
ARCA.
14. Amounts due from and payable by government
under the contract were made payable on demand
·net of taxes, levies, imposts, duties, charges or
43
fees of any kind except as required by law.
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, checkin 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 precondition for 44
governmentÊs
acceptance of the terminal facility.
_______________
39 §2.05(g) of the ARCA.

40 §4.04(b) of the ARCA.
41 §6.03(c) of the ARCA vis-à-vis §6.03(c) of the CA.
42 Cf §8.01 (b) of the ARCA vis-à-vis §8.04(b) of the CA.
43 §12.14 of the ARCA.
44 Cf. §§1.11(b) and 5.06 of the ARCA vis-à-vis §§1.11(b) and 5.06 of
the CA.
703
VOL. 402, MAY 5, 2003 703

Inc.
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 45
in which government is supposed
to participate.
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
_______________
45 §2 of the FS, amending §1.36 of the ARCA.
704

Inc.
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 PiatcoÊs obligations, since they are part and
parcel of the project46 as described in Clause 1.3 of
the Bid Documents.
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 latterÊs 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 47
done by
Piatco on account of the formerÊs default.
4. The FS also imposed on government ten (10)
„Additional Special Obligations,‰ including the
following:
(a) Working for the removal of the general 48

aviation
traffic from the NAIA airport complex
(b) Providing through MIAA the land required by
Piatco for49
the taxilane and one taxiway at no cost
to Piatco
(c) Implementing the governmentÊs
50
existing storm
drainage master plan
(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
51
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
_______________
46 §3 of the FS, amending §2.05(d) of the ARCA.

47 Ibid.
48 §4 of the FS, adding §2.05(h) to ARCA.
49 §4 of the FS, adding §2.05(i) to ARCA.
50 §4 of the FS, adding §2.05(p) to ARCA.
51 Per §4 of the FS, adding §2.05(n) to ARCA.
705
VOL. 402, MAY 5, 2003 705
Inc.
Interchange; and 52
removal of squatters along
Andrews Avenue.
(e) Dealing directly with BCDA and the Phil. Air Force
in acquiring additional land or right of way
53
for the
road upgrade and improvement program.
5 . Government is required to work for the immediate

reversion to MIAA of the Nayong Pilipino National
54
Park.
6. GovernmentÊs share in the terminal fees collected
was revised from a flat rate of P180 to 36 percent
thereof; together with governmentÊs percentage
share in the gross revenues of Piatco, the amount
will be remitted
55
to government in pesos instead of
US dollars. 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
56
are to accrue to
the latterÊs exclusive benefit. 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.
_______________
52 Per §4 of the FS, adding §2.05(o) to ARCA.

53 Per §4 of the FS, adding §2.05(p) to ARCA.
54 Per §4 of the FS, adding §2.05(j) to ARCA.
55 §8 of the FS, amending §6.01(c) of the ARCA.
56 §9 of the FS, amending §6.02 of the ARCA.
706

Inc.
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
governmentÊs stead·the clearing, removal, demolition and
disposal of improvements, subterranean
57
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 highranking 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
_______________
57 § 2.1 of the SS.
707
VOL. 402, MAY 5, 2003 707

Inc.
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 PiatcoÊs 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
58
site where the T2-T3
road is to be constructed. 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
governmentÊs behalf, subject to the terms and
conditions (including compensation 59
payments)
contained in the Second Supplement.
3. MIAA will answer for the operation,
60
maintenance
and repair of the T2-T3 Road.
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 pub-
_______________
58 Per §3.1 of the TS.

59 Vide §3.4 of the TS.
60 §4.2 of the TS.
708

Inc.
lic 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 partiesÊ
arguments is the one creating an unauthorized, direct
government guarantee of PiatcoÊs obligations in favor of
the lenders.
Section 4-A of the BOT Law as amended states that
unsolicited proposals, such as the NAIA Terminal III
Project, may be accepted by government provided inter alia
that no direct government guarantee, subsidy or equity is
required. In short, such guarantee is prohibited in
unsolicited proposals. Section 2(n) of the same legislation
defines direct government guarantee as „an agreement
whereby the government or any of its agencies or local
government units (will) assume responsibility for the
repayment of debt directly incurred by the project
proponent in implementing the project in case of a loan
default.‰
Both the CA and the ARCA have provisions that
undeniably create such prohibited government guarantee.
Section 4.04 (c)(iv) to (vi) of the ARCA, which is similar to
Section 4.04 of the CA, provides thus:
„(iv) that if Concessionaire is in default under a payment

obligation owed to the Senior Lenders, and as a result thereof
the Senior Lenders have become entitled to accelerate the Senior
Loans, the Senior Lenders shall have the right to notify GRP of
the same x x x;
709
VOL. 402, MAY 5, 2003 709

Inc.
(v) x x x the Senior Lenders may after written notification to

GRP, transfer the ConcessionaireÊs rights and obligations to a
transferee x x x;
(vi) if the Senior Lenders x x x are unable to x x x effect a
transfer x x x, then GRP and the Senior Lenders shall endeavor
x x x to enter into any other arrangement relating to the
Development Facility x x x. 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. x x x.‰
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.‰
GovernmentÊs 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 PiatcoÊs 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 PiatcoÊs rights to a transferee of
their choice; and, second, an effort
710

Inc.
(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 LendersÊ 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
PiatcoÊs 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
61
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 governmentÊs
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.
_______________
61 Page 37.
711
VOL. 402, MAY 5, 2003 711
Inc.
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 ARCAÊs definition of
Attendant Liabilities.
Since no explanation has been forthcoming from Piatco
as to the possible justification for such a drastic change,
the only conclusion possible is that it intends to have all of
its debts covered by the guarantee, regardless of whether
or not they are disclosed in its books. This has particular
reference to those borrowings which were obtained in
violation of the loan covenants requiring Piatco to
maintain a minimum 70:30 debt-to-equity ratio, and even
if the loan proceeds were not actually used for the project
itself.
This point brings us back to the guarantee itself. In
Section 4.04(c)(vi) of ARCA, the amount which government
has guaranteed to pay as termination payment is the
greater of either (i) the Appraised Value of the terminal
facility or (ii) the aggregate of the Attendant Liabilities.
Given that the Attendant Liabilities may include
practically any Piatco debt under the sun, it is highly
conceivable that their sum may greatly exceed the
appraised value of the facility, and government may end up
paying very much more than the real worth of Terminal III
(So why did government have to bother with public bidding
anyway?)
In the final analysis, Section 4.04(c)(iv) to (vi) of the
ARCA is diametrically at odds with the spirit and the
intent of the BOT Law. The law meant to mobilize private
resources (the private sector) to take on the burden and the
risks of financing the construction, operation and
maintenance of relevant infrastructure and development
projects for the simple reason that government is not in a
position to do so. By the same token, government
guarantee was prohibited, since it would merely defeat the
purpose and raison dÊêtre 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
712

Inc.
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 partiesÊ mutual agreement
713
VOL. 402, MAY 5, 2003 713

Inc.
3. Termination by the proponent due to governmentÊs

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
proponentÊs 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 x x x;
(iii) x x x 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
62
a material breach of this Agreement x x
x.‰
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
PiatcoÊs 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
_______________
62 §8.01 (a) of the ARCA.
714

Inc.
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 of 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 x x x will x x x 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 LendersÊ 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
715
VOL. 402, MAY 5, 2003 715

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 PiatcoÊs obligations to
the government, in order to ensure that PiatcoÊs 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 gran-
716

Inc.
tor 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 partiesÊ (especially the government
officialsÊ) 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
63
exception of those three terminals already existing 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 x x x is a
Âterminal for public useÊ 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.
_______________
63 Namely, the airports at the Subic Bay Freeport Special Economic
Zone, the Clark Special Economic Zone, and Laoag City.
717
VOL. 402, MAY 5, 2003 717

Inc.
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 ÂExclusivityÊ

„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.
718

Inc.
PiatcoÊs contention that the Constitution does not actually

prohibit64 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.
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 latterÊs operations·until after Terminal III shall have
been operated at 65or beyond its peak capacity for three
consecutive years. 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 yearsÊ 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 x
x x 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.
_______________
64 Memorandum, pp. 5-7, of the petitioners-in-intervention.

65 §3.02 a): „x x x. With regard to CSEZ, GRP shall ensure that, until
such time as the Development Facility Capacity shall have been
consistently reached or exceeded for three (3) consecutive years during
the Concession Period, (i) Clark International Airport shall not be
operated beyond its design capacity of Eight Hundred Fifty Thousand
(850,000) passengers per annum and (ii) no new terminal facilities shall
be operated therein. „Development Facility Capacity‰ refers to the ten
million (10,000,000) passenger capacity per year of the Development
Facility.‰
719
VOL. 402, MAY 5, 2003 719

Inc.
The Piatco Contracts have come up with an innovative way

to circumvent the prohibition and obtain an extension.
This fact can be gleaned from Section 8.03(b) of the ARCA,
which I quote thus:
„Sec. 8.03. Termination Procedure and Consequences of

Termination.·
a) x x x xxx xxx
b) In the event the Agreement is terminated pursuant to
Section 8.01(b) hereof, Concessionaire shall be entitled to
collect the Liquidated Damages specified in Annex ÂGÊ.
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 Âas-is-where-isÊ 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 driverÊs 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
720

Inc.
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
66
to be operated as an international passenger
terminal; that NAIA 67
Terminals I and II will no longer be
operated as such; and that no one (including the
government) will be allowed to compete with Piatco in the
operation of an68 international passenger terminal in the
NAIA Complex. Given that, at this time, the government
and Piatco are the only ones engaged in the business of
operating an international passenger terminal, I am not
acutely concerned with this particular monopolistic
situation.
There was however another monopoly within the NAIA
created by the subject contracts for Piatco·in the business
of providing international airlines with the following:
groundhandling, in-flight catering, cargo handling, and
aircraft repair and maintenance
_______________
66§3.02(a) of the ARCA and §3.02(a) of the CA.

67§3.02(b) and (c) of the ARCA, and §3.02(b) of the CA.
68 §3.02(b) and (c) of the ARCA and §3.02(b) of the CA. Pertinent
portions of §3.02(b) of the ARCA are quoted hereinbelow:
„(b) On the In-Service Date, GRP shall cause the closure of the Ninoy Aquino
International Airport Passenger Terminals I and II as international passenger
terminals in order to allow Concessionaire, during the entire Concession Period,
to exclusively operate a commercial international passenger terminal within the
island of Luzon; provided that the aforesaid exclusive right to operate a
commercial international passenger terminal shall be without prejudice to the
international passenger terminal operations already existing on the date of this
Agreement in SBFSEZ, CSEZ and Laoag City (but subject to the limitation with
regard to CSEZ referred to in Section 3.02[a]). Neither shall GRP, DOTC or MIAA
use or permit the use of Terminals I and/or II under any arrangement or scheme,
for compensation or otherwise, with any party which would directly or indirectly
compete with Concessionaire in the latterÊs operation of and the operations in the
Terminal and Terminal Complex, including without limitation the use of
Terminals I and/or II for the handling of international traffic; provided that if
Terminals I and/or II are operated as domestic passenger terminals, the conduct
of any activity therein which under the ordinary course of operating a domestic
passenger terminal is normally undertaken, shall not be considered to be in
direct or indirect competition with Concessionaire in its operation of the
Development Facility.‰
721
VOL. 402, MAY 5, 2003 721

Inc.
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
implementation69 of the70 Piatco Contracts, particularly
Sections 3.01(d) and (e) 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
_______________
69 Sec. 3.01(d) of the ARCA and the CA reads as follows:
„(d) For the purpose of an orderly transition, MIAA shall not renew any expired
concession agreement relative to any service or operation currently being
undertaken at the Ninoy Aquino International Airport Passenger Terminal I, or
extend any concession agreement which may expire subsequent hereto, except to
the extent that the continuation of existing services and operations shall lapse on
or before the In-Service Date. Nothing herein shall be construed to prohibit
MIAA from maintaining arrangements for the uninterrupted provision of
essential services at the Ninoy Aquino International Airport Passenger Terminal
I until the Terminal shall have commenced operations on the In-Service Date,
and thereafter, from making such arrangements as are necessary for the
utilization of NAIA Passenger Terminal I as a domestic passenger terminal or as
a facility other than an international passenger terminal.
70 Sec. 3.01(e) of the ARCA and the CA reads as follows:
„(e) GRP confirms that certain concession agreements relative to certain services
or 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 that 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
a full indemnity basis from and against any loss and/or liability resulting from
any such litigation, including the cost of litigation and the reasonable fees paid or
payable to ConcessionaireÊs counsel of choice, all such amounts being fully
deductible by way of an offset from any amount which Concessionaire is bound to
pay GRP under this Agreement.‰
722

Inc.
requires government, through the MIAA, not to allow

service providers with expired MIAA contracts to renew or
extend their contracts to render airport-related services to
airlines. Meanwhile, Section 3.01(e) of the ARCA requires
government, through the DOTC and MIAA, not to allow
service providers·those with subsisting concession
agreements for services and operations being conducted at
Terminal I·to carry over their concession agreements,
services and operations to Terminal III, unless they first
enter into a separate agreement with Piatco.
The aforementioned provisions vest in Piatco effective
and exclusive control over which service provider may and
may not operate at Terminal III and render the airport-
related services needed by international airlines. It
thereby possesses the power to exclude competition. By
necessary implication, it also has effective control over the
fees and charges that will be imposed and collected by
these service providers.
This intention is exceedingly clear in the declaration by
Piatco that it is „completely within its rights to exclude any
party 71
that it has not contracted with from NAIA Terminal
III.‰
Worse, there is nothing whatsoever in the Piatco
Contracts that can serve to restrict, control or regulate the
concessionaireÊs 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, ready72 to exploit the unique business opportunity. It
announced 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 73
Philippine Airport and Ground Services, Inc. or PAGS,
while Orbit is a
_______________
71 PIATCO Comment, par. 9, on p. 6.

72 PIATCO letter dated October 14, 2002 addressed to the Board of
Airline Representatives, copy attached as Annex „OO-Service

Providers.‰
73 Based on the PAGSGlobeground GIS as of July 2000, attached as
Annex „LL-Service Providers‰ to the Memorandum of petitioners-in-

intervention.
723
VOL. 402, MAY 5, 2003 723

Inc.
74
wholly-owned subsidiary of Friendship Holdings, 75
Inc.,
which is in turn owned 80 percent by PAGS. PAGS is a 76
service provider owned 60 percent by the Cheng77
Family;
it is a stockholder of 35 percent of Piatco and is the
latterÊs
78
designated contractor-operator for NAIA Terminal
III.
Such entry into and domination of the airport-related
services sector appear to be very much in line with the
following provisions contained in the79
First Addendum to
the Piatco Shareholders Agreement, executed on July 6,
1999, which appear to constitute a sort of master plan to
create a monopoly and combinations in restraint of trade:
„11. The Shareholders shall ensure:
a. x x x xxx x x x;
b. That (Phil. Airport and Ground Services, Inc.) PAGS
and/or its designated Affiliates shall, at all times during
the Concession Period, be exclusively authorized by
(PIATCO) to engage in the provision of groundhandling,
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.
80
Secretary of the Department of Energy, the Court ruled:
_______________
74 Based on the Orbit GIS as of August 2000, attached as Annex
„MM-Service Providers‰ to the Memorandum of petitioners-in-

intervention.
75 Based on the Friendship Holdings, Inc. GIS as of December 2001,
attached as Annex „NN-Service Providers‰ to the Memorandum of

petitioners-in-intervention.
76 Per the Articles of Incorporation of PAGS, attached as Annex
ÂYService Providers‰ to the petition-in-intervention.

77 Per the GIS of Piatco as of May 2000.
78 Per §5.15 of both the CA and the ARCA.
79 Copy of which was presented by Piatco to the Senate Blue Ribbon
Committee during committee hearings.

80 281 SCRA 330, November 5, 1997.
724
Inc.
„x x x [S]ection 19 of Article XII of the Constitution x x x

mandates: ÂThe State shall regulate or prohibit monopolies when
the public interest so requires. No combinations in restraint of
trade or unfair competition shall be allowed.Ê
„A monopoly is a privilege or peculiar advantage vested in one
or more persons or companies, consisting in the exclusive right
or power to carry on a particular business or trade, manufacture
a particular article, or control the sale or the whole supply of a
particular commodity. It is a form of market structure in which
one or only a few firms dominate the total sales of a product or
service. On the other hand, a combination in restraint of trade is
an agreement or understanding between two or more persons, in
the form of a contract, trust, pool, holding company, or other
form of association, for the purpose of unduly restricting
competition, monopolizing trade and commerce in a certain
commodity, controlling its production, distribution and price, or
otherwise interfering with freedom of trade without statutory
authority. Combination in restraint of trade refers to the means
while monopoly refers to the end.
„x x x xxx xxx
„Section 19, Article XII of our Constitution is anti-trust in
history and in spirit. It espouses competition. The desirability of
competition is the reason for the prohibition against restraint of
trade, the reason for the interdiction of unfair competition, and
the reason for regulation of unmitigated monopolies.
Competition is thus the underlying81 principle of [S]ection 19,
Article XII of our Constitution, x x x.‰
82
Gokongwei, Jr. v. Securities and Exchange Commission
elucidates the criteria to be employed: „A ÂmonopolyÊ
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
83
when desired.‰ (Emphasis supplied)
_______________
81 Id., pp. 355-358, per Puno, J.

82 89 SCRA 336, April 11, 1979.
83 Id., p. 376, per Antonio, J.
725
VOL. 402, MAY 5, 2003 725

Inc.
The Contracts Encourage Monopolistic Pricing, Too

Aside from creating a monopoly, the Piatco contracts also
give the concessionaire virtually limitless power over the
charging of fees, rentals and so forth. What little „oversight
function‰ the government might be able and minded to
exercise is less than sufficient to protect the public
interest, as can be gleaned from the following provisions:
„Sec. 6.06. Adjustment of Non-Public Utility Fees and Charges

„For fees, rentals and charges constituting Non-Public Utility
Revenues, Concessionaire may make any adjustments it deems
appropriate without need for the consent of GRP or any
government agency subject to Sec. 6.03(c).‰
Section 6.03 (c) in turn provides:
„(c) Concessionaire shall at all times be judicious in fixing fees

and charges constituting Non-Public Utility Revenues in order to
ensure that End Users are not unreasonably deprived of
services. While the vehicular parking fee, porterage fee and
greeter/wellwisher fee constitute Non-Public Utility Revenues of
Concessionaire, GRP may require Concessionaire to explain and
justify the fee it may set from time to time, if in the reasonable
opinion of GRP the said fees have become exorbitant resulting in
the unreasonable deprivation of End Users of such services.‰
It will be noted that the above-quoted provision has no

teeth, so the concessionaire can defy the government
without fear of any sanction. Moreover, Section 6.06·
taken together with Section 6.03(c) of the ARCA·falls
short of the standard set by the BOT Law as amended,
which expressly requires in Section 2(b) that the project
proponent is „allowed to charge facility users appropriate
tolls, fees, rentals and charges not exceeding those proposed
in its bid or as negotiated and incorporated in the contract
x x x.‰
726

Inc.
The Piatco Contracts Violate

Constitutional Prohibitions
Against Impairment of Contracts
and Deprivation of Property
Without Due Process
84
Earlier, I discussed how Section 3.01(e) 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 85
as an international passenger
terminal at the NAIA; 86thus, Terminals I and II shall no
longer operate as such, and no one shall be allowed to
compete with Piatco in the operation
87
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.
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.
_______________
84 Please see footnote 70 supra.

85 §3.02(a) of the CA and §3.02(a) of the ARCA.
86 §3.02(b) of the CA and §3.02(b) and (c) of the ARCA.
87 Ibid.
727
VOL. 402, MAY 5, 2003 727

Inc.
What we have here is a set of contractual provisions that

impair the obligation of contracts and contravene the
constitutional prohibition 88against deprivation of property
without due process of law.
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 situation89
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 x x x arbitrarily and without due process.‰ Said
pronouncement is particularly relevant and applicable to
the situation at bar because the livelihood of the employees
of petitioners-intervenors are at stake.
The Piatco Contracts Violate

Constitutional Prohibition
Against Deprivation of Liberty
Without Due Process
The Piatco Contracts by locking out existing service
providers from entry into Terminal III and restricting
entry of future service providers, thereby infringed upon
the freedom·guaranteed to and heretofore enjoyed by
international airlines·to contract with local service
providers of their choice, and vice versa.
Both the service providers and their client airlines will
be deprived of the right to liberty, which includes the right
to enter into
_______________
88 §1, Art. III, Constitution.

89 197 SCRA 409, May 23, 1991, per Gutierrez, Jr., J.
728

Inc.
90
all contracts, and/or the 91
right to make a contract in
relation to oneÊs business.
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,
92
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. 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 x x x
„Sec. 47. Certificate Showing Appropriation to Meet Contract.
·Ex-cept 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.
_______________
90 See Rubi v. Provincial Board of Mindoro, 39 Phil. 660, March 7, 1919.

91 Davao Stevedores Mutual Benefit Association v. Compañia Maritima, 90
Phil. 847, February 29, 1952.
92 §29(1), Article VI, 1987 Constitution.
729
VOL. 402, MAY 5, 2003 729

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
93
proposed contract.‰
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 latterÊs losses, expenses and damages as
well as for the latterÊs 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 formerÊs default.
_______________
93 Commission on Elections v. Quijano-Padilla, G.R. No. 151992,
September 18, 2002, p. 20, 389 SCRA 353, per Sandoval-Gutierrez, J.
730

Inc.
• 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 governmentÊs existing
storm drainage master plan
Coordinating with DPWH the financing,
implementation and completion of the
following works before the InService 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 an additional obligations under
the Supplements may really be undertaken on a best-
efforts basis only, the
731
VOL. 402, MAY 5, 2003 731

Inc.
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 governmentÊs 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 94
Consequential Losses under Section 1.23 of the ARCA.
The logical conclusion then is that the obligations in the
Supplements are not to be per-
_______________
94 §1.23 of the ARCA defines Incremental and Consequential Costs as
„additional costs properly documented and reasonably incurred by

Concessionaire (including without limitation additional overhead costs,
cost of any catch-up program, demobilization, re-mobilization, storage
costs, termination penalties, increase in construction costs, additional
interest expense, costs, fees and other expenses and increase in the cost
of financing) in excess of a budgeted or contracted amount, occasioned
by, among other things, delay in the prosecution of Works by reason not
attributable to Concessionaire or a deviation from the Tender Design or
any suspension or interference with the operation of the Terminal
Complex by reason not attributable to Concessionaire. x x x‰
732

Inc.
formed on a best-efforts basis only, but are unarguably

mandatory in character.
Regarding MIAAÊs 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 to95 complete
the program before the opening of Terminal III. 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.
_______________
95 Memorandum of Agreement between the Manila International
Airport Authority and the Department of Public Works and Highways,

p. 2.
733
VOL. 402, MAY 5, 2003 733

Inc.
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 PiatcoÊs 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 CongressÊ 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
96
Contracts and Terminal III? (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?)
_______________
96 When I asked this question, Atty. Jose A. Bernas replied that if
Piatco is deemed a builder in good faith then it may be entitled to some

form of compensation under the principle barring unjust enrichment.
But if it is found to be a builder in bad faith then it may not be entitled
to compensation. (See TSN, December 10, 2002, pp. 58-71. Faced with
the same question, Solicitor General Alfredo L. Benipayo responded that
the facility will not be torn down but taken over by government by
virtue of police power or eminent domain. (Id., pp. 94-99.) When asked
the same question, Atty. Eduardo delos Angeles explained that under
the provision on Step in Rights, the senior lenders can designate a
qualified operator to operate the facility. (Id., pp. 225-226.) This
solution, however, assumes that this contractual provision is valid.
734

Inc.
Prescinding from all the foregoing disquisition, I find that

all the Piatco contracts, without exception, are void ab
initio and therefore inoperative. Even the very process by
which the contracts came into being·the bidding and the
award·has been riddled with irregularities galore and
blatant violations of law and public policy, far too many to
ignore. There is thus no conceivable way, as proposed by
some, of saving one (the original Concession Agreement)
while junking all the rest.
Neither is it possible to argue for the retention of the
Draft Concession Agreement (referred to in the various
pleadings as the Contract Bidded Out) as the contract that
should be kept in force and effect to govern the situation,
inasmuch as it was never executed by the parties. What
Piatco and the government executed was the Concession
Agreement which is entirely different from the Draft
Concession Agreement.
Ultimately, though, it would be tantamount to an
outrageous, grievous and unforgivable mutilation of public
policy and an insult to ourselves if we opt to keep in place a
contract·any contract·for to do so would assume that we
agree to having Piatco continue as the concessionaire for
Terminal III.
Despite all the insidious contraventions of the
Constitution, law and public policy Piatco perpetrated,
keeping Piatco on as concessionaire and even rewarding it
by allowing it to operate and profit from Terminal III·
instead of imposing upon it the stiffest sanctions
permissible under the laws·is unconscionable.
It is no exaggeration to say that Piatco may not really
mind which contract we decide to keep in place. For all it
may care, we can do just as well without one, if we only let
it continue and operate the facility. After all, the real
money will come not from building the Terminal, but from
actually operating it for fifty or more years and charging
whatever it feels like, without any competition at all. This
scenario must not be allowed to happen.
If the Piatco contracts are junked altogether as I think
they should be, should not AEDC automatically be
considered the winning bidder and therefore allowed to
operate the facility? My answer is a stone-cold ÂNo.Ê 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?
735
VOL. 402, MAY 5, 2003 735

Inc.
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. 97
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 of quantum meruit was likewise applied in Eslao
98
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 99same principle was applied
in Republic v. Court of Appeals.
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.
_______________
97 200 SCRA 704, August 16, 1991.

98 195 SCRA 730, April 8, 1991.
99 299 SCRA 199, November 25, 1998.
736

Inc.
1997 Concession Agreement, Amended and Restated
Concession Agreement and Supplements thereto set aside
for being null and void.
Notes.·Where a foreign firm submits the highest bid

in a public bidding concerning the grant of rights,
privileges and concessions covering the national economy
and patrimony, thereby exceeding the bid of a Filipino,
there is no question that the Filipino will have to be
allowed to match the bid of the foreign entity. (Manila
Prince Hotel vs. Government Service Insurance System, 267
SCRA 408 [1997])
It is well-settled that the discretion to accept or reject
any bid, or even recall the award thereof, is of such wide
latitude that the courts will not generally interfere with
the exercise thereof by the Executive Department.
(Hutchison Ports Philippines Limited vs. Subic Bay
Metropolitan Authority, 339 SCRA 434 [2000])
··o0o··
737
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SUPREME COURT REPORTS ANNOTATED VOLUME 402

Communications, and SECRETARY

LES, PROSPERO A. PICHAY, JR., HARLIN CAST

G.R. No. 155661. May 5, 2003.*

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B.

Judicial Review; Parties; Locus Standi; The question on legal

614 SUPREME COURT REPORTS ANNOTATED

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

subsisting concession agreements between MIAA and

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

tion of the rule on hierarchy of courts. They contend that trial

616 SUPREME COURT REPORTS ANNOTATED

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

VOL. 402, MAY 5, 2003 617

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

minimum required financial capability to complete the project.

618 SUPREME COURT REPORTS ANNOTATED

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

bidder is allowed to later include or modify certain provisions in

VOL. 402, MAY 5, 2003 619

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

1997 Concession Agreement with respect to reduction in the

620 SUPREME COURT REPORTS ANNOTATED

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

petitive public bidding aims to protect the public interest by

VOL. 402, MAY 5, 2003 621

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

terms and conditions which provide financial benefit to PIATCO

622 SUPREME COURT REPORTS ANNOTATED

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

Same; Same; The proscription against government guarantee

VOL. 402, MAY 5, 2003 623

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

maxim that those that cannot be done directly cannot be done

624 SUPREME COURT REPORTS ANNOTATED

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

age due to arbitrariness of its exercise, and requiring the

VOL. 402, MAY 5, 2003 625

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

Same; Same; Air Transportation; Airport Terminals; The

626 SUPREME COURT REPORTS ANNOTATED

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

Service-Date should not be unduly prejudiced. These contracts

VITUG, J., Separate Opinion:

Supreme Court; Jurisdiction; The Supreme Court is bereft of

VOL. 402, MAY 5, 2003 627

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

over petitions for declaratory relief which are cognizable by

PANGANIBAN, J., Separate Opinion:

Courts; Judicial Review; The Court has, in the past, held

628 SUPREME COURT REPORTS ANNOTATED

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

definitively resolve the constitutional and legal questions that

VOL. 402, MAY 5, 2003 629

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

rights (worldwide or regional) over a process; or possession of

630 SUPREME COURT REPORTS ANNOTATED

Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

and, in particular, its finders, contractors and investors·both

SPECIAL CIVIL ACTION in the Supreme Court.

The facts are stated in the opinion of the Court.

VOL. 402, MAY 5, 2003 631