FACTS:

The National Investment and Development Corporation (NIDC), a government

corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy
Industries, Ltd. for the construction, operation and management of the Subic National
Shipyard, Inc., later became the Philippine Shipyard and Engineering Corporation
(PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a shareholding
proportion of 60%-40% and that the parties have the right of first refusal in case of a
sale.
Through a series of transfers, NIDCs rights, title and interest in PHILSECO eventually
went to the National Government. In the interest of national economy, it was decided
that PHILSECO should be privatized by selling 87.67% of its total outstanding capital
stock to private entities. After negotiations, it was agreed that Kawasakis right of first
refusal under the JVA be exchanged for the right to top by five percent the highest bid
for said shares. Kawasaki that Philyards Holdings, Inc. (PHI), in which it was a
stockholder, would exercise this right in its stead.
During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of the
right to top by 5% percent the highest bid, it was able to top JG Summits bid. JG
Summit protested, contending that PHILSECO, as a shipyard is a public utility and,
hence, must observe the 60%-40% Filipino-foreign capitalization. By buying 87.67% of
PHILSECOs capital stock at bidding, Kawasaki/PHI in effect now owns more than 40%
of the stock.
ISSUE:

o
o

Whether or not PHILSECO is a public utility

Whether or not Kawasaki/PHI can purchase beyond 40% of PHILSECOs
stocks
HELD:
In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit relied on sec.
13, CA No. 146. On the other hand, Kawasaki/PHI argued that PD No. 666 explicitly
stated that a shipyard was not a public utility. But the SC stated that sec. 1 of PD No.

666 was expressly repealed by sec. 20, BP Blg. 391 and when BP Blg. 391 was
subsequently repealed by EO 226, the latter law did not revive sec. 1 of PD No. 666.
Therefore, the law that states that a shipyard is a public utility still stands.
A shipyard such as PHILSECO being a public utility as provided by law is therefore
required to comply with the 60%-40% capitalization under the Constitution. Likewise, the
JVA between NIDC and Kawasaki manifests an intention of the parties to abide by this
constitutional mandate. Thus, under the JVA, should the NIDC opt to sell its shares of
stock to a third party, Kawasaki could only exercise its right of first refusal to the extent
that its total shares of stock would not exceed 40% of the entire shares of stock. The
NIDC, on the other hand, may purchase even beyond 60% of the total shares. As a
government corporation and necessarily a 100% Filipino-owned corporation, there is
nothing to prevent its purchase of stocks even beyond 60% of the capitalization as the
Constitution clearly limits only foreign capitalization.
Kawasaki was bound by its contractual obligation under the JVA that limits its right of
first refusal to 40% of the total capitalization of PHILSECO. Thus, Kawasaki cannot
purchase beyond 40% of the capitalization of the joint venture on account of both
constitutional and contractual proscriptions.

Luque v Villegas
Facts:
Petitioners ( who are passengers from Cavite and Batangas who ride on buses to and from their province
and Manila) and some public service operators of buses and jeeps assail the validity of Ordinance
4986and Administrative Order 1.
Ordinance 4986 states that PUB and PUJs shall be allowed to enter Manila only from 6:30am to 8:30pm
every day except Sundays and holidays.
Petitioners contend that since they possess a valid CPC, they have already acquired a vested right to
operate.
Administrative Order 1 issued by Commissioner of Public Service states that all jeeps authorized to
operate from Manila to any point in Luzon, beyond the perimeter of Greater Manila, shall carry the words
"For Provincial Operation".
Issue:
1. Whether or not the said regulations are valid.
2. Whether or not Ordinance 4986 destroys vested rights to operate in Manila.
Held:
1. YES! Using the doctrine in Lagman vs. City of Manila, Petitioner's Certificate of Public Convenience
was issued subject to the condition that operators shall observe and comply with all the rules and
regulations of the PSC relative to PUB service.

The purpose of the ban is to minimize the problem in Manila and the traffic congestion, delays and
accidents resulting from the free entry into the streets of Manila and the operation around said streets.
Both Ordinance 4986 and AO 1 fit into the concept of promotion and regulation of general welfare.
2. NO! A vested right is some right or interest in the property which has become fixed and established and
is no longer open to doubt or controversy. As far as the State is concerned, a CPC constitutes neither a
franchise nor a contract, confers no property right, and is a mere license or privilege.
The holder does not acquire a property right in the route covered, nor does it confer upon the holder any
proprietary right/interest/franchise in the public highways.
Neither do bus passengers have a vested right to be transported directly to Manila. The alleged right is
dependent upon the manner public services are allowed to operate within a given area. It is no argument
that the passengers enjoyed the privilege of having been continuously transported even before outbreak
of war. Times have changed and vehicles have increased. Traffic congestion has moved from worse to
critical. Hence, there is a need to regulate the operation of public services.

G.R. No. L-6055

June 12, 1953
Lessons Applicable: Public Utilities (Corporate Law)

FACTS:

William H. Quasha

a member of the Philippine bar, committed a crime of

falsification of a public and commercial document for causing it to appear
that Arsenio Baylon, a Filipino citizen, had subscribed to and was the
owner of 60.005 % of the subscribed capital stock of Pacific Airways Corp.
(Pacific) when in reality the money paid belongs to an American citizen
whose name did not appear in the article of incorporation,

to circumvent the constitutional mandate that no corp.

shall be authorize to operate as a public utility in the Philippines unless
60% of its capital stock is owned by Filipinos.

Found guilty after trial and sentenced to a term of imprisonment

and a fine

Quasha appealed to this Court

Primary purpose: to carry on the business of a common carrier by air, land or water

Baylon did not have the controlling vote because of the difference in voting power
between the preferred shares and the common shares

ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister.

The penalty of prision mayor and a fine not to exceed 5,000 pesos shall be imposed upon any
public officer, employee, or notary who, taking advantage of his official position, shall
falsify a document by committing any of the following acts:
4. Making untruthful statements in a narration of facts.

ART. 172. Falsification by private individuals and use of falsified documents. The penalty

of prision correccional in its medium and maximum period and a fine of not more than 5,000
pesos shall be imposed upon:
1. Any private individual who shall commit any of the falsifications enumerated in the next
preceding

article in any public or official document or letter of exchange or any other kind of
commercial
document.
ISSUE: W/N Quasha should be criminally liable
HELD: NO. Acquitted.

falsification consists in not disclosing in the articles of incorporation that Baylon was a
mere trustee ( or dummy as the prosecution chooses to call him) of his American coincorporators, thus giving the impression that Baylon was the owner of the shares subscribed
to by him

For the mere formation of the corporation such revelation was not essential, and the
Corporation Law does not require it

The moment for determining whether a corporation is entitled to operate as a public

utility is when it applies for a franchise, certificate, or any other form of authorization for that
purpose.

that can be done after the corporation has already come into being and not while it
is still being formed

so far as American citizens are concerned, the said act has ceased to
be an offense within the meaning of the law, so that defendant can no
longer be held criminally liable therefor.

Francisco Tatad, e. al. v. Sec Jesus Garcia and

Edsa LRT Corp., Ltd.
Chester Cabalza recommends his visitors to please read the original & full text of the case cited. Xie xie!
GR NO. 114222 April 6, 1995
Francisco Tatad, John Osmena and Rodolfo Biazon, petitioners,
vs.
Hon. Jesus Garcia, in his capacity as the Secretary of the Department of Transportation & Communications,
and EDSA LRT CORPORATION, LTD., respondents.
Facts:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further implementing the
Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA and the
Supplemental Agreement to the same project.

Petitioners Francisco Tatad, John Osmena and Rodolfo Biazon are members of the Philippine Senate and are suing
in their capacities as Senators and as taxpayers. Respondent Jesus Garcia was then Secretary of the DOTC, while
private respondent EDSA LRT CORPORATION, Ltd. is a private corporation organized under the laws of Hongkong.
In 1989, DOTC planned to construct a light railway transit line along EDSA, which shall traverse the cities of Pasay,
Quezon, Mandaluyong and Makati. The objective is to provide a mass transit system along EDSA and to alleviate the
congestion in the metropolis.
On March 15, 1990, then DOTC Secretary Oscar Orbos, acting upon a proposal to construct the EDSA LRT III on a
Build-Operate-Transfer (BOT) basis, had invited Elijahu Levin from the Eli Levin Enterprises, Inc to send a technical
team to discuss the project with the DOTC.
On July 9, 1990, RA No. 6957 referred to as the Build-Operate-Transfer (BOT) was signed by then President
Corazon Aquino. The said Act provides for two schemes for the financing, construction and operation of government
projects through private initiative and investment: BOT or Build-Transfer (BT).
In accordance with the provisions of RA 6957 and to set the EDSA LRT III project underway, the Prequalification Bids
and Awards Committee and the Technical Committee were formed.
The prequalification criteria totalling 100% are as follows: a.) Legal aspects 10%; b.) Management/Organizational
capability 30%; c.) Financial capability- 30%; and d.) Technical capability 30%.
Of the 5 applicants, only the EDSA LRT Consortium met the requirements of garnering at least 21 points per criteria,
except for Legal aspects, and obtaining an over-all passing mark of at least 82 points. The Legal aspects referred to
provided that the BOT/BT contractor-applicant meet the requirements specified in the Constitution and other pertinent
laws.
Subsequently, Sec. Orbos was appointed Executive Secretary to the President of the Philippines and was replaced
by Nicomedes Prado. The latter recommended the award of the EDSA LRT III project to the sole complying bidder,
the EDSA LRT Consortium, and requested for authority to negotiate with the said firm for the contract pursuant to the
BOT Law. Authority was granted to proceed with the negotiations. The EDSA LRT Consortium submitted its proposal
to DOTC.
Finding the proposal to be in compliance with the bid requirements, DOTC and EDSA LRT Corporation, Ltd., in
substitution of the EDSA LRT Consortium, entered into an An Agreement to Build, Lease and Transfer a Light Rail
Transit System for EDSA under the terms of the BOT Law.
Secretary Prado, thereafter, requested presidential approval of the contract.
Exec. Sec. Franklin Drilon, who replaced Sec. Orbos, informed Sec. Prado that the President could not grant the
requested approval for failure to comply with the requirements of the BOT Law.
In view whereof, Sec. Drilon, the DOTC and private respondent re-negotiated the agreement. On April 22, 1992, the
parties entered into a Revised and Restated Agreement to Build, Lease and Transfer and Light Rail Transit System
for EDSA. On May 6, 1992, DOTC, represented by Sec. Jesus Garcia, Sec. Prado and private respondent entered
into a Supplemental Agreement to the April Revised Agreement so as to clarify their respective rights and
responsibilities.
The two agreements were approved by President Fidel Ramos.

According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak Federal
Republics and will have a maximum carrying capacity of 450,000 passengers a day. The system will have its own
power facility. It will also have 13 passenger stations and one depot in 16-hectare government property at North
Avenue.
Private respondents shall undertake and finance the entire project required for a complete operational light rail transit
system. Target completion date is approximately 3 years from the implementation date of the contract. Upon full and
partial completion and viability thereof, private respondent shall deliver the use and possession of the completed
portion to DOTC which shall operate the same. DOTC shall pay private respondent rentals on aj monthly basis
through an Irrevocable Letter of Credit. The rentals shall be determined by an independent and internationally
accredited inspection firm to be appointed by the parties.
As agreed upon, private respondents capital shall be recovered from the rentals to be paid by the DOTC which, in
turn, shall come from the earnings of the EDSA LRT III. After 25 years and DOTC shall have completed payment of
the rentals, ownership of the project shall be transferred to the latter for a consideration of only US $1.00.
In their petition, petitioners argued that the agreement of April 22, 1992, as amended by the Supplemental Agreement
of May 6, 1993, in so far as it grants EDSA LRT COPORTATION, LTD., a foreign corporation, the ownership of EDSA
LRT III, a public utility, violates the constitution, and hence, is unconstitutional. They contend that the EDSA LRT III is
a public utility, and the ownership and operation thereof is limited by the Constitution to Filipino citizens and domestic
corporations, not foreign corporations like private respondent.
Issue:
Whether or not the EDSA LRT III assumes all the obligations and liabilities of a common carrier.
Held:
What private respondent owns are the rail tracks, rolling stocks like the coaches, rail stations, terminals and the
power plant, not a public utility. While a franchise is needed to operate these facilities to serve the public, they do not
by themselves constitute a public utility. What constitutes a public utility is not their ownership but their use to serve
the public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for the operation of a public utility shall be granted except
to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or authorization be
exclusive character or for a longer period than 50 years.
The right to operate a public utility may exist independently and separately from the ownership of the facilities thereof.
One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility
without owning the facilities used to serve the public. The devotion of property to serve the public may be done by the
owner or by the person in control thereof who may not necessarily be the owner thereof.
While private respondent is the owner of the facilities necessary to operate the EDSA LRT III, it admits that it is not
enfranchised to operate a public utility. In view of this incapacity, private respondent and DOTC agreed that on
completion date, private respondent will immediately deliver possession of the LRT system by of lease for 25 years,
during which period DOTC shall operate the same as a common carrier and private respondent shall provide
technical maintenance and repair services to DOTC.

Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier. For
this purpose, DOTC shall indemnify and hold harmless private respondent from any losses, damages, injuries or
death which may be claimed in the operation or implementation of the system, except losses, damages, injury or
death due to defects in the EDSA LRT III on account of the defective condition of equipment or facilities or the
defective maintenance of such equipment facilities.
Wherefore, the petition is DISMISSED.