48 ALITALIA, Petitioner, vs.

INTERMEDIATE
Doctrine:
The Convention's provisions do not "regulate or
APPELLATE COURT and FELIPA E. PABLO,
exclude liability for other breaches of contract by the
Respondents
[G.R. No. 71929 : December 4, 1990.]
carrier" or misconduct of its officers and employees, or
Topic: Liability under the Warsaw Convention
for some particular or exceptional type of damage.
Facts:
1. Dr. Felipa Pablo an associate professor in the University of the Philippines, and a research grantee of the
Philippine Atomic Energy Agency was invited to take part at a meeting of the Department of Research
and Isotopes of the Joint FAO-IAEA Division of Atomic Energy in Food and Agriculture of the United
Nations in Ispra, Italy. She accepted the invitation, and was then scheduled by the organizers to read a paper
on "The Fate of Radioactive Fusion Products Contaminating Vegetable Crops."
To fulfill this engagement, Dr. Pablo booked passage on petitioner airline, ALITALIA.
2. She arrived in Milan on the day before the meeting, in accordance with the itinerary set for her by
ALITALIA. However, she was told by the ALITALIA personnel at Milan that her luggage was delayed,
since it was in one of the succeeding flights from Rome to Milan. Dr. Pablos luggage consisted of her
clothing, scientific papers, slides and other research material.
3. Dr. Pablo even went to Rome to try to locate her bags herself, but to no avail.
4. Completely distraught and discouraged, she returned to Manila without attending the meeting in Italy.
5. Dr. Pablo demanded that ALITALIA make reparation for the damages she suffered. ALITALIA offered her
free airline tickets, but she rejected them, and thus commenced the action against ALITALIA.
6. As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, Italy, but only on the day
after her scheduled appearance and participation at the U.N. meeting. Of course, Dr. Pablo was no longer
there to accept delivery; she was already on her way home to Manila.
7. For some reason, the suitcases were not actually restored to Prof. Pablo by ALITALIA until 11 months later,
and 4 months after the institution of her action.
8. CFI rendered judgment in Dr. Pablo's favor, ordering ALITALIA to pay her P20,000 as nominal damages.
ALITALIA appealed to IAC.
9. IAC still rendered judgment in favor of Dr. Pablo, and even increased the award of nominal damages to
P40,000 (which was the then present cost of the roundtrip airfare).
10. ALITALIAs contentions:
Warsaw Convention should have been applied to limit ALITALIA'S liability; and
There is no warrant in fact or in law for the award to Dr. Pablo of nominal damages and attorney's
fees.
Issue: Whether or not the Warsaw Convention is applicable in the instant case, so as to limit ALITALIAs liability
Held: No, it is not.
Ratio:
1. Under the Warsaw Convention, an air carrier is made liable for damages for:
1) the death, wounding or other bodily injury of a passenger if the accident causing it took place on board the
aircraft or in the course of its operations of embarking or disembarking;
2) the destruction or loss of, or damage to, any registered luggage or goods, if the occurrence causing it took
place during the carriage by air;" and
3) delay in the transportation by air of passengers, luggage or goods.
2. [I]t is provided in the Convention that the "action for damages, however, founded, can only be brought
subject to conditions and limits set out" therein.
3. [The Convention also limits the liability of carriers in certain instances. However, the] Warsaw Convention
however denies to the carrier availment "of the provisions which exclude or limit his liability, if the damage
is caused by his wilful misconduct or by such default on his part as, in accordance with the law of the court
seized of the case, is considered to be equivalent to wilful misconduct," or "if the damage is (similarly)
caused . . by any agent of the carrier acting within the scope of his employment." 22 The Hague Protocol
amended the Warsaw Convention by removing the provision that if the airline took all necessary steps to
avoid the damage, it could exculpate itself completely, 23 and declaring the stated limits of liability not
applicable "if it is proved that the damage resulted from an act or omission of the carrier, its servants or
agents, done with intent to cause damage or recklessly and with knowledge that damage would probably
result." The same deletion was effected by the Montreal Agreement of 1966, with the result that a passenger

could recover unlimited damages upon proof of wilful misconduct.

4. [The limitations on an airline's liability] should be deemed a limit of liability only in those cases where the
cause of the death or injury to person, or destruction, loss or damage to property or delay in its transport is
not attributable to or attended by any wilful misconduct, bad faith, recklessness, or otherwise
improper conduct on the part of any official or employee for which the carrier is responsible, and there
is otherwise no special or extraordinary form of resulting injury. The Convention's provisions, in
short, do not "regulate or exclude liability for other breaches of contract by the carrier" or misconduct
of its officers and employees, or for some particular or exceptional type of damage.
5. In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the employees of petitioner
airline; and Dr. Pablo's luggage was eventually returned to her, belatedly, it is true, but without appreciable
damage. The fact is, nevertheless, that some special species of injury was caused to Dr. Pablo because
petitioner ALITALIA misplaced her baggage and failed to deliver it to her at the time appointed a breach
of its contract of carriage, to be sure with the result that she was unable to read the paper and make the
scientific presentation (consisting of slides, autoradiograms or films, tables and tabulations) that she had
painstakingly labored over, at the prestigious international conference, to attend which she had traveled
hundreds of miles, to her chagrin and embarrassment and the disappointment and annoyance of the
organizers. She felt, not unreasonably, that the invitation for her to participate at the conference, extended by
the Joint FAO/IAEA Division of Atomic Energy in Food and Agriculture of the United Nations, was a
singular honor not only to herself, but to the University of the Philippines and the country as well, an
opportunity to make some sort of impression among her colleagues in that field of scientific activity. The
opportunity to claim this honor or distinction was irretrievably lost to her because of Alitalia's breach of its
contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and anxiety, which
gradually turned to panic and finally despair, from the time she learned that her suitcases were missing up to
the time when, having gone to Rome, she finally realized that she would no longer be able to take part in the
conference. As she herself put it, she "was really shocked and distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the circumstances be restricted
to that prescribed by the Warsaw Convention for delay in the transport of baggage.
6. [Dr. Pablo] is not, of course, entitled to be compensated for loss or damage to her luggage. As already
mentioned, her baggage was ultimately delivered to her in Manila, tardily but safely. She is however entitled
to nominal damages which, as the law says, is adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated and recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered and this Court agrees that the respondent Court of Appeals
correctly set the amount thereof at P40,000.00.
NOTE
Provision of the Warsaw Convention on the limited liability of carriers:
1. In the carriage of passengers the liability of the carrier for each passenger is limited to the sum of 250,000 francs . . . Nevertheless, by special
contract, the carrier and the passenger may agree to a higher limit of liability.
2. a) In the carriage of registered baggage and of cargo, the liability of the carrier is limited to a sum of 250 francs per kilogramme, unless the
passenger or consignor has made, at the time when the package was handed over to the carrier, a special declaration of interest in delivery at
destination and has paid a supplementary sum if the case so requires. In that case the carrier will be liable to pay a sum not exceeding the
declared sum, unless he proves that sum is greater than the actual value to the consignor at delivery.
b) In the case of loss, damage or delay of part of registered baggage or cargo, or of any object contained therein, the weight to be taken into
consideration in determining the amount to which the carrier's liability is limited shall be only the total weight of the package or packages
concerned. Nevertheless, when the loss, damage or delay of a part of the registered baggage or cargo, or of an object contained therein, affects
the value of other packages covered by the same baggage check or the same air way bill, the total weight of such package or packages shall also
be taken into consideration in determining the limit of liability.
3. As regards objects of which the passenger takes charge himself the liability of the carrier is limited to 5000 francs per passenger.
4. The limits prescribed . . shall not prevent the court from awarding, in accordance with its own law, in addition, the whole or part of the court
costs and of the other expenses of litigation incurred by the plaintiff. The foregoing provision shall not apply if the amount of the damages
awarded, excluding court costs and other expenses of the litigation, does not exceed the sum which the carrier has offered in writing to the
plaintiff within a period of six months from the date of the occurrence causing the damage, or before the commencement of the action, if that is
later.

049 Pan American World Airways vs. IAC

[G.R. No. 70462; Aug. 11, 1988]
TOPIC: Liability under the Convention
PONENTE: Cortes, J.

AUTHOR: RC
NOTES:
Pan Am seeked to limit its liability for lost baggage up to
the amount specified in the airline ticket absent a declaration
of a higher valuation and payment of additional charges.

FACTS:
1. Plaintiff Rene V. Pangan, pres. and gen. mngr. of the plaintiffs Sotang Bastos and Archer Production while in San
Francisco, Califonia and Primo Quesada of Prime Films, San Francisco, California, entered into an agreement where the
former, for US $2,500.00 per picture, bound himself to supply the latter with 3 films. ('Ang Mabait, Masungit at ang
Pangit,' 'Big Happening with Chikiting and Iking,' and 'Kambal Dragon' for exhibition in the United States.) It was also
agreed that plaintiffs would provide the promotional and advertising materials.
2. On his way home to the Philippines, Pangan visited Guam where he contacted Leo Slutchnick of the Hafa Adai
Organization. Pangan entered into a verbal agreement with Slutchnick for the exhibition of 2 of the films at the Hafa Adai
Theater in Guam for P7,000.00 per picture. Pangan also provided the promotional and advertising materials for the films.
3. Due to the above agreements, Pangan caused the preparation of the requisite promotional handbills and still pictures for
which he paid P12,900.00. Likewise in preparation for his trip abroad to comply with his contracts, Pangan purchased 14
clutch bags, 4 capiz lamps and 4 barong tagalog, total value of P4,400.00.
4. Pangan obtained from defendant Pan Am's Manila Office (through Your Travel Guide) an economy class airplane ticket
for Manila to Guam on defendant's Flight (No. 842) upon payment of the regular fare.
5. The Your Travel Guide is a tour and travel office owned and managed by plaintiffs witness Mila de la Rama.
6. 2 hours before departure time Pangan was at the defendant's ticket counter at the Manila International Airport and
presented his ticket and checked in his 2 luggages, for which he was given baggage claim tickets.
7. The 2 luggages had the promotional & advertising materials, clutch bags, barong tagalog and his personal belongings.
8. Subsequently, Pangan was informed that his name was not in the manifest and so he could not take Flight (No. 842) in
the economy class. Since there was no space in the economy class, Pangan took the first class because he wanted to be on
time in Guam to comply with his commitment with an additional sum of $112.00.
9. When Pangan arrived in Guam, his 2 luggages did not arrive with his flight, as a consequence of which his agreements
with Slutchnick and Quesada for the exhibition of the films in Guam and in the United States were cancelled.
10. He then filed a written claim for his missing luggages.
11. Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary representations to protest as to
the treatment which he received from the employees of the defendant and the loss of his two luggages.
12. Defendant Pan Am assured Pangan that his grievances would be investigated and given its immediate consideration.
13. The present complaint was filed by the plaintiff due to Pan Ams failure to communicate with Pangan.
14. CFI: Pan Am liable. (actual damages with interest, attys fees, and costs of suit)
15. IAC: Affirmed.
ISSUE:
Whether or not the IAC erred as a matter of law in affirming the CFI's award of actual damages beyond the limitation of
liability set forth in the Warsaw Convention and the contract of carriage.
HELD:
Yes, petitioner's liability for the lost baggage is limited to $20.00 per kilo or $600.00, as stipulated at the back of the ticket.
>>WHEREFORE, the Petition is GRANTED and the Decision of the IAC is SET ASIDE and a new judgment is rendered ordering petitioner to pay
private respondents damages in the amount of US $600.00 or its equivalent in Philippine currency at the time of actual payment.

RATIO:
1. The airline ticket contains the following conditions:
NOTICE
If the passenger's journey involves an ultimate destination or stop in a country other than the country of departure
the Warsaw Convention may be applicable and the Convention governs and in most cases limits the liability of
carriers for death or personal injury and in respect of loss of or damage to baggage. See also notice headed "Advice
to International Passengers on Limitation of Liability.
CONDITIONS OF CONTRACT
1. As used in this contract "ticket" means this passenger ticket and baggage check of which these conditions and the
notices form part, "carriage" is equivalent to "transportation," "carrier" means all air carriers that carry or undertake
to carry the passenger or his baggage hereunder or perform any other service incidental to such air carriage.
"WARSAW CONVENTION" means the convention for the Unification of Certain Rules Relating to International

Carriage by Air signed at Warsaw, 12th October 1929, or that Convention as amended at The Hague, 28th
September 1955, whichever may be applicable.
2. Carriage hereunder is subject to the rules and limitations relating to liability established by the Warsaw
Convention unless such carriage is not "international carriage" as defined by that Convention.
3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier are subject
to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier's conditions of carriage and related
regulations which are made part hereof (and are available on application at the offices of carrier), except in
transportation between a place in the United States or Canada and any place outside thereof to which tariffs in force
in those countries apply.
xxx xxx
xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is declared in advance
and additional charges are paid: (1) for most international travel (including domestic portions of international
journeys) to approximately $9.07 per pound ($20.00 per kilo) for checked baggage and $400 per passenger for
unchecked baggage: (2) for travel wholly between U.S. points, to $750 per passenger on most carriers (a few have
lower limits). Excess valuation may not be declared on certain types of valuable articles. Carriers assume no
liability for fragile or perishable articles. Further information may be obtained from the carrier.
2. On the basis of the said stipulations printed at the back of the ticket, petitioner contends that its liability for the lost
baggage of Pangan is limited to $600.00 ($20.00 x 30 kilos) as the latter did not declare a higher value for his baggage and
pay the corresponding additional charges.
3. Petitioner cites Ong Yiu v. CA, where the Court sustained the validity of a printed stipulation at the back of an airline
ticket limiting the liability of the carrier for lost baggage to a specified amount and ruled that the carrier's liability was
limited to said amount since the passenger did not declare a higher value, much less pay additional charges. (Ong Yiu is
squarely applicable to the instant case.)
4. While it may be true that petitioner had not signed the plane ticket, he is, nevertheless bound by the provisions thereof.
"Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latter's lack of knowledge or assent to the regulation." It is known as a contract of "adhesion" wherein one
party imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.
5. Randolph v. American Airline: A contract limiting liability upon an agreed valuation does not offend against the policy
of the law forbidding one from contracting against his own negligence.
6. On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc., where the Court held that the stipulation
limiting the carrier's liability to a specified amount was invalid, finds no application in the instant case, as the ruling in said
case was premised on the finding that the conditions printed at the back of the ticket were so small and hard to read that
they would not warrant the presumption that the passenger was aware of the conditions and that he had freely and fairly
agreed thereto. In the instant case, similar facts that would make the case fall under the exception have not been alleged,
much less shown to exist.
7. Northwest Airlines, Inc. v. Cuenca: "To apply the Warsaw Convention which limits a carrier's liability to US$9.07 per
pound or US$20.00 per kilo in cases of contractual breach of carriage is against public policy" is utterly misplaced.
8. Mendoza v. Philippine Air Lines, Inc.: Under Art.1107 of the Civil Code, a debtor in good faith like the defendant
herein, may be held liable only for damages that were foreseen or might have been foreseen at the time the contract of
transportation was entered intoBefore defendant could be held to special damages, such as the present alleged loss of
profits on account of delay or failure of delivery, it must have appeared that he had notice at the time of delivery to him of
the particular circumstances attending the shipment, and which probably would lead to such special loss if he defaulted.
Or, as the rule has been stated in another form, in order to purpose on the defaulting party further liability than for damages
naturally and directly, i.e., in the ordinary course of things, arising from a breach of contract, such unusual or extraordinary
damages must have been brought within the contemplation of the parties as the probable result of breach at the time of or
prior to contracting. Generally, notice then of any special circumstances which will show that the damages to be
anticipated from a breach would be enhanced has been held sufficient for this effect.
>> Thus, applying the ruling to the instant case, in the absence of a showing that Pan Am's attention was called to the
special circumstances requiring prompt delivery of Pangan's luggages, Pan Am cannot be held liable for the cancellation of
Pangans contracts as it could not have foreseen such an eventuality when it accepted the luggages for transit.
9. The Court is unable to uphold the IAC's disregard the ruling in Mendoza that petitioner is liable for damages based on
the finding that "[tlhe undisputed fact is that the contracts of the plaintiffs for the exhibition of the films in Guam and

California were cancelled because of the loss of the 2 luggages in question." The evidence reveals that the proximate cause
of the cancellation of the contracts was Pangan's failure to deliver the promotional and advertising materials on the dates
agreed upon. For this petitioner cannot be held liable. Pangan had not declared the value of the 2 luggages he had checked
in and paid additional charges. Neither was petitioner privy to respondents' contracts nor was its attention called to the
condition therein requiring delivery of the promotional and advertising materials on or before a certain date.

50 CHINA AIRLINES, petitioner v DANIEL CHIOK, respondent

G.R. No. 152122 July 30, 2003
Facts:
On September 18, 1981, Daniel Chiok purchased from China Airlines, Ltd. (CAL for
brevity) a passenger ticket for air transportation covering Manila-Taipei-HongkongManila. Said ticket was exclusively endorsable to Philippine Airlines, Ltd. (PAL for
brevity)
Subsequently, on November 21, 1981, Chiok took his trip from Manila to Taipei
using the CAL ticket. Before he left for said trip, the trips covered by the ticket were
pre-scheduled and confirmed by the former. When he arrived in Taipei, he went to
the CAL office and confirmed his Hongkong to Manila trip on board PAL Flight No.
PR 311. The CAL office attached a yellow sticker indicating that his flight status was
OK.
When Chiok reached Hongkong, he went to the PAL office and sought to reconfirm
his flight back to Manila. The PAL office also confirmed his return trip on board
Flight No. PR 311 and attached its own sticker.
On November 24, 1981, Chiok proceeded to Hongkong International Airport for his
return trip to Manila. However, upon reaching the PAL counter, Chiok saw a poster
stating that PAL Flight No. PR 311 was cancelled due to typhoon in Manila. He was
then informed that all the confirmed ticket holders of PAL Flight No. PR 311 were
automatically booked for the next flight the following day.
On November 25, 1981, Chiok was not able to board the plane because his name did
not appear in PALs computer list of passengers. Chiok then sought to recover his
luggage but found only two and realized that his new Samsonite luggage was
missing which contained cosmetics worth HK$14,128.80
He then proceeded to PAL and confronted the reservation officer who previously
confirmed his flight back to Manila. However, the reservation officer showed him
that his name was on the list. Chiok then decided to use his CAL ticket and asked
PALs reservation officer if he could use the ticket to book him for the said flight; The
latter, once again, booked and confirmed the formers trip on a flight scheduled to
depart that evening.
Later, Chiok went to the PAL check-in counter and it was Carmen Chan, PALs
terminal supervisor who attended to him. As this juncture, Chiok had already placed
his travel documents, including his clutch bag, on top of the PAL check-in
counter.Thereafter, Carmen directed PAL personnel to transfer counters. In the
ensuing commotion, Chiok lost his clutch bag containing the following, to wit: (a)
$2,000.00; (b) HK$2,000.00; (c) Taipei $8,000.00; (d) P2,000.00; (e) a three-piece
set of gold (18 carats) cross pens valued atP3,500; (f) a Cartier watch worth about
P7,500.00; (g) a tie clip with a garnet birthstone and diamond worth P1,800.00; and
(h) a [pair of] Christian Dior reading glasses. Subsequently, he was placed on stand-

by and at around 7:30 p.m., PAL personnel informed him that he could now checkin.
Consequently, Chiok as plaintiff, filed a Complaint on November 9, 1982 for
damages, against PAL and CAL, as defendants, docketed as Civil Case No. 82-13690,
with Branch 31, Regional Trial Court, National Capital Judicial Region, Manila.
RTC: held CAL and PAL jointly and severally liable to respondent but didnt rule on
respective crossclaims
CA: affirmed RTCs decision and debunked petitioners claim that it had merely
acted as an issuing agent for the ticket covering HK-Manila leg; Cited the decision in
KLM Royal Dutch Airlines v CA:
Article 30 of the Warsaw providing that in case of transportation to be performed by
various successive carriers, the passenger can take action only against the carrier who
performed the transportation during which the accident or the delay occurred
presupposes the occurrence of either an accident or delay in the course of the air trip,
and does not apply if the damage is caused by the willful misconduct on the part of the
carriers employee or agent acting within the scope of his employment.
On PALs appeal, CA ruled that the airlines negligence was the proximate cause of
the incident since in spite of the confirmations he had secured, his name didnt
appear in the list of passengers
Issues:
(1) W/N CA committed judicial misconduct in finding liability against CAL on the
basis of misquotation from KLM Royal Dutch v CA and in magnifying its misconduct
by denying CALs motion for reconsideration on a mere syllabus, unofficial at that;
(2) W/N CAL is liable for damages;
Ruling:
(1) Yes, CA committed a lapse when it relied merely on the unofficial syllabus of our
ruling in KLM v. C.A Indeed, lawyers and litigants are mandated to quote decisions of
this Court accurately. However, since this case is not administrative in nature, we
cannot rule on the CA justices administrative liability, if any, for this lapse. In the
case at bar, we can only determine whether the error in quotation would be
sufficient to reverse or modify the CA Decision.
In the instant case, the CA ruled that under the contract of transportation, petitioner
-- as the ticket issuing carrier (like KLM) -- was liable regardless of the fact that PAL
was to perform or had performed the actual carriage. It elucidated on this point as
follows:

By the very nature of their contract, defendant-appellant CAL is clearly liable under
the contract of carriage with [respondent] and remains to be so, regardless of those
instances when actual carriage was to be performed by another carrier. The issuance
of a confirmed CAL ticket in favor of [respondent] covering his entire trip abroad
concretely attests to this. This also serves as proof that defendant appellant CAL, in
effect guaranteed that the carrier, such as defendant-appellant PAL would honor his
ticket, assure him of a space therein and transport him on a particular segment of his
trip.
Notwithstanding the errant quotation, we have found after careful deliberation that
the assailed Decision is supported in substance by KLM v. CA. The misquotation by
the CA cannot serve as basis for the reversal of its ruling.
(2) Yes, CAL is liable for damages;
It is significant to note that the contract of air transportation was between
petitioner and respondent, with the former endorsing to PAL the Hong Kong-toManila segment of the journey. Such contract of carriage has always been treated in
this jurisdiction as a single operation. This jurisprudential rule is supported by the
Warsaw Convention, to which the Philippines is a party, and by the existing
practices of the International Air Transport Association (IATA).
Article 1, Section 3 of the Warsaw Convention states:
Transportation to be performed by several successive air carriers shall be deemed, for
the purposes of this Convention, to be one undivided transportation, if it has been
regarded by the parties as a single operation, whether it has been agreed upon under
the form of a single contract or of a series of contracts, and it shall not lose its
international character merely because one contract or a series of contracts is to be
performed entirely within a territory subject to the sovereignty, suzerainty, mandate,
or authority of the same High Contracting Party.
Article 15 of IATA-Recommended Practice similarly provides:
Carriage to be performed by several successive carriers under one ticket, or under a
ticket and any conjunction ticket issued therewith, is regarded as a single operation.
In American Airlines v. Court of Appeals, we have noted that under a general pool
partnership agreement, the ticket-issuing airline is the principal in a contract of
carriage, while the endorsee-airline
is the agent.
Likewise, as the principal in the contract of carriage, the petitioner in British Airways
v. Court of Appeals was held liable, even when the breach of contract had occurred,
not on its own flight, but on that of another airline. The Decision followed our ruling
in Lufthansa German Airlines v. Court of Appeals, in which we had held that the
obligation of the ticket-issuing airline remained and did not cease, regardless of the

fact that another airline had undertaken to carry the passengers to one of their
destinations.
In the instant case, following the jurisprudence cited above, PAL acted as the
carrying agent of CAL. In the same way that we ruled against British Airways and
Lufthansa in the aforementioned cases, we also rule that CAL cannot evade
liability to respondent, even though it may have been only a ticket issuer for
the Hong Kong-Manila sector.

051 UNITED AIRLINES, petitioner, vs. WILLIE J. UY,

respondent.
G.R. No. 127768 November 19, 1999
BELLOSILLO, J.:
TOPIC: The Warsaw Convention
PONENTE: BELLOSILLO, J.:

AUTHOR:
NOTES: (if applicable)

FACTS:
1. On October 13, 1989, respondent, a passenger of United Airlines, checked in together with his luggage one piece of which was
found to be overweight at the airline counter. To his utter humiliation, an employee of petitioner rebuked him saying that he should
have known the maximum weight allowance per bag and that he should have packed his things accordingly. Then, in a loud voice
in front of the milling crowd, she told respondent to repair his things and transfer some of them to the light ones.
2. Respondent acceded but his luggage was still overweight. Petitioner billed him overweight charges but its employee reused to
honor the miscellaneous charges under MCD which he offered to pay with. Not wanting to leave without his luggage, he paid with
his credit card. Upon arrival in manila, he discovered that one of his bags had been slashed and its contents stolen.
3. In a letter dated October 16, 1989, he notified petitioner of his loss and requested reimbursement. Petitioner paid for his loss based
on the maximum liability per pound. Respondent considered the amount grossly inadequate. He sent two more letters to petition
but to no avail.
4. On June 9, 1992, respondent filed a complaint for damages against petitioner Airline. Petitioner moved to dismiss the complaint
invoking the provisions of Article 29 of the Warsaw Convention. Respondent countered that according to par. 2 of Article 29, the
method of calculating the period of limitation shall be determined by the law of the court to which the case is submitted.
ISSUE(S): Whether or not the action for damages is barred by the lapse of the 2-year prescriptive period under Art. 29 of the Warsaw
Convention.
HELD: No.
RATIO:
Supreme Court held that although the 2-year prescriptive period under the Warsaw Convention has lapsed, it did not preclude the
application of other pertinent provisions of the Civil Code. Thus, the action for damages could still be filed based on tort which
can be filed within 4 years from the time cause of action accrued. As for the action pertaining to the loss of the contents of the
luggage, while it was well within the bounds of the Warsaw Convention, the Supreme Court found that there was an exception to
the applicability of the 2-year prescriptive period that is when the airline employed delaying tactics and gave the passenger the
run-around.
As to the applicability of the Warsaw Convention: The Courts have discretion whether to apply them or not. Within our
jurisdiction we have held that the Warsaw Convention can be applied, or ignored, depending on the peculiar facts presented by
each case. Thus, we have ruled that the Convention's provisions do not regulate or exclude liability for other breaches of contract
by the carrier or misconduct of its officers and employees, or for some particular or exceptional type of damage. Neither may the
Convention be invoked to justify the disregard of some extraordinary sort of damage resulting to a passenger and preclude
recovery therefor beyond the limits set by said Convention. Likewise, we have held that the Convention does not preclude the
operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt, the carrier from liability for damages
for violating the rights of its passengers under the contract of carriage, especially if willful misconduct on the part of the carrier's
employees is found or established.
Respondent's complaint reveals that he is suing on two (2) causes of action: (a) the shabby and humiliating treatment he received
from petitioner's employees at the San Francisco Airport which caused him extreme embarrassment and social humiliation; and,
(b) the slashing of his luggage and the loss of his personal effects amounting to US $5,310.00.
While his second cause of action - an action for damages arising from theft or damage to property or goods - is well within the
bounds of the Warsaw Convention, his first cause of action -an action for damages arising from the misconduct of the airline
employees and the violation of respondent's rights as passenger - clearly is not.
Action for damages arising from the misconduct of the airline employees and the violation of the respondents rights as passengers
is covered under the Civil Code. Consequently, insofar as the first cause of action is concerned, respondent's failure to file his
complaint within the two (2)-year limitation of the Warsaw Convention does not bar his action since petitioner airline may still be
held liable for breach of other provisions of the Civil Code which prescribe a different period or procedure for instituting the
action, specifically, Art. 1146 thereof which prescribes four (4) years for filing an action based on torts.
Exception to the application of the 2-year prescriptive period: when airline employed delaying tactics. As for respondent's second
cause of action, indeed the travaux preparatories of the Warsaw Convention reveal that the delegates thereto intended the two (2)year limitation incorporated in Art. 29 as an absolute bar to suit and not to be made subject to the various tolling provisions of the
laws of the forum. This therefore forecloses the application of our own rules on interruption of prescriptive periods. Article 29,
par. (2), was intended only to let local laws determine whether an action had been commenced within the two (2)-year period, and
within our jurisdiction an action shall be deemed commenced upon the filing of a complaint. Since it is indisputable that

respondent filed the present action beyond the two (2)-year time frame his second cause of action must be barred. Nonetheless, it
cannot be doubted that respondent exerted efforts to immediately convey his loss to petitioner, even employed the services of two
(2) lawyers to follow up his claims, and that the filing of the action itself was delayed because of petitioner's evasion.
Verily, respondent filed his complaint more than two (2) years later, beyond the period of limitation prescribed by the Warsaw
Convention for filing a claim for damages. However, it is obvious that respondent was forestalled from immediately filing an
action because petitioner airline gave him the runaround, answering his letters but not giving in to his demands. True, respondent
should have already filed an action at the first instance when his claims were denied by petitioner but the same could only be due
to his desire to make an out-of-court settlement for which he cannot be faulted. Hence, despite the express mandate of Art. 29 of
the Warsaw Convention that an action for damages should be filed within two (2) years from the arrival at the place of destination,
such rule shall not be applied in the instant case because of the delaying tactics employed by petitioner airline itself. Thus, private
respondent's second cause of action cannot be considered as time-barred under Art. 29 of the Warsaw Convention.

CASE LAW/ DOCTRINE:

DISSENTING/CONCURRING OPINION(S):

052 RADIO COMMUNICATIONS OF THE PHILIPPINES,

Author: rhonaburs
RCPI filed this petition to seek the reversal of the decision of the
INC., (RCPI) petitioner, vs. NATIONAL
National Telecommunications Commission (NTC), which ordered the
TELECOMMUNICATIONS COMMISSION and
former to desist from operating its radio telephone services in Samar,
KAYUMANGGI RADIO NETWORK INCORPORATED,
Occidental Mindoro, and Sorsogon.
respondents.
SC affirmed that RCPI has no authority to operate such services
G.R. No. L-68729 May 29, 1987
without the required certificate.
Topic: Public Utility & Public Service
FACTS:
1. RCPI has been operating a radio communications system since 1957 under its legislative franchise granted by RA 2036.
2. RCPI established a radio telegraph service in Sorsogon (1968), San Jose, Mindoro (1971), and Catarman, Samar (1976).
3. There was a NTC decision (1980) that authorized Kayumanggi Radio Network Incorporated to operate radio
communications systems in Catarman, Samar and in San Jose, Mindoro.
4. So in 1983, Kayumanggi Radio Network filed a complaint with the NTC alleging that the petitioner was operating in
Catarman, Samar and in San Jose, Mindoro without a certificate of public convenience and necessity.
5. RCPI counter-alleged that its telephone services in the places subject of the complaint are covered by the legislative
franchise recognized by both the public respondent and its predecessor, the Public Service Commission.
6. RCPI further stated that it has been in operation in the questioned places long before Kayumanggi filed its application to
operate in the same places.
5. NTC decision: ordered RCPI to immediately cease or desist from the operation of its radio telephone services in the said
places stating that under E0 No. 546, a certificate of public convenience and necessity is mandatory for the operation
of communication utilities and services including radio communications.
6. RCPIs motion for reconsideration was denied. Hence this petition.
RCPIs main argument: the abolition of the Public Service Commission and the creation of the National
Telecommunications Commission under Executive Order No. 546 to replace the defunct Public Service Commission did
not affect sections 14 and 15 of the Public Service Law (Commonwealth Act. No. 146, as amended).
ISSUE: WON petitioner RCPI, a grantee of a legislative franchise to operate a radio company, is required to secure a
certificate of public convenience and necessity before it can validly operate its radio stations including radio telephone
services in Catarman, Northern Samar; San Jose, Occidental Mindoro; and Sorsogon, Sorsogon.
HELD: Yes. The records of the case do not show any grant of authority from the Secretary of Public Works and
Communications before the petitioner installed the questioned radio telephone services. No certificate of public
convenience and necessity appears to have been secured by the petitioner from the public respondent when such
certificate, was required by the applicable public utility regulations
RATIO:
1. Pursuant to PD No. 1, the Public Service Commission was abolished and its functions were transferred to three
specialized regulatory boards, as follows: the Board of Transportation, the Board of Communications and the Board of
Power and Waterworks. The functions so transferred were still subject to the limitations provided in sections 14 and 15 of
the Public Service Law, as amended. With the enactment of Executive Order No. 546 on July 23, 1979 implementing P.D.
No.1, the Board of Communications and the Telecommunications Control Bureau were abolished and their functions were
transferred to the National Telecommunications Commission (Sec. 19(d), Executive Order No. 546). Section 15 of said
Executive Order spells out the functions of the National Telecommunications Commission as follows:
Sec. 15. Functions of the Commission.-The Commission shall exercise the following functions:
a. Issue Certificate of Public Convenience for the operation of communications utilities and services, radio communications petitions
systems, wire or wireless telephone or telegraph system, radio and television broadcasting system and other similar public utilities;
b. Establish, prescribe and regulate areas of operation of particular operators of public service communications; and determine and
prescribe charges or rates pertinent to the operation of such public utility facilities and services except in cases where charges or rates are
established by international bodies or associations of which the Philippines is a participating member or by bodies recognized by the
Philippine Government as the proper arbiter of such charges or rates;
c. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems and radio communication systems
including amateur radio stations and radio and television broadcasting systems; xxx xxx xxx xxx
xxxxx xxxx

It is clear from the aforequoted provision that the exemption enjoyed by radio companies from the jurisdiction of the
Public Service Commission and the Board of Communications no longer exists because of the changes effected by the
Reorganization Law and implementing executive orders. The petitioner's claim that its franchise cannot be affected by
Executive Order No. 546 on the ground that it has long been in operation since 1957 cannot be sustained.
A franchise started out as a "royal privilege or (a) branch of the King's prerogative, subsisting in the hands of a subject."
Today, a franchise, being merely a privilege emanating from the sovereign power of the state and owing its existence to a
grant, is subject to regulation by the state itself by virtue of its police power through its administrative agencies.
2. We ruled in Pangasinan transportation Co., Inc. v. Public Service Commission (70 Phil. 221) that:
... statutes enacted for the regulation of public utilities, being a proper exercise by the State of its police power, are
applicable not only to those public utilities coming into existence after its passage, but likewise to those already
established and in operation ...
Executive Order No. 546, being an implementing measure of P.D. No. I is applicable to the petitioner who must be
bound by its provisions. The petitioner cannot install and operate radio telephone services on the basis of its
legislative franchise alone.
3. The position of the petitioner that by the mere grant of its franchise under RA No. 2036 it can operate a radio
communications system anywhere within the Philippines is erroneous. In the words of R.A. No. 2036 itself, approval of
the then Secretary of Public Works and Communications was a precondition before the petitioner could put up radio
stations in areas where it desires to operate. The records of the case do not show any grant of authority from the then
Secretary of Public Works and Communications before the petitioner installed the questioned radio telephone services. No
certificate of public convenience and necessity appears to have been secured by the petitioner from the public respondent
when such certificate, was required by the applicable public utility regulations.
4. It was well within the powers of the public respondent (NTC) to authorize the installation by [Kayumanggi Radio
Network] of radio communications systems in Catarman, Samar and San Jose, Mindoro. Under the circumstances of this
case, the mere fact that the petitioner possesses a franchise to put up and operate a radio communications system in certain
areas is not an insuperable obstacle to the public respondent's issuing the proper certificate to an applicant desiring to
extend the same services to those areas. The Constitution mandates that a franchise cannot be exclusive in nature nor
can a franchise be granted except that it must be subject to amendment, alteration, or even repeal by the legislature
when the common good so requires. (Art. XII, sec. 11 of the 1986 Constitution). There is an express provision in the
petitioner's franchise, which provides compliance with the above mandate R.A. 2036, sec. 15).
5. The petitioner has not shown why the private respondent should be denied the authority to operate its services in Samar
and Mindoro. It has not overcome the presumption that when the public respondent disturbed the petitioner's monopoly in
certain areas, it was doing so pursuant to public interest and the common good.

053
RODOLFO
B.
ALBANO AUTHOR: Sarah
vs. HON. RAINERIO O. REYES, PHILIPPINE PORTS NOTES:
AUTHORITY,
INTERNATIONAL
CONTAINER
TERMINAL SERVICES, INC., E. RAZON, INC.,
ANSCOR CONTAINER CORPORATION, and
SEALAND SERVICES. LTD.
G.R. No. 83551, 11 July 1989
TOPIC: Sec. 13, Public Service Act, Art. XII, Sec. 11,
1987 Constitution
PONENTE: Paras, J.
FACTS:
1. PPA Board adopted its Resolution No. 850 directing PPA management to prepare the Invitation to Bid and all
relevant bidding documents and technical requirements necessary for the public bidding of the development,
management and operation of the MICT at the Port of Manila, and authorizing the Board Chairman, Secretary
Rainerio O. Reyes, to oversee the preparation of the technical and the documentation requirements for the MICT
leasing as well as to implement this project.
2. Secretary Reyes, by DOTC Special Order 87-346, created a seven (7) man "Special MICT Bidding Committee"
charged with evaluating all bid proposals, recommending to the Board the best bid, and preparing the
corresponding contract between the PPA and the winning bidder or contractor.
2.1 Members: 3 PPA representatives, 2 Department of Transportation and Communications (DOTC)
representatives, 1 Department of Trade and Industry (DTI) representative and one 1 private sector
representative.
3. PPA published the Invitation to Bid which publication included the reservation by the PPA of "the right to reject
any or all bids and to waive any informality in the bids or to accept such bids which may be considered most
advantageous to the government."
4. 7 consortia of companies actually submitted bids.
4.1 Bidding Committee recommended the award of the contract to develop, manage and operate the MICT to
International Container Terminal Services, Inc. (ICTSI) as having offered the best Technical and Financial
Proposal. Accordingly, respondent Secretary declared the ICTSI consortium as the winning bidder.
5. 2 successive cases were filed against the respondents which assailed the legality or regularity of the MICT bidding.
5.1 Special Civil Action 55489 for "Prohibition with Preliminary Injunction" filed with the RTC of Pasig by
Basilio H. Alo, an alleged "concerned taxpayer"
5.2 Civil Case 88-43616 for "Prohibition with Prayer for Temporary Restraining Order (TRO)" filed with the
RTC of Manila by C.F. Sharp Co., Inc., a member of the nine (9) firm consortium "Manila Container
Terminals, Inc." which had actively participated in the MICT Bidding.
6. President of the Philippines approved the proposed MICT Contract, with directives that "the responsibility for
planning, detailed engineering, construction, expansion, rehabilitation and capital dredging of the port, as well as
the determination of how the revenues of the port system shall be allocated for future port works, shall remain with
the PPA; and the contractor shall not collect taxes and duties except that in the case of wharfage or tonnage dues
and harbor and berthing fees, payment to the Government may be made through the contractor who shall issue
provisional receipts and turn over the payments to the Government which will issue the official receipts."
7. Albano: filed the present petition as citizen and taxpayer and as a member of the HOR, assailing the award of the
MICT contract to the ICTSI by the PPA. The petitioner claims that since the MICT is a public utility, it needs a
legislative franchise before it can legally operate as a public utility, pursuant to Article 12, Section 11 of the 1987
Constitution.
ISSUE:
1. Whether or not a franchise specially granted by the Congress is necessary for the operation of the Manila
International Container Port
HELD:
1. No.
RATIO:
1. Executive Order No. 30, dated July 16, 1986, provides:

WHEREFORE, I, CORAZON C. AQUINO, President of the Republic of the Philippines, by virtue of the
powers vested in me by the Constitution and the law, do hereby order the immediate recall of the franchise
granted to the Manila International Port Terminals, Inc. (MIPTI) and authorize the Philippine Ports
Authority (PPA) to take over, manage and operate the Manila International Port Complex at North Harbor,
Manila and undertake the provision of cargo handling and port related services thereat, in accordance with
P.D. 857 and other applicable laws and regulations.
Section 6 of Presidential Decree No. 857 (the Revised Charter of the Philippine Ports Authority) states:
a) The corporate duties of the Authority shall be:
(ii) To supervise, control, regulate, construct, maintain, operate, and provide such facilities
or services as are necessary in the ports vested in, or belonging to the Authority.
xxx xxx xxx
(v) To provide services (whether on its own, by contract, or otherwise) within the Port
Districts and the approaches thereof, including but not limited to
berthing, towing, mooring, moving, slipping, or docking of any vessel;
loading or discharging any vessel;
sorting, weighing, measuring, storing, warehousing, or otherwise handling goods.
xxx xxx xxx
b) The corporate powers of the Authority shall be as follows:
xxx xxx xxx
(vi) To make or enter into contracts of any kind or nature to enable it to discharge its
functions under this Decree.
Thus, while the PPA has been tasked, under E.O. No. 30, with the management and operation of the Manila International
Port Complex and to undertake the providing of cargo handling and port related services thereat, the law provides that such
shall be "in accordance with P.D. 857 and other applicable laws and regulations." On the other hand, P.D. No. 857
expressly empowers the PPA to provide services within Port Districts "whether on its own, by contract, or otherwise" [See.
6(a) (v)]. Therefore, under the terms of E.O. No. 30 and P.D. No. 857, the PPA may contract with the International
Container Terminal Services, Inc. (ICTSI) for the management, operation and development of the MICP.
2. Even if the MICP be considered a public utility, or a public serviceon the theory that it is a "wharf' or a "dock" as
contemplated under the Public Service Act, its operation would not necessarily call for a franchise from the Legislative
Branch. Franchises issued by Congress are not required before each and every public utility may operate. Thus, the law has
granted certain administrative agencies the power to grant licenses for or to authorize the operation of certain public
utilities. (See E.O. Nos. 172 and 202)
That the Constitution provides in Art. XII, Sec. 11 that the issuance of a franchise, certificate or other form of authorization
for the operation of a public utility shall be subject to amendment, alteration or repeal by Congress does not necessarily,
imply, as petitioner posits that only Congress has the power to grant such authorization. Our statute books are replete with
laws granting specified agencies in the Executive Branch the power to issue such authorization for certain classes of public

utilities.
As stated earlier, E.O. No. 30 has tasked the PPA with the operation and management of the MICP, in accordance with
P.D. 857 and other applicable laws and regulations. However, P.D. 857 itself authorizes the PPA to perform the service by
itself, by contracting it out, or through other means. Reading E.O. No. 30 and P.D. No. 857 together, the inescapable
conclusion is that the lawmaker has empowered the PPA to undertake by itself the operation and management of the MICP
or to authorize its operation and management by another by contract or other means, at its option. The latter power having
been delegated to the PPA, a franchise from Congress to authorize an entity other than the PPA to operate and manage the
MICP becomes unnecessary.
In the instant case, the PPA, in the exercise of the option granted it by P.D. No. 857, chose to contract out the operation
and management of the MICP to a private corporation. This is clearly within its power to do. Thus, PPA's acts of
privatizing the MICT and awarding the MICT contract to ICTSI are wholly within the jurisdiction of the PPA under its
Charter which empowers the PPA to "supervise, control, regulate, construct, maintain, operate and provide such facilities
or services as are necessary in the ports vested in, or belonging to the PPA." (Section 6(a) ii, P.D. 857)
The contract between the PPA and ICTSI, coupled with the President's written approval, constitute the necessary
authorization for ICTSI's operation and management of the MICP. The award of the MICT contract approved by no less
than the President of the Philippines herself enjoys the legal presumption of validity and regularity of official action. In the
case at bar, there is no evidence which clearly shows the constitutional infirmity of the questioned act of government.
Dissenting/Concurring Opinion:
Separate Opinions
GUTIERREZ, JR., J., concurring:
I concur in the Court's decision that the determination of whether or not the winning bidder is qualified to undertake the contracted service should be left to the sound
judgment of the Philippine Ports Authority (PPA). I agree that the PPA is the agency which can best evaluate the comparative qualifications of the various bidding
contractors and that in making such evaluation it has the technical expertise which neither this Court nor Congress possesses.
However, I would feel more comfortable in the thought that the above rulings are not only grounded on firm legal foundations but are also factually accurate if the PPA
shows greater consistency in its submissions to this Court.
I recall that in E. Razon, Inc. v. Philippine Ports Authority (151 SCRA 233 [1977]), this Court decided the case in favor of the PPA because, among others, of its
submissions that: (1) the petitioner therein committed violations as to outside stevedoring services, inadequate equipment, delayed submission of reports, and noncompliance with certain port regulations; (2) respondent Marina Port Services and not the petitioner was better qualified to handle arrastre services; (3) the petitioner
being controlled by Alfredo Romualdez could not enter into a management contract with PPA and any such contract would be null and void; and (4) even if the
petitioner may not have shared in the illegal intention behind the transfer of majority shares, it shared in the benefits of the violation of law.
I was surprised during the oral arguments of the present petition to hear the counsel for PPA submit diametrically different statements regarding the capabilities and
worth of E. Razon, Inc., as an arrastre operator. It now turns out that the Manila International Container Terminal will depend a great deal on the expertise, reliability and
competence of E. Razon, Inc., for its successful operations. The time difference between the two petitions is insubstantial. After going over the pleadings of the present
petition, I am now convinced that it is the submissions of PPA in this case and not its contentions in G.R. No. 75197 which are accurate and meritorious. There is the
distinct possibility that we may have been unfair in the earlier petition because of assertions made therein which are contradictory to the submissions in the instant
petition. No such doubts would exist if the Government is more consistent in its pleadings on such important factual matters as those raised in these two petitions.
Separate Opinions
GUTIERREZ, JR., J., concurring:
I concur in the Court's decision that the determination of whether or not the winning bidder is qualified to undertake the contracted service should be left to the sound
judgment of the Philippine Ports Authority (PPA). I agree that the PPA is the agency which can best evaluate the comparative qualifications of the various bidding
contractors and that in making such evaluation it has the technical expertise which neither this Court nor Congress possesses.
However, I would feel more comfortable in the thought that the above rulings are not only grounded on firm legal foundations but are also factually accurate if the PPA
shows greater consistency in its submissions to this Court.
I recall that in E. Razon, Inc. v. Philippine Ports Authority (151 SCRA 233 [1977]), this Court decided the case in favor of the PPA because, among others, of its
submissions that: (1) the petitioner therein committed violations as to outside stevedoring services, inadequate equipment, delayed submission of reports, and noncompliance with certain port regulations; (2) respondent Marina Port Services and not the petitioner was better qualified to handle arrastre services; (3) the petitioner

being controlled by Alfredo Romualdez could not enter into a management contract with PPA and any such contract would be null and void; and (4) even if the
petitioner may not have shared in the illegal intention behind the transfer of majority shares, it shared in the benefits of the violation of law.
I was surprised during the oral arguments of the present petition to hear the counsel for PPA submit diametrically different statements regarding the capabilities and
worth of E. Razon, Inc., as an arrastre operator. It now turns out that the Manila International Container Terminal will depend a great deal on the expertise, reliability and
competence of E. Razon, Inc., for its successful operations. The time difference between the two petitions is insubstantial. After going over the pleadings of the present
petition, I am now convinced that it is the submissions of PPA in this case and not its contentions in G.R. No. 75197 which are accurate and meritorious. There is the
distinct possibility that we may have been unfair in the earlier petition because of assertions made therein which are contradictory to the submissions in the instant
petition. No such doubts would exist if the Government is more consistent in its pleadings on such important factual matters as those raised in these two petitions.

054 NAPOCOR vs CA
GR 103442-45 May 21, 1993
FACTS:
This is a consolidated case comprising of four separate complaints., filed against NPC
and a particular Chavez.
Plaintiffs filed a complaint against respondent for the lost of lives and destruction of
properties due to the negligence of the latter in releasing water from Angat dam during
the typhoon Kading
Benjamin Chavez, being the supervisor at that time of a multi-purpose hydroelectric plant
in the Angat River at Hilltop, Norzagaray, Bulacan, failed to exercise due diligence in
monitoring the water level at the dam.
NPCs allegations were as follows:
1) the NPC exercised due care, diligence and prudence in the operation and maintenance
of the hydroelectric plant;
2) the NPC exercised the diligence of a good father in the selection of its employees; 3)
written notices were sent to the different municipalities of Bulacan warning the residents
therein about the impending release of a large volume of water with the onset of typhoon
"Kading" and advise them to take the necessary precautions;
4) the water released during the typhoon was needed to prevent the collapse of the dam
and avoid greater damage to people and property;
5) in spite of the precautions undertaken and the diligence exercised, they could still not
contain or control the flood that resulted and;
6) the damages incurred by the private respondents were caused by a fortuitous event or
force majeure and are in the nature and character of damnum absque injuria. By way of
special affirmative defense, the defendants averred that the NPC cannot be sued because
it performs a purely governmental function.
The trial court dismissed the complaints as against the NPC on the ground that the
provision of its charter allowing it to sue and be sued does not contemplate actions based
on tort. Its decision on 30 April 1990 dismissing the complaints "for lack of sufficient
and credible evidence."
Court of Appeals reversed the appealed decision and awarded damages in favor of the
private respondents. Based on the findings that From the mass of evidence extant in the
record, We are convinced, and so hold that the flash flood on October 27, 1978, was
caused not by rain waters (sic), but by stored waters (sic) suddenly and simultaneously
released from the Angat Dam by defendants-appellees, particularly from midnight of
October 26, 1978 up to the morning hours of October 27, 1978.
ISSUE:
Whether or not respondent is negligent?
Whether or not the notices of warning were insufficient?
Whether or not The damages suffered was not DAMNUM ABSQUE INJURIA?

HELD:
We declared therein that the proximate cause of the loss and damage sustained by the
plaintiffs therein who were similarly situated as the private respondents herein was
the negligence of the petitioners, and that the 24 October 1978 "early warning notice"
supposedly sent to the affected municipalities, the same notice involved in the case at bar,
was insufficient.
The petitioners were guilty of "patent gross and evident lack of foresight, imprudence and
negligence in the management and operation of Angat Dam," and that "the extent of the
opening of the spillways, and the magnitude of the water released, are all but products of
defendants-appellees' headlessness, slovenliness, and carelessness."
To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of
an obligation due to an "act of God," the following must concur: (a) the cause of the
breach of the obligation must be independent of the will of the debtor; (b) the event must
be either unforseeable or unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a moral manner; and (d) the debtor
must be free from any participation in, or aggravation of the injury to the creditor.
(Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423;
Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon Stevedoring
Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657).
Accordingly, petitioners cannot be heard to invoke the act of God or force majeure to
escape liability for the loss or damage sustained by private respondents since they, the
petitioners, were guilty of negligence. The event then was not occasioned exclusively by
an act of God or force majeure; a human factor negligence or imprudence had
intervened. The effect then of the force majeure in question may be deemed to have, even
if only partly, resulted from the participation of man. Thus, the whole occurrence was
thereby humanized, as it were, and removed from the laws applicable to acts of God.
Reference to the full text Facts:
This present controversy traces its beginnings to four (4) separate complaints 2 for
damages filed against the NPC and Benjamin Chavez before the trial court. The plaintiffs
therein, now private respondents, sought to recover actual and other damages for the loss
of lives and the destruction to property caused by the inundation of the town of
Norzagaray, Bulacan on 26-27 October 1978. The flooding was purportedly caused by
the negligent release by the defendants of water through the spillways of the Angat Dam
(Hydroelectric Plant). In said complaints, the plaintiffs alleged, inter alia, that: 1)
defendant NPC operated and maintained a multi-purpose hydroelectric plant in the Angat
River at Hilltop, Norzagaray, Bulacan; 2) defendant Benjamin Chavez was the plant
supervisor at the time of the incident in question; 3) despite the defendants' knowledge, as
early as 24 October 1978, of the impending entry of typhoon "Kading," they failed to
exercise due diligence in monitoring the water level at the dam; 4) when the said water
level went beyond the maximum allowable limit at the height of the typhoon, the
defendants suddenly, negligently and recklessly opened three (3) of the dam's spillways,

thereby releasing a large amount of water which inundated the banks of the Angat River;
and 5) as a consequence, members of the household of the plaintiffs, together with their
animals, drowned, and their properties were washed away in the evening of 26 October
and the early hours of 27 October 1978. 3
In their Answers, the defendants, now petitioners, alleged that: 1) the NPC exercised due
care, diligence and prudence in the operation and maintenance of the hydroelectric plant;
2) the NPC exercised the diligence of a good father in the selection of its employees; 3)
written notices were sent to the different municipalities of Bulacan warning the residents
therein about the impending release of a large volume of water with the onset of typhoon
"Kading" and advise them to take the necessary precautions; 4) the water released during
the typhoon was needed to prevent the collapse of the dam and avoid greater damage to
people and property; 5) in spite of the precautions undertaken and the diligence exercised,
they could still not contain or control the flood that resulted and; 6) the damages incurred
by the private respondents were caused by a fortuitous event or force majeure and are in
the nature and character of damnum absque injuria. By way of special affirmative
defense, the defendants averred that the NPC cannot be sued because it performs a purely
governmental function. 4

56 - Tatad vs. Sec. Garcia, April 16, 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.

057 RP v. Manila Electric Co. (MERALCO)

G.R. No. 141314, (15 November 2002
TOPIC: Public Utility & Public Service
PONENTE: PUNO, J.

AUTHOR:
NOTES: (if applicable)

FACTS:
1. December 23, 1993: MERALCO filed with the ERB an application for the revision of its rate schedules. The
application reflected an average increase of 21 centavos per kilowatthour (kwh) in its distribution charge. The
application also included a prayer for provisional approval of the increase pursuant to Section 16(c) of the Public
Service Act and Section 8 of Executive Order No. 172.
2. January 28, 1994: the ERB issued an Order granting a provisional increase of P0.184 per kwh, subject to the
following condition that in the event, however, that the Board finds, after hearing and submission by the
Commission on Audit of an audit report on the books and records of the applicant that the latter is entitled to a
lesser increase in rates, all excess amounts collected from the applicants customers as a result of this Order
shall either be refunded to them or correspondingly credited in their favor for application to electric bills
covering future consumptions. The ERB also requested COA to conduct an audit and examination of the books
and other records of account of the applicant and submit the same to the ERB.
3. February 11, 1997: COA submitted its report with the recommendation not to include income taxes paid by
MERALCO as part of its operating expenses for purposes of rate determination and the use of the net average
investment method for the computation of the proportionate value of the properties used by MERALCO during the
test year for the determination of the rate base.
4. Subsequently, the ERB rendered its decision adopting the above recommendations and authorized MERALCO to
implement a rate adjustment in the average amount of P0.017 per kwh, effective with respect to MERALCOs
billing cycles beginning February 1994.
5. The ERB further ordered that the provisional relief in the amount of P0.184/kwh granted under the Boards Order
dated 28 January 1994 is hereby superseded and modified and the excess average amount of P0.167/kwh starting
with MERALCOs billing cycles beginning February 1994 until its billing cycles beginning February 1998, be
refunded to MERALCOs customers or correspondingly credited in their favor for future consumption. The ERB
held that income tax should not be treated as operating expense as this should be borne by the stockholders who
are recipients of the income or profits realized from the operation of their business hence, should not be passed on
to the consumers.
6. Further, in applying the net average investment method, the ERB adopted the recommendation of COA that in
computing the rate base, only the proportionate value of the property should be included, determined in accordance
with the number of months the same was actually used in service during the test year.
7. On appeal, the Court of Appeals set aside the ERB decision insofar as it directed the reduction of the MERALCO
rates by an average of P0.167 per kwh and the refund of such amount to MERALCOs customers beginning
February 1994 and until its billing cycle beginning February 1998.
ISSUE(S):
1. Whether the CA erred in ruling that income tax paid by MERALCO should be treated as part of its operating expenses
and thus considered in determining the amount of increase in rates imposed by MERALCO
2. Whether the CA erred in rejecting the net average investment method used by the COA and the ERB and instead
adopted the average investment method used by MERALCO
HELD: Both YES
RATIO:
1. The regulation of rates to be charged by public utilities is founded upon the police powers of the State and statutes
prescribing rules for the control and regulation of public utilities are a valid exercise thereof. When private
property is used for a public purpose and is affected with public interest, it ceases to be juris privati only and
becomes subject to regulation. The regulation is to promote the common good. Submission to regulation may be
withdrawn by the owner by discontinuing use; but as long as use of the property is continued, the same is subject
to public regulation.
2. In regulating rates charged by public utilities, the State protects the public against arbitrary and excessive rates

while maintaining the efficiency and quality of services rendered. However, the power to regulate rates does not
give the State the right to prescribe rates which are so low as to deprive the public utility of a reasonable return on
investment. Thus, the rates prescribed by the State must be one that yields a fair return on the public utility upon
the value of the property performing the service and one that is reasonable to the public for the services rendered.
The fixing of just and reasonable rates involves a balancing of the investor and the consumer interests.
3. While the power to fix rates is a legislative function, whether exercised by the legislature itself or delegated
through an administrative agency, a determination of whether the rates so fixed are reasonable and just is a purely
judicial question and is subject to the review of the courts.
4. The ERB was created under Executive Order No. 172 to regulate, among others, the distribution of energy
resources and to fix rates to be charged by public utilities involved in the distribution of electricity. In the fixing of
rates, the only standard which the legislature is required to prescribe for the guidance of the administrative
authority is that the rate be reasonable and just. It has been held that even in the absence of an express
requirement as to reasonableness, this standard may be implied. What is a just and reasonable rate is a question
of fact calling for the exercise of discretion, good sense, and a fair, enlightened and independent judgment.
The requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or too
high as to be oppressive. In determining whether a rate is confiscatory, it is essential also to consider the given
situation, requirements and opportunities of the utility
5. In the cases at bar, findings and conclusions of the ERB on the rate that can be charged by MERALCO to the
public should be respected. The function of the court, in exercising its power of judicial review, is to determine
whether under the facts and circumstances, the final order entered by the administrative agency is unlawful or
unreasonable. Thus, to the extent that the administrative agency has not been arbitrary or capricious in the exercise
of its power, the time-honored principle is that courts should not interfere. The principle of separation of powers
dictates that courts should hesitate to review the acts of administrative officers except in clear cases of grave abuse
of discretion.
6. In determining the just and reasonable rates to be charged by a public utility, three major factors are
considered by the regulating agency: a) rate of return; b) rate base and c) the return itself or the computed
revenue to be earned by the public utility based on the rate of return and rate base. The rate of return is a
judgment percentage which, if multiplied with the rate base, provides a fair return on the public utility for the use
of its property for service to the public. The rate of return of a public utility is not prescribed by statute but by
administrative and judicial pronouncements. This Court has consistently adopted a 12% rate of return for public
utilities. The rate base, on the other hand, is an evaluation of the property devoted by the utility to the public
service or the value of invested capital or property which the utility is entitled to a return.
Income Tax as Operating Expense Cannot be Allowed For Rate-Determination Purposes
7. The ERB correctly ruled that income tax should not be included in the computation of operating expenses of a
public utility. Income tax paid by a public utility is inconsistent with the nature of operating expenses. In general,
operating expenses are those which are reasonably incurred in connection with business operations to yield
revenue or income. They are items of expenses which contribute or are attributable to the production of income or
revenue. As correctly put by the ERB, operating expenses should be a requisite of or necessary in the operation of
a utility, recurring, and that it redounds to the service or benefit of customers. Clearly, by its nature, income tax
payments of a public utility are not expenses which contribute to or are incurred in connection with the production
of profit of a public utility. Income tax should be borne by the taxpayer alone as they are payments made in
exchange for benefits received by the taxpayer from the State. No benefit is derived by the customers of a public
utility for the taxes paid by such entity and no direct contribution is made by the payment of income tax to the
operation of a public utility for purposes of generating revenue or profit. Accordingly, the burden of paying
income tax should be Meralcos alone and should not be shifted to the consumers by including the same in the
computation of its operating expenses.
8. The principle behind the inclusion of operating expenses in the determination of a just and reasonable rate is to
allow the public utility to recoup the reasonable amount of expenses it has incurred in connection with the services
it provides. It does not give the public utility the license to indiscriminately charge any and all types of expenses
incurred without regard to the nature thereof, i.e., whether or not the expense is attributable to the production of
services by the public utility. To charge consumers for expenses incurred by a public utility which are not related
to the service or benefit derived by the customers from the public utility is unjustified and inequitable.
9. While the public utility is entitled to a reasonable return on the fair value of the property being used for the service
of the public, no less than the Federal Supreme Court of the United States emphasized: [t]he public cannot

properly be subjected to unreasonable rates in order simply that stockholders may earn dividends If a
corporation cannot maintain such a [facility] and earn dividends for stockholders, it is a misfortune for it and them
which the Constitution does not require to be remedied by imposing unjust burdens on the public.
Use of Net Average Investment Method is Not Unreasonable
10. In the determination of the rate base, property used in the operation of the public utility must be subject to
appraisal and evaluation to determine the fair value thereof entitled to a fair return. With respect to those properties
which have not been used by the public utility for the entire duration of the test year, i.e., the year subject to audit
examination for rate-making purposes, a valuation method must be adopted to determine the proportionate value of
the property. Petitioners maintain that the net average investment method (also known as actual number of
months use method) recommended by COA and adopted by the ERB should be used, while MERALCO argues
that the average investment method (also known as the trending method) to determine the proportionate value of
properties should be applied.
11. Under the net average investment method, properties and equipment used in the operation of a public utility
are entitled to a return only on the actual number of months they are in service during the period. In contrast, the
average investment method computes the proportionate value of the property by adding the value of the property
at the beginning and at the end of the test year with the resulting sum divided by two.
12. The ERB did not abuse its discretion when it applied the net average investment method. The reasonableness of
net average investment method is borne by the records of the case. In its report, the COA explained that the
computation of the proportionate value of the property and equipment in accordance with the actual number of
months such property or equipment is in service for purposes of determining the rate base is favored, as against the
trending method employed by MERALCO, to reflect the real status of the property. By using the net average
investment method, the ERB and the COA considered for determination of the rate base the value of properties and
equipment used by MERALCO in proportion to the period that the same were actually used during the period in
question. This treatment is consistent with the settled rule in rate regulation that the determination of the
rate base of a public utility entitled to a return must be based on properties and equipment actually being
used or are useful to the operations of the public utility.
13. Further, computing the proportionate value of assets used in service in accordance with the actual number of
months the same is used during the test year is a more accurate method of determining the value of the properties
of a public utility entitled to a return. If, as determined by COA, the date of recordal in the books of MERALCO
reflects the actual date the equipment or property is used in service, there is no reason for the ERB to adopt the
trending method applied by MERALCO if a more precise method is available for determining the proportionate
value of the assets placed in service.
CASE LAW/ DOCTRINE:
DISSENTING/CONCURRING OPINION(S):

G.R. No. 112399 July 14, 1995

REPRESENTATIVE AMADO S. BAGATSING VS COMMITTEE ON PRIVATIZATION
FACTS OF THE CASE
PETRON was originally registered with the Securities and Exchange Commission (SEC) in 1966 under the corporate
name "Esso Philippines, Inc." .ESSO became a wholly-owned company of the government under the corporate name
PETRON and as a subsidiary of PNOC. PETRON owns the largest, most modern complex refinery in the Philippines. It is
listed as the No. 1 corporation in terms of assets and income in the Philippines in 1993.
President Corazon C. Aquino promulgated Proclamation No. 50 in the exercise of her legislative power under the
Freedom Constitution. Implicit in the Proclamation is the need to raise revenue for the Government and the ideal of
leaving business to the private sector by creating the committee on privatization. The Government can then
concentrate on the delivery of basic services and the performance e of vital public functions.
The Presidential Cabinet of President Ramos approved the privatization of PETRON as part of the Energy Sector Action
Plan. PNOC Board of Directors passed a resolution authorizing the company to negotiate and conclude a contract with
the consortium of Salomon Brothers of Hongkong Limited and PCI Capital Corporation for financial advisory services
to be rendered to PETRON. The Petron Privatization Working Committee (PWC) was thus formed. It finalized a
privatization strategy with 40% of the shares to be sold to a strategic partner and 20% to the general public The
President approved the 40% 40% 20% privatization strategy of PETRON.
The invitation to bid was published in several newspapers of general circulation, both local and foreign. The PNOC
Board of Directors then passed Resolution No. 866, S. 1993, declaring ARAMCO the winning bidder. PNOC and
ARAMCO signed the Stock Purchase Agreement, the two companies signed the Shareholders' Agreement.
The petition for prohibition in G.R. No. 112399 sought: (1) to nullify the bidding conducted for the sale of a block of
shares constituting 40% of the capital stock (40% block) of Petron Corporation (PETRON) and the award made to
Aramco Overseas Company, B.V. (ARAMCO) as the highest bidder and (2) to stop the sale of said block of shares to
ARAMCO. The petition for prohibition and certiorari in G.R. No. 115994 sought to annul the sale of the same block of
Petron shares subject of the petition in G.R. No. 112399.
ARAMCO entered a limited appearance to question the jurisdiction over its person, alleging that it is a foreign
company organized under the laws of the Netherlands, that it is not doing nor licensed to do business in the
Philippines, and that it does not maintain an office or a business address in and has not appointed a resident agent for
the Philippines (Rollo, p. 240).
Petitioners however, countered that they filed the action in their capacity as members of Congress.
ISSUE: WON Petitioners have a locus standi
DECISION: Petition is dismissed.
PRIVATIZATION
The only requirement under R.A. No. 7181 in order to privatize a strategic industry like PETRON is the approval of the
President. In the case of PETRON's privatization, the President gave his approval not only once but twice.
PETRON's privatization is also in line with and is part of the Philippine Energy Program under R.A. No. 7638. Section
5(b) of the law provides that the Philippine Energy Program shall include a policy direction towards the privatization
of government agencies related to energy.
BIDDING
On the claim that there was a failed bidding, petitioners contend that there were only three bidders. One of them,
PETRONAS, submitted a bid lower than the floor price while a second, failed to pre-qualify.

Under said COA Circular, there is a failure of bidding when: 1) there is only one offeror; or (2) when all the offers are
non-complying or unacceptable.In the case at bench, there were three offerors: SAUDI ARAMCO, PETRONAS and
WESTMONT. While two offerors were disqualified, PETRONAS for submitting a bid below the floor price and
WESTMONT for technical reasons, not all the offerors were disqualified. To constitute a failed bidding under the COA
Circular, all the offerors must be disqualified.

LOCUS STANDI
In Philippine Constitution Association v. Hon. Salvador Enriquez, G.R. No. 113105, August 19, 1994, we held that the
members of Congress have the legal standing to question the validity of acts of the Executive which injures them in
their person or the institution of Congress to which they belong. In the latter case, the acts cause derivative but
nonetheless substantial injury which can be questioned by members of Congress (Kennedy v. James, 412 F. Supp. 353
[1976]). In the absence of a claim that the contract in question violated the rights of petitioners or impermissibly
intruded into the domain of the Legislature, petitioners have no legal standing to institute the instant action in their
capacity as members of Congress.
However, petitioners can bring the action in their capacity as taxpayers under the doctrine laid down in Kilosbayan,
Inc. v. Guingona, 232 SCRA 110 (1994). Under said ruling, taxpayers may question contracts entered into by the
national government or government-owned or controlled corporations alleged to be in contravention of the law. As
long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it and uphold the legal
standing of petitioners as taxpayers to institute the present action.

G.R. No. 144109

February 17, 2003

ASSOCIATED COMMUNICATIONS & WIRELESS SERVICES UNITED

BROADCASTING NETWORKS, petitioner,
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION, responden

FACTS
In November 1911, Congress enacted Act No. 3846, Sec. 1 of which reads: No person,
firm, company, association, or corporation shall construct, establish, or operate a radio
transmitting station, or a radio receiving station used for commercial purposes, or a radio
broadcasting station,without having first obtained a franchise therefor from the
Congress of the Philippines x x x
In 1965, Congress granted Marcos Villaverde, Jr. and Winfred Villaverde a franchise to
construct, install, maintain, and operate radio stations in the country. This franchise was
transferred to Associated Communications & Wireless Services-United
Broadcasting Networks (ACWS) in 1969.
In 1974, P.D. No. 576-A was issued, Secs. 1 and 6 of which read, respectively:
Sec. 1. No radio station or television channel may obtain a franchise unless it has
sufficient capital on the basis of equity for its operation for at least one year, including
purchase of
equipment.
Sec. 6. All franchises x x x to operate radio or television broadcasting systems
shall terminate on December 31, 1981. Thereafter, irrespective of any franchise x x x to
operate granted by any office, agency, or person, no radio or television station shall be
authorized to operate without the authority of the Board of Communications and the
Secretary of Public Works and Communications or their successors x x x
In 1979, E.O. No. 546 was issued. It integrated the Board of Communications (BOC)
and the Telecommunications Control Bureau (TCB) into the National
Telecommunications Commission (NTC). It was granted the following powers, among
others:
(1) Issue Certificate[s] of Public Convenience (CPC) for the operation of x x x
radio and television broadcasting system[s] x x x; and
(2) Grant permits for the use of radio frequencies for x x x radio and television
broadcasting systems.
When ACWS franchise expired on December 31, 1981, it continued operating its radio
stations under permits granted by the NTC.

 NTC sought to clarify the issue of whether or not it could issue permits to radio and
television broadcasting stations lacking a legislative franchise. In 1991, the Department
of Justice (DOJ) rendered Opinion No. 98 (1991), wherein it made the following
conclusions:
(1) P.D. 576-A did not do away with the requirement of obtaining a legislative
franchise (see Sec. 1, Act 3846);
(2) Act 3846 has three requirements for those desiring to construct, install, or operate
a radio broadcasting station: (a)legislative franchise, (b) permit to construct or install
from the Secretary of Commerce and Industry, and (c) permit to operate from the
same;
(3) By virtue of Sec. 6 of P.D. 576-A, the power to issue the above-mentioned
permits were transferred to the BOC and the Secretary of Public Works and
Communications;
(4) By virtue of E.O. 546, the BOC and TCB were integrated, giving birth to the
NTC, which, according to Sec. 15(a) and (c) of the same E.O., has the power to issue
CPCs (for the operation of a radio broadcasting system) and permits (for the use of
radio frequencies for such systems).
(5) The NTC may issue a permit to radio and television broadcasting stations
without a franchise in light of the Supreme Courts (SC) decision in Albano v. Reyes,
where it was held that franchises issued by Congress are not required before each and
every public utility may operate. [Administrative agencies may be empowered by law] to
grant licenses for or to authorize the operation of certain public utilities.
In 1994, Congress Committee on Legislative Franchises, the NTC, and the Kapisanan
ng mga Brodkaster sa Pilipinas (of which ACWS is a member) signed a Memorandum of
Agreement, whereby a franchise is required for the operation of a radio or television
station. Broadcasting stations operating under temporary permits were given until
December 31, 1994 to apply for a franchise.
ACWS applied for one prior to the deadline. Pending its approval, it was granted a
temporary permit, allowing it to operate from June 1995 to June 1997. During this
time, it
was allowed to increase the power output of its television station, Channel 25, and
was authorized to purchase additional equipment for it. ACWS applied for the
renewal of its temporary permit in May 1997.
Congress was not able to decide ACWS application for a franchise because of the
latters failure to submit the necessary paperwork. NTC found out about this when it
inquired on the matter. ACWS did not refile its application for a franchise.
Through a letter from the NTC, ACWS was warned that without a franchise, it will
no longer be allowed to operate its stations, and that its application for a temporary
permit will be held in abeyance until it submits a new application for a legislative
franchise. As
mentioned in the preceding bullet point, ACWS did not refile its application for a
franchise.

 Despite the absence of a franchise however, the NTC informed ACWS in January
1998 that its May 17 application for a temporary permit was approved, and that it
will be released upon payment of a prescribed fee.Instead of releasing the permit
though when ACWS paid
the said amount, the NTC commenced an administrative case against it, threatening
to recall the frequency that was assigned to it.
NTC issued Memorandum Circular No. 14-10-98. Broadcasting stations without a
franchise were given until December 31, 1999 to obtain one. It was also mandated that
the franchise bill should already be before Congress not later than November 30,
1998. The franchise bill of ACWS was filed before the deadline.
Meanwhile, as regards the administrative case against ACWS, the NTC decided to
recall the frequency assigned to its Channel 25. The matter was brought before the
Court of Appeals (CA). CA affirmed the NTC, hence this petition for review on
certiorari.

ISSUES & ARGUMENTS - W/N a legislative franchise is required in this case

ACWS argues that Sec. 1 of Act 3846 only applies to radio, not television stations.
(See the first bullet point under FACTS.) Moreover, it adds that P.D. 576-A dispenses
with
the legislative franchise requirement.
It also contends that the DOJ Opinion is binding because it was the NTC itself that
asked for it from the governments legal adviser, the DOJ. It must be noted that
the DOJ opined that by virtue of E.O. 546 and Albano v. Reyes, the NTC may issue
permits to broadcasting stations without a franchise.

HELD & RATIONALE

YES, a legislative franchise is still required.
ACWS argues that Act 3846 only applies to radio stations. Act 3846 should be read in
conjunction with P.D. 576-A.Even if the former only refers to radio stations, since
the
latter is a directly related law which covers both radio and television stations ( see
the bullet point below), it can be said that the requirement under Act 3846 also
applies
to television stations.
P.D. 576-A did not do away with the legislative franchise requirement. As a matter
of fact, its Sec. 1 reads: No radio or television channel may obtain a franchise unless x
x x

Sec. 6 of the same also reveals that there is no intention to repeal Sec. 1 of Act 3846.
Although the first sentence seems to point to a repeal, the second one reveals that the
requirement was not scrapped, to wit: x x x Thereafter, irrespective of any franchise x
x x granted by any office, agency, or person, no radio or television station shall be
authorized to operate without the authority of the Board of Communications and the
Secretary of Public Works and Communications or their successors x x x Based on the
second sentence, instead of a repeal, what we are given is another requirement aside
from a franchise: permission from the BOC and the Secretary of Public Works and
Communications.
Dispensing with the requirement is not in line with the declared purposes of P.D.
576-A, which is to prevent monopolies and to regulate the allocation of limited
frequencies. Doing away with the requirement defeats public interest, the
determination of which is a function of the legislature.
The DOJ Opinion is not binding; it is merely persuasive. Its conclusion that the NTC
may issue permits to stations without a franchise is erroneous.
First, there is a difference between a franchise and a CPC/permit. A franchise
involves the exercise of the legislature of an exclusive regulatory power resulting in
a grant under authority of government, conferring a special right to do an act or
series of acts of public
concern; on the other hand, a CPC/permit involves a specialized agencys exercise
of its administrative regulatory powers, which deals with procedures and
technicalities.
Next, under E.O. 546, the NTC only has the power to issue CPCs or permits, not
franchises.
Lastly, ACWS reliance on Albano v. Reyes is misplaced. In that case, there was no law
requiring that a legislative franchise be obtained first. Here, we have Act 3846, as
amended by P.D. 576-A and E.O. 546. When there is a law requiring a franchise, an
administrative agency cannot allow a public utility to operate without it.
DISPOSITIVE: Petition DENIED. The NTC and the CA are AFFIRMED.

060 Kilusang Mayo Uno Labor Center vs.

Garcia, Jr.
Kapunan, J.
[G.R. No. 115381. December 23, 1994.
Nature: Petition for certiorari assailing the
constitutionality
and
validity
of
certain
memoranda, circulars and/or orders of the
Department
of
Transportation
and
Communications
(DOTC)
and
the
Land
Transportation Franchising and Regulatory Board
LTFRB).
Facts:

Quick Notes / Doctrine:

Petitioner contended that the questioned
issuances have resulted in the introduction
into our highways and thoroughfares
thousands of old and smoke-belching
buses, many of which are right-hand
driven, and have exposed our consumers to
the burden of spiraling costs of public
transportation without hearing and due
process.

Petitioner: KILUSANG MAYO UNO LABOR CENTER

Respondents: HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING
AND REGULATORY BOARD, and the PROVINCIAL BUSES OPERATORS ASSOCIATION OF
THE PHILIPPINES
In June 1990, then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90395 to then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to
charge passengers rates within a range of 15% above and 15% below the LTFRB official rate for a
period of one (1) year.
Finding the implementation of the fare range scheme "not legally feasible," LTFRB Chairman
Fernando submitted a memorandum to DOTC Secretary Orbos suggesting that the
implementation of the proposed fare range scheme be further studied and evaluated; noting that
to allow bus operators in the country to charge fares fifteen (15%) above the present LTFRB fares
in the wake of the devastation, death and suffering caused by the July 16 earthquake will not be
socially warranted and will be politically unsound.
In December 1990, private respondent Provincial Bus Operators Association of the Philippines,
Inc. (PBOAP) filed an application for an across-the-board fare rate increase of P0.065 centavos
per kilometer for ordinary buses. Public respondent LTFRB rendered a decision granting lower
ranges of fare rate increase at P0.37 in Luzon and P0.375 in Visayas and Mindanao.
In March 1992, then Secretary of the Department of Transportation and Communications Pete
Nicomedes Prado issued Department Order No. 92-587 defining the policy framework on the
regulation of transport services which provides that passenger fares shall also be deregulated,
except for the lowest class of passenger service (normally third class passenger transport) for
which the government will fix indicative or reference fares. Operators of particular
services may fix their own fares within a range 15% above and below the indicative or
reference rate.
In October 1992, public respondent Secretary of the Department of Transportation and
Communications Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the
LTFRB suggesting swift action on the adoption of rules and procedures to implement abovequoted Department Order No. 92-587 that laid down deregulation and other liberalization
policies for the transport sector.
In February 1993, the LTFRB issued Memorandum Circular No. 92-009 promulgating the
guidelines for the implementation of DOTC Department Order No. 92-587 which widens the
existing authorized fare range system of plus or minus 15 per cent for provincial buses and
jeepneys to 20% and -25% limit in 1994 with the authorized fare to be replaced by an indicative
or reference rate as the basis for the expanded fare range.
In March 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC
allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare
without first having filed a petition for the purpose and without the benefit of a public hearing,
announced a fare increase of twenty (20%) percent of the existing fares. Said increased fares were
to be made effective on March 16, 1994. On the said date, petitioner KMU filed a petition before

the LTFRB opposing the upward adjustment of bus fares, which the latter dismissed for lack of
merit.
Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary
restraining order (TRO).
The Court issued a TRO enjoining, prohibiting and preventing respondents from implementing
the bus fare rate increase as well as the questioned orders and memorandum circulars. This
meant that provincial bus fares were rolled back to the levels duly authorized by the LTFRB prior
to March 16, 1994. A moratorium was likewise enforced on the issuance of franchises for the
operation of buses, jeepneys, and taxicabs.
KMU anchors its claim on 2 grounds:
1) That the authority given by respondent LTFRB to provincial bus operators to set a
fare range of plus or minus fifteen (15%) percent, later increased to plus twenty (20%)
and minus twenty-five (-25%) percent, over and above the existing authorized fare
without having to file a petition for the purpose, is unconstitutional, invalid and
illegal; and
2) That the establishment of a presumption of public need in favor of an applicant for a
proposed transport service without having to prove public necessity, is illegal for
being violative of the Public Service Act and the Rules of Court.
Public respondents DOTC Secretary Jesus B. Garcia, Jr. and the LTFRB asseverate that the KMU
does not have the standing to maintain the instant suit. They further claim that it is within DOTC
and LTFRB's authority to set a fare range scheme and establish a presumption of public need in
applications for certificates of public convenience.
Issue:
WoN the authority given by respondent LTFRB to provincial bus operators to set a fare range over
and above the existing authorized fare without having to file a petition for the purpose, is illegal
for being violative of the Public Service Act and the Rules of Court.
Held:
YES. Under Section 16(c) of the Public Service Act, the Legislature delegated to the defunct Public
Service Commission the power of fixing the rates of public services. Respondent LTFRB, the
existing regulatory body today, is likewise vested with the same under Executive Order No. 202
dated June 19, 1987. However, nowhere under the aforesaid provisions of law are the regulatory
bodies, the PSC and LTFRB alike, authorized to delegate that power to a common carrier, a
transport operator, or other public service.
Dispositive:
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the
challenged administrative issuances and orders, namely: DOTC Department Order No. 92-587,
LTFRB Memorandum Circular No. 92-009, and the order dated March 24, 1994 issued by
respondent LTFRB are hereby DECLARED contrary to law and invalid insofar as they affect
provisions therein (a) delegating to provincial bus and jeepney operators the authority to increase
or decrease the duly prescribed transportation fares; and (b) creating a presumption of public
need for a service in favor of the applicant for a certificate of public convenience and placing the
burden of proving that there is no need for the proposed service to the oppositor.
Ratio:
On the fare range scheme.
Under Section 16(c) of the Public Service Act, the Legislature delegated to the defunct Public
Service Commission the power of fixing the rates of public services. Respondent LTFRB, the
existing regulatory body today, is likewise vested with the same under Executive Order No. 202
dated June 19, 1987. Section 5(c) of the said executive order authorizes LTFRB "to determine,
prescribe, approve and periodically review and adjust, reasonable fares, rates and other related
charges, relative to the operation of public land transportation services provided by motorized
vehicles."

Such delegation of legislative power to an administrative agency is permitted in order to adapt to

the increasing complexity of modern life. As subjects for governmental regulation multiply, so
does the difficulty of administering the laws. Hence, specialization even in legislation has become
necessary. Given the task of determining sensitive and delicate matters as route-fixing and ratemaking for the transport sector, the responsible regulatory body is entrusted with the power of
subordinate legislation. With this authority, an administrative body and in this case, the LTFRB,
may implement broad policies laid down in a statute by "filling in" the details which the
Legislature may neither have time or competence to provide. However, nowhere under the
aforesaid provisions of law are the regulatory bodies, the PSC and LTFRB alike,
authorized to delegate that power to a common carrier, a transport operator, or
other public service.
In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare
range over and above the authorized existing fare, is illegal and invalid as it is tantamount to an
undue delegation of legislative authority. Potestas delegata non delegari potest. What has been
delegated cannot be delegated. This doctrine is based on the ethical principle that such a
delegated power constitutes not only a right but a duty to be performed by the delegate through
the instrumentality of his own judgment and not through the intervening mind of another. A
further delegation of such power would indeed constitute a negation of the duty in violation of the
trust reposed in the delegate mandated to discharge it directly. The policy of allowing the
provincial bus operators to change and increase their fares at will would result not only to a
chaotic situation but to an anarchic state of affairs. This would leave the riding public at the mercy
of transport operators who may increase fares every hour, every day, every month or every year,
whenever it pleases them or whenever they deem it "necessary" to do so.
Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on
millions of commuters, government must not relinquish this important function in favor of those
who would benefit and profit from the industry. Neither should the requisite notice and hearing
be done away with. The people, represented by reputable oppositors, deserve to be given full
opportunity to be heard in their opposition to any fare increase.
The present administrative procedure, to our mind, already mirrors an orderly and satisfactory
arrangement for all parties involved. To do away with such a procedure and allow just one party,
an interested party at that, to determine what the rate should be, will undermine the right of the
other parties to due process. The purpose of a hearing is precisely to determine what a just and
reasonable rate is. Discarding such procedural and constitutional right is certainly inimical to our
fundamental law and to public interest.
On the presumption of public need.
Verily, the power of a regulatory body to issue a CPC is founded on the condition that after fulldress hearing and investigation, it shall find, as a fact, that the proposed operation is for the
convenience of the public. Basic convenience is the primary consideration for which a CPC is
issued, and that fact alone must be consistently borne in mind. Also, existing operators in subject
routes must be given an opportunity to offer proof and oppose the application. Therefore, an
applicant must, at all times, be required to prove his capacity and capability to furnish the service
which he has undertaken to render. 18 And all this will be possible only if a public hearing were
conducted for that purpose.
Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled
and institutionalized judicial, quasi-judicial and administrative procedures. It allows the party
who initiates the proceedings to prove, by mere application, his affirmative allegations. Moreover,
the offending provisions of the LTFRB memorandum circular in question would in effect amend
the Rules of Court by adding another disputable presumption in the enumeration of 37
presumptions under Rule 131, Section 5 of the Rules of Court. Such usurpation of this Court's
authority cannot be countenanced as only this Court is mandated by law to promulgate rules
concerning pleading, practice and procedure.

Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country
given the present circumstances. Advocacy of liberalized franchising and regulatory process is
tantamount to an abdication by the government of its inherent right to exercise police power, that
is, the right of government to regulate public utilities for protection of the public and the utilities
themselves.
While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to
regulate the transport sector, we find that they committed grave abuse of discretion in issuing
DOTC Department Order No. 92-587 defining the policy framework on the regulation of transport
services and LTFRB Memorandum Circular No. 92-009 promulgating the implementing
guidelines on DOTC Department Order No. 92-587, the said administrative issuances being
amendatory and violative of the Public Service Act and the Rules of Court. Consequently, we rule
that the twenty (20%) per centum fare increase imposed by respondent PBOAP on March 16,
1994 without the benefit of a petition and a public hearing is null and void and of no force and
effect. No grave abuse of discretion however was committed in the issuance of DOTC
Memorandum Order No. 90-395 and DOTC Memorandum dated October 8, 1992, the same being
merely internal communications between administrative officers.
Relation to Topic: (if any)
Pertinent Law: Public Service Act
Sec. 16. Proceedings of the Commission, upon notice and hearing. The Commission
shall have power, upon proper notice and hearing in accordance with the rules and provisions of
this Act, subject to the limitations and exceptions mentioned and saving provisions to the
contrary:
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(c)
To fix and determine individual or joint rates, tolls, charges, classifications, or schedules
thereof, as well as commutation, mileage kilometrage, and other special rates which shall be
imposed, observed, and followed thereafter by any public service: Provided, That the Commission
may, in its discretion, approve rates proposed by public services provisionally and without
necessity of any hearing; but it shall call a hearing thereon within thirty days thereafter, upon
publication and notice to the concerns operating in the territory affected: Provided, further, That
in case the public service equipment of an operator is used principally or secondarily for the
promotion of a private business, the net profits of said private business shall be considered in
relation with the public service of such operator for the purpose of fixing the rates. (Emphasis
ours).
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