Commercial Law,  Legally Yours

Tatad v. Garcia

Commercial Law. Transportation. Operation of public utility. Disqualification of foreign corporations.
Francisco Tatad, John Osmena and Rodolfo Biazon, vs. Jesus Garcia, and EDSA LRT CORPORATION, LTD
GR NO. 114222 April 6, 1995
Quiason, J.,


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. DOTC planned to construct a light railway transit line along EDSA, which shall traverse the cities of Pasay, Quezon, Mandaluyong, and Makati. 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.

Subsequently, RA No. 6957 referred to as the Build-Operate-Transfer (BOT) was signed by then President Corazon Aquino which 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.

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 overall 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. 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.

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. The request cannot, however, be granted 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. Thereafter, the parties entered into a “Revised and Restated Agreement to Build, Lease and Transfer and Light Rail Transit System for EDSA. DOTC, represented by Sec. Jesus Garcia, Sec. Prado and private respondent also 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.

Petitioners argued that the agreement, as amended by the Supplemental Agreement, in so far as it grants EDSA LRT CORPORATION, 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.

Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public utility?

YES. 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.

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 as per requirement of Section 11 of Article XII of the Constitution. In view of this incapacity, private respondent and DOTC agreed that on the completion date, the 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.

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