Tatad vs. Garcia

G.R. No.
114222 April 6, 1995

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners, vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of
Transportation and Communications, and EDSA LRT CORPORATION, LTD.,
respondents.
Facts:
In 1989, DOTC planned to construct a light railway transit line along EDSA. The plan,
referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a
mass transit system along EDSA and alleviate the congestion and growing
transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc.,
represented by Elijahu Levin to DOTC Secretary Oscar Orbos, proposing to construct
the EDSA LRT III on a Build-Operate-Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to
discuss the project with DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by the Private
Sector, and For Other Purposes," was signed by President Corazon C. Aquino.
Referred to as the Build-Operate-Transfer (BOT) Law, it took effect on October 9,
1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and
operation of government projects through private initiative and investment: Build-
Operate-Transfer (BOT) or Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III
project underway, DOTC, on January 22, 1991 and March 14, 1991, issued
Department Orders Nos. 91-494 and 91-496, respectively creating the
Prequalification Bids and Awards Committee (PBAC) and the Technical Committee.
After its constitution, the PBAC issued guidelines for the prequalification of
contractors for the financing and implementation of the project The notice,
advertising the prequalification of bidders, was published in three newspapers of
general circulation once a week for three consecutive weeks starting February 21,
1991.
The deadline set for submission of prequalification documents was March 21, 1991,
later extended to April 1, 1991. Five groups responded to the invitation.
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9,
1991 declaring that of the five applicants, only the EDSA LRT Consortium "met the
requirements of garnering at least 21 points per criteria
[sic], except for Legal Aspects, and obtaining an over-all passing mark of at least
82 points" (Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT
contractor-applicant meet the requirements specified in the Constitution and other
pertinent laws.
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced
Executive Secretary Orbos, informed Secretary Prado that the President could not
grant the requested approval
In view of the comments of Executive Secretary Drilon, the DOTC and private
respondents re-negotiated the agreement. On April 22, 1992, the parties entered
into a "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail
Transit System for EDSA"
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his
consideration and approval. In a Memorandum to Secretary Garcia on May 6, 1993,
approved the said Agreements,
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, or 150 million a year to be achieved-through 54 such
vehicles operating simultaneously. The EDSA LRT III will run at grade, or street level,
on the mid-section of EDSA for a distance of 17.8 kilometers from F.B. Harrison,
Pasay City to North Avenue, Quezon City. The system will have its own power
facility (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have
thirteen (13) passenger stations and one depot in 16-hectare government property
at North Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
Private respondents shall undertake and finance the entire project required for a
complete operational light rail transit system (Revised and Restated Agreement,
Sec. 4.1; Rollo, p. 58).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act
No. 6957, Entitled "An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector, and for Other
Purposes" was signed into law by the President. The law was published in two
newspapers of general circulation on May 12, 1994, and took effect 15 days
thereafter or on May 28, 1994. The law expressly recognizes BLT scheme and allows
direct negotiation of BLT contracts.
Petitioners are senators praying for the prohibition of respondents from further
implementing and enforcing the contract.
Issue:
Whether or not respondent EDSA LRT Corporation, Ltd., a foreign corporation own
EDSA LRT III; a public utility?
Held:
The phrasing of the question is erroneous; it is loaded. 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 (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558
[1923]).
The Constitution, in no uncertain terms, requires a franchise for the operation of a

public utility. However, it does not require a franchise before one can own the
facilities needed to operate a public utility so long as it does not operate them 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 fifty years . . . (Emphasis supplied).
In law, there is a clear distinction between the "operation" of a public utility and the
ownership of the facilities and equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one

person is completely subjected to his will in everything not prohibited by law or the
concurrence with the rights of another
The exercise of the rights encompassed in ownership is limited by law so that a

property cannot be operated and used to serve the public as a public utility unless
the operator has a franchise. The operation of a rail system as a public utility
includes the transportation of passengers from one point to another point, their
loading and unloading at designated places and the movement of the trains at pre-
scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180
P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30
Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]).
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.
Private respondent will not run the light rail vehicles and collect fees from the riding
public. It will have no dealings with the public and the public will have no right to
demand any services from it.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a
public utility (Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930];
Chippewa Power Co. v. Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188
Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill 35 S. Ct. 645, 646,
237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are owners of tank, refrigerator, wine,
poultry and beer cars who supply cars under contract to railroad companies
considered as public utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d
984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso

facto characterize the corporation as one operating a public utility. The moment for
determining the requisite Filipino nationality is when the entity applies for a
franchise, certificate or any other form of authorization for that purpose (People v.
Quasha, 93 Phil. 333 [1953]).

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G.R. No.

114222 April 6, 1995

Secretary Prado, thereafter, requested presidential approval of the contract.

The Constitution, in no uncertain terms, requires a franchise for the operation of a

Section 11 of Article XII of the Constitution provides:

No franchise, certificate or any other form of authorization for the operation

Ownership is defined as a relation in law by virtue of which a thing pertaining to one

The exercise of the rights encompassed in ownership is limited by law so that a

Even the mere formation of a public utility corporation does not ipso

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