G.R. No.

167994

January 22, 2007

JORGE GONZALES, Petitioner,

vs.
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of BR. 148 of the REGIONAL TRIAL COURT of MAKATI
CITY, and CLIMAX-ARIMCO MINING CORPORATION, Respondents.
RESOLUTION
TINGA, J.:
This is a consolidation of two petitions rooted in the same disputed Addendum Contract entered into by the parties. In
G.R. No. 161957, the Court in its Decision of 28 February 20051 denied the Rule 45 petition of petitioner Jorge Gonzales
(Gonzales). It held that the DENR Panel of Arbitrators had no jurisdiction over the complaint for the annulment of the
Addendum Contract on grounds of fraud and violation of the Constitution and that the action should have been brought
before the regular courts as it involved judicial issues. Both parties filed separate motions for reconsideration. Gonzales
avers in his Motion for Reconsideration2 that the Court erred in holding that the DENR Panel of Arbitrators was bereft of
jurisdiction, reiterating its argument that the case involves a mining dispute that properly falls within the ambit of the
Panels authority. Gonzales adds that the Court failed to rule on other issues he raised relating to the sufficiency of his
complaint before the DENR Panel of Arbitrators and the timeliness of its filing.
Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial Reconsideration and/or Clarification3
seeking reconsideration of that part of the Decision holding that the case should not be brought for arbitration under
Republic Act (R.A.) No. 876, also known as the Arbitration Law.4 Respondents, citing American jurisprudence5 and the
UNCITRAL Model Law,6 argue that the arbitration clause in the Addendum Contract should be treated as an agreement
independent of the other terms of the contract, and that a claimed rescission of the main contract does not avoid the
duty to arbitrate. Respondents add that Gonzaless argument relating to the alleged invalidity of the Addendum Contract
still has to be proven and adjudicated on in a proper proceeding; that is, an action separate from the motion to compel
arbitration. Pending judgment in such separate action, the Addendum Contract remains valid and binding and so does
the arbitration clause therein. Respondents add that the holding in the Decision that "the case should not be brought
under the ambit of the Arbitration Law" appears to be premised on Gonzaless having "impugn*ed+ the existence or
validity" of the addendum contract. If so, it supposedly conveys the idea that Gonzaless unilateral repudiation of the
contract or mere allegation of its invalidity is all it takes to avoid arbitration. Hence, respondents submit that the courts
holding that "the case should not be brought under the ambit of the Arbitration Law" be understood or clarified as
operative only where the challenge to the arbitration agreement has been sustained by final judgment.
Both parties were required to file their respective comments to the other partys motion for
reconsideration/clarification.7 Respondents filed their Comment on 17 August 2005,8 while Gonzales filed his only on 25
July 2006.9
On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or while the motions for reconsideration in
G.R. No. 16195710 were pending, wherein Gonzales challenged the orders of the Regional Trial Court (RTC) requiring
him to proceed with the arbitration proceedings as sought by Climax-Arimco Mining Corporation (Climax-Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated upon the recommendation of the
Assistant Division Clerk of Court since the cases are rooted in the same Addendum Contract.
We first tackle the more recent case which is G.R. No. 167994. It stemmed from the petition to compel arbitration filed
by respondent Climax-Arimco before the RTC of Makati City on 31 March 2000 while the complaint for the nullification
of the Addendum Contract was pending before the DENR Panel of Arbitrators. On 23 March 2000, Climax-Arimco had
sent Gonzales a Demand for Arbitration pursuant to Clause 19.111 of the Addendum Contract and also in accordance
with Sec. 5 of R.A. No. 876. The petition for arbitration was subsequently filed and Climax-Arimco sought an order to
compel the parties to arbitrate pursuant to the said arbitration clause. The case, docketed as Civil Case No. 00-444, was

initially raffled to Br. 132 of the RTC of Makati City, with Judge Herminio I. Benito as Presiding Judge. Respondent ClimaxArimco filed on 5 April 2000 a motion to set the application to compel arbitration for hearing.
On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to set for hearing. On 15 May 2000, he
filed an Answer with Counterclaim,12 questioning the validity of the Addendum Contract containing the arbitration
clause. Gonzales alleged that the Addendum Contract containing the arbitration clause is void in view of Climax-Arimcos
acts of fraud, oppression and violation of the Constitution. Thus, the arbitration clause, Clause 19.1, contained in the
Addendum Contract is also null and void ab initio and legally inexistent.1awphi1.net
On 18 May 2000, the RTC issued an order declaring Gonzaless motion to dismiss moot and academic in view of the filing
of his Answer with Counterclaim.13
On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial.14 This the RTC denied on 16 June 2000, holding
that the petition for arbitration is a special proceeding that is summary in nature.15 However, on 7 July 2000, the RTC
granted Gonzaless motion for reconsideration of the 16 June 2000 Order and set the case for pre-trial on 10 August
2000, it being of the view that Gonzales had raised in his answer the issue of the making of the arbitration agreement.16
Climax-Arimco then filed a motion to resolve its pending motion to compel arbitration. The RTC denied the same in its
24 July 2000 order.
On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. Benito for "not possessing the cold neutrality
of an impartial judge."17 On 5 August 2000, Judge Benito issued an Order granting the Motion to Inhibit and ordered the
re-raffling of the petition for arbitration.18 The case was raffled to the sala of public respondent Judge Oscar B. Pimentel
of Branch 148.
On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24 July 2000 Order.19 Climax-Arimco argued
that R.A. No. 876 does not authorize a pre-trial or trial for a motion to compel arbitration but directs the court to hear
the motion summarily and resolve it within ten days from hearing. Judge Pimentel granted the motion and directed the
parties to arbitration. On 13 February 2001, Judge Pimentel issued the first assailed order requiring Gonzales to proceed
with arbitration proceedings and appointing retired CA Justice Jorge Coquia as sole arbitrator.20
Gonzales moved for reconsideration on 20 March 2001 but this was denied in the Order dated 7 March 2005.21
Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 February 2001 and 7 March 2005 of Judge
Pimentel. Gonzales contends that public respondent Judge Pimentel acted with grave abuse of discretion in immediately
ordering the parties to proceed with arbitration despite the proper, valid, and timely raised argument in his Answer with
Counterclaim that the Addendum Contract, containing the arbitration clause, is null and void. Gonzales has also sought a
temporary restraining order to prevent the enforcement of the assailed orders directing the parties to arbitrate, and to
direct Judge Pimentel to hold a pre-trial conference and the necessary hearings on the determination of the nullity of
the Addendum Contract.
In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:
Sec. 6. Hearing by court.A party aggrieved by the failure, neglect or refusal of another to perform under an agreement
in writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the
manner provided for in such agreement. Five days notice in writing of the hearing of such application shall be served
either personally or by registered mail upon the party in default. The court shall hear the parties, and upon being
satisfied that the making of the agreement or such failure to comply therewith is not in issue, shall make an order
directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the
agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding be that no
agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the
proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in

proceeding thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof.
The court shall decide all motions, petitions or applications filed under the provisions of this Act, within ten (10) days
after such motions, petitions, or applications have been heard by it.
Gonzales also cites Sec. 24 of R.A. No. 9285 or the "Alternative Dispute Resolution Act of 2004:"
Sec. 24. Referral to Arbitration.A court before which an action is brought in a matter which is the subject matter of an
arbitration agreement shall, if at least one party so requests not later than the pre-trial conference, or upon the request
of both parties thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is null and void,
inoperative or incapable of being performed.
According to Gonzales, the above-quoted provisions of law outline the procedure to be followed in petitions to compel
arbitration, which the RTC did not follow. Thus, referral of the parties to arbitration by Judge Pimentel despite the timely
and properly raised issue of nullity of the Addendum Contract was misplaced and without legal basis. Both R.A. No. 876
and R.A. No. 9285 mandate that any issue as to the nullity, inoperativeness, or incapability of performance of the
arbitration clause/agreement raised by one of the parties to the alleged arbitration agreement must be determined by
the court prior to referring them to arbitration. They require that the trial court first determine or resolve the issue of
nullity, and there is no other venue for this determination other than a pre-trial and hearing on the issue by the trial
court which has jurisdiction over the case. Gonzales adds that the assailed 13 February 2001 Order also violated his right
to procedural due process when the trial court erroneously ruled on the existence of the arbitration agreement despite
the absence of a hearing for the presentation of evidence on the nullity of the Addendum Contract.
Respondent Climax-Arimco, on the other hand, assails the mode of review availed of by Gonzales. Climax-Arimco cites
Sec. 29 of R.A. No. 876:
Sec. 29. Appeals.An appeal may be taken from an order made in a proceeding under this Act, or from a judgment
entered upon an award through certiorari proceedings, but such appeals shall be limited to questions of law. The
proceedings upon such an appeal, including the judgment thereon shall be governed by the Rules of Court in so far as
they are applicable.
Climax-Arimco mentions that the special civil action for certiorari employed by Gonzales is available only where there is
no appeal or any plain, speedy, and adequate remedy in the ordinary course of law against the challenged orders or
acts. Climax-Arimco then points out that R.A. No. 876 provides for an appeal from such orders, which, under the Rules of
Court, must be filed within 15 days from notice of the final order or resolution appealed from or of the denial of the
motion for reconsideration filed in due time. Gonzales has not denied that the relevant 15-day period for an appeal had
elapsed long before he filed this petition for certiorari. He cannot use the special civil action of certiorari as a remedy for
a lost appeal.
Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A. No. 876 confers on the trial court only
a limited and special jurisdiction, i.e., a jurisdiction solely to determine (a) whether or not the parties have a written
contract to arbitrate, and (b) if the defendant has failed to comply with that contract. Respondent cites La Naval Drug
Corporation v. Court of Appeals,22 which holds that in a proceeding to compel arbitration, "[t]he arbitration law
explicitly confines the courts authority only to pass upon the issue of whether there is or there is no agreement in
writing providing for arbitration," and "[i]n the affirmative, the statute ordains that the court shall issue an order
summarily directing the parties to proceed with the arbitration in accordance with the terms thereof."23 ClimaxArimco argues that R.A. No. 876 gives no room for any other issue to be dealt with in such a proceeding, and that the
court presented with an application to compel arbitration may order arbitration or dismiss the same, depending solely
on its finding as to those two limited issues. If either of these matters is disputed, the court is required to conduct a
summary hearing on it. Gonzaless proposition contradicts both the trial courts limited jurisdiction and the summary
nature of the proceeding itself.

Climax-Arimco further notes that Gonzaless attack on or repudiation of the Addendum Contract also is not a ground to
deny effect to the arbitration clause in the Contract. The arbitration agreement is separate and severable from the
contract evidencing the parties commercial or economic transaction, it stresses. Hence, the alleged defect or failure of
the main contract is not a ground to deny enforcement of the parties arbitration agreement. Even the party who has
repudiated the main contract is not prevented from enforcing its arbitration provision. R.A. No. 876 itself treats the
arbitration clause or agreement as a contract separate from the commercial, economic or other transaction to be
arbitrated. The statute, in particular paragraph 1 of Sec. 2 thereof, considers the arbitration stipulation an independent
contract in its own right whose enforcement may be prevented only on grounds which legally make the arbitration
agreement itself revocable, thus:
Sec. 2. Persons and matters subject to arbitration.Two or more persons or parties may submit to the arbitration of one
or more arbitrators any controversy existing, between them at the time of the submission and which may be the subject
of an action, or the parties to any contract may in such contract agree to settle by arbitration a controversy thereafter
arising between them. Such submission or contract shall be valid, enforceable and irrevocable, save upon such grounds
as exist at law for the revocation of any contract.
x xxx
The grounds Gonzales invokes for the revocation of the Addendum Contractfraud and oppression in the execution
thereofare also not grounds for the revocation of the arbitration clause in the Contract, Climax-Arimco notes. Such
grounds may only be raised by way of defense in the arbitration itself and cannot be used to frustrate or delay the
conduct of arbitration proceedings. Instead, these should be raised in a separate action for rescission, it continues.
Climax-Arimco emphasizes that the summary proceeding to compel arbitration under Sec. 6 of R.A. No. 876 should not
be confused with the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an application to compel
arbitration where the courts authority is limited to resolving the issue of whether there is or there is no agreement in
writing providing for arbitration, while Sec. 24 of R.A. No. 9285 refers to an ordinary action which covers a matter that
appears to be arbitrable or subject to arbitration under the arbitration agreement. In the latter case, the statute is clear
that the court, instead of trying the case, may, on request of either or both parties, refer the parties to arbitration,
unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed. Arbitration
may even be ordered in the same suit brought upon a matter covered by an arbitration agreement even without waiting
for the outcome of the issue of the validity of the arbitration agreement. Art. 8 of the UNCITRAL Model Law24 states
that where a court before which an action is brought in a matter which is subject of an arbitration agreement refers the
parties to arbitration, the arbitral proceedings may proceed even while the action is pending.
Thus, the main issue raised in the Petition for Certiorari is whether it was proper for the RTC, in the proceeding to
compel arbitration under R.A. No. 876, to order the parties to arbitrate even though the defendant therein has raised
the twin issues of validity and nullity of the Addendum Contract and, consequently, of the arbitration clause therein as
well. The resolution of both Climax-Arimcos Motion for Partial Reconsideration and/or Clarification in G.R. No. 161957
and Gonzaless Petition for Certiorari in G.R. No. 167994 essentially turns on whether the question of validity of the
Addendum Contract bears upon the applicability or enforceability of the arbitration clause contained therein. The two
pending matters shall thus be jointly resolved.
We address the Rule 65 petition in G.R. No. 167994 first from the remedial law perspective. It deserves to be dismissed
on procedural grounds, as it was filed in lieu of appeal which is the prescribed remedy and at that far beyond the
reglementary period. It is elementary in remedial law that the use of an erroneous mode of appeal is cause for dismissal
of the petition for certiorari and it has been repeatedly stressed that a petition for certiorari is not a substitute for a lost
appeal. As its nature, a petition for certiorari lies only where there is "no appeal," and "no plain, speedy and adequate
remedy in the ordinary course of law."25 The Arbitration Law specifically provides for an appeal by certiorari, i.e., a
petition for review under certiorari under Rule 45 of the Rules of Court that raises pure questions of law.26 There is no
merit to Gonzaless argument that the use of the permissive term "may" in Sec. 29, R.A. No. 876 in the filing of appeals
does not prohibit nor discount the filing of a petition for certiorari under Rule 65.27 Proper interpretation of the
aforesaid provision of law shows that the term "may" refers only to the filing of an appeal, not to the mode of review to

be employed. Indeed, the use of "may" merely reiterates the principle that the right to appeal is not part of due process
of law but is a mere statutory privilege to be exercised only in the manner and in accordance with law.
Neither can BF Corporation v. Court of Appeals28 cited by Gonzales support his theory. Gonzales argues that said case
recognized and allowed a petition for certiorari under Rule 65 "appealing the order of the Regional Trial Court
disregarding the arbitration agreement as an acceptable remedy."29 The BF Corporation case had its origins in a
complaint for collection of sum of money filed by therein petitioner BF Corporation against Shangri-la Properties, Inc.
(SPI). SPI moved to suspend the proceedings alleging that the construction agreement or the Articles of Agreement
between the parties contained a clause requiring prior resort to arbitration before judicial intervention. The trial court
found that an arbitration clause was incorporated in the Conditions of Contract appended to and deemed an integral
part of the Articles of Agreement. Still, the trial court denied the motion to suspend proceedings upon a finding that the
Conditions of Contract were not duly executed and signed by the parties. The trial court also found that SPI had failed to
file any written notice of demand for arbitration within the period specified in the arbitration clause. The trial court
denied SPI's motion for reconsideration and ordered it to file its responsive pleading. Instead of filing an answer, SPI filed
a petition for certiorari under Rule 65, which the Court of Appeals, favorably acted upon. In a petition for review before
this Court, BF Corporation alleged, among others, that the Court of Appeals should have dismissed the petition for
certiorari since the order of the trial court denying the motion to suspend proceedings "is a resolution of an incident on
the merits" and upon the continuation of the proceedings, the trial court would eventually render a decision on the
merits, which decision could then be elevated to a higher court "in an ordinary appeal."30
The Court did not uphold BF Corporations argument. The issue raised before the Court was whether SPI had taken the
proper mode of appeal before the Court of Appeals. The question before the Court of Appeals was whether the trial
court had prematurely assumed jurisdiction over the controversy. The question of jurisdiction in turn depended on the
question of existence of the arbitration clause which is one of fact. While on its face the question of existence of the
arbitration clause is a question of fact that is not proper in a petition for certiorari, yet since the determination of the
question obliged the Court of Appeals as it did to interpret the contract documents in accordance with R.A. No. 876 and
existing jurisprudence, the question is likewise a question of law which may be properly taken cognizance of in a petition
for certiorari under Rule 65, so the Court held.31
The situation in B.F. Corporation is not availing in the present petition. The disquisition in B.F. Corporation led to the
conclusion that in order that the question of jurisdiction may be resolved, the appellate court had to deal first with a
question of law which could be addressed in a certiorari proceeding. In the present case, Gonzaless petition raises a
question of law, but not a question of jurisdiction. Judge Pimentel acted in accordance with the procedure prescribed in
R.A. No. 876 when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after making the
determination that there was indeed an arbitration agreement. It has been held that as long as a court acts within its
jurisdiction and does not gravely abuse its discretion in the exercise thereof, any supposed error committed by it will
amount to nothing more than an error of judgment reviewable by a timely appeal and not assailable by a special civil
action of certiorari.32 Even if we overlook the employment of the wrong remedy in the broader interests of justice, the
petition would nevertheless be dismissed for failure of Gonzalez to show grave abuse of discretion.
Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction. The
Civil Code is explicit on the matter.33 R.A. No. 876 also expressly authorizes arbitration of domestic disputes. Foreign
arbitration, as a system of settling commercial disputes of an international character, was likewise recognized when the
Philippines adhered to the United Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral
Awards of 1958," under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and
allowing enforcement of international arbitration agreements between parties of different nationalities within a
contracting state.34 The enactment of R.A. No. 9285 on 2 April 2004 further institutionalized the use of alternative
dispute resolution systems, including arbitration, in the settlement of disputes.
Disputes do not go to arbitration unless and until the parties have agreed to abide by the arbitrators decision.
Necessarily, a contract is required for arbitration to take place and to be binding. R.A. No. 876 recognizes the contractual
nature of the arbitration agreement, thus:

Sec. 2. Persons and matters subject to arbitration.Two or more persons or parties may submit to the arbitration of one
or more arbitrators any controversy existing, between them at the time of the submission and which may be the subject
of an action, or the parties to any contract may in such contract agree to settle by arbitration a controversy thereafter
arising between them. Such submission or contract shall be valid, enforceable and irrevocable, save upon such grounds
as exist at law for the revocation of any contract.
Such submission or contract may include question arising out of valuations, appraisals or other controversies which may
be collateral, incidental, precedent or subsequent to any issue between the parties.
A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or a person judicially
declared to be incompetent, unless the appropriate court having jurisdiction approve a petition for permission to submit
such controversy to arbitration made by the general guardian or guardian ad litem of the infant or of the incompetent.
[Emphasis added.]
Thus, we held in Manila Electric Co. v. Pasay Transportation Co.35 that a submission to arbitration is a contract. A clause
in a contract providing that all matters in dispute between the parties shall be referred to arbitration is a contract,36 and
in Del Monte Corporation-USA v. Court of Appeals37 that "[t]he provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of that contract and is itself a contract. As a rule, contracts are
respected as the law between the contracting parties and produce effect as between them, their assigns and heirs."38
The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual nature of arbitration clauses or
agreements. It provides:
Sec. 6. Hearing by court.A party aggrieved by the failure, neglect or refusal of another to perform under an agreement
in writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the
manner provided for in such agreement. Five days notice in writing of the hearing of such application shall be served
either personally or by registered mail upon the party in default. The court shall hear the parties, and upon being
satisfied that the making of the agreement or such failure to comply therewith is not in issue, shall make an order
directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the
agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding be that no
agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the
proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in
proceeding thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof.
The court shall decide all motions, petitions or applications filed under the provisions of this Act, within ten days after
such motions, petitions, or applications have been heard by it. [Emphasis added.]
This special proceeding is the procedural mechanism for the enforcement of the contract to arbitrate. The jurisdiction of
the courts in relation to Sec. 6 of R.A. No. 876 as well as the nature of the proceedings therein was expounded upon in
La Naval Drug Corporation v. Court of Appeals.39 There it was held that R.A. No. 876 explicitly confines the court's
authority only to the determination of whether or not there is an agreement in writing providing for arbitration. In the
affirmative, the statute ordains that the court shall issue an order "summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof." If the court, upon the other hand, finds that no such agreement
exists, "the proceeding shall be dismissed."40 The cited case also stressed that the proceedings are summary in
nature.41 The same thrust was made in the earlier case of Mindanao Portland Cement Corp. v. McDonough
Construction Co. of Florida42 which held, thus:
Since there obtains herein a written provision for arbitration as well as failure on respondent's part to comply therewith,
the court a quo rightly ordered the parties to proceed to arbitration in accordance with the terms of their agreement
(Sec. 6, Republic Act 876). Respondent's arguments touching upon the merits of the dispute are improperly raised
herein. They should be addressed to the arbitrators. This proceeding is merely a summary remedy to enforce the

agreement to arbitrate. The duty of the court in this case is not to resolve the merits of the parties' claims but only to
determine if they should proceed to arbitration or not. x xx x43
Implicit in the summary nature of the judicial proceedings is the separable or independent character of the arbitration
clause or agreement. This was highlighted in the cases of Manila Electric Co. v. Pasay Trans. Co.44 and Del Monte
Corporation-USA v. Court of Appeals.45
The doctrine of separability, or severability as other writers call it, enunciates that an arbitration agreement is
independent of the main contract. The arbitration agreement is to be treated as a separate agreement and the
arbitration agreement does not automatically terminate when the contract of which it is part comes to an end.46
The separability of the arbitration agreement is especially significant to the determination of whether the invalidity of
the main contract also nullifies the arbitration clause. Indeed, the doctrine denotes that the invalidity of the main
contract, also referred to as the "container" contract, does not affect the validity of the arbitration agreement.
Irrespective of the fact that the main contract is invalid, the arbitration clause/agreement still remains valid and
enforceable.47
The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL Model Law and Art. 21(2) of the
UNCITRAL Arbitration Rules.48
The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint Corp. v. Flood & Conklin
Manufacturing Co.49 In that case, Prima Paint and Flood and Conklin (F & C) entered into a consulting agreement
whereby F & C undertook to act as consultant to Prima Paint for six years, sold to Prima Paint a list of its customers and
promised not to sell paint to these customers during the same period. The consulting agreement contained an
arbitration clause. Prima Paint did not make payments as provided in the consulting agreement, contending that F & C
had fraudulently misrepresented that it was solvent and able for perform its contract when in fact it was not and had
even intended to file for bankruptcy after executing the consultancy agreement. Thus, F & C served Prima Paint with a
notice of intention to arbitrate. Prima Paint sued in court for rescission of the consulting agreement on the ground of
fraudulent misrepresentation and asked for the issuance of an order enjoining F & C from proceeding with arbitration. F
& C moved to stay the suit pending arbitration. The trial court granted F & Cs motion, and the U.S. Supreme Court
affirmed.
The U.S. Supreme Court did not address Prima Paints argument that it had been fraudulently induced by F & C to sign
the consulting agreement and held that no court should address this argument. Relying on Sec. 4 of the Federal
Arbitration Actwhich provides that "if a party [claims to be] aggrieved by the alleged failure x xx of another to arbitrate
x xx, [t]he court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the
failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration x
xx. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the
court shall proceed summarily to the trial thereof"the U.S. High Court held that the court should not order the parties
to arbitrate if the making of the arbitration agreement is in issue. The parties should be ordered to arbitration if, and
only if, they have contracted to submit to arbitration. Prima Paint was not entitled to trial on the question of whether an
arbitration agreement was made because its allegations of fraudulent inducement were not directed to the arbitration
clause itself, but only to the consulting agreement which contained the arbitration agreement.50 Prima Paint held that
"arbitration clauses are separable from the contracts in which they are embedded, and that where no claim is made
that fraud was directed to the arbitration clause itself, a broad arbitration clause will be held to encompass arbitration
of the claim that the contract itself was induced by fraud."51
There is reason, therefore, to rule against Gonzales when he alleges that Judge Pimentel acted with grave abuse of
discretion in ordering the parties to proceed with arbitration. Gonzaless argument that the Addendum Contract is null
and void and, therefore the arbitration clause therein is void as well, is not tenable. First, the proceeding in a petition for
arbitration under R.A. No. 876 is limited only to the resolution of the question of whether the arbitration agreement
exists. Second, the separability of the arbitration clause from the Addendum Contract means that validity or invalidity of

the Addendum Contract will not affect the enforceability of the agreement to arbitrate. Thus, Gonzaless petition for
certiorari should be dismissed.
This brings us back to G.R. No. 161957. The adjudication of the petition in G.R. No. 167994 effectively modifies part of
the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the validity of the contract containing
the agreement to submit to arbitration does not affect the applicability of the arbitration clause itself. A contrary ruling
would suggest that a partys mere repudiation of the main contract is sufficient to avoid arbitration. That is exactly the
situation that the separability doctrine, as well as jurisprudence applying it, seeks to avoid. We add that when it was
declared in G.R. No. 161957 that the case should not be brought for arbitration, it should be clarified that the case
referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the nullification of
the main contract on the ground of fraud, as it had already been determined that the case should have been brought
before the regular courts involving as it did judicial issues.
The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be denied. In the motion, Gonzales raises
the same question of jurisdiction, more particularly that the complaint for nullification of the Addendum Contract
pertained to the DENR Panel of Arbitrators, not the regular courts. He insists that the subject of his complaint is a mining
dispute since it involves a dispute concerning rights to mining areas, the Financial and Technical Assistance Agreement
(FTAA) between the parties, and it also involves claimowners. He adds that the Court failed to rule on other issues he
raised, such as whether he had ceded his claims over the mineral deposits located within the Addendum Area of
Influence; whether the complaint filed before the DENR Panel of Arbitrators alleged ultimate facts of fraud; and whether
the action to declare the nullity of the Addendum Contract on the ground of fraud has prescribed.1avvphi1.net
These are the same issues that Gonzales raised in his Rule 45 petition in G.R. No. 161957 which were resolved against
him in the Decision of 28 February 2005. Gonzales does not raise any new argument that would sway the Court even a
bit to alter its holding that the complaint filed before the DENR Panel of Arbitrators involves judicial issues which should
properly be resolved by the regular courts. He alleged fraud or misrepresentation in the execution of the Addendum
Contract which is a ground for the annulment of a voidable contract. Clearly, such allegations entail legal questions
which are within the jurisdiction of the courts.
The question of whether Gonzales had ceded his claims over the mineral deposits in the Addendum Area of Influence is
a factual question which is not proper for determination before this Court. At all events, moreover, the question is
irrelevant to the issue of jurisdiction of the DENR Panel of Arbitrators. It should be pointed out that the DENR Panel of
Arbitrators made a factual finding in its Order dated 18 October 2001, which it reiterated in its Order dated 25 June
2002, that Gonzales had, "through the various agreements, assigned his interest over the mineral claims all in favor of
[Climax-Arimco]" as well as that without the complainant [Gonzales] assigning his interest over the mineral claims in
favor of [Climax-Arimco], there would be no FTAA to speak of."52 This finding was affirmed by the Court of Appeals in its
Decision dated 30 July 2003 resolving the petition for certiorari filed by Climax-Arimco in regard to the 18 October 2001
Order of the DENR Panel.53
The Court of Appeals likewise found that Gonzaless complaint alleged fraud but did not provide any particulars to
substantiate it. The complaint repeatedly mentioned fraud, oppression, violation of the Constitution and similar
conclusions but nowhere did it give any ultimate facts or particulars relative to the allegations.54
Sec. 5, Rule 8 of the Rules of Court specifically provides that in all averments of fraud, the circumstances constituting
fraud must be stated with particularity. This is to enable the opposing party to controvert the particular facts allegedly
constituting the same. Perusal of the complaint indeed shows that it failed to state with particularity the ultimate facts
and circumstances constituting the alleged fraud. It does not state what particulars about Climax-Arimcos financial or
technical capability were misrepresented, or how the misrepresentation was done. Incorporated in the body of the
complaint are verbatim reproductions of the contracts, correspondence and government issuances that reportedly
explain the allegations of fraud and misrepresentation, but these are, at best, evidentiary matters that should not be
included in the pleading.

As to the issue of prescription, Gonzaless claims of fraud and misrepresentation attending the execution of the
Addendum Contract are grounds for the annulment of a voidable contract under the Civil Code.55 Under Art. 1391 of
the Code, an action for annulment shall be brought within four years, in the case of fraud, beginning from the time of
the discovery of the same. However, the time of the discovery of the alleged fraud is not clear from the allegations of
Gonzaless complaint. That being the situation coupled with the fact that this Court is not a trier of facts, any ruling on
the issue of prescription would be uncalled for or even unnecessary.
WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED. Such dismissal effectively renders superfluous
formal action on the Motion for Partial Reconsideration and/or Clarification filed by Climax Mining Ltd., et al. in G.R. No.
161957.
The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957 is DENIED WITH FINALITY.
SO ORDERED.
DANTE O. TINGA
Associate Justice
G.R. No. 155001

May 5, 2003

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL ANTONIO B. BOE, MAMERTO S.
CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO,
BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION - NATIONAL LABOR UNION (MWU-NLU), and PHILIPPINE AIRLINES
EMPLOYEES ASSOCIATION (PALEA), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the
Department of Transportation and Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS CORPORATION, MACROASIA-EUREST
SERVICES, INC., MACROASIA-MENZIES AIRPORT SERVICES CORPORATION, MIASCOR CATERING SERVICES CORPORATION,
MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR LOGISTICS CORPORATION, petitioners-inintervention,
x---------------------------------------------------------x
G.R. No. 155547 May 5, 2003
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA, petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, SECRETARY LEANDRO
M. MENDOZA, in his capacity as Head of the Department of Transportation and Communications, and SECRETARY
SIMEON A. DATUMANONG, in his capacity as Head of the Department of Public Works and Highways, respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA, PROSPERO C. NOGRALES,
PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING O. MACARANBON, respondents-intervenors,
x---------------------------------------------------------x
G.R. No. 155661 May 5, 2003
CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V. GAERLAN, LEONARDO DE LA ROSA, DINA
C. DE LEON, VIRGIE CATAMIN RONALD SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and SAMAHANG
MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners,

vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the
Department of Transportation and Communications, respondents.
PUNO, J.:
Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under Rule 65 of the Revised Rules
of Court seeking to prohibit the Manila International Airport Authority (MIAA) and the Department of Transportation
and Communications (DOTC) and its Secretary from implementing the following agreements executed by the Philippine
Government through the DOTC and the MIAA and the Philippine International Air Terminals Co., Inc. (PIATCO): (1) the
Concession Agreement signed on July 12, 1997, (2) the Amended and Restated Concession Agreement dated November
26, 1999, (3) the First Supplement to the Amended and Restated Concession Agreement dated August 27, 1999, (4) the
Second Supplement to the Amended and Restated Concession Agreement dated September 4, 2000, and (5) the Third
Supplement to the Amended and Restated Concession Agreement dated June 22, 2001 (collectively, the PIATCO
Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a comprehensive study of the
Ninoy Aquino International Airport (NAIA) and determine whether the present airport can cope with the traffic
development up to the year 2010. The study consisted of two parts: first, traffic forecasts, capacity of existing facilities,
NAIA future requirements, proposed master plans and development plans; and second, presentation of the preliminary
design of the passenger terminal building. The ADP submitted a Draft Final Report to the DOTC in December 1989.
Some time in 1993, six business leaders consisting of John Gokongwei, Andrew Gotianun, Henry Sy, Sr., Lucio Tan,
George Ty and Alfonso Yuchengco met with then President Fidel V. Ramos to explore the possibility of investing in the
construction and operation of a new international airport terminal. To signify their commitment to pursue the project,
they formed the Asia's Emerging Dragon Corp. (AEDC) which was registered with the Securities and Exchange
Commission (SEC) on September 15, 1993.
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through the DOTC/MIAA for the
development of NAIA International Passenger Terminal III (NAIA IPT III) under a build-operate-and-transfer arrangement
pursuant to RA 6957 as amended by RA 7718 (BOT Law).1
On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the Prequalification Bids and Awards
Committee (PBAC) for the implementation of the NAIA IPT III project.
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the National Economic and
Development Authority (NEDA). A revised proposal, however, was forwarded by the DOTC to NEDA on December 13,
1995. On January 5, 1996, the NEDA Investment Coordinating Council (NEDA ICC) Technical Board favorably endorsed
the project to the ICC Cabinet Committee which approved the same, subject to certain conditions, on January 19,
1996. On February 13, 1996, the NEDA passed Board Resolution No. 2 which approved the NAIA IPT III project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of an invitation for competitive
or comparative proposals on AEDC's unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as amended. The
alternative bidders were required to submit three (3) sealed envelopes on or before 5:00 p.m. of September 20, 1996.
The first envelope should contain the Prequalification Documents, the second envelope the Technical Proposal, and the
third envelope the Financial Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid Documents and the submission of
the comparative bid proposals. Interested firms were permitted to obtain the Request for Proposal Documents

beginning June 28, 1996, upon submission of a written application and payment of a non-refundable fee of P50,000.00
(US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent must have adequate capability to
sustain the financing requirement for the detailed engineering, design, construction, operation, and maintenance
phases of the project. The proponent would be evaluated based on its ability to provide a minimum amount of equity to
the project, and its capacity to secure external financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid conference on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The following amendments
were made on the Bid Documents:
a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its financial proposal an additional
percentage of gross revenue share of the Government, as follows:
i. First 5 years
5.0%
ii. Next 10 years
7.5%
iii. Next 10 years
10.0%
b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price challenge. Proponent may offer an
Annual Guaranteed Payment which need not be of equal amount, but payment of which shall start upon site possession.
c. The project proponent must have adequate capability to sustain the financing requirement for the detailed
engineering, design, construction, and/or operation and maintenance phases of the project as the case may be. For
purposes of pre-qualification, this capability shall be measured in terms of:
i. Proof of the availability of the project proponent and/or the consortium to provide the minimum amount of equity for
the project; and
ii. a letter testimonial from reputable banks attesting that the project proponent and/or the members of the consortium
are banking with them, that the project proponent and/or the members are of good financial standing, and have
adequate resources.
d. The basis for the prequalification shall be the proponent's compliance with the minimum technical and financial
requirements provided in the Bid Documents and the IRR of the BOT Law. The minimum amount of equity shall be 30%
of the Project Cost.
e. Amendments to the draft Concession Agreement shall be issued from time to time. Said amendments shall only cover
items that would not materially affect the preparation of the proponent's proposal.
On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were made. Upon the request
of prospective bidder People's Air Cargo & Warehousing Co., Inc (Paircargo), the PBAC warranted that based on Sec.
11.6, Rule 11 of the Implementing Rules and Regulations of the BOT Law, only the proposed Annual Guaranteed
Payment submitted by the challengers would be revealed to AEDC, and that the challengers' technical and financial
proposals would remain confidential. The PBAC also clarified that the list of revenue sources contained in Annex 4.2a of
the Bid Documents was merely indicative and that other revenue sources may be included by the proponent, subject to
approval by DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges denominated as Public Utility

Fees would be subject to regulation, and those charges which would be actually deemed Public Utility Fees could still be
revised, depending on the outcome of PBAC's query on the matter with the Department of Justice.
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the Queries of PAIRCARGO as Per Letter
Dated September 3 and 10, 1996." Paircargo's queries and the PBAC's responses were as follows:
1. It is difficult for Paircargo and Associates to meet the required minimum equity requirement as prescribed in Section
8.3.4 of the Bid Documents considering that the capitalization of each member company is so structured to meet the
requirements and needs of their current respective business undertaking/activities. In order to comply with this equity
requirement, Paircargo is requesting PBAC to just allow each member of (sic) corporation of the Joint Venture to just
execute an agreement that embodies a commitment to infuse the required capital in case the project is awarded to the
Joint Venture instead of increasing each corporation's current authorized capital stock just for prequalification purposes.
In prequalification, the agency is interested in one's financial capability at the time of prequalification, not future or
potential capability.
A commitment to put up equity once awarded the project is not enough to establish that "present" financial capability.
However, total financial capability of all member companies of the Consortium, to be established by submitting the
respective companies' audited financial statements, shall be acceptable.
2. At present, Paircargo is negotiating with banks and other institutions for the extension of a Performance Security to
the joint venture in the event that the Concessions Agreement (sic) is awarded to them. However, Paircargo is being
required to submit a copy of the draft concession as one of the documentary requirements. Therefore, Paircargo is
requesting that they'd (sic) be furnished copy of the approved negotiated agreement between the PBAC and the AEDC
at the soonest possible time.
A copy of the draft Concession Agreement is included in the Bid Documents. Any material changes would be made
known to prospective challengers through bid bulletins. However, a final version will be issued before the award of
contract.
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents (Acceptance of Criteria and
Waiver of Rights to Enjoin Project) and to submit the same with the required Bid Security.
On September 20, 1996, the consortium composed of People's Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air
and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium) submitted
their competitive proposal to the PBAC. On September 23, 1996, the PBAC opened the first envelope containing the
prequalification documents of the Paircargo Consortium. On the following day, September 24, 1996, the PBAC
prequalified the Paircargo Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the Paircargo Consortium,
which include:
a. The lack of corporate approvals and financial capability of PAIRCARGO;
b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount that Security Bank could
legally invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in the operation of a
public utility.

The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues raised by the latter, and
that based on the documents submitted by Paircargo and the established prequalification criteria, the PBAC had found
that the challenger, Paircargo, had prequalified to undertake the project. The Secretary of the DOTC approved the
finding of the PBAC.
The PBAC then proceeded with the opening of the second envelope of the Paircargo Consortium which contained its
Technical Proposal.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's financial capability, in view of
the restrictions imposed by Section 21-B of the General Banking Act and Sections 1380 and 1381 of the Manual
Regulations for Banks and Other Financial Intermediaries. On October 7, 1996, AEDC again manifested its objections and
requested that it be furnished with excerpts of the PBAC meeting and the accompanying technical evaluation report
where each of the issues they raised were addressed.
On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo Consortium containing
their respective financial proposals. Both proponents offered to build the NAIA Passenger Terminal III for at least $350
million at no cost to the government and to pay the government: 5% share in gross revenues for the first five years of
operation, 7.5% share in gross revenues for the next ten years of operation, and 10% share in gross revenues for the last
ten years of operation, in accordance with the Bid Documents. However, in addition to the foregoing, AEDC offered to
pay the government a total of P135 million as guaranteed payment for 27 years while Paircargo Consortium offered to
pay the government a total of P17.75 billion for the same period.
Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by the Paircargo Consortium,
and gave AEDC 30 working days or until November 28, 1996 within which to match the said bid, otherwise, the project
would be awarded to Paircargo.
As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado Lagdameo, on December
11, 1996, issued a notice to Paircargo Consortium regarding AEDC's failure to match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into Philippine International Airport Terminals Co., Inc.
(PIATCO).
AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated its objections as regards the
prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval of the NEDA-ICC.
On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration of Nullity of the
Proceedings, Mandamus and Injunction against the Secretary of the DOTC, the Chairman of the PBAC, the voting
members of the PBAC and Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC Technical Committee.
On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a no-objection basis, of the
BOT agreement between the DOTC and PIATCO. As the ad referendum gathered only four (4) of the required six (6)
signatures, the NEDA merely noted the agreement.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through its President,
Henry T. Go, signed the "Concession Agreement for the Build-Operate-and-Transfer Arrangement of the Ninoy Aquino
International Airport Passenger Terminal III" (1997 Concession Agreement). The Government granted PIATCO the
franchise to operate and maintain the said terminal during the concession period and to collect the fees, rentals and
other charges in accordance with the rates or schedules stipulated in the 1997 Concession Agreement. The Agreement

provided that the concession period shall be for twenty-five (25) years commencing from the in-service date, and may
be renewed at the option of the Government for a period not exceeding twenty-five (25) years. At the end of the
concession period, PIATCO shall transfer the development facility to MIAA.
On November 26, 1998, the Government and PIATCO signed an Amended and Restated Concession Agreement (ARCA).
Among the provisions of the 1997 Concession Agreement that were amended by the ARCA were: Sec. 1.11 pertaining to
the definition of "certificate of completion"; Sec. 2.05 pertaining to the Special Obligations of GRP; Sec. 3.02 (a) dealing
with the exclusivity of the franchise given to the Concessionaire; Sec. 4.04 concerning the assignment by Concessionaire
of its interest in the Development Facility; Sec. 5.08 (c) dealing with the proceeds of Concessionaire's insurance; Sec.
5.10 with respect to the temporary take-over of operations by GRP; Sec. 5.16 pertaining to the taxes, duties and other
imposts that may be levied on the Concessionaire; Sec. 6.03 as regards the periodic adjustment of public utility fees and
charges; the entire Article VIII concerning the provisions on the termination of the contract; and Sec. 10.02 providing for
the venue of the arbitration proceedings in case a dispute or controversy arises between the parties to the agreement.
Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First Supplement was signed on
August 27, 1999; the Second Supplement on September 4, 2000; and the Third Supplement on June 22, 2001
(collectively, Supplements).
The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining "Revenues" or "Gross Revenues"; Sec. 2.05
(d) of the ARCA referring to the obligation of MIAA to provide sufficient funds for the upkeep, maintenance, repair
and/or replacement of all airport facilities and equipment which are owned or operated by MIAA; and further providing
additional special obligations on the part of GRP aside from those already enumerated in Sec. 2.05 of the ARCA. The First
Supplement also provided a stipulation as regards the construction of a surface road to connect NAIA Terminal II and
Terminal III in lieu of the proposed access tunnel crossing Runway 13/31; the swapping of obligations between GRP and
PIATCO regarding the improvement of Sales Road; and the changes in the timetable. It also amended Sec. 6.01 (c) of the
ARCA pertaining to the Disposition of Terminal Fees; Sec. 6.02 of the ARCA by inserting an introductory paragraph; and
Sec. 6.02 (a) (iii) of the ARCA referring to the Payments of Percentage Share in Gross Revenues.
The Second Supplement to the ARCA contained provisions concerning the clearing, removal, demolition or disposal of
subterranean structures uncovered or discovered at the site of the construction of the terminal by the Concessionaire. It
defined the scope of works; it provided for the procedure for the demolition of the said structures and the consideration
for the same which the GRP shall pay PIATCO; it provided for time extensions, incremental and consequential costs and
losses consequent to the existence of such structures; and it provided for some additional obligations on the part of
PIATCO as regards the said structures.
Finally, the Third Supplement provided for the obligations of the Concessionaire as regards the construction of the
surface road connecting Terminals II and III.
Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA Terminals I and II, had existing
concession contracts with various service providers to offer international airline airport services, such as in-flight
catering, passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and
warehousing, and other services, to several international airlines at the NAIA. Some of these service providers are the
Miascor Group, DNATA-Wings Aviation Systems Corp., and the MacroAsia Group. Miascor, DNATA and MacroAsia,
together with Philippine Airlines (PAL), are the dominant players in the industry with an aggregate market share of 70%.
On September 17, 2002, the workers of the international airline service providers, claiming that they stand to lose their
employment upon the implementation of the questioned agreements, filed before this Court a petition for prohibition
to enjoin the enforcement of said agreements.2
On October 15, 2002, the service providers, joining the cause of the petitioning workers, filed a motion for intervention
and a petition-in-intervention.

On October 24, 2002, Congressmen SalacnibBaterina, Clavel Martinez and ConstantinoJaraula filed a similar petition
with this Court.3
On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the legality of the various
agreements.4
On December 11, 2002.another group of Congressmen, Hon. Jacinto V. Paras, Rafael P. Nantes, Eduardo C. Zialcita,
Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon,
moved to intervene in the case as Respondents-Intervenors. They filed their Comment-In-Intervention defending the
validity of the assailed agreements and praying for the dismissal of the petitions.
During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on November 29, 2002, in her
speech at the 2002 Golden Shell Export Awards at Malacaang Palace, stated that she will not "honor (PIATCO) contracts
which the Executive Branch's legal offices have concluded (as) null and void."5
Respondent PIATCO filed its Comments to the present petitions on November 7 and 27, 2002. The Office of the Solicitor
General and the Office of the Government Corporate Counsel filed their respective Comments in behalf of the public
respondents.
On December 10, 2002, the Court heard the case on oral argument. After the oral argument, the Court then resolved in
open court to require the parties to file simultaneously their respective Memoranda in amplification of the issues heard
in the oral arguments within 30 days and to explore the possibility of arbitration or mediation as provided in the
challenged contracts.
In their consolidated Memorandum, the Office of the Solicitor General and the Office of the Government Corporate
Counsel prayed that the present petitions be given due course and that judgment be rendered declaring the 1997
Concession Agreement, the ARCA and the Supplements thereto void for being contrary to the Constitution, the BOT Law
and its Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO commenced arbitration
proceedings before the International Chamber of Commerce, International Court of Arbitration (ICC) by filing a Request
for Arbitration with the Secretariat of the ICC against the Government of the Republic of the Philippines acting through
the DOTC and MIAA.
In the present cases, the Court is again faced with the task of resolving complicated issues made difficult by their
intersecting legal and economic implications. The Court is aware of the far reaching fall out effects of the ruling which it
makes today. For more than a century and whenever the exigencies of the times demand it, this Court has never shirked
from its solemn duty to dispense justice and resolve "actual controversies involving rights which are legally demandable
and enforceable, and to determine whether or not there has been grave abuse of discretion amounting to lack or excess
of jurisdiction."6 To be sure, this Court will not begin to do otherwise today.
We shall first dispose of the procedural issues raised by respondent PIATCO which they allege will bar the resolution of
the instant controversy.
Petitioners' Legal Standing to File
the present Petitions
a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are employees of various service providers7 having separate concession
contracts with MIAA and continuing service agreements with various international airlines to provide in-flight catering,
passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and warehousing

and other services. Also included as petitioners are labor unions MIASCOR Workers Union-National Labor Union and
Philippine Airlines Employees Association. These petitioners filed the instant action for prohibition as taxpayers and as
parties whose rights and interests stand to be violated by the implementation of the PIATCO Contracts.
Petitioners-Intervenors in the same case are all corporations organized and existing under Philippine laws engaged in the
business of providing in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and
provisions, cargo handling and warehousing and other services to several international airlines at the Ninoy Aquino
International Airport. Petitioners-Intervenors allege that as tax-paying international airline and airport-related service
operators, each one of them stands to be irreparably injured by the implementation of the PIATCO Contracts. Each of
the petitioners-intervenors have separate and subsisting concession agreements with MIAA and with various
international airlines which they allege are being interfered with and violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees of MIAA and SamahangManggagawasaPaliparanngPilipinas - a
legitimate labor union and accredited as the sole and exclusive bargaining agent of all the employees in MIAA.
Petitioners anchor their petition for prohibition on the nullity of the contracts entered into by the Government and
PIATCO regarding the build-operate-and-transfer of the NAIA IPT III. They filed the petition as taxpayers and persons
who have a legitimate interest to protect in the implementation of the PIATCO Contracts.
Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations which directly contravene
numerous provisions of the Constitution, specific provisions of the BOT Law and its Implementing Rules and Regulations,
and public policy. Petitioners contend that the DOTC and the MIAA, by entering into said contracts, have committed
grave abuse of discretion amounting to lack or excess of jurisdiction which can be remedied only by a writ of prohibition,
there being no plain, speedy or adequate remedy in the ordinary course of law.
In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA which grant PIATCO the
exclusive right to operate a commercial international passenger terminal within the Island of Luzon, except those
international airports already existing at the time of the execution of the agreement. The contracts further provide that
upon the commencement of operations at the NAIA IPT III, the Government shall cause the closure of Ninoy Aquino
International Airport Passenger Terminals I and II as international passenger terminals. With respect to existing
concession agreements between MIAA and international airport service providers regarding certain services or
operations, the 1997 Concession Agreement and the ARCA uniformly provide that such services or operations will not be
carried over to the NAIA IPT III and PIATCO is under no obligation to permit such carry over except through a separate
agreement duly entered into with PIATCO.8
With respect to the petitioning service providers and their employees, upon the commencement of operations of the
NAIA IPT III, they allege that they will be effectively barred from providing international airline airport services at the
NAIA Terminals I and II as all international airlines and passengers will be diverted to the NAIA IPT III. The petitioning
service providers will thus be compelled to contract with PIATCO alone for such services, with no assurance that
subsisting contracts with MIAA and other international airlines will be respected. Petitioning service providers stress that
despite the very competitive market, the substantial capital investments required and the high rate of fees, they entered
into their respective contracts with the MIAA with the understanding that the said contracts will be in force for the
stipulated period, and thereafter, renewed so as to allow each of the petitioning service providers to recoup their
investments and obtain a reasonable return thereon.
Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA on the other hand allege
that with the closure of the NAIA Terminals I and II as international passenger terminals under the PIATCO Contracts,
they stand to lose employment.
The question on legal standing is whether such parties have "alleged such a personal stake in the outcome of the
controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so
largely depends for illumination of difficult constitutional questions."9 Accordingly, it has been held that the interest of a
person assailing the constitutionality of a statute must be direct and personal. He must be able to show, not only that
the law or any government act is invalid, but also that he sustained or is in imminent danger of sustaining some direct

injury as a result of its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that
the person complaining has been or is about to be denied some right or privilege to which he is lawfully entitled or that
he is about to be subjected to some burdens or penalties by reason of the statute or act complained of.10
We hold that petitioners have the requisite standing. In the above-mentioned cases, petitioners have a direct and
substantial interest to protect by reason of the implementation of the PIATCO Contracts. They stand to lose their source
of livelihood, a property right which is zealously protected by the Constitution. Moreover, subsisting concession
agreements between MIAA and petitioners-intervenors and service contracts between international airlines and
petitioners-intervenors stand to be nullified or terminated by the operation of the NAIA IPT III under the PIATCO
Contracts. The financial prejudice brought about by the PIATCO Contracts on petitioners and petitioners-intervenors in
these cases are legitimate interests sufficient to confer on them the requisite standing to file the instant petitions.
b. G.R. No. 155547
In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of Representatives, citizens
and taxpayers. They allege that as members of the House of Representatives, they are especially interested in the
PIATCO Contracts, because the contracts compel the Government and/or the House of Representatives to appropriate
funds necessary to comply with the provisions therein.11 They cite provisions of the PIATCO Contracts which require
disbursement of unappropriated amounts in compliance with the contractual obligations of the Government. They
allege that the Government obligations in the PIATCO Contracts which compel government expenditure without
appropriation is a curtailment of their prerogatives as legislators, contrary to the mandate of the Constitution that "[n]o
money shall be paid out of the treasury except in pursuance of an appropriation made by law."12
Standing is a peculiar concept in constitutional law because in some cases, suits are not brought by parties who have
been personally injured by the operation of a law or any other government act but by concerned citizens, taxpayers or
voters who actually sue in the public interest. Although we are not unmindful of the cases of Imus Electric Co. v.
Municipality of Imus13 and Gonzales v. Raquiza14 wherein this Court held that appropriation must be made only on
amounts immediately demandable, public interest demands that we take a more liberal view in determining whether
the petitioners suing as legislators, taxpayers and citizens have locus standi to file the instant petition. In Kilosbayan, Inc.
v. Guingona,15 this Court held "[i]n line with the liberal policy of this Court on locus standi, ordinary taxpayers, members
of Congress, and even association of planters, and non-profit civic organizations were allowed to initiate and prosecute
actions before this Court to question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various
government agencies or instrumentalities."16 Further, "insofar as taxpayers' suits are concerned . . . (this Court) is not
devoid of discretion as to whether or not it should be entertained."17 As such ". . . even if, strictly speaking, they [the
petitioners] are not covered by the definition, it is still within the wide discretion of the Court to waive the requirement
and so remove the impediment to its addressing and resolving the serious constitutional questions raised."18 In view of
the serious legal questions involved and their impact on public interest, we resolve to grant standing to the petitioners.
Other Procedural Matters
Respondent PIATCO further alleges that this Court is without jurisdiction to review the instant cases as factual issues are
involved which this Court is ill-equipped to resolve. Moreover, PIATCO alleges that submission of this controversy to this
Court at the first instance is a violation of the rule on hierarchy of courts. They contend that trial courts have concurrent
jurisdiction with this Court with respect to a special civil action for prohibition and hence, following the rule on hierarchy
of courts, resort must first be had before the trial courts.
After a thorough study and careful evaluation of the issues involved, this Court is of the view that the crux of the instant
controversy involves significant legal questions. The facts necessary to resolve these legal questions are well established
and, hence, need not be determined by a trial court.
The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the cases at bar. The said
rule may be relaxed when the redress desired cannot be obtained in the appropriate courts or where exceptional and

compelling circumstances justify availment of a remedy within and calling for the exercise of this Court's primary
jurisdiction.19
It is easy to discern that exceptional circumstances exist in the cases at bar that call for the relaxation of the rule. Both
petitioners and respondents agree that these cases are of transcendental importance as they involve the construction
and operation of the country's premier international airport. Moreover, the crucial issues submitted for resolution are of
first impression and they entail the proper legal interpretation of key provisions of the Constitution, the BOT Law and its
Implementing Rules and Regulations. Thus, considering the nature of the controversy before the Court, procedural bars
may be lowered to give way for the speedy disposition of the instant cases.
Legal Effect of the Commencement
of Arbitration Proceedings by
PIATCO
There is one more procedural obstacle which must be overcome. The Court is aware that arbitration proceedings
pursuant to Section 10.02 of the ARCA have been filed at the instance of respondent PIATCO. Again, we hold that the
arbitration step taken by PIATCO will not oust this Court of its jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the arbitration clause in the Distributorship
Agreement in question is valid and the dispute between the parties is arbitrable, this Court affirmed the trial court's
decision denying petitioner's Motion to Suspend Proceedings pursuant to the arbitration clause under the contract. In so
ruling, this Court held that as contracts produce legal effect between the parties, their assigns and heirs, only the parties
to the Distributorship Agreement are bound by its terms, including the arbitration clause stipulated therein. This Court
ruled that arbitration proceedings could be called for but only with respect to the parties to the contract in question.
Considering that there are parties to the case who are neither parties to the Distributorship Agreement nor heirs or
assigns of the parties thereto, this Court, citing its previous ruling in Salas, Jr. v. Laperal Realty Corporation,21 held that
to tolerate the splitting of proceedings by allowing arbitration as to some of the parties on the one hand and trial for the
others on the other hand would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay.22
Thus, we ruled that the interest of justice would best be served if the trial court hears and adjudicates the case in a
single and complete proceeding.
It is established that petitioners in the present cases who have presented legitimate interests in the resolution of the
controversy are not parties to the PIATCO Contracts. Accordingly, they cannot be bound by the arbitration clause
provided for in the ARCA and hence, cannot be compelled to submit to arbitration proceedings. A speedy and decisive
resolution of all the critical issues in the present controversy, including those raised by petitioners, cannot be made
before an arbitral tribunal. The object of arbitration is precisely to allow an expeditious determination of a dispute. This
objective would not be met if this Court were to allow the parties to settle the cases by arbitration as there are certain
issues involving non-parties to the PIATCO Contracts which the arbitral tribunal will not be equipped to resolve.
Now, to the merits of the instant controversy.
I
Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a duly pre-qualified bidder on
the unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to meet the financial capability required
under the BOT Law and the Bid Documents. They allege that in computing the ability of the Paircargo Consortium to
meet the minimum equity requirements for the project, the entire net worth of Security Bank, a member of the
consortium, should not be considered.

PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14, 1996 issued by the DOTC
Undersecretary Primitivo C. Cal stating that the Paircargo Consortium is found to have a combined net worth of
P3,900,000,000.00, sufficient to meet the equity requirements of the project. The said Memorandum was in response to
a letter from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the financial capability of the
Paircargo Consortium on the ground that it does not have the financial resources to put up the required minimum equity
of P2,700,000,000.00. This contention is based on the restriction under R.A. No. 337, as amended or the General
Banking Act that a commercial bank cannot invest in any single enterprise in an amount more than 15% of its net worth.
In the said Memorandum, Undersecretary Cal opined:
The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial capability will be evaluated
based on total financial capability of all the member companies of the [Paircargo] Consortium. In this connection, the
Challenger was found to have a combined net worth of P3,926,421,242.00 that could support a project costing
approximately P13 Billion.
It is not a requirement that the net worth must be "unrestricted." To impose that as a requirement now will be nothing
less than unfair.
The financial statement or the net worth is not the sole basis in establishing financial capability. As stated in Bid Bulletin
No. 3, financial capability may also be established by testimonial letters issued by reputable banks. The Challenger has
complied with this requirement.
To recap, net worth reflected in the Financial Statement should not be taken as the amount of the money to be used to
answer the required thirty percent (30%) equity of the challenger but rather to be used in establishing if there is enough
basis to believe that the challenger can comply with the required 30% equity. In fact, proof of sufficient equity is
required as one of the conditions for award of contract (Section 12.1 IRR of the BOT Law) but not for pre-qualification
(Section 5.4 of the same document).23
Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall be awarded to the bidder
"who, having satisfied the minimum financial, technical, organizational and legal standards" required by the law, has
submitted the lowest bid and most favorable terms of the project.24 Further, the 1994 Implementing Rules and
Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
xxxxxxxxx
c. Financial Capability: The project proponent must have adequate capability to sustain the financing requirements for
the detailed engineering design, construction and/or operation and maintenance phases of the project, as the case may
be. For purposes of pre-qualification, this capability shall be measured in terms of (i) proof of the ability of the project
proponent and/or the consortium to provide a minimum amount of equity to the project, and (ii) a letter testimonial
from reputable banks attesting that the project proponent and/or members of the consortium are banking with them,
that they are in good financial standing, and that they have adequate resources. The government agency/LGU
concerned shall determine on a project-to-project basis and before pre-qualification, the minimum amount of equity
needed. (emphasis supplied)
Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996 amending the financial capability
requirements for pre-qualification of the project proponent as follows:
6. Basis of Pre-qualification
The basis for the pre-qualification shall be on the compliance of the proponent to the minimum technical and financial
requirements provided in the Bid Documents and in the IRR of the BOT Law, R.A. No. 6957, as amended by R.A. 7718.

The minimum amount of equity to which the proponent's financial capability will be based shall be thirty percent (30%)
of the project cost instead of the twenty percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to
correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt
portion of the project financing should not exceed 70% of the actual project cost.
Accordingly, based on the above provisions of law, the Paircargo Consortium or any challenger to the unsolicited
proposal of AEDC has to show that it possesses the requisite financial capability to undertake the project in the
minimum amount of 30% of the project cost through (i) proof of the ability to provide a minimum amount of equity to
the project, and (ii) a letter testimonial from reputable banks attesting that the project proponent or members of the
consortium are banking with them, that they are in good financial standing, and that they have adequate resources.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly P9,183,650,000.00,25 the Paircargo
Consortium had to show to the satisfaction of the PBAC that it had the ability to provide the minimum equity for the
project in the amount of at least P2,755,095,000.00.
Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth of P2,783,592.00 and
P3,123,515.00 respectively.26 PAGS' Audited Financial Statements as of 1995 indicate that it has approximately
P26,735,700.00 to invest as its equity for the project.27 Security Bank's Audited Financial Statements as of 1995 show
that it has a net worth equivalent to its capital funds in the amount of P3,523,504,377.00.28
We agree with public respondents that with respect to Security Bank, the entire amount of its net worth could not be
invested in a single undertaking or enterprise, whether allied or non-allied in accordance with the provisions of R.A. No.
337, as amended or the General Banking Act:
Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the Monetary Board, whenever it
shall deem appropriate and necessary to further national development objectives or support national priority projects,
may authorize a commercial bank, a bank authorized to provide commercial banking services, as well as a governmentowned and controlled bank, to operate under an expanded commercial banking authority and by virtue thereof exercise,
in addition to powers authorized for commercial banks, the powers of an Investment House as provided in Presidential
Decree No. 129, invest in the equity of a non-allied undertaking, or own a majority or all of the equity in a financial
intermediary other than a commercial bank or a bank authorized to provide commercial banking services: Provided, That
(a) the total investment in equities shall not exceed fifty percent (50%) of the net worth of the bank; (b) the equity
investment in any one enterprise whether allied or non-allied shall not exceed fifteen percent (15%) of the net worth of
the bank; (c) the equity investment of the bank, or of its wholly or majority-owned subsidiary, in a single non-allied
undertaking shall not exceed thirty-five percent (35%) of the total equity in the enterprise nor shall it exceed thirty-five
percent (35%) of the voting stock in that enterprise; and (d) the equity investment in other banks shall be deducted from
the investing bank's net worth for purposes of computing the prescribed ratio of net worth to risk assets.
xxxxxxxxx
Further, the 1993 Manual of Regulations for Banks provides:
SECTION X383. Other Limitations and Restrictions. The following limitations and restrictions shall also apply regarding
equity investments of banks.
a. In any single enterprise. The equity investments of banks in any single enterprise shall not exceed at any time
fifteen percent (15%) of the net worth of the investing bank as defined in Sec. X106 and Subsec. X121.5.
Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium is only P528,525,656.55,
representing 15% of its entire net worth. The total net worth therefore of the Paircargo Consortium, after considering
the maximum amounts that may be validly invested by each of its members is P558,384,871.55 or only 6.08% of the
project cost,29 an amount substantially less than the prescribed minimum equity investment required for the project in
the amount of P2,755,095,000.00 or 30% of the project cost.

The purpose of pre-qualification in any public bidding is to determine, at the earliest opportunity, the ability of the
bidder to undertake the project. Thus, with respect to the bidder's financial capacity at the pre-qualification stage, the
law requires the government agency to examine and determine the ability of the bidder to fund the entire cost of the
project by considering the maximum amounts that each bidder may invest in the project at the time of pre-qualification.
The PBAC has determined that any prospective bidder for the construction, operation and maintenance of the NAIA IPT
III project should prove that it has the ability to provide equity in the minimum amount of 30% of the project cost, in
accordance with the 70:30 debt-to-equity ratio prescribed in the Bid Documents. Thus, in the case of Paircargo
Consortium, the PBAC should determine the maximum amounts that each member of the consortium may commit for
the construction, operation and maintenance of the NAIA IPT III project at the time of pre-qualification. With respect to
Security Bank, the maximum amount which may be invested by it would only be 15% of its net worth in view of the
restrictions imposed by the General Banking Act. Disregarding the investment ceilings provided by applicable law would
not result in a proper evaluation of whether or not a bidder is pre-qualified to undertake the project as for all intents
and purposes, such ceiling or legal restriction determines the true maximum amount which a bidder may invest in the
project.
Further, the determination of whether or not a bidder is pre-qualified to undertake the project requires an evaluation of
the financial capacity of the said bidder at the time the bid is submitted based on the required documents presented by
the bidder. The PBAC should not be allowed to speculate on the future financial ability of the bidder to undertake the
project on the basis of documents submitted. This would open doors to abuse and defeat the very purpose of a public
bidding. This is especially true in the case at bar which involves the investment of billions of pesos by the project
proponent. The relevant government authority is duty-bound to ensure that the awardee of the contract possesses the
minimum required financial capability to complete the project. To allow the PBAC to estimate the bidder's future
financial capability would not secure the viability and integrity of the project. A restrictive and conservative application
of the rules and procedures of public bidding is necessary not only to protect the impartiality and regularity of the
proceedings but also to ensure the financial and technical reliability of the project. It has been held that:
The basic rule in public bidding is that bids should be evaluated based on the required documents submitted before and
not after the opening of bids. Otherwise, the foundation of a fair and competitive public bidding would be defeated.
Strict observance of the rules, regulations, and guidelines of the bidding process is the only safeguard to a fair, honest
and competitive public bidding.30
Thus, if the maximum amount of equity that a bidder may invest in the project at the time the bids are submitted falls
short of the minimum amounts required to be put up by the bidder, said bidder should be properly disqualified.
Considering that at the pre-qualification stage, the maximum amounts which the Paircargo Consortium may invest in the
project fell short of the minimum amounts prescribed by the PBAC, we hold that Paircargo Consortium was not a
qualified bidder. Thus the award of the contract by the PBAC to the Paircargo Consortium, a disqualified bidder, is null
and void.
While it would be proper at this juncture to end the resolution of the instant controversy, as the legal effects of the
disqualification of respondent PIATCO's predecessor would come into play and necessarily result in the nullity of all the
subsequent contracts entered by it in pursuance of the project, the Court feels that it is necessary to discuss in full the
pressing issues of the present controversy for a complete resolution thereof.
II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it contains provisions that
substantially depart from the draft Concession Agreement included in the Bid Documents. They maintain that a
substantial departure from the draft Concession Agreement is a violation of public policy and renders the 1997
Concession Agreement null and void.

PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is intended to be a draft,
i.e., subject to change, alteration or modification, and that this intention was clear to all participants, including AEDC,
and DOTC/MIAA. It argued further that said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued by the PBAC
which states:
6. Amendments to the Draft Concessions Agreement
Amendments to the Draft Concessions Agreement shall be issued from time to time. Said amendments shall only cover
items that would not materially affect the preparation of the proponent's proposal.
By its very nature, public bidding aims to protect the public interest by giving the public the best possible advantages
through open competition. Thus:
Competition must be legitimate, fair and honest. In the field of government contract law, competition requires, not only
`bidding upon a common standard, a common basis, upon the same thing, the same subject matter, the same
undertaking,' but also that it be legitimate, fair and honest; and not designed to injure or defraud the government.31
An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not simply in terms of
application of the procedural rules and regulations imposed by the relevant government agency, but more importantly,
on the contract bidded upon. Each bidder must be able to bid on the same thing. The rationale is obvious. If the winning
bidder is allowed to later include or modify certain provisions in the contract awarded such that the contract is altered in
any material respect, then the essence of fair competition in the public bidding is destroyed. A public bidding would
indeed be a farce if after the contract is awarded, the winning bidder may modify the contract and include provisions
which are favorable to it that were not previously made available to the other bidders. Thus:
It is inherent in public biddings that there shall be a fair competition among the bidders. The specifications in such
biddings provide the common ground or basis for the bidders. The specifications should, accordingly, operate equally or
indiscriminately upon all bidders.32
The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:
The law is well settled that where, as in this case, municipal authorities can only let a contract for public work to the
lowest responsible bidder, the proposals and specifications therefore must be so framed as to permit free and full
competition. Nor can they enter into a contract with the best bidder containing substantial provisions beneficial to him,
not included or contemplated in the terms and specifications upon which the bids were invited.33
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft concession agreement is
subject to amendment, the pertinent portion of which was quoted above, the PBAC also clarified that "[s]aid
amendments shall only cover items that would not materially affect the preparation of the proponent's proposal."
While we concede that a winning bidder is not precluded from modifying or amending certain provisions of the contract
bidded upon, such changes must not constitute substantial or material amendments that would alter the basic
parameters of the contract and would constitute a denial to the other bidders of the opportunity to bid on the same
terms. Hence, the determination of whether or not a modification or amendment of a contract bidded out constitutes a
substantial amendment rests on whether the contract, when taken as a whole, would contain substantially different
terms and conditions that would have the effect of altering the technical and/or financial proposals previously
submitted by other bidders. The alterations and modifications in the contract executed between the government and
the winning bidder must be such as to render such executed contract to be an entirely different contract from the one
that was bidded upon.

In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted with approval the ruling of the trial
court that an amendment to a contract awarded through public bidding, when such subsequent amendment was made
without a new public bidding, is null and void:
The Court agrees with the contention of counsel for the plaintiffs that the due execution of a contract after public
bidding is a limitation upon the right of the contracting parties to alter or amend it without another public bidding, for
otherwise what would a public bidding be good for if after the execution of a contract after public bidding, the
contracting parties may alter or amend the contract, or even cancel it, at their will? Public biddings are held for the
protection of the public, and to give the public the best possible advantages by means of open competition between the
bidders. He who bids or offers the best terms is awarded the contract subject of the bid, and it is obvious that such
protection and best possible advantages to the public will disappear if the parties to a contract executed after public
bidding may alter or amend it without another previous public bidding.35
Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same agreement that was offered
for public bidding, i.e., the draft Concession Agreement attached to the Bid Documents? A close comparison of the draft
Concession Agreement attached to the Bid Documents and the 1997 Concession Agreement reveals that the documents
differ in at least two material respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be imposed and collected by PIATCO under the draft Concession Agreement and the 1997 Concession
Agreement may be classified into three distinct categories: (1) fees which are subject to periodic adjustment of once
every two years in accordance with a prescribed parametric formula and adjustments are made effective only upon
written approval by MIAA; (2) fees other than those included in the first category which maybe adjusted by PIATCO
whenever it deems necessary without need for consent of DOTC/MIAA; and (3) new fees and charges that may be
imposed by PIATCO which have not been previously imposed or collected at the Ninoy Aquino International Airport
Passenger Terminal I, pursuant to Administrative Order No. 1, Series of 1993, as amended. The glaring distinctions
between the draft Concession Agreement and the 1997 Concession Agreement lie in the types of fees included in each
category and the extent of the supervision and regulation which MIAA is allowed to exercise in relation thereto.
For fees under the first category, i.e., those which are subject to periodic adjustment in accordance with a prescribed
parametric formula and effective only upon written approval by MIAA, the draft Concession Agreement includes the
following:36
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.

Under the 1997 Concession Agreement, fees which are subject to adjustment and effective upon MIAA approval are
classified as "Public Utility Revenues" and include:37
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
The implication of the reduced number of fees that are subject to MIAA approval is best appreciated in relation to fees
included in the second category identified above. Under the 1997 Concession Agreement, fees which PIATCO may adjust
whenever it deems necessary without need for consent of DOTC/MIAA are "Non-Public Utility Revenues" and is defined
as "all other income not classified as Public Utility Revenues derived from operations of the Terminal and the Terminal
Complex."38 Thus, under the 1997 Concession Agreement, ground handling fees, rentals from airline offices and
porterage fees are no longer subject to MIAA regulation.
Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to regulate (1) lobby and
vehicular parking fees and (2) other new fees and charges that may be imposed by PIATCO. Such regulation may be
made by periodic adjustment and is effective only upon written approval of MIAA. The full text of said provision is
quoted below:
Section 6.03.Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking fees, aircraft tacking fees,
groundhandling fees, rentals and airline offices, check-in-counter rentals and porterage fees shall be allowed only once
every two years and in accordance with the Parametric Formula attached hereto as Annex F. Provided that adjustments
shall be made effective only after the written express approval of the MIAA. Provided, further, that such approval of the
MIAA, shall be contingent only on the conformity of the adjustments with the above said parametric formula. The first
adjustment shall be made prior to the In-Service Date of the Terminal.
The MIAA reserves the right to regulate under the foregoing terms and conditions the lobby and vehicular parking fees
and other new fees and charges as contemplated in paragraph 2 of Section 6.01 if in its judgment the users of the
airport shall be deprived of a free option for the services they cover.39
On the other hand, the equivalent provision under the 1997 Concession Agreement reads:
Section 6.03 Periodic Adjustment in Fees and Charges.
xxxxxxxxx
(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public Utility Revenues in
order to ensure that End Users are not unreasonably deprived of services. While the vehicular parking fee, porterage fee
and greeter/well wisher fee constitute Non-Public Utility Revenues of Concessionaire, GRP may intervene and require
Concessionaire to explain and justify the fee it may set from time to time, if in the reasonable opinion of GRP the said
fees have become exorbitant resulting in the unreasonable deprivation of End Users of such services.40
Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2) porterage fee and (3)
greeter/well wisher fee, all that MIAA can do is to require PIATCO to explain and justify the fees set by PIATCO. In the
draft Concession Agreement, vehicular parking fee is subject to MIAA regulation and approval under the second
paragraph of Section 6.03 thereof while porterage fee is covered by the first paragraph of the same provision. There is
an obvious relaxation of the extent of control and regulation by MIAA with respect to the particular fees that may be
charged by PIATCO.

Moreover, with respect to the third category of fees that may be imposed and collected by PIATCO, i.e., new fees and
charges that may be imposed by PIATCO which have not been previously imposed or collected at the Ninoy Aquino
International Airport Passenger Terminal I, under Section 6.03 of the draft Concession Agreement MIAA has reserved the
right to regulate the same under the same conditions that MIAA may regulate fees under the first category, i.e., periodic
adjustment of once every two years in accordance with a prescribed parametric formula and effective only upon written
approval by MIAA. However, under the 1997 Concession Agreement, adjustment of fees under the third category is not
subject to MIAA regulation.
With respect to terminal fees that may be charged by PIATCO,41 as shown earlier, this was included within the category
of "Public Utility Revenues" under the 1997 Concession Agreement. This classification is significant because under the
1997 Concession Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment" of fees upon the
occurrence of certain extraordinary events specified in the agreement.42 However, under the draft Concession
Agreement, terminal fees are not included in the types of fees that may be subject to "Interim Adjustment."43
Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal fees, are denominated in US
Dollars44 while payments to the Government are in Philippine Pesos. In the draft Concession Agreement, no such
stipulation was included. By stipulating that "Public Utility Revenues" will be paid to PIATCO in US Dollars while
payments by PIATCO to the Government are in Philippine currency under the 1997 Concession Agreement, PIATCO is
able to enjoy the benefits of depreciations of the Philippine Peso, while being effectively insulated from the detrimental
effects of exchange rate fluctuations.
When taken as a whole, the changes under the 1997 Concession Agreement with respect to reduction in the types of
fees that are subject to MIAA regulation and the relaxation of such regulation with respect to other fees are significant
amendments that substantially distinguish the draft Concession Agreement from the 1997 Concession Agreement. The
1997 Concession Agreement, in this respect, clearly gives PIATCO more favorable terms than what was available to other
bidders at the time the contract was bidded out. It is not very difficult to see that the changes in the 1997 Concession
Agreement translate to direct and concrete financial advantages for PIATCO which were not available at the time the
contract was offered for bidding. It cannot be denied that under the 1997 Concession Agreement only "Public Utility
Revenues" are subject to MIAA regulation. Adjustments of all other fees imposed and collected by PIATCO are entirely
within its control. Moreover, with respect to terminal fees, under the 1997 Concession Agreement, the same is further
subject to "Interim Adjustments" not previously stipulated in the draft Concession Agreement. Finally, the change in the
currency stipulated for "Public Utility Revenues" under the 1997 Concession Agreement, except terminal fees, gives
PIATCO an added benefit which was not available at the time of bidding.
b. Assumption by the
Government of the liabilities of
PIATCO in the event of the latter's
default thereof
Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors who have provided,
loaned or advanced funds for the NAIA IPT III project does not result in the assumption by the Government of these
liabilities. In fact, nowhere in the said contract does default of PIATCO's loans figure in the agreement. Such default does
not directly result in any concomitant right or obligation in favor of the Government.
However, the 1997 Concession Agreement provides:
Section 4.04 Assignment.
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(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default has resulted in
the acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid
Creditors and Concessionaire shall immediately inform GRP in writing of such default. GRP shall, within one hundred
eighty (180) Days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over
the Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be
substituted as concessionaire and operator of the Development Facility in accordance with the terms and conditions
hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the
terms and conditions of this Agreement; Provided that if at the end of the 180-day period GRP shall not have served the
Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take over the
Development Facility with the concomitant assumption of Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall form
and organize a concession company qualified to take over the operation of the Development Facility. If the concession
company should elect to designate an operator for the Development Facility, the concession company shall in good faith
identify and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt of
GRP's written notice. If the concession company, acting in good faith and with due diligence, is unable to designate a
qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the
Development Facility and assume Attendant Liabilities.
The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as:
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the Concessionaire
as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the Project, including all
interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses, and
further including amounts owed by Concessionaire to its suppliers, contractors and sub-contractors.
Under the above quoted portions of Section 4.04 in relation to the definition of "Attendant Liabilities," default by
PIATCO of its loans used to finance the NAIA IPT III project triggers the occurrence of certain events that leads to the
assumption by the Government of the liability for the loans. Only in one instance may the Government escape the
assumption of PIATCO's liabilities, i.e., when the Government so elects and allows a qualified operator to take over as
Concessionaire. However, this circumstance is dependent on the existence and availability of a qualified operator who is
willing to take over the rights and obligations of PIATCO under the contract, a circumstance that is not entirely within
the control of the Government.
Without going into the validity of this provision at this juncture, suffice it to state that Section 4.04 of the 1997
Concession Agreement may be considered a form of security for the loans PIATCO has obtained to finance the project,
an option that was not made available in the draft Concession Agreement. Section 4.04 is an important amendment to
the 1997 Concession Agreement because it grants PIATCO a financial advantage or benefit which was not previously
made available during the bidding process. This financial advantage is a significant modification that translates to better
terms and conditions for PIATCO.
PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft Concession Agreement is
subject to amendment because the Bid Documents permit financing or borrowing. They claim that it was the lenders
who proposed the amendments to the draft Concession Agreement which resulted in the 1997 Concession Agreement.
We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow the project proponent or the
winning bidder to obtain financing for the project, especially in this case which involves the construction, operation and
maintenance of the NAIA IPT III. Expectedly, compliance by the project proponent of its undertakings therein would
involve a substantial amount of investment. It is therefore inevitable for the awardee of the contract to seek alternate
sources of funds to support the project. Be that as it may, this Court maintains that amendments to the contract bidded
upon should always conform to the general policy on public bidding if such procedure is to be faithful to its real nature
and purpose. By its very nature and characteristic, competitive public bidding aims to protect the public interest by
giving the public the best possible advantages through open competition.45 It has been held that the three principles in

public bidding are (1) the offer to the public; (2) opportunity for competition; and (3) a basis for the exact comparison of
bids. A regulation of the matter which excludes any of these factors destroys the distinctive character of the system and
thwarts the purpose of its adoption.46 These are the basic parameters which every awardee of a contract bidded out
must conform to, requirements of financing and borrowing notwithstanding. Thus, upon a concrete showing that, as in
this case, the contract signed by the government and the contract-awardee is an entirely different contract from the
contract bidded, courts should not hesitate to strike down said contract in its entirety for violation of public policy on
public bidding. A strict adherence on the principles, rules and regulations on public bidding must be sustained if only to
preserve the integrity and the faith of the general public on the procedure.
Public bidding is a standard practice for procuring government contracts for public service and for furnishing supplies
and other materials. It aims to secure for the government the lowest possible price under the most favorable terms and
conditions, to curtail favoritism in the award of government contracts and avoid suspicion of anomalies and it places all
bidders in equal footing.47 Any government action which permits any substantial variance between the conditions
under which the bids are invited and the contract executed after the award thereof is a grave abuse of discretion
amounting to lack or excess of jurisdiction which warrants proper judicial action.
In view of the above discussion, the fact that the foregoing substantial amendments were made on the 1997 Concession
Agreement renders the same null and void for being contrary to public policy. These amendments convert the 1997
Concession Agreement to an entirely different agreement from the contract bidded out or the draft Concession
Agreement. It is not difficult to see that the amendments on (1) the types of fees or charges that are subject to MIAA
regulation or control and the extent thereof and (2) the assumption by the Government, under certain conditions, of the
liabilities of PIATCO directly translates concrete financial advantages to PIATCO that were previously not available during
the bidding process. These amendments cannot be taken as merely supplements to or implementing provisions of those
already existing in the draft Concession Agreement. The amendments discussed above present new terms and
conditions which provide financial benefit to PIATCO which may have altered the technical and financial parameters of
other bidders had they known that such terms were available.
III
Direct Government Guarantee
Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession Agreement provides:
Section 4.04 Assignment
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(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default resulted in the
acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors
and Concessionaire shall immediately inform GRP in writing of such default. GRP shall within one hundred eighty (180)
days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the
Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified to be
substituted as concessionaire and operator of the Development facility in accordance with the terms and conditions
hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the
terms and conditions of this Agreement; Provided, that if at the end of the 180-day period GRP shall not have served the
Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take over the
Development Facility with the concomitant assumption of Attendant Liabilities.
(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall form and
organize a concession company qualified to takeover the operation of the Development Facility. If the concession
company should elect to designate an operator for the Development Facility, the concession company shall in good faith
identify and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt of
GRP's written notice. If the concession company, acting in good faith and with due diligence, is unable to designate a

qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the
Development Facility and assume Attendant Liabilities.
.
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the Concessionaire
as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the Project, including all
interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses, and
further including amounts owed by Concessionaire to its suppliers, contractors and sub-contractors.48
It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults in its loan obligations, is
obligated to pay "all amounts recorded and from time to time outstanding from the books" of PIATCO which the latter
owes to its creditors.49 These amounts include "all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses."50 This obligation of the Government to pay PIATCO's
creditors upon PIATCO's default would arise if the Government opts to take over NAIA IPT III. It should be noted,
however, that even if the Government chooses the second option, which is to allow PIATCO's unpaid creditors operate
NAIA IPT III, the Government is still at a risk of being liable to PIATCO's creditors should the latter be unable to designate
a qualified operator within the prescribed period.51 In effect, whatever option the Government chooses to take in the
event of PIATCO's failure to fulfill its loan obligations, the Government is still at a risk of assuming PIATCO's outstanding
loans. This is due to the fact that the Government would only be free from assuming PIATCO's debts if the unpaid
creditors would be able to designate a qualified operator within the period provided for in the contract. Thus, the
Government's assumption of liability is virtually out of its control. The Government under the circumstances provided
for in the 1997 Concession Agreement is at the mercy of the existence, availability and willingness of a qualified
operator. The above contractual provisions constitute a direct government guarantee which is prohibited by law.
One of the main impetus for the enactment of the BOT Law is the lack of government funds to construct the
infrastructure and development projects necessary for economic growth and development. This is why private sector
resources are being tapped in order to finance these projects. The BOT law allows the private sector to participate, and
is in fact encouraged to do so by way of incentives, such as minimizing the unstable flow of returns,52 provided that the
government would not have to unnecessarily expend scarcely available funds for the project itself. As such, direct
guarantee, subsidy and equity by the government in these projects are strictly prohibited.53 This is but logical for if the
government would in the end still be at a risk of paying the debts incurred by the private entity in the BOT projects, then
the purpose of the law is subverted.
Section 2(n) of the BOT Law defines direct guarantee as follows:
(n) Direct government guarantee An agreement whereby the government or any of its agencies or local government
units assume responsibility for the repayment of debt directly incurred by the project proponent in implementing the
project in case of a loan default.
Clearly by providing that the Government "assumes" the attendant liabilities, which consists of PIATCO's unpaid debts,
the 1997 Concession Agreement provided for a direct government guarantee for the debts incurred by PIATCO in the
implementation of the NAIA IPT III project. It is of no moment that the relevant sections are subsumed under the title of
"assignment". The provisions providing for direct government guarantee which is prohibited by law is clear from the
terms thereof.
The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal defect. Article IV, Section
4.04(c), in relation to Article I, Section 1.06, of the ARCA provides:
Section 4.04 Security

xxxxxxxxx
(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and enter into direct agreement with
the Senior Lenders, or with an agent of such Senior Lenders (which agreement shall be subject to the approval of the
BangkoSentralngPilipinas), in such form as may be reasonably acceptable to both GRP and Senior Lenders, with regard,
inter alia, to the following parameters:
xxxxxxxxx
(iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to the Senior Lenders, and as a result
thereof the Senior Lenders have become entitled to accelerate the Senior Loans, the Senior Lenders shall have the right
to notify GRP of the same, and without prejudice to any other rights of the Senior Lenders or any Senior Lenders' agent
may have (including without limitation under security interests granted in favor of the Senior Lenders), to either in good
faith identify and designate a nominee which is qualified under sub-clause (viii)(y) below to operate the Development
Facility [NAIA Terminal 3] or transfer the Concessionaire's [PIATCO] rights and obligations under this Agreement to a
transferee which is qualified under sub-clause (viii) below;
xxxxxxxxx
(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable to designate a nominee or effect a
transfer in terms and conditions satisfactory to the Senior Lenders within one hundred eighty (180) days after giving GRP
notice as referred to respectively in (iv) or (v) above, then GRP and the Senior Lenders shall endeavor in good faith to
enter into any other arrangement relating to the Development Facility [NAIA Terminal 3] (other than a turnover of the
Development Facility [NAIA Terminal 3] to GRP) within the following one hundred eighty (180) days. If no agreement
relating to the Development Facility [NAIA Terminal 3] is arrived at by GRP and the Senior Lenders within the said 180day period, then at the end thereof the Development Facility [NAIA Terminal 3] shall be transferred by the
Concessionaire [PIATCO] to GRP or its designee and GRP shall make a termination payment to Concessionaire [PIATCO]
equal to the Appraised Value (as hereinafter defined) of the Development Facility [NAIA Terminal 3] or the sum of the
Attendant Liabilities, if greater. Notwithstanding Section 8.01(c) hereof, this Agreement shall be deemed terminated
upon the transfer of the Development Facility [NAIA Terminal 3] to GRP pursuant hereto;
xxxxxxxxx
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to time owed or which
may become owing by Concessionaire [PIATCO] to Senior Lenders or any other persons or entities who have provided,
loaned, or advanced funds or provided financial facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal 3],
including, without limitation, all principal, interest, associated fees, charges, reimbursements, and other related
expenses (including the fees, charges and expenses of any agents or trustees of such persons or entities), whether
payable at maturity, by acceleration or otherwise, and further including amounts owed by Concessionaire [PIATCO] to its
professional consultants and advisers, suppliers, contractors and sub-contractors.54
It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill its loan obligations to its
Senior Lenders, the Government is obligated to directly negotiate and enter into an agreement relating to NAIA IPT III
with the Senior Lenders, should the latter fail to appoint a qualified nominee or transferee who will take the place of
PIATCO. If the Senior Lenders and the Government are unable to enter into an agreement after the prescribed period,
the Government must then pay PIATCO, upon transfer of NAIA IPT III to the Government, termination payment equal to
the appraised value of the project or the value of the attendant liabilities whichever is greater. Attendant liabilities as
defined in the ARCA includes all amounts owed or thereafter may be owed by PIATCO not only to the Senior Lenders
with whom PIATCO has defaulted in its loan obligations but to all other persons who may have loaned, advanced funds
or provided any other type of financial facilities to PIATCO for NAIA IPT III. The amount of PIATCO's debt that the
Government would have to pay as a result of PIATCO's default in its loan obligations -- in case no qualified nominee or

transferee is appointed by the Senior Lenders and no other agreement relating to NAIA IPT III has been reached between
the Government and the Senior Lenders -- includes, but is not limited to, "all principal, interest, associated fees, charges,
reimbursements, and other related expenses . . . whether payable at maturity, by acceleration or otherwise."55
It is clear from the foregoing that the ARCA provides for a direct guarantee by the government to pay PIATCO's loans not
only to its Senior Lenders but all other entities who provided PIATCO funds or services upon PIATCO's default in its loan
obligation with its Senior Lenders. The fact that the Government's obligation to pay PIATCO's lenders for the latter's
obligation would only arise after the Senior Lenders fail to appoint a qualified nominee or transferee does not detract
from the fact that, should the conditions as stated in the contract occur, the ARCA still obligates the Government to pay
any and all amounts owed by PIATCO to its lenders in connection with NAIA IPT III. Worse, the conditions that would
make the Government liable for PIATCO's debts is triggered by PIATCO's own default of its loan obligations to its Senior
Lenders to which loan contracts the Government was never a party to. The Government was not even given an option as
to what course of action it should take in case PIATCO defaulted in the payment of its senior loans. The Government,
upon PIATCO's default, would be merely notified by the Senior Lenders of the same and it is the Senior Lenders who are
authorized to appoint a qualified nominee or transferee. Should the Senior Lenders fail to make such an appointment,
the Government is then automatically obligated to "directly deal and negotiate" with the Senior Lenders regarding NAIA
IPT III. The only way the Government would not be liable for PIATCO's debt is for a qualified nominee or transferee to be
appointed in place of PIATCO to continue the construction, operation and maintenance of NAIA IPT III. This "precondition", however, will not take the contract out of the ambit of a direct guarantee by the government as the
existence, availability and willingness of a qualified nominee or transferee is totally out of the government's control. As
such the Government is virtually at the mercy of PIATCO (that it would not default on its loan obligations to its Senior
Lenders), the Senior Lenders (that they would appoint a qualified nominee or transferee or agree to some other
arrangement with the Government) and the existence of a qualified nominee or transferee who is able and willing to
take the place of PIATCO in NAIA IPT III.
The proscription against government guarantee in any form is one of the policy considerations behind the BOT Law.
Clearly, in the present case, the ARCA obligates the Government to pay for all loans, advances and obligations arising out
of financial facilities extended to PIATCO for the implementation of the NAIA IPT III project should PIATCO default in its
loan obligations to its Senior Lenders and the latter fails to appoint a qualified nominee or transferee. This in effect
would make the Government liable for PIATCO's loans should the conditions as set forth in the ARCA arise. This is a form
of direct government guarantee.
The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a BOT project may be
accepted, the following conditions must first be met: (1) the project involves a new concept in technology and/or is not
part of the list of priority projects, (2) no direct government guarantee, subsidy or equity is required, and (3) the
government agency or local government unit has invited by publication other interested parties to a public bidding and
conducted the same.56 The failure to meet any of the above conditions will result in the denial of the proposal. It is
further provided that the presence of direct government guarantee, subsidy or equity will "necessarily disqualify a
proposal from being treated and accepted as an unsolicited proposal."57 The BOT Law clearly and strictly prohibits
direct government guarantee, subsidy and equity in unsolicited proposals that the mere inclusion of a provision to that
effect is fatal and is sufficient to deny the proposal. It stands to reason therefore that if a proposal can be denied by
reason of the existence of direct government guarantee, then its inclusion in the contract executed after the said
proposal has been accepted is likewise sufficient to invalidate the contract itself. A prohibited provision, the inclusion of
which would result in the denial of a proposal cannot, and should not, be allowed to later on be inserted in the contract
resulting from the said proposal. The basic rules of justice and fair play alone militate against such an occurrence and
must not, therefore, be countenanced particularly in this instance where the government is exposed to the risk of
shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to the legal maxim that those that cannot be done directly cannot be done
indirectly.58 To declare the PIATCO contracts valid despite the clear statutory prohibition against a direct government
guarantee would not only make a mockery of what the BOT Law seeks to prevent -- which is to expose the government
to the risk of incurring a monetary obligation resulting from a contract of loan between the project proponent and its
lenders and to which the Government is not a party to -- but would also render the BOT Law useless for what it seeks to

achieve - to make use of the resources of the private sector in the "financing, operation and maintenance of
infrastructure and development projects"59 which are necessary for national growth and development but which the
government, unfortunately, could ill-afford to finance at this point in time.
IV
Temporary takeover of business affected with public interest
Article XII, Section 17 of the 1987 Constitution provides:
Section 17. In times of national emergency, when the public interest so requires, the State may, during the emergency
and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately owned public
utility or business affected with public interest.
The above provision pertains to the right of the State in times of national emergency, and in the exercise of its police
power, to temporarily take over the operation of any business affected with public interest. In the 1986 Constitutional
Commission, the term "national emergency" was defined to include threat from external aggression, calamities or
national disasters, but not strikes "unless it is of such proportion that would paralyze government service."60 The
duration of the emergency itself is the determining factor as to how long the temporary takeover by the government
would last.61 The temporary takeover by the government extends only to the operation of the business and not to the
ownership thereof. As such the government is not required to compensate the private entity-owner of the said business
as there is no transfer of ownership, whether permanent or temporary. The private entity-owner affected by the
temporary takeover cannot, likewise, claim just compensation for the use of the said business and its properties as the
temporary takeover by the government is in exercise of its police power and not of its power of eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
Section 5.10 Temporary Take-over of operations by GRP.
.
(c) In the event the development Facility or any part thereof and/or the operations of Concessionaire or any part
thereof, become the subject matter of or be included in any notice, notification, or declaration concerning or relating to
acquisition, seizure or appropriation by GRP in times of war or national emergency, GRP shall, by written notice to
Concessionaire, immediately take over the operations of the Terminal and/or the Terminal Complex. During such take
over by GRP, the Concession Period shall be suspended; provided, that upon termination of war, hostilities or national
emergency, the operations shall be returned to Concessionaire, at which time, the Concession period shall commence to
run again. Concessionaire shall be entitled to reasonable compensation for the duration of the temporary take over by
GRP, which compensation shall take into account the reasonable cost for the use of the Terminal and/or Terminal
Complex, (which is in the amount at least equal to the debt service requirements of Concessionaire, if the temporary
take over should occur at the time when Concessionaire is still servicing debts owed to project lenders), any loss or
damage to the Development Facility, and other consequential damages. If the parties cannot agree on the reasonable
compensation of Concessionaire, or on the liability of GRP as aforesaid, the matter shall be resolved in accordance with
Section 10.01 [Arbitration]. Any amount determined to be payable by GRP to Concessionaire shall be offset from the
amount next payable by Concessionaire to GRP.62
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on temporary government
takeover and obligate the government to pay "reasonable cost for the use of the Terminal and/or Terminal Complex."63
Article XII, section 17 of the 1987 Constitution envisions a situation wherein the exigencies of the times necessitate the
government to "temporarily take over or direct the operation of any privately owned public utility or business affected
with public interest." It is the welfare and interest of the public which is the paramount consideration in determining
whether or not to temporarily take over a particular business. Clearly, the State in effecting the temporary takeover is
exercising its police power. Police power is the "most essential, insistent, and illimitable of powers."64 Its exercise

therefore must not be unreasonably hampered nor its exercise be a source of obligation by the government in the
absence of damage due to arbitrariness of its exercise.65 Thus, requiring the government to pay reasonable
compensation for the reasonable use of the property pursuant to the operation of the business contravenes the
Constitution.
V
Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage vested in one or more persons or companies, consisting in the exclusive
right (or power) to carry on a particular business or trade, manufacture a particular article, or control the sale of a
particular commodity."66 The 1987 Constitution strictly regulates monopolies, whether private or public, and even
provides for their prohibition if public interest so requires. Article XII, Section 19 of the 1987 Constitution states:
Sec. 19. The state shall regulate or prohibit monopolies when the public interest so requires. No combinations in
restraint of trade or unfair competition shall be allowed.
Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist to aid the government in
carrying on an enterprise or to aid in the performance of various services and functions in the interest of the public.67
Nonetheless, a determination must first be made as to whether public interest requires a monopoly. As monopolies are
subject to abuses that can inflict severe prejudice to the public, they are subject to a higher level of State regulation than
an ordinary business undertaking.
In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is granted the "exclusive right to
operate a commercial international passenger terminal within the Island of Luzon" at the NAIA IPT III.68 This is with the
exception of already existing international airports in Luzon such as those located in the Subic Bay Freeport Special
Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in Laoag City.69 As such, upon commencement of
PIATCO's operation of NAIA IPT III, Terminals 1 and 2 of NAIA would cease to function as international passenger
terminals. This, however, does not prevent MIAA to use Terminals 1 and 2 as domestic passenger terminals or in any
other manner as it may deem appropriate except those activities that would compete with NAIA IPT III in the latter's
operation as an international passenger terminal.70 The right granted to PIATCO to exclusively operate NAIA IPT III
would be for a period of twenty-five (25) years from the In-Service Date71 and renewable for another twenty-five (25)
years at the option of the government.72 Both the 1997 Concession Agreement and the ARCA further provide that, in
view of the exclusive right granted to PIATCO, the concession contracts of the service providers currently servicing
Terminals 1 and 2 would no longer be renewed and those concession contracts whose expiration are subsequent to the
In-Service Date would cease to be effective on the said date.73
The operation of an international passenger airport terminal is no doubt an undertaking imbued with public interest. In
entering into a BuildOperate-and-Transfer contract for the construction, operation and maintenance of NAIA IPT III, the
government has determined that public interest would be served better if private sector resources were used in its
construction and an exclusive right to operate be granted to the private entity undertaking the said project, in this case
PIATCO. Nonetheless, the privilege given to PIATCO is subject to reasonable regulation and supervision by the
Government through the MIAA, which is the government agency authorized to operate the NAIA complex, as well as
DOTC, the department to which MIAA is attached.74
This is in accord with the Constitutional mandate that a monopoly which is not prohibited must be regulated.75 While it
is the declared policy of the BOT Law to encourage private sector participation by "providing a climate of minimum
government regulations,"76 the same does not mean that Government must completely surrender its sovereign power
to protect public interest in the operation of a public utility as a monopoly. The operation of said public utility can not be
done in an arbitrary manner to the detriment of the public which it seeks to serve. The right granted to the public utility
may be exclusive but the exercise of the right cannot run riot. Thus, while PIATCO may be authorized to exclusively
operate NAIA IPT III as an international passenger terminal, the Government, through the MIAA, has the right and the

duty to ensure that it is done in accord with public interest. PIATCO's right to operate NAIA IPT III cannot also violate the
rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
3.01 Concession Period
xxxxxxxxx
(e) GRP confirms that certain concession agreements relative to certain services and operations currently being
undertaken at the Ninoy Aquino International Airport passenger Terminal I have a validity period extending beyond the
In-Service Date. GRP through DOTC/MIAA, confirms that these services and operations shall not be carried over to the
Terminal and the Concessionaire is under no legal obligation to permit such carry-over except through a separate
agreement duly entered into with Concessionaire. In the event Concessionaire becomes involved in any litigation
initiated by any such concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and harmless on
full indemnity basis from and against any loss and/or any liability resulting from any such litigation, including the cost of
litigation and the reasonable fees paid or payable to Concessionaire's counsel of choice, all such amounts shall be fully
deductible by way of an offset from any amount which the Concessionaire is bound to pay GRP under this Agreement.
During the oral arguments on December 10, 2002, the counsel for the petitioners-in-intervention for G.R. No. 155001
stated that there are two service providers whose contracts are still existing and whose validity extends beyond the InService Date. One contract remains valid until 2008 and the other until 2010.77
We hold that while the service providers presently operating at NAIA Terminal 1 do not have an absolute right for the
renewal or the extension of their respective contracts, those contracts whose duration extends beyond NAIA IPT III's InService-Date should not be unduly prejudiced. These contracts must be respected not just by the parties thereto but
also by third parties. PIATCO cannot, by law and certainly not by contract, render a valid and binding contract nugatory.
PIATCO, by the mere expedient of claiming an exclusive right to operate, cannot require the Government to break its
contractual obligations to the service providers. In contrast to the arrastre and stevedoring service providers in the case
of Anglo-Fil Trading Corporation v. Lazaro78 whose contracts consist of temporary hold-over permits, the affected
service providers in the cases at bar, have a valid and binding contract with the Government, through MIAA, whose
period of effectivity, as well as the other terms and conditions thereof, cannot be violated.
In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of the 1997 Concession
Agreement and the ARCA did not strip government, thru the MIAA, of its right to supervise the operation of the whole
NAIA complex, including NAIA IPT III. As the primary government agency tasked with the job,79 it is MIAA's responsibility
to ensure that whoever by contract is given the right to operate NAIA IPT III will do so within the bounds of the law and
with due regard to the rights of third parties and above all, the interest of the public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence of the requisite financial capacity of the Paircargo Consortium,
predecessor of respondent PIATCO, the award by the PBAC of the contract for the construction, operation and
maintenance of the NAIA IPT III is null and void. Further, considering that the 1997 Concession Agreement contains
material and substantial amendments, which amendments had the effect of converting the 1997 Concession Agreement
into an entirely different agreement from the contract bidded upon, the 1997 Concession Agreement is similarly null and
void for being contrary to public policy. The provisions under Sections 4.04(b) and (c) in relation to Section 1.06 of the
1997 Concession Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA, which constitute a direct
government guarantee expressly prohibited by, among others, the BOT Law and its Implementing Rules and Regulations
are also null and void. The Supplements, being accessory contracts to the ARCA, are likewise null and void.

WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession Agreement and the Supplements
thereto are set aside for being null and void.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, and Carpio-Morales, JJ.,
concur.
Vitug, J., see separate (dissenting) opinion.
Panganiban, J., please see separate opinion.
Quisumbing, J., no jurisdiction, please see separate opinion of J. Vitug in which he concurs.
Carpio, J., no part.
Callejo, Sr., J., also concur in the separate opinion of J. Panganiban.
Azcuna, J., joins the separate opinion of J. Vitug
G.R. No. 114323
July 23, 1998
OIL AND NATURAL GAS COMMISSION, petitioner,
vs.
COURT OF APPEALS and PACIFIC CEMENT COMPANY, INC., respondents.
MARTINEZ, J.:
This proceeding involves the enforcement of a foreign judgment rendered by the Civil Judge of Dehra Dun, India in favor
of the petitioner, OIL AND NATURAL GAS COMMISSION and against the private respondent, PACIFIC CEMENT COMPANY,
INCORPORATED.
The petitioner is a foreign corporation owned and controlled by the Government of India while the private respondent is
a private corporation duly organized and existing under the laws of the Philippines. The present conflict between the
petitioner and the private respondent has its roots in a contract entered into by and between both parties on February
26, 1983 whereby the private respondent undertook to supply the petitioner FOUR THOUSAND THREE HUNDRED (4,300)
metric tons of oil well cement. In consideration therefor, the petitioner bound itself to pay the private respondent the
amount of FOUR HUNDRED SEVENTY-SEVEN THOUSAND THREE HUNDRED U.S. DOLLARS ($477,300.00) by opening an
irrevocable, divisible, and confirmed letter of credit in favor of the latter. The oil well cement was loaded on board the
ship MV SURUTANA NAVA at the port of Surigao City, Philippines for delivery at Bombay and Calcutta, India. However,
due to a dispute between the shipowner and the private respondent, the cargo was held up in Bangkok and did not
reach its point destination. Notwithstanding the fact that the private respondent had already received payment and
despite several demands made by the petitioner, the private respondent failed to deliver the oil well cement.
Thereafter, negotiations ensued between the parties and they agreed that the private respondent will replace the entire
4,300 metric tons of oil well cement with Class "G" cement cost free at the petitioner's designated port. However, upon
inspection, the Class "G" cement did not conform to the petitioner's specifications. The petitioner then informed the
private respondent that it was referring its claim to an arbitrator pursuant to Clause 16 of their contract which
stipulates:
Except where otherwise provided in the supply order/contract all questions and disputes, relating to the meaning of the
specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items
ordered or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply
order/contract design, drawing, specification, instruction or these conditions or otherwise concerning the materials or
the execution or failure to execute the same during stipulated/extended period or after the completion/abandonment
thereof shall be referred to the sole arbitration of the persons appointed by Member of the Commission at the time of
dispute. It will be no objection to any such appointment that the arbitrator so appointed is a Commission employer (sic)
that he had to deal with the matter to which the supply or contract relates and that in the course of his duties as
Commission's employee he had expressed views on all or any of the matter in dispute or difference.

The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for
any reason the Member of the Commission shall appoint another person to act as arbitrator in accordance with the
terms of the contract/supply order. Such person shall be entitled to proceed with reference from the stage at which it
was left by his predecessor. Subject as aforesaid the provisions of the Arbitration Act, 1940, or any Statutory
modification or re-enactment there of and the rules made there under and for the time being in force shall apply to the
arbitration proceedings under this clause.
The arbitrator may with the consent of parties enlarge the time, from time to time, to make and publish the award.
The venue for arbitration shall be at Dehra dun. 1*
On July 23, 1988, the chosen arbitrator, one Shri N.N. Malhotra, resolved the dispute in petitioner's favor setting forth
the arbitral award as follows:
NOW THEREFORE after considering all facts of the case, the evidence, oral and documentarys adduced by the claimant
and carefully examining the various written statements, submissions, letters, telexes, etc. sent by the respondent, and
the oral arguments addressed by the counsel for the claimants, I, N.N. Malhotra, Sole Arbitrator, appointed under clause
16 of the supply order dated 26.2.1983, according to which the parties, i.e. M/S Oil and Natural Gas Commission and the
Pacific Cement Co., Inc. can refer the dispute to the sole arbitration under the provision of the Arbitration Act. 1940, do
hereby award and direct as follows:
The Respondent will pay the following to the claimant:
1.

Amount received by the Respondent

against the letter of credit No. 11/19

dated 28.2.1983
2.

US $

477,300.00

Re-imbursement of expenditure incurred

by the claimant on the inspection team's

visit to Philippines in August 1985
3.

3,881.00

L.C. Establishment charges incurred

by the claimant US $
4.

US $

1,252.82

Loss of interest suffered by claimant

from 21.6.83 to 23.7.88 US $

417,169.95

Total amount of award US $

899,603.77

In addition to the above, the respondent would also be liable to pay to the claimant the interest at the rate of 6% on the
above amount, with effect from 24.7.1988 up to the actual date of payment by the Respondent in full settlement of the
claim as awarded or the date of the decree, whichever is earlier.
I determine the cost at Rs. 70,000/- equivalent to US $5,000 towards the expenses on Arbitration, legal expenses,
stamps duly incurred by the claimant. The cost will be shared by the parties in equal proportion.
Pronounced at Dehra Dun to-day, the 23rd of July 1988. 2

To enable the petitioner to execute the above award in its favor, it filed a Petition before the Court of the Civil Judge in
Dehra Dun. India (hereinafter referred to as the foreign court for brevity), praying that the decision of the arbitrator be
made "the Rule of Court" in India. The foreign court issued notices to the private respondent for filing objections to the
petition. The private respondent complied and sent its objections dated January 16, 1989. Subsequently, the said court
directed the private respondent to pay the filing fees in order that the latter's objections could be given consideration.
Instead of paying the required filing fees, the private respondent sent the following communication addressed to the
Civil judge of Dehra Dun:
The Civil Judge
Dehra Dun (U.P.) India
Re: Misc. Case No. 5 of 1989
M/S Pacific Cement Co.,
Inc. vs. ONGC Case
Sir:
1.

We received your letter dated 28 April 1989 only last 18 May 1989.

2.

Please inform us how much is the court fee to be paid. Your letter did not mention the amount to be paid.

3.

Kindly give us 15 days from receipt of your letter advising us how much to pay to comply with the same.

Thank you for your kind consideration.

Pacific Cement Co., Inc.
By:
Jose Cortes, Jr.
President 3
Without responding to the above communication, the foreign court refused to admit the private respondent's
objections for failure to pay the required filing fees, and thereafter issued an Order on February 7, 1990, to wit:
ORDER
Since objections filed by defendant have been rejected through Misc. Suit No. 5 on 7.2.90, therefore, award should be
made Rule of the Court.
ORDER
Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of conditions of award decree is passed.
Award Paper No. 3/B-1 shall be a part of the decree. The plaintiff shall also be entitled to get from defendant (US$
899,603.77 (US$ Eight Lakhs ninety nine thousand six hundred and three point seventy seven only) along with 9%
interest per annum till the last date of realisation. 4

Despite notice sent to the private respondent of the foregoing order and several demands by the petitioner for
compliance therewith, the private respondent refused to pay the amount adjudged by the foreign court as owing to the
petitioner. Accordingly, the petitioner filed a complaint with Branch 30 of the Regional Trial Court (RTC) of Surigao City
for the enforcement of the aforementioned judgment of the foreign court. The private respondent moved to dismiss the
complaint on the following grounds: (1) plaintiffs lack of legal capacity to sue; (2) lack of cause of action; and (3)
plaintiffs claim or demand has been waived, abandoned, or otherwise extinguished. The petitioner filed its opposition to
the said motion to dismiss, and the private respondent, its rejoinder thereto. On January 3, 1992, the RTC issued an
order upholding the petitioner's legal capacity to sue, albeit dismissing the complaint for lack of a valid cause of action.
The RTC held that the rule prohibiting foreign corporations transacting business in the Philippines without a license from
maintaining a suit in Philippine courts admits of an exception, that is, when the foreign corporation is suing on an
isolated transaction as in this case. 5 Anent the issue of the sufficiency of the petitioner's cause of action, however, the
RTC found the referral of the dispute between the parties to the arbitrator under Clause 16 of their contract erroneous.
According to the RTC,
[a] perusal of the shove-quoted clause (Clause 16) readily shows that the matter covered by its terms is limited to "ALL
QUESTIONS AND DISPUTES, RELATING TO THE MEANING OF THE SPECIFICATION, DESIGNS, DRAWINGS AND
INSTRUCTIONS HEREIN BEFORE MENTIONED and as to the QUALITY OF WORKMANSHIP OF THE ITEMS ORDERED or as to
any other questions, claim, right or thing whatsoever, but qualified to "IN ANY WAY ARISING OR RELATING TO THE
SUPPLY ORDER/CONTRACT, DESIGN, DRAWING, SPECIFICATION, etc.," repeating the enumeration in the opening
sentence of the clause.
The court is inclined to go along with the observation of the defendant that the breach, consisting of the non-delivery of
the purchased materials, should have been properly litigated before a court of law, pursuant to Clause No. 15 of the
Contract/Supply Order, herein quoted, to wit:
"JURISDICTION
All questions, disputes and differences, arising under out of or in connection with this supply order, shall be subject to
the EXCLUSIVE JURISDICTION OF THE COURT, within the local limits of whose jurisdiction and the place from which this
supply order is situated." 6
The RTC characterized the erroneous submission of the dispute to the arbitrator as a "mistake of law or fact amounting
to want of jurisdiction". Consequently, the proceedings had before the arbitrator were null and void and the foreign
court had therefore, adopted no legal award which could be the source of an enforceable right. 7
The petitioner then appealed to the respondent Court of Appeals which affirmed the dismissal of the complaint. In its
decision, the appellate court concurred with the RTC's ruling that the arbitrator did not have jurisdiction over the
dispute between the parties, thus, the foreign court could not validly adopt the arbitrator's award. In addition, the
appellate court observed that the full text of the judgment of the foreign court contains the dispositive portion only and
indicates no findings of fact and law as basis for the award. Hence, the said judgment cannot be enforced by any
Philippine court as it would violate the constitutional provision that no decision shall be rendered by any court without
expressing therein clearly and distinctly the facts and the law on which it is based. 8 The appellate court ruled further
that the dismissal of the private respondent's objections for non-payment of the required legal fees, without the foreign
court first replying to the private respondent's query as to the amount of legal fees to be paid, constituted want of
notice or violation of due process. Lastly, it pointed out that the arbitration proceeding was defective because the
arbitrator was appointed solely by the petitioner, and the fact that the arbitrator was a former employee of the latter
gives rise to a presumed bias on his part in favor of the petitioner. 9
A subsequent motion for reconsideration by the petitioner of the appellate court's decision was denied, thus, this
petition for review on certiorari citing the following as grounds in support thereof:
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE LOWER COURT'S ORDER OF DISMISSAL SINCE:

A.
THE NON-DELIVERY OF THE CARGO WAS A MATTER PROPERLY COGNIZABLE BY THE PROVISIONS OF CLAUSE 16
OF THE CONTRACT;
B.
THE JUDGMENT OF THE CIVIL COURT OF DEHRADUN, INDIA WAS AN AFFIRMATION OF THE FACTUAL AND LEGAL
FINDINGS OF THE ARBITRATOR AND THEREFORE ENFORCEABLE IN THIS JURISDICTION;
C.
10

EVIDENCE MUST BE RECEIVED TO REPEL THE EFFECT OF A PRESUMPTIVE RIGHT UNDER A FOREIGN JUDGMENT.

The threshold issue is whether or not the arbitrator had jurisdiction over the dispute between the petitioner and the
private respondent under Clause 16 of the contract. To reiterate, Clause 16 provides as follows:
Except where otherwise provided in the supply order/contract all questions and disputes, relating to the meaning of the
specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items
ordered or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply
order/contract design, drawing, specification, instruction or these conditions or otherwise concerning the materials or
the execution or failure to execute the same during stipulated/extended period or after the completion/abandonment
thereof shall be referred to the sole arbitration of the persons appointed by Member of the Commission at the time of
dispute. It will be no objection to any such appointment that the arbitrator so appointed is a Commission employer (sic)
that he had to deal with the matter to which the supply or contract relates and that in the course of his duties as
Commission's employee he had expressed views on all or any of the matter in dispute or difference. 11
The dispute between the parties had its origin in the non-delivery of the 4,300 metric tons of oil well cement to the
petitioner. The primary question that may be posed, therefore, is whether or not the non-delivery of the said cargo is a
proper subject for arbitration under the above-quoted Clause 16. The petitioner contends that the same was a matter
within the purview of Clause 16, particularly the phrase, ". . . or as to any other questions, claim, right or thing
whatsoever, in any way arising or relating to the supply order/contract, design, drawing, specification, instruction . . .".
12 It is argued that the foregoing phrase allows considerable latitude so as to include non-delivery of the cargo which
was a "claim, right or thing relating to the supply order/contract". The contention is bereft of merit. First of all, the
petitioner has misquoted the said phrase, shrewdly inserting a comma between the words "supply order/contract" and
"design" where none actually exists. An accurate reproduction of the phrase reads, ". . . or as to any other question,
claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing,
specification, instruction or these conditions . . .". The absence of a comma between the words "supply order/contract"
and "design" indicates that the former cannot be taken separately but should be viewed in conjunction with the words
"design, drawing, specification, instruction or these conditions". It is thus clear that to fall within the purview of this
phrase, the "claim, right or thing whatsoever" must arise out of or relate to the design, drawing, specification, or
instruction of the supply order/contract. The petitioner also insists that the non-delivery of the cargo is not only covered
by the foregoing phrase but also by the phrase, ". . . or otherwise concerning the materials or the execution or failure to
execute the same during the stipulated/extended period or after completion/abandonment thereof . . .".
The doctrine of noscitur a sociis, although a rule in the construction of statutes, is equally applicable in the
ascertainment of the meaning and scope of vague contractual stipulations, such as the aforementioned phrase.
According to the maxim noscitur a sociis, where a particular word or phrase is ambiguous in itself or is equally
susceptible of various meanings, its correct construction may be made clear and specific by considering the company of
the words in which it is found or with which it is associated, or stated differently, its obscurity or doubt may be reviewed
by reference to associated words. 13 A close examination of Clause 16 reveals that it covers three matters which may be
submitted to arbitration namely,
(1)
all questions and disputes, relating to the meaning of the specification designs, drawings and instructions herein
before mentioned and as to quality of workmanship of the items ordered; or
(2)
any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply
order/contract design, drawing, specification, instruction or these conditions; or

(3)
otherwise concerning the materials or the execution or failure to execute the same during stipulated/extended
period or after the completion/abandonment thereof.
The first and second categories unmistakably refer to questions and disputes relating to the design, drawing,
instructions, specifications or quality of the materials of the supply/order contract. In the third category, the clause,
"execution or failure to execute the same", may be read as "execution or failure to execute the supply order/contract".
But in accordance with the doctrine of noscitur a sociis, this reference to the supply order/contract must be construed in
the light of the preceding words with which it is associated, meaning to say, as being limited only to the design, drawing,
instructions, specifications or quality of the materials of the supply order/contract. The non-delivery of the oil well
cement is definitely not in the nature of a dispute arising from the failure to execute the supply order/contract design,
drawing, instructions, specifications or quality of the materials. That Clause 16 should pertain only to matters involving
the technical aspects of the contract is but a logical inference considering that the underlying purpose of a referral to
arbitration is for such technical matters to be deliberated upon by a person possessed with the required skill and
expertise which may be otherwise absent in the regular courts.
This Court agrees with the appellate court in its ruling that the non-delivery of the oil well cement is a matter properly
cognizable by the regular courts as stipulated by the parties in Clause 15 of their contract:
All questions, disputes and differences, arising under out of or in connection with this supply order, shall be subject to
the exclusive jurisdiction of the court, within the local limits of whose jurisdiction and the place from which this supply
order is situated. 14
The following fundamental principles in the interpretation of contracts and other instruments served as our guide in
arriving at the foregoing conclusion:
Art. 1373.
If some stipulation of any contract should admit of several meanings, it shall be understood as bearing
that import which is most adequate to render it effectual. 15
Art. 1374.
The various stipulations of a contract shall be interpreted together, attributing the doubtful ones that
sense which may result from all of them taken jointly. 16
Sec. 11. Instrument construed so as to give effect to all provisions. In the construction of an instrument, where there are
several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all. 17
Thus, this Court has held that as in statutes, the provisions of a contract should not be read in isolation from the rest of
the instrument but, on the contrary, interpreted in the light of the other related provisions. 18 The whole and every part
of a contract must be considered in fixing the meaning of any of its harmonious whole. Equally applicable is the canon of
construction that in interpreting a statute (or a contract as in this case), care should be taken that every part thereof be
given effect, on the theory that it was enacted as an integrated measure and not as a hodge-podge of conflicting
provisions. The rule is that a construction that would render a provision inoperative should be avoided; instead,
apparently inconsistent provisions should be reconciled whenever possible as parts of a coordinated and harmonious
whole. 19
The petitioner's interpretation that Clause 16 is of such latitude as to contemplate even the non-delivery of the oil well
cement would in effect render Clause 15 a mere superfluity. A perusal of Clause 16 shows that the parties did not intend
arbitration to be the sole means of settling disputes. This is manifest from Clause 16 itself which is prefixed with the
proviso, "Except where otherwise provided in the supply order/contract . . .", thus indicating that the jurisdiction of the
arbitrator is not all encompassing, and admits of exceptions as may be provided elsewhere in the supply order/contract.
We believe that the correct interpretation to give effect to both stipulations in the contract is for Clause 16 to be
confined to all claims or disputes arising from or relating to the design, drawing, instructions, specifications or quality of
the materials of the supply order/contract, and for Clause 15 to cover all other claims or disputes.

The petitioner then asseverates that granting, for the sake of argument, that the non-delivery of the oil well cement is
not a proper subject for arbitration, the failure of the replacement cement to conform to the specifications of the
contract is a matter clearly falling within the ambit of Clause 16. In this contention, we find merit. When the 4,300
metric tons of oil well cement were not delivered to the petitioner, an agreement was forged between the latter and the
private respondent that Class "G" cement would be delivered to the petitioner as replacement. Upon inspection,
however, the replacement cement was rejected as it did not conform to the specifications of the contract. Only after
this latter circumstance was the matter brought before the arbitrator. Undoubtedly, what was referred to arbitration
was no longer the mere non-delivery of the cargo at the first instance but also the failure of the replacement cargo to
conform to the specifications of the contract, a matter clearly within the coverage of Clause 16.
The private respondent posits that it was under no legal obligation to make replacement and that it undertook the latter
only "in the spirit of liberality and to foster good business relationship". 20 Hence, the undertaking to deliver the
replacement cement and its subsequent failure to conform to specifications are not anymore subject of the supply
order/contract or any of the provisions thereof. We disagree.
As per Clause 7 of the supply order/contract, the private respondent undertook to deliver the 4,300 metric tons of oil
well cement at "BOMBAY (INDIA) 2181 MT and CALCUTTA 2119 MT". 21 The failure of the private respondent to deliver
the cargo to the designated places remains undisputed. Likewise, the fact that the petitioner had already paid for the
cost of the cement is not contested by the private respondent. The private respondent claims, however, that it never
benefited from the transaction as it was not able to recover the cargo that was unloaded at the port of Bangkok. 22 First
of all, whether or not the private respondent was able to recover the cargo is immaterial to its subsisting duty to make
good its promise to deliver the cargo at the stipulated place of delivery. Secondly, we find it difficult to believe this
representation. In its Memorandum filed before this Court, the private respondent asserted that the Civil Court of
Bangkok had already ruled that the non-delivery of the cargo was due solely to the fault of the carrier. 23 It is, therefore,
but logical to assume that the necessary consequence of this finding is the eventual recovery by the private respondent
of the cargo or the value thereof. What inspires credulity is not that the replacement was done in the spirit of liberality
but that it was undertaken precisely because of the private respondent's recognition of its duty to do so under the
supply order/contract, Clause 16 of which remains in force and effect until the full execution thereof.
We now go to the issue of whether or not the judgment of the foreign court is enforceable in this jurisdiction in view of
the private respondent's allegation that it is bereft of any statement of facts and law upon which the award in favor of
the petitioner was based. The pertinent portion of the judgment of the foreign court reads:
ORDER
Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of conditions of award decree is passed.
Award Paper No. 3/B-1 shall be a part of the decree. The plaintiff shall also be entitled to get from defendant (US$
899,603.77 (US$ Eight Lakhs ninety nine thousand six hundred and three point seventy seven only) along with 9%
interest per annum till the last date of realisation. 24
As specified in the order of the Civil Judge of Dehra Dun, "Award Paper No. 3/B-1 shall be a part of the decree". This is a
categorical declaration that the foreign court adopted the findings of facts and law of the arbitrator as contained in the
latter's Award Paper. Award Paper No. 3/B-1, contains an exhaustive discussion of the respective claims and defenses of
the parties, and the arbitrator's evaluation of the same. Inasmuch as the foregoing is deemed to have been incorporated
into the foreign court's judgment the appellate court was in error when it described the latter to be a "simplistic decision
containing literally, only the dispositive portion". 25
The constitutional mandate that no decision shall be rendered by any court without expressing therein dearly and
distinctly the facts and the law on which it is based does not preclude the validity of "memorandum decisions" which
adopt by reference the findings of fact and conclusions of law contained in the decisions of inferior tribunals. In
Francisco v. Permskul, 26 this Court held that the following memorandum decision of the Regional Trial Court of Makati
did not transgress the requirements of Section 14, Article VIII of the Constitution:

MEMORANDUM DECISION
After a careful perusal, evaluation and study of the records of this case, this Court hereby adopts by reference the
findings of fact and conclusions of law contained in the decision of the Metropolitan Trial Court of Makati, Metro Manila,
Branch 63 and finds that there is no cogent reason to disturb the same.
WHEREFORE, judgment appealed from is hereby affirmed in toto. 27 (Emphasis supplied.)
This Court had occasion to make a similar pronouncement in the earlier case of Romero v. Court of Appeals, 28 where
the assailed decision of the Court of Appeals adopted the findings and disposition of the Court of Agrarian Relations in
this wise:
We have, therefore, carefully reviewed the evidence and made a re-assessment of the same, and We are persuaded, nay
compelled, to affirm the correctness of the trial court's factual findings and the soundness of its conclusion. For judicial
convenience and expediency, therefore, We hereby adopt by way of reference, the findings of facts and conclusions of
the court a quo spread in its decision, as integral part of this Our decision. 29 (Emphasis supplied)
Hence, even in this jurisdiction, incorporation by reference is allowed if only to avoid the cumbersome reproduction of
the decision of the lower courts, or portions thereof, in the decision of the higher court. 30 This is particularly true when
the decision sought to be incorporated is a lengthy and thorough discussion of the facts and conclusions arrived at, as in
this case, where Award Paper No. 3/B-1 consists of eighteen (18) single spaced pages.
Furthermore, the recognition to be accorded a foreign judgment is not necessarily affected by the fact that the
procedure in the courts of the country in which such judgment was rendered differs from that of the courts of the
country in which the judgment is relied on. 31 This Court has held that matters of remedy and procedure are governed
by the lexfori or the internal law of the forum. 32 Thus, if under the procedural rules of the Civil Court of Dehra Dun,
India, a valid judgment may be rendered by adopting the arbitrator's findings, then the same must be accorded respect.
In the same vein, if the procedure in the foreign court mandates that an Order of the Court becomes final and executory
upon failure to pay the necessary docket fees, then the courts in this jurisdiction cannot invalidate the order of the
foreign court simply because our rules provide otherwise.
The private respondent claims that its right to due process had been blatantly violated, first by reason of the fact that
the foreign court never answered its queries as to the amount of docket fees to be paid then refused to admit its
objections for failure to pay the same, and second, because of the presumed bias on the part of the arbitrator who was
a former employee of the petitioner.
Time and again this Court has held that the essence of due process is to be found in the reasonable opportunity to be
heard and submit any evidence one may have in support of one's defense 33 or stated otherwise, what is repugnant to
due process is the denial of opportunity to be heard. 34 Thus, there is no violation of due process even if no hearing was
conducted, where the party was given a chance to explain his side of the controversy and he waived his right to do so.
35
In the instant case, the private respondent does not deny the fact that it was notified by the foreign court to file its
objections to the petition, and subsequently, to pay legal fees in order for its objections to be given consideration.
Instead of paying the legal fees, however, the private respondent sent a communication to the foreign court inquiring
about the correct amount of fees to be paid. On the pretext that it was yet awaiting the foreign court's reply, almost a
year passed without the private respondent paying the legal fees. Thus, on February 2, 1990, the foreign court rejected
the objections of the private respondent and proceeded to adjudicate upon the petitioner's claims. We cannot subscribe
to the private respondent's claim that the foreign court violated its right to due process when it failed to reply to its
queries nor when the latter rejected its objections for a clearly meritorious ground. The private respondent was afforded
sufficient opportunity to be heard. It was not incumbent upon the foreign court to reply to the private respondent's
written communication. On the contrary, a genuine concern for its cause should have prompted the private respondent
to ascertain with all due diligence the correct amount of legal fees to be paid. The private respondent did not act with

prudence and diligence thus its plea that they were not accorded the right to procedural due process cannot elicit either
approval or sympathy from this Court. 36
The private respondent bewails the presumed bias on the part of the arbitrator who was a former employee of the
petitioner. This point deserves scant consideration in view of the following stipulation in the contract:
. . . . It will be no objection any such appointment that the arbitrator so appointed is a Commission employer (sic) that he
had to deal with the matter to which the supply or contract relates and that in the course of his duties as Commission's
employee he had expressed views on all or any of the matter in dispute or difference. 37 (Emphasis supplied.)
Finally, we reiterate hereunder our pronouncement in the case of Northwest Orient Airlines, Inc. v. Court of Appeals 38
that:
A foreign judgment is presumed to be valid and binding in the country from which it comes, until the contrary is shown.
It is also proper to presume the regularity of the proceedings and the giving of due notice therein.
Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in personam of a tribunal of a foreign country
having jurisdiction to pronounce the same is presumptive evidence of a right as between the parties and their
successors-in-interest by a subsequent title. The judgment may, however, be assailed by evidence of want of
jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact. Also, under Section 3 of Rule
131, a court, whether of the Philippines or elsewhere, enjoys the presumption that it was acting in the lawful exercise of
jurisdiction and has regularly performed its official duty. 39
Consequently, the party attacking a foreign judgment, the private respondent herein, had the burden of overcoming the
presumption of its validity which it failed to do in the instant case.
The foreign judgment being valid, there is nothing else left to be done than to order its enforcement, despite the fact
that the petitioner merely prays for the remand of the case to the RTC for further proceedings. As this Court has ruled
on the validity and enforceability of the said foreign judgment in this jurisdiction, further proceedings in the RTC for the
reception of evidence to prove otherwise are no longer necessary.
WHEREFORE, the instant petition is GRANTED, and the assailed decision of the Court of Appeals sustaining the trial
court's dismissal of the OIL AND NATURAL GAS COMMISSION's complaint in Civil Case No. 4006 before Branch 30 of the
RTC of Surigao City is REVERSED, and another in its stead is hereby rendered ORDERING private respondent PACIFIC
CEMENT COMPANY, INC. to pay to petitioner the amounts adjudged in the foreign judgment subject of said case.
SO ORDERED.
Regalado, Melo and Puno, JJ., concur.
Mendoza, J., took no part

EN BANC
G.R. No. 166429 December 19, 2005

REPUBLIC OF THE PHILIPPINES, Represented by Executive Secretary Eduardo R. Ermita, the DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS (DOTC), and the MANILA INTERNATIONAL AIRPORT AUTHORITY (MIAA),
Petitioners,
vs.
HON. HENRICK F. GINGOYON, In his capacity as Presiding Judge of the Regional Trial Court, Branch 117, Pasay City and
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., Respondents.
DECISION
TINGA, J.:
The Ninoy Aquino International Airport Passenger Terminal III (NAIA 3) was conceived, designed and constructed to
serve as the countrys show window to the world. Regrettably, it has spawned controversies. Regrettably too, despite
the apparent completion of the terminal complex way back it has not yet been operated. This has caused immeasurable
economic damage to the country, not to mention its deplorable discredit in the international community.
In the first case that reached this Court, Agan v. PIATCO,1 the contracts which the Government had with the contractor
were voided for being contrary to law and public policy. The second case now before the Court involves the matter of
just compensation due the contractor for the terminal complex it built. We decide the case on the basis of fairness, the
same norm that pervades both the Courts 2004 Resolution in the first case and the latest expropriation law.
The present controversy has its roots with the promulgation of the Courts decision in Agan v. PIATCO,2 promulgated in
2003 (2003 Decision). This decision nullified the "Concession Agreement for the Build-Operate-and-Transfer
Arrangement of the Ninoy Aquino International Airport Passenger Terminal III" entered into between the Philippine
Government (Government) and the Philippine International Air Terminals Co., Inc. (PIATCO), as well as the amendments
and supplements thereto. The agreement had authorized PIATCO to build a new international airport terminal (NAIA 3),
as well as a franchise to operate and maintain the said terminal during the concession period of 25 years. The contracts
were nullified, among others, that Paircargo Consortium, predecessor of PIATCO, did not possess the requisite financial
capacity when it was awarded the NAIA 3 contract and that the agreement was contrary to public policy.3
At the time of the promulgation of the 2003 Decision, the NAIA 3 facilities had already been built by PIATCO and were
nearing completion.4 However, the ponencia was silent as to the legal status of the NAIA 3 facilities following the
nullification of the contracts, as well as whatever rights of PIATCO for reimbursement for its expenses in the
construction of the facilities. Still, in his Separate Opinion, Justice Panganiban, joined by Justice Callejo, declared as
follows:
Should government pay at all for reasonable expenses incurred in the construction of the Terminal? Indeed it should,
otherwise it will be unjustly enriching itself at the expense of Piatco and, in particular, its funders, contractors and
investors both local and foreign. After all, there is no question that the State needs and will make use of Terminal III,
it being part and parcel of the critical infrastructure and transportation-related programs of government.5
PIATCO and several respondents-intervenors filed their respective motions for the reconsideration of the 2003 Decision.
These motions were denied by the Court in its Resolution dated 21 January 2004 (2004 Resolution).6 However, the
Court this time squarely addressed the issue of the rights of PIATCO to refund, compensation or reimbursement for its
expenses in the construction of the NAIA 3 facilities. The holding of the Court on this crucial point follows:
This Court, however, is not unmindful of the reality that the structures comprising the NAIA IPT III facility are almost
complete and that funds have been spent by PIATCO in their construction. For the government to take over the said
facility, it has to compensate respondent PIATCO as builder of the said structures. The compensation must be just and in
accordance with law and equity for the government can not unjustly enrich itself at the expense of PIATCO and its
investors.7

After the promulgation of the rulings in Agan, the NAIA 3 facilities have remained in the possession of PIATCO, despite
the avowed intent of the Government to put the airport terminal into immediate operation. The Government and
PIATCO conducted several rounds of negotiation regarding the NAIA 3 facilities.8 It also appears that arbitral
proceedings were commenced before the International Chamber of Commerce International Court of Arbitration and
the International Centre for the Settlement of Investment Disputes,9 although the Government has raised jurisdictional
questions before those two bodies.10
Then, on 21 December 2004, the Government11 filed a Complaint for expropriation with the Pasay City Regional Trial
Court (RTC), together with an Application for Special Raffle seeking the immediate holding of a special raffle. The
Government sought upon the filing of the complaint the issuance of a writ of possession authorizing it to take immediate
possession and control over the NAIA 3 facilities.
The Government also declared that it had deposited the amount of P3,002,125,000.0012 (3 Billion)13 in Cash with the
Land Bank of the Philippines, representing the NAIA 3 terminals assessed value for taxation purposes.14
The case15 was raffled to Branch 117 of the Pasay City RTC, presided by respondent judge Hon. Henrick F. Gingoyon
(Hon. Gingoyon). On the same day that the Complaint was filed, the RTC issued an Order16 directing the issuance of a
writ of possession to the Government, authorizing it to "take or enter upon the possession" of the NAIA 3 facilities.
Citing the case of City of Manila v. Serrano,17 the RTC noted that it had the ministerial duty to issue the writ of
possession upon the filing of a complaint for expropriation sufficient in form and substance, and upon deposit made by
the government of the amount equivalent to the assessed value of the property subject to expropriation. The RTC found
these requisites present, particularly noting that "[t]he case record shows that [the Government has] deposited the
assessed value of the [NAIA 3 facilities] in the Land Bank of the Philippines, an authorized depositary, as shown by the
certification attached to their complaint." Also on the same day, the RTC issued a Writ of Possession. According to
PIATCO, the Government was able to take possession over the NAIA 3 facilities immediately after the Writ of Possession
was issued.18
However, on 4 January 2005, the RTC issued another Order designed to supplement its 21 December 2004 Order and
the Writ of Possession. In the 4 January 2005 Order, now assailed in the present petition, the RTC noted that its earlier
issuance of its writ of possession was pursuant to Section 2, Rule 67 of the 1997 Rules of Civil Procedure. However, it
was observed that Republic Act No. 8974 (Rep. Act No. 8974), otherwise known as "An Act to Facilitate the Acquisition of
Right-of-Way, Site or Location for National Government Infrastructure Projects and For Other Purposes" and its
Implementing Rules and Regulations (Implementing Rules) had amended Rule 67 in many respects.
There are at least two crucial differences between the respective procedures under Rep. Act No. 8974 and Rule 67.
Under the statute, the Government is required to make immediate payment to the property owner upon the filing of the
complaint to be entitled to a writ of possession, whereas in Rule 67, the Government is required only to make an initial
deposit with an authorized government depositary. Moreover, Rule 67 prescribes that the initial deposit be equivalent
to the assessed value of the property for purposes of taxation, unlike Rep. Act No. 8974 which provides, as the relevant
standard for initial compensation, the market value of the property as stated in the tax declaration or the current
relevant zonal valuation of the Bureau of Internal Revenue (BIR), whichever is higher, and the value of the
improvements and/or structures using the replacement cost method.
Accordingly, on the basis of Sections 4 and 7 of Rep. Act No. 8974 and Section 10 of the Implementing Rules, the RTC
made key qualifications to its earlier issuances. First, it directed the Land Bank of the Philippines, Baclaran Branch (LBPBaclaran), to immediately release the amount of US$62,343,175.77 to PIATCO, an amount which the RTC characterized
as that which the Government "specifically made available for the purpose of this expropriation;" and such amount to
be deducted from the amount of just compensation due PIATCO as eventually determined by the RTC. Second, the
Government was directed to submit to the RTC a Certificate of Availability of Funds signed by authorized officials to
cover the payment of just compensation. Third, the Government was directed "to maintain, preserve and safeguard" the
NAIA 3 facilities or "perform such as acts or activities in preparation for their direct operation" of the airport terminal,

pending expropriation proceedings and full payment of just compensation. However, the Government was prohibited
"from performing acts of ownership like awarding concessions or leasing any part of [NAIA 3] to other parties."19
The very next day after the issuance of the assailed 4 January 2005 Order, the Government filed an Urgent Motion for
Reconsideration, which was set for hearing on 10 January 2005. On 7 January 2005, the RTC issued another Order, the
second now assailed before this Court, which appointed three (3) Commissioners to ascertain the amount of just
compensation for the NAIA 3 Complex. That same day, the Government filed a Motion for Inhibition of Hon. Gingoyon.
The RTC heard the Urgent Motion for Reconsideration and Motion for Inhibition on 10 January 2005. On the same day, it
denied these motions in an Omnibus Order dated 10 January 2005. This is the third Order now assailed before this
Court. Nonetheless, while the Omnibus Order affirmed the earlier dispositions in the 4 January 2005 Order, it excepted
from affirmance "the superfluous part of the Order prohibiting the plaintiffs from awarding concessions or leasing any
part of [NAIA 3] to other parties."20
Thus, the present Petition for Certiorari and Prohibition under Rule 65 was filed on 13 January 2005. The petition prayed
for the nullification of the RTC orders dated 4 January 2005, 7 January 2005, and 10 January 2005, and for the inhibition
of Hon. Gingoyon from taking further action on the expropriation case. A concurrent prayer for the issuance of a
temporary restraining order and preliminary injunction was granted by this Court in a Resolution dated 14 January
2005.21
The Government, in imputing grave abuse of discretion to the acts of Hon. Gingoyon, raises five general arguments, to
wit:
(i) that Rule 67, not Rep. Act No. 8974, governs the present expropriation proceedings;
(ii) that Hon. Gingoyon erred when he ordered the immediate release of the amount of US$62.3 Million to PIATCO
considering that the assessed value as alleged in the complaint was only P3 Billion;
(iii) that the RTC could not have prohibited the Government from enjoining the performance of acts of ownership;
(iv) that the appointment of the three commissioners was erroneous; and
(v) that Hon. Gingoyon should be compelled to inhibit himself from the expropriation case.22
Before we delve into the merits of the issues raised by the Government, it is essential to consider the crucial holding of
the Court in its 2004 Resolution in Agan, which we repeat below:
This Court, however, is not unmindful of the reality that the structures comprising the NAIA IPT III facility are almost
complete and that funds have been spent by PIATCO in their construction. For the government to take over the said
facility, it has to compensate respondent PIATCO as builder of the said structures. The compensation must be just and in
accordance with law and equity for the government can not unjustly enrich itself at the expense of PIATCO and its
investors.23
This pronouncement contains the fundamental premises which permeate this decision of the Court. Indeed, Agan, final
and executory as it is, stands as governing law in this case, and any disposition of the present petition must conform to
the conditions laid down by the Court in its 2004 Resolution.
The 2004 Resolution Which Is
Law of This Case Generally
Permits Expropriation

The pronouncement in the 2004 Resolution is especially significant to this case in two aspects, namely: (i) that PIATCO
must receive payment of just compensation determined in accordance with law and equity; and (ii) that the government
is barred from taking over NAIA 3 until such just compensation is paid. The parties cannot be allowed to evade the
directives laid down by this Court through any mode of judicial action, such as the complaint for eminent domain.
It cannot be denied though that the Court in the 2004 Resolution prescribed mandatory guidelines which the
Government must observe before it could acquire the NAIA 3 facilities. Thus, the actions of respondent judge under
review, as well as the arguments of the parties must, to merit affirmation, pass the threshold test of whether such
propositions are in accord with the 2004 Resolution.
The Government does not contest the efficacy of this pronouncement in the 2004 Resolution,24 thus its application
to the case at bar is not a matter of controversy. Of course, questions such as what is the standard of "just
compensation" and which particular laws and equitable principles are applicable, remain in dispute and shall be resolved
forthwith.
The Government has chosen to resort to expropriation, a remedy available under the law, which has the added benefit
of an integrated process for the determination of just compensation and the payment thereof to PIATCO. We appreciate
that the case at bar is a highly unusual case, whereby the Government seeks to expropriate a building complex
constructed on land which the State already owns.25 There is an inherent illogic in the resort to eminent domain on
property already owned by the State. At first blush, since the State already owns the property on which NAIA 3 stands,
the proper remedy should be akin to an action for ejectment.
However, the reason for the resort by the Government to expropriation proceedings is understandable in this case. The
2004 Resolution, in requiring the payment of just compensation prior to the takeover by the Government of
NAIA 3, effectively precluded it from acquiring possession or ownership of the NAIA 3 through the unilateral exercise of
its rights as the owner of the ground on which the facilities stood. Thus, as things stood after the 2004 Resolution, the
right of the Government to take over the NAIA 3 terminal was preconditioned by lawful order on the payment of just
compensation to PIATCO as builder of the structures.
The determination of just compensation could very well be agreed upon by the parties without judicial intervention, and
it appears that steps towards that direction had been engaged in. Still, ultimately, the Government resorted to its
inherent power of eminent domain through expropriation proceedings. Is eminent domain appropriate in the first place,
with due regard not only to the law on expropriation but also to the Courts 2004 Resolution in Agan?
The right of eminent domain extends to personal and real property, and the NAIA 3 structures, adhered as they are to
the soil, are considered as real property.26 The public purpose for the expropriation is also beyond dispute. It should
also be noted that Section 1 of Rule 67 (on Expropriation) recognizes the possibility that the property sought to be
expropriated may be titled in the name of the
Republic of the Philippines, although occupied by private individuals, and in such case an averment to that effect should
be made in the complaint. The instant expropriation complaint did aver that the NAIA 3 complex "stands on a parcel of
land owned by the Bases Conversion Development Authority, another agency of [the Republic of the Philippines]."27
Admittedly, eminent domain is not the sole judicial recourse by which the Government may have acquired the NAIA 3
facilities while satisfying the requisites in the 2004 Resolution. Eminent domain though may be the most effective, as
well as the speediest means by which such goals may be accomplished. Not only does it enable immediate possession
after satisfaction of the requisites under the law, it also has a built-in procedure through which just compensation may
be ascertained. Thus, there should be no question as to the propriety of eminent domain proceedings in this case.
Still, in applying the laws and rules on expropriation in the case at bar, we are impelled to apply or construe these rules
in accordance with the Courts prescriptions in the 2004 Resolution to achieve the end effect that the Government may

validly take over the NAIA 3 facilities. Insofar as this case is concerned, the 2004 Resolution is effective not only as a legal
precedent, but as the source of rights and prescriptions that must be guaranteed, if not enforced, in the resolution of
this petition. Otherwise, the integrity and efficacy of the rulings of this Court will be severely diminished.
It is from these premises that we resolve the first question, whether Rule 67 of the Rules of Court or Rep. Act No. 8974
governs the expropriation proceedings in this case.
Application of Rule 67 Violates
the 2004 Agan Resolution
The Government insists that Rule 67 of the Rules of Court governs the expropriation proceedings in this case to the
exclusion of all other laws. On the other hand, PIATCO claims that it is Rep. Act No. 8974 which does apply. Earlier, we
had adverted to the basic differences between the statute and the procedural rule. Further elaboration is in order.
Rule 67 outlines the procedure under which eminent domain may be exercised by the Government. Yet by no means
does it serve at present as the solitary guideline through which the State may expropriate private property. For example,
Section 19 of the Local Government Code governs as to the exercise by local government units of the power of eminent
domain through an enabling ordinance. And then there is Rep. Act No. 8974, which covers expropriation proceedings
intended for national government infrastructure projects.
Rep. Act No. 8974, which provides for a procedure eminently more favorable to the property owner than Rule 67,
inescapably applies in instances when the national government expropriates property "for national government
infrastructure projects."28 Thus, if expropriation is engaged in by the national government for purposes other than
national infrastructure projects, the assessed value standard and the deposit mode prescribed in Rule 67 continues to
apply.
Under both Rule 67 and Rep. Act No. 8974, the Government commences expropriation proceedings through the filing of
a complaint. Unlike in the case of local governments which necessitate an authorizing ordinance before expropriation
may be accomplished, there is no need under Rule 67 or Rep. Act No. 8974 for legislative authorization before the
Government may proceed with a particular exercise of eminent domain. The most crucial difference between Rule 67
and Rep. Act No. 8974 concerns the particular essential step the Government has to undertake to be entitled to a writ of
possession.
The first paragraph of Section 2 of Rule 67 provides:
SEC. 2. Entry of plaintiff upon depositing value with authorized government depository. Upon the filing of the
complaint or at any time thereafter and after due notice to the defendant, the plaintiff shall have the right to take or
enter upon the possession of the real property involved if he deposits with the authorized government depositary an
amount equivalent to the assessed value of the property for purposes of taxation to be held by such bank subject to the
orders of the court. Such deposit shall be in money, unless in lieu thereof the court authorizes the deposit of a certificate
of deposit of a government bank of the Republic of the Philippines payable on demand to the authorized government
depositary.
In contrast, Section 4 of Rep. Act No. 8974 relevantly states:
SEC. 4. Guidelines for Expropriation Proceedings. Whenever it is necessary to acquire real property for the right-ofway, site or location for any national government infrastructure project through expropriation, the appropriate
proceedings before the proper court under the following guidelines:
a) Upon the filing of the complaint, and after due notice to the defendant, the implementing agency shall immediately
pay the owner of the property the amount equivalent to the sum of (1) one hundred percent (100%) of the value of the

property based on the current relevant zonal valuation of the Bureau of Internal Revenue (BIR); and (2) the value of the
improvements and/or structures as determined under Section 7 hereof;
...
c) In case the completion of a government infrastructure project is of utmost urgency and importance, and there is no
existing valuation of the area concerned, the implementing agency shall immediately pay the owner of the property its
proffered value taking into consideration the standards prescribed in Section 5 hereof.
Upon completion with the guidelines abovementioned, the court shall immediately issue to the implementing agency an
order to take possession of the property and start the implementation of the project.
Before the court can issue a Writ of Possession, the implementing agency shall present to the court a certificate of
availability of funds from the proper official concerned.
...
As can be gleaned from the above-quoted texts, Rule 67 merely requires the Government to deposit with an authorized
government depositary the assessed value of the property for expropriation for it to be entitled to a writ of possession.
On the other hand, Rep. Act No. 8974 requires that the Government make a direct payment to the property owner
before the writ may issue. Moreover, such payment is based on the zonal valuation of the BIR in the case of land, the
value of the improvements or structures under the replacement cost method,29 or if no such valuation is available and
in cases of utmost urgency, the proffered value of the property to be seized.
It is quite apparent why the Government would prefer to apply Rule 67 in lieu of Rep. Act No. 8974. Under Rule 67, it
would not be obliged to immediately pay any amount to PIATCO before it can obtain the writ of possession since all it
need do is deposit the amount equivalent to the assessed value with an authorized government depositary. Hence, it
devotes considerable effort to point out that Rep. Act No. 8974 does not apply in this case, notwithstanding the
undeniable reality that NAIA 3 is a national government project. Yet, these efforts fail, especially considering the
controlling effect of the 2004 Resolution in Agan on the adjudication of this case.
It is the finding of this Court that the staging of expropriation proceedings in this case with the exclusive use of Rule 67
would allow for the Government to take over the NAIA 3 facilities in a fashion that directly rebukes our 2004 Resolution
in Agan. This Court cannot sanction deviation from its own final and executory orders.
Section 2 of Rule 67 provides that the State "shall have the right to take or enter upon the possession of the real
property involved if [the plaintiff] deposits with the authorized government depositary an amount equivalent to the
assessed value of the property for purposes of taxation to be held by such bank subject to the orders of the court."30 It
is thus apparent that under the provision, all the Government need do to obtain a writ of possession is to deposit the
amount equivalent to the assessed value with an authorized government depositary.
Would the deposit under Section 2 of Rule 67 satisfy the requirement laid down in the 2004 Resolution that "[f]or the
government to take over the said facility, it has to compensate respondent PIATCO as builder of the said structures"?
Evidently not.
If Section 2 of Rule 67 were to apply, PIATCO would be enjoined from receiving a single centavo as just compensation
before the Government takes over the NAIA 3 facility by virtue of a writ of possession. Such an injunction squarely
contradicts the letter and intent of the 2004 Resolution. Hence, the position of the Government sanctions its own
disregard or violation the prescription laid down by this Court that there must first be just compensation paid to PIATCO
before the Government may take over the NAIA 3 facilities.
Thus, at the very least, Rule 67 cannot apply in this case without violating the 2004 Resolution. Even assuming that Rep.
Act No. 8974 does not govern in this case, it does not necessarily follow that Rule 67 should then apply. After all,

adherence to the letter of Section 2, Rule 67 would in turn violate the Courts requirement in the 2004 Resolution that
there must first be payment of just compensation to PIATCO before the Government may take over the property.
It is the plain intent of Rep. Act No. 8974 to supersede the system of deposit under Rule 67 with the scheme of
"immediate payment" in cases involving national government infrastructure projects. The following portion of the
Senate deliberations, cited by PIATCO in its Memorandum, is worth quoting to cogitate on the purpose behind the plain
meaning of the law:
THE CHAIRMAN (SEN. CAYETANO). "x xxBecause the Senate believes that, you know, we have to pay the landowners
immediately not by treasury bills but by cash.
Since we are depriving them, you know, upon payment, no, of possession, we might as well pay them as much, no,
hindilang 50 percent.
x xx
THE CHAIRMAN (REP. VERGARA).Accepted.
x xx
THE CHAIRMAN (SEN. CAYETANO).Oo.Because this is really in favor of the landowners, e.
THE CHAIRMAN (REP. VERGARA). Thats why we need to really secure the availability of funds.
x xx
THE CHAIRMAN (SEN. CAYETANO). No, no. Its the same. It says here: iyong first paragraph, diba? Iyong zonal
talagangmagbabayadmuna. In other words, you know, there must be a payment kaagad. (TSN, Bicameral Conference on
the Disagreeing Provisions of House Bill 1422 and Senate Bill 2117, August 29, 2000, pp. 14-20)
x xx
THE CHAIRMAN (SEN. CAYETANO). Okay, okay, no. Unang-una, it is not deposit, no. Its payment."
REP. BATERINA. Its payment, ho, payment." (Id., p. 63)31
It likewise bears noting that the appropriate standard of just compensation is a substantive matter. It is well within the
province of the legislature to fix the standard, which it did through the enactment of Rep. Act No. 8974. Specifically, this
prescribes the new standards in determining the amount of just compensation in expropriation cases relating to national
government infrastructure projects, as well as the manner of payment thereof. At the same time, Section 14 of the
Implementing Rules recognizes the continued applicability of Rule 67 on procedural aspects when it provides "all
matters regarding defenses and objections to the complaint, issues on uncertain ownership and conflicting claims,
effects of appeal on the rights of the parties, and such other incidents affecting the complaint shall be resolved under
the provisions on expropriation of Rule 67 of the Rules of Court."32
Given that the 2004 Resolution militates against the continued use of the norm under Section 2, Rule 67, is it then
possible to apply Rep. Act No. 8974? We find that it is, and moreover, its application in this case complements rather
than contravenes the prescriptions laid down in the 2004 Resolution.
Rep. Act No. 8974 Fits
to the Situation at Bar

and Complements the

2004 Agan Resolution
Rep. Act No. 8974 is entitled "An Act To Facilitate The Acquisition Of Right-Of-Way, Site Or Location For National
Government Infrastructure Projects And For Other Purposes." Obviously, the law is intended to cover expropriation
proceedings intended for national government infrastructure projects. Section 2 of Rep. Act No. 8974 explains what are
considered as "national government projects."
Sec. 2.National Government Projects. The term "national government projects" shall refer to all national government
infrastructure, engineering works and service contracts, including projects undertaken by government-owned and
controlled corporations, all projects covered by Republic Act No. 6957, as amended by Republic Act No. 7718, otherwise
known as the Build-Operate-and-Transfer Law, and other related and necessary activities, such as site acquisition, supply
and/or installation of equipment and materials, implementation, construction, completion, operation, maintenance,
improvement, repair and rehabilitation, regardless of the source of funding.
As acknowledged in the 2003 Decision, the development of NAIA 3 was made pursuant to a build-operate-and-transfer
arrangement pursuant to Republic Act No. 6957, as amended,33 which pertains to infrastructure or development
projects normally financed by the public sector but which are now wholly or partly implemented by the private sector.34
Under the build-operate-and-transfer scheme, it is the project proponent which undertakes the construction, including
the financing, of a given infrastructure facility.35 In Tatad v. Garcia,36 the Court acknowledged that the operator of the
EDSA Light Rail Transit project under a BOT scheme was the owner of the facilities such as "the rail tracks, rolling stocks
like the coaches, rail stations, terminals and the power plant."37
There can be no doubt that PIATCO has ownership rights over the facilities which it had financed and constructed. The
2004 Resolution squarely recognized that right when it mandated the payment of just compensation to PIATCO prior to
the takeover by the Government of NAIA 3. The fact that the Government resorted to eminent domain proceedings in
the first place is a concession on its part of PIATCOs ownership. Indeed, if no such right is recognized, then there should
be no impediment for the Government to seize control of NAIA 3 through ordinary ejectment proceedings.
Since the rights of PIATCO over the NAIA 3 facilities are established, the nature of these facilities should now be
determined. Under Section 415(1) of the Civil Code, these facilities are ineluctably immovable or real property, as they
constitute buildings, roads and constructions of all kinds adhered to the soil.38 Certainly, the NAIA 3 facilities are of such
nature that they cannot just be packed up and transported by PIATCO like a traveling circus caravan.
Thus, the property subject of expropriation, the NAIA 3 facilities, are real property owned by PIATCO. This point is
critical, considering the Governments insistence that the NAIA 3 facilities cannot be deemed as the "right-of-way",
"site" or "location" of a national government infrastructure project, within the coverage of Rep. Act No. 8974.
There is no doubt that the NAIA 3 is not, under any sensible contemplation, a "right-of-way." Yet we cannot agree with
the Governments insistence that neither could NAIA 3 be a "site" or "location". The petition quotes the definitions
provided in Blacks Law Dictionary of "location" as the specific place or position of a person or thing and site as
pertaining to a place or location or a piece of property set aside for specific use."39 Yet even Blacks Law Dictionary
provides that "[t]he term [site] does not of itself necessarily mean a place or tract of land fixed by definite
boundaries."40 One would assume that the Government, to back up its contention, would be able to point to a clear-cut
rule that a "site" or "location" exclusively refers to soil, grass, pebbles and weeds. There is none.
Indeed, we cannot accept the Governments proposition that the only properties that may be expropriated under Rep.
Act No. 8974 are parcels of land. Rep. Act No. 8974 contemplates within its coverage such real property constituting
land, buildings, roads and constructions of all kinds adhered to the soil. Section 1 of Rep. Act No. 8974, which sets the
declaration of the laws policy, refers to "real property acquired for national government infrastructure projects are
promptly paid just compensation."41 Section 4 is quite explicit in stating that the scope of the law relates to the
acquisition of "real property," which under civil law includes buildings, roads and constructions adhered to the soil.

It is moreover apparent that the law and its implementing rules commonly provide for a rule for the valuation of
improvements and/or structures thereupon separate from that of the land on which such are constructed. Section 2 of
Rep. Act No. 8974 itself recognizes that the improvements or structures on the land may very well be the subject of
expropriation proceedings. Section 4(a), in relation to Section 7 of the law provides for the guidelines for the valuation
of the improvements or structures to be expropriated. Indeed, nothing in the law would prohibit the application of
Section 7, which provides for the valuation method of the improvements and or structures in the instances wherein it is
necessary for the Government to expropriate only the improvements or structures, as in this case.
The law classifies the NAIA 3 facilities as real properties just like the soil to which they are adhered. Any subclassifications of real property and divergent treatment based thereupon for purposes of expropriation must be based
on substantial distinctions, otherwise the equal protection clause of the Constitution is violated. There may be perhaps a
molecular distinction between soil and the inorganic improvements adhered thereto, yet there are no purposive
distinctions that would justify a variant treatment for purposes of expropriation. Both the land itself and the
improvements thereupon are susceptible to private ownership independent of each other, capable of pecuniary
estimation, and if taken from the owner, considered as a deprivation of property. The owner of improvements seized
through expropriation suffers the same degree of loss as the owner of land seized through similar means. Equal
protection demands that all persons or things similarly situated should be treated alike, both as to rights conferred and
responsibilities imposed. For purposes of expropriation, parcels of land are similarly situated as the buildings or
improvements constructed thereon, and a disparate treatment between those two classes of real property infringes the
equal protection clause.
Even as the provisions of Rep. Act No. 8974 call for that laws application in this case, the threshold test must still be met
whether its implementation would conform to the dictates of the Court in the 2004 Resolution. Unlike in the case of
Rule 67, the application of Rep. Act No. 8974 will not contravene the 2004 Resolution, which requires the payment of
just compensation before any takeover of the NAIA 3 facilities by the Government. The 2004 Resolution does not
particularize the extent such payment must be effected before the takeover, but it unquestionably requires at least
some degree of payment to the private property owner before a writ of possession may issue. The utilization of Rep. Act
No. 8974 guarantees compliance with this bare minimum requirement, as it assures the private property owner the
payment of, at the very least, the proffered value of the property to be seized. Such payment of the proffered value to
the owner, followed by the issuance of the writ of possession in favor of the Government, is precisely the schematic
under Rep. Act No. 8974, one which facially complies with the prescription laid down in the 2004 Resolution.
Clearly then, we see no error on the part of the RTC when it ruled that Rep. Act No. 8974 governs the instant
expropriation proceedings.
The Proper Amount to be Paid
under Rep. Act No. 8974
Then, there is the matter of the proper amount which should be paid to PIATCO by the Government before the writ of
possession may issue, consonant to Rep. Act No. 8974.
At this juncture, we must address the observation made by the Office of the Solicitor General in behalf of the
Government that there could be no "BIR zonal valuations" on the NAIA 3 facility, as provided in Rep. Act No. 8974, since
zonal valuations are only for parcels of land, not for airport terminals. The Court agrees with this point, yet does not see
it as an impediment for the application of Rep. Act No. 8974.
It must be clarified that PIATCO cannot be reimbursed or justly compensated for the value of the parcel of land on which
NAIA 3 stands. PIATCO is not the owner of the land on which the NAIA 3 facility is constructed, and it should not be
entitled to just compensation that is inclusive of the value of the land itself. It would be highly disingenuous to
compensate PIATCO for the value of land it does not own. Its entitlement to just compensation should be limited to the

value of the improvements and/or structures themselves. Thus, the determination of just compensation cannot include
the BIR zonal valuation under Section 4 of Rep. Act No. 8974.
Under Rep. Act No. 8974, the Government is required to "immediately pay" the owner of the property the amount
equivalent to the sum of (1) one hundred percent (100%) of the value of the property based on the current relevant
zonal valuation of the [BIR]; and (2) the value of the improvements and/or structures as determined under Section 7. As
stated above, the BIR zonal valuation cannot apply in this case, thus the amount subject to immediate payment should
be limited to "the value of the improvements and/or structures as determined under Section 7," with Section 7 referring
to the "implementing rules and regulations for the equitable valuation of the improvements and/or structures on the
land." Under the present implementing rules in place, the valuation of the improvements/structures are to be based
using "the replacement cost method."42 However, the replacement cost is only one of the factors to be considered in
determining the just compensation.
In addition to Rep. Act No. 8974, the 2004 Resolution in Agan also mandated that the payment of just compensation
should be in accordance with equity as well. Thus, in ascertaining the ultimate amount of just compensation, the duty of
the trial court is to ensure that such amount conforms not only to the law, such as Rep. Act No. 8974, but to principles of
equity as well.
Admittedly, there is no way, at least for the present, to immediately ascertain the value of the improvements and
structures since such valuation is a matter for factual determination.43 Yet Rep. Act No. 8974 permits an expedited
means by which the Government can immediately take possession of the property without having to await precise
determination of the valuation. Section 4(c) of Rep. Act No. 8974 states that "in case the completion of a government
infrastructure project is of utmost urgency and importance, and there is no existing valuation of the area concerned, the
implementing agency shall immediately pay the owner of the property its proferred value, taking into consideration the
standards prescribed in Section 5 [of the law]."44 The "proffered value" may strike as a highly subjective standard based
solely on the intuition of the government, but Rep. Act No. 8974 does provide relevant standards by which "proffered
value" should be based,45 as well as the certainty
of judicial determination of the propriety of the proffered value.46
In filing the complaint for expropriation, the Government alleged to have deposited the amount of P3 Billion earmarked
for expropriation, representing the assessed value of the property. The making of the deposit, including the
determination of the amount of the deposit, was undertaken under the erroneous notion that Rule 67, and not Rep. Act
No. 8974, is the applicable law. Still, as regards the amount, the Court sees no impediment to recognize this sum of P3
Billion as the proffered value under Section 4(b) of Rep. Act No. 8974. After all, in the initial determination of the
proffered value, the Government is not strictly required to adhere to any predetermined standards, although its
proffered value may later be subjected to judicial review using the standards enumerated under Section 5 of Rep. Act
No. 8974.
How should we appreciate the questioned order of Hon. Gingoyon, which pegged the amount to be immediately paid to
PIATCO at around $62.3 Million? The Order dated 4 January 2005, which mandated such amount, proves problematic in
that regard. While the initial sum of P3 Billion may have been based on the assessed value, a standard which should not
however apply in this case, the RTC cites without qualification Section 4(a) of Rep. Act No. 8974 as the basis for the
amount of $62.3 Million, thus leaving the impression that the BIR zonal valuation may form part of the basis for just
compensation, which should not be the case. Moreover, respondent judge made no attempt to apply the enumerated
guidelines for determination of just compensation under Section 5 of Rep. Act No. 8974, as required for judicial review
of the proffered value.
The Court notes that in the 10 January 2005 Omnibus Order, the RTC noted that the concessions agreement entered
into between the Government and PIATCO stated that the actual cost of building NAIA 3 was "not less than" US$350
Million.47 The RTC then proceeded to observe that while Rep. Act No. 8974 required the immediate payment to PIATCO
the amount equivalent to 100% of the value of NAIA 3, the amount deposited by the Government constituted only 18%
of this value. At this point, no binding import should be given to this observation that the actual cost of building NAIA 3

was "not less than" US$350 Million, as the final conclusions on the amount of just compensation can come only after
due ascertainment in accordance with the standards set under Rep. Act No. 8974, not the declarations of the parties. At
the same time, the expressed linkage between the BIR zonal valuation and the amount of just compensation in this case,
is revelatory of erroneous thought on the part of the RTC.
We have already pointed out the irrelevance of the BIR zonal valuation as an appropriate basis for valuation in this case,
PIATCO not being the owner of the land on which the NAIA 3 facilities stand. The subject order is flawed insofar as it fails
to qualify that such standard is inappropriate.
It does appear that the amount of US$62.3 Million was based on the certification issued by the LBP-Baclaran that the
Republic of the Philippines maintained a total balance in that branch amounting to such amount. Yet the actual
representation of the $62.3 Million is not clear. The Land Bank Certification expressing such amount does state that it
was issued upon request of the Manila International Airport Authority "purportedly as guaranty deposit for the
expropriation complaint."48 The Government claims in its Memorandum that the entire amount was made available as
a guaranty fund for the final and executory judgment of the trial court, and not merely for the issuance of the writ of
possession.49 One could readily conclude that the entire amount of US$62.3 Million was intended by the Government
to answer for whatever guaranties may be required for the purpose of the expropriation complaint.
Still, such intention the Government may have had as to the entire US$62.3 Million is only inferentially established. In
ascertaining the proffered value adduced by the Government, the amount of P3 Billion as the amount deposited
characterized in the complaint as "to be held by *Land Bank+ subject to the *RTCs+ orders,"50 should be deemed as
controlling. There is no clear evidence that the Government intended to offer US$62.3 Million as the initial payment of
just compensation, the wording of the Land Bank Certification notwithstanding, and credence should be given to the
consistent position of the Government on that aspect.
In any event, for the RTC to be able to justify the payment of US$62.3 Million to PIATCO and not P3 Billion Pesos, he
would have to establish that the higher amount represents the valuation of the structures/improvements, and not the
BIR zonal valuation on the land wherein NAIA 3 is built. The Order dated 5 January 2005 fails to establish such integral
fact, and in the absence of contravening proof, the proffered value of P3 Billion, as presented by the Government,
should prevail.
Strikingly, the Government submits that assuming that Rep. Act No. 8974 is applicable, the deposited amount of P3
Billion should be considered as the proffered value, since the amount was based on comparative values made by the
City Assessor.51 Accordingly, it should be deemed as having faithfully complied with the requirements of the statute.52
While the Court agrees that P3 Billion should be considered as the correct proffered value, still we cannot deem the
Government as having faithfully complied with Rep. Act No. 8974. For the law plainly requires direct payment to the
property owner, and not a mere deposit with the authorized government depositary. Without such direct payment, no
writ of possession may be obtained.
Writ of Possession May Not
Be Implemented Until Actual
Receipt by PIATCO of Proferred
Value
The Court thus finds another error on the part of the RTC. The RTC authorized the issuance of the writ of possession to
the Government notwithstanding the fact that no payment of any amount had yet been made to PIATCO, despite the
clear command of Rep. Act No. 8974 that there must first be payment before the writ of possession can issue. While the
RTC did direct the LBP-Baclaran to immediately release the amount of US$62 Million to PIATCO, it should have likewise
suspended the writ of possession, nay, withdrawn it altogether, until the Government shall have actually paid PIATCO.
This is the inevitable consequence of the clear command of Rep. Act No. 8974 that requires immediate payment of the

initially determined amount of just compensation should be effected. Otherwise, the overpowering intention of Rep. Act
No. 8974 of ensuring payment first before transfer of repossession would be eviscerated.
Rep. Act No. 8974 represents a significant change from previous expropriation laws such as Rule 67, or even Section 19
of the Local Government Code. Rule 67 and the Local Government Code merely provided that the Government deposit
the initial amounts53 antecedent to acquiring possession of the property with, respectively, an authorized
Government depositary54 or the proper court.55 In both cases, the private owner does not receive compensation prior
to the deprivation of property. On the other hand, Rep. Act No. 8974 mandates immediate payment of the initial just
compensation prior to the issuance of the writ of possession in favor of the Government.
Rep. Act No. 8974 is plainly clear in imposing the requirement of immediate prepayment, and no amount of statutory
deconstruction can evade such requisite. It enshrines a new approach towards eminent domain that reconciles the
inherent unease attending expropriation proceedings with a position of fundamental equity. While expropriation
proceedings have always demanded just compensation in exchange for private property, the previous deposit
requirement impeded immediate compensation to the private owner, especially in cases wherein the determination
of the final amount of compensation would prove highly disputed. Under the new modality prescribed by Rep. Act No.
8974, the private owner sees immediate monetary recompense with the same degree of speed as the taking of his/her
property.
While eminent domain lies as one of the inherent powers of the State, there is no requirement that it undertake a
prolonged procedure, or that the payment of the private owner be protracted as far as practicable. In fact, the
expedited procedure of payment, as highlighted under Rep. Act No. 8974, is inherently more fair, especially to the
layperson who would be hard-pressed to fully comprehend the social value of expropriation in the first place. Immediate
payment placates to some degree whatever ill-will that arises from expropriation, as well as satisfies the demand of
basic fairness.
The Court has the duty to implement Rep. Act No. 8974 and to direct compliance with the requirement of immediate
payment in this case. Accordingly, the Writ of Possession dated 21 December 2004 should be held in abeyance, pending
proof of actual payment by the Government to PIATCO of the proffered value of the NAIA 3 facilities, which totals
P3,002,125,000.00.
Rights of the Government
upon Issuance of the Writ
of Possession
Once the Government pays PIATCO the amount of the proffered value of P3 Billion, it will be entitled to the Writ of
Possession. However, the Government questions the qualification imposed by the RTC in its 4 January 2005 Order
consisting of the prohibition on the Government from performing acts of ownership such as awarding concessions or
leasing any part of NAIA 3 to other parties. To be certain, the RTC, in its 10 January 2005 Omnibus Order, expressly
stated that it was not affirming "the superfluous part of the Order [of 4 January 2005] prohibiting the plaintiffs from
awarding concessions or leasing any part of NAIA [3] to other parties."56 Still, such statement was predicated on the
notion that since the Government was not yet the owner of NAIA 3 until final payment of just compensation, it was
obviously incapacitated to perform such acts of ownership.
In deciding this question, the 2004 Resolution in Agan cannot be ignored, particularly the declaration that "[f]or the
government to take over the said facility, it has to compensate respondent PIATCO as builder of the said structures." The
obvious import of this holding is that unless PIATCO is paid just compensation, the Government is barred from "taking
over," a phrase which in the strictest sense could encompass even a bar of physical possession of NAIA 3, much less
operation of the facilities.

There are critical reasons for the Court to view the 2004 Resolution less stringently, and thus allow the operation by the
Government of NAIA 3 upon the effectivity of the Writ of Possession. For one, the national prestige is diminished every
day that passes with the NAIA 3 remaining mothballed. For another, the continued non-use of the facilities contributes
to its physical deterioration, if it has not already. And still for another, the economic benefits to the Government and the
country at large are beyond dispute once the NAIA 3 is put in operation.
Rep. Act No. 8974 provides the appropriate answer for the standard that governs the extent of the acts the Government
may be authorized to perform upon the issuance of the writ of possession. Section 4 states that "the court shall
immediately issue to the implementing agency an order to take possession of the property and start the implementation
of the project." We hold that accordingly, once the Writ of Possession is effective, the Government itself is authorized to
perform the acts that are essential to the operation of the NAIA 3 as an international airport terminal upon the
effectivity of the Writ of Possession. These would include the repair, reconditioning and improvement of the complex,
maintenance of the existing facilities and equipment, installation of new facilities and equipment, provision of services
and facilities pertaining to the facilitation of air traffic and transport, and other services that are integral to a modernday international airport.
The Governments position is more expansive than that adopted by the Court. It argues that with the writ of possession,
it is enabled to perform acts de jure on the expropriated property. It cites Republic v. Tagle,57 as well as the statement
therein that "the expropriation of real property does not include mere physical entry or occupation of land," and from
them concludes that "its mere physical entry and occupation of the property fall short of the taking of title, which
includes all the rights that may be exercised by an owner over the subject property."
This conclusion is indeed lifted directly from statements in Tagle,58 but not from the ratio decidendi of that case. Tagle
concerned whether a writ of possession in favor of the Government was still necessary in light of the fact that it was
already in actual possession of the property. In ruling that the Government was entitled to the writ of possession, the
Court in Tagle explains that such writ vested not only physical possession, but also the legal right to possess the
property. Continues the Court, such legal right to possess was particularly important in the case, as there was a pending
suit against the Republic for unlawful detainer, and the writ of possession would serve to safeguard the Government
from eviction.59
At the same time, Tagle conforms to the obvious, that there is no transfer of ownership as of yet by virtue of the writ of
possession. Tagle may concede that the Government is entitled to exercise more than just the right of possession by
virtue of the writ of possession, yet it cannot be construed to grant the Government the entire panoply of rights that are
available to the owner. Certainly, neither Tagle nor any other case or law, lends support to the Governments
proposition that it acquires beneficial or equitable ownership of the expropriated property merely through the writ of
possession.
Indeed, this Court has been vigilant in defense of the rights of the property owner who has been validly deprived of
possession, yet retains legal title over the expropriated property pending payment of just compensation. We reiterated
the various doctrines of such import in our recent holding in Republic v. Lim:60
The recognized rule is that title to the property expropriated shall pass from the owner to the expropriator only upon
full payment of the just compensation. Jurisprudence on this settled principle is consistent both here and in other
democratic jurisdictions. In Association of Small Landowners in the Philippines, Inc. et al., vs. Secretary of Agrarian
Reform[61], thus:
"Title to property which is the subject of condemnation proceedings does not vest the condemnor until the judgment
fixing just compensation is entered and paid, but the condemnors title relates back to the date on which the petition
under the Eminent Domain Act, or the commissioners report under the Local Improvement Act, is filed.
x xx Although the right to appropriate and use land taken for a canal is complete at the time of entry, title to the
property taken remains in the owner until payment is actually made. (Emphasis supplied.)

In Kennedy v. Indianapolis, the US Supreme Court cited several cases holding that title to property does not pass to the
condemnor until just compensation had actually been made. In fact, the decisions appear to be uniform to this effect. As
early as 1838, in Rubottom v. McLure, it was held that actual payment to the owner of the condemned property was a
condition precedent to the investment of the title to the property in the State albeit not to the appropriation of it to
public use. In Rexford v. Knight, the Court of Appeals of New York said that the construction upon the statutes was that
the fee did not vest in the State until the payment of the compensation although the authority to enter upon and
appropriate the land was complete prior to the payment. Kennedy further said that both on principle and authority the
rule is . . . that the right to enter on and use the property is complete, as soon as the property is actually appropriated
under the authority of law for a public use, but that the title does not pass from the owner without his consent, until just
compensation has been made to him."
Our own Supreme Court has held in Visayan Refining Co. v. Camus and Paredes, that:
If the laws which we have exhibited or cited in the preceding discussion are attentively examined it will be apparent
that the method of expropriation adopted in this jurisdiction is such as to afford absolute reassurance that no piece of
land can be finally and irrevocably taken from an unwilling owner until compensation is paid...."(Emphasis supplied.)
Clearly, without full payment of just compensation, there can be no transfer of title from the landowner to the
expropriator. Otherwise stated, the Republics acquisition of ownership is conditioned upon the full payment of just
compensation within a reasonable time.
Significantly, in Municipality of Bian v. Garcia[62] this Court ruled that the expropriation of lands consists of two stages,
to wit:
"x xx The first is concerned with the determination of the authority of the plaintiff to exercise the power of eminent
domain and the propriety of its exercise in the context of the facts involved in the suit. It ends with an order, if not of
dismissal of the action, "of condemnation declaring that the plaintiff has a lawful right to take the property sought to be
condemned, for the public use or purpose described in the complaint, upon the payment of just compensation to be
determined as of the date of the filing of the complaint" x xx.
The second phase of the eminent domain action is concerned with the determination by the court of "the just
compensation for the property sought to be taken." This is done by the court with the assistance of not more than three
(3) commissioners. x xx.
It is only upon the completion of these two stages that expropriation is said to have been completed. In Republic v.
Salem Investment Corporation[63] , we ruled that, "the process is not completed until payment of just compensation."
Thus, here, the failure of the Republic to pay respondent and his predecessors-in-interest for a period of 57 years
rendered the expropriation process incomplete.
Lim serves fair warning to the Government and its agencies who consistently refuse to pay just compensation due to the
private property owner whose property had been
expropriated. At the same time, Lim emphasizes the fragility of the rights of the Government as possessor pending the
final payment of just compensation, without diminishing the potency of such rights. Indeed, the public policy, enshrined
foremost in the Constitution, mandates that the Government must pay for the private property it expropriates.
Consequently, the proper judicial attitude is to guarantee compliance with this primordial right to just compensation.
Final Determination of Just
Compensation Within 60 Days

The issuance of the writ of possession does not write finis to the expropriation proceedings. As earlier pointed out,
expropriation is not completed until payment to the property owner of just compensation. The proffered value stands as
merely a provisional determination of the amount of just compensation, the payment of which is sufficient to transfer
possession of the property to the Government. However, to effectuate the transfer of ownership, it is necessary for the
Government to pay the property owner the final just compensation.
In Lim, the Court went as far as to countenance, given the exceptional circumstances of that case, the reversion of the
validly expropriated property to private ownership due to the failure of the Government to pay just compensation in
that case.64 It was noted in that case that the Government deliberately refused to pay just compensation. The Court
went on to rule that "in cases where the government failed to pay just compensation within five (5) years from the
finality of the judgment in the expropriation proceedings, the owners concerned shall have the right to recover
possession of their property."65
Rep. Act No. 8974 mandates a speedy method by which the final determination of just compensation may be had.
Section 4 provides:
In the event that the owner of the property contests the implementing agencys proffered value, the court shall
determine the just compensation to be paid the owner within sixty (60) days from the date of filing of the expropriation
case. When the decision of the court becomes final and executory, the implementing agency shall pay the owner the
difference between the amount already paid and the just compensation as determined by the court.
We hold that this provision should apply in this case. The sixty (60)-day period prescribed in Rep. Act No. 8974 gives
teeth to the laws avowed policy "to ensure that owners of real property acquired for national government
infrastructure projects are promptly paid just compensation."66 In this case, there already has been irreversible delay in
the prompt payment of PIATCO of just compensation, and it is no longer possible for the RTC to determine the just
compensation due PIATCO within sixty (60) days from the filing of the complaint last 21 December 2004, as
contemplated by the law. Still, it is feasible to effectuate the spirit of the law by requiring the trial court to make such
determination within sixty (60) days from finality of this decision, in accordance with the guidelines laid down in Rep. Act
No. 8974 and its Implementing Rules.
Of course, once the amount of just compensation has been finally determined, the Government is obliged to pay PIATCO
the said amount. As shown in Lim and other like-minded cases, the Governments refusal to make such payment is
indubitably actionable in court.
Appointment of Commissioners
The next argument for consideration is the claim of the Government that the RTC erred in appointing the three
commissioners in its 7 January 2005 Order without prior consultation with either the Government or PIATCO, or without
affording the Government the opportunity to object to the appointment of these commissioners. We can dispose of this
argument without complication.
It must be noted that Rep. Act No. 8974 is silent on the appointment of commissioners tasked with the ascertainment of
just compensation.67 This protocol though is sanctioned under Rule 67. We rule that the appointment of commissioners
under Rule 67 may be resorted to, even in expropriation proceedings under Rep. Act No. 8974, since the application of
the provisions of Rule 67 in that regard do not conflict with the statute. As earlier stated, Section 14 of the Implementing
Rules does allow such other incidents affecting the complaint to be resolved under the provisions on expropriation of
Rule 67 of the Rules of Court. Even without Rule 67, reference during trial to a commissioner of the examination of an
issue of fact is sanctioned under Rule 32 of the Rules of Court.
But while the appointment of commissioners under the aegis of Rule 67 may be sanctioned in expropriation proceedings
under Rep. Act No. 8974, the standards to be observed for the determination of just compensation are provided not in
Rule 67 but in the statute. In particular, the governing standards for the determination of just compensation for the

NAIA 3 facilities are found in Section 10 of the Implementing Rules for Rep. Act No. 8974, which provides for the
replacement cost method in the valuation of improvements and structures.68
Nothing in Rule 67 or Rep. Act No. 8974 requires that the RTC consult with the parties in the expropriation case on who
should be appointed as commissioners. Neither does the Court feel that such a requirement should be imposed in this
case. We did rule in Municipality of Talisay v. Ramirez69 that "there is nothing to prevent [the trial court] from seeking
the recommendations of the parties on [the] matter [of appointment of commissioners], the better to ensure their fair
representation."70 At the same time, such solicitation of recommendations is not obligatory on the part of the court,
hence we cannot impute error on the part of the RTC in its exercise of solitary discretion in the appointment of the
commissioners.
What Rule 67 does allow though is for the parties to protest the appointment of any of these commissioners, as
provided under Section 5 of the Rule. These objections though must be made filed within ten (10) days from service of
the order of appointment of the commissioners.71 In this case, the proper recourse of the Government to challenge the
choice of the commissioners is to file an objection with the trial court, conformably with Section 5, Rule 67, and not as it
has done, assail the same through a special civil action for certiorari. Considering that the expropriation proceedings in
this case were effectively halted seven (7) days after the Order appointing the commissioners,72 it is permissible to
allow the parties to file their objections with the RTC within five (5) days from finality of this decision.
Insufficient Ground for Inhibition
of Respondent Judge
The final argument for disposition is the claim of the Government is that Hon. Gingoyon has prejudged the expropriation
case against the Governments cause and, thus, should be required to inhibit himself. This grave charge is predicated on
facts which the Government characterizes as "undeniable." In particular, the Government notes that the 4 January 2005
Order was issued motuproprio, without any preceding motion, notice or hearing. Further, such order, which directed the
payment of US$62 Million to PIATCO, was attended with error in the computation of just compensation. The
Government also notes that the said Order was issued even before summons had been served on PIATCO.
The disqualification of a judge is a deprivation of his/her judicial power73 and should not be allowed on the basis of
mere speculations and surmises. It certainly cannot be predicated on the adverse nature of the judges rulings towards
the movant for inhibition, especially if these rulings are in accord with law. Neither could inhibition be justified merely
on the erroneous nature of the rulings of the judge. We emphasized in Webb v. People:74
To prove bias and prejudice on the part of respondent judge, petitioners harp on the alleged adverse and erroneous
rulings of respondent judge on their various motions. By themselves, however, they do not sufficiently prove bias and
prejudice to disqualify respondent judge. To be disqualifying, the bias and prejudice must be shown to have stemmed
from an extrajudicial source and result in an opinion on the merits on some basis other than what the judge learned
from his participation in the case. Opinions formed in the course of judicial proceedings, although erroneous, as long as
they are based on the evidence presented and conduct observed by the judge, do not prove personal bias or prejudice
on the part of the judge. As a general rule, repeated rulings against a litigant, no matter how erroneous and vigorously
and consistently expressed, are not a basis for disqualification of a judge on grounds of bias and prejudice. Extrinsic
evidence is required to establish bias, bad faith, malice or corrupt purpose, in addition to the palpable error which may
be inferred from the decision or order itself. Although the decision may seem so erroneous as to raise doubts
concerning a judge's integrity, absent extrinsic evidence, the decision itself would be insufficient to establish a case
against the judge. The only exception to the rule is when the error is so gross and patent as to produce an ineluctable
inference of bad faith or malice.75
The Governments contentions against Hon. Gingoyon are severely undercut by the fact that the 21 December 2004
Order, which the 4 January 2005 Order sought to rectify, was indeed severely flawed as it erroneously applied the
provisions of Rule 67 of the Rules of Court, instead of Rep. Act No. 8974, in ascertaining compliance with the requisites
for the issuance of the writ of possession. The 4 January

2005 Order, which according to the Government establishes Hon. Gingoyons bias, was promulgated precisely to correct
the previous error by applying the correct provisions of law. It would not speak well of the Court if it sanctions a judge
for wanting or even attempting to correct a previous erroneous order which precisely is the right move to take.
Neither are we convinced that the motuproprio issuance of the 4 January 2005 Order, without the benefit of notice or
hearing, sufficiently evinces bias on the part of Hon. Gingoyon. The motuproprio amendment by a court of an erroneous
order previously issued may be sanctioned depending on the circumstances, in line with the long-recognized principle
that every court has inherent power to do all things reasonably necessary for the administration of justice within the
scope of its jurisdiction.76 Section 5(g), Rule 135 of the Rules of Court further recognizes the inherent power of courts
"to amend and control its process and orders so as to make them conformable to law and justice,"77 a power which
Hon. Gingoyon noted in his 10 January 2005 Omnibus Order.78 This inherent power includes the right of the court to
reverse itself, especially when in its honest opinion it has committed an error or mistake in judgment, and that to adhere
to its decision will cause injustice to a party litigant.79
Certainly, the 4 January 2005 Order was designed to make the RTCs previous order conformable to law and justice,
particularly to apply the correct law of the case. Of course, as earlier established, this effort proved incomplete, as the 4
January 2005 Order did not correctly apply Rep. Act No. 8974 in several respects. Still, at least, the 4 January 2005 Order
correctly reformed the most basic premise of the case that Rep. Act No. 8974 governs the expropriation proceedings.
Nonetheless, the Government belittles Hon. Gingoyons invocation of Section 5(g), Rule 135 as "patently without merit".
Certainly merit can be seen by the fact that the 4 January 2005 Order reoriented the expropriation proceedings towards
the correct governing law. Still, the Government claims that the unilateral act of the RTC did not conform to law or
justice, as it was not afforded the right to be heard.
The Court would be more charitably disposed towards this argument if not for the fact that the earlier order with the 4
January 2005 Order sought to correct was itself issued without the benefit of any hearing. In fact, nothing either in Rule
67 or Rep. Act No. 8975 requires the conduct of a hearing prior to the issuance of the writ of possession, which by design
is available immediately upon the filing of the complaint provided that the requisites attaching thereto are present.
Indeed, this expedited process for the obtention of a writ of possession in expropriation cases comes at the expense of
the rights of the property owner to be heard or to be deprived of possession. Considering these predicates, it would be
highly awry to demand that an order modifying the earlier issuance of a writ of possession in an expropriation case be
barred until the staging of a hearing, when the issuance of the writ of possession itself is not subject to hearing. Perhaps
the conduct of a hearing under these circumstances would be prudent. However, hearing is not mandatory, and the
failure to conduct one does not establish the manifest bias required for the inhibition of the judge.
The Government likewise faults Hon. Gingoyon for using the amount of US$350 Million as the basis for the 100% deposit
under Rep. Act No. 8974. The Court has noted that this statement was predicated on the erroneous belief that the BIR
zonal valuation applies as a standard for determination of just compensation in this case. Yet this is manifest not of bias,
but merely of error on the part of the judge. Indeed, the Government was not the only victim of the errors of the RTC in
the assailed orders. PIATCO itself was injured by the issuance by the RTC of the writ of possession, even though the
former had yet to be paid any amount of just compensation. At the same time, the Government was also prejudiced by
the erroneous ruling of the RTC that the amount of US$62.3 Million, and not P3 Billion, should be released to PIATCO.
The Court has not been remiss in pointing out the multiple errors committed by the RTC in its assailed orders, to the
prejudice of both parties. This attitude of error towards all does not ipso facto negate the charge of bias. Still, great care
should be had in requiring the inhibition of judges simply because the magistrate did err. Incompetence may be a
ground for administrative sanction, but not for inhibition, which requires lack of objectivity or impartiality to sit on a
case.
The Court should necessarily guard against adopting a standard that a judge should be inhibited from hearing the case if
one litigant loses trust in the judge. Such loss of trust on the part of the Government may be palpable, yet inhibition
cannot be grounded merely on the feelings of the party-litigants. Indeed, every losing litigant in any case can resort to

claiming that the judge was biased, and he/she will gain a sympathetic ear from friends, family, and people who do not
understand the judicial process. The test in believing such a proposition should not be the vehemence of the litigants
claim of bias, but the Courts judicious estimation, as people who know better than to believe any old cry of "wolf!",
whether such bias has been irrefutably exhibited.
The Court acknowledges that it had been previously held that "at the very first sign of lack of faith and trust in his
actions, whether well-grounded or not, the judge has no other alternative but to inhibit himself from the case."80 But
this doctrine is qualified by the entrenched rule that "a judge may not be legally prohibited from sitting in a litigation,
but when circumstances appear that will induce doubt to his honest actuations and probity in favor of either party, or
incite such state of mind, he should conduct a careful selfexamination. He should exercise his discretion in a way that the people's faith in the Courts of Justice is not impaired."81
And a self-assessment by the judge that he/she is not impaired to hear the case will be respected by the Court absent
any evidence to the contrary. As held in Chin v. Court of Appeals:
An allegation of prejudgment, without more, constitutes mere conjecture and is not one of the "just and valid reasons"
contemplated in the second paragraph of Rule 137 of the Rules of Court for which a judge may inhibit himself from
hearing the case. We have repeatedly held that mere suspicion that a judge is partial to a party is not enough. Bare
allegations of partiality and prejudgment will not suffice in the absence of clear and convincing evidence to overcome
the presumption that the judge will undertake his noble role to dispense justice according to law and evidence and
without fear or favor. There should be adequate evidence to prove the allegations, and there must be showing that the
judge had an interest, personal or otherwise, in the prosecution of the case. To be a disqualifying circumstance, the bias
and prejudice must be shown to have stemmed from an extrajudicial source and result in an opinion on the merits on
some basis other than what the judge learned from his participation in the case.82
The mere vehemence of the Governments claim of bias does not translate to clear and convincing evidence of impairing
bias. There is no sufficient ground to direct the inhibition of Hon. Gingoyon from hearing the expropriation case.
In conclusion, the Court summarizes its rulings as follows:
(1) The 2004 Resolution in Agan sets the base requirement that has to be observed before the Government may take
over the NAIA 3, that there must be payment to PIATCO of just compensation in accordance with law and equity. Any
ruling in the present expropriation case must be conformable to the dictates of the Court as pronounced in the Agan
cases.
(2) Rep. Act No. 8974 applies in this case, particularly insofar as it requires the immediate payment by the Government
of at least the proffered value of the NAIA 3 facilities to PIATCO and provides certain valuation standards or methods for
the determination of just compensation.
(3) Applying Rep. Act No. 8974, the implementation of Writ of Possession in favor of the Government over NAIA 3 is held
in abeyance until PIATCO is directly paid the amount of P3 Billion, representing the proffered value of NAIA 3 under
Section 4(c) of the law.
(4) Applying Rep. Act No. 8974, the Government is authorized to start the implementation of the NAIA 3 Airport terminal
project by performing the acts that are essential to the operation of the NAIA 3 as an international airport terminal upon
the effectivity of the Writ of Possession, subject to the conditions above-stated. As prescribed by the Court, such
authority encompasses "the repair, reconditioning and improvement of the complex, maintenance of the existing
facilities and equipment, installation of new facilities and equipment, provision of services and facilities pertaining to the
facilitation of air traffic and transport, and other services that are integral to a modern-day international airport."83
(5) The RTC is mandated to complete its determination of the just compensation within sixty (60) days from finality of
this Decision. In doing so, the RTC is obliged to comply with "law and equity" as ordained in Again and the standard set

under Implementing Rules of Rep. Act No. 8974 which is the "replacement cost method" as the standard of valuation of
structures and improvements.
(6) There was no grave abuse of discretion attending the RTC Order appointing the commissioners for the purpose of
determining just compensation. The provisions on commissioners under Rule 67 shall apply insofar as they are not
inconsistent with Rep. Act No. 8974, its Implementing Rules, or the rulings of the Court in Agan.
(7) The Government shall pay the just compensation fixed in the decision of the trial court to PIATCO immediately upon
the finality of the said decision.
(8) There is no basis for the Court to direct the inhibition of Hon. Gingoyon.
All told, the Court finds no grave abuse of discretion on the part of the RTC to warrant the nullification of the questioned
orders. Nonetheless, portions of these orders should be modified to conform with law and the pronouncements made
by the Court herein.
WHEREFORE, the Petition is GRANTED in PART with respect to the orders dated 4 January 2005 and 10 January 2005 of
the lower court. Said orders are AFFIRMED with the following MODIFICATIONS:
1) The implementation of the Writ of Possession dated 21 December 2005 is HELD IN ABEYANCE, pending payment by
petitioners to PIATCO of the amount of Three Billion Two Million One Hundred Twenty Five Thousand Pesos
(P3,002,125,000.00), representing the proffered value of the NAIA 3 facilities;
2) Petitioners, upon the effectivity of the Writ of Possession, are authorized start the implementation of the Ninoy
Aquino International Airport Pasenger Terminal III project by performing the acts that are essential to the operation of
the said International Airport Passenger Terminal project;
3) RTC Branch 117 is hereby directed, within sixty (60) days from finality of this Decision, to determine the just
compensation to be paid to PIATCO by the Government.
The Order dated 7 January 2005 is AFFIRMED in all respects subject to the qualification that the parties are given ten
(10) days from finality of this Decision to file, if they so choose, objections to the appointment of the commissioners
decreed therein.
The Temporary Restraining Order dated 14 January 2005 is hereby LIFTED.
No pronouncement as to costs.
SO ORDERED.
DANTE O. TINGA
Associate Justice
leiben17@yahoo