ERNESTO B. FRANCISCO, JR. AND JOSE MA. O. HIZON, PETITIONERS, VS. TOLL REGULATORY BOARD, PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, MANILA NORTH TOLLWAYS CORPORATION, BENPRES…

Francisco versus Toll Regulatory Board

The Case

This is a consolidated set of four petitions, three of them special civil actions for certiorari and prohibition, and the fourth a petition for review, all brought against the Toll Regulatory Board, the Philippine National Construction Corporation, the Manila North Tollways Corporation, Benpres Holdings Corporation and the other private concessionaires of the Luzon tollways. The petitioners are taxpayers, expressway users, and in one case a group of residents and a group of legislators, who ask the Supreme Court to nullify the supplemental toll operation agreements and the toll rate resolutions for the North Luzon Expressway, the South Luzon Expressway and the South Metro Manila Skyway, and to stop the collection of the assailed toll rates. The case matters because it draws the constitutional boundary between Congress, which alone may grant franchises, and the Executive, acting through the Toll Regulatory Board, which may implement a franchise already granted; and because it settles when the contract-based scheme of the tollways must yield to the public bidding requirements of the build-operate-transfer law.

Procedural History

The first three petitions were filed directly with the Supreme Court as special civil actions under Rule 65, and the Court consolidated them by resolution in March 2007. The fourth petition began in the Regional Trial Court of Pasig City, Branch 155, where the Young Professionals and Entrepreneurs of San Pedro, Laguna filed a special civil action for certiorari, prohibition and mandamus against the Toll Regulatory Board, assailing the toll operation certificate issued to the Philippine National Construction Corporation in April 2007. In a decision dated June 23, 2008, the trial court granted the petition, annulled and set aside the toll operation certificate, prohibited the Philippine National Construction Corporation from collecting toll fees along the South Luzon Expressway, and commanded it to turn over the physical assets and facilities of the expressway to the Government through the Toll Regulatory Board. The Toll Regulatory Board then brought the matter to the Supreme Court by a petition for review on certiorari under Rule 45, raising pure questions of law, and that petition was consolidated with the earlier three.

Facts

In March 1977, President Ferdinand Marcos issued Presidential Decree Number 1112, authorizing toll facilities on public improvements, creating the Toll Regulatory Board, and empowering it to enter into contracts for the construction, maintenance and operation of tollways, to grant authority to operate a toll facility, to issue the toll operation certificate, and to fix and adjust toll rates after due notice and hearing. On the same date, Presidential Decree Number 1113 granted the Philippine National Construction Corporation, then known as the Construction and Development Corporation of the Philippines, a thirty-year franchise to construct, maintain and operate toll facilities in the North Luzon and South Luzon Expressways, with the right to collect toll fees at rates the Board may fix. Because the franchise was not self-executing, the Board and the corporation signed a Toll Operation Agreement in October 1977. Presidential Decree Number 1894 later extended the franchise to the Metro Manila Expressway and to extensions, linkages and stretches, and both decrees allowed the corporation to sell or assign its franchise, or cede the usufruct, upon the approval of the President.

When the 1987 Constitution took effect with its franchise provision, the corporation sought alternative financing, and the Government Corporate Counsel, later affirmed by the Secretary of Justice, held that it could enter into joint venture agreements with private entities without public bidding. A memorandum of understanding in February 1994 opened the door to private capital, and a standard pattern emerged: a joint venture company is formed, a supplemental toll operation agreement is executed among the Republic through the Board, the corporation as operator, and the new company as investor, the agreement is approved, and the Board then fixes the initial toll rate and later prescribes periodic adjustments.

Following this pattern, the South Metro Manila Skyway project produced a supplemental agreement approved in April 1996, with the first phase completed in December 1998 and a periodic rate adjustment approved in November 2004. The North Luzon Tollway project produced a supplemental agreement approved in June 1998, and in January 2005 the Board approved the initial authorized toll rates for the new expressway. The South Luzon Expressway project produced a supplemental agreement executed in February 2006, and in April 2010 the Board issued certificates of substantial completion and toll operation permits for the first two project toll roads, with the new rates to take effect in June 2010. The Court later issued a temporary restraining order enjoining the implementation of the South Luzon Expressway rate increases.

Issues

• Whether or not an actual case or controversy exists and the petitioners have locus standi, or standing to sue.
• Whether or not the Toll Regulatory Board is vested with the power and authority to grant what amounts to a franchise over tollway facilities.
• Whether or not the Toll Regulatory Board can enter into toll operation agreements and, at the same time, promulgate toll rates and rule on petitions for toll rate adjustments.
• Whether or not the President is duly authorized to approve contracts, including the assignment of contracts, entered into by the Toll Regulatory Board relative to tollway operations.
• Whether or not the supplemental toll operation agreements covering the North Luzon Expressway, the South Luzon Expressway and the South Metro Manila Skyway are valid.
• Whether or not a public bidding is required or mandatory for these tollway projects.

Applicable Provisions

Section 1 of Presidential Decree Number 1113 delineates the franchise of the Philippine National Construction Corporation and provides:

Section 1. The Construction and Development Corporation of the Philippines is hereby granted a franchise to construct, maintain and operate toll facilities in the North Luzon and South Luzon Expressways, with the right to collect toll fees at such rates as the Toll Regulatory Board may fix and/or authorize.

This is the franchise whose transfer and implementation the petitioners assail, and it anchors the rule that only Congress may grant or extend a franchise.

Section 3 of Presidential Decree Number 1113 makes the franchise subject to conditions imposed by the Board in a contract, providing:

Section 3. The franchise granted under this Decree shall be subject to such conditions as may be imposed by the Board in an appropriate contract to be executed for such purpose.

This is the textual basis for the toll operation agreements and supplemental agreements that the Court upholds as implementation rather than amendment of the franchise.

Section 9 of Presidential Decree Number 1113 governs the turn-over of the expressway facilities to the Government, and the trial court relied on it when it commanded the corporation to surrender the South Luzon Expressway assets.

Section 9. Upon the expiration of the franchise, the toll facilities and all improvements thereon shall be turned over to the Government without any cost.

The Court reads this provision as operating only upon the expiration of the franchise, which had not yet occurred because of the extensions and the valid toll operation certificate.

Ruling

On the first issue, the Court held that an actual case or controversy exists and that the petitioners have standing. The petitions allege that the President exercised a function legislative in character when approving an assignment of franchise, and that the Board, in the guise of entering into contracts, virtually enlarged, modified and extended the statutory franchise of the corporation, thereby usurping a legislative prerogative. The Court held that the rule on standing is a matter of procedural technicality which may be relaxed when the subject in issue is of transcendental importance to the public, and it noted that the petitions make a prima facie case for certiorari and prohibition.

On the second issue, the Court held that the Board does not grant a franchise. The franchise comes from Congress through the decrees; the Board merely implements it by issuing the toll operation certificate and entering into the toll operation agreements. The Court emphasized that the authority to grant or renew a franchise belongs exclusively to Congress, and that the Board cannot extend a franchise by administrative action.

On the third issue, the Court held that there is no unconstitutional combination of powers. The Board acts as grantor in entering into the agreements and as regulator in fixing toll rates, but these functions are exercised under a franchise already granted by law, and the rates are fixed after due notice and hearing as the decree requires.

On the fourth issue, the Court held that the President is duly authorized to approve contracts and assignments of usufructuary rights, because the decrees themselves expressly grant that power. The approval is an exercise of executive implementation, not of legislative power.

On the fifth issue, the Court upheld the validity of the supplemental toll operation agreements for the North Luzon Expressway, the South Luzon Expressway and the South Metro Manila Skyway. These agreements implement the franchise and the toll operation agreement; they do not amend or extend the franchise, and the lenders' rights to appoint a substitute entity or to extend the concession are contractual stipulations within the bounds of the franchise.

On the sixth issue, the Court held that public bidding is not required for the selection by the corporation of its joint venture partners, because the projects are pursued under the franchise and the joint venture scheme, not under the build-operate-transfer law. The Court thus set aside the trial court's ruling that had annulled the toll operation certificate and prohibited the collection of toll fees.

Doctrine

The power to grant, renew or extend a franchise belongs exclusively to Congress; a franchise cannot be extended by administrative action, and the Toll Regulatory Board may only implement a franchise already granted by issuing the toll operation certificate and entering into toll operation agreements. The President may approve the assignment of a franchise or the cession of its usufruct when the law expressly authorizes it, and such approval is executive, not legislative, in character. Public bidding under the build-operate-transfer law is not required for the selection of joint venture partners in tollway projects pursued under a legislative franchise. Finally, the rule on standing may be relaxed when the question raised is of transcendental importance to the public.

Disposition

The petitions for certiorari and prohibition were dismissed, the petition for review was granted, and the decision of the Regional Trial Court of Pasig City was reversed and set aside, leaving the toll operation certificate and the assailed toll rates in force.

Remember This

Memorize this line: only Congress can grant, renew or extend a franchise, and the Toll Regulatory Board may only implement one already granted. Examiners use this case to test the franchise power of Congress, the extent of the President's authority to approve franchise transfers, and the non-application of the public bidding rules to joint venture tollway projects.